SEC Filing | Pear Therapeutics, Inc.

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pear-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to_______

Commission File Number: 001-39969

Pear Therapeutics, Inc.

(Exact name of Registrant 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 Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Class A common stock,
par value $0.0001 per share

PEAR

The Nasdaq Stock Market LLC

Warrants, each exercisable for one share of Class A common stock for $11.50 per share

PEARW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The number of shares of the registrant’s Class A common stock outstanding as of August 8, 2022 was 138,768,704.

Pear Therapeutics, Inc.

Form 10-Q

For the Quarter Ended June 30, 2022

TABLE OF CONTENTS


		Page
	PART I
Item 1	Financial Statements	2
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4	Controls and Procedures	39
	PART II
Item 1	Legal Proceedings	41
Item 1A	Risk Factors	42
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	94
Item 3	Defaults Upon Senior Securities	94
Item 4	Mine Safety Disclosures	94
Item 5	Other Information	94
Item 6	Exhibits	95

	Signatures

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 other 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

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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Pear Therapeutics, Inc.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


(dollars in thousands, except per share amounts)	June 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	60,185	$	169,567
Short-term investments	46,922		5,004
Restricted cash - short-term	66		—
Accounts receivable	5,377		1,794
Prepaid expenses and other current assets	8,320		8,876
Total current assets	120,870		185,241
Property and equipment, net	6,642		6,255
Right-of-use assets (Note 8)	9,768		—
Restricted cash - long-term	411		411

Other long-term assets	4,828		5,253
Total assets	$	142,519	$	197,160
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,040	$	1,806
Accrued expenses and other current liabilities	15,071		17,946
Lease liabilities - current (Note 8)	1,821		—
Deferred revenues	680		421
Debt	27,354		26,993
Total current liabilities	46,966		47,166
Lease liabilities - noncurrent (Note 8)	9,217		—
Embedded debt derivative	123		675
Warrant liabilities	1,795		8,528
Earn-out liabilities	4,573		48,363
Other long-term liabilities	805		1,994
Total liabilities	63,479		106,726
Commitments and contingencies (Note 9)

Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized as of June 30, 2022; and no shares issued and outstanding as of June 30, 2022 and December 31, 2021	—		—
Common stock, $0.0001 par value; 690,000,000 authorized as of June 30, 2022; and 138,677,770 and 137,836,028 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	14		14
Additional paid-in capital	345,526		338,404
Accumulated deficit	(266,380)		(247,983)
Accumulated other comprehensive (loss) income	(120)		(1)
Total stockholders’ equity	79,040		90,434
Total liabilities and stockholders’ equity	$	142,519	$	197,160

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

Pear Therapeutics, Inc. | Form 10-Q |Page 2

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Pear Therapeutics, Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except per share amounts)	2022		2021		2022		2021
Revenue
Product revenue	$	2,997	$	1,047	$	5,746	$	1,347
Collaboration and license revenue	300		154		300		230
Total revenue	3,297		1,201		6,046		1,577
Cost and operating expenses
Cost of product revenue	2,401		727		3,882		1,465
Research and development	12,716		7,877		25,980		15,367
Selling, general, and administrative	21,000		14,546		43,745		27,845
Total cost and operating expenses	36,117		23,150		73,607		44,677
Loss from operations	(32,820)		(21,949)		(67,561)		(43,100)
Other income (expense):
Interest and other (expense) income, net	(343)		(1,018)		(1,359)		(2,044)
Change in estimated fair value of earn-out liabilities	29,163		—		43,790		—
Change in estimated fair value of warrant liabilities	9,462		(5,234)		6,733		(5,397)

Loss on issuance of Legacy Pear convertible preferred stock	—		—		—		(2,053)
Total other income (expense)	38,282		(6,252)		49,164		(9,494)
Net income (loss)	$	5,462	$	(28,201)	$	(18,397)	$	(52,594)
Unrealized gain (loss) on short-term investments	$	(77)	$	1	$	(119)	$	1
Comprehensive income (loss)	$	5,385	$	(28,200)	$	(18,516)	$	(52,593)




Net income (loss) per share:
Basic	$	0.04	$	(0.25)	$	(0.13)	$	(0.48)
Diluted	$	0.04	$	(0.25)	$	(0.13)	$	(0.48)
Weighted average common shares outstanding:
Basic	138,288,357		111,946,894		138,071,377		110,311,459
Diluted	147,422,043		111,946,894		138,071,377		110,311,459

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

Pear Therapeutics, Inc. | Form 10-Q |Page 3

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Pear Therapeutics, Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


		Three and Six Months Ended June 30, 2021
	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

		Three and Six Months Ended June 30, 2022
	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 income			—	—			—		—		(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 income			—	—			—		—		(77)		(77)
Net income			—	—			—		5,462		—		5,462
Balance at June 30, 2022			138,677,770	$	14		$	345,526	$	(266,380)	$	(120)	$	79,040

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

Pear Therapeutics, Inc. | Form 10-Q |Page 4

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Pear Therapeutics, Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
(dollars in thousands)	2022		2021
Operating Activities:
Net loss	$	(18,397)	$	(52,594)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	1,540		585
Amortization of intangible asset	310		138
Amortization of debt discount	360		309
Amortization of right-of-use asset	846		—

Accretion and amortization of interest income	(50)		14
Stock-based compensation expense	6,287		1,035
Loss on issuance of Legacy Pear convertible preferred stock	—		2,055
Change in fair value of warrants	(6,733)		5,396
Change in fair value of earn-out liabilities	(43,790)		—
Change in fair value of embedded derivative	(552)		—
Changes in operating assets and liabilities:
Accounts receivable	(3,583)		99
Prepaid expenses and other assets	671		(505)
Lease liabilities	(821)		—
Accounts payable	127		(2,063)
Accrued expenses, other liabilities and non-current liabilities	(2,823)		626
Deferred revenues	263		1,039
Net cash used in operating activities	(66,345)		(43,866)
Investing Activities:
Proceeds from maturities of short-term investments	24,048		12,025
Purchases of short-term investments	(66,035)		(5,018)
Purchases of property and equipment	(1,820)		(1,504)


Net cash provided by (used in) investing activities	(43,807)		5,503
Financing Activities:
Proceeds from issuance of Legacy Pear convertible preferred stock, net	—		19,915





Payment of deferred offering costs	—		(902)
Proceeds from exercise of stock options	836		669
Net cash provided by financing activities	836		19,682
Net decrease in cash, cash equivalents and restricted cash	(109,316)		(18,681)
Cash, cash equivalents and restricted cash—beginning of period	169,978		112,061
Cash, cash equivalents and restricted cash—end of period	$	60,662	$	93,380
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,812	$	1,810
Supplemental disclosure of non-cash investing and financing information:





Deferred offering and equity issuance costs included in accounts payable and accrued expenses	$	—	$	2,600


Purchases of property and equipment in accounts payable and accrued expenses	$	281	$	8

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

Pear Therapeutics, Inc. | Form 10-Q |Page 5

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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 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”) (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 conditions 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 A common stock in 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 separated, pursuant to their terms, into one share of Class A common stock (which totaled 832,899 shares Class A common stock, “Public Shares”) and 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 Sponsor

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Pear Therapeutics, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

Shares”). Gross proceeds from the Merger totaled approximately $175,001 which included funds held in THMA’s trust account (after giving effect to redemptions). Transaction costs totaled approximately $32,779.

Legacy Pear was deemed the accounting acquirer in the Business Combination. This determination was primarily based on Legacy Pear’s stockholders prior to the Business Combination having a majority of the voting power in the combined company, Legacy Pear having the ability to appoint a majority of the Board of Directors of the combined company, Legacy Pear’s existing management comprising the senior management of the combined company, Legacy Pear comprising the ongoing operations of the combined company, Legacy Pear being the larger entity based on historical revenues and business operations, and the combined company assuming Legacy Pear’s name. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Pear issuing stock for the net assets of THMA, accompanied by a recapitalization. Under this method of accounting, THMA who was the legal acquirer, is 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. The net assets of THMA are stated at historical cost, with no goodwill or other intangible assets recorded. The equity structure has been restated in all comparative periods up to the Closing Date to reflect the number of shares of the Company’s Class A common stock, $0.0001 par value per share, issued to Legacy Pear stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Legacy Pear’s Convertible Preferred Stock (“Legacy Pear Preferred Shares”) and Legacy Pear common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio of approximately 1.47 established in the Business Combination. Legacy Pear’s convertible preferred stock previously classified as mezzanine was retroactively adjusted, converted into Class A common stock, and reclassified to permanent as a result of the reverse recapitalization. See Note 3 for more information.

THMA, now Pear Therapeutics, Inc., a Delaware corporation was incorporated on December 1, 2020. Pear Therapeutics (US), Inc., previously known as Pear Therapeutics, Inc. (“Legacy Pear”), is a Delaware corporation incorporated on August 14, 2013. The Company is headquartered in Boston, Massachusetts.

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 US. Food and Drug Administration, or FDA, 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 financial covenants required under its credit facility. For the six months ended June 30, 2022, the Company had a net loss of $18,397 and as of June 30, 2022, had an accumulated deficit of $266,380. As of June 30, 2022, the Company had $107,107 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. The Company’s operating costs include the cost of developing and commercializing products as well as providing research services. As a consequence, the Company will need to raise additional equity and debt financing that may not be available, if at all, at terms acceptable to the Company to fund future operations. As a result, the Company could be required to delay, scale back or abandon some or all of its development programs and other operations, which could materially harm the Company’s business, prospects, financial condition and operating results. Management believes these uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. Because of these uncertainties, the accompanying consolidated financial statements have been prepared assuming

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Pear Therapeutics, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

that the Company will continue 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 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 and the material adverse change clause in the Perceptive Credit Facility, the amounts due as of June 30, 2022, have been classified as current in the consolidated balance sheet. The lender has not invoked the material adverse change clause as of the date of issuance of these financial statements. The accompanying consolidated financial statements do not reflect any other adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The Company is subject to various covenants related to the Perceptive Credit Facility entered into on June 30, 2020, and given the substantial doubt about the Company’s ability to continue as a going concern, there is a risk that it may not meet its covenants in the future.

COVID-19 Related Significant Risks and Uncertainties

There continues to be uncertainties regarding the pandemic of the novel coronavirus, or COVID-19. 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 business 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 evolving impact of COVID-19.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with US generally accepted accounting principles, or GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB.

The consolidated financial statements as of June 30, 2022 and 2021, and for the three and six months ended June 30, 2022 and 2021, include the accounts of Pear and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements herein.

Certain monetary amounts, percentages, and other figures included elsewhere in these consolidated financial statements have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of 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.

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Pear Therapeutics, Inc.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

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:


	June 30, 2022		December 31, 2021
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	60,185	$	169,567
Restricted cash - short-term	66		—
Restricted cash - long-term	411		411
Total cash, cash equivalents, and restricted cash	$	60,662	$	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 new 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 liabilites 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 result of straight-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.

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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 stock 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 was 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 connection 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 stock 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 volume-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.

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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 $1,795 and $8,528 at June 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 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 June 30, 2022 and December 31, 2021, and determined the fair value to be $4,573 and $48,363, respectively. The change in the fair value of the earn-out liabilities were recorded in other income (expense) on the statement of operations.

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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.


	June 30, 2022
Description	Total Fair Value		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	17,239	$	17,239	$	—	$	—
Commercial Paper	3,998		—		3,998		—
Total cash equivalents	21,237		17,239		3,998		—
Debt investments:
U.S. Treasury Bills	20,975		20,975		—		—
Corporate bonds	10,989		—		10,989		—
Commercial paper	14,958		—		14,958		—
Total debt investments	46,922		20,975		25,947		—
Total assets	$	68,159	$	38,214	$	29,945	$	—
Long-term liabilities:
Embedded debt derivative	$	123	$	—	$	—	$	123
Warrant liabilities	1,795		1,162		633		—
Earn-out liabilities	4,573		—		—		4,573
Total liabilities	$	6,491	$	1,162	$	633	$	4,696


	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 six months ended June 30, 2022 and 2021.

Cash equivalents—Money market funds included within cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active 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. U.S. 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

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined using models or other valuation methodologies. The Company recorded an unrealized loss of $77 and an unrealized gain of $1 for the three months ended June 30, 2022 and 2021, respectively, and an unrealized loss of $119 and an unrealized gain of $1 for the six months ended June 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, having a fair value of $123 at June 30, 2022. The change in estimated fair value of the embedded derivative resulted in a gain of $552 for the three and six months ended June 30, 2022, which is recorded in Interest and other (expense) income in the consolidated statement 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 June 30, 2022, the fair value of the warrant liability was $1,795.

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 Monte Carlo Simulation Method (“MCSM”) using the following assumptions at each valuation date:


	June 30, 2022	December 31, 2021
Stock price	$1.54	$6.20
Risk-free interest rate	2.98%	1.25%
Expected term (in years)	4.43	4.92
Expected volatility	65.80%	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 $43,790 recognized in the consolidated statement of operations and comprehensive income (loss) for the six months ended June 30, 2022.

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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	(43,790)
Fair value as of June 30, 2022	$	4,573

5. PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following:


	June 30, 2022		December 31, 2021
Internal-use software	$	8,384	$	6,591
Equipment	692		579
Construction in process	—		362
Furniture and fixtures	711		586
Leasehold improvements	767		509
Total property and equipment	10,554		8,627
Less: accumulated depreciation	(3,912)		(2,372)
Property and equipment, net	$	6,642	$	6,255

Depreciation expense was $817 and $1,540 for the three and six months ended June 30, 2022, respectively, and $308 and $585 for the three and six months ended June 30, 2021, respectively.

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:


	June 30, 2022		December 31, 2021
Compensation and related benefits	$	10,063	$	11,855
Commercial and marketing related costs	849		1,821
Professional services	1,161		1,710
Research and development costs	1,707		781


Other	1,291		1,779
Total	$	15,071	$	17,946

7. INDEBTEDNESS

Perceptive Credit Facility

On June 30, 2020, the Perceptive Close Date, the Company entered into a Credit Agreement and Guaranty, or 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.

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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 June 30, 2022, the interest rate was 12.1%. 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 $123 as of June 30, 2022 and $675 as of December 31, 2021. 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 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. 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 June 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.

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.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share amounts)

On the Perceptive Closing Date, the Company received proceeds of $28,500, net of fees and expenses of $1,500. As of June 30, 2022, no further borrowings were taken under the Credit Facility. The outstanding balance of the Perceptive Credit Facility was:


Perceptive Credit Facility	June 30, 2022
Principal	$	30,000
Less: Debt issuance costs and discount at issuance	(2,646)
Net carrying amount	$	27,354

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 June 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 June 30, 2022, are as follows:


Years ended December 31,	Amounts

Remainder of 2022	1,840
2023	3,650
2024	10,603
2025	24,039
Total	$	40,132
Less:
Interest payable	(10,132)
Unamortized debt issuance costs	(2,646)
Current portion of long-term debt	(27,354)
Long-term debt	$	—

8. LEASES

As of June 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 $713 and $1,454 for the three and six months ended June 30, 2022, respectively, and $733 and $1,376 for the three and six months ended June 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.

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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	$	1,412
2023	2,912
2024	3,176
2025	2,734
2026 and thereafter	3,878
Total lease payments	14,112
Less: present value adjustment	(3,074)
Present value of total lease liabilities	11,038
Less: current lease liability	(1,821)
Long-term operating lease liabilities	$	9,217

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 June 30, 2022, the weighted average remaining lease term is 4.9 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 June 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

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(dollars in thousands, except per share amounts)

annual royalty obligations. To the extent there are sales of a licensed product, the Company is required to pay low-single-digit royalties on net revenue. The Company recorded minimum annual royalty fees of $250 and $500 to ISF for the three and six months ended June 30, 2022, respectively, and $250 and $500 for the three and six months ended June 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.

On July 1, 2021, the parties amended the Amended Red 5 License Agreement to further clarify certain terms and increase the royalty rate by a de minimis amount.

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 $62 and $125 to Red 5 for the three and six months ended June 30, 2022, respectively, and $62 and $125 for the three and six months ended June 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

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(dollars in thousands, except per share amounts)

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.

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 six months ended June 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 six months ended June 30, 2022 and 2021, the Company had not experienced any losses related to these indemnification obligations, and no claims were outstanding as of June 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 June 30, 2022, the Company recorded $2,983 under the terms of the agreement, $2,331 of which is included in prepaid expenses on the consolidated balance sheet as of June 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 June 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

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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.

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:


	June 30, 2022		December 31, 2021
Contract assets
Accounts receivables	$	490	$	555
Unbilled receivables	4,489		1,239
Contract liabilities
Deferred revenue - current	680		421
Deferred revenue - non-current	26		22

During the six months ended June 30, 2022, the Company recognized revenue of approximately $271 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 $254 of collaboration revenue during the three and six months ended June 30, 2022.

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 June 30, 2022, there were

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138,677,770 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 June 30, 2022, there were