You should read "D-Wave Quantum Inc.'s Management's Discussion and Analysis" of D-Wave's financial condition and results of operations together with the condensed financial statements and related notes included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled "Cautionary Note Regarding Forward-Looking Statements." Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those applicable to D-Wave and its business set forth under the section titled "Risk factors" in the Proxy Statement/Prospectus. In this section, unless otherwise specified, the terms "we", "our", "us" and "D-Wave" refer toD-Wave Quantum Inc. and its consolidated subsidiaries, and all other capitalized terms have the meanings ascribed thereto elsewhere in this Report. All dollar amounts are expressed in thousands ofUnited States dollars ("$"), unless otherwise indicated.
Insight
D-Wave was incorporated onJanuary 24, 2022 , as a corporation organized and existing under the General Corporation Law of the State of theDelaware (the "DGCL"), with a registered office at215 Little Falls Drive ,Wilmington ,New Castle County, Delaware 19808, and formed for the purpose of effecting the Business Combination pursuant to the Transaction Agreement. OnAugust 5, 2022 , we consummated our Business Combination with DPCM andD-Wave Systems . D-Wave's principal offices are located at3033 Beta Avenue ,Burnaby, British Columbia , V5G 4M9,Canada . As thePractical Quantum Computing Company , our mission is to unlock the power of quantum computing today to benefit business and society. We define "practical" as being focused on delivering quantum offerings and access, built to provide customer value for commercial use. We define "commercial" as customer use primarily focused on revenue-generating or cost-saving use cases. Our commercial-first approach brings quantum products to market that serve the needs of enterprise customers by solving their most complex and computationally intensive problems. We deliver this in real-time via our cloud services. Today, customers can access our annealing quantum computer and quantum hybrid solvers via our Leap cloud services ("QCaaS"). We are also developing a gate-model system with cross platform tools to help address a broader range of customer problem sets over the longer term.
Results of operations and known trends or future events
ThroughJune 30, 2022 , we had neither engaged in any significant business operations nor generated any revenues. All activities through that date relate to our formation and consummation of the Business Combination. Prior to the closing of the Business Combination, we did not generate any revenue or incur any material expenses.
Cash and capital resources
OnAugust 5, 2022 , in accordance with the Transaction Agreement, we acquired 100% of the outstanding equity interests ofD-Wave Systems and DPCM. In connection with the close of the Business Combination, we received, among other things, DPCM's cash on hand and thePIPE Investment , which totaled$37.6 million , net of related transaction costs. See section titled "D-Wave Systems Inc.'s Management's Discussion and Analysis - Liquidity and Capital Resources" and Note 12 to D-Wave's condensed consolidated balance sheet included elsewhere in this Report for more information. In conjunction with the Business Combination,D-Wave Systems and D-Wave entered into an agreement with the Investor onJune 16, 2022 which provides D-Wave the sole right, but not the obligation, to direct the Investor to buy specified dollar amounts up to$150.0 million of D-Wave's par value$0.0001 per share common stock through the ELOC. 28 -------------------------------------------------------------------------------- Table of Contents The ELOC will provideD-Wave Systems and D-Wave with additional liquidity to fund the business, subject to the conditions set forth in the agreement.
Critical accounting policies
We prepare our consolidated financial statements in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires that we make estimates, assumptions and judgments that can significantly impact the amounts it reports as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. Our significant accounting policies are described in more detail in Note 3 of theD-Wave Systems Inc. condensed consolidated balance sheet included elsewhere in this Report. We believe that the accounting policies discussed in Note 3 are critical to understanding its historical and future performance as these policies involved a greater degree of judgment and complexity.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our financial statements.
Emerging Growth Company Status
InApril 2012 , the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, as an emerging growth company, we may take advantage of certain reduced disclosure and other requirements that are otherwise applicable generally to public companies. D-Wave will take advantage of these exemptions until such earlier time that it is no longer an emerging growth company. D-Wave would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to an effective registration statement; (ii) the last day of the fiscal year in which its total annual gross revenue is equal to or more than$1.07 billion ; (iii) the date on which it has issued more than$1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which it is deemed to be a large accelerated filer under the rules of theSEC . 29
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D-WAVE SYSTEMS INC.'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition
and results of operations together with the condensed financial statements and
related notes included elsewhere in this Report. The following discussion
contains forward-looking statements based upon current expectations that involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including those risk factors applicable to D-Wave and its
business set forth under the section titled "Risk factors" in the Proxy
Statement/Prospectus. Our historical results are not necessarily indicative of
the results that may be expected for any period in the future. In this section,
unless otherwise specified, the terms "we", "our", "us" and "D-Wave" refer to
D-Wave Systems Inc. and its consolidated subsidiaries, the term "D-Wave Quantum"
refers to D-Wave Quantum Inc. , and all other capitalized terms have the meanings
ascribed thereto elsewhere in this Report. All dollar amounts are expressed in
thousands of United States dollars ("$"), unless otherwise indicated.
Insight
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 (or "Leap"). Historically, D-Wave has developed its own annealing superconducting quantum computer and associated software, and its current generation quantum system is the D-Wave AdvantageTM. D-Wave is a leader in the development and delivery of quantum computing systems, software and services, and is the world's first commercial supplier of quantum computers-and the only company developing both annealing quantum computers and gate-model quantum computers. During the year endedDecember 31, 2021 , D-Wave initiated the development of a gate-model quantum computing system. D-Wave was incorporated under the Business Corporation Act (British Columbia ) and is headquartered inBurnaby, British Columbia , Canada.
D-Wave’s business model is primarily focused on generating revenue by providing customers access to our quantum computing systems via the cloud as QCaaS products, and providing professional services in which we help our customers identify and implement quantum computing applications.
During the three months endedJune 30, 2022 and 2021, we recognized revenue from our cloud and professional services of$1.4 million and$1.1 million , respectively. During the six months endedJune 30, 2022 and 2021, we recognized revenue from our cloud and professional services of$3.1 million and$2.5 million , respectively. We have incurred significant operating losses since inception. For the three months endedJune 30, 2022 and 2021, our net loss was$13.2 million and$4.7 million , respectively. For the six months endedJune 30, 2022 and 2021, our net loss was$24.8 million and$13.5 million , respectively. We expect to continue to incur significant losses for the foreseeable future as we continue to invest in a number of research and development programs as well as a number of go-to-market initiatives. As ofJune 30, 2022 , we had an accumulated deficit of$350.1 million .
On
The transaction agreement and the PIPE financing
OnFebruary 7, 2022 , DPCM and D-Wave entered into a definitive Transaction Agreement by and among DPCM, D-Wave,D-Wave Quantum ,DWSI Holdings Inc. , aDelaware corporation and a direct, wholly-owned subsidiary ofD-Wave Quantum ("Merger Sub"), DWSI Canada Holdings ULC, aBritish Columbia unlimited liability company and a direct, wholly-owned subsidiary ofD-Wave Quantum ("CallCo"),D-Wave Quantum Technologies Inc. , aBritish Columbia corporation and a direct, wholly-owned subsidiary of CallCo, pursuant to which, among other things: (a) Merger Sub merged with and into DPCM, with DPCM surviving as a direct, wholly-owned subsidiary ofD-Wave Quantum , (b)D-Wave Quantum indirectly acquired all of the outstanding share capital of D-Wave and D-Wave became an indirect subsidiary ofD-Wave Quantum , withD-Wave Quantum becoming a public company and a registrant with theSEC . D-Wave and DPCM believe that the Business Combination and related proceeds will result in enhancing D-Wave's leadership in commercial quantum computing. While the legal acquirer in the Transaction Agreement isD-Wave Quantum , for financial accounting and reporting purposes under GAAP, D-Wave is the accounting acquirer and the Business Combination will be accounted for as a "reverse recapitalization." A reverse recapitalization does not result in a new basis of accounting and the financial statements ofD-Wave Quantum represent the continuation of our financial statements in many respects. Under this method of accounting, DPCM will be treated as the "acquired" company for financial reporting purposes. For accounting purposes, D-Wave will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated 30
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as a recapitalization of D-Wave (i.e. a capital transaction involving the issuance of shares by
Upon consummation of the Transaction and the PIPE Financing, the most significant change in our future reported financial position and results of operations is an increase in cash (as compared to our condensed consolidated balance sheet as ofJune 30, 2022 ) of approximately$49.0 million , which includes$40.0 million in gross proceeds from the PIPE Financing. Total direct transaction costs of DPCM and D-Wave paid onAugust 5, 2022 are approximately$11.5 million , substantially all of which will be recorded as a reduction to additional-paid-in-capital as costs related to the reverse recapitalization. Upon the closing of the Transaction,D-Wave Quantum became the successor to anSEC registrant and has listed the common shares in the stock ofD-Wave Quantum and the warrants to purchase common shares in the stock ofD-Wave Quantum on the NYSE under the ticker symbol "QBTS" and "QBTS.WS," respectively. Being a public company will require us to hire additional personnel and implement procedures and processes to address applicable regulatory requirements and customary practices. We expectD-Wave Quantum will incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit, legal, and filing fees.
COVID-19 Update
InMarch 2020 , the COVID-19 outbreak was declared a pandemic by theWorld Health Organization . There are many uncertainties regarding the current pandemic, and we are closely monitoring the impact of the pandemic on all aspects of our business, including how it will impact our employees, suppliers, vendors and business partners. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, stay-at-home or shelter-in-place orders, and business shutdowns. These measures may adversely impact our employees and operations and the operations of our suppliers, customers and business partners. In addition, various aspects of our business cannot be conducted remotely. These measures by government authorities may continue to remain in place for a significant period of time and could adversely affect our development plans, sales and marketing activities, and business operations. The full impact of the COVID-19 pandemic continues to evolve as of the date of this Report. As such, the full magnitude of the pandemic's effect on our financial condition, liquidity and future results of operations is uncertain. Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry and workforce. See "Risk Factors-Risks Related to D-Wave's Business and Industry-We may in the future be adversely affected by continuation or worsening of the global COVID-19 pandemic, its various strains or future pandemics" in the Proxy Statement/Prospectus.
From
Key elements of operating results
Revenue
We currently generate our revenue through subscription sales to access our
Quantum Computing as a Service ("QCaaS") cloud platform; professional services
that includes problem evaluation, proof of concept, and pilot applications;
training on our quantum computing systems and other revenue derived from the
sale of printed circuit boards. QCaaS revenue is recognized on a ratable basis
over the contract term, which generally ranges from one month to two years.
Professional services revenue is recognized based on the terms of the contract,
or based upon the ratio that incurred costs bear to total estimated contract
costs. Other revenue is not material and is recognized upon completion. Our
contracts with our customers do not, at any time, provide the customer with the
right to take possession of the software that runs our cloud platform.
We expect our cloud based recurring QCaaS revenue to increase over time as a
function of the increasing number of applications driven by professional
services engagements with our customers, as well as by customers that choose to
access our Leap cloud service without utilizing our professional services
organization.
We expect that there will be a marginal decrease in our cloud based recurring
QCaaS revenue as a percentage of total revenue in 2022 when compared to 2021 due
to the scaling up of our professional services revenue. In subsequent periods,
we expect that the QCaaS revenue as a percentage of total revenue will increase
from year to year.
Cost of Revenue
Our cost of revenue primarily includes all direct and indirect expenses associated with providing our QCaaS offering and delivering our professional services, including personnel expenses and costs associated with cloud maintenance.
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platform on which the QCaaS resides. Product cost also includes depreciation and amortization related to our quantum computing systems and related software.
We expect our total cost of revenue to increase in absolute dollars in future periods, corresponding to our anticipated growth in revenue and employee headcount to support our customers and to maintain the QCaaS cloud offering, manufacturing, operations and field service team.
Functionnary costs
Our operating expenses include research and development expenses, general and administrative expenses, and selling and marketing expenses.
Research and development
Research and development expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, fabrication costs, lab supplies, and cloud computing resources and allocated facility costs for our research and development functions. Unlike a standard computer, design and development efforts continue throughout the useful life of our quantum computing systems to ensure proper calibration and optimal functionality. Research and development expenses also include purchased hardware components, fabrication and software costs related to quantum computing systems constructed for research purposes that do not have a high probability of providing future economic benefits, and have no alternate future use. We currently do not capitalize any research and development expenditures. We expect our research and development expenses will increase on an absolute dollar basis for the foreseeable future as we continue to invest in research and development efforts to enhance the functionality of our QCaaS cloud platform, and improve the reliability, availability and scalability of our cloud platform. In addition, research and development costs could increase in absolute dollars if we do not receive government grants and research incentives, which have historically offset a portion of these costs.
General and administrative
General and administrative expenses primarily include personnel-related expenses, including salaries, benefits and stock-based compensation for personnel and expenses for external professional services, including legal, audit and accounting, insurance, other administrative expenses and installation costs allocated for our administrative functions.
We expect our operating expenses to increase in absolute dollars for the foreseeable future as a result of operating as a public company. In particular, we expect our legal, accounting, tax, personnel-related expenses and directors' and officers' insurance costs reported within general and administrative expense to increase as we establish more comprehensive compliance and governance functions, increased IT security and compliance, expanded internal controls over financial reporting in accordance with the Sarbanes-Oxley Act and prepare and distribute periodic reports as required by the rules and regulations of theU.S. Securities and Exchange Commission . As a result, our historical results of operations may not be indicative of our results of operations in future periods.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, direct advertising, marketing and promotional material costs, sales commission expense, consulting fees and allocated facility costs for our sales and marketing functions. We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, expand our global customer base, and broaden our brand awareness. We expect our sales and marketing expenses to continue to increase in absolute dollars for the foreseeable future.
Other income (expenses), net
Our other income (expense), net is primarily comprised of government assistance,
gain on settlement of warranty, gain on debt extinguishment, interest income,
net and other miscellaneous income and expense unrelated to our core operations.
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Operating results
The following table sets forth our results of operations for the periods
indicated:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenue $ 1,371 $ 1,137 $ 3,083 $ 2,546
Cost of revenue 586 448 1,169 746 Total gross profit 785 689 1,914 1,800 Operating expenses: Research and development 7,072 6,291 13,599 12,775 General and administrative 3,959 2,508 7,606 5,030 Sales and marketing 1,739 1,226 3,339 2,296 Total operating expenses 12,770 10,025 24,544 20,101 Loss from operations (11,985) (9,336) (22,630) (18,301) Other income (expense): Interest expense (1,746) (207) (2,538) (385) Government assistance - 4,586 - 4,586 Other income (expense), net 533 289 353 604 Total other income (expense), net (1,213) 4,668 (2,185) 4,805 Net loss$ (13,198) $
(4,668)
Foreign currency translation adjustment, net of tax
32 (38) (38) 11 Net comprehensive loss$ (13,166) $
(4,706)
Comparison of the three months ended
Revenue
Revenue increased$234,000 , or 21%, to$1.4 million for the three months endedJune 30, 2022 as compared to$1.1 million for the three months endedJune 30, 2021 . The increase in revenue was driven by an increase in QCaaS revenue of$215,000 .
Revenue cost
Cost of revenue increased$138,000 , or 31%, to$586,000 for the three months endedJune 30, 2022 as compared to$448,000 for the three months endedJune 30, 2021 . The increase in cost of revenue was driven primarily by:
• An increase in personnel costs of
• A reduction in the costs related to the software of
• An augmentation of
• An augmentation of
Operating Expenses
Research and development costs
Three Months Ended June 30, Change
2022 2021 Amount %
Research and development $ 7,072 $ 6,291 $ 781 12 %
Research and development expenses increased by $781,000 , or 12% to $7.1 million
for the three months ended June 30, 2022 compared to $6.3 million for the three
months ended June 30, 2021 . The increase in research and development was
primarily driven by:
• An increase in personnel costs of
•An increase of$280,000 associated with the increase in fabrication activities necessary for various research and development as we continue to develop new products and enhance existing products, services and technologies; and 33
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•An increase of$172,000 associated to the increase in computing resources, R&D supplies and the associated freight and custom fees to support the continued development for various research and development activities. We expect our research and development expenses to increase in absolute dollars as we continue to develop new products and enhance existing products, services, and technologies.
General and administrative expenses
Three Months Ended June 30, Change
2022 2021 Amount %
General and administrative $ 3,959 $ 2,508 $ 1,451 58 %
General and administrative expenses increased
• An augmentation of
• An augmentation of
• An augmentation of
We expect our general and administrative expenses to increase in absolute dollars as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSEC and the NYSE, additional insurance costs, investor relations activities, and other administrative and professional services. Sales and Marketing Expenses Three Months Ended June 30, Change 2022 2021 Amount % Sales and marketing$ 1,739 $ 1,226 $ 513 42 %
Sales and marketing expenses increased
• An augmentation of
• An augmentation of
• An augmentation of
We expect our sales and marketing expenses to increase in absolute dollars as we hire additional sales and marketing personnel, expand our sales professional support, and market our QCaaS cloud service offerings to further penetratethe United States and international markets.
Other income (expenses), net
Interest Expense
Three Months Ended June 30 Change
2022 2021 Amount %
Interest expense $ (1,746) $ (207) $ (1,539) 743 %
Interest expense increased $1.5 million or 743%, to $1.7 million for the three
months ended June 30, 2022 as compared to $207,000 for the three months ended
June 30, 2021 . The increase was primarily due to a higher debt balance in the
current period compared to the prior period due to a $15.0 million Venture Loan
that became effective on March 3, 2022 and was increased by an additional $5.0
million on June 21, 2022 , final payment fee for the Venture Loan of $583,000 as
well as an increase in our government loan.
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Other income (expense), net
Three Months Ended June 30 Change
2022 2021 Amount %
Other income (expense), net $ 533 $ 289 $ 244 84 %
Other income (expense), increased $244,000 or 84%, to $533,000 for the three
months ended June 30, 2022 as compared to $289,000 for the three months ended
June 30, 2021 . The decrease was largely driven by the net impact of foreign
exchange gains and losses that totaled $562,000 .
Government assistance
Three Months Ended June 30 Change
2022 2021 Amount %
Government assistance $ - $ 4,586 $ (4,586) (100) %
Government assistance decreased by $4.6 million for the three months ended June
30, 2022 when compared to the three months ended June 30, 2021 . The decrease was
driven by the timing of the deemed interest benefit resulting from the SIF loan,
which was recognized in years 2020 and 2021. See Note 3 included in the notes to
our unaudited condensed consolidated financial statements for the three and six
month periods ended June 30, 2022 included elsewhere in this Report for details
regarding the government assistance programs.
Comparison of the six months ended
Revenue
Revenues have increased
Revenue cost
Cost of revenue increased$423,000 , or 57%, to$1,169,000 for the six months endedJune 30, 2022 as compared to$746,000 for the six months endedJune 30, 2021 . The increase in cost of revenue was primarily driven by:
• An increase in personnel costs of
• An augmentation of
• An augmentation of
• An augmentation of
Operating Expenses
Research and development costs
Six Months ended - June 30th Change
2022 2021 Amount %
Research and development $ 13,599 $ 12,775 $ 824 6 %
Research and development expenses increased by $824,000 , or 6% to $13.6 million
for the six months ended June 30, 2022 compared to $12.8 million for the six
months ended June 30, 2021 . The increase in research and development expenses
was primarily driven by:
•An increase in personnel-related costs of $802,000 included an increase of
$123,000 in stock based-compensation, and higher salaries due to an increase in
headcount;
• An augmentation of
• The above increases are partially offset by a decrease in
We expect our research and development expenses to increase in absolute dollars as we continue to develop new products and enhance existing products, services, and technologies.
General and administrative expenses
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Six Months Ended June 30, Change
2022 2021 Amount %
General and administrative $ 7,606 $ 5,030 $ 2,576 51 %
•General and administrative expenses increased $2.6 million , or 51%, to $7.6
million for the six months ended June 30, 2022 as compared to $5.0 million for
the six months ended June 30, 2021 . The increase was primarily driven by:
•An increase of $1.7 million in personnel-related expenses which included an
increase of $1.1 million in stock-based compensation, and higher salaries due to
an increase in headcount;
• An augmentation of
• An augmentation of
• An augmentation of
We expect our general and administrative expenses to increase in absolute dollars as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSEC and the NYSE, additional insurance costs, investor relations activities, and other administrative and professional services. Sales and Marketing Expenses Six Months Ended June 30, Change 2022 2021 Amount % Sales and marketing$ 3,339 $ 2,296 $ 1,043 45 %
Sales and marketing expenses increased
•An increase of$721,000 in personnel-related costs which included an increase of$51,000 in stock-based compensation, and higher salaries due to an increase in headcount; and
• An augmentation of
We expect our sales and marketing expenses to increase in absolute dollars as we hire additional sales and marketing personnel, expand our sales professional support, and market our QCaaS cloud service offerings to further penetratethe United States and international markets.
Other income (expenses), net
Interest Expense
Six Months Ended June 30 Change
2022 2021 Amount %
Interest expense $ (2,538) $ (385) $ (2,153) 559 %
Interest expense increased $2.2 million or 559%, to $2.5 million for the six
months ended June 30, 2022 as compared to $385,000 for the six months ended June
30, 2021 . The increase was primarily due to our higher debt balance in the
current period compared to the prior period due to a $15.0 million Venture Loan
that was closed on March 3, 2022 and was increased by $5.0 million on June 30,
2022 , final payment fee on the Venture Loan of $583,000 as well as an increase
in our government loan.
Other income (expense), net
Six Months Ended June 30 Change
2022 2021 Amount %
Other income (expense), net $ 353 $ 604 $ (251) (42) %
Other income (expense), net decreased $251,000 or 42%, to $353,000 for the six
months ended June 30, 2022 as compared to $604,000 for the six months ended June
30, 2021 . The decrease was largely driven by the net impact of foreign exchange
gains and losses.
Government assistance
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Six Months Ended June 30 Change
2022 2021 Amount %
Government assistance $ - $ 4,586 $ (4,586) (100) %
Government assistance decreased $4.6 million to nil for the six months ended
June 30, 2022 as compared to $4.6 million for the six months ended June 30,
2021 . The decrease was driven by the timing of the deemed interest benefit
resulting from the SIF loan, which was recognized in years ended December 31,
2020 and 2021. See Note 3 included in the notes to our unaudited condensed
consolidated financial statements for the six month period ended June 30, 2022
included elsewhere in this Report for details regarding the government
assistance programs.
Liquidity and Capital Resources
We have incurred net losses since inception and experienced negative cash flows
from operations. To date, our primary sources of capital have been through
private placements of convertible preferred shares, revenue from the sale of our
products and services, government assistance and the venture loan. During the
six months ended June 30, 2022 and 2021, we incurred net losses of $24.8 million
and $13.5 million , respectively. We expect to incur additional losses and higher
operating expenses for the foreseeable future as we continue to invest in
research and development and go-to-market programs. We have determined that
additional financing will be required to fund our operations for the next 12
months and our ability to continue as a going concern is dependent upon
obtaining additional capital and financing, including through the consummation
of the Transaction. If D-Wave is unable to obtain additional financing,
operations may be scaled back or discontinued. These conditions give rise to
material uncertainties that may cast substantial doubt on the ability of D-Wave
to continue as a going concern.
Our primary uses of cash are to fund our operations as we continue to grow our
business. We will require a significant amount of cash for expenditures as we
invest in ongoing research and development and business operations. Until such
time as we can generate significant revenue from sales of our QCaaS offering and
our professional services, we expect to finance our cash needs through public
and/or private equity and/or debt financings or other capital sources, including
strategic partnerships. However, we may be unable to raise additional funds or
enter into such other arrangements, when needed, on favorable terms or at all.
To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of our stockholders will be,
or could be, diluted, and the terms of these securities may include liquidation
or other preferences that adversely affect the rights of our common
shareholders. Debt financing and equity financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends. If we are unable to raise additional funds through
equity or debt financings when needed, we may be required to delay, limit, or
substantially reduce our quantum computing development and go-to-market efforts.
We continue to assess the effect of the COVID-19 pandemic and the Russia /Ukraine
crisis on our operations. The extent to which the COVID-19 pandemic will impact
our business and operations will depend on future developments that are highly
uncertain and cannot be predicted with confidence, such as the continuing spread
of the infection, new and emerging variants of the virus, the duration of the
pandemic, and the effectiveness of actions taken in the U.S. and other countries
to contain and treat the disease. The extent to which the Russia /Ukraine crisis
will impact our business and operations will also depend on future developments
that are highly uncertain and cannot be predicted with confidence, including
restrictive actions that may be taken by the U.S. and/or other countries, such
as sanctions or export controls, and the duration of the conflict.
Our future capital requirements and the adequacy of available funds will depend
on many factors, including those set forth in the section titled "Risk
Factors-Risks Related to D-Wave's Business and Industry" in the Proxy
Statement/Prospectus. Our management believes that the funds available under the
ELOC would be sufficient to fund our operations for at least 18 months, subject
to the terms and conditions of the agreement.
Subprime loan and guarantee agreement
OnMarch 3, 2022 , we entered into the Venture Loan Agreement, by and between the Borrowers, as defined in the agreement, and PSPIB, as the lender. Under the Venture Loan Agreement, term loans in an aggregate principal amount of$25.0 million were made available to the Borrowers in three tranches, subject to certain terms and conditions. The first tranche in an aggregate principal amount of$15.0 million was advanced onMarch 3, 2022 . The second tranche in an aggregate principal amount of$5.0 million was advanced to D-Wave onJune 30, 2022 . The term loans under the Venture Loan Agreement bear interest at a rate equal to the greater of either (i) the Prime Rate (as reported in The Wall Street Journal) plus 7.25%, and (ii) 10.5%. Interest on the outstanding advances is payable monthly, on the first business day of each calendar month through the Maturity Date. 37
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Final payment fee is 5.0% of the aggregate amount of the term loans made under the Venture Loan Agreement on the earliest of (i) the Maturity Date; (ii) the date that we prepay all of the outstanding aggregate principal amount in full, or (iii) the date the loan payments are accelerated due to an event of default (as defined in the Venture Loan Agreement). In connection with any prepayment of less than all of the outstanding principal balance of the loans, we agreed to pay PSPIB an amount equal to five percent of the principal balance of the loans being prepaid. The Venture Loan Agreement is secured by a first-priority security interest in substantially all of the Borrower's assets and contains certain operational covenants. The Borrowers remained in compliance with all covenants under the Venture Loan Agreement for the term of the Venture Loan Agreement. The full text of the Venture Loan Agreement is filed as an exhibit to this Report, and such description is qualified in its entirety by the full text of such exhibit.
On
Cash flow
The following table presents our cash flows for the period indicated:
Six
Months ended
2022 2021
Net cash (used in) provided by:
Operating activities $ (21,499) $ (20,268)
Investing activities (218) (1,265)
Financing activities 22,765 13,127
Effect of exchange rate changes on cash and cash equivalent (65) 262
Net (decrease) increase in cash and cash equivalent $
983
Cash flows used in operating activities
Our cash flows from operating activities are significantly affected by the growth of our business, and are primarily related to research and development, sales and marketing and general and administrative activities. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable, accounts receivable and other current assets and liabilities. Net cash used in operating activities during the six months endedJune 30, 2022 was$21.5 million , resulting primarily from a net loss of$24.8 million , adjusted for non-cash charges of$1.2 million in depreciation and amortization, including amortization of operating right of use assets,$1.6 million in stock-based compensation,$2.4 million of other non-cash charges, and$1.9 million in working capital adjustments. Net cash used in operating activities during the six months endedJune 30, 2021 was$20.3 million , resulting primarily from a net loss of$13.5 million , adjusted for non-cash charges of$1.2 million in depreciation and amortization including amortization of operating right of use assets,$0.3 million in stock-based compensation,$0.6 million of other non-cash charges and$9.0 million in working capital adjustments.
Cash flows used in investing activities
Net cash used in investing activities during the six months ended
has been
Net cash used in investing activities during the six months endedJune 30, 2021 was$1.3 million representing additions of$1.1 in property and equipment and$0.2 million in software primarily related to the development of our quantum computing systems.
Cash flows generated by financing activities
Net cash provided by financing activities during the six months endedJune 30, 2022 was$22.8 million , primarily reflecting proceeds received from the Venture Loan entered into signed onMarch 3, 2022 for$19.9 million , net proceeds received from government programs (SIF) for$2.7 million and proceeds received from issuance of common stock upon exercise of stock options for$0.1 million .
Net cash flows generated by financing activities during the six months ended
38
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Contractual obligations and commitments
The following table summarizes our non-cancellable contractual obligations and other commitments as ofDecember 31, 2021 and the effects that such obligations are expected to have on our liquidity and cash flow for future periods (in thousands):
Payments due per period (2)
Less than 1 More than 5
Total year 1 - 3 year 4 - 5 year years
Lease commitment (1) $ 16,356 $ 1,687 $ 2,563 $ 2,458 $ 9,648
Total $ 16,356 $ 1,687 $ 2,563 $ 2,458 $ 9,648
(1)Includes obligations related to operating leases for some of our offices and facilities.
(2)Excluding the risk loan agreement entered into on
The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty.
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