The accompanying notes are an integral part of these condensed consolidated financial statements.
9
D-Wave Quantum 公司。
附註至簡明合併財務報表
1. 業務描述
D-Wave量子公司(D-Wave或「公司」)於2022年1月24日根據特拉華州公司法成立。公司成立的目的是通過一系列交易(「合併」)實現DPCm Capital, Inc. (「DPCM」), D-Wave Systems Inc. (「D-Wave Systems」)和其他一些關聯實體之間的合併，根據2022年2月7日簽署的最終協議(「交易協議」)。2022年8月5日，與合併同時進行，DPCm和D-Wave Systems成爲公司的全資子公司，並由其運營。合併完成後，公司繼承了其前身D-Wave Systems的所有業務。
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
On January 5, 2024, one of the Company's equity investments was acquired by another entity and the transaction was determined to result in an observable price change in the equity. Consequently, the carrying value of the Company's investment was adjusted based on the consideration received, resulting in a net gain of approximately $1.7 million, recorded in gain (loss) on investment in marketable equity securities during the nine months ended September 30, 2024.
On February 8, 2024, the Company entered into a collaboration arrangement with Zapata to develop and bring to market commercial applications that combine generative AI and quantum computing technologies. As part of the collaboration, the Company purchased the Note with a principal amount of $1.0 million from Zapata. The Note matures on December 15, 2026, and bears interest at 15% per annum. The Note is prepayable without penalty after December 15, 2025 or if the aggregate value of Zapata's convertible notes outstanding falls below $3.0 million. The Note is convertible into Zapata common stock at the Company's option at a conversion price of $8.50, subject to adjustment for stock splits, recapitalizations, and other similar corporate transactions.
On April 1, 2024 the conversion feature associated with the Note was bifurcated from the debt host instrument in connection with the underlying stock becoming readily convertible to cash as the result of a de-SPAC transaction. As a result, the fair value of the conversion feature of $0.2 million was given separate recognition. As of September 30, 2024, the fair value of the conversion feature was immaterial, resulting in a loss of $0.2 million recorded to change in fair value of marketable securities on the condensed consolidated statement of operations and comprehensive loss.
On October 11, 2024, Zapata announced that it was insolvent and would cease operations. Considering this and other financial information available prior to the balance sheet date, the Note was provisionally determined to be uncollectible, and the Company has recognized a credit loss provision for the entire balance owed of $1.0 million as of September 30, 2024. The charge was recorded within general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. See Note 2 for additional discussion of the Note and the Company's collateral rights to substantially all of Zapata's assets.
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
As of September 30, 2024
As of December 31, 2023*
Accrued compensation and related benefits
$
3,894
$
3,245
Accrued professional services
585
1,092
Other accruals
2,094
1,006
Total accrued expenses and other current liabilities
$
6,573
$
5,343
*Certain amounts presented in the table above as of December 31, 2023 have been reclassified to conform to the current period presentation.
18
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following (in thousands):
As of September 30, 2024
As of December 31, 2023
Quantum computer systems
$
13,965
$
13,712
Lab equipment
6,865
6,839
Computer equipment
4,361
3,703
Leasehold improvements
1,890
1,075
Furniture and fixtures
381
381
Construction-in-progress
677
894
Total property and equipment
28,139
26,604
Less: Accumulated depreciation
(24,725)
(24,053)
Total property and equipment, net
$
3,414
$
2,551
Depreciation expense for the three months ended September 30, 2024 and 2023 was $0.2 million and $0.2 million, respectively. Depreciation expense for the nine months ended September 30, 2024 and 2023 was $0.7 million and $0.7 million, respectively.
6. LOANS PAYABLE, NET
As of September 30, 2024 and December 31, 2023, loans payable, net, consisted of the SIF Loan, the TPC loan (as defined below) and the Term Loan. The following tables show the component of loans payable (in thousands):
Effective Interest Rate
As of September 30, 2024
As of December 31, 2023
Loans payable, net, current:
TPC Loan, current
Interest free
$
370
$
399
Term Loan, due 2027
11.00%
13,700
—
Total loans payable, net, current
$
14,070
$
399
Loans payable, net, non-current:
SIF Loan
Variable1
$
32,013
$
32,072
Term Loan, due 2027
11.00%
—
31,400
TPC Loan, non-current
Interest free
—
378
Total loans payable, net, non-current
$
32,013
$
63,850
1Refer below for additional information on the SIF Loan repayment period and effective interest rate.
19
The following table shows the component of the Company's indebtedness carried at fair value and amortized cost (in thousands):
As of September 30, 2024
As of December 31, 2023
TPC Loan, current
$
370
$
399
Total loans payable, net, current, at amortized cost
370
399
Fair value option - Term Loan
13,700
—
Total loans payable, net, current
$
14,070
$
399
As of September 30, 2024
As of December 31, 2023
SIF Loan
$
32,013
$
32,072
TPC Loan, non-current
—
378
Total loans payable, net, non-current, at amortized cost
32,013
32,450
Fair value option - Term Loan
—
31,400
Total loans payable, net, non-current
$
32,013
$
63,850
TPC loan
During the period spanning 2010 through 2021, the Company received funding totaling C$12.5 million from Technology Partnerships Canada (the "TPC Loan"). On November 23, 2020, an amendment forgave C$5.0 million of unpaid accrued debt principal and interest from prior years. Additionally, the amendment waived the interest charge on the remaining C$2.5 million of principal and revised the repayment schedule to C$0.5 million due annually on each April 30 through 2025.
The estimated fair value of the TPC Loan (Level 2) at September 30, 2024 was $0.3 million. The fair value of the TPC Loan was valued using a discounted cash flow model, with key inputs relating to terms, discount rate and expectations for defaults and prepayments.
As the TPC Loan is originated through a government program, a market rate of interest is not imputed in accordance with the scope limitations of ASC 835.
SIF Loan
On November 20, 2020, the Company entered into the SIF Loan. As of December 31, 2023, the Company had received the full C$40.0 million in eight tranches between November 2020 and December 2023. Funds from the SIF Loan were used for projects involving the adaptation of research findings for commercial applications that have the potential for market disruption; development of current product and services through the implementation of new or incremental technology that will enhance the Company’s competitive capability; and development of process improvements which reduce the environmental footprint of current production through the use of new or improved technologies.
Principal and interest amounts to be repaid under the SIF Loan are determined using a revenue-based formula, and are capped at 150% of the principal amount (the "Repayment Cap"). Repayments are due in up to 15 annual installments, commencing on April 30 of the second fiscal year following the fiscal year in which the Company first reports annual revenue of at least $70.0 million (the "Benchmark Year"). If the Company fails to reach $70.0 million in annual revenue after 14 years from origination, or if the total of the 15 revenue-based annual installments is less than the principal amount, any remaining repayment obligation will be forgiven.
Repayments of the SIF Loan can also be triggered upon default of the agreement, termination of the agreement, or upon a change of control that has not been approved by the Canadian government. As of September 30, 2024, the Company is not aware of any events that would trigger default or termination of the agreement.
The gross proceeds of the SIF Loan were recorded as a liability related to the sale of future revenues (see Note 2 - Basis of Presentation and Summary of Significant Accounting Policies). As of September 30, 2024 and December 31, 2023, the Company calculated a weighted average effective interest rate for all tranches of 2.46% and 2.46%, respectively based on the most recent revenue projections at each reporting date.
The estimated fair value of the SIF Loan (Level 3) at September 30, 2024 was $6.7 million. The fair value of SIF Loan was valued using a discounted cash flow model, with significant assumptions relating to the amount and timing of future revenues and the appropriate discount rate.
20
Term Loan
On April 13, 2023, the Company entered into the Term Loan with PSPIB, a related party to the Company's largest shareholder. Under the Term Loan, term loans in aggregate principal amount of $50.0 million are to be made available to the Company in three tranches, subject to certain terms and conditions.
The Term Loan was subsequently repaid in full on October 22, 2024.
The Term Loan matures on March 31, 2027, is secured by a first-priority security interest in substantially all of the Company's assets and contains certain operational and financial covenants, including a financial covenant that measures the Company's revenue against certain minimum percentages of budgeted revenue per quarter. The Term Loan is subject to a 2% drawdown fee and requires that any proceeds from the issuance of Common Shares under the Purchase Agreement be applied towards the repayment of advances under the Term Loan. Such repayments are subject to a premium payment equal to 10% of the amount then prepaid to the Lender, in addition to the regular prepayment premium applicable on that date, except as modified by the amendment to the Term Loan as discussed below. The Term Loan is subject to a prepayment premium due to the Lender equal to 3% of the amount prepaid/repaid within the first year of the Closing Date, 2% in the second year, 1% in the third year and no prepayment premium thereafter. At the Company's discretion, the Term Loan bears interest on a monthly basis at either (i) 10.0% payable in cash, or (ii) 11.0% payable in kind ('PIK'), with the latter added to the principal value of the Term Loan. For the three months ended September 30, 2024 and 2023, the Company recognized $0.4 million and $0.8 million, respectively, in PIK interest expense related to the Term Loan. For the nine months ended September 30, 2024 and 2023, the Company recognized $2.2 million and $1.2 million, respectively, in PIK interest expense related to the Term Loan. The PIK interest expense is included in interest expense on the condensed consolidated statements of operations and comprehensive loss.
Prior to PSPIB's advance of the first tranche, the Company satisfied several closing conditions including the provision of a cash flow forecast and the board of directors' retention of an advisor. The first and second tranche of the Term Loan, each in an aggregate principal amount of $15.0 million, were advanced to D-Wave on April 14, 2023 and July 13, 2023, respectively, with the third tranche of $20.0 million to be made automatically available to the Company subject to the satisfaction of certain conditions. PSPIB has waived certain covenants under the Term Loan that the Company did not meet, including the minimum revenue financial covenant for the fiscal quarters ended June 30, 2024, June 30, 2023 and September 30, 2023.
The availability of the third tranche is subject to the Company closing a $25.0 million non-dilutive financing on terms reasonably acceptable to the Lender, the intellectual property valuation report submitted as a condition precedent to the second tranche remaining satisfactory to the Lender and providing a board-approved operating budget for 2023 through 2027 by August 31, 2023 that is satisfactory to the Lender. The deadline to provide the operating budget was extended to December 31, 2023 from August 31, 2023 by the fourth amendment to the Term Loan dated October 6, 2023, and the budget was provided prior to the extended deadline.
The Term Loan was amended to allow the Company to issue up to $50.0 million under the Purchase Agreement without needing to pay down the Term Loan if the proceeds were received before December 31, 2023. On February 7, 2024, a fifth amendment was made to include the investment in Zapata via a senior secured promissory note as a "Permitted Investment." Any proceeds from issuing Common Shares under the Purchase Agreement exceeding $50.0 million must be used to repay the Term Loan, plus a 10% premium on the prepaid amount.
On April 16, 2024, the Company entered into the sixth amendment to the Term Loan with PSPIB. The amendment provides an additional period during which no prepayment of the advances under the Term Loan is required for up to $30.0 million in gross proceeds received by the Company from share issuances under the Purchase Agreement or the Company’s $175 million shelf registration statement on Form S-3, which became effective on May 24, 2024, between April 16, 2024, and September 30, 2024 (the "Second Prepayment Exemption"). Additionally, the amendment allows for a prepayment premium exemption for up to $20.0 million in gross proceeds received after the $30.0 million Second Prepayment Exemption. Under this exemption, the additional 10% prepayment premium will not apply for any mandatory prepayment from proceeds from the issuance of Common Shares under the ELOC. As of September 30, 2024, the Company had prepaid $21.1 million of the Term Loan, including $16.4 million in principal and $4.2 million in accrued PIK interest. The remaining balance as of September 30, 2024 was $13.7 million measured at amortized cost.
Any unrealized gain or loss on the Term Loan is included in change in fair value of Term Loan on the condensed consolidated statements of operations and comprehensive loss.
The Term Loan was classified as a Level 3 fair value measurement and measured using the binomial lattice model and the Monte Carlo simulation model. Key inputs for the simulations are summarized below.
21
As of September 30, 2024
Weighted-average risk-free rate
4.83%
Range: 4.72% to 4.93%
Default Trigger Event probability
5.00% on April 1, 2025
ELOC financing trigger event probability
10.00% from November 1, 2025 through January 1, 2025
ATM financing trigger event probability
40.00% from November 1, 2025 through January 1, 2025
The following table summarizes the difference between the fair value and the amortized cost of the Term Loan as of September 30, 2024 (in thousands):
Amortized Cost
Unrealized Gains
Fair Value
Term Loan, due 2027
$
13,710
$
10
$
13,700
The following table summarizes the changes in the carrying value of the Term Loan (in thousands):
Nine months ended September 30, 2024
Beginning balance
$
31,400
PIK interest expenses
2,231
Change in fair value
635
Payments
(20,566)
Ending balance
$
13,700
22
7. WARRANT LIABILITIES
Public and Private Warrants
In conjunction with the Merger, the Company assumed 10,000,000 DPCM public warrants (the "Public Warrants") and 8,000,000 DPCM private warrants (the "Private Warrants", collectively the "Warrants"). During the nine months ended September 30, 2024, no DPCM public or private warrants were exercised.
As of September 30, 2024, the Company has 17,916,609 Warrants outstanding. As part of the Merger, each DPCM Public Warrant and Private Warrant that was issued and outstanding immediately prior to the Merger was automatically and irrevocably converted into one D-Wave Quantum warrant. The Warrants are subject to the terms and conditions of the warrant agreement entered into between DPCM, Continental Stock Transfer & Trust Company and the Company (the “Warrant Agreement Amendment” as specified in the Transaction Agreement).
Each such Warrant will be exercisable at an exercise price of $11.50 for 1.4541326 Common Shares, or an approximate exercise price per Common Share of $7.91, subject to adjustments. The Warrants may be exercised for a whole number of shares of the Company. No fractional shares will be issued upon exercise of the Warrants. The Warrants will expire on August 5, 2027, or earlier upon redemption or liquidation.
The Private Warrants are identical to the Public Warrants except that the Private Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The Company may redeem the Public Warrants:
•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 Common Shares;
• if, and only if, the last reported sales price of the shares of the Common Shares for any twenty (20) trading days within the thirty (30) trading-day period ending on the third trading day prior to the date on which a notice of redemption is given equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalization and the like) (the "Reference Value");
•if the Reference Value is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalization and the like), the Private Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above; and
• if, and only if, there is an effective registration statement covering the issuance of the Common Shares issuable upon exercise of the warrants and a current prospectus relating thereto available throughout the 30-day period after written notice of redemption is given, or an exemption from registration is available.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of the Common Shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of the Common Shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
D-Wave Systems Warrant Transaction Agreements
In November 2020, contemporaneously with a revenue arrangement, D-Wave Systems entered into a contract pursuant to which D-Wave Systems agreed to cancel a previously issued warrant with a customer and replace it with a warrant to acquire up to 3,247,637 shares of its Class A Preferred Shares (the “Warrant Preferred Shares”), subject to certain vesting requirements. The warrant agreement was amended on August 5, 2022, contemporaneously with the closing of the Merger, to convert the Warrant Preferred Shares to a warrant to acquire up to 2,889,282 Common Shares of the Company in accordance with the Conversion Ratio of 0.889657 (the "Conversion Ratio") established in the Merger. The warrants vest based on various contractual milestones. The warrant agreement was terminated on November 28, 2022. As of the termination date of the agreement, approximately 40% of the warrants had vested, resulting in warrants exercisable into 1,155,713 Common Shares remaining after the termination date. The vested warrants will remain exercisable for up to 1,155,713 Common Shares at an exercise price of $2.16 per Common Share until November 29, 2026. As of September 30, 2024, no additional Warrant Preferred Shares were vested or probable of vesting.
23
8. STOCK-BASED COMPENSATION
2020 Equity Incentive Plan
In April 2020, the Board of Directors of D-Wave Systems approved the 2020 Equity Incentive Plan (the "2020 Plan") which provides for the grant of qualified ISO and NSO, restricted stock, RSU or other awards to the Company’s employees, officers, directors, advisors, and outside consultants. After the closing of the Merger effective August 5, 2022, no additional awards were issued under the 2020 Plan. Stock options granted under the 2020 Plan will be converted applying the Conversion Ratio to the underlying common stock at the exercise date.
2022 Equity Incentive Plan
On August 5, 2022, the shareholders approved the D-Wave Quantum Inc. 2022 Equity Incentive Plan (the “2022 Plan”), which became effective immediately upon the closing of the Merger. While the 2022 Plan allows for the issuance of awards with a service condition, a performance condition, a market condition, or some combination of the three, to date, the Company has only issued awards subject to a service condition. Awards issued under the 2022 Plan have vesting periods ranging from under one year to four years from the original grant date, and all awards issued to date under the 2022 Plan will expire ten years from the original grant date.
Share-based compensation awards are settled by issuing new shares.
Common stock option activity
The following table summarizes the Company’s stock option activity during the periods presented (in thousands except share and per share data):
Number of options
Weighted average exercise price ($)
Weighted average remaining contractual term (years)
Aggregate intrinsic value ($)
Outstanding as of 12/31/2023*
10,300,567
1.73
6.81
—
Granted
2,921,082
1.30
—
—
Exercised
(93,973)
0.89
—
46
Forfeited and expired
(251,530)
3.68
—
—
Outstanding as of September 30, 2024
12,876,146
1.60
6.78
897
Options exercisable as of September 30, 2024
10,825,039
1.38
6.42
824
Options unvested as of September 30, 2024
2,051,107
4.10
8.71
73
*As of December 31, 2023, a total of 10,547,844 options had been issued and remained outstanding under the 2020 Plan. The number of options, along with the weighted average exercise price and weighted average remaining contractual term shown in the table above, have been adjusted using the Conversion Ratio applied to these 10,547,844 options.
Restricted stock unit awards
The following table summarizes the RSU activity and related information under the 2022 Plan (in thousands except share and per share data):
Number of RSUs
Weighted average Grant Date Fair Value ($)
Aggregate intrinsic value ($)
Unvested as of December 31, 2023
7,045,813
3.13
6,201
Granted
6,028,616
1.72
—
Forfeited and expired
(286,226)
2.98
—
Vested
(2,661,261)
0.99
—
Unvested as of September 30, 2024
10,126,942
2.86
9,954
Employee Stock Purchase Plan
During the three months ended September 30, 2024, zero common shares were issued under the Employee Stock Purchase Plan. During the nine months ended September 30, 2024, 262,777 common shares were issued under the Employee Stock Purchase Plan.
24
Stock-based compensation expense
The following table summarizes the stock-based compensation expense classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Cost of revenue
$
159
$
353
$
487
$
963
Research and development
1,312
2,347
3,744
6,771
General and administrative
2,084
2,913
6,289
8,849
Sales and marketing
499
271
1,264
779
Total stock-based compensation
$
4,054
$
5,884
$
11,784
$
17,362
As of September 30, 2024, total unrecognized stock-based compensation cost, net of estimated forfeitures, related to our unvested stock awards was $22.4 million. This amount is based on an estimated future forfeiture rate of 2.7% per year and will be recognized over a weighted-average period of approximately 2.15 years.
9. RELATED PARTY TRANSACTIONS
Term Loan
On April 13, 2023, the Company entered into the Term Loan, by and between the Company and PSPIB, a related party to the Company's largest shareholder. Refer to Note 6 - Loans payable, net for further description of the Term Loan.
Promissory notes
On February 28, 2022, an affiliate of DPCM issued an unsecured promissory note of up to $1.0 million to the Sponsor (the "Affiliate Note") for additional working capital. $0.2 million was drawn on the Affiliate Note. As part of the Merger, the Company assumed and amended the Affiliate Note. The Affiliate Note had been fully repaid as of December 31, 2023.
Similarly, on April 13, 2022, DPCM obtained an unsecured promissory note of up to $1.0 million from the Sponsor (the "DPCM Note") for additional working capital. $0.2 million was drawn on the DPCM Note. The Company also assumed and amended this note. The Affiliate Note had been fully repaid as of December 31, 2023.
These transactions are considered related party transactions as they involve affiliates of the Company.
Short swing profit settlement
During the nine months ended September 30, 2023, the Company recorded approximately $0.2 million related to a short swing profit settlement remitted by a shareholder of the Company under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized the proceeds as an increase to additional paid-in-capital in the condensed consolidated statements of stockholders’ deficit, as well as in financing activities in the condensed consolidated statements of cash flows for the nine months ended September 30, 2023.
10. COMMITMENTS AND CONTINGENCIES
Lease obligations
The Company primarily enters into leases for office space that are classified as operating leases. During the three months ended September 30, 2024 and 2023, total operating lease costs were $0.5 million and $0.4 million, respectively. During the nine months ended September 30, 2024 and 2023, total operating lease costs were $1.5 million and $1.1 million, respectively.
Litigation
From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims.
25
In the normal course of business, the Company may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products, when used for their intended purposes, infringe the intellectual property rights of such other third parties, or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim.
As of September 30, 2024, the Company was not subject to any material litigation or pending litigation claims.
11. NET LOSS PER SHARE
The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders for the three and nine months ended September 30, 2024 and 2023 (in thousands, except share and per share data):
Three Months Ended September 30,
2024
2023
Numerator:
Net loss attributable to common stockholders - basic and diluted
$
(22,712)
$
(16,106)
Denominator:
Weighted-average common stock outstanding
201,585,533
133,222,318
Net loss per share attributable to common stockholders - basic and diluted
$
(0.11)
$
(0.12)
Nine Months Ended September 30,
2024
2023
Numerator:
Net loss attributable to common stockholders - basic and diluted
$
(57,802)
$
(66,701)
Denominator:
Weighted-average common stock outstanding
178,406,948
131,373,959
Net loss per share attributable to common stockholders - basic and diluted
$
(0.32)
$
(0.51)
For the nine months ended September 30, 2024 and 2023 the Company’s potentially dilutive securities were stock options, the Warrant Shares, the Public Warrants and Private Warrants and the unvested restricted stock unit awards.
Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.
Potentially dilutive securities (upon conversion) that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
Nine Months Ended September 30,
2024
2023
Public Warrants as converted to Common Shares (Note 7)
14,420,065
14,420,065
Private Warrants as converted to Common Shares (Note 7)
11,633,060
11,633,060
D-Wave Systems Warrant Shares as converted to Common Shares (Note 7)
1,155,713
2,889,282
Stock options issued and outstanding
12,876,146
11,311,698
Unvested restricted stock unit awards
10,126,942
—
Total
50,211,926
40,254,105
26
12. SUBSEQUENT EVENTS
The Company has evaluated all events occurring through November 14, 2024, the date on which the condensed consolidated financial statements were issued, and during which time, nothing has occurred outside the normal course of business operations that would require disclosure except the following:
Issuance of Common Shares
Subsequent to September 30, 2024, the Company has issued 3,683,698 Common Shares in connection with the Purchase Agreement for total proceeds of $3.8 million.
Subsequent to September 30, 2024, the Company has issued 11,440,100 Common Shares in connection with the ATM Agreement for total proceeds of $12.5 million.
Repayment of Term Loan
On October 22, 2024, the Company fully repaid and extinguished the Term Loan.
NYSE Listing Standards Compliance
On November 1, 2024, the NYSE provided D-Wave with a notification letter of recompliance based on a calculation of the Company’s average closing share price for the 30 trading days ended October 31, 2024, which reflected an average closing share price above the NYSE’s $1.00 minimum requirement. D-Wave will continue to be traded on the NYSE, subject to its continued compliance with all applicable listing standards.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist you in understanding our present business and the results of operations together with our present financial condition. This section should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes contained in Part I, Item I of this Quarterly Report of Form 10-Q (this "Report"), as well as our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 29, 2024. In this section, unless otherwise specified, the terms “we”, “our”, “us”, D-Wave" or the "Company" refer to D-Wave Quantum Inc. and its subsidiaries following the closing of the merger between DPCM Capital, Inc. ("DPCM"), D-Wave Systems Inc., and certain other affiliated entities through a series of transactions (the "Merger") on August 5, 2022 (the "Closing") while "D-Wave Systems" refers to D-Wave Systems Inc. prior to the Closing. All other capitalized terms have the meanings ascribed thereto elsewhere in this Report. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.
Overview
We are a commercial quantum computing company that provides customers with a full suite of professional services and web-based access to our superconducting quantum computer systems and integrated software environment through our LeapTM quantum cloud service. Historically, we have developed our own annealing superconducting quantum computer and associated software, and our current generation quantum system is the D-Wave AdvantageTM system. We are a leader in the development and delivery of quantum computing systems, software and services, and we are the world’s first commercial supplier of quantum computers—and the only company developing both annealing quantum computers and gate-model quantum computers.
Our business model is focused primarily on generating revenue from providing customers access to our quantum computing systems via the cloud in the form of quantum computing as a service ("QCaaS") products, and from providing professional services wherein we assist our customers in identifying and implementing quantum computing applications. We have three operating facilities, which we lease, in North America. These facilities are located in Burnaby, British Columbia, Richmond, British Columbia, and Palo Alto, California.
During the three months ended September 30, 2024 and 2023, we generated revenue totaling $1.9 million and $2.6 million, respectively. During the nine months ended September 30, 2024 and 2023, we generated revenue totaling $6.5 million and $5.9 million, respectively. We have incurred significant operating losses since inception. For the three months ended September 30, 2024 and 2023, our net losses were $22.7 million and $16.1 million, respectively. For the nine months ended September 30, 2024 and 2023, our net losses were $57.8 million and $66.7 million, respectively. We expect to continue to incur significant losses for the foreseeable future as we continue to invest in a number of research and development programs as well as a variety of go-to-market initiatives. As of September 30, 2024, we had an accumulated deficit of $540.9 million.
27
Macroeconomic Environment
Unfavorable conditions in the economy in the United States, Canada and abroad, including conditions resulting from changes in inflationary pressure, gross domestic product growth, financial and credit market fluctuations, banking collapses and related uncertainty, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia, Ukraine, Israel or elsewhere, could cause a decrease in business investments on our products and negatively affect the growth of our business and our results of operations.
Key Components of Results of Operations
Revenue
We currently generate our revenue primarily through subscription sales to access our QCaaS cloud platform and professional services related to the development and implementation of quantum computing applications and delivery of quantum computing application training. QCaaS revenue is recognized on a ratable basis over the contract term, which generally ranges from one month to two years. Professional services revenue is recognized over time on a percentage of completion basis using the costs incurred input measure of progress.
We expect that QCaaS revenue, as a percentage of total revenue, will increase due to an increasing number of QCaaS agreements being driven by the completion of professional services engagements yielding production applications that require QCaaS services, as well as by customers that choose to access our LeapTM cloud service without utilizing our professional services organization.
Cost of Revenue
Our cost of revenue consists of all direct and indirect expenses related to providing our QCaaS offering and delivering our professional services, such as personnel-related expenses, including stock-based compensation, costs associated with maintaining the cloud platform on which we provide the QCaaS product and depreciation and amortization related to our quantum computing systems and related software.
We expect our total cost of revenue to trend upward in absolute dollars in future periods, corresponding to our anticipated growth in revenue and necessary to support our customers and to maintain the QCaaS cloud offering, operate our quantum computing systems, and to deliver our professional services. In the short term, decreases in share based compensation expenses may offset the expected long-term upward trend. We expect our cost of revenue as a percentage of total revenue to trend downward over time due to a higher mix of QCaaS revenue that has a lower cost to deliver compared to professional service revenue.
Operating Expenses
Our operating expenses consist of research and development, general and administrative, and sales and marketing expenses.
Research and Development
Research and development expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, fabrication costs, lab supplies, and cloud computing resources and allocated facility costs for our research and development functions. Unlike a standard computer, design and development efforts continue throughout the useful life of our quantum computing systems to ensure proper calibration and optimal functionality. Research and development expenses also include purchased hardware components, fabrication and software costs related to quantum computing systems constructed for research purposes that do not have a high probability of providing near-term future economic benefits, and may have no alternate future use. We currently do not capitalize any research and development expenses.
We expect our research and development expenses will trend upward on an absolute dollar basis for the foreseeable future as we continue to invest in research and development efforts to enhance the performance of our annealing quantum computers, to complete the development of our gate model quantum computer, and to broaden the functionality, improve the reliability, availability and scalability of our QCaaS cloud platform. If in the future we receive government grants and research incentives, which have historically offset a portion of research and development costs, these costs could decrease in absolute dollars. Also, non-cash share based compensation expenses may cause downward fluctuations in these costs from time to time.
28
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel and outside professional services expenses including legal, audit and accounting services, insurance, other administrative expenses and allocated facility costs for our administrative functions.
We expect our general and administrative expenses to decrease in absolute dollars in the near term due to significant investments in scaling up our ability to operate as a public company made in prior years. However, in the longer term we expect general and administrative expenses to increase in absolute dollars as we continue to invest in more comprehensive compliance and governance functions, increased IT security and compliance, and expanded internal controls over financial reporting in accordance with the Sarbanes-Oxley Act of 2002. However, non-cash stock-based compensation expenses may cause downward fluctuations in these costs from time to time.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, direct advertising, marketing and promotional material costs, sales commission expense, consulting fees and allocated facility costs for our sales and marketing functions. We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, expand our global customer base, and broaden our brand awareness. We expect our sales and marketing expenses to continue to increase in absolute dollars for the foreseeable future. However, non-cash stock-based compensation expenses may cause downward fluctuations in these costs from time to time.
Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table sets forth our results of operations for the periods indicated (in thousands):
Three Months Ended September 30,
Variance
(In thousands, except share and per share data)
2024
2023
Amount
%
Revenue
$
1,870
$
2,562
$
(692)
(27)
%
Cost of revenue
827
1,033
(206)
(20)
%
Total gross profit
1,043
1,529
(486)
(32)
%
Operating expenses:
Research and development
8,668
9,459
(791)
(8)
%
General and administrative
9,259
8,003
1,256
16
%
Sales and marketing
3,752
2,474
1,278
52
%
Total operating expenses
21,679
19,936
1,743
9
%
Loss from operations
(20,636)
(18,407)
(2,229)
12
%
Other income (expense), net:
Interest expense
(1,180)
(1,035)
(145)
14
%
Change in fair value of Term Loan
(1,559)
1,701
(3,260)
(192)
%
Term Loan debt issuance costs
—
(725)
725
(100)
%
Gain (loss) on investment in marketable equity securities
(8)
—
(8)
100%
Change in fair value of warrant liabilities
476
1,433
(957)
(67)
%
Other income (expense), net
195
927
(732)
(79)
%
Total other income (expense), net
(2,076)
2,301
(4,377)
(190)
%
Net loss
$
(22,712)
$
(16,106)
$
(6,606)
41
%
Foreign currency translation adjustment
(151)
15
(166)
(1107)
%
Net comprehensive loss
$
(22,863)
$
(16,091)
$
(6,772)
42
%
Revenue
Revenue decreased by $0.7 million, or 27%, to $1.9 million for the three months ended September 30, 2024 as compared to $2.6 million for the three months ended September 30, 2023. The decrease was due primarily to a decrease of $1.1 million in professional service revenue, partially offset by an increase in QCaaS revenue of $0.5 million stemming from an increase in the average revenue per QCaaS customer.
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Cost of Revenue
Cost of revenue decreased by $0.2 million, or 20%, to $0.8 million for the three months ended September 30, 2024 as compared to $1.0 million for the three months ended September 30, 2023. The decrease in cost of revenue was primarily driven by a decrease in non-cash stock-based compensation of $0.2 million.
Operating Expenses
Research and Development Expenses
Research and development expenses decreased by $0.8 million, or 8%, to $8.7 million for the three months ended September 30, 2024 compared to $9.5 million for the three months ended September 30, 2023. The decrease was primarily driven by decreases in stock-based compensation expenses of $1.0 million and fabrication and related expenses of $0.2 million, partially offset by increases in professional service expenses of $0.3 million and personnel costs of $0.1 million.
General and Administrative Expenses
General and administrative expenses increased by $1.3 million, or 16%, to $9.3 million for the three months ended September 30, 2024 as compared to $8.0 million for the three months ended September 30, 2023. The increase was primarily driven by increases of $1.1 million in professional services, $1.0 million in credit losses and personnel costs of $0.2 million. These were partially offset by decreases in stock-based compensation expense of $0.8 million and insurance costs of $0.2 million.
Sales and Marketing Expenses
Sales and marketing expenses increased by $1.3 million, or 52%, to $3.8 million for the three months ended September 30, 2024 as compared to $2.5 million for the three months ended September 30, 2023. The increase was primarily driven by increases in personnel costs of $0.8 million, stock-based compensation expense of $0.2 million, travel expenses of $0.2, marketing expenses of $0.1 million, and software expenses of $0.1 million.
Other Income (Expense), net
Interest Expense
Interest expense increased by $0.1 million, or 14%, to $1.2 million for the three months ended September 30, 2024 as compared to $1.0 million for the three months ended September 30, 2023. The increase is primarily due to interest expenses related to the Term Loan (as defined below). During the three months ended September 30, 2024, the Company had prepaid $16.4 million in principal of the Term Loan, reducing interest expense incurred. Refer to Note 6 to the accompanying condensed consolidated financial statements for further details.
Change in fair value of Term Loan
The fair value of Term Loan increased by $1.6 million for the three months ended September 30, 2024 as compared to a decrease of $1.7 million for the three months ended September 30, 2023. On April 13, 2023, the Company entered into a Term Loan with PSPIB. The Company opted for the fair value option for accounting of the Term Loan (see Note 2 to the accompanying condensed consolidated financial statements). Changes in the fair value of the Term Loan, excluding changes due to the Company's own credit risk, are recorded as gains or losses in the Company’s condensed consolidated statements of operations and comprehensive loss in each reporting period. The fair value of the Term Loan varies primarily based on the market yield rate, market yield volatility, and the probabilities of various settlement outcomes.
Term Loan debt issuance costs
Term Loan debt issuance costs decreased by $0.7 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, as there were no advances on the Term Loan during the three months ended September 30, 2024.
Gain (loss) on investment in marketable equity securities
Loss on investment in marketable equity securities was minimal for both the three months ended September 30, 2024 and the three months ended September 30, 2023.
Change in fair value of warrant liabilities
Fair value of warrant liabilities decreased by $0.5 million for the three months ended September 30, 2024 as compared to a decrease of $1.4 million for the three months ended September 30, 2023. The fair value of the warrant liabilities varies primarily with the trading price of the Public Warrants listed on the New York Stock Exchange (see Note 2 and Note 7 to the accompanying condensed consolidated financial statements).
30
Other income (expense), net
Other income (expense), net decreased by $0.7 million, or 79%, to $0.2 million for the three months ended September 30, 2024 as compared to $0.9 million for the three months ended September 30, 2023. The decrease was primarily driven by the net impact of foreign exchange loss of $1.3 million, partially offset by an increase in interest income of $0.6 million, due primarily to higher interest rates earned on cash and cash equivalent balances.
Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table sets forth our results of operations for the periods indicated (in thousands):
Nine Months Ended September 30,
Variance
(In thousands, except share and per share data)
2024
2023
Amount
%
Revenue
$
6,518
$
5,852
$
666
11
%
Cost of revenue
2,428
3,197
(769)
(24)
%
Total gross profit
4,090
2,655
1,435
54
%
Operating expenses:
Research and development
25,548
29,922
(4,374)
(15)
%
General and administrative
24,296
28,875
(4,579)
(16)
%
Sales and marketing
11,237
7,862
3,375
43
%
Total operating expenses
61,081
66,659
(5,578)
(8)
%
Loss from operations
(56,991)
(64,004)
7,013
(11)
%
Other income (expense), net:
Interest expense
(3,480)
(1,822)
(1,658)
91
%
Change in fair value of Term Loan
(635)
1,356
(1,991)
(147)
%
Term Loan debt issuance costs
—
(2,118)
2,118
(100)
%
Gain (loss) on investment in marketable equity securities
1,495
—
1,495
100%
Change in fair value of warrant liabilities
19
(79)
98
(124)
%
Other income (expense), net
1,790
(34)
1,824
(5365)
%
Total other income (expense), net
(811)
(2,697)
1,886
(70)
%
Net loss
$
(57,802)
$
(66,701)
$
8,899
(13)
%
Foreign currency translation adjustment
(82)
(70)
(12)
17
%
Net comprehensive loss
$
(57,884)
$
(66,771)
$
8,887
(13)
%
Revenue
Revenue increased by $0.7 million, or 11%, to $6.5 million for the nine months ended September 30, 2024 as compared to $5.9 million for the nine months ended September 30, 2023, with the increase due primarily to an increase in QCaaS revenue of $1.7 million, primarily due to an increase in the average revenue per QCaaS customer, partially offset by a decrease of $0.9 million in professional service revenue.
Cost of Revenue
Cost of revenue decreased by $0.8 million, or 24%, to $2.4 million for the nine months ended September 30, 2024 as compared to $3.2 million for the nine months ended September 30, 2023. The decrease in cost of revenue was primarily driven by a decrease in non-cash stock-based compensation of $0.5 million, personnel costs of $0.2 million and quantum computing infrastructure costs of $0.1 million.
Operating Expenses
Research and Development Expenses
Research and development expenses decreased by $4.4 million, or 15%, to $25.5 million for the nine months ended September 30, 2024 compared to $29.9 million for the nine months ended September 30, 2023. The decrease was primarily driven by decreases in stock-based compensation expenses of $3.0 million, personnel costs of $0.7 million and fabrication expenses of $0.7 million.
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General and Administrative Expenses
General and administrative expenses decreased by $4.6 million, or 16%, to $24.3 million for the nine months ended September 30, 2024 as compared to $28.9 million for the nine months ended September 30, 2023. The decrease was primarily driven by decreases in professional fees of $2.7 million, stock-based compensation expense of $2.6 million and insurance costs of $0.8 million, partially offset by an increase in credit loss expenses of $1.2 million.
Sales and Marketing Expenses
Sales and marketing expenses increased by $3.4 million, or 43%, to $11.2 million for the nine months ended September 30, 2024 as compared to $7.9 million for the nine months ended September 30, 2023. The increase was primarily driven by increases in personnel costs of $2.5 million, stock-based compensation expense of $0.5 million and marketing expenses of $0.3 million.
Other Income (Expense), net
Interest Expense
Interest expense increased by $1.7 million, or 91%, to $3.5 million for the nine months ended September 30, 2024 as compared to $1.8 million for the nine months ended September 30, 2023. The increase is primarily due to interest expenses related to the Term Loan, which was advanced to us in two tranches, each in an aggregate principal amount of $15.0 million, on April 14, 2023 and July 13, 2023, respectively. During the nine months ended September 30, 2024, the Company had prepaid $16.4 million in principal of the Term Loan, reducing interest expense incurred. Refer to Note 6 to the accompanying unaudited condensed consolidated financial statements for further details.
Change in fair value of Term Loan
The fair value of Term Loan increased by $0.6 million for the nine months ended September 30, 2024 as compared to a decrease of $1.4 million for the nine months ended September 30, 2023. As previously mentioned, on April 13, 2023, the Company entered into a Term Loan with PSPIB. The Company opted for the fair value option for accounting of the Term Loan (see Note 2 to the accompanying condensed consolidated financial statements). Changes in the fair value of the Term Loan, excluding changes due to the Company's own credit risk, are recorded as gains or losses in the Company’s condensed consolidated statements of operations and comprehensive loss in each reporting period. The fair value of the Term Loan varies primarily based on the market yield rate, market yield volatility, and the probabilities of various settlement scenarios.
Term Loan debt issuance costs
Term Loan debt issuance costs decreased by $2.1 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, as there were no advances on the Term Loan during the nine months ended September 30, 2024.
Gain (loss) on investment in marketable equity securities
Gain (loss) on investment in marketable equity securities increased by $1.5 million for the nine months ended September 30, 2024 as compared to zero for the nine months ended September 30, 2023. On January 5, 2024, an investee of the Company was acquired for a combination of cash and stock in an observable orderly transaction. Consequently, the carrying value of the Company's investment was adjusted based on the consideration received, resulting in a net gain of $1.7 million, partially offset by a loss associated with the fair value of the conversion feature of the Zapata Note.
Change in fair value of warrant liabilities
Change in fair value of warrant liabilities was minimal for both the nine months ended September 30, 2024 and the nine months ended September 30, 2023. The fair value of the warrant liabilities varies primarily with the trading price of the Public Warrants listed on the New York Stock Exchange (see Note 2 and Note 7 to the accompanying condensed consolidated financial statements).
Other income (expense), net
Other income (expense), net increased by $1.8 million or 5365%, to net income of $1.8 million for the nine months ended September 30, 2024 as compared to net expense of $34.0 thousand for the nine months ended September 30, 2023. The increase was primarily driven by the net impact of foreign exchange gains of $0.8 million and increase in interest income of $1.0 million, due primarily to higher interest rates earned on cash and cash equivalent balances.
32
Liquidity and Capital Resources
Since its inception, the Company has incurred net losses and negative cash flows from operations. As of September 30, 2024, the Company had an accumulated deficit of $540.9 million. For the three months ended September 30, 2024 and 2023, the Company incurred a net loss of $22.7 million and $16.1 million, respectively. For the nine months ended September 30, 2024 and 2023, the Company incurred a net loss of $57.8 million and $66.7 million, respectively. For the nine months ended September 30, 2024 and 2023, the Company had net cash outflows from operating activities of $44.7 million and $45.9 million, respectively. As of September 30, 2024, the Company had cash of $29.3 million and working capital (current assets less current liabilities) of $9.3 million. Additionally, total liabilities exceeded total assets at September 30, 2024 by $16.9 million. The Company expects to incur additional operating losses and negative cash flows from operating activities as it continues to expand its commercial operations and research and development programs.
On April 13, 2023 (the "Closing Date"), the Company finalized a Term Loan and Security Agreement ("Term Loan") with PSPIB Unitas Investments II Inc. ("PSPIB" or the "Lender"), a related party to the Company's largest shareholder. The Term Loan, outlined in Note 6 - Loans payable, net, provides $50.0 million in three tranches, with financial performance requirements. The first two tranches of $15.0 million each were disbursed on April 14, 2023, and July 13, 2023, respectively. The third tranche of $20.0 million is contingent on meeting specific criteria, including a non-dilutive financing closure. As of September 30, 2024, the Company had prepaid $21.1 million of the Term Loan, including $16.4 million in principal and $4.2 million in accrued PIK interest. The remaining balance as of September 30, 2024 was $13.7 million at amortized cost. The Term Loan was subsequently repaid in full on October 22, 2024.
In conjunction with the Merger, the Company and D-Wave Systems entered into a purchase agreement with Lincoln Park Capital Fund, LLC ("Lincoln Park") on June 16, 2022, which provides D-Wave the sole right, but not the obligation, to direct Lincoln Park to buy specified dollar amounts up to $150.0 million of D-Wave's common stock, par value $0.0001 per share through November 1, 2025. The Purchase Agreement may provide the Company and D-Wave with additional liquidity to fund the business, subject to the conditions set forth in the agreement, including volume limitations tied to periodic market prices, ownership limitations restricting Lincoln Park from owning more than 9.9% of the then total outstanding Common Shares and a floor price of $1.00 at or below which the Company may not sell to Lincoln Park any Common Shares. When the Company sells shares to Lincoln Park, Lincoln Park may resell all, some, or none of those Common Shares at any time or from time to time in its discretion. During the nine months ended September 30, 2024, the Company has received $32.2 million in proceeds through the issuance of 25,569,997 Common Shares to Lincoln Park under the Purchase Agreement. In order for the Company to issue Common Shares under the Purchase Agreement, the Company's share price must be above the floor price of $1.00. There is no assurance that the floor price will not fall below $1.00 preventing the Company from being able to make sales to Lincoln Park in the future. As of September 30, 2024, D-Wave had $49.9 million of issuance capacity under the Purchase Agreement.
On May 24, 2024, the Company entered into an at-the-market sales agreement (the “ATM Agreement”) with Needham & Company, LLC, B. Riley Securities, Inc. and Roth Capital Partners, LLC (collectively, the “Agents”), pursuant to which the Company may sell from time to time, at its option, shares of the Company’s common stock, par value $0.0001 per share, through or to the Agents, as sales agent or principal. In accordance with the terms of the ATM Agreement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $100.0 million from time to time through or to the Agents, as sales agent or principal. During the nine months ended September 30, 2024, the Company has received $20.7 million in proceeds through the issuance of 19,337,124 Common Shares under the Sales Agreement. As of September 30, 2024, D-Wave had $79.1 million of issuance capacity under the ATM Agreement.
The sale of shares of the Company’s common stock under the ATM Agreement will be made by any method permitted that is deemed to be an “at-the-market” equity offering as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on the New York Stock Exchange or any other trading market for the Company’s common stock. Subject to the terms and conditions of the ATM Agreement, the Agents will use commercially reasonable efforts to sell the shares of the Company’s common stock from time to time, based upon the Company’s instructions.
The compensation payable to the Agents as sales agent shall be up to 3.0% of the gross sales price of the shares sold through or to the Agents pursuant to the ATM Agreement. In addition, the Company will reimburse the Agents for certain expenses incurred in connection with the ATM Agreement, and the Company has agreed in the ATM Agreement to provide indemnification and contribution to the Agents against certain liabilities, including liabilities under the Securities Act.
33
The Company is not obligated to make any sales of shares of common stock under the ATM Agreement. The offering of common stock pursuant to the ATM Agreement will terminate upon (a) the election of the Agents upon the occurrence of certain adverse events, (b) five business days’ advance notice from the Company to the Agents or five days’ advance notice from any of the Agents to the Company or (c) otherwise by mutual agreement of the parties pursuant to the terms of the ATM Agreement.
To the extent that sufficient capital is not obtained through the cash received in connection with the proceeds of the Term Loan or the issuance of Common Shares under the Purchase Agreement with Lincoln Park and the ATM Agreement, management will be required to obtain additional capital through the issuance of debt and/or equity, or other arrangements. However, there can be no assurance that D-Wave will be able to raise additional capital when needed or under acceptable terms. The issuance of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to the currently outstanding common stock. Any future debt may contain covenants and limit D-Wave’s ability to pay dividends or make other distributions to stockholders. If D-Wave is unable to obtain sufficient financing, operations will be scaled back or discontinued.
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Codification (“ASC”) Topic 205-40, “Basis of Presentation—Going Concern”, management has determined that the Company's liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern, which is considered to be for a period of one year from the issuance of these financial statements. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Such adjustments could be material.
Cash Flows
The following table sets forth our cash flows for the periods indicated (in thousands):
Nine Months Ended September 30,
2024
2023
Net cash provided by (used in):
Operating Activities
$
(44,660)
$
(45,910)
Investing Activities
(2,178)
(176)
Financing Activities
34,887
92,408
Effect of exchange rate changes on cash and cash equivalents
(82)
(70)
Net increase (decrease) in cash and cash equivalents
$
(12,033)
$
46,252
Cash Flows Used in Operating Activities
Our cash flows from operating activities are significantly affected by the growth of our business, and are primarily related to research and development, sales and marketing and general and administrative activities. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable, accounts receivable and other current assets and liabilities.
For the nine months ended September 30, 2024, net cash used in operating activities was $44.7 million, a decrease of $1.3 million from $45.9 million for the nine months ended September 30, 2023. The change is primarily due to a decrease in net loss of $8.9 million, offset by a decrease in noncash items of $10.0 million and an increase in cash released from working capital of $2.4 million. The decrease in noncash items was primarily due to a decrease in stock-based compensation of $5.6 million, a decrease in non-cash interest expense of $3.1 million due to the cash settlement of accrued PIK interest on the Term Loan, a gain on marketable securities of $1.5 million, a decrease in debt issuance costs of $1.0 million, and an increase in unrealized foreign exchange gain of $0.8 million, partially offset by an increase in fair value of Term Loan of $2.0 million. The decrease in working capital was primarily driven by an increase in change in accrued expenses and other current liabilities of $2.3 million, a decrease in change in trade accounts payable of $1.4 million, a decrease in change in operating lease liability of $0.7 million and an increase in change in other non-current assets of $0.6 million, partially offset by a decrease in change in prepaid expenses and other current assets of $2.5 million.
Cash Flows Used in Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2024 was $2.2 million, an increase of $2.0 million in cash used in investing activities from $0.2 million for the nine months ended September 30, 2023. The increase is primarily due to purchase of convertible note of $1.0 million and an increase in purchase of property and equipment of $1.0 million.
34
Cash Flows Provided by Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2024 was $34.9 million, a decrease of $57.5 million from cash provided by financing activities of $92.4 million for the nine months ended September 30, 2023. The decrease is primarily due to a decrease in proceeds from the issuance of common stock pursuant to the Purchase Agreement of $29.2 million, a decrease in debt financing proceeds of $29.0 million, an increase in debt repayments of $16.4 million, as well as a decrease in proceeds from the issuance of common stock upon exercise of stock options of $1.8 million, and the payment of tax withheld for common stock issued under stock-based compensation settlements of $1.5 million. The decrease was partially offset by proceeds from the issuance of common stock pursuant to the ATM Agreement of $20.7 million.
Contractual Obligations and Commitments
As of September 30, 2024, there have been no material changes with regard to contractual obligations from those disclosed in our "Management's Discussion and Analysis on Financial Condition and Results of Operations—Contractual Obligations and Commitments" in our Annual Report on Form 10-K for the year ended December 31, 2023.
Critical Accounting Estimates
There have been no material changes to our critical accounting policies from those disclosed in our "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recently Issued and Adopted Accounting Standards
A discussion of recent accounting pronouncements is included in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to Smaller Reporting Companies.
Item 4. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Evaluation of Disclosure Controls and Procedures
In accordance with the Exchange Act Rules 13a-15(e) and 15d-15(e), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to a material weakness in our internal control over financial reporting specifically related to D-Wave’s control environment in relation to our financial statement close process (i.e., lack of sufficient accounting and financial reporting personnel with requisite knowledge and experience in the application of complex areas of GAAP and SEC rules to facilitate accurate and timely financial reporting and to perform sufficient review over certain financial statement areas), as previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2023, our disclosure controls and procedures were not effective as of the end of the period covered by this Report.
Notwithstanding the material weakness described above, we have concluded that our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with U.S. GAAP for the periods presented therein.
Remediation Efforts on Previously Reported Material Weakness
The Company is devoting significant time, attention, and resources to remediating the above material weakness. The Company has undertaken and continues to execute the following steps intended to remediate the material weakness described above and strengthen our internal controls, specifically:
•The Company hired experienced finance and accounting executives in the positions of SVP Finance, VP Corporate Controller, and Senior Manager of Financial Reporting and Technical Accounting.
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•The Company continues to develop accounting personnel with a level of accounting knowledge and experience in the application of US GAAP commensurate with our financial reporting requirements and the complexity of our operations and transactions, including providing adequate training and supervision to our staff.
•The Company has engaged external specialists as needed to provide assistance in accounting for significant, non-routine or complex transactions.
•The Company has engaged external consultants to assist the Company in designing, implementing, and monitoring an appropriate system of internal control.
The Company continues to make significant progress in addressing the previously identified material weakness, however the material weakness will not be considered remediated until our remediation plan has been fully implemented, the applicable controls have operated for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls have been designed and operating effectively for a sufficient period of time.
Changes in Internal Control Over Financial Reporting
Other than the ongoing remediation to address the material weakness described above, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), during the three months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Part II
Item 1. Legal Proceedings
From time to time, we may become involved in legal proceedings arising in the ordinary course of business. There are currently no pending or threatened legal proceedings or claims against us that, in our opinion, are likely to have a material adverse effect on our business, operating results, financial condition or cash flows. Defending such proceedings is costly and can impose a significant burden on management and team members. The results of any future litigation cannot be predicted with certainty, but regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 29, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Securities Trading Plans of Directors and Executive Officers
During the three months ended September 30, 2024, none of the Company’s directors or officers adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”, as such terms are defined under Item 408 of Regulation S-K.
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Item 6. Exhibits and Financial Statement Schedules
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** Furnished with this report in accordance with Item 601(b)(32) of Regulation S-K, this exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act, except to the extent that the registrant specifically incorporates it by reference.
† Certain portions of this exhibit (indicated by “[*****]”) have been redacted pursuant to Regulation S-K, Item 601(a)(6).
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.