What changed in Talkspace, Inc.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Talkspace, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+249 added−295 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-10)
Top changes in Talkspace, Inc.'s 2023 10-K
249 paragraphs added · 295 removed · 192 edited across 1 sections
- Item 5. Market for Registrant's Common Equity+249 / −295 · 192 edited
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
192 edited+57 added−103 removed93 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
192 edited+57 added−103 removed93 unchanged
2022 filing
2023 filing
Biggest changeCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) U.S. dollars in thousands (except share and per share data) Convertible Preferred Stock Common Stock Number of Shares Outstanding Amount Number of Shares Outstanding Amount Additional paid-in capital (1) Accumulated deficit Total Balance as of January 1, 2020 94,582,550 $ 111,282 13,223,672 $ 1 $ 6,818 $ ( 86,418 ) $ ( 79,599 ) Exercise of stock options — — 189,759 * 94 — 94 Stock-based compensation — — — — 2,977 — 2,977 Net loss — — — — — ( 22,370 ) ( 22,370 ) 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 — — 3,627,127 * 2,098 — 2,098 Restricted stock units vested, net of tax 282,415 * ( 491 ) — ( 491 ) Stock-based compensation — — — — 27,405 — 27,405 Issuance of warrants — — — — 125 — 125 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 4 184,936 — 184,940 Net loss — — — — — ( 62,742 ) ( 62,742 ) Balance as of December 31, 2021 — — 152,862,447 15 363,788 ( 171,530 ) 192,273 Exercise of stock options — — 5,331,634 1 3,180 — 3,181 Restricted stock units vested, net of tax 2,960,949 * ( 362 ) — ( 362 ) Stock-based compensation — — — — 12,116 — 12,116 Net loss — — — — — ( 79,672 ) ( 79,672 ) Balance as of December 31, 2022 — $ — 161,155,030 $ 16 $ 378,722 $ ( 251,202 ) $ 127,536 * Represents an amount lower than $1 The accompanying notes are an integral part of the consolidated financial statements. 62 Table of Contents TALKSPACE, INC.
Biggest changeCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) U.S. dollars in thousands (except share and per share data) Convertible Preferred Stock Common Stock Number of Shares Outstanding Amount Number of Shares Outstanding Amount Additional paid-in capital Accumulated deficit Total Balance as of January 1, 2021 94,582,550 $ 111,282 13,413,431 $ 1 $ 9,889 $ ( 108,788 ) $ ( 98,898 ) Exercise of stock options — — 3,627,127 * 2,098 — 2,098 Restricted stock units vested, net of tax — — 282,415 * ( 491 ) — ( 491 ) Stock-based compensation — — — — 27,405 — 27,405 Issuance of warrants — — — — 125 — 125 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 4 184,936 — 184,940 Net loss — — — — — ( 62,742 ) ( 62,742 ) Balance as of December 31, 2021 — — 152,862,447 15 363,788 ( 171,530 ) 192,273 Exercise of stock options — — 5,331,634 1 3,180 — 3,181 Restricted stock units vested, net of tax 2,960,949 * ( 362 ) — ( 362 ) Stock-based compensation — — — — 12,116 — 12,116 Net loss — — — — — ( 79,672 ) ( 79,672 ) Balance as of December 31, 2022 — — 161,155,030 16 378,722 ( 251,202 ) 127,536 Exercise of stock options — — 4,592,195 * 2,707 — 2,707 Restricted stock units vested, net of tax — — 2,681,631 * ( 810 ) — ( 810 ) Stock-based compensation — — — — 8,395 — 8,395 Net loss — — — — — ( 19,182 ) ( 19,182 ) Balance as of December 31, 2023 — $ — 168,428,856 $ 16 $ 389,014 $ ( 270,384 ) $ 118,646 * Represents an amount lower than $1 The accompanying notes are an integral part of the consolidated financial statements. 62 Table of Contents TALKSPACE, INC.
Taxes on income Our taxes on income consists primarily of foreign income taxes related to income generated by our subsidiary organized under the laws of Israel. We have a full valuation allowance for our U.S. deferred tax assets, including federal and state NOLs.
Taxes on income Taxes on income consists primarily of foreign income taxes related to income generated by our subsidiary organized under the laws of Israel. We have a full valuation allowance for our U.S. deferred tax assets, including federal and state NOLs.
Impairment of long-lived assets and intangible assets subject to amortization, including ROU lease asset Property and equipment, intangible assets subject to amortization and ROU lease assets are reviewed for impairment in accordance with ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”, whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.
Impairment of long-lived assets and intangible assets subject to amortization, including ROU lease asset Property and equipment, intangible assets and ROU lease assets are reviewed for impairment in accordance with ASC 360, “Accounting for the Impairment or Disposal of Long-Lived Assets”, whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.
The Company’s basic net loss per share is calculated by dividing net loss attributable to ordinary shareholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities.
Net loss per share The Company’s basic net loss per share is calculated by dividing net loss attributable to ordinary shareholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities.
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 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 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), net, in the 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.
Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Expected volatility was calculated based upon the Company's historical share price movements as well as similar traded companies’ historical share price movements as adequate historical experience is not available to provide a reasonable estimate based only on the Company's share price.
Expected volatility is calculated based upon the Company's historical share price movements as well as similar traded companies’ historical share price movements as adequate historical experience is not available to provide a reasonable estimate based only on the Company's share price.
COMMITMENTS AND CONTINGENT LIABILITIES Contingencies 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.
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.
CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES In connection with the preparation of this report, an evaluation was carried out by certain members of Company management, with the participation of the Chief Executive Officer and our Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Securities and Exchange Commission’s (“SEC”) Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), as of December 31, 2022.
CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES In connection with the preparation of this report, an evaluation was carried out by certain members of Company management, with the participation of the Chief Executive Officer and our Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Securities and Exchange Commission’s (“SEC”) Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), as of December 31, 2023.
The Company consolidates all subsidiaries in which it has a controlling financial interest, as well as any VIEs where the Company is deemed to be the primary beneficiary.
Consolidation The Company consolidates all subsidiaries in which it has a controlling financial interest, as well as any VIEs where the Company is deemed to be the primary beneficiary.
The Company determined these 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 or issuance, where applicable, and included in additional paid-in capital within stockholder’s deficit.
The Company determined these 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 or issuance, where applicable, and included it in additional paid-in capital within stockholder’s equity.
Recent Accounting Pronouncements See Note 2, “Summary of Significant Accounting Policies and Estimates” in the notes to the consolidated financial statements for information regarding recent accounting developments and their impact on our results. 53 Table of Contents FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements.
Recent Accounting Pronouncements See Note 2, “Summary of Significant Accounting Policies and Estimates” in the notes to the consolidated financial statements for information regarding recent accounting developments and their impact on our results. 54 Table of Contents FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013) .
Under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013) .
The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The lease term includes options to extend or terminate the lease when it is reasonably certain they will be exercised.
The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The lease term includes options to extend or terminate the lease when it is reasonably certain these will be exercised.
The Company does not provide deferred tax liabilities when it intends to reinvest earnings of a foreign subsidiary indefinitely or if distributed, no tax liability will be imposed. Undistributed earnings of a foreign subsidiary and unrecognized deferred tax liability related to such earnings are immaterial as of December 31, 2022.
The Company does not provide deferred tax liabilities when it intends to reinvest earnings of a foreign subsidiary indefinitely or if distributed, no tax liability will be imposed. Undistributed earnings of a foreign subsidiary and unrecognized deferred tax liability related to such earnings are immaterial as of December 31, 2023.
As of December 31, 2022 and 2021 the Company did no t record any provision for uncertain tax positions. The Company does not anticipate that the assessment will significantly increase or decrease within the next 12 months. No accrued interest or penalties were accrued as of December 31, 2022 and 2021.
As of December 31, 2023 and 2022 the Company did no t record any provision for uncertain tax positions. The Company does not anticipate that the assessment will significantly increase or decrease within the next 12 months. No accrued interest or penalties were accrued as of December 31, 2023 and 2022.
For a discussion of our results of operations, liquidity and capital resources for the year ended December 31, 2020, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
For a discussion of our results of operations, liquidity and capital resources for the year ended December 31, 2021, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
An entity develops 68 Table of Contents unobservable inputs using the best information available in the circumstances, which might include the entity's own data, taking into account all information about market participant assumptions that is reasonably available. Three levels of inputs may be used to measure fair value: Level 1: Quoted prices in active markets for identical assets or liabilities.
An entity develops unobservable inputs using the best information available in the circumstances, which might include the entity's own data, taking into account all information about market participant assumptions that is reasonably available. Three levels of inputs may be used to measure fair value: Level 1: Quoted prices in active markets for identical assets or liabilities.
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.
The Company accrues for estimated loss contingencies related to legal matters when available information indicates that it is probable a liability has been incurred and the Company can reasonably estimate the amount of that loss.
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 HEC. In February 2023, the Company resolved the Consolidated Securities Action and the Delaware Action through mediation. The settlement resolves these litigations with respect to all named defendants.
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 "Securities Settlement").
VARIABLE INTEREST ENTITIES ("VIEs") In the second quarter of 2022, the Company completed a transition with respect to its relationships with healthcare providers, transitioning to a structure whereby Talkspace LLC has entered into various agreements with a Texas professional association entity (Talkspace Provider Network, PA or “TPN”), which in turn contracts with affiliated professional entities ("PC entities"), and physicians, therapists, and other licensed professionals for clinical and professional services provided to the Company's members.
VARIABLE INTEREST ENTITIES ("VIEs") In the second quarter of 2022, the Company completed a transition with respect to its relationship with its providers, transitioning to a structure whereby Talkspace LLC has entered into various agreements with a Texas professional association entity (Talkspace Provider Network, PA or “TPN”), which in turn contracts with our other affiliated professional entities ("PC entities"), physicians, therapists, and other licensed professionals for clinical and professional services provided to the Company's members.
As of December 31, 2022 and 2021 there were 12,780,000 Private Placement Warrants and 21,350,000 Public Warrants to purchase the Company’s common stock at an exercise price of $ 11.50 per share. As of December 31, 2022 and 2021, no shares of preferred stock were issued or outstanding. NOTE 11.
As of December 31, 2023 and 2022 there were 12,780,000 Private Placement Warrants and 21,350,000 Public Warrants to purchase the Company’s common stock at an exercise price of $ 11.50 per share. As of December 31, 2023 and 2022, no shares of preferred stock were issued or outstanding. NOTE 8.
The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations for the years ended December 31, 2022 and 2021.
The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations for the years ended December 31, 2023 and 2022.
In the future, we may choose to focus on international expansion, which may increase our exposure to foreign currency exchange risk. 54 Table of Contents Ite m 8.
In the future, we may choose to focus on international expansion, which may increase our exposure to foreign currency exchange risk. 55 Table of Contents Ite m 8.
While we expect to make increased investments to support accelerated growth and the required investment to scale our provider network, we also expect increased efficiencies and economies of scale. Our cost of revenues as a percentage of revenues is expected to fluctuate from period to period depending on the interplay of these factors.
While we expect to make increased investments to support accelerated growth and the required investment to scale our provider network, we also expect increased efficiencies and economies of scale. Our cost of revenues as a percentage of revenues is expected to fluctuate from period to period depending on the interplay of these factors as well as pricing fluctuations.
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 51 Table of Contents 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.
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.
Opinion on Internal Control Over Financial Reporting We have audited Talkspace, Inc.'s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).
Opinion on Internal Control Over Financial Reporting We have audited Talkspace Inc.'s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Talkspace Inc.
The Company refers to this transaction as the Business Combination. In connection with the Business Combination, HEC filed the Certificate of Incorporation and changed its name to “Talkspace, Inc.” 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.
The Company refers to this transaction as the Business Combination. In connection with the Business Combination, HEC filed the Certificate of Incorporation and changed its name to “Talkspace, Inc.” The Company's principal executive office is located in New York, NY. The Company's subsidiaries are Talkspace LLC and its wholly-owned subsidiary 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 15, “Variable Interest Entities,” in the notes to the consolidated financial statements for further details. NOTE 2.
In addition, the Company holds a variable interest in one professional association and eight professional corporations, which have been established pursuant to the requirements of their respective domestic jurisdiction governing the corporate practice of medicine. See Note 12, “Variable Interest Entities,” in the notes to the consolidated financial statements for further details. NOTE 2.
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., Case No. 2022-1148 (the “Delaware Action”).
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.
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 recognizes revenues from supplementary a la carte offerings at a point in time, as virtual therapy sessions are 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 expects to satisfy the majority of its performance obligations associated with deferred revenue within one year or less. Stock-based compensation The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”.
The Company expects to satisfy the majority of its performance obligations associated with deferred revenue within one year or less. 67 Table of Contents Stock-based compensation The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”.
Management will continue to assess the realizability of our deferred tax assets going forward and will adjust the valuation allowance as needed. The Company’s valuation allowance increased by $ 26.3 million during the year ended December 31, 2022 primarily due to increases in its net operating loss carryforwards.
Management will continue to assess the realizability of our deferred tax assets going forward and will adjust the valuation allowance as needed. The Company’s valuation allowance increased by $ 3.4 million during the year ended December 31, 2023 primarily due to increases in its net operating loss carryforwards.
The Company's matching contributions to participants’ accounts were immaterial for the years ended December 31, 2022, 2021 and 2020, respectively. Fair value of financial instruments The Company applies ASC 820, “Fair Value Measurements and Disclosures”.
The Company's matching contributions to participants’ accounts were immaterial for the years ended December 31, 2023, 2022 and 2021. Fair value of financial instruments The Company applies ASC 820, “Fair Value Measurements and Disclosures”.
Non-GAAP Financial Measures In addition to our financial results determined in accordance with GAAP, we believe adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance and is a key performance measure that our management uses to assess our operating performance.
Non-GAAP Financial Measures In addition to our financial results determined in accordance with GAAP, we believe adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance, and our management uses it as a key performance measure to assess our operating performance.
Clinical Operations Expenses Clinical operations expenses are associated with the management of our provider network of therapists. Such costs are comprised of costs related to recruiting, onboarding, credentialing, training and ongoing quality assurance activities (inclusive of stock-based compensation for our clinical operations employees), costs of third-party services and contractors related to recruiting and training and software-related costs.
Clinical Operations Expenses Clinical operations expenses are associated with the management of our provider network of therapists. This item is comprised of costs related to recruiting, onboarding, credentialing, training and ongoing quality assurance activities (inclusive of stock-based compensation for our clinical operations employees), costs of third-party services and contractors related to recruiting and training and software-related costs.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm 56 Consolidated Balance Sheets as of Decem ber 31, 2022 and 202 1 60 Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 61 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2022, 2021 and 2020 62 Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 63 Notes to Consolidated Financial Statements 64 55 Table of Contents REP ORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Talkspace, Inc.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm 57 Consolidated Balance Sheets as of Decem ber 31, 2023 and 202 2 60 Consolidated Statements of Operations for the years ended December 31, 2023, 2022 and 2021 61 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2023, 2022 and 2021 62 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 63 Notes to Consolidated Financial Statements 64 56 Table of Contents REP ORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Talkspace, Inc.
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)and our report dated March 10, 2023 expressed an adverse opinion thereon.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 13, 2024 expressed an unqualified opinion thereon.
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 8.
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. 73 Table of Contents NOTE 7.
Estimation of transaction price with respect to variable consideration for revenue recognition Description of the Matter As discussed in Note 2 of the consolidated financial statements, the Company recognizes revenues from contracted insurance payors and employee assistance organizations ("insurance payors") at a point in time based on contracted rates, net of implicit price concessions, as virtual therapy or psychiatry session is rendered ("behavioral healthcare revenues").
Estimation of transaction price and variable consideration for revenue recognition Description of the Matter As discussed in Note 2 of the consolidated financial statements, the Company recognizes revenues from contracted insurance payors and employee assistance organizations ("Payor") at a point in time based on contracted rates, net of implicit price concessions, as virtual therapy or psychiatry session is rendered ("payor revenues").
The Israel subsidiary tax assessments filed by the Company thr ough the year 2017 are considered closed. NOTE 14.
The Israel subsidiary tax assessments filed by the Company thr ough the year 2017 are considered closed. NOTE 11.
B2C Revenue - The Company 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 member subscription revenues ratably over the subscription period, beginning when therapy services commence.
Consumer 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.
TAXES ON INCOME The Company and its subsidiaries file income tax returns in the U.S. federal, and various states and foreign jurisdictions. The Company assessed its uncertain tax positions and determined that it has no uncertain tax positions at December 31, 2022.
NOTE 10. TAXES ON INCOME The Company and its subsidiaries file income tax returns in the U.S. federal, and various states and foreign jurisdictions. The Company assessed its uncertain tax positions and determined that it has no uncertain tax positions at December 31, 2023.
Operating Expenses Operating expenses consist of research and development, clinical operations, sales and marketing, general and administrative expenses, and impairment of goodwill.
Operating Expenses Operating expenses consist of research and development, clinical operations, sales and marketing, and general and administrative expenses.
We do not believe that a hypothetical increase or decrease of 100 basis points in interest rates would have a material effect on our business, financial condition or results of operations. However, our earnings on cash equivalents are subject to market risk due to changes in interest rates.
We do not have any indebtedness for borrowed money outstanding. We do not believe that a hypothetical increase or decrease of 100 basis points in interest rates would have a material effect on our business, financial condition or results of operations. However, our earnings on cash equivalents are subject to market risk due to changes in interest rates.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
The Derivative Action asserts claims for violations of federal securities laws, breach of fiduciary duty, and aiding and abetting breaches of fiduciary duty relating to the merger with HEC, among other things, based on many of the same facts at issue in the Consolidated Securities Action.
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.
(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).
(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We had cash and cash equivalents totaling $138.5 million and $198.3 million as of December 31, 2022 and December 31, 2021, respectively. Cash and cash equivalents are held for a variety of growth and investments as well as working capital purposes.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We had cash and cash equivalents totaling $123.9 million and $138.5 million as of December 31, 2023 and December 31, 2022, respectively. Cash and cash equivalents are held for a variety of growth and investments as well as working capital purposes.
Intercompany transactions and balances have been eliminated in the preparation of the 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 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 consolidated financial statements.
Financial statements in U.S. dollars Most of the Company’s revenues and costs are denominated in United States dollar (“dollar”). The Company’s management believes that the dollar is the primary currency of the economic environment in which the Company and each of its subsidiaries operate. Thus, the dollar is the Company’s functional and reporting currency.
Financial statements in U.S. dollars The majority of the Company’s operations are based in the United States. Most of the Company’s revenues and costs are denominated in United States dollars (“dollar”). The Company’s management believes that the dollar is the primary currency of the economic environment in which the Company and each of its subsidiaries operate.
Deferred Revenue For the year ended December 31, 2022 and 2021, the Company recognized revenues of $ 6.2 million and $ 5.2 million, respectively, that were included in deferred revenues at the beginning of the year. As of December 31, 2022, deferred revenue related mainly to the Company’s B2C subscription business. NOTE 4.
Deferred Revenue For the year ended December 31, 2023 and 2022, the Company recognized revenues of $2 .8 million and $ 6.2 million, respectively, that were included in deferred revenues at the beginning of the year. As of December 31, 2023, deferred revenue mainly related to the Company’s Consumer subscription business. NOTE 4.
The fair value for options granted for the years ended December 31, 2022, 2021 and 2020 was estimated on the date of grant using a Black-Scholes-Merton options pricing model with the following weighted average assumptions: Years ended December 31, 2022 2021 2020 Dividend yield (1) 0 % 0 % 0 % Expected volatility (2) 66.80 %- 86.13 % 65.00 %- 75.23 % 53.96 %- 66.55 % Risk-free interest rate (3) 1.76 %- 4.11 % 0.66 %- 1.39 % 0.25 %- 1.45 % Expected term (years) (4) 5.07 - 6.25 5.27 - 6.25 5.27 - 6.08 (1) No dividends were paid during the years ending December 31, 2022, 2021 and 2020.
The fair value for options granted for the years ended December 31, 2023, 2022 and 2021 was estimated on the date of grant using a Black-Scholes-Merton options pricing model with the following weighted average assumptions: Years Ended December 31, 2023 2022 2021 Dividend yield (1) 0 % 0 % 0 % Expected volatility (2) 58.63 % - 68.40 % 66.80 %- 86.13 % 65.00 %- 75.23 % Risk-free interest rate (3) 3.70 %- 4.22 % 1.76 %- 4.11 % 0.66 %- 1.39 % Expected term (years) (4) 5.23 - 6.25 5.07 - 6.25 5.27 - 6.25 (1) No dividends were paid during the years ending December 31, 2023, 2022 and 2021.
For the year ended December 31, 2022, two customers represented 10 % or more of total revenue and no single customer represented 10 % or more of total revenue for the years ended December 31, 2021 and 2020.
For the year ended December 31, 2023, two customers represented 10 % or more of total revenue. For the year ended December 31, 2022, two customers represented 10 % or more of total revenue. No single customer represented 10 % or more of total revenue for the year ended December 31, 2021.
INTANGIBLE ASSETS, NET Intangible assets are comprised of the following: As of December 31, (in thousands) 2022 2021 Intangible assets with finite lives: Acquired technology $ 3,201 $ 3,201 Customer relationship 1,350 1,350 Non-Competition agreement 939 939 5,490 5,490 Accumulated amortization: Acquired technology 968 522 Customer relationship 1,350 1,186 Non-Competition agreement 643 346 2,961 2,054 Intangible assets, net $ 2,529 $ 3,436 Amortization expen se for intangible assets was $ 0.9 million for the year end ed December 31, 2022 ($ 1.8 million and $ 0.3 million for the years ended December 31, 2021 and 2020, respectively).
INTANGIBLE ASSETS, NET Intangible assets are comprised of the following: As of December 31, (in thousands) 2023 2022 Intangible assets with finite lives: Acquired technology $ 3,201 $ 3,201 Customer relationship 1,350 1,350 Non-Competition agreement 939 939 5,490 5,490 Accumulated amortization: Acquired technology 1,415 968 Customer relationship 1,350 1,350 Non-Competition agreement 939 643 3,704 2,961 Intangible assets, net $ 1,786 $ 2,529 Amortization expen se for intangible assets was $ 0.7 million for the year end ed December 31, 2023 ($ 0.9 million and $ 1.8 million for the years ended December 31, 2022 and 2021, respectively).
In June and July 2022, two individuals filed stockholder derivative lawsuits purportedly 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 (the “Derivative Action”).
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.
The primary beneficiary has both (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company determined that TPN and the PC entities are VIEs.
The primary beneficiary has both (a) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
Components of Results of Operations Revenues We contract with enterprises, health insurance plans and employee assistance organizations to provide services to individuals who are qualified to receive access to the Company’s services through the Company’s commercial arrangements.
Components of Results of Operations Revenues We generate revenues from services provided to individuals who are qualified to receive access to the Company's services through our commercial arrangements with health insurance plans, employee assistance organizations and enterprises.
We calculate adjusted EBITDA as net loss income adjusted to exclude (i) interest and other expenses (income), net, (ii) tax benefit and expense, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) Impairment of goodwill and (vi) certain non-recurring expenses that do not represent our on-going operations, where applicable.
These reconciling items could be meaningful. 51 Table of Contents We calculate adjusted EBITDA as net loss income adjusted to exclude (i) depreciation and amortization, (ii) interest and other expenses (income), net, (iii) tax benefit and expense, (iv) stock-based compensation expense, (v) impairment of goodwill and (vi) certain non-recurring expenses that we believe do not represent our on-going operations, where applicable.
It em 6. Reserved. 44 Table of Contents It em 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context otherwise requires, all references in this section as to “Talkspace,” the “Company,” “we,” “us” or “our” refer to the business of Talkspace, Inc. and its consolidated subsidiaries.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context otherwise requires, all references in this section as to “Talkspace,” the “Company,” “we,” “us” or “our” refer to the business of Talkspace, Inc. and its consolidated subsidiaries.
Cost of revenues is largely driven by the size of our provider network that is required to service the growth of our health plan and enterprise clients, in addition to the growth of our customer base.
Cost of Revenues Cost of revenues is comprised primarily of therapist payments. Cost of revenues is largely driven by the number of sessions and the size of our provider network that is required to service the growth of our health plan and enterprise clients, in addition to the growth of our customer base.
For the year ended December 31, 2021, the following were excluded from the calculation of diluted loss per share since each would have had an anti-dilutive effect given the Company’s net loss: 19,494,861 stock options, 2,330,094 restricted stock units, 12,780,000 Private Placement Warrants and 21,350,000 Public Warrants to purchase the Company's common stock.
F or the year ended December 31, 2022, the following were excluded from the calculation of diluted loss per share since each would have had an anti-dilutive effect given the Company’s net loss: 17,526,326 stock options, 9,127,051 restricted stock units, 12,780,000 Private Placement Warrants and 21,350,000 Public Warrants to purchase the Company’s common stock. 75 Table of Contents For the year ended December 31, 2021, the following were excluded from the calculation of diluted loss per share since each would have had an anti-dilutive effect given the Company’s net loss: 19,494,861 stock options, 2,330,094 restricted stock units, 12,780,000 Private Placement Warrants and 21,350,000 Public Warrants to purchase the Company's common stock.
Additionally, we may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies. 50 Table of Contents We currently anticipate to be able to fund our cash needs for at least the foreseeable future using available cash and cash equivalent balances as of December 31, 2022.
Additionally, we may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies. We currently anticipate to be able to fund our cash needs for at least the next twelve months and thereafter for the foreseeable future using available cash and cash equivalent balances as of December 31, 2023.
Financial (income), net Financial (income), net includes the impact from (i) non-cash changes in the fair value of our warrant liabilities, (ii) issuance costs related to our warrants, (iii) interest earned on cash equivalents deposited in our bank accounts and (iv) other financial expenses in connection with bank charges.
Financial (income), net Financial (income), net includes the impact from (i) non-cash changes in the fair value of our warrant liabilities, (ii) interest earned on cash equivalents deposited in our money market accounts and (iii) other financial expenses in connection with bank charges.
In cases where the Company reduces the estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life. See Note 5, "Intangible Assets, net" in the notes to the consolidated financial statements for further details.
The Company routinely reviews the remaining estimated useful lives of finite-lived intangible assets. In cases where the Company reduces the estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life. See Note 4, "Intangible Assets, net" in the notes to the consolidated financial statements for further details.
Accordingly, non-dollar denominated transactions and balances have been re-measured into the functional currency in accordance with ASC 830, “Foreign Currency Matters”. These transactions were not material for the year ended December 31, 2022, 2021 and 2020.
Thus, the dollar is the Company’s functional and reporting currency. Accordingly, non-dollar denominated transactions and balances have been re-measured into the functional currency in accordance with ASC 830, “Foreign Currency Matters”. These transactions were not material for the years ended December 31, 2023, 2022 and 2021.
A valuation allowance has been recorded for the net deferred tax assets at December 31, 2022 and 2021. 77 Table of Contents The Company maintains a full valuation allowance on its net deferred tax assets.
A valuation allowance has been recorded for the net deferred tax assets at December 31, 2023 and 2022. The Company maintains a full valuation allowance on its net deferred tax assets.
Tel-Aviv, Israel March 10, 2023 57 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Talkspace, Inc.
Tel-Aviv, Israel March 13, 2024 58 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Talkspace, Inc.
The Delaware Action asserts claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty relating to the merger with HEC, among other things, based on many of the same facts at issue in the Consolidated Securities Action.
Ch.) (the “Delaware Action”). 72 Table of Contents 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.
NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2022, 2021 and 2020: For the Year Ended December 31, (in thousands except share and per share data) 2022 2021 2020 Net loss $ ( 79,672 ) $ ( 62,742 ) $ ( 22,370 ) Weighted-average shares used to compute net loss per share: Basic and diluted 156,885,256 86,775,948 13,359,350 Net loss per share: Basic and diluted $ ( 0.51 ) $ ( 0.72 ) $ ( 1.67 ) F or the year ended December 31, 2022, the following were excluded from the calculation of diluted loss per share since each would have had an anti-dilutive effect given the Company’s net loss: 17,526,326 stock options, 9,127,051 restricted stock units, 12,780,000 Private Placement Warrants and 21,350,000 Public Warrants to purchase the Company’s common stock.
NET LOSS PER SHARE The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, (in thousands except share and per share data) 2023 2022 2021 Net loss $ ( 19,182 ) $ ( 79,672 ) $ ( 62,742 ) Weighted-average shares used to compute net loss per share: Basic and diluted 165,039,920 156,885,256 86,775,948 Net loss per share: Basic and diluted $ ( 0.12 ) $ ( 0.51 ) $ ( 0.72 ) F or the year ended December 31, 2023, the following were excluded from the calculation of diluted loss per share since each would have had an anti-dilutive effect given the Company’s net loss: 10,558,573 stock options, 8,984,827 restricted stock units, 12,780,000 Private Placement Warrants and 21,350,000 Public Warrants to purchase the Company’s common stock.
CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands For the Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net loss $ ( 79,672 ) $ ( 62,742 ) $ ( 22,370 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,357 1,973 379 Amortization of debt issuance costs — 175 — Stock-based compensation 12,116 27,405 2,977 Remeasurement of warrant liabilities ( 3,131 ) ( 31,784 ) — Impairment of goodwill 6,134 — — (Increase) decrease in accounts receivable ( 4,126 ) 402 ( 5,017 ) Decrease (increase) in other current assets 5,080 ( 8,053 ) ( 695 ) (Decrease) increase in accounts payable ( 968 ) 503 2,561 (Decrease) increase in deferred revenues ( 2,831 ) 2,014 2,028 Increase in accrued expenses and other current liabilities 4,862 4,396 4,962 Increase in other liabilities 102 — — Net cash used in operating activities ( 61,077 ) ( 65,711 ) ( 15,175 ) Cash flows from investing activities: Purchase of property and equipment ( 350 ) ( 663 ) ( 126 ) Proceeds from sale of property and equipment 33 — — Acquisition of business — — ( 10,685 ) Purchase of an intangible asset — — ( 939 ) Proceeds from restricted long-term bank deposit — — 447 Net cash used in investing activities ( 317 ) ( 663 ) ( 11,303 ) Cash flows from financing activities: (Payments) proceeds from reverse capitalization, net of transaction costs ( 645 ) 249,334 — Proceeds from exercise of stock options 3,181 2,098 94 Payments for employee taxes withheld related to vested stock-based awards ( 853 ) — — Proceeds from borrowings — 6,000 — Repayment of borrowings — ( 6,000 ) — Payment of debt issuance costs — ( 50 ) — Net cash provided by financing activities 1,683 251,382 94 Net (decrease) increase in cash and cash equivalents ( 59,711 ) 185,008 ( 26,384 ) Cash and cash equivalents at the beginning of the year 198,256 13,248 39,632 Cash and cash equivalents at the end of the year $ 138,545 $ 198,256 $ 13,248 Supplemental cash flow data: Cash paid during the year for interest $ 68 $ 538 $ 37 Cash paid during the year for income taxes $ 122 $ — $ — Non-cash investing activity: Lease liabilities arising from obtaining right-of-use assets $ 466 $ — $ — Non-cash financing activity: Employee taxes withheld related to restricted stock units vested $ — $ 491 $ — Deferred issuance cost on credit $ — $ — $ 692 Conversion of preferred stock to common stock $ — $ 111,282 $ — The accompanying notes are an integral part of the consolidated financial statements. 63 Table of Contents TALKSPACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net loss $ ( 19,182 ) $ ( 79,672 ) $ ( 62,742 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,196 1,357 1,973 Amortization of debt issuance costs — — 175 Stock-based compensation 8,395 12,116 27,405 Remeasurement of warrant liabilities 903 ( 3,131 ) ( 31,784 ) Impairment of goodwill — 6,134 — (Increase) decrease in accounts receivable ( 534 ) ( 4,126 ) 402 (Increase) decrease in other current assets ( 1,346 ) 5,080 ( 8,053 ) (Decrease) increase in accounts payable ( 350 ) ( 968 ) 503 (Decrease) increase in deferred revenues ( 1,286 ) ( 2,831 ) 2,014 (Decrease) increase in accrued expenses and other current liabilities ( 4,034 ) 4,862 4,396 Other ( 155 ) 102 — Net cash used in operating activities ( 16,393 ) ( 61,077 ) ( 65,711 ) Cash flows from investing activities: Purchase of property and equipment ( 151 ) ( 350 ) ( 663 ) Proceeds from sale of property and equipment 10 33 — Net cash used in investing activities ( 141 ) ( 317 ) ( 663 ) Cash flows from financing activities: (Payments) proceeds from reverse capitalization, net of transaction costs — ( 645 ) 249,334 Proceeds from exercise of stock options 2,707 3,181 2,098 Payments for employee taxes withheld related to vested stock-based awards ( 810 ) ( 853 ) — Proceeds from borrowings — — 6,000 Repayment of borrowings — — ( 6,000 ) Payment of debt issuance costs — — ( 50 ) Net cash provided by financing activities 1,897 1,683 251,382 Net (decrease) increase in cash and cash equivalents ( 14,637 ) ( 59,711 ) 185,008 Cash and cash equivalents at the beginning of the year 138,545 198,256 13,248 Cash and cash equivalents at the end of the year $ 123,908 $ 138,545 $ 198,256 Supplemental cash flow data: Cash paid during the year for interest $ — $ 68 $ 538 Cash paid during the year for income taxes $ 219 $ 122 $ — Non-cash investing activity: Lease liabilities arising from obtaining right-of-use assets $ — $ 466 $ — Non-cash financing activity: Employee taxes withheld related to restricted stock units vested $ — $ — $ 491 Conversion of preferred stock to common stock $ — $ — $ 111,282 The accompanying notes are an integral part of the consolidated financial statements. 63 Table of Contents TALKSPACE, INC.
A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows: For the Year ended December 31, (in thousands) 2022 2021 2020 Loss before income taxes $ ( 79,418 ) $ ( 62,695 ) $ ( 22,346 ) Statutory tax rate 21 % 21 % 21 % Theoretical tax benefit 16,678 13,166 4,693 Increase (decrease) in effective tax rate due to: State taxes, net of federal benefit 4,079 2,500 1,125 Impairment of goodwill ( 1,288 ) Permanent differences ( 83 ) 1,492 ( 586 ) Other Adjustments 7,177 — — Valuation allowance ( 26,309 ) ( 17,111 ) ( 5,208 ) Actual income taxes $ 254 $ 47 $ 24 The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.
A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows: Year ended December 31, (in thousands) 2023 2022 2021 Loss before income taxes $ ( 18,964 ) $ ( 79,418 ) $ ( 62,695 ) Statutory tax rate 21 % 21 % 21 % Federal taxes ( 3,982 ) ( 16,678 ) ( 13,166 ) Increase (decrease) in effective tax rate due to: State taxes, net of federal benefit 276 ( 4,079 ) ( 2,500 ) Impairment of goodwill — 1,288 — Permanent differences 897 83 ( 1,492 ) Other Adjustments ( 373 ) ( 6,669 ) 94 Valuation allowance 3,400 26,309 17,111 Actual income taxes $ 218 $ 254 $ 47 The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.
Liquidity and Capital Resources As of December 31, 2022, we had $138.5 million of cash and cash equivalents, compared to $198.3 million as of December 31, 2021, which we use to finance our operations and support a variety of growth initiatives and investments.
Liquidity and Capital Resources As of December 31, 2023, we had $123.9 million of cash and cash equivalents ($138.5 million as of December 31, 2022), which we use to finance our operations and support a variety of growth initiatives and investments. We had no debt as of December 31, 2023.
We believe that our audit provides a reasonable basis for our opinion. 58 Table of Contents Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
No impairment losses were recorded during the years ended December 31, 2022, 2021 or 2020 for these assets. 66 Table of Contents 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.
There were no impairment charges related to long-lived assets for the years ended December 31, 2023, 2022 or 2021. 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.
We also generate 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. We recognize member subscription revenues ratably over the subscription period, beginning when therapy services commence.
We also generate revenues from the sale of monthly, quarterly, bi-annual and annual membership subscriptions to the Company's therapy 47 Table of Contents platform as well as supplementary a la carte offerings directly to individual consumers through a subscription plan.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Talkspace Inc. as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2022, and the related notes.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Talkspace Inc. as of December 31, 2023 and 2022, the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated March 13, 2024 expressed an unqualified opinion thereon.
At December 31, 2022, the Company has federal and state net operating loss carryovers (“NOL”) of approximately $ 255.1 million and $ 224.3 million, respectively, which are available to reduce future taxable income.
At December 31, 2023, the Company has federal and state net operating loss carryovers (“NOL”) of approximately $ 282.5 million and $ 246.9 million, respectively, which are available to reduce future taxable income.
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