References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Hudson Executive Investment Corp. II. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to HEIC Sponsor II, LLC. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the condensed financial statements
and the notes thereto contained elsewhere in this Quarterly Report (the
"Financial Statements"). Capitalized terms used but not otherwise defined herein
have the meaning set forth in the Financial Statements. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
that are not historical facts and involve risks and uncertainties that could
cause actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's final prospectus for its Initial Public
Offering filed with the U.S. Securities and Exchange Commission (the "SEC") on
January 27, 2021. The Company's securities filings can be accessed on the EDGAR
section of the SEC's website at www.sec.gov. Except as expressly required by
applicable securities law, the Company disclaims any intention or obligation to
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on
August 18, 2020 for the purpose of effecting the merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses (the "Business Combination"). We intend
to effectuate our Business Combination using cash from the proceeds of the
Initial Public Offering and the sale of the Private Placement Warrants, our
capital stock, debt or a combination of cash, stock and debt. Based on our
business activities to date, the Company is a "shell company" as defined under
the Exchange Act because we have minimal operations and nominal assets
consisting almost entirely of cash held in a trust account.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from August 18, 2020 (inception) through September 30, 2021
were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and identifying a target company for a
Business Combination. We do not expect to generate any operating revenues until
after the completion of our Business Combination. We generate
non-operating
income in the form of interest income on marketable securities held in the Trust
Account. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended September 30, 2021, we had a net income of
$2,450,409, which consists of a gain on the change in the fair value of warrant
and FPA liabilities of $2,820,689 and interest income on marketable securities
held in the Trust Account of $3,217, offset by operating expenses of $373,497.

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For the nine months ended September 30, 2021, we had net income of $887,525,
which consists of a gain from changes in fair value of the warrant and FPA
liabilities of $2,927,772 and interest income on marketable securities held in
the Trust Account of $30,527, offset by operating expenses of $2,070,774.
For the period from August 18, 2020 (inception) through September 30, 2020, we
had net loss of $1,253, which consists of formation and operational costs.
Liquidity and Capital Resources
On January 28, 2021, the Company consummated the Initial Public Offering of
25,000,000 Units, which includes the partial exercise by the underwriter of its
over-allotment option in the amount of 2,500,000 Units, at $10.00 per Unit,
generating gross proceeds of $250,000,000 which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 4,666,667 Private Placement Warrants at a price of $1.50 per Private
Placement Warrant in a private placement to the Sponsor, generating gross
proceeds of $7,000,000, which is described in Note 5.
Following the Initial Public Offering, the exercise of the over-allotment
option, and the sale of the Private Placement Warrants, a total of $250,000,000
was placed in the Trust Account. We incurred $14,238,064 in Initial Public
Offering related costs, including $5,000,000 in cash underwriting fees,
$8,750,000 of deferred underwriting fees and $488,064 of other offering costs.
For the nine months ended September 30, 2021, cash used in operating activities
was $659,208. Net income of $887,525 was affected by non cash change in fair
value of the warrant and FPA liabilities of $2,927,772, operating costs paid by
the Sponsor of $200, operating costs paid through a promissory note of $70,764,
interest earned on marketable securities held in the Trust Account of $30,527,
and transaction costs associated with the warrants of $442,366. Changes in
operating assets and liabilities provided $898,236 of cash for operating
activities.
As of September 30, 2021, we had marketable securities held in the Trust Account
of $250,030,527 (including $30,527 of interest income consisting of U.S.
Treasury Bills with a maturity of 185 days or less). Interest income on the
balance in the Trust Account may be used by us to pay taxes. Through
September 30, 2021, we have not withdrawn any interest earned from the Trust
Account.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
income taxes payable), to complete our Business Combination. To the extent that
our capital stock or debt is used, in whole or in part, as consideration to
complete our Business Combination, the remaining proceeds held in the Trust
Account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
As of September 30, 2021, we had cash of $930,848. We intend to use the funds
held outside the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into warrants
at a price of $1.00 per warrant, at the option of the lender. The warrants would
be identical to the Private Placement Warrants.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating a Business Combination are less than the actual
amount necessary to do so, we may have insufficient funds available to operate
our business prior to our Business Combination. Moreover, we may need to obtain
additional financing either to complete our Business Combination or because we
become obligated to redeem a significant number of our Public Shares upon
consummation of our Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination.

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Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of September 30, 2021. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating
off-balance
sheet arrangements. We have not entered into any
off-balance
sheet financing arrangements, established any special purpose entities,
guaranteed any debt or commitments of other entities, or purchased any
non-financial
assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of our Sponsor a monthly fee of $10,000 for office space, secretarial
and administrative services. We began incurring these fees on January 25th, 2021
and will continue to incur these fees monthly until the earlier of the
completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $8,750,000
in the aggregate. The deferred fee will be forfeited by the underwriters solely
in the event that the Company fails to complete a Business Combination, subject
to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the condensed financial statements, and income and
expenses during the periods reported. Actual results could materially differ
from those estimates. We have identified the following critical accounting
policies:
Warrant and FPA Derivatives
The Company accounts for the Warrants and FPA in accordance with the guidance
contained in ASC
815-40,
under which the Warrants and FPA do not meet the criteria for equity treatment
and must be recorded as assets or liabilities. Accordingly, the Company
classifies the Warrants and FPA as an asset or liabilities at their fair value
and adjust the Warrants and FPA to fair value at each reporting period. These
assets or liabilities are subject to
re-measurement
at each balance sheet date until exercised, and any change in fair value is
recognized in the statements of operations. The fair value of the Public
Warrants has been estimated using the Public Warrants' quoted market price. The
Private Placement Warrants are valued using a Modified Black-Scholes Option
Pricing Model, and the FPA's fair value was estimated using the reconstructed
unit price, the net present value of per forward purchase unit commitment, and
the forward purchase unit.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in ASC 480. Shares of Class A common stock subject
to mandatory redemption are classified as a liability instrument and are
measured at fair value. Conditionally redeemable common stock (including common
stock that features redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within our control) is classified as temporary equity. At all other
times, common stock is classified as stockholders' equity. Our Class A common
stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly,
shares of Class A common stock subject to possible redemption are presented as
temporary equity, outside of the stockholders' equity section of our condensed
balance sheets.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the period. The
Company applies the
two-class
method in calculating income (loss) per common share. Accretion associated with
the redeemable shares of Class A common stock is excluded from income (loss) per
common share as the redemption value approximates fair value.

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Recent Accounting Standards
In August 2020, the FASB issued ASU No.
2020-06, "Debt-Debt
with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic
815-40):
Accounting for Convertible Instruments and Contracts in an Entity's Own Equity"
("ASU
2020-06"),
which simplifies accounting for convertible instruments by removing major
separation models required under current GAAP. ASU
2020-06
removes certain settlement conditions that are required for equity contracts to
qualify for the derivative scope exception, and it also simplifies the diluted
earnings per share calculation in certain areas. ASU
2020-06
is effective for fiscal years beginning after December 15, 2023, including
interim periods within those fiscal years, with early adoption permitted. We
adopted ASU
2020-06
effective as of January 1, 2021. The adoption of ASU
2020-06
did not have an impact on our condensed financial statements.
Management does not believe that any recently other issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the Company's condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by
Rules 13a-15
and
15d-15
under the Exchange Act, our Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of September 30, 2021. Based upon
their evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures (as defined in
Rules 13a-15
(e) and
15d-15
(e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended September 30, 2021 covered by this
Quarterly Report on
Form 10-Q
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. The material weakness discussed below
was remediated during the quarter ended September 30, 2021.
Remediation of a Material weakness in Internal Control over Financial Reporting
We recognize the importance of the control environment as it sets the overall
tone for the Company and is the foundation for all other components of internal
control. Consequently, we designed and implemented remediation measures to
address the material weakness previously identified and enhance our internal
control over financial reporting. In light of the material weakness, we enhanced
our processes to identify and appropriately apply applicable accounting
requirements to better evaluate and understand the nuances of the complex
accounting standards that apply to our condensed financial statements, including
providing enhanced access to accounting literature, research materials and
documents and increased communication among our personnel and third-party
professionals with whom we consult regarding complex accounting applications.
The foregoing actions, which we believe remediated the material weakness in
internal control over financial reporting, were completed as of the date of
September 30, 2021.

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