Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of business
D-Wave Quantum Inc. ("D-Wave" or the “Company”) was incorporated under the General Corporation Law of the State of the Delaware on January 24, 2022. The Company was formed for the purpose of effecting a merger between DPCM Capital, Inc. (“DPCM”), D-Wave Systems Inc. (“D-Wave Systems”), and certain other affiliated entities through a series of transactions (the “Merger”) pursuant to the definitive agreement entered into on February 7, 2022 (the “Transaction Agreement”). On August 5, 2022, in conjunction with the Merger, DPCM and D-Wave Systems became wholly-owned subsidiaries of, and are operated by, the Company. Upon the completion of the Merger, the Company succeeded to all of the operations of its predecessor, D-Wave Systems.
D-Wave is a commercial quantum computing company that provides customers with a full suite of professional services and web-based access to its superconducting quantum computer systems and integrated software environment through its cloud service, LeapTM. Historically, the Company has developed its own annealing superconducting quantum computer and associated software, and its current generation quantum system is the AdvantageTM system.
D-Wave has three operating facilities, which it leases, in North America. These facilities are located in Burnaby, British Columbia, Richmond, British Columbia, and Palo Alto, California.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated balance sheet as of December 31, 2022, has been derived from the audited consolidated financial statements at that date, but certain notes or other information that are normally required by U.S. GAAP have been omitted if they substantially duplicate the disclosures contained in the Company's annual audited consolidated financial statements.
Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the United States Securities and Exchange Commission ("SEC"). In the opinion of the Company, the unaudited financial information for the interim periods presented reflects all adjustments, which are normal and recurring, necessary for a fair presentation of the consolidated statement of operations and comprehensive loss, balance sheet, and cash flows. Interim results should not be regarded as indicative of results that may be expected for any other period or the entire year.
The interim condensed consolidated financial statements included herein have been prepared on the same basis as the audited annual consolidated financial statements and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K as of and for the year ended December 31, 2022 filed with the SEC.
The condensed consolidated statement of operations and comprehensive loss for the three and six month periods ended June 30, 2023 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2023 or thereafter. All references to June 30, 2023 and 2022 in the notes to condensed consolidated financial statements are unaudited.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements upon consolidation.
Revision of previously issued financial statements
In connection with the preparation of the Company’s financial statements as of and for the year ended December 31, 2022, the Company’s management identified certain misstatements attributable to the following:
i) an understatement of reported research and development expenses for the three and six months ended June 30, 2022 of $0.4 million and $0.7 million, respectively, with respect to the Company losing the ability to receive Scientific Research and Experimental Development credits subsequently to signing the Transaction Agreement on February 7, 2022; and
ii) an overstatement of non-cash interest expense for the three and six months ended June 30, 2022 of $0.3 million and $0.3 million, respectively, with respect to the Company identifying certain errors in the SIF Loan (as defined below) repayment calculation model.
There was no material impact to net loss, hence there was no impact to the net loss per share, for the three and six months ended June 30, 2022.
Liquidity and going concern
The Company has prepared its condensed consolidated financial statements assuming that it will continue as a going concern. Since its inception, the Company has incurred net losses and negative cash flows from operations. As of June 30, 2023, the Company had an accumulated deficit of $427.3 million. For the three and six months ended June 30, 2023, the Company incurred a net loss of $25.9 million and $50.5 million, respectively. For the three and six months ended June 30, 2022, the Company incurred a net loss of $13.3 million and $25.3 million, respectively. For the six months ended June 30, 2023 and 2022, the Company had net cash outflows from operating activities of $29.0 million and $21.5 million, respectively. As of June 30, 2023, the Company had $7.5 million of cash and working capital (current assets less current liabilities) deficit of $20.8 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 entered into the Term Loan and Security Agreement (the "Term Loan"), by and between the Company and PSPIB Unitas Investments II Inc. ("PSPIB" or the "Lender"), a related party to the Company's largest shareholder. As further described in Note 7 - Loans payable, the Term Loan provides for an aggregate principal amount of $50.0 million to be made available to the Company in three tranches, subject to certain terms and conditions as defined in the Term Loan, including a financial covenant that measures the Company's revenue against certain minimum percentages of budgeted revenue per quarter. The first two tranches of the Term Loan, each amounting to $15.0 million in principal, 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 available on October 10, 2023, subject to certain conditions. The Lender agreed to modify certain conditions to the funding of the second tranche of the Term Loan, including delaying the delivery of a board-approved operating budget and plan for the Company’s fiscal years 2023 through 2027 to August 31, 2023; modifying the condition that, prior to the funding of the second tranche,the Company shall have nominated an additional director that is either an employee of PSPIB or an independent director selected from PSPIB nominees to require such appointment at a later time at PSPIB’s option; and modifying notice deadline requirements for the registration or filings of intellectual property. PSPIB has also agreed to waive certain covenants under the Term Loan that the Company did not meet, including the minimum revenue financial covenant for the second fiscal quarter ended June 30, 2023. The third tranche that shall be available to D-Wave as of October 10, 2023, is subject to the closing of a $25.0 million non-dilutive financing on terms reasonably acceptable to the Lender, and the intellectual property valuation report submitted as a condition precedent to the second tranche and the board-approved operating budget for 2023 through 2027 being submitted by August 31, 2023 both remaining satisfactory to the Lender. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the third tranche or will be able to comply with the covenants of the Term Loan, or that PSPIB will agree to waive covenants under the Term Loan in the future.
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 (the "Purchase Agreement" or the "Lincoln Park Purchase Agreement") which provides D-Wave the sole right, but not the obligation, to direct Lincoln Park to buy specified dollar amounts up to $150 million of D-Wave's common stock, par value $0.0001 per share (the "Common Shares") through October 26, 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. For the six months ended June 30, 2023, the Company has received $15.7 million in proceeds through the issuance of 13,239,654 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 per share. 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.
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, 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 additional financing, operations will be scaled back or discontinued.
As further described in Note 13 - Subsequent events, subsequent to the three months ended June 30, 2023, D-Wave was advanced $15.0 million under the second tranche of the Term Loan and, following the execution of the third amendment to the Term Loan and a registration statement relating to the resale of up to 35 million Common Shares under the Lincoln Park Purchase Agreement being declared effective, issued 16,590,877 Common Shares in connection with the Lincoln Park Purchase Agreement for total proceeds of $34.2 million. Notwithstanding these subsequent events, 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 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.
Use of estimates
The preparation of the condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes as of the date of the condensed consolidated financial statements. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts, and experience.
The Company’s accounting estimates and assumptions may change over time in response to risks and uncertainties, including uncertainty in the current economic environment due to inflation, increased interest rates, Ukraine/Russia conflict, and any evolutions thereof. The change could be material in future periods. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstances that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results may differ from those estimates or assumptions.
Debt
The Company determined that it is eligible for the fair value option election in connection with the Term Loan. The Term Loan meets the definition of a “recognized financial liability” which is an acceptable financial instrument eligible for the fair value option under ASC 825-10-15-4 and does not meet the definition of any of the financial instruments found within ASC 825-10-15-5 that are not eligible for the fair value option. At the date of issuance, the fair value of the Term Loan is derived from the instrument’s implied discount rate at inception.
Changes in the fair value of the Term Loan, other than changes associated with 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. Changes in fair value attributable to the Company's own credit risk are recorded in other comprehensive income or loss in the Company's condensed consolidated statements of operations and comprehensive loss in each reporting period; there have been no such changes for the three and six months ended June 30, 2023. Under the fair value option, debt issuance costs are recorded in other expense in the Company’s condensed consolidated statements of operations and comprehensive loss.
The Term Loan is subject to certain repayment and prepayment provisions which the Company has considered in their valuation analysis. The valuation analysis performed as of the issuance date on April 13, 2023 and June 30, 2023 did not consider any amendments to the Term Loan that occurred subsequent to June 30, 2023 (see to Note 13 - Subsequent events). A Monte Carlo simulation model was utilized to forecast the probability of the issuance of Common Shares under the Purchase Agreement to determine the estimated proceeds to be paid to the Lender along with a mandatory prepayment premium of 10%. Additionally, the Company estimated the probability for an event of default in the valuation analysis
which would result in a mandatory prepayment of the outstanding principal and accrued and unpaid interest. A binomial lattice model was utilized to determine the impact on the valuation of optional prepayments, in the event a mandatory prepayment does not occur. The Company assessed the fair value of the Term Loan at issuance date and as of June 30, 2023 resulting in unrealized losses of $0.3 million for the three and six months ended June 30, 2023, respectively.
Fair value of financial instruments
Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
⮚Level 1—Quoted prices in active markets for identical assets or liabilities.
⮚Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
⮚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.
The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.
The carrying amounts reflected in the condensed consolidated balance sheets for cash , trade accounts receivable, net, trade accounts payable and accrued expenses approximate their fair values (Level 1).
The Company carries its marketable investments at cost, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments by the same issuer, as they represent investments in privately held companies for which there are no quoted market prices. As of June 30, 2023 and December 31, 2022, the carrying values of the Company's marketable investments were $1.2 million, respectively, and were reported in other noncurrent assets in the consolidated balance sheets.
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value (in thousands):
| | | | | | | | | | | |
| Description | Level | | June 30, 2023 |
| Liabilities: | | | |
| Warrant Liabilities – Public Warrants | 1 | | $ | 1,884 | |
| Warrant Liabilities – Private Placement Warrants | 2 | | $ | 1,520 | |
| Term Loan | 3 | | $ | 15,700 | |
The Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed consolidated statements of operations.
For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrants was used as the fair value of the Warrants as of each relevant date. The subsequent measurements of the Public Warrants after the detachment of the Public Warrants from the Units are classified as Level 1 fair value measurements due to the use of an observable market quote in an active market. The subsequent measurements of the Private Warrants after
the detachment of the Public Warrants from the Units are classified as Level 2 fair value measurements due to the use of an observable market quote for the Public Warrants, which are considered to be a similar asset in an active market.
As of June 30, 2023, the liabilities for the Warrants were calculated by multiplying the quoted market price per DPCM Public Warrant of $0.19 by the17,916,609 Warrants outstanding (see Note 8).
The Company elected the fair value option for its Term Loan. This liability is deemed to be a Level 3 valuation. The Company adjusts the Term Loan to fair value through the change in fair value of Term Loan in the accompanying condensed consolidated statements of operations and comprehensive loss.
Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs
Government assistance
The Company receives various forms of government assistance including (i) government grants (ii) investment credits, and (iii) government loans, for research and development initiatives from Canadian government agencies.
During the three and six months ended June 30, 2022, the Company recorded Scientific Research and Experimental Development (“SR&ED") investment tax credits of $0.4 million and $0.8 million, respectively, as an offset to its research and development expenses in its condensed consolidated statements of operations and comprehensive loss. Upon entering into the Transaction Agreement on February 7, 2022, the Company is no longer a Canadian Controlled Private Corporation. As a result, beginning February 7, 2022, SR&ED investment tax credits can be applied to reduce income taxes payable to the Canadian government and any such investment tax credits that are not realized will be reflected as investment tax credit carryforwards. During the three and six months ended June 30, 2023, the Company did not record any SR&ED investment tax credits.
Recent accounting pronouncements issued and adopted
No recently issued accounting pronouncements that the Company has adopted have had a material effect on the Company's results of operations, cash flows or financial condition.
Recent accounting pronouncements not yet adopted
No other recently issued accounting pronouncements or effective during 2023 had, or are expected to have, a material impact on the Company’s results of operations, cash flows or financial condition.
3. Merger
On August 5, 2022, the Company completed the Merger. Upon the closing of the Merger, the following occurred:
•Each non-redeeming share of DPCM Class A common stock was converted into the right to receive 1.4541326 Common Shares (the “Exchange Ratio”), such that 902,213 shares of DPCM Class A common stock that were not redeemed were exchanged for 1,311,937 Common Shares;
•All outstanding warrants of DPCM were converted into the right to receive Warrants. Each such Warrant is exercisable for 1.4541326 Common Shares, at any time commencing on September 4, 2022, the date that is 30 days after the completion of the Merger. The number of Common Shares received upon the exercise of Warrants will be rounded down to the nearest whole number of Common Shares;
•3,015,575 shares of DPCM Class B common stock held by Sponsor and DPCM’s officers, directors and other special advisors were converted into Common Shares on a one-for-one basis; and
•Pursuant to an arrangement effected under Part 9, Division 5 of the Business Corporations Act (British Columbia) (the “Arrangement”) all holders of outstanding non-redeemable convertible preferred shares of D-Wave Systems received equity interests in D-Wave in exchange for their equity interests in D-Wave Systems. The aggregate consideration paid to former shareholders of D-Wave Systems in connection with the Merger was approximately 99,736,752 Common Shares and Exchangeable Shares (as defined below) (excluding options of D-Wave Systems and warrants of D-Wave Systems).
“Exchangeable Shares” refers to shares in the capital of D-Wave Quantum Technologies Inc., or ExchangeCo, an indirect Canadian subsidiary of D-Wave. The Exchangeable Shares are exchangeable from time to time, at the holder’s election, for Common Shares on a one-for-one basis.
In connection with the Merger and concurrently with the execution of the Transaction Agreement, on February 7, 2022, DPCM and the Company entered into separate subscription agreements with a number of investors (each a "PIPE
Investor"), pursuant to which the PIPE Investors agreed to purchase, and the Company agreed to sell to the PIPE Investors, a number of Common Shares (the “PIPE Shares”) equal to the aggregate purchase price for all Common Shares subscribed for by each PIPE Investor, divided by $10.00 and multiplied by the Exchange Ratio for an aggregate purchase price of $40.0 million (the “PIPE Investment”), such that the PIPE Investors purchased 5,816,528 PIPE Shares in the aggregate. The PIPE Investment closed simultaneously with the consummation of the Merger.
On August 2, 2022, the DPCM shareholders voted to approve the Merger. Management determined that once this vote had occurred, it was probable that D-Wave Quantum Inc. would be required to pay Lincoln Park the Commitment Fee associated with the Purchase Agreement. As such, on August 2, 2022, D-Wave Quantum Inc. incurred a $2.6 million liability payable to Lincoln Park, which was the amount of cash contractually required to settle the Commitment Fee. Other than the Commitment Fee liability, D-Wave Quantum, Inc. had no other assets, liabilities, or operations prior to the closing of the Merger on August 5, 2022.
The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, DPCM was treated as the "acquired" company for financial reporting purposes. Accordingly, for accounting purposes, the Merger was treated as the equivalent of the Company issuing shares for the net assets of DPCM, accompanied by a recapitalization. The net assets of DPCM were stated at historical cost, with no goodwill or other intangible assets recorded.
4. Revenue from contracts with customers
Disaggregation of revenue
The following table depicts the disaggregation of revenue by type of products or services and timing of transfer of products or services (in thousands):
| | | | | | | | | | | |
| Three months ended June 30, |
| 2023 | | 2022 |
| Type of products or services | | | |
| QCaaS | $ | 1,032 | | | $ | 1,176 | |
| Professional services | 655 | | | 156 | |
| Other revenue | 20 | | | 39 | |
| Total revenue, net | $ | 1,707 | | | $ | 1,371 | |
| Timing of revenue recognition | | | |
| Revenue recognized over the time | $ | 1,665 | | | $ | 1,296 | |
| Revenue recognized at a point in time | 42 | | | 75 | |
| Total revenue, net | $ | 1,707 | | | $ | 1,371 | |
| | | | | | | | | | | |
| Six months ended June 30, |
| 2023 | | 2022 |
| Type of products or services | | | |
| QCaaS | $ | 2,201 | | | $ | 2,560 | |
| Professional services | 1,061 | | | 464 | |
| Other revenue | 28 | | | 59 | |
| Total revenue, net | $ | 3,290 | | | $ | 3,083 | |
| Timing of revenue recognition | | | |
| Revenue recognized over the time | $ | 3,207 | | | $ | 2,957 | |
| Revenue recognized at a point in time | 83 | | | 126 | |
| Total revenue, net | $ | 3,290 | | | $ | 3,083 | |
Other revenue includes training and printed circuit board sales.
The following table presents a summary of revenue by geography for the three and six months ended June 30, 2023 and 2022 (in thousands):
| | | | | | | | | | | |
| Three months ended June 30, |
| 2023 | | 2022 |
| United States | $ | 485 | | | $ | 655 | |
| Japan | 263 | | | 282 | |
| Germany | 284 | | | 257 | |
| Switzerland | 274 | | | — | |
| United Kingdom | 170 | | | — | |
| Other | 231 | | | 177 | |
| Total revenue | $ | 1,707 | | | $ | 1,371 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| United States | $ | 731 | | | $ | 1,439 | |
| Japan | 621 | | | 709 | |
| Germany | 578 | | | 520 | |
| Switzerland | 375 | | | — | |
| United Kingdom | 401 | | | — | |
| Other | 584 | | | 415 | |
| Total revenue | $ | 3,290 | | | $ | 3,083 | |
"Other" includes the rest of Europe, the Middle East, Africa, Asia, Canada and Australia where the revenue from a single country is not greater than 10% of total consolidated revenue. The Company has not had any sales in China, Russia or Ukraine.
Significant customers
The Company had significant customers during the three and six months ended June 30, 2023 and 2022. A significant customer is defined as one that comprises up to ten percent or more of total revenues in a particular year or ten percent of outstanding accounts receivable balance as of the year end.
The tables below present the significant customers on a percentage of total revenue basis for the three and six months ended June 30, 2023 and 2022.
| | | | | | | | | | | |
| Three months ended June 30, |
| 2023 | | 2022 |
| Customer A | 16 | % | | 17 | % |
| Customer B | 14 | % | | 14 | % |
| Customer C | 9 | % | | 11 | % |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
| Customer A | 14 | % | | 15 | % |
| Customer B | 11 | % | | 14 | % |
| Customer C | 10 | % | | 10 | % |
As of June 30, 2023 and December 31, 2022, there were four and two significant customers that comprised ten percent or more of outstanding accounts receivable balances, respectively.
All revenues derived from major customers above are located in the United States, Germany and other European countries during the three and six month period ended June 30, 2023 and the United States and Germany during the three and six month period ended June 30, 2022.
Contract balances
The following table provides information about account receivable, contract assets and liabilities as of June 30, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2023 | | 2022 |
| Contract assets: | | | |
| Trade account receivable | $ | 803 | | | $ | 757 | |
| Unbilled receivables, included in 'Prepaid expenses and other current assets' | 69 | | | 58 | |
| Total contract assets | $ | 872 | | | $ | 815 | |
| Contract liabilities: | | | |
| Deferred revenue, current | 2,827 | | | 1,781 | |
| Deferred revenue, noncurrent | 120 | | | 9 | |
| Customer deposit, included in 'Accrued expenses and other current liabilities' | 45 | | | 45 | |
| Total contract liabilities | $ | 2,992 | | | $ | 1,835 | |
Changes in deferred revenue from contracts with customers were as follows (in thousands):
| | | | | | | | | | | |
| | | June 30, |
| | | 2023 |
| Balance at beginning of period | | | $ | 1,790 | |
| Deferral of revenue | | | 3,227 | |
| Recognition of deferred revenue | | | (2,070) | |
| Balance at end of period | | | $ | 2,947 | |
Remaining performance obligations
A significant number of the Company’s product and service sales are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
As of June 30, 2023, the aggregate amount of remaining performance obligations that were unsatisfied or partially unsatisfied related to customer contracts was $2.9 million. This amount included deferred revenue on the Company’s condensed consolidated balance sheets, of which approximately 96% is expected to be recognized to revenue in the next 12 months.
As of December 31, 2022, the aggregate amount of remaining performance obligations related to customer contracts that are unsatisfied or partially unsatisfied was $1.8 million which included deferred revenue on the Company’s condensed consolidated balance sheets, of which approximately 99% was expected to be recognized to revenue in the next 12 months.
5. Balance sheet details
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2023 | | 2022 |
| Accrued expenses: | | | |
| Accrued transaction costs | $ | — | | | $ | 2,459 | |
| Accrued professional services | 3,873 | | | 1,858 | |
| Accrued compensation and related benefits | 3,012 | | | 1,641 | |
| Other accruals | 1,172 | | | 233 | |
| Other current liabilities: | | | |
| Other payroll expenses | $ | 1,025 | | | $ | 451 | |
| Customer deposit | 45 | | | 45 | |
| Current portion of operating lease liabilities | 1,463 | | | 1,533 | |
| Promissory note, related party (Refer to Note 9 - Promissory note, related party) | 210 | | | 420 | |
| Total accrued expenses and other current liabilities | $ | 10,800 | | | $ | 8,640 | |
Prepaid expenses and other current assets consisted of the following (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2023 | | 2022 |
| Prepaid expenses: | | | |
| Prepaid services | $ | 358 | | | $ | 391 | |
| Prepaid software | 426 | | | 559 | |
| Prepaid rent | 133 | | | 96 | |
| Prepaid commissions | 206 | | | 268 | |
| Prepaid insurance | 656 | | | 697 | |
| Other | 384 | | | 89 | |
| Other current assets: | | | |
| Directors and Officers insurance | $ | — | | | $ | 1,449 | |
| Unbilled receivables | — | | | 58 | |
| Security deposits | 37 | | | 36 | |
| Receivable research incentives | — | | | 264 | |
| Total prepaid expenses and other current assets | $ | 2,200 | | | $ | 3,907 | |
6. Property and equipment, net
Property and equipment, net consisted of the following (in thousands):
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2023 | | 2022 |
| Quantum computer systems | $ | 13,712 | | | $ | 13,714 | |
| Lab equipment | 6,687 | | | 6,666 | |
| Computer equipment | 3,573 | | | 3,545 | |
| Leasehold improvements | 1,075 | | | 1,075 | |
| Furniture and fixtures | 328 | | | 319 | |
| Construction-in-progress | 71 | | | 86 | |
| Total property and equipment | 25,446 | | | 25,405 | |
| Less: Accumulated depreciation | (23,654) | | | (23,111) | |
| Property and equipment, net | $ | 1,792 | | | $ | 2,294 | |
Depreciation expense for the three month period ended June 30, 2023 and 2022 was $0.2 million and $0.3 million, respectively. Depreciation expense for the six month period ended June 30, 2023 and 2022 was $0.5 million and $0.7 million, respectively. The Company has not acquired any property and equipment under capital leases.
As of June 30, 2023 and December 31, 2022, substantially all of the Company’s long-lived assets, consisting of property and plant, net, and operating lease right-of-use assets, amounting to $10.5 million and $11.4 million, respectively, are located in North America, principally in Canada.
7. Loans payable
As of June 30, 2023 and December 31, 2022 loans payable consisted of the refundable government loans. The following table shows the component of loans payable (in thousands):
| | | | | | | | | | | | | | | | | |
| Interest Rate | | June 30, | | December 31, |
| | | 2023 | | 2022 |
SIF Loan (1) | Interest free | | $ | 8,234 | | | $ | 7,293 | |
| TPC Loan, due 2025 | Interest free | | $ | 239 | | | $ | 518 | |
| Total loans payable, noncurrent | | | $ | 8,473 | | | $ | 7,811 | |
| Loans payable, current | | | | | |
Term Loan (1) | 11.00% | | $ | 15,700 | | | $ | — | |
| TPC Loan, due 2024 | Interest free | | $ | 210 | | | $ | 206 | |
| Financing of Directors and Officers Insurance, due 2023 | 4.24% | | $ | — | | | $ | 1,449 | |
| Other loans payable, current, due 2023 | Interest free | | $ | — | | | $ | 16 | |
| Total loans payable, current | | | $ | 15,910 | | | $ | 1,671 | |
(1) Refer below for additional information on the repayment period.
SIF Loan
On November 20, 2020, the Company entered into an agreement (the "SIF Loan") with the Strategic Innovation Fund ("SIF"), whereby SIF agreed to make a repayable contribution to the Company of up to C$40.0 million (the "Contribution”). Funds from the SIF Loan are to be used for projects involving the adaption 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.
The annual repayment of the Contribution is calculated based upon a formula using the Company’s fiscal year revenue multiplied by a repayment rate. The contractual repayment period is 15 years and commences in the first year in which the Company reports annual revenue of $70.0 million (the “Benchmark Year”). In each of those years, an annual repayment amount is due. Each annual repayment must be paid by April 30 of the year following the year for which the annual repayment due will be calculated. If the Benchmark Year is not achieved within 14 years following the fiscal year in which the project is completed, the SIF Loan is forgiven. The SIF Loan is initially recorded at fair value, and subsequently at amortized cost. As the Contribution is interest free, the difference between the carrying value and initial fair value is recorded as government assistance on the consolidated statement of operations and comprehensive loss.
The initial fair value of the SIF Loan is determined by using a discounted cash flow analysis for the loan, which requires a number of assumptions. The significant assumptions used in determining the discounted cash flows include estimating the amount and timing of future revenue for the Company and the appropriate discount rate. In determining the appropriate discount rates, the Company considered the weighted average cost of capital for the Company, risk adjusted based on the development risks of the Company’s product. Management used a discount rate of 26% to discount the SIF Loan. Should projected revenue not be achieved as predicted, the adjustment to the fair value of the SIF Loan could be material. At June 30, 2023, the carrying value of the loan approximates its fair value. The nominal amount of the SIF Loan is $27.2 million (C$36.0 million) as of June 30, 2023. For the six months ended June 30, 2023, the Company recognized $0.8 million in interest expense and $0.2 million in foreign currency losses related to the SIF Loan.
Repayments of the SIF contributions could also be triggered upon default of the agreement, or termination of the agreement, or upon a change of control that has not been approved by the Canadian government. The Canadian
government approved the transaction with DPCM conditionally on May 9, 2022, with all conditions being satisfied on the closing date of the Merger.
Term Loan
On April 13, 2023, the Company entered into the Term Loan with PSPIB. 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 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 10.0% 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 in Note 13 – Subsequent events. 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 and six month ended the Company recognized $0.4 million in PIK interest expense related to the Term Loan.
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 tranche of the Term Loan, in an aggregate principal amount of $15.0 million, was advanced to D-Wave on April 14, 2023, with the second and third tranches, of $15.0 million and $20.0 million to be made available to the Company subject to certain conditions. For the three and six months ended June 30, 2023, the Company has recorded debt issuance cost of $1.4 million as other expense in its condensed consolidated statements of operations and comprehensive loss. PSPIB has agreed to waive certain covenants under the Term Loan that the Company did not meet, including the minimum revenue financial covenant for the quarter ended June 30, 2023. As a result of not meeting the minimum revenue covenant, as of June 30, 2023 the Company assessed its ability to meet such covenant over the next 12 months in accordance with ASC Topic 470, "Debt" and determined that the Term Loan may be callable over this period. Therefore the Term Loan was classified as a current liability on the Company's consolidated balance sheets as of June 30, 2023. There can be no assurance that PSPIB will agree to waive the minimum revenue or other covenants under the Term Loan in the future.
As discussed in Note 13 - Subsequent events, on July 13, 2023, the Company received the second tranche gross proceeds of $15.0 million under the Term Loan. The third tranche, that shall be available as of October 10, 2023, is subject to the Company closing a $25.0 million non-dilutive financing on terms reasonably acceptable to the Lender, and the intellectual property valuation report submitted as a condition precedent to the second tranche and board-approved operating budget for 2023 through 2027 being submitted by August 31, 2023 both remaining satisfactory to the Lender. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the third tranche.
8. Warrant liabilities
In conjunction with the Merger, the Company assumed 10,000,000 DPCM public warrants and 8,000,000 DPCM private warrants. During the six months ended June 30, 2023, no DPCM public or private warrants were exercised.
As of June 30, 2023, the Company has 17,916,609 Warrants outstanding. As part of the Merger, as described in Note 3 - 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 Share;
• 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 Amendment. 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.
For details of the D-Wave Systems legacy warrants, classified as equity, refer to Note 11 - Commitments and contingencies.
9. Related party
Promissory notes
In 2022, DPCM and one of its affiliates entered into two unsecured promissory notes of up to $1.0 million each with the Sponsor (the "DPCM Notes"). The purpose of the DPCM Notes was to provide DPCM with additional working capital. All amounts drawn on the DPCM Notes were provided directly to DPCM. The DPCM Notes are not convertible and bear no interest. The principal balance of the DPCM Notes was originally due and payable upon the earlier of the date on which DPCM consummates its initial business combination, or the date that the winding up of DPCM is effective. A total of $0.4 million has been drawn on the DPCM Notes, of which $0.2 million remains outstanding as of June 30, 2023.
In connection with the Merger, the DPCM Notes were assumed by the Company and were amended and restated effective December 31, 2022. The amended and restated notes have identical terms as the DPCM Notes except that the Company must pay the principal balance in equal installments on December 31, 2022, March 31, 2023, and June 30, 2023.
In February 2023, these DPCM Notes were further amended and restated such that the Company must pay the principal balance in equal installments, the first of which was paid on April 30, 2023, and the remaining to be paid on June 30, 2023, August 31, 2023 and October 31, 2023.
The execution of the amended and restated DPCM Notes are related party transactions as these notes are payable to affiliates of the Company.
Short swing profit settlement
For the six months ended June 30, 2023, the Company recorded approximately $0.2 million related to the short swing profit settlement remitted by a shareholder of the Company under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized the proceeds as an increase to additional paid-in-capital in the condensed consolidated balance sheets as of June 30, 2023, and in the condensed consolidated statements of stockholder's (deficit) equity, as well as in cash provided by financial activities in the condensed consolidated statement of cash flows, for the six months ended June 30, 2023.
10. Stock-based compensation
For the six months ended June 30, 2023 and 2022, stock-based compensation is associated with stock options, restricted stock units ("RSUs"), and the Company's Employee Stock Purchase Plan ("ESPP").
Common stock option activity
The following table summarizes the Company’s stock option activity during the periods presented (in thousands except share and per share data):
| | | | | | | | | | | | | | |
| Number of options outstanding | Weighted average exercise price ($) | Weighted average remaining contractual term (years) | Aggregate intrinsic value ($) |
| Balance as of December 31, 2022 | 15,387,546 | $ | 1.76 | | 7.12 | $ | 8,763 | |
| Granted | — | — | | — | | — | |
| Exercised | (1,486,404) | 0.81 | | — | | 70 | |
| Forfeited | (924,993) | 4.15 | | — | | — | |
| Expired | (261,476) | 1.84 | | — | | — | |
| Balance as of June 30, 2023 | 12,714,673 | $ | 1.70 | | 6.78 | $ | 14,344 | |
| Options exercisable as of June 30, 2023 | 10,478,450 | $ | 1.19 | | 6.45 | $ | 12,545 | |
| Options unvested as of June 30, 2023 | 2,229,789 | $ | 4.09 | | 8.35 | $ | 1,791 | |
The aggregate intrinsic value of stock options was calculated as the difference between the exercise price of the stock options and the estimated fair value of the Common Shares for those stock options that had exercise prices lower than the fair value of the Common Shares.
As of June 30, 2023, total unrecognized compensation cost related to unvested stock option grants was approximately $6.7 million. This amount is expected to be recognized over a weighted average period of approximately 0.77 years.
The total fair values of the stock options vested during the six months ended June 30, 2023 and 2022 was $2.4 million and $1.7 million respectively.
Restricted stock unit awards
In accordance with D-Wave's 2022 Equity Incentive Plan ("the 2022 Plan") RSUs granted to employees during the six months ended June 30, 2023 are subject to a service condition and will vest 25% on the first anniversary of the grant date, and then 6.25% each quarter subsequent to the first anniversary for twelve quarters. RSUs granted to members of the Board of Directors during the six months ended June 30, 2023 are subject to a service condition, and will be fully vested on the date of the Company's 2024 annual shareholder meeting.
The following table summarizes the RSU activity and related information under the 2022 Plan:
| | | | | | | | | | | |
| Number of Outstanding | | Weighted average Grant Date Fair Value ($) |
| Unvested as of December 31, 2022 | 8,143,304 | | | $ | 5.69 | |
| Granted | 4,423,933 | | | 0.89 | |
| Forfeited | (1,296,912) | | | 4.75 | |
| Vested | (167,605) | | | 4.02 | |
| Unvested as of June 30, 2023 | 11,102,720 | | | 3.93 | |
| Expected to vest as of June 30, 2023 | 10,503,954 | | | $ | 3.97 | |
For the six months ended June 30, 2023, the weighted-average grant-date fair value of RSUs granted was $0.89. There were 167,605 RSUs vested during the six months ended June 30, 2023. As of June 30, 2023, the unrecognized stock-
based compensation cost related to the RSUs was $30.4 million, which is expected to be recognized over a weighted-average period of 2.63 years.
Employment Stock Purchase Plan
In August 2022, the Company established the 2022 ESPP. The maximum number of shares of common stock that may be issued under the ESPP was initially 8,036,455. The number of shares reserved and available for issuance under the ESPP automatically increases each January 1, beginning on January 1, 2023 and each January 1 thereafter ending on January 1, 2032, by the lesser of (i) 1,607,291 shares of common stock, or (ii) 1.0% of the aggregate number of (i) shares of common stock outstanding and (ii) securities convertible into or exercisable for shares of common stock (whether vested or unvested) outstanding on December 31 of the preceding calendar year. As of June 30, 2023, the number of shares of common stock that may be issued under the ESPP is 8,036,455. As of June 30, 2023, 226,453 shares of common stock have been issued under the ESPP.
During the three and six months ended June 30, 2023, the Company recorded stock-based compensation expense related to the ESPP of $0.1 million and $0.2 million, respectively, primarily classified as operating expenses within the consolidated statements of operations and comprehensive loss.
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 June 30, |
| 2023 | | 2022 |
| Cost of revenue | $ | 232 | | | $ | 34 | |
| Research and development | 1,663 | | | 84 | |
| General and administrative | 2,642 | | | 641 | |
| Sales and marketing | 184 | | | 58 | |
| Total stock-based compensation | $ | 4,721 | | | $ | 817 | |
| | | | | | | | | | | |
| Six months ended June 30, |
| 2023 | | 2022 |
| Cost of revenue | $ | 610 | | | $ | 66 | |
| Research and development | 4,424 | | | 144 | |
| General and administrative | 5,935 | | | 1,270 | |
| Sales and marketing | 508 | | | 120 | |
| Total stock-based compensation | $ | 11,477 | | | $ | 1,600 | |
11. Commitments and contingencies
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. As the warrant was issued in connection with an existing commercial agreement with a customer, the value of the warrant was determined to be consideration payable to the customer and consequently will be treated as a reduction to revenue recognized under the corresponding revenue arrangement. Approximately 40% of the previously issued warrants had vested and became immediately exercisable on August 13, 2020. The agreement was terminated November 28, 2022 and as a result, any unvested Warrant Preferred Shares will not vest and become exercisable. The vested warrant will remain exercisable until November 29, 2026.
Leases
The Company primarily enters into leases for office space that are classified as operating leases. During each of the six months ended June 30, 2023,and 2022, total operating lease costs were $0.4 million.
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.
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 June 30, 2023 and 2022, the Company was not subject to any material litigation or pending litigation claims.
12. Net loss per share
As a result of the Merger (see Note 3), for the three months ended June 30, 2022, the Company has retroactively adjusted the weighted average shares outstanding prior to August 5, 2022 to give effect to the Conversion Ratio used to determine the number of Common Shares into which they were converted.
The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders for the three and six months ended June 30, 2023 and 2022 (in thousands, except share and per share data):
| | | | | | | | | | | |
| For the three months ended June 30, |
| 2023 | | 2022 |
| Numerator: | | | |
| Net loss attributable to common stockholders - basic and diluted | $ | (25,898) | | | $ | (13,349) | |
| Denominator: | | | |
| Weighted-average common stock outstanding | 127,337,903 | | | 125,472,590 | |
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.20) | | | $ | (0.11) | |
| | | | | | | | | | | |
| For the six months ended June 30, |
| 2023 | | 2022 |
| Numerator: | | | |
| Net loss attributable to common stockholders - basic and diluted | $ | (50,506) | | | $ | (25,266) | |
| Denominator: | | | |
| Weighted-average common stock outstanding | 125,252,585 | | | 125,428,749 | |
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.40) | | | $ | (0.20) | |
As of June 30, 2023 and 2022, the Company’s potentially dilutive securities were stock options, the Warrant Shares, and the Public Warrants and Private Warrants.
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:
| | | | | | | | | | | |
| For the six months ended June 30, |
| 2023 | | 2022 |
| Public Warrants as converted to Common Shares (Note 8) | 14,420,065 | | | — | |
| Private Warrants as converted to Common Shares (Note 8) | 11,633,061 | | | — | |
| D-Wave Systems Warrant Shares as converted to Common Shares (Note 11) | 2,889,282 | | | 2,889,282 | |
| Options to purchase common stock as converted to Common Shares | 11,311,698 | | | 13,621,251 | |
| Total | 40,254,106 | | | 16,510,533 | |
13. Subsequent events
The Company has evaluated all events occurring through August 10, 2023, 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:
•On July 13, 2023, the Company received the second tranche gross proceeds of $15.0 million under the Term Loan between the Company and PSPIB. Under the Term Loan, term loans in the aggregate principal amount of $50.0 million are to be made available to the Company in three tranches, subject to certain terms and conditions (refer to Note 7 - Term Loan). The Lender agreed to modify certain conditions to the funding of the second tranche of the Term Loan, including (i) delaying the delivery of a board-approved operating budget and plan for the Company’s fiscal years 2023 through 2027 to August 31, 2023; (ii) the Company shall have nominated an additional director that is either an employee of PSPIB or an independent director selected from PSPIB nominees prior to the funding of the second tranche, instead requiring such appointment at a later time at PSPIB’s option; and (iii) delaying notice requirements for the registration or filings of intellectual property. PSPIB has also agreed to waive certain covenants under the Term Loan that the Company did not meet, including certain revenue milestones for the second fiscal quarter ended June 30, 2023. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the third tranche, will be able to comply with the covenants of the Term Loan, or that PSPIB will agree to waive covenants under the Term Loan in the future.
•On July 13, 2023, a registration statement relating to the resale of up to 35,000,000 Common Shares under the Lincoln Park Purchase Agreement became effective.
•On July 20, 2023 the Term Loan was amended such that the Company may issue up to $50.0 million under the Lincoln Park Purchase Agreement through October 18, 2023 without the requirement to pay down the Term Loan to the extent that proceeds under the Purchase Agreement are received prior to October 18, 2023. As amended, the Term Loan requires that any proceeds from the issuance of Common Shares under the Purchase Agreement in excess of $50.0 million shall be applied towards the repayment of advances under the Term Loan in addition to a premium payment equal to 10% of the amount then prepaid to the Lender.
•From July 24, 2023 to August 7, 2023, the Company issued 16,590,877 Common Shares in connection with the Lincoln Park Purchase Agreement for total proceeds of $34.2 million.
