qbts-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

FORM 10-Q

________________________

(Mark One)


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

For the quarterly period ended June 30, 2023


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

For the transition period from ___________ and ____________

Commission file number 001-41468

________________________

D-WAVE QUANTUM INC.

(Exact name of registrant as specified in its charter)

________________________


Delaware			88-1068854
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3033 Beta Avenue, Burnaby, British Columbia, Canada			V5G 4M9
(Address of Principal Executive Offices)			(Zip Code)

(604) 630-1428

Registrant's telephone number, including area code

(Former name, former address and former fiscal year, if changed since last report)

________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	QBTS	New York Stock Exchange
Warrants, each whole warrant exercisable for 1.4541326 shares of common stock at an exercise price of $11.50	QBTS.WT	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of August 7, 2023, the registrant had 98,902,073 shares of common stock at par value $0.0001 outstanding. In addition, there were 46,550,462 exchangeable shares outstanding as of August 7, 2023, which are convertible into shares of common stock on a one for one basis at any time for no consideration.

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		Page

Part I. Financial Information
Item 1.	D-Wave Quantum Inc. Financial Statements (Unaudited)	5
	Unaudited Condensed Consolidated Balance Sheets	5
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss	6
	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ (Deficit) Equity	7
	Unaudited Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	D-Wave Quantum Inc. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34

Part II. Other Information
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
Signatures		38

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q (this “Report”) and in documents incorporated herein by reference may constitute “forward-looking statements” for purposes of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1933, as amended. Unless otherwise indicated or the context otherwise requires, all references in this Report to the terms “D-Wave” and the “Company” refer to D-Wave Quantum Inc., together with its subsidiaries. Our forward-looking statements include, but are not limited to, statements regarding D-Wave and D-Wave’s management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “believe”, “may”, “will”, “could”, “would”, “should”, “expect”, “intend”, “plan”, “anticipate”, “trend”, “believe”, “estimate”, “predict”, “project”, “potential”, “seem”. “seek”, “future”, “outlook”, “forecast”, “projection”, “continue”, “ongoing”, or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties, and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. We caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, which are subject to a number of risks. Forward-looking statements in this Report may include, for example, statements about:

•D-Wave's future growth and innovations;

•the increased adoption of quantum computing solutions and expansion of related market opportunities and use cases;

•D-Wave's expectations regarding product development and functionality;

•D-Wave’s financial and business performance, including financial projections and business metrics;

•changes in D-Wave’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;

•the ability of D-Wave’s products and services to meet customers’ compliance and regulatory needs;

•D-Wave’s ability to attract and retain qualified employees and management;

•developments and projections relating to D-Wave’s products, competitors and industry;

•the impact of the current economic environment due to inflation, increased interest rates, Ukraine/Russia conflict, and any evolutions thereof, on D-Wave’s business and the actions D-Wave may take in response thereto;

•D-Wave’s expectations regarding its ability to obtain and maintain intellectual property protection and not infringe on the rights of others;

•D-Wave's expectations about the Term Loan (as defined below) providing it sufficient cash runway;

•the additional expected costs relating to D-Wave becoming a public company;

•D-Wave’s future capital requirements and sources and uses of cash;

•D-Wave’s ability to obtain funding for its operations and future growth; and

•D-Wave’s business, expansion plans and opportunities.

You should not place undue reliance on these forward-looking statements in making an investment decision. These forward-looking statements are based on information available as of the date of this Report, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties and are not predictions of actual performance. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

These forward-looking statements are not intended to serve as, and must not be relied on as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability regarding future performance, events or circumstances. Many of the factors affecting actual performance, events and circumstances are beyond the control of D-Wave. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements.

Some factors that could cause actual results to differ include:

•anticipated trends, growth rates, and challenges in companies, such as D-Wave, that are engaged in the business of quantum computing and in the markets in which they operate;

•the risk that D-Wave’s securities will not maintain a listing on the New York Stock Exchange (“NYSE”);

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•risks related to the uncertainty of the unaudited prospective forecasted financial information;

•risks related to the possibility that D-Wave may not be able to retain a new auditor;

•risks related to the performance of D-Wave’s business and the timing of expected business or financial milestones;

•unanticipated technological or project development challenges, including with respect to the cost and/or timing thereof;

•the performance of D-Wave’s products and services;

•the effects of competition on D-Wave’s business;

•changes in the business of D-Wave, D-Wave’s market, financial, political and legal conditions;

•the risk that D-Wave will need to raise additional capital to execute its business plan, which may not be available on acceptable terms or at all;

•the risk that D-Wave may never achieve or sustain profitability;

•the risk that D-Wave is unable to secure or protect its intellectual property;

•changes in applicable laws or regulations;

•the effect of the current economic environment due to inflation, increased interest rates, Ukraine/Russia conflict, geopolitical events, natural disasters, wars, terrorist acts or a combination of these factors on D-Wave’s business and the economy in general;

•the ability of D-Wave to execute its business model, including market acceptance of its planned products and services;

•D-Wave’s ability to raise capital, including under the Purchase Agreement (as defined below) with Lincoln Park Capital Fund LLC ("Lincoln Park");

•D-Wave's ability to obtain funds under the Term Loan (as defined below);

•the possibility that D-Wave may be negatively impacted by other economic, business, and/or competitive factors;

•risks stemming from inflation;

•any changes to applicable tax laws, including U.S. tax laws; and

•other risks and uncertainties described in Report, including those referenced under the section titled “Risk Factors.”

In addition, statements that “D-Wave believes” and similar statements reflect D-Wave’s beliefs and opinions on the relevant subject. These statements are based upon information available to D-Wave as of the date of this Report, and while D-Wave believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that such party has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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Part I - Financial Information

Item 1. Financial Statements

D-Wave Quantum Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


	June 30,		December 31,
(In thousands of U.S. dollars, except share and per share data)	2023		2022
Assets
Current assets:
Cash	$	7,514	$	7,065
Trade accounts receivable, net	803		757
Inventories	2,325		2,196
Prepaid expenses and other current assets	2,200		3,907
Total current assets	$	12,842	$	13,925
Property and equipment, net	1,792		2,294
Operating lease right-of-use assets	8,716		9,133
Intangible assets, net	205		244
Other noncurrent assets	1,354		1,351
Total assets	$	24,909	$	26,947
Liabilities and stockholders' (deficit) equity
Current liabilities:
Trade accounts payable	4,106		3,756
Accrued expenses and other current liabilities	10,800		8,640
Loans payable, current	15,910		1,671
Deferred revenue, current	2,827		1,781
Total current liabilities	33,643		15,848
Warrant liabilities	3,404		1,892
Operating lease liabilities, net of current portion	7,162		7,301
Loans payable, noncurrent	8,473		7,811
Deferred revenue, noncurrent	120		9
Total liabilities	$	52,802	$	32,861
Commitments and contingencies (Note 11)
Stockholders' (deficit) equity:
Common stock par value $0.0001 per share; 675,000,000 shares authorized at June 30, 2023 and December 31, 2022; 128,028,658 shares and 113,335,530 shares issued and outstanding as of June 30, 2023 and December 31, 2022.	12		11
Additional paid-in capital	409,885		381,274
Accumulated deficit	(427,303)		(376,797)
Accumulated other comprehensive loss	(10,487)		(10,402)
Total stockholders' (deficit) equity	$	(27,893)	$	(5,914)
Total liabilities and stockholders’ equity	$	24,909	$	26,947

The accompanying notes are an integral part of these condensed consolidated financial statements.

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D-Wave Quantum Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)


	For the three months ended June 30,				For the six months ended June 30,
(In thousands, except share and per share data)	2023		2022		2023		2022
Revenue	$	1,707	$	1,371	$	3,290	$	3,083
Cost of revenue	1,002		620		2,164		1,235
Total gross profit	705		751		1,126		1,848
Operating expenses:
Research and development	9,548		7,456		20,463		14,260
General and administrative	9,576		3,959		20,872		7,606
Sales and marketing	2,488		1,739		5,388		3,339
Total operating expenses	21,612		13,154		46,723		25,205
Loss from operations	(20,907)		(12,403)		(45,597)		(23,357)
Other income (expense), net:
Interest expense	(781)		(1,479)		(1,235)		(2,262)
Change in fair value of warrant liabilities	(2,150)		—		(1,512)		—
Change in fair value of Term Loan	(345)		—		(345)		—
Term Loan debt issuance costs	(1,393)		—		(1,393)		—
Other income (expense), net	(322)		533		(424)		353
Total other income (expense), net	(4,991)		(946)		(4,909)		(1,909)
Net loss	$	(25,898)	$	(13,349)	$	(50,506)	$	(25,266)
Net loss per share, basic and diluted	$	(0.20)	$	(0.11)	$	(0.40)	$	(0.20)
Weighted-average shares * used in computing net loss per share, basic and diluted	127,337,903		125,472,590		125,252,585		125,428,749
Comprehensive loss:
Net loss	$	(25,898)	$	(13,349)	$	(50,506)	$	(25,266)
Foreign currency translation adjustment, net of tax	(66)		32		(85)		(38)
Net comprehensive loss	$	(25,964)	$	(13,317)	$	(50,591)	$	(25,304)

* Weighted-average shares for the three and six months ended June 30, 2022 have been retroactively restated to give effect to the Merger.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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D-Wave Quantum Inc.

Condensed consolidated statements of stockholders’ (deficit) equity

(Unaudited)


	Stockholders’ (Deficit) Equity
	Non-redeemable convertible preferred stock			Common stock			Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total stockholders' equity (deficit)
(In thousands, except share data)	Shares	Amount		Shares	Amount
Balances at December 31, 2021	137,765,828	$	189,881	3,166,949	$	2,610	$	146,240	$	(325,268)	$	(10,443)	$	3,020
Retroactive application of Merger	(15,201,495)	—		(349,451)	(2,610)		2,610		—		—		—
Adjusted Balances, beginning of period*	122,564,333	189,881		2,817,498	—		148,850		(325,268)		(10,443)		3,020
Old D-Wave exercise of stock options	—	—		155,137	—		141		—		—		141
Old D-Wave stock-based compensation	—	—		—	—		1,600		—		—		1,600
Foreign currency translation adjustment, net of tax	—	—		—	—		—		—		(38)		(38)
Net loss	—	—		—	—		—		(25,266)		—		(25,266)
Balances at June 30, 2022	122,564,333	$	189,881	2,972,635	$	—	$	150,591	$	(350,534)	$	(10,481)	$	(20,543)

* Shares of legacy non-redeemable convertible preferred stock and legacy common stock have been retroactively restated to give effect to the Merger.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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D-Wave Quantum Inc.

Condensed consolidated statements of stockholders’ (deficit) equity

(Unaudited)


		Stockholders’ Equity
	Common stock
(In thousands, except share data)		Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total stockholders' deficit
Balances at December 31, 2022		113,335,530	$	11	$	381,274	$	(376,797)	$	(10,402)	$	(5,914)
Exercise of stock options		1,453,474	—		1,208		—		—		1,208
Issuance of common stock in connection with the Purchase Agreement		13,239,654	1		15,682		—		—		15,683
Stock-based compensation		—	—		11,477		—		—		11,477
Short swing profit settlement		—	—		244		—		—		244
Foreign currency translation adjustment, net of tax		—	—		—		—		(85)		(85)
Net loss		—	—		—		(50,506)		—		(50,506)
Balances at June 30, 2023		128,028,658	$	12	$	409,885	$	(427,303)	$	(10,487)	$	(27,893)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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D-Wave Quantum Inc.

Condensed consolidated statements of cash flows

(Unaudited)


	Six months ended June 30,
(in thousands)	2023		2022
Cash flows from operating activities:
Net loss	$	(50,506)	$	(25,266)
Adjustments to reconcile net loss to cash used in by operating activities:
Depreciation and amortization	601		705
Stock-based compensation	11,477		1,600
Amortization of operating right of use assets	417		459
Non-cash interest expense	1,198		1,679
Change in fair value of Warrant liabilities	1,512		—
Change in fair value of Term Loan	345		—
Debt issuance costs netted from Term Loan proceeds	643		—
Other non-cash activities	395		499
Change in operating assets and liabilities:
Trade accounts receivable	(40)		(266)
Inventories	(81)		(301)
Prepaid expenses and other current assets	1,709		(4,330)
Trade accounts payable	338		(136)
Accrued expenses and other current liabilities	2,126		4,578
Deferred revenue	1,157		(293)
Operating lease liabilities, net of current portion	(335)		(427)
Net cash used in operating activities	$	(29,044)	$	(21,499)
Cash flows from investing activities:
Purchase of property and equipment	(59)		(175)
Purchase of software	(20)		(43)
Net cash used in investing activities	$	(79)	$	(218)
Cash flows from financing activities:
Proceeds from Lincoln Park Purchase Agreement	15,683		—
Proceeds from government assistance	—		3,178
Proceeds from issuance of common stock upon exercise of stock options	1,208		141
Proceeds from Term Loan	14,357		19,870
Debt payments	(1,835)		(424)
Short swing profit settlement	244		—
Net cash provided by financing activities	$	29,657	$	22,765
Effect of exchange rate changes on cash and cash equivalents	(85)		(65)
Net (decrease) increase in cash and cash equivalents	449		983
Cash and cash equivalents at beginning of period	$	7,065	$	9,483
Cash and cash equivalents at end of period	$	7,514	$	10,466
Supplemental disclosure of noncash investing and financial activities:

Unpaid deferred costs	$	—	$	3,734

The accompanying notes are an integral part of these condensed consolidated financial statements.

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D-Wave Quantum Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of business

D-Wave Quantum Inc. ("D-Wave" or the “Company”) was incorporated under the General Corporation Law of the State of the Delaware on January 24, 2022. The Company was formed for the purpose of effecting a merger between DPCM Capital, Inc. (“DPCM”), D-Wave Systems Inc. (“D-Wave Systems”), and certain other affiliated entities through a series of transactions (the “Merger”) pursuant to the definitive agreement entered into on February 7, 2022 (the “Transaction Agreement”). On August 5, 2022, in conjunction with the Merger, DPCM and D-Wave Systems became wholly-owned subsidiaries of, and are operated by, the Company. Upon the completion of the Merger, the Company succeeded to all of the operations of its predecessor, D-Wave Systems.

D-Wave is a commercial quantum computing company that provides customers with a full suite of professional services and web-based access to its superconducting quantum computer systems and integrated software environment through its cloud service, LeapTM. Historically, the Company has developed its own annealing superconducting quantum computer and associated software, and its current generation quantum system is the AdvantageTM system.

D-Wave has three operating facilities, which it leases, in North America. These facilities are located in Burnaby, British Columbia, Richmond, British Columbia, and Palo Alto, California.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed consolidated balance sheet as of December 31, 2022, has been derived from the audited consolidated financial statements at that date, but certain notes or other information that are normally required by U.S. GAAP have been omitted if they substantially duplicate the disclosures contained in the Company's annual audited consolidated financial statements.

Certain information and footnote disclosure normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the United States Securities and Exchange Commission ("SEC"). In the opinion of the Company, the unaudited financial information for the interim periods presented reflects all adjustments, which are normal and recurring, necessary for a fair presentation of the consolidated statement of operations and comprehensive loss, balance sheet, and cash flows. Interim results should not be regarded as indicative of results that may be expected for any other period or the entire year.

The interim condensed consolidated financial statements included herein have been prepared on the same basis as the audited annual consolidated financial statements and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Annual Report on Form 10-K as of and for the year ended December 31, 2022 filed with the SEC.

The condensed consolidated statement of operations and comprehensive loss for the three and six month periods ended June 30, 2023 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2023 or thereafter. All references to June 30, 2023 and 2022 in the notes to condensed consolidated financial statements are unaudited.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements upon consolidation.

Revision of previously issued financial statements

In connection with the preparation of the Company’s financial statements as of and for the year ended December 31, 2022, the Company’s management identified certain misstatements attributable to the following:

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i) an understatement of reported research and development expenses for the three and six months ended June 30, 2022 of $0.4 million and $0.7 million, respectively, with respect to the Company losing the ability to receive Scientific Research and Experimental Development credits subsequently to signing the Transaction Agreement on February 7, 2022; and

ii) an overstatement of non-cash interest expense for the three and six months ended June 30, 2022 of $0.3 million and $0.3 million, respectively, with respect to the Company identifying certain errors in the SIF Loan (as defined below) repayment calculation model.

There was no material impact to net loss, hence there was no impact to the net loss per share, for the three and six months ended June 30, 2022.

Liquidity and going concern

The Company has prepared its condensed consolidated financial statements assuming that it will continue as a going concern. Since its inception, the Company has incurred net losses and negative cash flows from operations. As of June 30, 2023, the Company had an accumulated deficit of $427.3 million. For the three and six months ended June 30, 2023, the Company incurred a net loss of $25.9 million and $50.5 million, respectively. For the three and six months ended June 30, 2022, the Company incurred a net loss of $13.3 million and $25.3 million, respectively. For the six months ended June 30, 2023 and 2022, the Company had net cash outflows from operating activities of $29.0 million and $21.5 million, respectively. As of June 30, 2023, the Company had $7.5 million of cash and working capital (current assets less current liabilities) deficit of $20.8 million. The Company expects to incur additional operating losses and negative cash flows from operating activities as it continues to expand its commercial operations and research and development programs.

On April 13, 2023, (the "Closing Date") the Company entered into the Term Loan and Security Agreement (the "Term Loan"), by and between the Company and PSPIB Unitas Investments II Inc. ("PSPIB" or the "Lender"), a related party to the Company's largest shareholder. As further described in Note 7 - Loans payable, the Term Loan provides for an aggregate principal amount of $50.0 million to be made available to the Company in three tranches, subject to certain terms and conditions as defined in the Term Loan, including a financial covenant that measures the Company's revenue against certain minimum percentages of budgeted revenue per quarter. The first two tranches of the Term Loan, each amounting to $15.0 million in principal, were advanced to D-Wave on April 14, 2023 and July 13, 2023, respectively, with the third tranche of $20.0 million to be made available on October 10, 2023, subject to certain conditions. The Lender agreed to modify certain conditions to the funding of the second tranche of the Term Loan, including delaying the delivery of a board-approved operating budget and plan for the Company’s fiscal years 2023 through 2027 to August 31, 2023; modifying the condition that, prior to the funding of the second tranche,the Company shall have nominated an additional director that is either an employee of PSPIB or an independent director selected from PSPIB nominees to require such appointment at a later time at PSPIB’s option; and modifying notice deadline requirements for the registration or filings of intellectual property. PSPIB has also agreed to waive certain covenants under the Term Loan that the Company did not meet, including the minimum revenue financial covenant for the second fiscal quarter ended June 30, 2023. The third tranche that shall be available to D-Wave as of October 10, 2023, is subject to the closing of a $25.0 million non-dilutive financing on terms reasonably acceptable to the Lender, and the intellectual property valuation report submitted as a condition precedent to the second tranche and the board-approved operating budget for 2023 through 2027 being submitted by August 31, 2023 both remaining satisfactory to the Lender. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the third tranche or will be able to comply with the covenants of the Term Loan, or that PSPIB will agree to waive covenants under the Term Loan in the future.

In conjunction with the Merger, the Company and D-Wave Systems entered into a purchase agreement with Lincoln Park Capital Fund, LLC ("Lincoln Park") on June 16, 2022 (the "Purchase Agreement" or the "Lincoln Park Purchase Agreement") which provides D-Wave the sole right, but not the obligation, to direct Lincoln Park to buy specified dollar amounts up to $150 million of D-Wave's common stock, par value $0.0001 per share (the "Common Shares") through October 26, 2025. The Purchase Agreement may provide the Company and D-Wave with additional liquidity to fund the business, subject to the conditions set forth in the agreement, including volume limitations tied to periodic market prices, ownership limitations restricting Lincoln Park from owning more than 9.9% of the then total outstanding Common Shares and a floor price of $1.00 at or below which the Company may not sell to Lincoln Park any Common Shares. When the Company sells shares to Lincoln Park, Lincoln Park may resell all, some, or none of those Common Shares at any time or from time to time in its discretion. For the six months ended June 30, 2023, the Company has received $15.7 million in proceeds through the issuance of 13,239,654 Common Shares to Lincoln Park under the Purchase Agreement. In order for the Company to issue common shares under the Purchase Agreement, the Company's share price must be above the floor price of $1.00 per share. There is no assurance that the floor price will not fall below $1.00 preventing the Company from being able to make sales to Lincoln Park in the future.

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To the extent that sufficient capital is not obtained through the cash received in connection with the proceeds of the Term Loan or the issuance of Common Shares under the Purchase Agreement with Lincoln Park, management will be required to obtain additional capital through the issuance of debt and/or equity, or other arrangements. However, there can be no assurance that D-Wave will be able to raise additional capital when needed or under acceptable terms. The issuance of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to the currently outstanding common stock. Any future debt may contain covenants and limit D-Wave’s ability to pay dividends or make other distributions to stockholders. If D-Wave is unable to obtain additional financing, operations will be scaled back or discontinued.

As further described in Note 13 - Subsequent events, subsequent to the three months ended June 30, 2023, D-Wave was advanced $15.0 million under the second tranche of the Term Loan and, following the execution of the third amendment to the Term Loan and a registration statement relating to the resale of up to 35 million Common Shares under the Lincoln Park Purchase Agreement being declared effective, issued 16,590,877 Common Shares in connection with the Lincoln Park Purchase Agreement for total proceeds of $34.2 million. Notwithstanding these subsequent events, in connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Codification (“ASC”) Topic 205-40, “Basis of Presentation—Going Concern”, management has determined that the Company's liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern, which is considered to be for a period of one year from the issuance of these financial statements. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Such adjustments could be material.

Use of estimates

The preparation of the condensed financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s condensed consolidated financial statements and accompanying notes as of the date of the condensed consolidated financial statements. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts, and experience.

The Company’s accounting estimates and assumptions may change over time in response to risks and uncertainties, including uncertainty in the current economic environment due to inflation, increased interest rates, Ukraine/Russia conflict, and any evolutions thereof. The change could be material in future periods. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstances that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results may differ from those estimates or assumptions.

Debt

The Company determined that it is eligible for the fair value option election in connection with the Term Loan. The Term Loan meets the definition of a “recognized financial liability” which is an acceptable financial instrument eligible for the fair value option under ASC 825-10-15-4 and does not meet the definition of any of the financial instruments found within ASC 825-10-15-5 that are not eligible for the fair value option. At the date of issuance, the fair value of the Term Loan is derived from the instrument’s implied discount rate at inception.

Changes in the fair value of the Term Loan, other than changes associated with the Company's own credit risk, are recorded as gains or losses in the Company’s condensed consolidated statements of operations and comprehensive loss in each reporting period. Changes in fair value attributable to the Company's own credit risk are recorded in other comprehensive income or loss in the Company's condensed consolidated statements of operations and comprehensive loss in each reporting period; there have been no such changes for the three and six months ended June 30, 2023. Under the fair value option, debt issuance costs are recorded in other expense in the Company’s condensed consolidated statements of operations and comprehensive loss.

The Term Loan is subject to certain repayment and prepayment provisions which the Company has considered in their valuation analysis. The valuation analysis performed as of the issuance date on April 13, 2023 and June 30, 2023 did not consider any amendments to the Term Loan that occurred subsequent to June 30, 2023 (see to Note 13 - Subsequent events). A Monte Carlo simulation model was utilized to forecast the probability of the issuance of Common Shares under the Purchase Agreement to determine the estimated proceeds to be paid to the Lender along with a mandatory prepayment premium of 10%. Additionally, the Company estimated the probability for an event of default in the valuation analysis

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which would result in a mandatory prepayment of the outstanding principal and accrued and unpaid interest. A binomial lattice model was utilized to determine the impact on the valuation of optional prepayments, in the event a mandatory prepayment does not occur. The Company assessed the fair value of the Term Loan at issuance date and as of June 30, 2023 resulting in unrealized losses of $0.3 million for the three and six months ended June 30, 2023, respectively.

Fair value of financial instruments

Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

⮚Level 1—Quoted prices in active markets for identical assets or liabilities.

⮚Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

⮚Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.

The carrying amounts reflected in the condensed consolidated balance sheets for cash , trade accounts receivable, net, trade accounts payable and accrued expenses approximate their fair values (Level 1).

The Company carries its marketable investments at cost, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments by the same issuer, as they represent investments in privately held companies for which there are no quoted market prices. As of June 30, 2023 and December 31, 2022, the carrying values of the Company's marketable investments were $1.2 million, respectively, and were reported in other noncurrent assets in the consolidated balance sheets.

The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value (in thousands):


Description	Level	June 30, 2023
Liabilities:
Warrant Liabilities – Public Warrants	1	$	1,884
Warrant Liabilities – Private Placement Warrants	2	$	1,520
Term Loan	3	$	15,700

The Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed consolidated statements of operations.

For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrants was used as the fair value of the Warrants as of each relevant date. The subsequent measurements of the Public Warrants after the detachment of the Public Warrants from the Units are classified as Level 1 fair value measurements due to the use of an observable market quote in an active market. The subsequent measurements of the Private Warrants after

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the detachment of the Public Warrants from the Units are classified as Level 2 fair value measurements due to the use of an observable market quote for the Public Warrants, which are considered to be a similar asset in an active market.

As of June 30, 2023, the liabilities for the Warrants were calculated by multiplying the quoted market price per DPCM Public Warrant of $0.19 by the17,916,609 Warrants outstanding (see Note 8).

The Company elected the fair value option for its Term Loan. This liability is deemed to be a Level 3 valuation. The Company adjusts the Term Loan to fair value through the change in fair value of Term Loan in the accompanying condensed consolidated statements of operations and comprehensive loss.

Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs

Government assistance

The Company receives various forms of government assistance including (i) government grants (ii) investment credits, and (iii) government loans, for research and development initiatives from Canadian government agencies.

During the three and six months ended June 30, 2022, the Company recorded Scientific Research and Experimental Development (“SR&ED") investment tax credits of $0.4 million and $0.8 million, respectively, as an offset to its research and development expenses in its condensed consolidated statements of operations and comprehensive loss. Upon entering into the Transaction Agreement on February 7, 2022, the Company is no longer a Canadian Controlled Private Corporation. As a result, beginning February 7, 2022, SR&ED investment tax credits can be applied to reduce income taxes payable to the Canadian government and any such investment tax credits that are not realized will be reflected as investment tax credit carryforwards. During the three and six months ended June 30, 2023, the Company did not record any SR&ED investment tax credits.

Recent accounting pronouncements issued and adopted

No recently issued accounting pronouncements that the Company has adopted have had a material effect on the Company's results of operations, cash flows or financial condition.

Recent accounting pronouncements not yet adopted

No other recently issued accounting pronouncements or effective during 2023 had, or are expected to have, a material impact on the Company’s results of operations, cash flows or financial condition.

3. Merger

On August 5, 2022, the Company completed the Merger. Upon the closing of the Merger, the following occurred:

•Each non-redeeming share of DPCM Class A common stock was converted into the right to receive 1.4541326 Common Shares (the “Exchange Ratio”), such that 902,213 shares of DPCM Class A common stock that were not redeemed were exchanged for 1,311,937 Common Shares;

•All outstanding warrants of DPCM were converted into the right to receive Warrants. Each such Warrant is exercisable for 1.4541326 Common Shares, at any time commencing on September 4, 2022, the date that is 30 days after the completion of the Merger. The number of Common Shares received upon the exercise of Warrants will be rounded down to the nearest whole number of Common Shares;

•3,015,575 shares of DPCM Class B common stock held by Sponsor and DPCM’s officers, directors and other special advisors were converted into Common Shares on a one-for-one basis; and

•Pursuant to an arrangement effected under Part 9, Division 5 of the Business Corporations Act (British Columbia) (the “Arrangement”) all holders of outstanding non-redeemable convertible preferred shares of D-Wave Systems received equity interests in D-Wave in exchange for their equity interests in D-Wave Systems. The aggregate consideration paid to former shareholders of D-Wave Systems in connection with the Merger was approximately 99,736,752 Common Shares and Exchangeable Shares (as defined below) (excluding options of D-Wave Systems and warrants of D-Wave Systems).

“Exchangeable Shares” refers to shares in the capital of D-Wave Quantum Technologies Inc., or ExchangeCo, an indirect Canadian subsidiary of D-Wave. The Exchangeable Shares are exchangeable from time to time, at the holder’s election, for Common Shares on a one-for-one basis.

In connection with the Merger and concurrently with the execution of the Transaction Agreement, on February 7, 2022, DPCM and the Company entered into separate subscription agreements with a number of investors (each a "PIPE

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Investor"), pursuant to which the PIPE Investors agreed to purchase, and the Company agreed to sell to the PIPE Investors, a number of Common Shares (the “PIPE Shares”) equal to the aggregate purchase price for all Common Shares subscribed for by each PIPE Investor, divided by $10.00 and multiplied by the Exchange Ratio for an aggregate purchase price of $40.0 million (the “PIPE Investment”), such that the PIPE Investors purchased 5,816,528 PIPE Shares in the aggregate. The PIPE Investment closed simultaneously with the consummation of the Merger.

On August 2, 2022, the DPCM shareholders voted to approve the Merger. Management determined that once this vote had occurred, it was probable that D-Wave Quantum Inc. would be required to pay Lincoln Park the Commitment Fee associated with the Purchase Agreement. As such, on August 2, 2022, D-Wave Quantum Inc. incurred a $2.6 million liability payable to Lincoln Park, which was the amount of cash contractually required to settle the Commitment Fee. Other than the Commitment Fee liability, D-Wave Quantum, Inc. had no other assets, liabilities, or operations prior to the closing of the Merger on August 5, 2022.

The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, DPCM was treated as the "acquired" company for financial reporting purposes. Accordingly, for accounting purposes, the Merger was treated as the equivalent of the Company issuing shares for the net assets of DPCM, accompanied by a recapitalization. The net assets of DPCM were stated at historical cost, with no goodwill or other intangible assets recorded.

4. Revenue from contracts with customers

Disaggregation of revenue

The following table depicts the disaggregation of revenue by type of products or services and timing of transfer of products or services (in thousands):


	Three months ended June 30,
	2023		2022
Type of products or services
QCaaS	$	1,032	$	1,176

SEC Form 10-Q filed by D-Wave Quantum Inc.