Notes to Condensed Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
D-Wave Quantum Inc. ("D-Wave" or the “Company”) was incorporated under the General Corporation Law of the State of 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 LeapTM quantum cloud service. 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. 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 condensed consolidated statements of operations and comprehensive loss, condensed consolidated balance sheets, and condensed consolidated statements of 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 our Annual Report on Form 10-K as of and for the year ended December 31, 2023 filed with the SEC on March 29, 2024.
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.
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, 2024, the Company had an accumulated deficit of $518.2 million. For the three months ended June 30, 2024 and 2023, the Company incurred a net loss of $17.8 million and $26.2 million, respectively. For the six months ended June 30, 2024 and 2023, the Company incurred a net loss of $35.1 million and $50.6 million, respectively. For the six months ended June 30, 2024 and 2023, the Company had net cash outflows from operating activities of $26.6 million and $29.0 million, respectively. As of June 30, 2024, the Company had cash of $40.9 million and working capital (current assets less current liabilities) of $4.0 million. Additionally, total liabilities exceeded total assets at June 30, 2024 by $21.5 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. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the third tranche. As of August 7, 2024, the Company had prepaid $15.8 million of the Term Loan (see Note 12). According to the terms of the sixth amendment, this prepayment qualifies for the prepayment premium exemption for up to $20.0 million in gross proceeds received (see Note 6). On August 7, 2024, the Company entered into the Limited Waiver Agreement with PSPIB. Refer to Note 12 - Subsequent events for further details. Pursuant to the terms of the Limited Waiver Agreement, the Company was granted a waiver of compliance for the 2024 second quarter permitted variance covenant. The requirement for a waiver resulted in reclassification of the loan balance to current liabilities on the condensed consolidated balance sheets.
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") 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 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 share of common stock of the Company, par value $0.0001, (the "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 six months ended June 30, 2024, the Company has received $20.3 million in proceeds through the issuance of 14,948,550 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 June 30, 2024, D-Wave had $61.8 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 six months ended June 30, 2024, the Company has received $9.1 million in net proceeds through the issuance of 8,279,098 Common Shares under the Sales Agreement. As of June 30, 2024, D-Wave had $90.7 million of issuance capacity under the ATM Agreement.
The sale, if any, 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 Sales 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.
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.
Use of estimates
The preparation of the condensed consolidated 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. The most significant estimates and assumptions are used in determining: (i) inputs used to recognize revenue over time relating to hours estimated to complete the remaining performance obligations, (ii) fair value of financial instruments, and (iii) long term revenue forecasts used in the accounting for the SIF Loan (see below and Note 6 for further information). 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, the Israel-Hamas War, 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.
Investment in securities
The Company holds investments in the equity securities of privately held companies, which are valued based on their original cost. Adjustments are made for observable price changes in orderly transactions involving identical or similar securities of the same issuer, as there are no quoted market prices available.
The Company also holds an investment in a convertible note (the "Note") of Zapata Computing, Inc. ("Zapata"). (see Note 4 for further information). The Company accounts for the Note as a loan receivable pursuant to ASC 310, as the Note does not meet the definition of a security. On April 1, 2024, Zapata stock began trading on the Nasdaq and as such became readily convertible to cash. The Company then bifurcated the conversion feature at fair value, and will remeasure the asset through earnings at each reporting period. As of June 30, 2024, the fair value of the conversion feature was immaterial, as determined using Level 3 valuation methods. The loan receivable was recorded at cost less the initial fair value of the conversion feature.
Sales of future revenues
On November 20, 2020, the Company entered into an agreement with the Canada Strategic Innovation Fund ("SIF"), wherein SIF committed to providing a conditionally repayable loan to the Company in the amount of up to C$40.0 million (the "SIF Loan"). The SIF Loan is conditionally repayable according to a revenue-based formula. See Note 6 for additional information concerning the SIF Loan.
The accounting treatment for the SIF Loan considers the "sale of future revenues" guidance outlined in ASC 470-10-25. The debt arising from the SIF Loan was recorded at face value and will be amortized using the effective interest method, leading to the accrual of interest expenses over the estimated term of the SIF Loan. The amortization schedule is based on projected cash flows derived from the Company's long-term revenue forecast. Subsequent changes in forecasted cash flows will be accounted for under the catch-up method, which entails adjusting the accrued interest portion of the principal balance through earnings to reflect the currently projected effective interest rate. The liability is classified as non-current, as the current forecast indicates that repayments will not commence within the 12 months following the balance sheet date.
As the SIF Loan is originated through a government program, a market rate of interest is not imputed in accordance with the scope limitations of ASC 835.
Term Loan fair value option election
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. At the date of issuance, the fair value of the Term Loan was derived from the instrument’s implied discount rate at inception. The fair value option election was made to enhance the relevance and transparency of information presented related to the features embedded in the Term Loan.
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 six months ended June 30, 2024. Under the fair value option, debt issuance costs were 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 June 30, 2024 did not consider any amendments to the Term Loan that occurred subsequent to June 30, 2024 (See Note 6). To estimate the fair value of the Term Loan under the optional prepayment scenario, we have utilized the binomial lattice model. Additionally, we have employed a Monte Carlo simulation model to forecast both 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 and 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%.
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 Company did not transfer any assets or liabilities in or out of Level 3 during the six months ended June 30, 2024 or 2023.
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis as of June 30, 2024 and indicates the place in the fair value hierarchy of the valuation inputs the Company utilized to determine each such fair value (in thousands):
| | | | | | | | | | | |
| Description | Level | | As of June 30, 2024 |
| Liabilities: | | | |
| Warrant Liabilities – Public Warrants | 1 | | $ | 1,155 | |
| Warrant Liabilities – Private Placement Warrants | 2 | | $ | 932 | |
Term Loan | 3 | | $ | 32,300 | |
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 and comprehensive loss.
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 noted above, the Company elected the fair value option for the Term Loan. The valuation of the Term Loan is classified as Level 3 fair measurements, attributable to the utilization of the Monte Carlo simulation, recognized as a Level 3 valuation technique.
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
Segment Reporting
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting--Improvements to Reportable Segment Disclosures, which requires incremental disclosures about a public entity’s reportable segments but does not change the definition of a segment or the guidance for determining reportable segments. The new guidance requires disclosure of significant segment expenses that are (1) regularly provided to (or easily computed from information regularly provided to) the chief operating decision maker and (2) included in the reported measure of segment profit or loss. The new standard also allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess performance and allocate resources. The guidance will first be effective in our annual disclosures for the year ending December 31, 2024, and will be adopted retrospectively unless impracticable. Early adoption is permitted. We are in the process of assessing the impact of ASU 2023-07 on our disclosures.
Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about our effective tax rate reconciliation as well as information on income taxes paid. The new guidance will first be effective in our annual disclosures for the year ending December 31, 2025, and should be applied on a prospective basis with the option to apply retrospectively. Early adoption is permitted. We are in the process of assessing the impact of ASU 2023-09 on our disclosures.
Climate Disclosures
In March 2024, the SEC adopted new climate rules that require a wide range of climate-related disclosures, including material climate-related risks, information on climate-related targets or goals that are material to the registrant’s business, results of operations or financial condition, Scope 1 and Scope 2 greenhouse gas emissions on a phased-in basis by large accelerated filers and accelerated filers when those emissions are material and the filing of an attestation report covering the same, and disclosure of the financial statement effects of severe weather events and other natural conditions including costs and losses. Compliance dates under the final rule are phased in by registrant category. Multiple lawsuits have been filed challenging the SEC’s new climate rules, which have been consolidated and will be heard in the U.S. Court of Appeals for the Eighth Circuit. In April 2024, the SEC issued an order staying the final rules until judicial review is complete. The Company is currently evaluating the impact of the final rules on its disclosures.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of revenue
Nature of Products and Services
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, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
| Type of products or services | | | | | | | | | |
| QCaaS | $ | 1,779 | | | $ | 1,032 | | | $ | 3,471 | | | $ | 2,201 | | | |
| Professional services | 342 | | | 563 | | | 1,034 | | | 896 | | | |
| Other revenue* | 62 | | | 112 | | | 143 | | | 193 | | | |
| Total revenue | $ | 2,183 | | | $ | 1,707 | | | $ | 4,648 | | | $ | 3,290 | | | |
| Timing of revenue recognition | | | | | | | | | |
| Revenue recognized over time | $ | 2,165 | | | $ | 1,665 | | | $ | 4,624 | | | $ | 3,207 | | | |
| Revenue recognized at a point in time | 18 | | | 42 | | | 24 | | | 83 | | | |
| Total revenue | $ | 2,183 | | | $ | 1,707 | | | $ | 4,648 | | | $ | 3,290 | | | |
*Other revenue includes support, maintenance and printed circuit board sales. For the three and six months ended June 30, 2023, maintenance have been reclassified from professional services to other revenue.
Geographic Information
The following table presents a summary of revenue by geography for the three and six months ended June 30, 2024 and 2023, based on customer location (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
| United States | $ | 638 | | | $ | 485 | | | $ | 1,361 | | | $ | 731 | | | |
| Germany | 492 | | | 284 | | | 1,005 | | | 578 | | | |
| Canada | 350 | | | 98 | | | 545 | | | 177 | | | |
| Japan | 124 | | | 263 | | | 449 | | | 621 | | | |
| Switzerland | 129 | | | 274 | | | 304 | | | 375 | | | |
| United Kingdom | 69 | | | 170 | | | 197 | | | 401 | | | |
| Other | 381 | | | 133 | | | 787 | | | 407 | | | |
| Total revenue | $ | 2,183 | | | $ | 1,707 | | | $ | 4,648 | | | $ | 3,290 | | | |
"Other" includes the rest of Europe, the Middle East, Africa, Asia 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
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 period end.
The tables below present the significant customers on a percentage of total revenue basis for the three and six months ended June 30, 2024 and 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
| Customer A | 18 | % | | 16 | % | | 18 | % | | 14 | % | | |
| Customer B | 10 | % | | 14 | % | | — | | | 11 | % | | |
| Customer C | — | | | 9 | % | | — | | | 10 | % | | |
As of each of June 30, 2024 and 2023, there were one and four significant customers, respectively, that comprised ten percent or more of outstanding accounts receivable balances.
Contract balances
The following table provides information about account receivable, contract assets and liabilities as of June 30, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| Trade accounts receivable and contract assets, net: | | | |
| Trade account receivable, excluding unbilled receivables | $ | 926 | | | $ | 644 | |
| Contract asset for unbilled receivables | 644 | | | 1,008 | |
| Total contract assets | $ | 1,570 | | | $ | 1,652 | |
| | | |
| Contract liabilities: | | | |
| Deferred revenue, current | $ | 2,590 | | | $ | 2,669 | |
| Deferred revenue, non-current | 33 | | | 79 | |
Customer deposit1 | 45 | | | 45 | |
| Total contract liabilities | $ | 2,668 | | | $ | 2,793 | |
1Customer deposit is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.
The allowance for credit losses was $0.2 million as of June 30, 2024 and December 31, 2023. Write-offs were immaterial during the three months ended June 30, 2024 and 2023.
The revenue recognized in the condensed consolidated statements of operations and comprehensive loss that was included in the contract liability balance at the beginning of each period was $1.5 million and $1.6 million for the six months ended June 30, 2024 and 2023, respectively.
Changes in deferred revenue from contracts with customers were as follows (in thousands):
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2024 | | 2023 |
| Balance at beginning of period | $ | 2,748 | | | $ | 1,790 | |
| Deferral of revenue | 4,553 | | | 3,227 | |
| Recognition of deferred revenue | (4,678) | | | (2,070) | |
| Balance at end of period | $ | 2,623 | | | $ | 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, 2024, the aggregate amount of remaining performance obligations that were unsatisfied or partially unsatisfied related to customer contracts was $8.1 million, of which approximately 42% is expected to be recognized to revenue in the next 12 months, 66% is expected to be recognized to revenue in the next two years, 83% is expected to be recognized within three years and the remainder thereafter. Revenues allocated to remaining performance obligations represents the transaction price of noncancellable orders for which service has not been performed, which include deferred revenue and the amounts that will be invoiced and recognized as revenues in future periods from open contracts and excludes unexercised renewals.
4. BALANCE SHEET DETAILS
Inventories
Inventories consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| Raw materials | $ | 2,098 | | | $ | 2,052 | |
| Work-in-process | 28 | | | 26 | |
| Total inventories | $ | 2,126 | | | $ | 2,078 | |
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023* |
| Prepaid services | $ | 798 | | | $ | 386 | |
| Prepaid software | 621 | | | 543 | |
| Prepaid insurance | 414 | | | 490 | |
| Prepaid rent | 134 | | | 150 | |
| Other | 382 | | | 440 | |
| Total prepaid expenses and other current assets | $ | 2,349 | | | $ | 2,009 | |
*Certain amounts presented in the table above as of December 31, 2023 have been reclassified to conform to the current period presentation.
Other non-current assets
Other non-current assets consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| Investment in equity securities | $ | 2,396 | | | $ | 1,168 | |
| Loan receivable | 1,066 | | | — | |
| Long-term deposits | 189 | | | 189 | |
| Contract acquisition costs | 54 | | | — | |
| Total | $ | 3,705 | | | $ | 1,357 | |
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 other income during the six months ended June 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. Simultaneously, Zapata purchased a multi-year subscription to the Company's Leap quantum cloud service. As part of the collaboration, the Company purchased a convertible Senior Secured Note (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 June 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.
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023* |
| Accrued compensation and related benefits | $ | 2,533 | | | $ | 3,245 | |
| Accrued professional services | 496 | | | 1,092 | |
| Other accruals | 2,009 | | | 1,006 | |
| Total accrued expenses and other current liabilities | $ | 5,038 | | | $ | 5,343 | |
*Certain amounts presented in the table above as of December 31, 2023 have been reclassified to conform to the current period presentation.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| Quantum computer systems | $ | 13,965 | | | $ | 13,712 | |
| Lab equipment | 6,864 | | | 6,839 | |
| Computer equipment | 4,283 | | | 3,703 | |
| Leasehold improvements | 1,890 | | | 1,075 | |
| Furniture and fixtures | 381 | | | 381 | |
| Construction-in-progress | 304 | | | 894 | |
| Total property and equipment | 27,687 | | | 26,604 | |
| Less: Accumulated depreciation | (24,475) | | | (24,053) | |
| Total property and equipment, net | $ | 3,212 | | | $ | 2,551 | |
Depreciation expense for the three months ended June 30, 2024 and 2023 was $0.2 million and $0.2 million, respectively. Depreciation expense for the six months ended June 30, 2024 and 2023 was $0.4 million and $0.5 million, respectively.
6. LOANS PAYABLE, NET
As of June 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 June 30, 2024 | | As of December 31, 2023 |
| Loans payable, net, current: | | | | | |
| TPC Loan, due 2025 | Interest free | | $ | 366 | | | $ | 399 | |
| Term Loan, due 2027 | 11.00% | | 32,300 | | | — | |
| Total loans payable, net, current | | | $ | 32,666 | | | $ | 399 | |
| Loans payable, net, non-current: | | | | | |
| SIF Loan | Variable1 | | $ | 31,451 | | | $ | 32,072 | |
| Term Loan, due 2027 | 11.00% | | — | | | 31,400 | |
| TPC Loan, due 2025 | Interest free | | — | | | 378 |
| Total loans payable, net, non-current | | | $ | 31,451 | | | $ | 63,850 | |
1Refer below for additional information on the SIF Loan repayment period and effective interest rate.
The following table shows the component of the Company's indebtedness carried at fair value and amortized cost (in thousands):
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| TPC Loan, due 2025 | $ | 366 | | | $ | 399 | |
| Total loans payable, net, current, at amortized cost | 366 | | | 399 | |
| Fair value option - Term Loan | 32,300 | | | — | |
| Total loans payable, net, current | $ | 32,666 | | | $ | 399 | |
| | | | | | | | | | | |
| As of June 30, 2024 | | As of December 31, 2023 |
| SIF Loan | $ | 31,451 | | | $ | 32,072 | |
| TPC Loan, due 2025 | — | | | 378 | |
| Total loans payable, net, non-current, at amortized cost | 31,451 | | | 32,450 | |
| Fair value option - Term Loan | — | | | 31,400 | |
| Total loans payable, net, non-current | $ | 31,451 | | | $ | 63,850 | |
TPC loan
In 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 June 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.
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 June 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 June 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 June 30, 2024 was $4.3 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 revenue for the Company and the appropriate discount rate.
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 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 June 30, 2024 and 2023, the Company recognized $0.9 million and $0.4 million, respectively, in PIK interest expense related to the Term Loan. For the six months ended June 30, 2024 and 2023, the Company recognized $1.8 million and $0.4 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 agreed to waive 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, 2023 and September 30, 2023. On August 7, 2024, the Company entered into the Limited Waiver Agreement with PSPIB. Refer to Note 12 - Subsequent events for further details. Pursuant to the terms of the Limited Waiver Agreement, the Company was granted a waiver of compliance for the 2024 second quarter permitted variance covenant. The requirement for a waiver resulted in reclassification of the loan balance to current liabilities on the condensed consolidated balance sheets.
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. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the third tranche.
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" (see Note 4 for further information). 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.
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.
| | | | | |
| As of June 30, 2024 |
| Weighted-average risk-free rate | 5.45% Range: 5.38% to 5.48% |
| Default Trigger Event probability | 5.00% on January 1, 2025 |
| ELOC financing trigger event probability | 50.00% from July 1, 2025 through December 1, 2025 |
| Weighted-average market yield rate (Default Trigger Event) | 19.48% |
| Weighted-average market yield rate (Call Option) | 17.39% Range: 13.45% to 19.80% |
| Weighted-average market yield volatility | 5.00% |
The following table summarizes the difference between the fair value and the amortized cost of the Term Loan as of June 30, 2024 (in thousands):
| | | | | | | | | | | | | | | | | |
| Amortized Cost | | Unrealized Gains | | Fair Value |
Term Loan, due 2027 | $ | 33,864 | | | $ | 1,564 | | | $ | 32,300 | |
The following table summarizes the changes in the carrying value of the Term Loan (in thousands):
| | | | | |
| Six months ended June 30, 2024 |
| Beginning balance | $ | 31,400 | |
| |
PIK interest expenses | 1,824 | |
Change in fair value | (924) | |
| Ending balance | $ | 32,300 | |
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 six months ended June 30, 2024, no DPCM public or private warrants were exercised.
As of June 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. 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 $2.16 per Common Share until November 29, 2026. As of June 30, 2024, no additional Warrant Preferred Shares were vested or probable of vesting.
8. STOCK-BASED COMPENSATION
2020 Equity Incentive Plan
In April 2020, the Board of Directors of D-Wave Systems approved the 2020 Equity Incentive Plan (the "2020 Plan") which provides for the grant of qualified ISO and NSO, restricted stock, RSU or other awards to the Company’s employees, officers, directors, advisors, and outside consultants. After the closing of the Merger effective August 5, 2022, no additional awards were issued under the 2020 Plan. Stock options granted under the 2020 Plan will be converted applying the Conversion Ratio to the underlying common stock at the exercise date.
2022 Equity Incentive Plan
On August 5, 2022, the shareholders approved the D-Wave Quantum Inc. 2022 Equity Incentive Plan (the “2022 Plan”), which became effective immediately upon the closing of the Merger. While the 2022 Plan allows for the issuance of awards with a service condition, a performance condition, a market condition, or some combination of the three, to date, the Company has only issued awards subject to a service condition. Awards issued under the 2022 Plan have vesting periods ranging from under one year to four years from the original grant date, and all awards issued to date under the 2022 Plan will expire ten years from the original grant date.
Share-based compensation awards are settled by issuing new shares.
Common stock option activity
The following table summarizes the Company’s stock option activity during the periods presented (in thousands except share and per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of options | | Weighted average exercise price ($) | | Weighted average remaining contractual term (years) | | Aggregate intrinsic value ($) |
| Outstanding as of December 31, 2023 | 11,464,447 | | 1.64 | | | 6.80 | | — | |
| Granted | 2,921,082 | | 1.30 | | | — | | | — | |
| Exercised | (51,802) | | 0.97 | | | — | | | 35 | |
| Forfeited and expired | (223,336) | | 3.18 | | | — | | | — | |
| Outstanding as of June 30, 2024 | 14,110,391 | | 1.64 | | | 6.97 | | 2,641 | |
| Options exercisable as of June 30, 2024 | 11,757,385 | | 1.41 | | | 6.60 | | 2,407 | |
| Options unvested as of June 30, 2024 | 2,353,006 | | 2.47 | | | 8.80 | | 234 | |
As of June 30, 2024, out of the total 14,110,391 options that have been issued and are currently outstanding, 10,365,939 options were granted under the 2020 Plan. These options will be converted applying the Conversion Ratio into a maximum of 9,222,130 Common Shares upon exercise.
Restricted stock unit awards
The following table summarizes the RSU activity and related information under the 2022 Plan (in thousands except share and per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of RSUs | | Weighted average Grant Date Fair Value ($) | | Weighted average remaining contractual term (years) | | Aggregate intrinsic value ($) |
| Unvested as of December 31, 2023 | 7,045,813 | | | 3.13 | | | 9.08 | | 6,201 | |
| Granted | 5,895,616 | | | 1.74 | | | — | | | — | |
| Forfeited and expired | (233,214) | | | 2.86 | | | — | | | — | |
| Vested | (2,470,917) | | | 1.00 | | | — | | | — | |
| Unvested as of June 30, 2024 | 10,237,298 | | | 2.85 | | | 14.63 | | 11,671 | |
Employee Stock Purchase Plan
During the three months ended June 30, 2024, 262,777 common shares were issued under the Employee Stock Purchase Plan.
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, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 | | |
| Cost of revenue | $ | 154 | | | $ | 232 | | | $ | 329 | | | $ | 610 | | | |
| Research and development | 1,311 | | 1,663 | | 2,432 | | 4,424 | | |
| General and administrative | 2,248 | | | 2,642 | | | 4,206 | | | 5,935 | | | |
| Sales and marketing | 508 | | | 185 | | | 763 | | | 508 | | | |
| Total stock-based compensation | $ | 4,221 | | | $ | 4,722 | | | $ | 7,730 | | | $ | 11,477 | | | |
As of June 30, 2024, total unrecognized stock-based compensation cost, net of estimated forfeitures, related to our unvested stock awards was $26.5 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 2.27 years.
9. PROMISSORY NOTE - RELATED PARTY
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 six months ended June 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 six months ended June 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 June 30, 2024 and 2023, total operating lease costs were $0.6 million and $0.3 million, respectively. During the six months ended June 30, 2024 and 2023, total operating lease costs were $1.0 million and $0.7 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.
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, 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 six months ended June 30, 2024 and 2023 (in thousands, except share and per share data):
| | | | | | | | | | | |
| Three Months Ended June 30, |
| 2024 | | 2023 |
| Numerator: | | | |
| Net loss attributable to common stockholders - basic and diluted | $ | (17,778) | | | $ | (26,189) | |
| Denominator: | | | |
| Weighted-average common stock outstanding | 172,139,085 | | | 127,337,903 | |
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.10) | | | $ | (0.21) | |
| | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2024 | | 2023 | | |
| Numerator: | | | | | |
| Net loss attributable to common stockholders - basic and diluted | $ | (35,090) | | | $ | (50,595) | | | |
| Denominator: | | | | | |
| Weighted-average common stock outstanding | 166,723,787 | | | 125,252,585 | | | |
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.21) | | | $ | (0.40) | | | |
For the six months ended June 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:
| | | | | | | | | | | | | |
| Six Months Ended June 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 | 12,966,583 | | | 11,311,698 | | | |
| Unvested restricted stock unit awards | 10,237,298 | | | — | | | |
| Total | 50,412,719 | | | 40,254,105 | | | |
12. SUBSEQUENT EVENTS
The Company has evaluated all events occurring through August 8, 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 June 30, 2024, the Company has issued 10,621,447 Common Shares in connection with the Purchase Agreement for total proceeds of $11.9 million.
Subsequent to June 30, 2024, the Company has issued 4,551,439 Common Shares in connection with the ATM Agreement for total proceeds of $5.0 million.
Repayment of Term Loan
Subsequent to June 30, 2024, the Company has repaid $15.8 million of the Term Loan, reducing the loan balance to approximately $18.6 million at amortized cost as of August 7, 2024.
Waiver
On August 7, 2024, the Company entered into the Limited Waiver Agreement (the "Limited Waiver Agreement") with PSPIB, relating to the Term Loan, as amended, modified or waived from time to time. Under the Limited Waiver Agreement, PSPIB agreed to waive the 2024 second quarter permitted variance covenant.