UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 | ||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to_______ | ||||
Commission FileNo. Number: 001-39969
Pear Therapeutics, Inc.
(Exact name of registrantRegistrant as specified in its charter)
Delaware | 85-4103092 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||
| 200 State Street, 13th Floor | ||||||
| Boston, MA | 02109 | |||||
| (Address of principal executive offices) | (Zip code) | |||||
| Registrant’s telephone number, including area code: (617) 925-7848 | ||||||
Securities registered pursuant to Section 12(b) of the Act:
Title of | Trading Symbol(s) | Name of Each Exchange on | ||||||||||||
par value | The Nasdaq Stock Market LLC | |||||||||||||
The Nasdaq Stock Market LLC | ||||||||||||||
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),; and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation(§ (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
S-T
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerateda non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☒ | |||||||||||||
| Smaller reporting company | ☒ | |||||||||||||
| Emerging growth company | ☒ | |||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in RuleExchange Act):. Yes ☒☐ No ☐☒
12b-2
of the The number of shares of the registrant’s Class A common stock outstanding as of November 10, 2022 was 139,543,104.
Pear Therapeutics, Inc.
Form 10-Q
For the Quarter Ended September 30, 2022
TABLE OF CONTENTS
| Page | |||||||||||
| PART I | |||||||||||
| PART II | |||||||||||
References throughout this Form 10-Q to “we,” “us,” the “Company,” “Pear” or “our company” are to Pear Therapeutics, Inc. and it’s consolidated subsidiaries, and “Legacy Pear” refers to Pear Therapeutics (US), Inc. and it’s consolidated subsidiary prior to the Business Combination on December 3, 2021, unless otherwise noted or the context otherwise indicates.
This document contains references to trademarks, trade names, and service marks belonging to other entities. Solely for convenience, trademarks, trade names, and service marks referred to in this Quarterly Report on Form 10-Q may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of Novemberother companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other company.
Pear Therapeutics, Inc. | Form 10-Q |Page 1
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Pear Therapeutics, Inc.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| (dollars in thousands, except per share amounts) | September 30, 2022 | December 31, 2021 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 59,685 | $ | 169,567 | |||||||
| Short-term investments | 23,934 | 5,004 | |||||||||
| Restricted cash - short-term | 74 | — | |||||||||
| Accounts receivable | 7,183 | 1,794 | |||||||||
| Prepaid expenses and other current assets | 7,992 | 8,876 | |||||||||
Total current assets | 98,868 | 185,241 | |||||||||
| Property and equipment, net | 6,481 | 6,255 | |||||||||
| Right-of-use assets (Note 8) | 9,329 | — | |||||||||
| Restricted cash - long-term | 411 | 411 | |||||||||
| Other long-term assets | 4,646 | 5,253 | |||||||||
Total assets | $ | 119,735 | $ | 197,160 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 1,124 | $ | 1,806 | |||||||
| Accrued expenses and other current liabilities | 17,204 | 17,946 | |||||||||
| Lease liabilities - current (Note 8) | 1,890 | — | |||||||||
| Deferred revenues | 482 | 421 | |||||||||
| Debt | 27,455 | 26,993 | |||||||||
| Total current liabilities | 48,155 | 47,166 | |||||||||
| Lease liabilities - noncurrent (Note 8) | 8,718 | — | |||||||||
| Embedded debt derivative | — | 675 | |||||||||
| Warrant liabilities | 2,413 | 8,528 | |||||||||
| Earn-out liabilities | 7,402 | 48,363 | |||||||||
| Other long-term liabilities | 801 | 1,994 | |||||||||
Total liabilities | 67,489 | 106,726 | |||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of September 30, 2022; and no shares issued and outstanding as of September 30, 2022 and December 31, 2021 | — | — | |||||||||
| Common stock, $0.0001 par value; 690,000,000 authorized as of September 30, 2022; and 139,248,512 and 137,836,028 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 14 | 14 | |||||||||
| Additional paid-in capital | 349,447 | 338,404 | |||||||||
| Accumulated deficit | (297,103) | (247,983) | |||||||||
| Accumulated other comprehensive (loss) income | (112) | (1) | |||||||||
| Total stockholders’ equity | 52,246 | 90,434 | |||||||||
Total liabilities and stockholders’ equity | $ | 119,735 | $ | 197,160 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Pear Therapeutics, Inc. | Form 10-Q |Page 2
Pear Therapeutics, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (dollars in thousands, except per share amounts) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Product revenue | $ | 3,528 | $ | 1,203 | $ | 9,274 | $ | 2,550 | |||||||||||||||
| Collaboration and license revenue | 555 | 108 | 855 | 338 | |||||||||||||||||||
| Total revenue | 4,083 | 1,311 | 10,129 | 2,888 | |||||||||||||||||||
| Cost and operating expenses | |||||||||||||||||||||||
| Cost of product revenue | 2,555 | 2,120 | 6,437 | 3,585 | |||||||||||||||||||
| Research and development | 10,390 | 9,576 | 36,370 | 24,943 | |||||||||||||||||||
| Selling, general, and administrative | 17,767 | 17,966 | 61,512 | 45,811 | |||||||||||||||||||
| Total cost and operating expenses | 30,712 | 29,662 | 104,319 | 74,339 | |||||||||||||||||||
Loss from operations | (26,629) | (28,351) | (94,190) | (71,451) | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest and other (expense) income, net | (647) | (1,042) | (2,006) | (3,086) | |||||||||||||||||||
| Change in estimated fair value of earn-out liabilities | (2,829) | — | 40,961 | — | |||||||||||||||||||
| Change in estimated fair value of warrant liabilities | (618) | (1,905) | 6,115 | (7,302) | |||||||||||||||||||
| Loss on issuance of Legacy Pear convertible preferred stock | — | — | — | (2,053) | |||||||||||||||||||
| Total other income (expense) | (4,094) | (2,947) | 45,070 | (12,441) | |||||||||||||||||||
| Net loss | $ | (30,723) | $ | (31,298) | $ | (49,120) | $ | (83,892) | |||||||||||||||
| Unrealized gain (loss) on short-term investments | $ | 8 | $ | (1) | $ | (111) | $ | — | |||||||||||||||
| Comprehensive loss | $ | (30,715) | $ | (31,299) | $ | (49,231) | $ | (83,892) | |||||||||||||||
| Net loss per share: | |||||||||||||||||||||||
| Basic and Diluted | $ | (0.22) | $ | (0.28) | $ | (0.35) | $ | (0.76) | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic and Diluted | 138,956,879 | 112,236,267 | 138,369,788 | 110,960,112 | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Pear Therapeutics, Inc. | Form 10-Q |Page 3
Pear Therapeutics, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | 106,721,878 | 11 | $ | 269,946 | $ | (182,841) | $ | — | $ | 87,116 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of Legacy Pear Series D convertible preferred stock, net of issuance costs of $83 | 4,503,618 | — | 21,970 | — | — | 21,970 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | 642,489 | — | 402 | — | — | 402 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 463 | — | — | 463 | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (24,393) | — | (24,393) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 111,867,985 | $ | 11 | $ | 292,781 | $ | (207,234) | $ | — | $ | 85,558 | |||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | 285,198 | — | 267 | — | — | 267 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 572 | — | — | 572 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (28,201) | — | (28,201) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | 112,153,183 | $ | 11 | $ | 293,620 | $ | (235,435) | $ | 1 | $ | 58,197 | |||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | 149,492 | — | 134 | — | — | 134 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 930 | — | — | 930 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (1) | (1) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (31,298) | — | (31,298) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 112,302,675 | $ | 11 | $ | 294,684 | $ | (266,733) | $ | — | $ | 27,962 | |||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | 137,836,028 | $ | 14 | $ | 338,404 | $ | (247,983) | $ | (1) | $ | 90,434 | |||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | 65,145 | — | 75 | — | — | 75 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 2,901 | — | — | 2,901 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of common stock warrants | 10 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (42) | (42) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (23,859) | — | (23,859) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 137,901,183 | $ | 14 | $ | 341,380 | $ | (271,842) | $ | (43) | $ | 69,509 | |||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | 776,587 | — | 760 | — | — | 760 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 3,386 | — | — | 3,386 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (77) | (77) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 5,462 | — | 5,462 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 138,677,770 | $ | 14 | $ | 345,526 | $ | (266,380) | $ | (120) | $ | 79,040 | |||||||||||||||||||||||||||||||||||||||
| Exercise of common stock options | 570,742 | $ | — | $ | 358 | $ | — | $ | — | $ | 358 | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | $ | — | $ | 3,563 | $ | — | $ | — | $ | 3,563 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | $ | — | $ | — | $ | — | $ | 8 | $ | 8 | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | $ | — | $ | — | $ | (30,723) | $ | — | $ | (30,723) | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | 139,248,512 | $ | 14 | $ | 349,447 | $ | (297,103) | $ | (112) | $ | 52,246 | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Pear Therapeutics, Inc. | Form 10-Q |Page 4
| Nine Months Ended September 30, | |||||||||||
| (dollars in thousands) | 2022 | 2021 | |||||||||
| Operating Activities: | |||||||||||
| Net loss | $ | (49,120) | $ | (83,892) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation expense | 2,419 | 1,032 | |||||||||
| Amortization of intangible asset | 465 | 475 | |||||||||
| Amortization of debt discount | 461 | 475 | |||||||||
| Amortization of right-of-use asset | 1,285 | — | |||||||||
| Accretion and amortization of interest income | (53) | 17 | |||||||||
| Stock-based compensation expense | 9,850 | 1,965 | |||||||||
| Loss on issuance of Legacy Pear convertible preferred stock | — | 2,053 | |||||||||
| Change in fair value of warrants | (6,115) | 7,302 | |||||||||
| Change in fair value of earn-out liabilities | (40,961) | — | |||||||||
| Change in fair value of embedded derivative | (675) | — | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (5,390) | (65) | |||||||||
| Prepaid expenses and other assets | 1,025 | (1,296) | |||||||||
| Lease liabilities | (1,252) | — | |||||||||
| Accounts payable | (927) | (2,227) | |||||||||
| Accrued expenses, other liabilities and non-current liabilities | (689) | 4,849 | |||||||||
| Deferred revenues | 62 | 113 | |||||||||
| Net cash used in operating activities | (89,615) | (69,199) | |||||||||
| Investing Activities: | |||||||||||
| Proceeds from maturities of short-term investments | 47,048 | 15,025 | |||||||||
| Purchases of short-term investments | (66,035) | (8,014) | |||||||||
| Purchases of property and equipment | (2,400) | (2,375) | |||||||||
| Net cash (used in) provided by investing activities | (21,387) | 4,636 | |||||||||
| Financing Activities: | |||||||||||
| Proceeds from issuance of Legacy Pear convertible preferred stock, net | — | 19,918 | |||||||||
| Payment of deferred offering costs | — | (4,620) | |||||||||
| Proceeds from exercise of stock options | 1,194 | 803 | |||||||||
| Net cash provided by financing activities | 1,194 | 16,101 | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (109,808) | (48,462) | |||||||||
| Cash, cash equivalents and restricted cash—beginning of period | 169,978 | 112,061 | |||||||||
Cash, cash equivalents and restricted cash—end of period | $ | 60,170 | $ | 63,599 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | 2,825 | $ | 2,730 | |||||||
| Supplemental disclosure of non-cash investing and financing information: | |||||||||||
| Deferred offering and equity issuance costs included in accounts payable and accrued expenses | $ | — | $ | 2,296 | |||||||
| Purchases of property and equipment in accounts payable and accrued expenses | $ | 143 | $ | 491 | |||||||
| Payment of milestone license in intangibles and accrued expenses | $ | — | $ | 1,000 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Pear Therapeutics, Inc. | Form 10-Q |Page 5
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. NATURE OF BUSINESS
Basis of Presentation
References throughout this Form 10-Q to “we,” “us,” the “Company,” “Pear” or “our company” are to Pear Therapeutics, Inc. (formerly known as Thimble Point Acquisition Corp.) and its subsidiaries, and “Legacy Pear” refers to Pear Therapeutics (US), Inc. prior to the Business Combination, unless otherwise noted or the context otherwise indicates. References to THMA refer to the Company prior to the consummation of the Business Combination and references to “Legacy Pear” refer to Pear Therapeutics, Inc. (now Pear Therapeutics (US), Inc.) prior to the consummation of the Business Combination.
Legacy Pear is deemed the accounting predecessor and the post-company successor US Securities and Exchange Commission (“SEC”) registrant, which means Legacy Pear financial statements for previous periods are disclosed in this Form 10-Q. Future period reports filed with the SEC will include Pear Therapeutics, Inc. and its subsidiaries.
Organization
Pear is a leader in prescription digital therapeutics, or PDTs. The Company’s PDTs treat diseases with clinically validated software.
On December 3, 2021, (the “Closing Date”), we consummated a business combination, or the “Business Combination”,pursuant to the terms of the business combination agreement, or “Business Combination Agreement”, dated June 21, 2021, by and among the Company (formerly known as Thimble Point Acquisition Corp., or “THMA”), Pear Therapeutics (US), Inc., a Delaware corporation incorporated on August 14, 2013 (“Pear US” or “Legacy Pear”) (formerly known as Pear Therapeutics, Inc.) and Oz Merger Sub, Inc., pursuant to which Oz Merger Sub, Inc. (a Delaware corporation and wholly-owned subsidiary of THMA, or “Merger Sub”) merged with and into Pear US, with Pear US surviving as our wholly owned subsidiary. Upon the closing of the Business Combination, THMA changed its name to Pear Therapeutics, Inc. (“Pear” or the “Company”).
Pursuant to the terms of the Business Combination Agreement, each share of Legacy Pear common stock, par value $0.0001 per share (“Legacy Pear Common Shares”) issued and outstanding immediately prior to the closing of the Business Combination, after giving effect to the conversion of all issued and outstanding shares of Legacy Pear preferred stock, par value $0.0001 per share (“Legacy Pear Preferred Shares”) to Legacy Pear Common Shares, were canceled and converted into the right to receive a number of shares of Class A common stock, par value $0.0001 per share (“Class A common stock”) equal to the number of shares of Legacy Pear Common Shares multiplied by the exchange ratio of approximately 1.47. In addition, all outstanding equity awards of Legacy Pear were converted into equity awards with the option to purchase Class A common stock with the same terms and 6,900,000conditions adjusted by the exchange ratio of approximately 1.47.
In connection with the Business Combination, THMA completed the sale and issuance of 10,280,000 shares of Class BA common stock par value $0.0001in a fully committed common stock private placement at a purchase price of $10.00 per share (“PIPE Shares”) for an aggregate purchase price of $102,800 (“PIPE Investment”), and a Forward Purchase Agreement Assignment, dated as of December 2, 2021, by and among THMA, the Anchor Investor, and a PIPE investor (the “Forward Purchase Assignment”); which closed simultaneously with the consummation of the Business Combination. Upon the closing of the Business Combination, all of the remaining outstanding THMA Class A common shares were issuedseparated, pursuant to their terms, into one share of Class A common stock (which totaled 832,899 shares Class A common stock, “Public Shares”) and outstanding, respectively.
one-third (1/3) of one redeemable warrant (and THMA’s units ceased trading on the Nasdaq). Further, KLP SPAC 1 LLC (the “Anchor Investor”) purchased 6,387,026 shares of Class A common stock at a purchase price of $10.00 per share in connection with the Forward Purchase Agreement, dated as of February 1, 2021, by and between THMA and the Anchor Investor (the “Forward Purchase Agreement”), as amended from time to time, including by the Amendment to Forward Purchase Agreement dated as of June 21, 2021, and the Second Amendment to Forward Purchase Agreement dated as of November 14, 2021 (the “Amended Forward Purchase Agreement”), entered into with THMA on February 1, 2021 (“THMA SponsorPear Therapeutics, Inc. | Form 10-Q |Page 6
September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 770,653 | $ | 0 | ||||
Prepaid expenses | 233,323 | 0 | ||||||
Total Current Assets | 1,003,976 | 0 | ||||||
Deferred offering costs | 0 | 310,450 | ||||||
Marketable securities held in Trust Account | 276,023,886 | 0 | ||||||
TOTAL ASSETS | $ | 277,027,862 | $ | 310,450 | ||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 2,869,069 | $ | 1,650 | ||||
Accrued offering costs | 0 | 240,450 | ||||||
Promissory note | 631,400 | 0 | ||||||
Promissory note — related party loan | 0 | 45,527 | ||||||
Total Current Liabilities | 3,500,469 | 287,627 | ||||||
Warrant liability | 13,502,666 | 0 | ||||||
Deferred underwriting fee payable | 9,660,000 | 0 | ||||||
TOTAL LIABILITIES | 26,663,135 | 287,627 | ||||||
Commitments (Note 6) | 0 | 0 | ||||||
Class A common stock subject to possible redemption 27,600,000 and 0 shares at September 30, 2021 (at redemption value of $10 per share) and December 31, 2020, respectively | 276,000,000 | 0 | ||||||
Stockholders’ (Deficit) Equity | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding | 0— | 0— | ||||||
Class A common stock, $0.0001 par value; 200,000,000 shares authorized | 0 | 0— | ||||||
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 6,900,000 shares issued and outstanding, as of September 30, 2021 and December 31, 2020 | 690 | 690 | ||||||
Additional paid-in capital | 0 | 24,310 | ||||||
Accumulated deficit | (25,635,963 | ) | (2,177 | ) | ||||
Total Stockholders’ (Deficit) Equity | (25,635,273 | ) | 22,823 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | 277,027,862 | $ | 310,450 | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2021 | 2021 | |||||||
Operating and formation costs | $ | 2,061,256 | $ | 5,036,086 | ||||
Loss from operations | (2,061,256 | ) | (5,036,086 | ) | ||||
Other income (expense): | ||||||||
Interest earned on marketable securities held in Trust Account | 8,147 | 23,886 | ||||||
Change in fair value of warrant liability | 7,533,067 | 3,126,934 | ||||||
Change in fair value of promissory note | 357,000 | 368,600 | ||||||
Unrealized loss on marketable securities held in Trust Account | (4,595 | ) | 0 | |||||
Other income, net | 7,893,619 | 3,519,420 | ||||||
Net income (loss) | $ | 5,832,363 | $ | (1,516,666 | ) | |||
Basic and diluted weighted average shares outstanding, Class A common stock | 27,600,000 | 24,061,538 | ||||||
Basic and diluted net income (loss) per share, Class A common stock | $ | 0.17 | $ | (0.05 | ) | |||
Basic and diluted weighted average shares outstanding, C common stocklass B | 6,900,000 | 6,784,615 | ||||||
Basic and diluted net income (loss) per share, Class B common stock | $ | 0.17 | $ | (0.05 | ) | |||
Class A Common Stock | Class B Common Stock | Additional Paid | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | in Capital | Deficit | (Deficit) Equity | ||||||||||||||||||||||
Balance – January 1, 2021 | 0 | $ | 0 | 6,900,000 | $ | 690 | $ | 24,310 | $ | (2,177 | ) | $ | 22,823 | |||||||||||||||
Cash Placement Warrants | — | — | — | — | 1,654,400 | — | 1,654,400 | |||||||||||||||||||||
Accretion for Class A common stock to redemption amount | — | — | — | — | (1,678,710 | ) | (24,117,120 | ) | (25,795,830 | ) | ||||||||||||||||||
Net income | — | — | — | — | — | 1,915,204 | 1,915,204 | |||||||||||||||||||||
Balance – March 31, 2021 | 0 | $ | 0 | 6,900,000 | $ | 690 | $ | 0 | $ | (22,204,093 | ) | $ | (22,203,403 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (9,264,233 | ) | (9,264,233 | ) | |||||||||||||||||||
Balance – June 30, 2021 | 0 | $ | 0 | 6,900,000 | $ | 690 | $ | — | $ | (31,468,326 | ) | $ | (31,467,636 | ) | ||||||||||||||
Net income | — | — | — | — | — | 5,832,363 | 5,832,363 | |||||||||||||||||||||
Balance – September 30, 2021 | — | $ | — | 6,900,000 | $ | 690 | $ | — | $ | (25,635,963 | ) | $ | (25,635,273 | ) | ||||||||||||||
Cash Flows from Operating Activities: | ||||
Net loss | $ | (1,516,666 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Change in fair value of warrant liability | (3,126,934 | ) | ||
Interest earned on marketable securities held in Trust Account | (23,886 | ) | ||
Transaction costs incurred in connection with the issuance of warrants | 619,676 | |||
Change in fair value of promissory note | (368,600 | ) | ||
Changes in operating assets and liabilities: | ||||
Prepaid expenses | (233,323 | ) | ||
Accounts payable and accrued expenses | 2,867,419 | |||
Net cash used in operating activities | (1,782,314 | ) | ||
Cash Flows from Investing Activities: | ||||
Investment of cash in Trust Account | (276,000,000 | ) | ||
Net cash used in investing activities | (276,000,000 | ) | ||
Cash Flows from Financing Activities: | ||||
Proceeds from sale of Units, net of underwriting discounts paid | 270,480,000 | |||
Proceeds from sale of Private Placement Warrants | 7,520,000 | |||
Repayment of promissory note – related party | (136,833 | ) | ||
Proceeds from promissory note – related party | 1,000,000 | |||
Proceeds from promissory note – related party | 91,306 | |||
Payment of offering costs | (401,506 | ) | ||
Net cash provided by financing activities | 278,552,967 | |||
Net Change in Cash | 770,653 | |||
Cash – Beginning of period | 0 | |||
Cash – End of period | $ | 770,653 | ||
Non-Cash investing and financing activities: | ||||
Initial classification of common stock subject to possible redemption | $ | 276,000,000 | ||
Deferred underwriting fee payable | $ | 9,660,000 | ||
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Going Concern
The Company is subject to a number of risks and uncertainties common to early-stage technology-based companies, including, but not limited to, rapid technological changes, protection of its proprietary technology and intellectual property, commercialization of existing and new products, development by competitors of competing products, dependence on key personnel, compliance with government regulations, including compliance with the satisfactionUS Food and Drug Administration, or waiverFDA, and the ability to secure additional capital to fund operations.
The Company obtained FDA marketing authorization for its three products, reSET® (2017), reSET-O® (2018), and Somryst® (2020). In October 2019, after terminating our agreement with Sandoz Inc., our then collaboration partner, we began the direct commercialization of reSET® and reSET-O®.
The Company has incurred recurring losses since inception and anticipates net losses and negative operating cash flows for the near future and may be unable to remain in compliance with certain closing conditions, which are further described infinancial covenants required under its credit facility. For the nine months ended September 30, 2022, the Company had a net loss of $49,120 and as of September 30, 2022, had an accumulated deficit of $297,103. As of September 30, 2022, the Company had $83,619 of cash and cash equivalents and short-term investments. While the Company has recorded revenue, revenues have been insufficient to fund operations. Accordingly, the Company has funded its operations to date through a combination of proceeds raised from equity and debt issuances, including the Business Combination Agreement.
Pear Therapeutics, Inc. | Form 10-Q |Page 7
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
have been prepared assuming that the Company will be ablecontinue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. Due to successfully effectthe substantial doubt about the Company’s ability to continue operating as a Business Combination.
these financial statements and the material adverse change clause in the Credit Agreement and Guaranty with Perceptive Credit Holdings III, LP (the “Perceptive Credit Facility”), the amounts due as of September 30, 2022, have been classified as current in the consolidated balance sheet. The Company will provide its stockholders withlender has not invoked the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decisionmaterial adverse change clause as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.00 per Public Share, plusdate of issuance of these financial statements. The accompanying consolidated financial statements do not reflect any pro rata interest earned on the funds held in the Trust Account, net of permitted withdrawals). There will be no redemption rights upon the completion of a Business Combination with respectother adjustments relating to the Company’s warrants.
COVID-19 Related Significant Risks and Uncertainties
The Company is subject to additional risks and uncertainties due to the ongoing pandemic of the novel coronavirus, or COVID-19. Although conditions have improved in the US in recent months, on October 13, 2022, the US Secretary of Health and Human Services extended the COVID-19 public health emergency declaration through one yearat least January 11, 2023.The Company is closely monitoring the continued impact of COVID-19 on all aspects of its business, including how it will impact its customers, patients, employees, suppliers, vendors, and one daybusiness partners. The Company is unable to predict the specific impact that COVID-19 may have on its business, financial position, and operations moving forward due to the numerous uncertainties. Any estimates made herein may change as new events occur and additional information is obtained, and actual results could differ materially from any estimates made herein under different assumptions or conditions. The Company will continue to assess the issuanceevolving impact of this report.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US generally accepted accounting principles, generally acceptedor GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the United States of America (“U.S. GAAP”) for interim financial informationAccounting Standards Codification, or ASC, and in accordance with the instructions toForm 10-Qand Article 10 of RegulationS-XAccounting Standards Update, or ASU, of the SEC. Certain informationFinancial Accounting Standards Board, or footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensedFASB.
The consolidated financial statements include all adjustments, consistingas of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating resultsSeptember 30, 2022 and cash flows for the periods presented.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, andthe disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.
Pear Therapeutics, Inc. | Form 10-Q |Page 8
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates and changes in estimates are reflected in reported results in the period in which they become known.
Cash, Cash Equivalents, and Restricted Cash
The Company considers only those highly liquid investments, readily convertible to cash, that mature within 90 days from the date of purchase to be cash equivalents. The Company’s cash equivalents include money market funds, commercial paper, and overnight deposits.
The following table reconciles cash, cash equivalents, and restricted cash reported within the Company’s consolidated balance sheets to the total amounts shown in the consolidated statements of cash flows:
| Reconciliation of cash, cash equivalents, and restricted cash: | September 30, 2022 | December 31, 2021 | |||||||||
| Cash and cash equivalents | $ | 59,685 | $ | 169,567 | |||||||
| Restricted cash - short-term | 74 | — | |||||||||
| Restricted cash - long-term | 411 | 411 | |||||||||
| Total cash, cash equivalents, and restricted cash | $ | 60,170 | $ | 169,978 | |||||||
Recently Adopted Accounting Pronouncements
In February 2016, the FASB, issued ASU 2016-02, Leases (Topic 842), as subsequently amended, which provides guidance requiring lessees to recognize a right-of-use asset (“ROU”) and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations.
The Company adopted the leasing standard effective January 1, 2022, using the revised modified retrospective transition method, with comparative periods continuing to be reported under ASC 840 as it was the accounting standard in effect for such period. In the adoption of ASU 2016-02, the Company carried forward the assessment from ASC 840 of whether its contracts contain or are leases, the classification of its leases, and remaining lease terms. The Company did not elect the hindsight practical expedient upon adoption of the effectnew standard.
The most significant impact resulting from the adoption of this new standard was the recognition of ROU assets of $10,614 and operating lease liabilities of $11,860 on the adoption date, January 1, 2022. The difference between the ROU assets and lease liabilities on the accompanying condensed consolidated balance sheet is primarily due to the accrual for lease payments as a condition, situation or setresult of circumstances that existedstraight-line lease expense and unamortized tenant incentive liability balances. Existing deferred rent and prepaid rent amounts were removed from the consolidated balance sheets at the date of adoption. The adoption did not have a material impact to the Company's consolidated statements of operations or statement of cash flows.
The Company has made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet and recognize those lease payments in the consolidated statements of income on a straight-line basis over the lease term. The Company has also elected the practical expedient to not separate lease and non-lease components for all of its leases as the non-lease components are not significant to the overall lease costs.
See Note 8 for further information.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes-Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This standard is effective for annual reporting periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company’s adoption of the standard effective January 1, 2022, did not have a material impact to its condensed consolidated financial statements and related disclosures.
Pear Therapeutics, Inc. | Form 10-Q |Page 9
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
3. Business Combination
As discussed in Note 1, on December 3, 2021, the Company consummated a business combination pursuant to the Business Combination Agreement. The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, THMA, who was the legal acquirer, was treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination was treated as the equivalent of Pear issuing stock for the net assets of THMA, accompanied by a recapitalization.
Upon the closing of the Business Combination, holders of Legacy Pear Common Shares received shares of Class A common stock in an amount determined by application of the exchange ratio of approximately 1.47 (the “Exchange Ratio”), which management consideredwas based on Legacy Pear’s implied price per share prior to the Business Combination. For periods prior to the Business Combination, the reported share and per share amounts have been retroactively converted (“Retroactive Conversion”) by applying the Exchange Ratio. The consolidated assets, liabilities and results of operations prior to the Business Combination are those of Legacy Pear.
In addition, holders of Legacy Pear Common Shares (and Legacy Pear Preferred Shares who converted their shares into Legacy Pear Common Shares in formulatingconnection with the Merger) received the contingent right to receive up to 12,395,625 additional shares of Class A common stock (the “Earn-Out Shares”) upon the achievement of certain earn-out targets. The holders of Legacy Pear Common Shares are eligible to receive up to 12,395,625 shares in the aggregate of additional shares of Class A common stock in three equal tranches of 4,131,875 shares respectively, upon the Company achieving $12.50, $15.00, or $17.50, respectively, as its estimate, couldvolume-weighted average price per share for any 20 trading days within a 30 consecutive trading day period (as adjusted for share splits, reverse share splits, share dividends, reorganizations, recapitalizations, reclassifications, combination, exchange of shares, or the like) during the period ending on December 3, 2026.
Further, the Company assumed the outstanding warrants to purchase 9,199,944 shares of the Company’s Class A common stock at $11.50 per share (the “Public Warrants”) and the outstanding warrants (the “Private Placement Warrants”) held by LJ10 LLC, (the “Sponsor”) to purchase 5,013,333 shares of the Company’s Class A common stock at $11.50 per share. The Public Warrants and Private Placement Warrants expire five years after the completion of the Business Combination.
In connection with the Business Combination, the Company incurred approximately $32,779 of equity issuance costs, consisting of underwriting, legal, and other professional fees, $31,400 of which were recorded to additional paid-in capital as a reduction of proceeds and $1,379 of which was recorded as an expense in selling, general, and administrative expenses on the consolidated statement of comprehensive income.
See Note 7 for information on the Legacy Pear warrants that were exercised prior to the Business Combination.
The number of shares of common stock outstanding immediately following the consummation of the business combination was as follows:
| Class A Common Stock | ||||||||
| THMA Public Shares | 832,899 | |||||||
| THMA Initial Stockholders | 6,900,000 | |||||||
| Shares Issued pursuant to Forward Purchase Agreement to Anchor Investor | 6,387,026 | |||||||
| Shares Issued to PIPE Investors and Forward Purchase Assignment | 10,280,000 | |||||||
Legacy Pear Equityholders (1) | 113,399,293 | |||||||
| Total shares of common stock immediately after business combination | 137,799,218 | |||||||
(1) The number of Legacy Pear shares was determined from the shares of Legacy Pear shares outstanding immediately prior to the closing of the Business Combination converted at the Exchange Ratio of approximately 1.47. All fractional shares were rounded down.
Pear Therapeutics, Inc. | Form 10-Q |Page 10
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Public Warrants and Private Placement Warrants
As of the Closing Date, the total value of the liability associated with the Public and Private Placement Warrants was $16,487 measured at fair value based on the public warrant quoted price. The Company concluded the warrants met the definition of a liability and have been classified as such on the balance sheet. The fair value of the warrant liability was $2,413 and $8,528 at September 30, 2022 and December 31, 2021, respectively. See Notes 4 and 11 for further information on the Public and Private Placement Warrants.
Earn-Out Liabilities
The Company accounts for the potential issuance of the Earn-Out Shares as a contingent consideration arrangement, a liability for which was initially valued and recorded at $95,401, which was estimated by using a Monte Carlo Simulation Method (“MCSM”) for each earn out period. Key inputs and assumptions used in this were the Company’s stock price, expected term, volatility, the risk-free rate, and dividend yield. Certain of these inputs are Level 3 assumptions that are updated each reporting period as the earn-out liabilities are recorded at fair value at each reporting date. The Company revalued the earn-out liabilities as of September 30, 2022 and December 31, 2021, and determined the fair value to be $7,402 and $48,363, respectively. The change in the near term due to one or more future confirming events. Onefair value of the more significant accounting estimatesearn-out liabilities were recorded in other income (expense) on the statement of operations.
Pear Therapeutics, Inc. | Form 10-Q |Page 11
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
4. FAIR VALUE MEASUREMENTS
The tables below present certain of our assets and liabilities measured at fair value categorized by the level of input used in the valuation of each asset and liability.
| September 30, 2022 | ||||||||||||||||||||||||||
| Description | Total Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Money market funds | $ | 41,185 | $ | 41,185 | $ | — | $ | — | ||||||||||||||||||
| U.S. Treasury Bills | 3,376 | 3,376 | — | — | ||||||||||||||||||||||
| Total cash equivalents | 44,561 | 44,561 | — | — | ||||||||||||||||||||||
| Debt investments: | ||||||||||||||||||||||||||
| U.S. Treasury Bills | 5,982 | 5,982 | — | — | ||||||||||||||||||||||
| Corporate bonds | 6,958 | — | 6,958 | — | ||||||||||||||||||||||
| Commercial paper | 10,994 | — | 10,994 | — | ||||||||||||||||||||||
| Total debt investments | 23,934 | 5,982 | 17,952 | — | ||||||||||||||||||||||
| Total assets | $ | 68,495 | $ | 50,543 | $ | 17,952 | $ | — | ||||||||||||||||||
| Long-term liabilities: | ||||||||||||||||||||||||||
| Warrant liabilities | 2,413 | 1,562 | 851 | — | ||||||||||||||||||||||
| Earn-out liabilities | 7,402 | — | — | 7,402 | ||||||||||||||||||||||
| Total liabilities | $ | 9,815 | $ | 1,562 | $ | 851 | $ | 7,402 | ||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||
| Description | Total Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Money market funds | $ | 129,184 | $ | 129,184 | $ | — | $ | — | ||||||||||||||||||
| Debt investments: | ||||||||||||||||||||||||||
| Corporate bonds | 1,007 | — | 1,007 | — | ||||||||||||||||||||||
| Commercial paper | 3,998 | — | 3,998 | — | ||||||||||||||||||||||
| Total debt investments | 5,005 | — | 5,005 | — | ||||||||||||||||||||||
| Total assets | $ | 134,189 | $ | 129,184 | $ | 5,005 | $ | — | ||||||||||||||||||
| Long-term liabilities: | ||||||||||||||||||||||||||
| Embedded debt derivative | $ | 675 | $ | — | $ | — | $ | 675 | ||||||||||||||||||
| Warrant liabilities | 8,528 | 5,520 | 3,008 | |||||||||||||||||||||||
| Earn-out liabilities | 48,363 | — | — | 48,363 | ||||||||||||||||||||||
| Total liabilities | $ | 57,566 | $ | 5,520 | $ | 3,008 | $ | 49,038 | ||||||||||||||||||
The Company evaluates transfers between levels at the end of each reporting period. There were no transfers of financial instruments between levels during the three and nine months ended September 30, 2022 and 2021.
Cash equivalents—Money market funds and U.S. Treasury Bills included within cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in theseactive markets.
Investments—The Company measures its investments at fair value on a recurring basis and classifies those instruments within Level 1 and Level 2 of the fair value hierarchy. US Treasury Bills are classified within Level 1 of the fair value hierarchy because pricing is based on quoted market prices for identical instruments in active markets of the reporting date. Marketable securities, including corporate bonds and commercial paper, are classified within Level 2 of the fair value hierarchy because pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined
Pear Therapeutics, Inc. | Form 10-Q |Page 12
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
using models or other valuation methodologies. The Company recorded an unrealized gain of $8 and an unrealized loss of $1 for the three months ended September 30, 2022 and 2021, respectively, and an unrealized loss of $111 and no unrealized gain for the nine months ended September 30, 2022 and 2021, respectively, in other comprehensive income (loss) on short-term investments.
Embedded debt derivative — As described in Note 7, the Company concluded that the contingent put options contained in the Perceptive Credit Facility that could require mandatory repayment upon the occurrence of an event of default, change of control and certain other events represent an embedded derivative required to be bifurcated from the debt host instrument. The embedded debt derivative is measured at fair value using a probability-weighted cash flow valuation methodology. The change in estimated fair value of the embedded derivative resulted in a gain of $675 for the nine months ended September 30, 2022, which is recorded in Interest and other (expense) income in the consolidated financial statements is thestatement of operations and comprehensive income (loss). The determination of the fair value of an embedded debt derivative includes inputs not observable in the market and as such, represents a Level 3 measurement. The methodology utilized requires inputs based on certain subjective assumptions, specifically, probabilities of mandatory debt repayment prior to maturity ranging between 0 -10%.
Warrant liabilities — As a result of the Business Combination on December 3, 2021, the Company recorded a liability for Public and Private Placement Warrants to purchase Class A common stock in the Company’s consolidated financial statements. See Note 3 for further information. The Public Warrants are traded on Nasdaq and are recorded at fair value using the closing stock price as of the measurement date. The Private Placement Warrants, which have a single holder, have similar terms and are subject to substantially the same redemption features as the Public Warrants. Accordingly, the most advantageous market for the Private Placement Warrants is determined from the perspective of the holder of such warrants as an asset. Since any transfer to a non-permitted transferee (i.e., to a market participant) would cause the Private Placement Warrants to become Public Warrants, the fair value of the Private Placement Warrants is based on the quoted price of the Public Warrants.
As of the Closing Date, the total value of the liability associated with the Public and Private Placement Warrants was $16,487 measured at fair value based on the Public Warrant quoted price on Nasdaq (Ticker: PEARW). The Company concluded that the warrants met the definition of a liability and have been classified as such on the balance sheet. At September 30, 2022, the fair value of the warrant liability. Such estimatesliability was $2,413.
Earn-out liabilities — Upon the closing of the Business Combination, the Earn-Out Shares were accounted for as a liability because the triggering events that determine the number of shares to be earned included events that were indexed to the common stock of the Company, with the change fair value recognized in Change in the estimated fair value of earn-out liabilities in the consolidated statement of operations and comprehensive income (loss).
The estimated fair value of the Earn-out Shares was determined using a MCSM using the following assumptions at each valuation date:
| September 30, 2022 | December 31, 2021 | |||||||||||||
| Stock price | $2.04 | $6.20 | ||||||||||||
| Risk-free interest rate | 4.10% | 1.25% | ||||||||||||
| Expected term (in years) | 4.18 | 4.92 | ||||||||||||
| Expected volatility | 64.10% | 55.00% | ||||||||||||
| Dividend yield | —% | —% | ||||||||||||
Refer to Note 3 for more information on the triggering events of the Earn-Out Shares. The change in fair value of the earn-out liabilities resulted in other income of $40,961 recognized in the consolidated statement of operations and comprehensive income (loss) for the nine months ended September 30, 2022.
Pear Therapeutics, Inc. | Form 10-Q |Page 13
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The following table reconciles the change in the fair value of the earn-out liabilities valued using Level 3 inputs:
| Earn-Out Liabilities | ||||||||
| Fair value as of December 31, 2021 | $ | 48,363 | ||||||
| Change in fair value | (40,961) | |||||||
| Fair value as of September 30, 2022 | $ | 7,402 | ||||||
5. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Internal-use software | $ | 9,091 | $ | 6,591 | |||||||
| Equipment | 692 | 579 | |||||||||
| Construction in process | — | 362 | |||||||||
| Furniture and fixtures | 711 | 586 | |||||||||
| Leasehold improvements | 779 | 509 | |||||||||
| Total property and equipment | 11,273 | 8,627 | |||||||||
| Less: accumulated depreciation | (4,792) | (2,372) | |||||||||
| Property and equipment, net | $ | 6,481 | $ | 6,255 | |||||||
Depreciation expense was $879 and $2,419 for the three and nine months ended September 30, 2022, respectively, and $447 and $1,032 for the three and nine months ended September 30, 2021, respectively.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||
| Compensation and related benefits | $ | 11,869 | $ | 11,855 | |||||||
| Commercial and marketing related costs | 882 | 1,821 | |||||||||
| Professional services | 1,442 | 1,710 | |||||||||
| Research and development costs | 1,682 | 781 | |||||||||
| Other | 1,329 | 1,779 | |||||||||
| Total | $ | 17,204 | $ | 17,946 | |||||||
7. INDEBTEDNESS
Perceptive Credit Facility
On June 30, 2020, the Perceptive Close Date, the Company entered into the Perceptive Credit Facility, with Perceptive Credit Holdings III, LP, as administrative agent and lender with a syndicate of other lenders, collectively Perceptive. The Perceptive Credit Facility, as amended, consists of a secured term loan facility in an aggregate amount of up to $50,000, which will be made available under the following three tranches: (i) Tranche 1 - $30,000, available at the Perceptive Closing Date; (ii) Tranche 2 - $10,000, available no later than December 31, 2021; and (iii) Tranche 3 - $10,000, available no later than December 31, 2021. The Company did not draw down on the available borrowings under Tranche 2 or Tranche 3.
Pear Therapeutics, Inc. | Form 10-Q |Page 14
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The Perceptive Credit Facility bears interest through maturity at a variable rate based upon the one-month LIBOR rate plus 11.0%, subject to a LIBOR floor of 1.0%. As of September 30, 2022, the interest rate was 13.6%. When the LIBOR interest rate is discontinued in the future, it is expected that the interest rate of the Perceptive Credit Facility would switch to an alternative benchmark rate, primarily Secured Overnight Financing Rate, or SOFR. As of September 30, 2022, the effect of switching from LIBOR to SOFR would not have been material to the Company’s condensed consolidated financial statements.The Company is required to make interest-only payments until May 31, 2024, after which point the Company will be required to make monthly payments of principal equal to 3.0% of the then outstanding principal until maturity on June 30, 2025, or the Maturity Date. If the Company prepays the loan prior to the Maturity Date, it will be required to pay a prepayment fee guaranteeing Perceptive a 1.5 times return on any prepaid amount. A change of control, which includes a new entity or group owning more than 35.0% of the Company’s voting stock, or prior to an IPO, the failure of the existing holders to own at least 35.0% of the Company’s voting stock, trigger a mandatory prepayment of the term loan. The Business Combination did not trigger this clause as existing holders retained greater than 35% of the combined Company’s voting stock. The Company paid issuance costs of $750 in connection with its entry into the Perceptive Credit Facility.
The Company concluded the contingent put options that could require mandatory repayment upon the occurrence of an event of default, change of control and certain other events represent an embedded derivative required to be bifurcated from the debt host instrument and accounted for separately and recorded an embedded debt derivative of $675 as of December 31, 2021. There was no balance at September 30, 2022. Any changes to the derivative liability in future periods will be recognized as interest and other (expense) income, net in the consolidated statements of operations and comprehensive loss.
The Perceptive Credit Facility is secured by substantially all the assets of the Company, including our intellectual property. The Perceptive Credit Facility requires the Company to (i) maintain a minimum aggregate cash balance of $5,000 in one or more controlled accounts, and (ii) as of the last day of each fiscal quarter commencing with the fiscal quarter ending March 31, 2022, report revenues for the trailing 12-month period that exceed the amounts set forth in the Perceptive Credit Facility which range from $5,750 for the fiscal quarter ending March 31, 2022, to $125,000 for the fiscal quarter ending March 31, 2025. For the quarter ending December 31, 2022, the trailing 12-month period revenue requirement is $18,000. The Perceptive Credit Facility contains various affirmative and negative covenants that limit the Company’s ability to engage in specified types of transactions. The Company was in compliance with the covenants under the Perceptive Credit Facility as of September 30, 2022.
On the Perceptive Closing Date, Perceptive received a warrant certificate exercisable into 775,000 shares of Legacy Pear Series C preferred stock, and had the Company borrowed under Tranche 2 or Tranche 3, the Company would have been obligated to issue two additional warrants, the Additional Warrants, to Perceptive each to purchase up to 50,000 shares of Legacy Pear Series C preferred stock. In the event the Company issued Legacy Pear Series D preferred stock, Perceptive had the right to convert the Legacy Pear Series C preferred stock warrant into a warrant to purchase Legacy Pear Series D preferred stock, and the exercise price shall be automatically adjusted to equal the original per share price for Legacy Pear Series D preferred stock. On the Perceptive Closing Date, the Company issued freestanding Legacy Pear Series C preferred stock warrants to Perceptive, which were converted to Legacy Pear Series D preferred stock warrants at the time of the Legacy Pear Series D funding round. The Legacy Pear Series D preferred stock warrants were exercisable for 1,012,672 shares of Legacy Pear Series D preferred stock. The Legacy Pear Series D preferred stock warrants have an exercise price of $5.51 per share and would have expired in 2030 and were exercisable at any time prior to the ten-year anniversary of the Perceptive Closing Date of the Perceptive Credit Facility. At issuance, the Company determined that the warrant is liability-classified and would be remeasured at fair value each reporting period, with changes in fair value recorded in the consolidated statements of operations and comprehensive loss. The Additional Warrants would have been issued as warrants to purchase 65,333 shares of Legacy Pear Series D-1 preferred stock. On November 30, 2021, Perceptive net exercised 1,012,672 Legacy Pear Series D warrants pursuant to which Perceptive obtained 629,057 shares of Legacy Pear Series D-1 preferred stock in a cashless exercise, and subsequently converted the 629,057 shares of Legacy Pear Series D-1 preferred stock into 629,057 shares of Legacy Pear common stock which were then converted into 926,232 shares of Class A common stock as adjusted by the exchange ratio based on a per share price of $9.87 per share, the THMA closing price on June 22, 2021. See Notes 1 and 3 for more information.
Pear Therapeutics, Inc. | Form 10-Q |Page 15
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
On March 25, 2022, we amended the Perceptive Credit Facility to adjust certain covenants under the agreement. The amendment included among other things, reducing the required minimum trailing 12-month revenue for the fiscal quarter ending March 31, 2022, through the fiscal quarter ending March 31, 2025 as described above.
On the Perceptive Closing Date, the Company received proceeds of $28,500, net of fees and expenses of $1,500. As of September 30, 2022, no further borrowings were taken under the Perceptive Credit Facility. The outstanding balance of the Perceptive Credit Facility was:
| Perceptive Credit Facility | September 30, 2022 | |||||||
| Principal | $ | 30,000 | ||||||
| Less: Debt issuance costs and discount at issuance | (2,545) | |||||||
| Net carrying amount | $ | 27,455 | ||||||
As discussed in Note 1, due to the substantial doubt about the Company’s ability to continue operating as a going concern for twelve months from the issuance date of these financial statements, the amounts due as of September 30, 2022, have been classified as current in the consolidated balance sheet. Future minimum payments, including contractual interest, under the Perceptive Credit Facility as of September 30, 2022, are as follows:
| Years ended December 31, | Amounts | |||||||
| Remainder of 2022 | 920 | |||||||
| 2023 | 3,650 | |||||||
| 2024 | 10,603 | |||||||
| 2025 | 24,039 | |||||||
| Total | $ | 39,212 | ||||||
| Less: | ||||||||
| Interest payable | (9,212) | |||||||
| Unamortized debt issuance costs | (2,545) | |||||||
| Current portion of long-term debt | (27,455) | |||||||
| Long-term debt | $ | — | ||||||
8. LEASES
As of September 30, 2022, the Company leases office space under non-cancelable operating leases in three cities: Boston, Massachusetts, consisting of approximately 19,000 square feet that will expire on June 1, 2028, including approximately 900 square feet that the Company took over on January 1, 2022, San Francisco, California, consisting of approximately 17,000 square feet that will expire on July 31, 2025, and Raleigh, North Carolina, consisting of approximately 7,700 square feet that will expire on May 31, 2026. We have the right and option to extend each of the Boston and Raleigh leases for a five year period.
As described in Note 2, the Company adopted Topic 842, Leases, as of January 1, 2022. Prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 840. All of the Company's leases are classified as operating leases. The components of ROU assets and lease liabilities are included in the condensed consolidated balance sheets.
We recognized rent expense of $714 and $2,168 for the three and nine months ended September 30, 2022, respectively, and $680 and $2,056 for the three and nine months ended September 30, 2021, respectively. The Company had $1,007 in deferred rent recorded within other long-term liabilities in the consolidated balance sheet as of December 31, 2021.
Pear Therapeutics, Inc. | Form 10-Q |Page 16
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Future commitments under non-cancelable lease agreements are as follows:
| Years ended December 31, | Lease Commitments | |||||||
| Remainder of 2022 | $ | 709 | ||||||
| 2023 | 2,912 | |||||||
| 2024 | 3,176 | |||||||
| 2025 | 2,734 | |||||||
| 2026 and thereafter | 3,879 | |||||||
| Total lease payments | 13,410 | |||||||
| Less: present value adjustment | (2,802) | |||||||
| Present value of total lease liabilities | 10,608 | |||||||
| Less: current lease liability | (1,890) | |||||||
| Long-term operating lease liabilities | $ | 8,718 | ||||||
As of December 31, 2021, prior to the adoption of ASC 842, the estimated minimum future lease payments for the next five years and thereafter was as follows:
| Years ended December 31, | Lease Commitments | |||||||
| 2022 | 2,809 | |||||||
| 2023 | 2,912 | |||||||
| 2024 | 3,176 | |||||||
| 2025 | 2,734 | |||||||
| 2026 and thereafter | 3,879 | |||||||
| Total | 15,510 | |||||||
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate when measuring operating lease liabilities. As of September 30, 2022, the weighted average remaining lease term is 4.62 years and the weighted average discount rate used to determine the operating lease liability is 10%.
In addition to rent, certain leases require the Company to pay additional amounts for taxes, insurance, maintenance, and other operating expenses.
9. COMMITMENTS AND CONTINGENCIES
Licenses Related to our Commercial Products
As of September 30, 2022, the Company has four license agreements related to its commercialized products.
The Invention Science Fund I, LLC
The Company entered into a contribution and license agreement for Pharmaceutical Field of Use, or FOU, with The Invention Science Fund I, LLC, or ISF, in February 2015, as amended on February 28, 2018, or ISF Contribution and License Agreement. The ISF Contribution and License Agreement superseded an original contribution and license agreement between the Company and ISF dated December 31, 2013. Under the ISF Contribution and License Agreement, ISF granted the Company certain licenses under specified patent rights to develop and commercialize licensed products either independently and/or with a drug combination product for use in connection with the treatment of central nervous system disorders. The ISF Contribution and License Agreement contains minimum annual royalty obligations. To the extent there are sales of a licensed product, the Company is required to pay low-
Pear Therapeutics, Inc. | Form 10-Q |Page 17
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
single-digit royalties on net revenue. The Company recorded minimum annual royalty fees of $250 and $750 to ISF for the three and nine months ended September 30, 2022, respectively, and $250 and $750 for the three and nine months ended September 30, 2021, respectively.
Red 5 Group, LLC
In January 2015, the Company entered into a software license agreement with Red 5 Group, LLC, or Red 5, and in March 2018, the parties entered into an amended and restated software license agreement, or Amended Red 5 Group License. Under the original software license agreement, Red 5 licensed the Company certain technology and materials relating to the treatment of psychological and substance use disorders, pursuant to which the Company, received, inter alia, an exclusive, worldwide, sublicensable, royalty-bearing license to develop and commercialize integrated products incorporating the licensed technology and materials. The Company agreed to use commercially reasonable efforts to develop integrated products in accordance with the development plan, to introduce any integrated products that gain regulatory approval into the commercial markets, to market integrated products that have gained regulatory approval following such introduction into the market, and to make integrated products that have gained regulatory approval reasonably available to the public.
In March 2018, pursuant to the Amended Red 5 Group License, the parties expanded the scope of exclusivity of the license, increased certain specified annual license maintenance fees, and required the Company to pay Red 5 an amendment fee, which was paid in April 2018. On July 1, 2021, the parties amended the Amended Red 5 Group License to further clarify certain terms and increase the royalty rate by a de minimis amount.
To the extent achieved, the Company is obligated to pay up to an aggregate of $400 if certain milestones related to product regulatory approval and commercial sales are achieved in respect to a software/drug combination, which is not currently being pursued by the Company. To the extent there are sales of an integrated product, the Company is required to pay single-digit royalties on net revenues. The Company is entitled to certain reductions and offsets against its royalty and milestone payment obligations, including the annual license maintenance fees.
The Company pays minimum annual maintenance fees to Red 5 in connection with reSET and reSET-O. The Company recorded minimum annual maintenance fees of $63 and $188 to Red 5 for the three and nine months ended September 30, 2022, respectively, and $63 and $188 for the three and nine months ended September 30, 2021, respectively.
BeHealth Solutions, LLC and University of Virginia Patent Foundation
In March 2018, the Company and BeHealth Solutions, LLC, or BeHealth, entered into an assignment, license and services agreement, or the BeHealth Agreement, as well as a consulting agreement. The BeHealth Agreement closed in June 2018 and the Company paid an up-front fee. Under the BeHealth Agreement, the Company obtained license rights to certain technology and materials relating to a therapeutic treatment for insomnia. The consulting agreement is for services to be charged on a time-and-materials basis.
During the year ended December 31, 2020, the Company paid a milestone payment to BeHealth of $750 upon the FDA’s marketing authorization of Somryst, a PDT intended for use in the treatment of adults with chronic insomnia. During September 2021, a commercial milestone under the license agreement with BeHealth was achieved and the Company paid $1,000 during the year ended December 31, 2021. The milestone payments are capitalized in other long-term assets in the accompanying consolidated balance sheets and amortized on a straight-line basis to cost of product revenue over the estimated useful life of five years.
The BeHealth Agreement continues in force until the expiration of all milestone and royalty payment obligations, unless terminated earlier in accordance with its terms. The Company could be obligated to make payments of up to an additional $26,000 in the aggregate upon achievement of various commercial milestones and a mid-to-high-single-digit royalty on net sales.
Pear Therapeutics, Inc. | Form 10-Q |Page 18
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The Company pays royalties based on net revenues of the sales of Somryst to BeHealth and the University of Virginia Patent Foundation, or UVPF. The Company recorded de minimis royalties to BeHealth and UVPF for the three and nine months ended September 30, 2022 and 2021.
Guarantees and Indemnifications
As permitted under Delaware law, the Company indemnifies its officers, directors and employees for certain events or occurrences that happen by reason of the relationship with, or position held at, the Company. In addition, the indemnification agreements entered into with our former board members, Messrs. Schwab and Lynch, also provide certain indemnification rights to the entities with which they are affiliated. 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. Further, the Company is a party to a variety of agreements in the ordinary course of business under which it may be obligated to indemnify third parties with respect to certain matters. For the three and nine months ended September 30, 2022 and 2021, the Company had not experienced any losses related to these indemnification obligations, and no claims were outstanding as of September 30, 2022. The Company does not expect significant claims related to these indemnification obligations and consequently concluded that the fair value of these obligations is negligible and no related accruals were recorded.
Purchase Commitment
On June 17, 2021, and later amended on August 3, 2021, the Company entered into a non-cancelable purchase obligation for a subscription to the Palantir Foundry cloud platform, including support services, updates, and related professional services with Palantir for $9,300 payable over three years, continuing through September 30, 2024. Through September 30, 2022, the Company recorded $2,983 under the terms of the agreement, $2,321 of which is included in prepaid expenses on the consolidated balance sheet as of September 30, 2022.
Assignment and License Agreement
In November 2021, the Company and Waypoint Health Innovations, LLC (“Waypoint”) entered into an Assignment Agreement and Intellectual Property License Agreement (collectively, the “Waypoint Agreement”). The Waypoint Agreement closed in December 2021, under which the Company obtained software, documentation, and other intellectual property rights relating to the therapeutic treatment of depression. At the same time, the Company entered into a consulting agreement with the Chief Executive Officer of Waypoint to provide certain services to Pear to be charged on a time-and-materials basis. The Company made an upfront payment of $1,350, and is required to make annual payments starting in the second half of 2022 of $250 per year through 2026 or until a commercial milestone payment is made under the agreement. The upfront payment and the net present value of the annual payments of $1,011 were capitalized and recorded as an intangible asset in consolidated balance sheet at closing, and are being amortized over five years. The net present value of the annual payments was recognized as a seller financing liability, and classified within accrued expenses and other current liabilities and other long-term liabilities on the balance sheet.
The Company will be obligated to pay mid-single digit royalties on net revenues of any commercialized products that incorporate the assets obtained under the Waypoint Agreement. Additionally, the Company could be obligated to make payments of up to an additional $2,500 in the aggregate upon achievement of certain regulatory and commercial milestones. Through September 30, 2022, no royalties have been paid to Waypoint.
Legal Proceedings
The Company is also involved from time to time in various legal proceedings arising in the normal course of business. Although the outcomes of potential legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.
Pear Therapeutics, Inc. | Form 10-Q |Page 19
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
10. REVENUE AND CONTRACT BALANCES
Contract Balances
We enter into agreements with health care providers and payors, and state and local governments, to provide prescriptions which provide for volume-based discounts and other discounts, and in certain circumstances, value-based rebates (“Access Agreements”). We also enter into arrangements with health care providers and payors that provide for government-mandated and/or privately negotiated rebates and discounts with respect to the purchase of our products. A portion of the product revenue is recognized when the products are made available to the customer (via Access Agreements) or when a prescription is fulfilled (via third party reimbursement), and the portion of the product revenue related to the clinician’s access to our proprietary clinician dashboard is deferred and recognized ratably over the remaining term of the contract (if purchased via an Access Agreement) or the prescription duration (if purchased via third party reimbursement).
The timing of revenue recognition, invoicing, and cash collections results in billed accounts receivable and unbilled receivables (contract assets) and deferred revenue (contract liabilities). We invoice our Access Agreement customers in accordance with agreed-upon contractual terms, typically at the beginning of the agreement, or at periodic intervals throughout the contract term. Invoicing may occur subsequent to revenue recognition, resulting in unbilled receivables, or in advance of services being provided, resulting in deferred revenue. Deferred revenue that will be recognized during the twelve-month period from the balance sheet date is recorded as current deferred revenue and the remaining portion is recorded as non-current deferred revenue, which is included in Other long-term liabilities in the accompanying consolidated balance sheets. The following table summarizes the balances of our contract assets and liabilities:
| September 30, 2022 | December 31, 2021 | |||||||||||||
| Contract assets | ||||||||||||||
| Accounts receivables | $ | 389 | $ | 555 | ||||||||||
| Unbilled receivables | 6,794 | 1,239 | ||||||||||||
| Contract liabilities | ||||||||||||||
| Deferred revenue - current | 482 | 421 | ||||||||||||
| Deferred revenue - non-current | 22 | 22 | ||||||||||||
During the nine months ended September 30, 2022, the Company recognized revenue of approximately $379 that was included in deferred revenue at December 31, 2021.
Collaboration Arrangements
On March 15, 2022, the Company entered into a proof of concept agreement with SoftBank Corp., an entity under common control with SVF II Cobbler (DE) LLC, a greater than 5% shareholder of the Company, to develop a Japanese-language digital therapeutic for the treatment of sleep/wake disorders for the Japanese market. Total anticipated revenue from this agreement is between $600 and $750, and the Company anticipates fulfilling its performance obligations by the end of 2022. The Company began performing under this agreement in April 2022, and recognized approximately $361 and $615 of collaboration revenue during the three and nine months ended September 30, 2022, respectively.
11. CAPITAL STOCK
The Company’s authorized capital stock consists of (a) 690,000,000 shares of common stock, par value $0.0001 per share; and (b) 10,000,000 shares of preferred stock, par value $0.0001 per share. As of September 30, 2022, there were 139,248,512 shares of Class A common stock issued and outstanding and 14,213,267 Warrants to purchase the Company’s Class A common stock outstanding. As of September 30, 2022, there were no shares of preferred stock issued or outstanding.
Pear Therapeutics, Inc. | Form 10-Q |Page 20
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
12. STOCK-BASED COMPENSATION AND BENEFIT PLANS
The Company incurred stock-based compensation expenses of $3,563 and $9,850 for the three and nine months ended September 30, 2022, respectively, and $930 and $1,965 for the three and nine months ended September 30, 2021, respectively.
Stock Incentive Plans
On December 20, 2013, Legacy Pear’s board of directors adopted the 2013 Stock Incentive Plan, or the 2013 Plan, which provided for the grant of stock options, both incentive stock options and nonqualified stock options and restricted stock, to be granted to officers, directors, consultants, and service providers. As last amended and approved by the board of directors on November 3, 2020, the Company was permitted to grant up to 16,727,451 incentive awards under the 2013 Plan.
In connection with the closing of the Business Combination, the Company adopted the 2021 Stock Option and Incentive Plan (the “2021 Plan”) a shareholder-approved plan that provides for broad-based equity grants to employees and certain non-employees, including executive officers and permits the granting of restricted stock units (“RSUs”), stock grants, performance based awards, stock options and stock appreciation rights, as well as cash bonus awards.
All stock-based awards are measured based on the grant date fair value and are generally recognized on a straight-line basis in the Company’s consolidated statement of operations and comprehensive income (loss) over the period during which the employee is required to perform services in exchange for the award (generally requiring a four-year vesting period). RSUs granted under the 2021 Plan generally vest over three years, based on continued employment, and are settled upon vesting in shares of the Company’s Class A common stock on a one-for-one basis.
As of September 30, 2022, a total of 38,891,801 shares of Class A common stock are reserved under the 2021 Plan, including a total of 32,000,000 shares initially reserved for issuance under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will automatically increase each January 1, beginning on January 1, 2022 and ending in 2031, by 5% of the outstanding number of Class A common stock on the immediately preceding December 31, or such lesser amount as determined by the plan administrator (the Company’s board of directors or compensation committee).
During the nine months ended September 30, 2022 and 2021, the Company granted stock options to purchase 1,016,918 and 6,000,898 shares of common stock with aggregate grant date fair values of $2,536 and $12,075, respectively.
Common Stock Options
The combined stock option activity for the nine months ended September 30, 2022, is as follows:
| Stock Options | Weighted Average Exercise Price | Weighted-Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding at December 31, 2021 | 19,381,975 | $3.02 | 8.16 | ||||||||||||||||||||
| Granted | 1,016,918 | $4.14 | |||||||||||||||||||||
| Exercised | (1,412,474) | $0.84 | |||||||||||||||||||||
| Canceled and forfeited | (2,194,341) | $4.88 | |||||||||||||||||||||
| Outstanding at September 30, 2022 | 16,792,078 | $3.03 | 7.54 | $ | 11,532 | ||||||||||||||||||
| Exercisable at September 30, 2022 | 9,254,564 | $1.63 | 6.65 | $ | 9,019 | ||||||||||||||||||
Pear Therapeutics, Inc. | Form 10-Q |Page 21
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
There were no stock options granted during the three months ended September 30, 2022. The fair value of stock options that vested during the nine months ended September 30, 2022, was $6,050.
As of September 30, 2022, the total unrecognized compensation costs related to non-vested stock options were approximately $19,151 and are expected to be recognized over a weighted average period of 2.71 years.
Restricted Stock Units
RSUs generally vest in equal annual installments over a three year period. The grant-date fair value of the RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company determines the fair value of RSUs based on the closing price of its common stock on the date of the grant.
RSU activity is as follows:
| Number of Shares | Weighted Average Fair Value | ||||||||||
| Outstanding as of December 31, 2021 | — | — | |||||||||
| Granted | 6,341,788 | $ | 3.26 | ||||||||
| Forfeited and canceled | (550,480) | 4.06 | |||||||||
| Outstanding as of September 30, 2022 | 5,791,308 | $ | 3.19 | ||||||||
As of September 30, 2022, there was $14,684 of unrecognized compensation cost related to time-based RSUs which is expected to be recognized over a weighted-average period of 2.28 years.
Employee Stock Purchase Plan
In connection with the closing of the Business Combination, the Company adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The 2021 ESPP is a shareholder-approved plan under which substantially all employees may voluntarily enroll to purchase the Company’s Class A common stock through payroll deductions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of six-month offering periods. An employee’s payroll deductions under the 2021 ESPP are limited to 15% of the employee’s compensation and employees may not purchase more than $25,000 of stock during any calendar year.
As of September 30, 2022, a total of 5,400,000 shares of our Class A common stock are available for issuance under the 2021 ESPP, including 1,800,000 shares initially reserved under the 2021 ESPP. The number of Class A common stock available for issuance under the 2021 ESPP will automatically increase each January 1 of each calendar year beginning on January 1, 2022, and ending in 2031, by the lesser of 3,600,000 shares of the Company’s Class A common stock, 5% of the outstanding number of shares of Class A common stock on the immediately preceding December 31, or such lesser amount as determined by the plan administrator. As of September 30, 2022, no shares have been issued under the 2021 ESPP.
Stock Compensation Expense
The Black-Scholes option pricing model is used to estimate the fair value of the stock options and rights to acquire stock granted under the 2021 ESPP Plan. The weighted-average estimated fair values of the rights to acquire stock under the 2021 ESPP, as well as the weighted-average assumptions used in calculating the fair values the rights to
Pear Therapeutics, Inc. | Form 10-Q |Page 22
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
acquire stock under the 2021 ESPP during the three and nine months ended September 30, 2022, and 2021 were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Stock Options | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Risk-free interest rate | n/a | 0.87 | % | 1.86 | % | 0.84 | % | ||||||||||||||||
| Expected volatility | n/a | 71.33 | % | 65.69 | % | 70.89 | % | ||||||||||||||||
| Expected term (years) | n/a | 5.76-6.11 | 5.42-6.57 | 5.67-6.7 | |||||||||||||||||||
| Expected dividend yield | n/a | — | % | — | % | — | % | ||||||||||||||||
| Fair value at grant date | n/a | $ | 4.36 | $ | 2.49 | $ | 2.01 | ||||||||||||||||
| 2021 ESPP | |||||||||||||||||||||||
| Risk-free interest rate | 1.68% | n/a | 1.68% | n/a | |||||||||||||||||||
| Expected term (in years) | 0.50 | n/a | 0.50 | n/a | |||||||||||||||||||
| Expected volatility | 65.69% | n/a | 65.69% | n/a | |||||||||||||||||||
| Fair value at grant date | $1.57 | n/a | $1.57 | n/a | |||||||||||||||||||
There were no options granted during the three months ended September 30, 2022.
The Company has classified stock-based compensation in its consolidated statements of operations and comprehensive loss as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cost of product revenue | $ | 64 | $ | 66 | $ | 314 | $ | 79 | |||||||||||||||
| Research and development | 1,263 | 333 | 3,862 | 711 | |||||||||||||||||||
| Selling, general, and administrative | 2,236 | 531 | 5,674 | 1,175 | |||||||||||||||||||
| Total stock-based compensation expense | $ | 3,563 | $ | 930 | $ | 9,850 | $ | 1,965 | |||||||||||||||
13. INCOME TAXES
During the three and nine months ended September 30, 2022 and 2021, the Company recorded a full valuation allowance on federal and state deferred tax assets since management does not forecast the Company to be in a taxable position in the near future.
14. NET LOSS PER SHARE
Potentially dilutive securities have been excluded from the computation of diluted net loss per share as their effects would be anti-dilutive. For periods in which the Company reports a net loss attributable to common stockholders, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at period end, from the computation of
Pear Therapeutics, Inc. | Form 10-Q |Page 23
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
diluted net loss per share attributable to common stockholders because including them would have had an anti-dilutive effect:
| Three and Nine Months Ended September 30, 2022 | Three and Nine Months Ended September 30, 2021 | |||||||||||||||||||
| Outstanding common stock options | 16,792,078 | 16,219,132 | ||||||||||||||||||
| Unvested restricted stock units | 5,791,308 | — | ||||||||||||||||||
| Warrants to purchase Legacy Pear common stock | — | 1,126,705 | ||||||||||||||||||
| Private placement warrants to purchase common stock | 5,013,333 | — | ||||||||||||||||||
| Public warrants to purchase common stock | 9,199,934 | — | ||||||||||||||||||
| Earn-Out Shares | 12,395,625 | — | ||||||||||||||||||
| Total | 49,192,278 | 17,345,837 | ||||||||||||||||||
The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company for the three and nine months ended September 30, 2022 and 2021:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss attributable to common shareholders | $ | (30,723) | $ | (31,298) | $ | (49,120) | $ | (83,892) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
Weighted-average common shares outstanding for basic net loss per share (1) | 138,956,879 | 112,236,267 | 138,369,788 | 110,960,112 | |||||||||||||||||||
Basic and diluted net loss per share attributable to common stockholders (1) | $ | (0.22) | $ | (0.28) | $ | (0.35) | $ | (0.76) | |||||||||||||||
(1) The weighted-average common shares and thus the net loss per share calculations and potentially dilutive security amounts for all periods prior to the Business Combination have been retrospectively adjusted to the equivalent number of shares outstanding immediately after the Business Combination to effect the reverse recapitalization. Historically reported weighted average shares outstanding have been multiplied by the exchange ratio of approximately 1.47. See Note 3 for further information.
15. RESTRUCTURING CHARGES
On July 25, 2022, the Company announced a restructuring of its operations and a reduction in workforce due to the macroeconomic environment. As a result of the restructuring, the Company incurred a restructuring charge of $900 associated primarily with severance and health insurance expenses related to 25 full-time employees, representing approximately 9% of full-time employee base at the time of the restructuring. The costs associated with the restructuring were recorded in the quarter ended September 30, 2022. The restructuring reduced the Company’s costs related to its pipeline candidates, discovery programs, business development, and the Company's dual platform in order to prioritize certain of its commercial efforts, and the Company will continue to reduce costs in each of these areas.
On November 14, 2022, the Company announced a second reduction in workforce further reducing our headcount by approximately 59 employees, or approximately 22% of our full-time employees as of September 30, 2022. As a result of the reduction in workforce, the Company expects to incur a charge of approximately $2,600 associated primarily with severance, employee benefits and related costs. In addition, the Company expects to record a stock-based compensation charge and corresponding payroll tax expense related to equity compensation for employees impacted by the reduction in workforce. The Company expects to record substantially all costs related to the second reduction in workforce during the quarter ended December 31, 2022 when we expect the second reduction in workforce will be substantially complete. However, the required agreements that will be executed by the
Pear Therapeutics, Inc. | Form 10-Q |Page 24
Pear Therapeutics, Inc.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
departing employees are subject to local law and consultation requirements, which could extend the process into the first quarter of 2023. Further, the charges the Company expects to incur are subject to assumptions, and actual charges may differ from the estimate disclosed above.
16. SUBSEQUENT EVENT
We have evaluated events and transactions occurring after the balance sheet date through the date of our consolidated financial statements were issued and concluded that there were no events or transactions occurring during this period that required recognition or disclosure in our consolidated financial statements, except for matters described in Note 15 related to the November 2022 workforce reduction.
* * * * * *
Pear Therapeutics, Inc. | Form 10-Q |Page 25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements based upon current expectations that involve risks and uncertainties. Pear’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the “Risk Factors” section included in Part II, Item 1A of this Form 10-Q. All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31. For purposes of this section, all references to “we,” “us,” “our,” “Pear,” or the “Company” refer to Pear Therapeutics, Inc. and its consolidated subsidiaries.
The following discussion and analysis should also be read in conjunction with the accompanying consolidated financial statements included in Part I, Item 1 of this Form 10-Q. This Item 2 generally discusses 2022 and 2021 financial condition and results of operations and year-to-year comparisons between 2022 and 2021.
Overview
Pear is a commercial-stage healthcare company pioneering a new class of medicine, referred to as PDTs, which use software to treat disease. Our vision is to advance healthcare through the widespread use of PDTs.
Two of our FDA-authorized PDTs are for the treatment of addiction. Our first product, reSET, is indicated for the treatment of substance use disorder (“SUD”) as a monotherapy. Our second product, reSET-O, is indicated for the treatment of opioid use disorder (“OUD”) in combination with buprenorphine.
Our third product, Somryst, is indicated for the treatment of chronic insomnia.
Operating Segments
We operate our business in a single segment and as one reporting unit, which is how our chief operating decision maker (who is our president and chief executive officer) reviews financial performance and allocates resources.
Factors Affecting Our Performance and Results of Operations
We believe that our performance and future success depend on many factors that present significant opportunities for us, but also pose risks and challenges, including those discussed more fully under the heading “Risk Factors” in Part II, Item 1A of this Form 10-Q.
Key Business Metrics
We monitor the key non-financial operating performance metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions. The metrics include the following:
A.Total Prescriptions in a given period is (a) the imputed number of prescriptions based on revenue recognized under Access Agreements, plus (b) the number of prescriptions written which are not imputed under Access Agreements.
B.Fulfillment Rate in a given period is (a) the number of prescriptions for which either a patient commences therapy or there is a contractual payment obligation and revenue has been recognized divided by (b) Total Prescriptions. (Total Prescriptions times Fulfillment Rate equals Fulfilled Prescriptions.)
C.Payment Rate in a given period is (a) the number of prescriptions for which the company receives payment divided by (b) Fulfilled Prescriptions. (Fulfilled Prescriptions times Payment Rate equals Paid Prescriptions.)
D.Average Selling Price, or ASP, in a given period is the average price received by the Company per script for which the Company receives payment.
Pear Therapeutics, Inc. | Form 10-Q |Page 26
| Key Performance Operating Metric | Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||
| Total Prescriptions | 11,400+ | 31,000+ | |||||||||
| Fulfillment Rate | 60% | 58% | |||||||||
| Payment Rate | 49% | 48% | |||||||||
| Average Selling Price (ASP) | $1,345 | $1,333 | |||||||||
Product Revenue
We generate product revenue from the sale of our three FDA-authorized PDTs: reSET, reSET-O, and Somryst. We began our efforts to self-commercialize reSET and reSET-O in Q4 2019 and Somryst in Q4 2020. Sales of our existing products are expected to reduce our net operating losses over time, but we cannot predict when we will achieve profitability.
We enter into agreements with health care providers and payors, and state and local governments, to provide prescriptions which provide for volume-based discounts and other discounts, and in certain circumstances, value-based rebates (“Access Agreements”). We also enter into arrangements with health care providers and payors that provide for government-mandated and/or privately negotiated rebates and discounts with respect to the purchase of our products. A portion of the product revenue is recognized when the products are made available to the customer (via Access Agreements) or when a prescription is fulfilled (via third party reimbursement), and the portion of the product revenue related to the clinician’s access to our proprietary clinician dashboard is deferred and recognized ratably over the remaining term of the contract (if purchased via an Access Agreement) or the prescription duration (if purchased via third party reimbursement).
Product revenue from our existing three FDA-authorized PDTs, as well as potential future product candidates, is and will be impacted by the many factors, including the following variables: patient and clinician adoption of PDTs, pricing, reimbursement, contingency management, and product mix.
Patient and Clinician Adoption of PDTs — To continue to grow our business, we will need to execute on our current business strategy of achieving and maintaining broad market acceptance of our PDTs by patients and physicians. Market acceptance and adoption of our PDTs depends on educating patients, self-insured employers, commercial and government payors, health plans and physicians, and other government entities, as to the distinct features, therapeutic benefits, cost savings, and other advantages of our PDTs as compared to competitive products or other currently available treatment options.
Pricing — In the future, assuming that we have sufficient operating capital, we expect to grow the number of commercially available PDTs in our product portfolio, offering a broad range of PDTs spanning multiple price points. PDTs may be subject to competition which may impact our pricing. In addition, our products may be subject to legislative prescription-pricing practices. Further, we continue to collect additional data to enhance product performance and bolster health economics and outcomes research (“HEOR”) and associated cost savings for payors. Our average selling price could decline over time as we engage in larger volume transactions that extend over multiple years and provide for larger volume discounts.
Reimbursement — Our payor strategy focuses across all major payor channels, including employers, Integrated Delivery Networks (“IDNs”), pharmacy benefit managers (“PBMs”), commercial payors, and government payors, including Medicaid and Medicare. We expect to increase our number of payors, and the pricing for such payors may vary as net prices for our products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and can be subject to customary discounts and rebates. In addition, some of our products may be subject to certain customer incentive programs. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to achieve profitability. In the future, as our market access team educates payors on the clinical attributes of our products, we expect our products to secure favorable coverage policies and to maximize the covered lives that have reimbursement for our products.
Pear Therapeutics, Inc. | Form 10-Q |Page 27
Contingency Management —Costs related to clinically-validated rewards patients earn as they complete treatment goals within our reSET and reSET-O PDTs are recorded as contra revenue.
Product Mix — Sales of certain products have, or are expected to have, higher gross margins than others. As a result, our financial performance depends, in part, on the mix of products we sell during a given period.
Cost of Product Revenue
Cost of product revenue consists primarily of costs that are closely correlated or directly related to the delivery of our products, including pharmacy costs, royalties paid under license agreements related to our commercialized products, amortization of milestone payments capitalized related to commercialized products, hosting costs, and personnel-related costs, including salaries and bonuses, employee benefits, and stock-based compensation attributable to employees in a particular function and associated with our implementation services. We expect the cost of product revenue to increase as we further commercialize our products and increase the volume of prescriptions filled. However, we expect our cost of product revenue to decrease as a percentage of total revenue over the longer-term subject to the expected revenue growth.
Research and Development Expenses
As of September 30, 2022, we have multiple product candidates in our pipeline. As of July 25, 2022, we paused most investment in our pipeline in order to conserve cash, and we expect our R&D expenses will decrease during the second half of 2022 and into 2023. In addition, we anticipate that our personnel costs will decline as result of the reductions in workforce that occurred in July and November 2022.
R&D expenses consist of costs incurred in performing R&D activities, which include:
•expenses incurred in connection with the development of our pipeline of PDTs;
•expenses incurred to enhance our products;
•costs in connection with third-party licensing agreements, including development and regulatory milestones;
•personnel-related expenses, including salaries, bonuses, benefits, and stock-based compensation for employees engaged in R&D functions;
•cost of clinical trials;
•expenses incurred in connection with the discovery and development of our PDTs, including under agreements with third parties, such as consultants;
•expenses incurred under agreements with consultants who supplement our internal capabilities, including software development;
•facilities, depreciation, and other expenses, which include direct and allocated expenses, such as rent and maintenance of facilities, insurance, and other operating costs for space and costs directly related to R&D functions; and
•capitalization of certain software development costs attributable to the development of our data foundry during the application development stage of the project and amortization of the costs to research and development upon completion over the expected life of the software.
Each of our product candidates has technical, clinical, regulatory, and commercial risk, including those discussed more fully under the heading “Risk Factors” in Part II, Item 1A of this Form 10-Q.
We expense R&D costs as incurred and do not track the costs at a project level. Advance payments made for goods or services to be received in the future for use in R&D activities are recorded as prepaid expenses. The prepaid
Pear Therapeutics, Inc. | Form 10-Q |Page 28
amounts are expensed as the benefits are consumed. In the early phases of development, our R&D costs are often devoted to product platform and proof-of-concept studies that are not necessarily allocable to a specific product.
Selling, General, and Administrative Expenses
Selling, general, and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation related to commercial, marketing, executive, finance and accounting, information technology, corporate and business development, and human resource functions. Other SG&A expenses include marketing initiatives, market research and analysis, conferences and trade shows, travel expenses, professional services fees (including legal, patent, accounting, audit, tax, and consulting fees), insurance costs, amortization of internal-use software, general corporate expenses, and allocated facilities-related expenses, including rent and maintenance of facilities.
We expect SG&A expenses to decrease as we reduce spending primarily on personnel-related expenses and certain commercial efforts in connection with our restructuring activities, including the reductions in workforce that occurred in July and November 2022.
Interest and other income (expense), net
Interest expense includes interest due under our Credit Agreement with Perceptive Credit Holdings III, LP, as administrative agent for the lenders, which we refer to as the Perceptive Credit Facility, and accretion of the debt discount on the Perceptive Credit Facility as well as the change in the fair value of our derivative liabilities and earn-out liabilities that occurred during the period. We expect interest expense to increase as London Interbank Offered Rate (“LIBOR”) increases. In addition, it includes the accretion of the interest of the seller financing in connection with the Waypoint asset acquired in November 2021. See Note 9 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Interest income consists of interest earned on cash balances held in interest-bearing accounts. We expect our interest income will fluctuate based on rising interest rates, our cash balances on hand, the timing and ability to raise additional funds as well as the amount of expenditures for our commercial products and R&D for our product candidates and ongoing business operations.
Financial Highlights
Year-over-year product revenue grew by approximately 264% to $9.3 million from $2.6 million primarily due to an increase in sales of reSET and reSET-O under access agreements.
We incurred net losses of $49.1 million and $83.9 million for the nine months ended September 30, 2022 and 2021, respectively, representing a period-over-period decrease of $34.8 million or 41.4%. This decrease was primarily due to a change in the fair value of the earn-out liabilities of $41.0 million for the nine months ended September 30, 2022; a gain related to the change in fair value of the Public Warrants and the Private Placement Warrants of $6.1 million for the nine months ended September 30, 2022, compared to a $7.3 million loss for the nine months ended September 30, 2021, related to the Legacy Pear warrants; and a $7.2 million increase in total revenue period over period. These increases were partially offset by a $24.5 million increase in personnel-related expenses, primarily related to new hires as we expanded from an average of 213 employees for the nine months ended September 30, 2021, to an average of 293 employees for the nine months ended September 30, 2022. As of September 30, 2022, we had approximately 260 full-time employees. We had a $4.6 million increase in costs related to being a public company period over period, primarily related to our directors and officers insurance. To date, we have funded our operations primarily with proceeds from sales of Legacy Pear’s convertible preferred stock, proceeds as a result of the Business Combination, payments received in connection with collaboration and license agreements, product sales, and proceeds from borrowings under various credit facilities. Since our inception, we have received gross cash proceeds of $175.3 million as a result of the Business Combination (see Note 3 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q), and gross cash proceeds of $268.2 million from sales of our Legacy Pear’s convertible preferred stock; we currently have $30.0 million of debt outstanding under the Perceptive Credit Facility.
Pear Therapeutics, Inc. | Form 10-Q |Page 29
Recent Events
Restructuring and Reductions in Workforce
On July 25, 2022, the Company restructured its operations to narrow its near-term business focus and reduce its workforce due to the macroeconomic environment. As a result of the restructuring, the Company incurred a charge of $0.9 million primarily associated with the severance and health insurance expenses related to 25 full-time employees, representing approximately 9% of the the full-time employee at the time of the restructuring and reduction in workforce. The restructuring reduced the Company’s cost of the pipeline candidates, discovery programs, business development, and the Company's dual platform in order to prioritize certain of its commercial efforts and will continue to reduce costs in each of these areas. The direct costs associated with the restructuring and reduction in workforce were recorded in the quarter ended September 30, 2022.
As of July 25, 2022, in connection with this restructuring, we paused most investment in our pipeline which is discussed in detail in Part I, Item 1 of our Form 10-K filed with the Securities and Exchange Commission on March 29, 2022.
On November 14, 2022, we announced a second reduction in workforce further reducing our headcount by approximately 59 employees, or approximately 22% of our full-time employees as of September 30, 2022, due to the worsening macroeconomic environment. The Company currently estimates it will incur cash charges of approximately $2.6 million in connection with the second reduction in workforce, related to severance payments, employee benefits and related costs, primarily in the fourth quarter of 2022, when it anticipates that the reduction in workforce will be substantially complete. In addition, the Company expects to record a stock-based compensation charge of between $0.3 million and $0.9 million and corresponding payroll tax expense related to modifications of equity awards for employees impacted by the reduction in workforce, subject to local law and consultation requirements, which could extend the process into the first quarter of 2023. The Company's estimate of the stock-based compensation charge and the corresponding payroll tax expense related to equity compensation for employees is subject to several assumptions, including the future price of the Company's stock at the time of the award modifications. Further, the charges the Company expects to incur are subject to assumptions, and actual charges may differ from the estimate disclosed above. In the aggregate, over the next twelve months, the reduction in force is expected to result in approximately $10.7 million in cash operating expense savings related to foregone salaries and benefits. Each affected employee’s eligibility for severance benefits is contingent upon such employee’s execution of a separation agreement, which includes a general release of claims against the Company.
We expect the July and November 2022 restructuring activities will save an aggregate of approximately $14.7 million in compensation, benefits, and related payroll taxes during the year ending December 31, 2023.
Business Combination
On December 3, 2021, (the “Closing Date”) we consummated a business combination, pursuant to the terms of the Business Combination Agreement dated June 21, 2021. Upon the consummation of the Business Combination, Oz Merger Sub, a newly formed subsidiary of THMA, merged with and into Pear, with Pear surviving. THMA was renamed Pear Therapeutics, Inc. (“Pear”) and Pear Therapeutics, Inc. was renamed Pear Therapeutics (US), Inc. (“Legacy Pear”). Legacy Pear is deemed the accounting predecessor and the post-company successor US Securities and Exchange Commission (“SEC”) registrant, which means Legacy Pear financial statements for previous periods will be disclosed in this Form 10-Q. Future period reports filed with the SEC will include Pear Therapeutics, Inc. and its subsidiaries.
The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, THMA was treated as the acquired company for financial statement reporting purposes. The most significant change in the post-combination company’s reported financial position and results was an increase in cash of $175.0 million. We paid $32.8 million in transaction costs relating to the business combination. We recorded a liability related to the Public Warrants and the Private Placement Warrants of $16.5 million and $95.4 million related to the earn-out shares that holders of Legacy Pear common stock and Legacy Pear convertible preferred
Pear Therapeutics, Inc. | Form 10-Q |Page 30
stock prior on the Closing Date who received the contingent right to receive up to 12,395,625 additional shares of Class A common stock (the “Earn-Out Shares”) upon the achievement of certain earn-out targets.
As a consequence of the Business Combination, we became the successor to an SEC-registered and Nasdaq-listed company, and we have hired additional personnel and implemented procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees over those as a private company.
Economic Conditions (Impact of COVID-19)
In March 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic. The pandemic has significantly impacted the economic conditions in the US, as federal, state and local governments react to the public health crisis, creating significant uncertainties in the US economy. The downstream impact of various lockdown orders and related economic pullback affect our business and our customers to varying degrees. Although conditions have improved in the US in recent months, on October 13, 2022, the US Secretary of Health and Human Services extended the COVID-19 public health emergency declaration through at least January 11, 2023. We continue to closely monitor the impact of COVID-19 on all aspects of our business, including how it is impacting our customers, patients, employees, suppliers, vendors, and business partners. We are unable to predict the specific impact that COVID-19 may have on our business, financial position, and operations moving forward due to the numerous uncertainties. Any estimates made herein may change as more currentnew events occur and additional information becomes availableis obtained, and accordingly, the actual results could differ significantlymaterially from those estimates.any estimates made herein under different assumptions or conditions.
For further details see the information under the heading “Risk Factors” in Part II, Item 1A in this Form 10-Q. We are unable to predict the full impact that the COVID-19 pandemic will have on our future results of operations, liquidity, and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken by government authorities across the US. The COVID-19 pandemic has also affected global access to capital and caused significant volatility in financial markets. Significant deterioration of the US and global economies or rapid increases in inflation could have an adverse impact on our future liquidity needs. As a result of the COVID -19 pandemic, we shifted our workforce to a hybrid model in which employees in one of our three offices work both remotely and onsite, and we anticipate we will continue to use this model going forward. In addition, our workforce has deep domain knowledge across a range of healthcare, technology, and general business, which was partially achieved by having certain of our employees working remotely across the US. Pear will continue to monitor the performance of its business and assess the impacts of COVID-19.
Impact of Inflation
We are experiencing rising costs for certain inflation-sensitive operating expenses such as labor and certain service providers that are heavily dependent on labor. We do not believe these impacts were material to net income during the nine months ended September 30, 2022 or will be going forward. However, significant sustained inflation driven by the macroeconomic environment or other factors could negatively impact our margins, profitability, and results of operations in future periods.
Results of Operations
The tables and discussion below present the results for the periods indicated:
| Three Months Ended September 30, | Change | |||||||||||||||||||||||||
| (in thousands, except percentages) | 2022 | 2021 | $ | % | ||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Product revenue | $ | 3,528 | $ | 1,203 | $ | 2,325 | 193 | % | ||||||||||||||||||
| Collaboration and license revenue | 555 | 108 | 447 | 414 | % | |||||||||||||||||||||
| Total revenues | 4,083 | 1,311 | 2,772 | 211 | % | |||||||||||||||||||||
| Cost and operating expenses: | ||||||||||||||||||||||||||
| Cost of product revenue | 2,555 | 2,120 | 435 | 21 | % | |||||||||||||||||||||
| Research and development | 10,390 | 9,576 | 814 | 9 | % | |||||||||||||||||||||
| Selling, general, and administrative | 17,767 | 17,966 | (199) | (1) | % | |||||||||||||||||||||
| Total cost and operating expenses | 30,712 | 29,662 | 1,050 | 4 | % | |||||||||||||||||||||
| Loss from operations | (26,629) | (28,351) | 1,722 | (6) | % | |||||||||||||||||||||
| Other expenses: | ||||||||||||||||||||||||||
| Interest and other expenses, net | (647) | (1,042) | 395 | (38) | % | |||||||||||||||||||||
| Change in estimated fair value of earn-out liability | (2,829) | — | (2,829) | * | ||||||||||||||||||||||
| Change in estimated fair value of warrant liabilities | (618) | (1,905) | 1,287 | (68) | % | |||||||||||||||||||||
| Total other expense | (4,094) | (2,947) | (1,147) | 39 | % | |||||||||||||||||||||
| Net loss | $ | (30,723) | $ | (31,298) | $ | 575 | (2) | % | ||||||||||||||||||
__________________
* Percentage change not meaningful.
Product revenue—Product revenue for the three months ended September 30, 2022 was $3.5 million, compared to $1.2 million for the three months ended September 30, 2021. The increase of $2.3 million was primarily driven by increased sales of reSET and reSET-O under Access Agreements.
Collaboration and license revenue—Collaboration and license revenue for the three months ended September 30, 2022 was $0.6 million, compared to $0.1 million for the three months ended September 30, 2021 primarily due to the development work completed on a Japanese-language digital therapeutic for the treatment of sleep/wake disorders for the Japanese market in collaboration with SoftBank Corp. See Item 2, “Related Party Transactions” below for information regarding the related party nature of the agreement.
Cost of product revenue—Cost of product revenue for the three months ended September 30, 2022 was $2.6 million, compared to $2.1 million for the three months ended September 30, 2021. This increase was primarily due to implementation costs associated with our Access Agreements and minimum royalties related to licensing agreements for commercialized products, pharmacy, and hosting costs for our PDTs. Cost of product revenue represented 62.6% and 161.7% of total revenue for the three months ended September 30, 2022 and 2021, respectively. We expect cost of product revenue to decrease as a percentage of revenue as revenue increases.
Research and development—R&D expenses for the three months ended September 30, 2022 were $10.4 million, compared to $9.6 million for the three months ended September 30, 2021. The increase of $0.8 million was primarily due to an increase of $1.9 million of personnel-related costs as we expanded our average R&D staff from 104 for the three months ended September 30, 2021, to 124 for the three months ended September 30, 2022. We anticipate decreases in R&D costs compared to prior periods as a result of the restructuring, including the delay and cessation of certain pipeline activities and the reductions in workforce announced in July and November 2022.
Selling, general, and administrative—SG&A expenses for the three months ended September 30, 2022 were $17.8 million, compared to $18.0 million for the three months ended September 30, 2021. This decrease of $0.2 million
Pear Therapeutics, Inc. | Form 10-Q |Page 32
was primarily due to a $2.3 million decrease in marketing and advertising costs, a $1.7 million decrease in other operating costs, and a $0.4 million decrease in professional fees and reduced personnel costs resulting from the restructuring and reduction in workforce announced on July 25, 2022. These decreases were partially offset by the following increases:
•$2.8 million in personnel-related costs. While average headcount was consistent period over period, as a result of the severance payments made under the reduction in workforce announced in July 2022, compensation costs were higher for the three months ended September 30, 2022;
•$0.6 million of public company costs, primarily related to insurance for our directors and officers; and
•$0.4 million of depreciation and amortization expense, primarily related to amortization of software used in our patient support center.
We anticipate further decreases in the future in compensation and other operating costs compared to prior periods as a result of the restructuring and reductions in workforce announced in July and November 2022.
Interest and other (expense) income, net—Interest and other income (expense), net, was an expense of $0.6 million for the three months ended September 30, 2022, compared to an expense of $1.0 million for the three months ended September 30, 2021. This decrease is mainly the result of increased interest income on cash equivalents and short-term investments of $0.4 million during the three months ended September 30, 2022.
Change in fair value of earn-out liabilities—For the three months ended September 30, 2022 we recognized a $2.8 million loss as a result of the change in fair value of earn-out liabilities.
Change in fair value of warrant liabilities—We recognized a $1.9 million loss for the three months ended September 30, 2021 related to the Legacy Pear warrants, which were exercised in 2021 prior to the Business Combination. For the three months ended September 30, 2022, we recognized a loss of $0.6 million related to outstanding the Public Warrants and the Private Placement Warrants.
Pear Therapeutics, Inc. | Form 10-Q |Page 33
| Nine Months Ended September 30, | Change | |||||||||||||||||||||||||
| (in thousands, except percentages) | 2022 | 2021 | $ | % | ||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Product revenue | $ | 9,274 | $ | 2,550 | $ | 6,724 | 264 | % | ||||||||||||||||||
| Collaboration and license revenue | 855 | 338 | 517 | 153 | % | |||||||||||||||||||||
| Total revenues | 10,129 | 2,888 | 7,241 | 251 | % | |||||||||||||||||||||
| Cost and operating expenses: | ||||||||||||||||||||||||||
| Cost of product revenue | 6,437 | 3,585 | 2,852 | 80 | % | |||||||||||||||||||||
| Research and development | 36,370 | 24,943 | 11,427 | 46 | % | |||||||||||||||||||||
| Selling, general, and administrative | 61,512 | 45,811 | 15,701 | 34 | % | |||||||||||||||||||||
| Total cost and operating expenses | 104,319 | 74,339 | 29,980 | 40 | % | |||||||||||||||||||||
| Loss from operations | (94,190) | (71,451) | (22,739) | 32 | % | |||||||||||||||||||||
| Other income (expenses): | ||||||||||||||||||||||||||
| Interest and other expenses, net | (2,006) | (3,086) | 1,080 | (35) | % | |||||||||||||||||||||
| Change in estimated fair value of earn-out liability | 40,961 | — | 40,961 | * | ||||||||||||||||||||||
| Change in estimated fair value of warrant liabilities | 6,115 | (7,302) | 13,417 | * | ||||||||||||||||||||||
| Loss on issuance of Legacy Pear convertible preferred stock | — | (2,053) | 2,053 | (100) | % | |||||||||||||||||||||
| Total other income (expense) | 45,070 | (12,441) | 57,511 | * | ||||||||||||||||||||||
| Net loss | $ | (49,120) | $ | (83,892) | $ | 34,772 | (41) | % | ||||||||||||||||||
__________________
* Percentage change not meaningful.
Product revenue—Product revenue for the nine months ended September 30, 2022, was $9.3 million, compared to $2.6 million for the nine months ended September 30, 2021. The increase of $6.7 million was primarily driven by increased sales of reSET and reSET-O under Access Agreements.
Collaboration and license revenue—Collaboration and license revenue for the nine months ended September 30, 2022 was $0.9 million, compared to $0.3 million for the nine months ended September 30, 2021 primarily due to the development work completed on a Japanese-language digital therapeutic for the treatment of sleep/wake disorders for the Japanese market in collaboration with SoftBank Corp. See Item 2, “Related Party Transactions” below for information regarding the related party nature of the agreement.
Cost of product revenue—Cost of product revenue for the nine months ended September 30, 2022, was $6.4 million, compared to $3.6 million for the nine months ended September 30, 2021. This increase of $2.9 million was primarily due to implementation costs associated with our Access Agreements and minimum royalties related to licensing agreements for commercialized products, pharmacy, and hosting costs for our PDTs. Cost of product revenue represented 63.6% and 124.1% of total revenue for the nine months ended September 30, 2022 and 2021, respectively. We expect cost of product revenue to decrease as a percentage of revenue as revenue increases.
Research and development—R&D expenses for the nine months ended September 30, 2022 were $36.4 million, compared to $24.9 million for the nine months ended September 30, 2021. The increase of $11.4 million was primarily due to an increase of $10.0 million of personnel-related costs as we continued shifting our software development work from external to internal resources, and coinciding with an increase in average R&D headcount from 93 for the nine months ended September 30, 2021, to 132 for the nine months ended September 30, 2022. We anticipate decreases in R&D costs compared to prior periods as a result of the restructuring and reductions in workforce announced in July and November of 2022.
Selling, general, and administrative—SG&A expenses were $61.5 million and $45.8 million for the nine months ended September 30, 2022 and 2021, respectively. The increase of $15.7 million was primarily due to:
Pear Therapeutics, Inc. | Form 10-Q |Page 34
•$11.8 million in personnel-related costs as a result of an increase in average headcount from 111 for the nine months ended September 30, 2021, to 139 for the nine months ended September 30, 2022, primarily in the commercial team as we expand our commercial footprint;
•$4.6 million of public company costs, including certain professional fees and insurance for our directors and officers;
•$0.7 million of travel costs associated with increased business activity and our growing customer base; and
•$1.3 million of depreciation and amortization expense, primarily related to amortization of software used in our patient support center.
These increases were offset by a decrease of $2.6 million in other operating expenses as a result of cost saving initiatives. We anticipate further decreases in employee related costs compared to prior periods as a result of the reductions in workforce, exclusive of the costs associated for the reduction in workforce that are expected to be included in the quarter ended December 31, 2022.
Interest and other (expense) income, net—Interest and other income (expense), net, for the nine months ended September 30, 2022 was an expense of $2.0 million compared to an expense of $3.1 million for the nine months ended September 30, 2021. This decrease is mainly the result of $0.7 million of interest income on cash equivalents and short-term investments and a $0.7 million gain from the change in the fair value of the embedded debt derivative recorded during nine months ended September 30, 2022.
Change in fair value of earn-out liabilities—For the nine months ended September 30, 2022, we recognized a $41.0 million gain as a result of the change in fair value of the earn-out liabilities.
Change in fair value of warrant liabilities—We recognized a $7.3 million loss for the nine months ended September 30, 2021 related to the Legacy Pear Warrants, which were exercised in 2021 prior to the Business Combination. For the nine months ended September 30, 2022, we recognized a gain of $6.1 million related to the Public Warrants and the Private Placement Warrants.
Loss on issuance of Legacy Pear convertible preferred stock—In February 2021, we issued shares of Legacy Pear Series D-1 Preferred Stock. The shares were recorded at their estimated fair market value on the date of issuance. In connection with the Legacy Pear Series D-1 Preferred Stock, we recorded a loss of $2.1 million for the nine months ended September 30, 2021, which represents the amount by which the estimated fair value of the shares exceeded the sale price, net of issuance costs.
Income tax—We did not incur income tax expenses for the nine months ended September 30, 2022 and 2021. Given our lack of prior earnings history, we have a full valuation allowance primarily related to our net operating loss and R&D credit carryforwards that we do not consider more likely than not to be realized.
Liquidity and Capital Resources
Since our inception, our primary sources of capital have been proceeds from sales of Legacy Pear convertible preferred stock, payments received in connection with collaboration agreements, proceeds from borrowings under various credit facilities, and the Business Combination. See Note 3 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
We have three commercial products: reSET, reSET-O, and Somryst. The revenue from the sale of these products at the present time is not sufficient to cover the operating costs incurred. Our ability to achieve sufficient revenue to cover our costs is highly dependent on our PDTs achieving and maintaining broad market acceptance by patients and physicians and obtaining reimbursement from third-party payors. We have incurred recurring losses from inception and anticipate net losses and negative operating cash flows for the near future. For the nine months ended September 30, 2022 and 2021, we incurred net operating losses of $49.1 million and $83.9 million, respectively.
Pear Therapeutics, Inc. | Form 10-Q |Page 35
As of September 30, 2022 and December 31, 2021, we had an accumulated deficit of $297.1 million and $248.0 million, respectively. As of September 30, 2022 and December 31, 2021, we had outstanding debt of $27.5 million and $27.0 million, net of debt issuance costs, respectively. Our cash flows may fluctuate and are difficult to forecast and will depend on many factors. As of September 30, 2022 and December 31, 2021, we had cash and cash equivalents of $59.7 million and $169.6 million, respectively.
Our primary uses of capital are, and we expect will continue to be for the near future, funding operating activities. We have in the past and we expect in the future to capitalize labor costs related to the development of our internal-use software.
In the future, we will need to raise additional capital to pursue our growth strategy and support continuing operations. Until such time as we can generate significant revenue to fund operations, we expect to seek additional capital from the issuance of equity, debt, or other capital transactions. If sufficient funds on acceptable terms are not available when needed, we will be required to significantly reduce our operating expenses further by a significant amount. On July 25, 2022, we restructured our business operations to narrow our near-term business focus and decreased our workforce to reduce our operating expenses. We announced a further reduction in workforce on November 14, 2022. We may be unable to increase our revenue, raise additional funds, or enter into such other agreements or arrangements when needed on favorable terms, or at all. Despite our recent restructuring, if we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, further scale back or discontinue the development and commercialization of more of our product candidates and other strategic initiatives. We are also subject to various covenants related to the Perceptive Credit Facility, and given the substantial doubt about our ability to continue as a going concern, there is a risk that we may not meet our covenants in the future. As of September 30, 2022 and December 31, 2021, we met our covenants, however we concluded that the above circumstances raise substantial doubt about our ability to continue as a going concern. See Note 7 in the accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
Cash and Cash Equivalents
As of September 30, 2022, we had $59.7 million of cash and cash equivalents. Our future capital requirements may vary from those currently planned and will depend on various factors, including the timing and extent of R&D spending and spending on other strategic business initiatives, including expanding our commercial operations.
Liquidity Risks
We expect to incur substantial additional expenditures in the near term to support our ongoing activities, including costs related to being a public company. We expect to continue to incur net losses for the foreseeable future. Our ability to fund our product development and clinical operations as well as commercialization of our product candidates will depend on the amount and timing of cash available to fund operations. Our future liquidity and capital funding requirements will depend on numerous factors, including:
•our revenue growth;
•the ability to obtain third-party payor reimbursement for our current products;
•the amount and timing of sales and other revenues from our product candidates, if approved, including the sales price and the availability of coverage and adequate third-party payor reimbursement;
•our commercial activities, including sales and marketing;
•our R&D efforts;
•the emergence and effect of competing or complementary products;
•the outcome, timing, and cost of meeting regulatory requirements established by the FDA, or comparable foreign regulatory authorities;
•the progress, timing, scope, and costs of our preclinical studies, clinical trials, potential future clinical trials, and other related activities;
•the costs of commercialization activities for any of our product candidates that receive marketing authorization, including the costs and timing of establishing product sales, marketing and hosting capabilities, or entering into strategic collaborations with an original maturitythird parties to leverage or access these capabilities;
•the cash requirements of three monthsdeveloping our programs and our ability and willingness to finance their continued development;
•the cash requirements of any future discovery of product candidates;
•our ability to retain our current employees;
•the time and cost necessary to respond to technological and market developments, including other products that may compete with one or lessmore of our product candidates;
•debt service requirements;
•the extent to which we acquire or invest in business, products, or technology;
•our ability to reduce or contain certain costs and expenses;
•the impact of the macroeconomic environment; and
•the impact of the COVID-19 pandemic.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the sale of our products or the development of product candidates. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. See the information under the heading “Risk Factors” included in Part II, Item 1A this Form 10-Q for risks related to our financial condition.
Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Funding Requirements
Please see the risks associated with our substantial capital requirements explained more fully under the heading “Risk Factors-We will need substantial additional funding, and if we are unable to raise capital when purchasedneeded or on terms favorable to us, our business, financial condition, and results of operation could be cash equivalents. The Company did not have any cash equivalentsmaterially and adversely affected”in Part II, Item 1A of this Form 10-Q.
Debt Financing and Covenants
Borrowings under our secured Perceptive Credit Facility were $30.0 million as of September 30, 20212022 and December 31, 2020.
The Perceptive Credit Facility is secured by substantially all of the assets held in the Trust Account were held in money market funds which are invested primarily in U.S. Treasury securities. All of the Company’s investments heldCompany, including our intellectual property. The Perceptive Credit Facility requires the Company to (i) maintain a minimum aggregate cash balance of $5.0 million in one or more controlled accounts, and (ii) as of the Trust Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the endlast day of each reporting period. Gainsfiscal quarter commencing with
Pear Therapeutics, Inc. | Form 10-Q |Page 37
the fiscal quarter ending March 31, 2022, report revenues for the trailing 12-month period that exceed the amounts that range from $5.8 million for the fiscal quarter ending March 31, 2022, to $125.0 million for the fiscal quarter ending March 31, 2025. For the quarter ending December 31, 2022, the trailing 12-month period revenue requirement is $18 million. The Perceptive Credit Facility contains various affirmative and losses resulting fromnegative covenants that limit the changeCompany’s ability to engage in fair valuespecified types of investments heldtransactions. The Company was in Trust Account are included in interest earned on marketable securities held in Trust Accountcompliance with the covenants under the Perceptive Credit Agreement as of September 30, 2022.
See Note 7 in the accompanying condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
Gross proceeds | $ | 276,000,000 | ||
Less: | ||||
Proceeds allocated to Public Warrants | $ | (10,764,000 | ) | |
Class A common stock issuance costs | $ | (15,031,830 | ) | |
Plus: | ||||
Accretion of carrying value to redemption value | $ | 25,795,830 | ||
Class A common stock subject to possible redemption | $ | 207,372,020 | ||
Contractual Obligations, Commitments, and Contingencies
We lease our headquarters in Boston, Massachusetts, under a non-cancelable operating lease with an expiration date of June 1, 2028. We also lease office space in San Francisco, California, under a non-cancelable operating lease that expires on July 31, 2025, and office space in Raleigh, North Carolina, under a non-cancelable operating lease that expires on May 31, 2026. See Note 8 in the (i) Initial Public Offering,accompanying notes to the consolidated financial statements included in Part I, Item 1 of this Form 10-Q for further information.
We enter into agreements in the normal course of business with various vendors, which are generally cancellable upon notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of service providers, up to the date of cancellation.
In addition, under various licensing agreements to which we are a party, we are obligated to pay annual license maintenance fees and (ii) the private placement since the exercise of the warrants ismay be required to make milestone payments and to pay royalties and other amounts to third parties. The payment obligations under these agreements are contingent upon future events, such as our achievement of specified milestones or generating product revenue, and the occurrenceamount, timing and likelihood of future events. The warrantssuch payments are exercisablenot known. Amounts related to purchase
On June 17, 2021, and as amended on August 3, 2021, we entered into a non-cancelable purchase obligation for a subscription to the Palantir Foundry cloud platform, including support services, updates, and related professional services with Palantir for $9.3 million payable over three years, we have paid $3.0 million and the remaining $6.3 million is due in quarterly installments starting on October 1, 2022 continuing through September 30, 2021, the Company did 0t have any dilutive securities or other contracts that could, potentially, be exercised or converted into common stock and then share2024.
See Note 9 in the earningsaccompanying notes to the consolidated financial statements included in Part I, Item 1 of the Company. As a result, diluted net loss per common stock is the samethis Form 10-Q for further information.
Director and Officer Indemnification
We have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as basic net loss per common stock for the periods presented.
Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||||
Class A | Class B | Class A | Class B | |||||||||||||
Basic and diluted net loss per common stock | ||||||||||||||||
Numerator: | ||||||||||||||||
Allocation of net loss, as adjusted | $ | 4,665,890 | $ | 1,166,473 | $ | (1,183,075 | ) | $ | (333,591 | ) | ||||||
Denominator : | ||||||||||||||||
Basic and diluted weighted average shares outstanding | 27,600,000 | 6,900,000 | 24,061,538 | 6,784,615 | ||||||||||||
Basic and diluted net loss per common stock | $ | 0.17 | $ | 0.17 | $ | (0.05 | ) | $ | (0.05 | ) | ||||||