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 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.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of March 31, 2021 and June 30, 2021. The Company's
management
re-evaluated
the Company's application of ASC
480-10-S99-3A
to its accounting classification of the redeemable shares of Class A common
stock issued as part of the units sold in the Company's Initial Public Offering
on January 28, 2021. Historically, a portion of the shares of Class A common
stock was classified as permanent equity to maintain stockholders' equity
greater than $5 million on the basis that the Company will not redeem its shares
of Class A common stock in an amount that would cause its net tangible assets to
be less than $5,000,001, as described in the Company's Amended and Restated
Certificate of Incorporation. Pursuant to such
re-evaluation,
the Company's management has determined that the shares of Class A common stock
include certain provisions that require classification of all of the shares of
Class A common stock as temporary equity regardless of the net tangible assets
redemption limitation contained in the Amended and Restated Certificate of
Incorporation. This resulted in a restatement to the initial carrying value of
the Class A common stock subject to possible redemption with the offset recorded
to additional
paid-in
capital (to the extent available), accumulated deficit and Class A common stock.
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 Units, 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 June 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 June 30, 2021, we had net loss of approximately
$5.3 million, which consists of loss of approximately $4.6 million derived from
the changes in fair value of the warrant liability and operation costs of
approximately $0.7 million.


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For the six months ended June 30, 2021, we had net loss of approximately
$1.6 million, which consists of loss of approximately $1.7 million derived from
operation costs offset by changes in fair value of the warrant liability of
approximately $0.1 million.
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 4.
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 6.
Following the Initial Public Offering, the exercise of the over-allotment
option, and the sale of the Private Units, 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 six months ended June 30, 2021, cash used in operating activities was
$625,582. Net loss of $1,562,884 was affected by non cash change in fair value
of the warrant liability of approximately $107,083, 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 $27,310,
and transaction costs associated with the warrants of approximately $442,366.
Changes in operating assets and liabilities provided $558,365 of cash for
operating activities.
As of June 30, 2021, we had marketable securities held in the Trust Account of
$250,027,310 (including approximately $27,310 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 June 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 June 30, 2021, we had cash of $837,385. 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 June 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 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 Liabilities
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 liabilities.
Accordingly, the Company classifies the Warrants and FPA as liabilities at their
fair value and adjust the Warrants and FPA to fair value at each reporting
period. These 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 and FPA are valued using a Modified Black-Scholes
Option Pricing Model.
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 Topic 480 "Distinguishing Liabilities from
Equity." Shares of Class A common stock subject to mandatory redemption is
classified as a liability instrument and is measured at fair value.
Conditionally redeemable common stock (including common stock that feature
redemption rights that is 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.
The Company recognizes changes in redemption value immediately as they occur and
adjusts the carrying value of redeemable common stock to equal the redemption
value at the end of each reporting period. This method would view the end of the
reporting period as if it were also the redemption date for the security.
Effective with the closing of the Initial Public Offering, the Company
recognized the accretion from initial book value to redemption amount, which
resulted in charges against additional
paid-in
capital (to the extent available) and accumulated deficit.
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 has two classes of shares, which are referred to as Class A common stock
and Class B common stock. Income and losses are shared pro rata between the two
classes of shares. 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 Financial Accounting Standards Board ("FASB") issued ASU

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)

("ASU

2020-06")

to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity's own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity's own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the

if-converted


method for all convertible instruments. ASU 2020-06 is effective January 1, 2022
and should be applied on a full or modified retrospective basis, with early
adoption permitted beginning on January 1, 2021. The Company early adopted the
ASU on January 1, 2021. Adoption of the ASU did not impact the Company's
financial position, results of operations or cash flows. Other than as disclosed
above, management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial and accounting officer,
we conducted an evaluation of the effectiveness of our disclosure controls and
procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) as of and for the fiscal quarter ended June 30, 2021.
Based on this evaluation, our principal executive officer and principal
financial and accounting officer have concluded that our disclosure controls and
procedures were not effective due to the material weakness in our internal
control over financial reporting related to the Company's accounting for complex
financial instruments. As a result, we performed additional analysis as deemed
necessary to ensure that our condensed financial statements were prepared in
accordance with U.S. generally accepted accounting principles. Accordingly,
management believes that the condensed financial statements included in this
Form 10-Q/A
present fairly, in all material respects, our financial position, results of
operations and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended June 30, 2021, there has been no change in our
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. Management has identified a material weakness in internal controls
related to the accounting for complex financial instruments. While we have
processes to identify and appropriately apply applicable accounting
requirements, we plan to continue to enhance our system of evaluating and
implementing the accounting standards that apply to our condensed financial
statements, including through enhanced analyses by our personnel and third-party
professionals with whom we consult regarding complex accounting applications.
The elements of our remediation plan can only be accomplished over time, and we
can offer no assurance that these initiatives will ultimately have the intended
effects.

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