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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
or
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
https://cdn.kscope.io/d1a772d4c39582ee8257ba58db947552-pear-20220930_g1.jpg
Pear Therapeutics, Inc.
(Exact name of Registrant as specified in its charter)
Delaware85-4103092
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A common stock,
par value $0.0001 per share
PEARThe Nasdaq Stock Market LLC
Warrants, each exercisable for one share of Class A common stock for $11.50 per sharePEARWThe 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 filerAccelerated filer
Non-accelerated filerSmaller 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 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 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

Table of Contents
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-term74  
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.
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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) 2022202120222021
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.
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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, 2021111,867,985 $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, 2021112,153,183 $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, 2021112,302,675 $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 warrants10 — — — — — 
Other comprehensive loss
— — — — (42)(42)
Net loss
— — — (23,859)— (23,859)
Balance at March 31, 2022137,901,183 $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, 2022138,677,770 $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, 2022139,248,512 $14 $349,447 $(297,103)$(112)$52,246 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Pear Therapeutics, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(dollars in thousands) 20222021
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 asset1,285  
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.
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Table of Contents
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 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 Business Combination 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 Preferred Shares and Legacy Pear Common Shares 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 Preferred Shares previously classified as mezzanine were 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., 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 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. 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. See note 15 for more information on the restructuring and the reductions in workforce, including the impact on pipeline products. 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
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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 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 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 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, as defined in Note 7, 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. See Note 7 for more information on the Perceptive Credit Facility and related covenants.
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 at 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 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 September 30, 2022 and 2021, and for the three and nine months ended September 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
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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, 2022December 31, 2021
Cash and cash equivalents
$59,685 $169,567 
Restricted cash - short-term74  
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 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 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 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 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 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 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 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 Shares832,899 
THMA Initial Stockholders6,900,000 
Shares Issued pursuant to Forward Purchase Agreement to Anchor Investor
6,387,026 
Shares Issued to PIPE Investors and Forward Purchase Assignment10,280,000 
Legacy Pear Equityholders (1)
113,399,293 
Total shares of common stock immediately after business combination137,799,218 
(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 $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 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.
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 Bills3,376 3,376   
Total cash equivalents
44,561 44,561   
Debt investments:
U.S. Treasury Bills5,982 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 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. 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
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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 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 September 30, 2022, the fair value of the warrant liability 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, 2022December 31, 2021
Stock price$2.04$6.20
Risk-free interest rate4.10%1.25%
Expected term (in years)4.184.92
Expected volatility64.10%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.
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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, 2022December 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, 2022December 31, 2021
Compensation and related benefits
$11,869 $11,855 
Commercial and marketing related costs882 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.

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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.
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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 2022920 
20233,650 
202410,603 
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.
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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 
20232,912 
20243,176 
20252,734 
2026 and thereafter3,879 
Total lease payments13,410 
   Less: present value adjustment(2,802)
Present value of total lease liabilities10,608 
   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
20222,809 
20232,912 
20243,176