Pear Therapeutics, Inc. - Quarter Report: 2021 September (Form 10-Q)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Delaware		85-4103092
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Units, each consisting of one share of Class A common stock, $0.0001 par value, and one-third of one redeemable warrant		THMAU		The Nasdaq Stock Market LLC
Shares of Class A common stock, par value $0.0001 par value		THMA		The Nasdaq Stock Market LLC
Redeemable warrants, each warrant exercisable for one share of Class A common stock, each at an exercise price of $11.50 per share		THMAW		The Nasdaq Stock Market LLC

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

PART 1 – FINANCIAL INFORMATION					1
ITEM 1.		CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)			1
		CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020			1
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021			2
		CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021			3
		CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021			4
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			5
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			19
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			25
ITEM 4.		CONTROLS AND PROCEDURES			26
PART II—OTHER INFORMATION					27
ITEM 1.		LEGAL PROCEEDINGS			27
ITEM 1A.		RISK FACTORS			27
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			27
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES			28
ITEM 4.		MINE SAFETY DISCLOSURES			28
ITEM 5.		OTHER INFORMATION			28
ITEM 6.		EXHIBITS			29
SIGNATURES					30

		Three Months Ended September 30,				Nine Months Ended September 30,
		2021				2021
Operating and formation costs		$	2,061,256			$	5,036,086
Loss from operations			(2,061,256	)			(5,036,086	)
Other income (expense):
Interest earned on marketable securities held in Trust Account			8,147				23,886
Change in fair value of warrant liability			7,533,067				3,126,934
Change in fair value of promissory note			357,000				368,600
Unrealized loss on marketable securities held in Trust Account			(4,595	)			—
Other income, net			7,893,619				3,519,420
Net income (loss)		$	5,832,363			$	(1,516,666	)
Basic and diluted weighted average shares outstanding, Class A common stock			27,600,000				24,061,538
Basic and diluted net income (loss) per share, Class A common stock		$	0.17			$	(0.05	)
Basic and diluted weighted average shares outstanding, C lass B  common stock			6,900,000				6,784,615
Basic and diluted net income (loss) per share, Class B  common stock		$	0.17			$	(0.05	)

		Class A Common Stock								Class B Common Stock								Additional Paid				Accumulated				Total Stockholders’
		Shares				Amount				Shares				Amount				in Capital				Deficit				(Deficit) Equity
Balance – January 1, 2021			—			$	—				6,900,000			$	690			$	24,310			$	(2,177	)		$	22,823
Cash Placement Warrants			—				—				—				—				1,654,400				—				1,654,400
Accretion for Class A common stock to redemption amount			—				—				—				—				(1,678,710	)			(24,117,120	)			(25,795,830	)
Net income			—				—				—				—				—				1,915,204				1,915,204
Balance – March 31, 2021			—			$	—				6,900,000			$	690			$	—			$	(22,204,093	)		$	(22,203,403	)
Net loss			—				—				—				—				—				(9,264,233	)			(9,264,233	)
Balance – June 30, 2021			—			$	—				6,900,000			$	690			$	—			$	(31,468,326	)		$	(31,467,636	)
Net income			—				—				—				—				—				5,832,363				5,832,363
Balance – September 30, 2021			—			$	—				6,900,000			$	690			$	—			$	(25,635,963	)		$	(25,635,273	)

Cash Flows from Operating Activities:
Net loss		$	(1,516,666	)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of warrant liability			(3,126,934	)
Interest earned on marketable securities held in Trust Account			(23,886	)
Transaction costs incurred in connection with the issuance of warrants			619,676
Change in fair value of promissory note			(368,600	)
Changes in operating assets and liabilities:
Prepaid expenses			(233,323	)
Accounts payable and accrued expenses			2,867,419
Net cash used in operating activities			(1,782,314	)
Cash Flows from Investing Activities:
Investment of cash in Trust Account			(276,000,000	)
Net cash used in investing activities			(276,000,000	)
Cash Flows from Financing Activities:
Proceeds from sale of Units, net of underwriting discounts paid			270,480,000
Proceeds from sale of Private Placement Warrants			7,520,000
Repayment of promissory note – related party			(136,833	)
Proceeds from promissory note – related party			1,000,000
Proceeds from promissory note – related party			91,306
Payment of offering costs			(401,506	)
Net cash provided by financing activities			278,552,967
Net Change in Cash			770,653
Cash – Beginning of period			—
Cash – End of period		$	770,653
Non-Cash investing and financing activities:
Initial classification of common stock subject to possible redemption		$	276,000,000
Deferred underwriting fee payable		$	9,660,000

Gross proceeds		$	276,000,000
Less:
Proceeds allocated to Public Warrants		$	(10,764,000	)
Class A common stock issuance costs		$	(15,031,830	)
Plus:
Accretion of carrying value to redemption value		$	25,795,830
Class A common stock subject to possible redemption		$	207,372,020

		Three Months Ended September 30, 2021								Nine Months Ended September 30, 2021
		Class A				Class B				Class A				Class B
Basic and diluted net loss per common stock
Numerator:
Allocation of net loss, as adjusted		$	4,665,890			$	1,166,473			$	(1,183,075	)		$	(333,591	)
Denominator :
Basic and diluted weighted average shares outstanding			27,600,000				6,900,000				24,061,538				6,784,615
Basic and diluted net loss per common stock		$	0.17			$	0.17			$	(0.05	)		$	(0.05	)

		September 30, 2021
Expected volatility (%)			15.8	%
Risk-free interest rate (%)			0.94	%
Expected dividend yield (%)			0.0
Conversion price		$	1.50
Underlying share price			9.94
Underlying value per private warrant		$	0.95
Convertible notes amount		$	1,000,000
Fair value of the conversion feature		$	631,400

•

in whole and not in part;

•

at a price of $0.01 per warrant;

•

upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and

•

if, and only if, the closing price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

•

in whole and not in part;

•

at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption, provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the shares of Class A common stock;

•

if, and only if, the closing price of the Class A common stock equals or exceeds $10.00 per Public Share (as adjusted) on the trading day prior to the date on which the Company sends the notice of redemption to the warrant holders;

•

if, and only if, the closing price of our Class A common stock (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders is less than $18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like), then the Private Placement warrants must also concurrently be called for redemption on the same terms as the outstanding Public Warrants.

Level 1:		Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:		Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3:		Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

Description		Level				September 30, 2021
Assets:
Marketable securities held in Trust Account			1			$	276,023,886
Liabilities:
Warrant Liability – Public Warrants			1				8,740,000
Warrant Liability – Private Placement Warrants			2				4,762,666
Convertible Promissory Note			3				631,400

		September 30, 2021
Input		Private Warrants
Market price of public shares			9.94
Risk-free rate			0.94	%
Dividend yield			0.00	%
Volatility			15.8	%
Exercise price			11.50
Effective expiration date			6/16/26
One-touch hurdle

		Private Placement				Public				Warrant Liabilities
Fair value as of January 1, 2021		$	—				—				—
Initial measurement on February 4, 2021			5,865,600				10,764,000				16,629,600
Change in fair value			1,554,133				2,852,000				4,406,133
Transfers out of Level 3 to Level 1			—				(13,616,000	)			(13,616,000	)
Transfers out of Level 3 to Level 2			(7,419,733	)			—				(7,419,733	)
Fair value as of June  30, 2021		$	—				—				—

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of this Quarterly Report and the Risk Factors section of the Registration Statements on Form filed with the SEC. The Company’s filings with the SEC can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for the Initial Public Offering. We will not generate any operating revenues until after completion of our Business Combination. We generate income in the form of interest income on cash and cash equivalents. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements. We are incurring increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with completing a Business Combination.

$10.00 per Unit, generating gross proceeds of $276,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 5,013,333 Private Placement Warrants to our Sponsor at a price of $1.50 per warrant, generating gross proceeds of $7,520,000. Following the Initial Public Offering and the sale of the Private Placement Warrants, a total of $276,000,000, comprised of $270,480,000 of the proceeds from the Initial Public Offering (which amount includes $9,660,000 of the underwriter’s deferred discount) and $7,520,000 of the proceeds of the sale of the Private Placement Warrants, less an aggregate of $2,000,000 to pay fees and expenses in connection with the closing of the Initial Public Offering and for working capital following the closing of the Initial Public Offering, was deposited into the Trust Account. The funds in the Trust Account are invested only in U.S. government treasury bills with a maturity of 185 days or less or in money market funds that meet certain conditions under Rule under the Investment Company Act of 1940 and that invest only in direct U.S. government obligations.

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (which interest shall be net of permitted withdrawals) and the proceeds from the sale of the forward purchase shares, if any, to complete our Business Combination. We will make permitted withdrawals from the Trust Account to pay our taxes, including franchise taxes and income taxes. Delaware franchise tax is based on our authorized shares or on our assumed par and capital, whichever yields a lower result. Under the authorized shares method, each share is taxed at a graduated rate based on the number of authorized shares with a maximum aggregate tax of $200,000 per year. Under the assumed par value capital method, Delaware taxes each $1,000,000 of assumed par value capital at the rate of $400; where assumed par value would be (1) our total gross assets following the Initial Public Offering, divided by (2) our total issued shares of common stock following the Initial Public Offering, multiplied by (3) the number of our authorized shares following the Initial Public Offering. Based on the number of shares of our common stock authorized and outstanding and our total gross proceeds after the completion of the Initial Public Offering, our annual franchise tax obligation is capped at the maximum amount of annual franchise taxes payable by us as a Delaware corporation of $200,000. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the Trust Account. We expect the only taxes payable by us out of the funds in the Trust Account will be income and franchise taxes. We expect the interest earned on the amount in the Trust Account will be sufficient to pay our taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

As of September 30, 2021, we did not have any sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation and did not have any commitments or contractual obligations, other than as described below.

The Company entered into a forward purchase agreement with an investor (the “Anchor Investor”), which provided for the purchase by the Anchor Investor of an aggregate of 5,000,000 units (the “Forward Purchase Agreement”), with each unit consisting of one share of Class A common stock (the “forward purchase share”) and of one redeemable warrant to purchase one share of Class A common stock (the “forward purchase warrant”) at an

We apply the method in calculating earnings per share. Net income (loss) per common share, Class A common stock is calculated by dividing weighted net loss by the weighted average number of Class A common stock outstanding during the period. Net income (loss) per common share, Class B common stock is calculated by dividing weighted net loss by the weighted average number of Class B common stock outstanding during the period.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) Debt — Debt with Conversion and Other Options (Subtopic and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic (“ASU to simplify accounting for certain financial instruments. ASU eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU amends the diluted earnings per share guidance, including the requirement to use the method for all convertible instruments. ASU is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU would have on its financial position, results of operations or cash flows.

In December 2020, our Sponsor purchased an aggregate of 5,750,000 founder shares in exchange for payment of certain of our offering expenses of $25,000, or approximately $0.004 per share. In January 2021, our Sponsor transferred 50,000 shares to each of our independent director nominees and an aggregate of 150,000 shares to our advisors, in each case, at approximately the same share price paid by our Sponsor, resulting in our Sponsor holding 5,450,000 founder shares. On February 2, 2021, we effected a forward stock split, resulting in our Sponsor holding 6,540,000 founder shares, each of our independent director nominees holding 60,000 founder shares and our advisors holding an aggregate of 180,000 founder shares. The founder shares held by our independent director nominees and our advisors shall not be subject to forfeiture in the event the underwriters’ over-allotment option is not exercised. The number of founder shares issued was determined based on the expectation that the founder shares would represent 20% of the outstanding shares of common stock upon the completion of the Initial Public Offering. The purchase price of the founder shares was determined by dividing the amount of cash contributed to us by the number of founder shares issued.

Our Sponsor, officers and directors or any of their respective affiliates will be reimbursed for any expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. Our audit committee will review on a quarterly basis all payments that were made by us to our Sponsor, officers, directors or our or any of their respective affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of expenses incurred by such persons in connection with activities on our behalf.

Our Sponsor has purchased an aggregate of 5,013,333 Private Placement Warrants at a price of $1.50 per warrant pursuant to the Private Placement Warrant Purchase Agreement, dated as of February 1, 2021. Each private placement warrant entitles the holder thereof to purchase one share of our Class A common stock at a price of $11.50 per share, subject to adjustment as provided herein. Our Sponsor will be permitted to transfer the Private Placement Warrants held by it to certain permitted transferees, including our officers and directors and other persons or entities affiliated with or related to them, but the transferees receiving such securities will be subject to the same agreements with respect to such securities as our Sponsor. Otherwise, these warrants will not, subject to certain limited exceptions, be transferable or salable until 30 days after the completion of our Business Combination. Except as set forth elsewhere in the Registration Statement, the Private Placement Warrants will be so long as they are held by our Sponsor or its permitted transferees except as set forth under “Description of Securities—Warrants—Public Stockholders’ Warrants—Redemption of warrants when the price per share of Class A common stock equals or exceeds $10.00” in the Registration Statement. The Private Placement Warrants may also be exercised by our Sponsor or its permitted transferees for cash or on a cashless basis. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the warrants sold as part of the units in the Initial Public Offering.

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things: (1) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act; (2) provide all of the compensation disclosure that may be required of growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (3) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (4) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of the Initial Public Offering.

As required by Rules and under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2021. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due solely to the material weakness we have identified in our internal control over financial reporting described below, our disclosure controls and procedures (as defined in Rules and under the Exchange Act) were not effective.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. We became aware of the need to change the classification of our Warrants when the Staff of the SEC issued a statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”) on April 12, 2021. Upon review of the SEC Statement, management decided to change the accounting treatment for our Warrants to comply with the guidance from the SEC. The decision to change the accounting treatment of the Warrants in connection with the preparation of our Form for the quarter ended March 31, 2021 led management to conclude that there was a material weakness in internal control over financial reporting, which has not been fully remediated as of September 30, 2021. In light of the material weakness, we performed additional analysis as deemed necessary to ensure that our condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form