D-Wave Quantum Inc 8-K/A, filed Aug 29, 2022
D-Wave Quantum Inc. (QBTS)
About this 8-K/A
D-Wave Quantum Inc filed this 8-K/A on August 29, 2022, reporting on events of August 5, 2022.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(AMENDMENT NO. 1)
CURRENT REPORT
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of the Securities Exchange Act of 1934
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Introductory Note
This Amendment No. 1 on Form 8-K/A (“Amendment No. 1”) amends the Current Report on Form 8-K of D-Wave Quantum, Inc., a Delaware corporation (“D-Wave Quantum”), filed on August 10, 2022, as amended (the “Original Report”), in which D-Wave Quantum reported, among other events, the completion of the Transaction (as defined in the Original Report).
This Amendment No. 1 is being filed in order to include (1) the condensed consolidated financial statements of D-Wave Systems Inc., a British Columbia company (“D-Wave Systems”), as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021, (2) Management’s Discussion and Analysis of Financial Condition and Results of Operations of D-Wave Systems for the three and six months ended June 30, 2022 and 2021, (3) the D-Wave Quantum financial statements as of June 30, 2022 and for the six months ended June 30, 2022, (4) Management’s Discussion and Analysis of Financial Condition and Results of Operations of D-Wave Quantum for the six months ended June 30, 2022, (5) DPCM Capital, Inc., a Delaware corporation (“DPCM financial statements as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021, (6) Management’s Discussion and Analysis of Financial Condition and Results of Operations of DPCM for the three and six months ended June 30, 2022 and 2021, and (7) the unaudited pro forma condensed combined financial information of D-Wave Quantum as of and for the six months ended June 30, 2022.
This Amendment No. 1 does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at D-Wave Quantum or its subsidiaries, including D-Wave Systems, subsequent to the filing date of the Original Report. The information previously reported in or filed with the Original Report is hereby incorporated by reference to this Form 8-K/A.
| Item 9.01. | Financial Statements and Exhibits. |
| (a) | Financial statements of businesses acquired. |
Included as Exhibit 99.1, 99.2, 99.3 and 99.4, 99.5, 99.6 respectively, and incorporated herein by reference are the (1) the condensed consolidated financial statements of D-Wave Systems as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021, (2) Management’s Discussion and Analysis of Financial Condition and Results of Operations of D-Wave Systems for the three and six months ended June 30, 2022 and 2021, (3) the D-Wave Quantum financial statements as of June 30, 2022 and for the six months ended June 30, 2022, (4) Management’s Discussion and Analysis of Financial Condition and Results of Operations of D-Wave Quantum for the six months ended June 30, 2022, (5) the unaudited condensed consolidated financial statements of DPCM as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021, and (6) Management’s Discussion and Analysis of Financial Condition and Results of Operations of DPCM for the three and six months ended June 30, 2022 and 2021.
| (b) | Pro forma financial information. |
Certain pro forma financial information of D-Wave Quantum is attached hereto as Exhibit 99.7 and is incorporated herein by reference.
| (d) | Exhibits. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| D-Wave Quantum Inc. | ||
| By: | /s/ Alan Baratz | |
| Name: | Alan Baratz | |
| Title: | President & Chief Executive Officer | |
Dated: August 29, 2022
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
Condensed consolidated financial statements of D-Wave Systems Inc. as of June 30, 2022 and December 31, 2021 and for the three months ended June 30, 2022 and 2021
| Page | ||||
| Unaudited condensed consolidated balance sheets |
2 | |||
| Unaudited condensed consolidated statements of operations and comprehensive loss |
3 | |||
| Unaudited condensed statement of changes in stockholders’ equity |
4 | |||
| Unaudited condensed consolidated statements of cash flows |
5 | |||
| Notes to unaudited condensed consolidated financial statements |
6 | |||
D-Wave Systems Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| (In thousands of U.S. dollars, except share and per share data) |
June 30, 2022 |
December 31, 2021 |
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| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 10,466 | $ | 9,483 | ||||
| Trade accounts receivable, net |
918 | 421 | ||||||
| Receivable research incentives |
2,451 | 4,774 | ||||||
| Inventories |
2,148 | 2,114 | ||||||
| Prepaid expenses and other current assets |
1,529 | 1,116 | ||||||
| Deferred offering costs |
5,671 | 1,250 | ||||||
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| Total current assets |
$ | 23,183 | $ | 19,158 | ||||
| Property and equipment, net |
2,772 | 3,249 | ||||||
| Operating lease right-of-use assets |
8,118 | 8,578 | ||||||
| Intangible assets, net |
262 | 272 | ||||||
| Other noncurrent assets |
1,350 | 1,353 | ||||||
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| Total assets |
$ | 35,685 | $ | 32,610 | ||||
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| Liabilities and stockholders’ equity |
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| Current liabilities: |
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| Trade accounts payable |
2,483 | 2,109 | ||||||
| Accrued expenses and other current liabilities |
8,295 | 3,614 | ||||||
| Current portion of operating lease liabilities |
1,573 | 1,687 | ||||||
| Loans payable, current |
21,353 | 220 | ||||||
| Deferred revenue, current |
2,595 | 2,665 | ||||||
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| Total current liabilities |
36,299 | 10,295 | ||||||
| Operating lease liabilities, net of current portion |
6,556 | 6,990 | ||||||
| Loans payable, noncurrent |
12,903 | 12,233 | ||||||
| Deferred revenue, noncurrent |
20 | 54 | ||||||
| Other noncurrent liabilities |
— | 18 | ||||||
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| Total liabilities |
$ | 55,778 | $ | 29,590 | ||||
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| Commitments and contingencies (Note 15) |
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| Stockholders’ equity: |
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| Non-redeemable convertible preferred stock, no par value; unlimited number of shares authorized as of June 30, 2022 and December 31, 2021; 137,765,828 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. |
189,881 | 189,881 | ||||||
| Common stock, no par value; unlimited number of shares authorized as of June 30, 2022 and December 31, 2021; 3,341,327 and 3,166,949 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. |
2,811 | 2,610 | ||||||
| Additional paid-in capital |
147,779 | 146,240 | ||||||
| Accumulated deficit |
(350,083 | ) | (325,268 | ) | ||||
| Accumulated other comprehensive loss |
(10,481 | ) | (10,443 | ) | ||||
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| Total stockholders’ equity |
$ | (20,093 | ) | $ | 3,020 | |||
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| Total liabilities and stockholders’ equity |
$ | 35,685 | $ | 32,610 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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D-Wave Systems 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) |
2022 | 2021 | 2022 | 2021 | ||||||||||||
| Revenue |
$ | 1,371 | $ | 1,137 | $ | 3,083 | $ | 2,546 | ||||||||
| Cost of revenue |
586 | 448 | 1,169 | 746 | ||||||||||||
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| Total gross profit |
785 | 689 | 1,914 | 1,800 | ||||||||||||
| Operating expenses: |
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| 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 | ||||||||||||
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| Total operating expenses |
12,770 | 10,025 | 24,544 | 20,101 | ||||||||||||
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| Loss from operations |
(11,985 | ) | (9,336 | ) | (22,630 | ) | (18,301 | ) | ||||||||
| Other income (expense), net: |
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| Interest expense |
(1,746 | ) | (207 | ) | (2,538 | ) | (385 | ) | ||||||||
| Government assistance |
— | 4,586 | — | 4,586 | ||||||||||||
| Other income (expense), net |
533 | 289 | 353 | 604 | ||||||||||||
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| Total other income (expense), net |
(1,213 | ) | 4,668 | (2,185 | ) | 4,805 | ||||||||||
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| Net loss |
$ | (13,198 | ) | $ | (4,668 | ) | $ | (24,815 | ) | $ | (13,496 | ) | ||||
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| Net loss per share, basic and diluted |
$ | (0.12 | ) | $ | (0.04 | ) | $ | (0.22 | ) | $ | (0.12 | ) | ||||
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| Weighted-average shares used in computing net loss per share, basic and diluted |
112,023,503 | 111,877,937 | 111,981,014 | 111,865,630 | ||||||||||||
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| Comprehensive loss: |
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| Net loss |
$ | (13,198 | ) | $ | (4,668 | ) | $ | (24,815 | ) | $ | (13,496 | ) | ||||
| Foreign currency translation adjustment, net of tax |
32 | (38 | ) | (38 | ) | 11 | ||||||||||
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| Net comprehensive loss |
$ | (13,166 | ) | $ | (4,706 | ) | $ | (24,853 | ) | $ | (13,485 | ) | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
D-Wave Systems Inc.
Condensed consolidated statements of stockholders’ (deficit) equity
(Unaudited)
| Non-redeemable convertible preferred stock |
Common stock | Additional Paid-in capital |
Accumulated deficit |
Accumulated other comprehensive loss |
Total stockholders’ (deficit) equity |
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| (In thousands, except share data) |
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||
| Balances at December 31, 2020 |
137,765,828 | $ | 189,881 | 3,061,746 | $ | 2,492 | $ | 144,537 | $ | (293,723 | ) | $ | (10,458 | ) | $ | 32,729 | ||||||||||||||||
| D-Wave exercise of stock options |
81,043 | 94 | (29 | ) | 65 | |||||||||||||||||||||||||||
| D-Wave stock-based compensation |
330 | 330 | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax |
11 | 11 | ||||||||||||||||||||||||||||||
| Net loss |
(13,496 | ) | (13,496 | ) | ||||||||||||||||||||||||||||
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| Balances at June 30, 2021 |
137,765,828 | 189,881 | 3,142,789 | 2,586 | 144,838 | (307,219 | ) | (10,447 | ) | 19,639 | ||||||||||||||||||||||
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| Balances at December 31, 2021 |
137,765,828 | 189,881 | 3,166,949 | 2,610 | 146,240 | (325,268 | ) | (10,443 | ) | 3,020 | ||||||||||||||||||||||
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| Exercise of stock options |
174,378 | 201 | (61 | ) | — | — | 140 | |||||||||||||||||||||||||
| Stock-based compensation |
1,600 | 1,600 | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax |
(38 | ) | (38 | ) | ||||||||||||||||||||||||||||
| Net loss |
(24,815 | ) | (24,815 | ) | ||||||||||||||||||||||||||||
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| Balances at June 30, 2022 |
137,765,828 | 189,881 | 3,341,327 | 2,811 | 147,779 | (350,083 | ) | (10,481 | ) | (20,093 | ) | |||||||||||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements
4
D-Wave Systems Inc.
Condensed consolidated statements of cash flows
(Unaudited)
| Six months ended June 30, |
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| (in thousands) |
2022 | 2021 | ||||||
| Cash flows from operating activities: |
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| Net loss |
$ | (24,815 | ) | $ | (13,496 | ) | ||
| Adjustments to reconcile net loss to cash used in by operating activities: |
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| Depreciation and amortization |
705 | 747 | ||||||
| Stock-based compensation |
1,600 | 330 | ||||||
| Amortization of operating right of use assets |
459 | 497 | ||||||
| Provision for excess and obsolete inventory |
265 | 219 | ||||||
| Non-cash interest expense |
1,955 | 385 | ||||||
| Non-cash final fee payment for Venture Loan |
583 | — | ||||||
| Unrealized foreign exchange loss (gain) |
(349 | ) | 44 | |||||
| Change in operating assets and liabilities: |
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| Trade accounts receivable |
(505 | ) | (126 | ) | ||||
| Research incentives receivable |
(851 | ) | (5,339 | ) | ||||
| Inventories |
(301 | ) | 39 | |||||
| Prepaid expenses and other current assets |
(4,449 | ) | (288 | ) | ||||
| Trade accounts payable |
107 | (1,764 | ) | |||||
| Accrued expenses and other current liabilities |
4,578 | (733 | ) | |||||
| Deferred revenue |
(54 | ) | (324 | ) | ||||
| Operating lease liabilities |
(427 | ) | (459 | ) | ||||
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| Net cash used in operating activities |
(21,499 | ) | (20,268 | ) | ||||
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| Cash flows from investing activities: |
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| Purchase of property and equipment |
(175 | ) | (1,069 | ) | ||||
| Purchase of software |
(43 | ) | (196 | ) | ||||
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| Net cash used in investing activities |
(218 | ) | (1,265 | ) | ||||
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| Cash flows from financing activities: |
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| Proceeds from government program |
3,178 | 13,458 | ||||||
| Proceeds from debt financing |
19,870 | — | ||||||
| Proceeds from issuance of common stock upon exercise of stock options |
141 | 67 | ||||||
| Debt payments |
(424 | ) | (398 | ) | ||||
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| Net cash provided by financing activities |
22,765 | 13,127 | ||||||
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| Effect of exchange rate changes on cash and cash equivalents |
(65 | ) | 262 | |||||
| Net (decrease) increase in cash and cash equivalents |
983 | (8,144 | ) | |||||
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| Cash and cash equivalents at beginning of period |
$ | 9,483 | $ | 21,335 | ||||
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| Cash and cash equivalents at end of period |
$ | 10,466 | $ | 13,191 | ||||
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| Supplemental disclosure of noncash investing and financial activities: |
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| Acquisition of property and equipment included in accounts payable |
$ | 3 | $ | 21 | ||||
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| Unpaid deferred costs |
$ | 3,734 | $ | — | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
D-Wave Systems Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 1. | Description of business |
D-Wave Systems 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. References to the “Company” in these D-Wave Systems Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) for the periods before April 14, 2020, shall be to D-Wave Inc., a federally incorporated corporation and its subsidiaries, collectively. References to the “Company” from April 14, 2020 to December 31, 2020 (inclusive) shall be to DWSI Holdings Inc. and its subsidiaries, collectively. References to the “Company” herein for the periods including and after January 1, 2021, shall be to D-Wave Systems and its subsidiaries, collectively. Historically, the Company has developed its own annealing superconducting quantum computer systems and associated software and its current-generation quantum system is the D-Wave AdvantageTM. During the year ended December 31, 2021, the Company initiated the development of a gate-model quantum computing system.
D-Wave Systems is a British Columbia corporation headquartered in Burnaby, British Columbia, and is an indirect subsidiary of D-Wave as a result of the Business Combination, as described in more detail in Note 12—Subsequent events.
For the three and six month periods ended June 30, 2022 and 2021, the Company’s revenue was derived primarily from customers located in the United States, Japan, and Germany.
| 2. | Business Combination |
On February 7, 2022, the Company entered into the Transaction Agreement to merge DPCM and certain other affiliates entities through the Business Combination. The Business Combination was subject to approval by the stockholders of DPCM and the Company and other customary closing conditions. The Business Combination will be accounted for as a reverse capitalization in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). In connection with the Business Combination, subscription agreements were entered into between DPCM and various investors for proceeds of $40.0 million (the “PIPE Investment”). Total gross proceeds of the PIPE Investment, together with the amount that remained in DPCM’s trust account at the close of the Business Combination, totaled $49.0 million.
On August 5, 2022, each of the Business Combination and the PIPE Investment was consummated. See Note 12—Subsequent events for further discussion on the close of the Business Combination.
| 3. | Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation
The Company has prepared the accompanying financial statements in accordance with U.S. GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).
Unaudited Interim Financial Information-
The interim condensed consolidated financial statements included in this quarterly report have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.
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GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained within these interim condensed consolidated financial statements comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for interim condensed consolidated financial statements and are adequate to make the information presented not misleading. The interim condensed consolidated financial statements included herein 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 interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the final prospectus and definitive proxy statement, dated July 13, 2022 (the “Proxy Statement/Prospectus”) filed by D-Wave Quantum with the Securities and Exchange Commission (the “SEC”). The condensed consolidated statement of operations and comprehensive loss for the three and six month periods ended June 30, 2022 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2022 or thereafter. All references to June 30, 2022 and 2021 in the notes to condensed consolidated financial statements are unaudited.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company. All intercompany accounts and transactions have been eliminated upon consolidation.
Liquidity and going concern
The Company has prepared its 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, 2022, the Company had an accumulated deficit of $350.1 million and a working capital deficiency of $13.1 million. For the three months ended June 30, 2022 and 2021, the Company incurred a net loss of $13.2 million and $4.7 million respectively. For the six months ended June 30, 2022 and 2021, the Company incurred a net loss of $24.8 million and $13.5 million respectively. The Company had net cash outflows from operations of $21.5 million and $20.3 million, respectively. As of June 30, 2022, the Company had $10.5 million of cash and cash equivalents. The Company expects to incur additional operating losses and negative cash flows from operations as it continues to expand its commercial operations and research and development programs.
During the six months ended June 30, 2022, the Company received $20.0 million in gross proceeds from a Venture Loan and Security Agreement (the “Venture Loan”) with PSPIB Unitas Investments II Inc. (“PSPIB”). The maturity date of the loan was defined as the earliest of December 31, 2022 or the closing of the Business Combination or the date of acceleration of such loan following an event of default or the date of prepayment. On August 5, 2022, the Venture Loan, related accrued interest and a final fee totaling $21.8 million was repaid.
As further discussed in Note 12—Subsequent events, on August 5, 2022, the Company completed a Business Combination with DPCM. The Company received gross proceeds of $49.0 million from the PIPE financing and the DPCM trust account.
In conjunction with the Business Combination, the Company and D-Wave entered into an agreement with “the Investor” on June 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. The ELOC will provide the Company and D-Wave with additional liquidity to fund the business, subject to the conditions set forth in the agreement. To-date, D-Wave has not drawn on the ELOC.
To the extent that sufficient capital is not obtained through the Business Combination and PIPE offering, or through the cash received in connection with the Business Combination, 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
7
issuance of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding ordinary shares. 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 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.
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.
Amalgamation of D-Wave Systems and DWSI
In order to simplify the corporate structure of DWSI Holdings Inc. and to reduce administrative costs, effective January 1, 2021, the Company, then DWSI Holdings Inc., completed a vertical short-form amalgamation pursuant to the British Columbia Business Corporations Act with its previously wholly-owned subsidiary, D-Wave Systems. Pursuant to the amalgamation, all of the issued and outstanding equity securities of D-Wave Systems were cancelled, and the assets and liabilities of D-Wave Systems were assumed by DWSI Holdings Inc. Immediately after the amalgamation, DWSI Holdings Inc. changed its name to D-Wave Systems Inc. No additional equity securities were issued in connection with the amalgamation and the share capital of the Company remained unchanged.
The amalgamation did not have a significant effect on the business and operations of the Company.
COVID-19 pandemic
The Company is subject to risks and uncertainties relating to the ongoing outbreak of the novel strain of coronavirus (“COVID-19”), which the World Health Organization declared a pandemic in March 2020. The COVID-19 pandemic has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Work-from-home and other measures have introduced additional operational risks, including cybersecurity risks, and may adversely affect the way the Company and its third-party partners operate. The extent to which the COVID-19 pandemic impacts the Company’s workforce, business, financial condition, and results of operations will depend on future developments, which are highly uncertain and cannot be predicted at this time. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be materially adversely affected. As of June 30, 2022 and 2021, the Company’s business, results of operation and financial condition was not significantly impacted due to the effects of COVID-19.
Use of estimates
The preparation of 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 consolidated financial statements and accompanying notes as of the date of the 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 COVID-19 and the change could be material in future periods. As of the date of issuance of these 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.
8
Deferred Offering Costs
Deferred offering costs consist of legal, accounting and consulting fees incurred through the balance sheet date that are directly related to the Business Combination that was completed on August 5, 2022, as described in Note 12—Subsequent events. These costs will be charged to shareholders’ equity in the period ended September 30, 2022. As of June 30, 2022 and December 31, 2021, respectively, the Company recorded $5.7 million and $1.2 million of transaction costs related to deferred offering costs in its consolidated balance sheets.
Operating segment
Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating and evaluating financial performance. As such, the Company views its operations and manages its business in one operating and reportable segment (See Note 11—Geographic areas).
Foreign currency translation and transactions
The Company’s reporting currency is the U.S. dollar. Generally, the functional and reporting currency of its international subsidiaries is the currency of their primary economic environment. Accordingly, all foreign balance sheet accounts have been translated into the U.S. dollars using the rate of exchange at the respective balance sheet date. Components of the consolidated statements of operation and comprehensive loss have been translated at the average exchange rate for the year or the corresponding period. Translation gains and losses are recorded in accumulated other comprehensive loss as a component of stockholders’ equity. Gains or losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in the consolidated statements of operations and comprehensive loss. For the three months ended June 30, 2022 and 2021, the Company recorded $562,000 and $271,000, respectively of foreign currency transaction gain in its consolidated statements of operations and comprehensive loss. For the six months ended June 30, 2022 and 2021, the Company recorded $366,000 and $567,000 in foreign currency transaction gain, respectively, in other income in its consolidated statements of operations and comprehensive loss.
Cash and cash equivalents
The Company’s cash and cash equivalents consists of money held in demand depositary accounts. The carrying amount of cash and cash equivalents was $10.5 million and $9.5 million as of June 30, 2022 and December 31, 2021, respectively, which approximates fair value and was determined based upon Level 1 inputs. The Company did not hold short-term investments as of June 30, 2022 and December 31, 2021.
The increase in cash and cash equivalents from December 31, 2021 to June 30, 2022 was primarily the result of the Company receiving $20.0 million in financing through the Venture Loan with PSPIB.
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
9
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 consolidated balance sheets for cash and cash equivalents, 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, 2022 and December 31, 2021, the Company estimated the fair value of its securities denominated in Canadian dollars to be C$10.2 million for both periods presented, and its securities denominated in United States dollars to be $1.2 million and $279,000, respectively. The carrying value of its securities as of June 30, 2022 was $1.2 million and $5,000, respectively and is included in other assets on the consolidated balance sheet.
The Company did not have any transfers of financial assets measured at fair value on a recurring basis to or from Level 1, Level 2 and Level 3 for any of the periods presented.
Concentration risk
Agreements which potentially subject the Company to concentration risk consist principally of three customer agreements. During the three month period ended June 30, 2022, the Company earned 17%, 14% and 11% of its total revenue from three customers. During the three month period ended June 30, 2021, the Company earned 18%, 13% and 11% of its total revenue earned from three customers. During the six month period ended June 30, 2022, the Company earned 15%, 14% and 10% of its total revenue from three customers. During the six month period ended June 30, 2021, the Company earned 20%, 12% and 10% of its total revenue from three customers.
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.
The Company recognizes grants and investment tax credits relating to qualifying scientific research and development expenditures as a reduction of the related eligible expenses (research and development expenses) in its condensed consolidated statement of operations and comprehensive loss. Grants and investment tax credits are recognized in the period during which the related qualifying expenses are incurred, provided that the conditions under which the grants and investment tax credits have been met. The Company recognizes grants and investment tax credits in an amount equal to the estimated qualifying expenses incurred in each period multiplied
10
by the applicable reimbursement percentage. Grants and investment tax credits that are recognized upon incurring qualifying expenses in advance of receipt of grant funding or proceeds from research and development incentives are recorded in the condensed consolidated balance sheets as research incentives receivable. In circumstances where the grants received relate to prior period eligible expenses, the Company recognizes them as government assistance in its condensed consolidated statement of operations and comprehensive loss in the current period.
During the three months ended June 30, 2022 and 2021, the Company recorded a Scientific Research and Experimental Development (“SR&ED”) investment tax credit of $0.4 million in 2022 and 2021 as an offset to its research and development expenses in its condensed consolidated statements of operations and comprehensive loss. During the six months ended June 30, 2022 and 2021, the Company recorded a Scientific Research and Experimental Development (“SR&ED”) investment tax credit of $0.8 million and $0.6 million, respectively, as an offset to its research and development expenses in its condensed consolidated statements of operations and comprehensive loss
The Company has received government loans under funding agreements that bear interest at rates that are below market rates of interest or interest-free. The Company accounts for the imputed benefit arising from the difference between a market rate of interest and the rate of interest charged as additional grant funding, and records interest expense for the loans at a market rate of interest. On the date that loan proceeds are earned, the Company recognizes the portion of the loan proceeds allocated to grant funding as a discount to the carrying value of the loan and as other liability, which is subsequently recognized as additional government assistance upon draw down of the qualified loan amounts.
Revenue recognition
The Company recognizes revenue in accordance with Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) and accounts for certain contract costs in accordance with FASB’s Accounting Standards Codification (“ASC”) 340-40, Other Assets and Deferred Costs-Contracts with Customers.
The standard was adopted on a full retrospective method on January 1, 2018. The adoption of ASC 606 had no impact on the Company and as such there was no recorded transition adjustment. The core principle of ASC 606 is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To support this core principle, the Company applies the following five step approach:
| • | Identify the contract with the customer |
| • | Identify the performance obligations |
| • | Determine the transaction price |
| • | Allocate the transaction price to the performance obligations |
| • | Recognize revenue when (or as) the entity satisfies a performance obligation |
The Company generates revenue through subscription sales to access its Quantum Computing as a Service (“QCaaS”) cloud platform and from professional services related to the practical applications of quantum computing technology to solve its customers’ business challenges, to develop quantum proofs-of-concepts, pilot hybrid quantum applications and to put those applications into production. In addition, the Company also earns revenue from providing training regarding quantum computing systems and building related applications. In arrangements with re-sellers of the Company’s cloud services, the re-seller is considered the customer and the Company does not have any contractual relationships with the re-sellers’ end users. For these arrangements, revenue is recognized at the amount charged to the re-seller and does not reflect any mark-up to the end user.
11
Revenue from QCaaS is recognized evenly over the contractual period, on a straight-line basis over the subscription term, beginning on the date that the service is made available to the customer. Professional services are recognized as they are earned based on the terms of the contract or based on the cost-to-cost method. Under the cost-to-cost method, revenue is recognized based upon the ratio that incurred costs bear to total estimated contract costs with related cost of revenue recorded as the costs are incurred.
Recently adopted accounting standards and amendments
D-Wave is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. D-Wave is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) either (1) within the same periods as those otherwise applicable to public business entities, or (2) within the same time periods as private companies, including early adoption when permissible. With the exception of standards, the Company elected to early adopt, when permissible, new or revised accounting guidance within the same time period as private companies, as indicated in Note 2 of its audited consolidated financial statements as of December 31, 2021 and 2020, included in the Proxy Statement/Prospectus.
Recent accounting pronouncements not yet adopted
In November 2021, the FASB issued ASU No. 2021-10, Disclosures by Business Entities about Government Assistance. ASU 2021-10 was issued to increase the transparency of government assistance. ASU 2021-10 requires that entities make certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The required disclosures include: (1) information about the nature of the transactions and the related accounting policy used to account for the transactions; (2) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item; and (3) significant terms and conditions of the transactions, including commitments and contingencies. The amendments in ASU 2021-10 are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. An entity should apply the amendments in ASU 2021-10 either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. The Company is currently evaluating the impact of the adoption of the standard on the financial statements.
12
| 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, |
||||||||
| 2022 | 2021 | |||||||
| Type of products or services |
||||||||
| QCaaS |
$ | 1,176 | $ | 961 | ||||
| Professional services |
156 | 158 | ||||||
| Other revenue |
39 | 18 | ||||||
|
|
|
|
|
|||||
| Total revenue, net |
$ | 1,371 | $ | 1,137 | ||||
|
|
|
|
|
|||||
| Timing of revenue recognition |
||||||||
| Revenue recognized over the time |
$ | 1,296 | $ | 1,099 | ||||
| Revenue recognized at a point in time |
75 | 38 | ||||||
|
|
|
|
|
|||||
| Total revenue, net |
$ | 1,371 | $ | 1,137 | ||||
|
|
|
|
|
|||||
| Six months ended June 30, |
||||||||
| 2022 | 2021 | |||||||
| Type of products or services |
||||||||
| QCaaS |
$ | 2,560 | $ | 2,083 | ||||
| Professional services |
464 | 429 | ||||||
| Other revenue |
59 | 34 | ||||||
|
|
|
|
|
|||||
| Total revenue, net |
$ | 3,083 | $ | 2,546 | ||||
|
|
|
|
|
|||||
| Timing of revenue recognition |
||||||||
| Revenue recognized over the time |
$ | 2,957 | $ | 2,484 | ||||
| Revenue recognized at a point in time |
126 | 62 | ||||||
|
|
|
|
|
|||||
| Total revenue, net |
$ | 3,083 | $ | 2,546 | ||||
|
|
|
|
|
|||||
Other revenue includes printed circuit board sales.
Revenue by geographical markets is presented in Note 11—Geographic areas.
13
Contract balances
The following table provides information about account receivable, contract assets and liabilities as of June 30, 2022 and December 31, 2021 (in thousands):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Contract assets: |
||||||||
| Trade account receivable |
$ | 918 | $ | 421 | ||||
| Unbilled receivables, which are included in ‘Prepaid expenses and other current assets’ |
41 | 17 | ||||||
|
|
|
|
|
|||||
| Total contract assets |
959 | 438 | ||||||
|
|
|
|
|
|||||
| Contract liabilities: |
||||||||
| Deferred revenue, current |
2,595 | 2,665 | ||||||
| Deferred revenue, noncurrent |
20 | 54 | ||||||
| Customer deposit, which are included in ‘Accrued expenses and other current liabilities’ |
21 | 21 | ||||||
|
|
|
|
|
|||||
| Total contract liabilities |
$ | 2,636 | $ | 2,740 | ||||
|
|
|
|
|
|||||
Changes in deferred revenue from contracts with customers were as follows (in thousands):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Balance at beginning of period |
$ | 2,719 | $ | 4,713 | ||||
| Deferral of revenue |
2,906 | 4,092 | ||||||
| Recognition of deferred revenue |
(3,010 | ) | (6,086 | ) | ||||
|
|
|
|
|
|||||
| Balance at end of period |
$ | 2,615 | $ | 2,719 | ||||
|
|
|
|
|
|||||
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, 2022, the aggregate amount of remaining performance obligations that were unsatisfied or partially unsatisfied related to customer contracts was $2.6 million. This amount included deferred revenue on the Company’s consolidated balance sheets, of which approximately 99% is expected to be recognized to revenue in the next 12 months.
As of December 31, 2021, the aggregate amount of remaining performance obligations related to customer contracts that are unsatisfied or partially unsatisfied was $2.7 million which included deferred revenue on the Company’s consolidated balance sheets, of which approximately 98% was expected to be recognized to revenue in the next 12 months.
14
| 5. | Balance sheet details |
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued expenses: |
||||||||
| Accrued professional services |
$ | 6,026 | $ | 1,953 | ||||
| Accrued compensation and related benefits |
1,859 | 1,108 | ||||||
| Other accruals |
205 | 318 | ||||||
| Other current liabilities: |
||||||||
| Other payroll expenses |
149 | 175 | ||||||
| Customer deposit |
21 | 21 | ||||||
| Current portion of equipment financing |
35 | 39 | ||||||
|
|
|
|
|
|||||
| Total accrued expenses and other current liabilities |
$ | 8,295 | $ | 3,614 | ||||
|
|
|
|
|
|||||
| 6. | Property and equipment, net |
Property and equipment, net consisted of the following (in thousands):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Quantum computer systems |
$ | 13,425 | $ | 13,425 | ||||
| Lab equipment |
6,681 | 6,645 | ||||||
| Computer equipment |
3,352 | 3,305 | ||||||
| Leasehold improvements |
1,075 | 1,074 | ||||||
| Furniture and fixtures |
318 | 316 | ||||||
|
Construction-in-progress |
374 | 285 | ||||||
|
|
|
|
|
|||||
| Total property and equipment |
25,225 | 25,050 | ||||||
| Less: Accumulated depreciation |
(22,453 | ) | (21,801 | ) | ||||
|
|
|
|
|
|||||
| Property and equipment, net |
$ | 2,772 | $ | 3,249 | ||||
|
|
|
|
|
|||||
Depreciation expense for the three month period ended June 30, 2022 and 2021 was $309,000 and $344,000 respectively. Depreciation expense for the six month period ended June 30, 2022 and 2021 was $705,000 and $747,000 respectively. The Company has not acquired any property and equipment under capital leases.
15
| 7. | Loans payable |
As of June 30, 2022, loans payable consisted of the refundable government loans and the Venture Loan. At December 31, 2021, loans payable consisted of refundable government loans. The following table shows the component of loans payable (in thousands):
| June 30, 2022 |
December 31, 2021 |
|||||||
| Loan payable, beginning of period |
$ | 29,844 | $ | 13,624 | ||||
| SIF contribution |
— | 16,786 | ||||||
| Venture Loan |
20,000 | — | ||||||
| Payments |
(398 | ) | (399 | ) | ||||
| Interest on Venture Loan |
606 | — | ||||||
| Final fee on Venture Loan |
583 | — | ||||||
| Foreign exchange (gain) loss |
(452 | ) | (167 | ) | ||||
|
|
|
|
|
|||||
| Loan payable, end of period |
$ | 50,183 | $ | 29,844 | ||||
|
|
|
|
|
|||||
| Discount, beginning of period |
$ | (17,391 | ) | $ | (11,948 | ) | ||
| SIF discount on additional contribution |
— | (7,167 | ) | |||||
| Venture Loan discount |
(130 | ) | — | |||||
| Interest expense |
1,349 | 1,728 | ||||||
| Foreign exchange (gain) loss |
245 | (4 | ) | |||||
|
|
|
|
|
|||||
| Discount, end of period |
$ | (15,927 | ) | $ | (17,391 | ) | ||
|
|
|
|
|
|||||
| Total loans payable, end of period |
$ | 34,256 | $ | 12,453 | ||||
| Short-term portion |
21,353 | 220 | ||||||
| Long-term portion |
12,903 | 12,233 | ||||||
|
|
|
|
|
|||||
| Total loans payable |
$ | 34,256 | $ | 12,453 | ||||
|
|
|
|
|
|||||
SIF liability
On November 20, 2020, the Company entered into an agreement with SIF, whereby SIF agreed to make a repayable contribution to the Company of up to C$40.0 million (“the Contribution”). Funds from the loan are to be used for projects involving the adaption of research findings for commercial applications that have the potential for market disruption; development of current product and services through the implementation of new or incremental technology that will enhance the Company’s competitive capability; and development of process improvements which reduce the environmental footprint of current production through the use of new or improved technologies.
The annual repayment of the Contribution is calculated based upon a formula using the Company’s fiscal year revenue multiplied by a repayment rate. The contractual repayment period is 15 years and commences in the first year in which the Company reports annual revenue of $70.0 million (the “Benchmark Year”). In each of those years, an annual repayment amount is due. Each annual repayment must be paid by April 30 of the year following the year for which the annual repayment due will be calculated. If the Benchmark Year is not achieved within 14 years following the fiscal year in which the project is completed, the SIF loan is forgiven. The SIF loan is initially recorded at fair value, and subsequently at amortized cost. As the SIF contribution is interest free, the difference between the carrying value and initial fair value is recorded as government assistance on the consolidated statement of operations and comprehensive loss.
The initial fair value of the SIF loan is determined by using a discounted cash flow analysis for the loan, which requires a number of assumptions. The significant assumptions used in determining the discounted cash flows include estimating the amount and timing of future revenue for the Company and the discount rate. The
16
Company’s estimates of future revenues are derived from several significant assumptions including expected success of LeapTM and partnerships with large scale resellers. In determining the appropriate discount rates, the Company considered the weighted average cost of capital for the Company, risk adjusted based on the development risks of the Company’s product. Management used a discount rate of 26% to discount the SIF loan. Should projected revenue not be achieved as predicted, the adjustment to the fair value of the SIF loan could be material. At June 30, 2022, the carrying value of the loan approximates its fair value.
Repayments of the SIF contributions could also be triggered upon default of the agreement, or termination of the agreement, or upon a change of control that has not been approved by the Canadian government. The Canadian government approved the transaction with DPCM conditionally on May 9, 2022, with all conditions being satisfied on the closing date of the transaction.
Venture Loan
On March 3, 2022 the Company entered a Venture Loan and Security Agreement with PSPIB. Under this loan agreement, the Company may borrow up to an aggregate principal amount of $25.0 million in three tranches, subject to certain terms and conditions. The loan is subject to a per annum interest rate as published in the Wall Street Journal or any successor publication as the “prime rate” plus 7.25% provided that the Wall Street Journal prime rate is not less than 3.25% and if found to be less than 3.25%, such rate will be deemed to be 3.25%. The maturity date of the loan is defined as the earliest of December 31, 2022 or the closing of the Business Combination, or the date of acceleration of such loan following an event of default. As of June 30, 2022, the Company received $20.0 million recorded in loan proceeds that were recorded in current loans payable in its condensed consolidated balance sheet, $15.0 million of which was received on March 3, 2022 and $5.0 million of which was received on June 30, 2022. All obligations under the Venture Loan were repaid upon the completion of the Business Combination on August 5, 2022.
| 8. | Stock-based compensation |
Stock option valuation
The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option.
| • | Risk-Free Interest Rate. The Company estimates its risk-free interest rate by using the yield on actively traded non-inflation-indexed U.S. treasury securities with contract maturities equal to the expected term. |
| • | Expected Term. The expected term of the Company’s options represents the period that the stock-based awards are expected to be outstanding. The Company has estimated the expected term of its employee awards using the SAB Topic 14 Simplified Method allowed by the FASB and SEC, for calculating expected term as it has limited historical exercise data to provide a reasonable basis upon which to otherwise estimate expected term. Certain of the Company’s options began vesting prior to the grant date, in which case the Company uses the remaining vesting term at the grant date in the expected term calculation. |
| • | Expected Volatility. As the Company is privately held and there has been no public market for its common stock to date, the expected volatility is based on the average historical stock price volatility of comparable publicly-traded companies in its industry peer group, financial, and market capitalization data. |
| • | Expected Dividend Yield. The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero. |
17
| • | Fair Value of Underlying Common Stock. Because the Company’s common stock is not yet publicly traded, the Company must estimate the fair value of common stock. The Board of Directors considers numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered include, but are not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of the Company’s Convertible Redeemable Preferred Stock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s shares. |
There were no options granted during the six months ended June 30, 2022. The assumptions used to estimate the fair value of stock options granted during the six months ended June 30, 2021 are as follows:
| Six months ended June 30, |
||||||||
| 2022 | 2021 | |||||||
| Expected dividend yield |
— | 0 | % | |||||
| Expected volatility |
— | 50 | % | |||||
| Expected term (years) |
— | 6.08 | ||||||
| Risk-free interest rate |
— | 0.83 | % | |||||
Common stock option activity
The following table summarizes the Company’s stock option activity during the periods presented (in thousands except share and per share data):
| Number of options outstanding |
Weighted average exercise price ($) |
Weighted average remaining contractual term (years) |
Aggregate intrinsic value ($) |
|||||||||||||
| Balance as of December 31, 2021 |
16,336,134 | 0.81 | 8.55 | 80,179 | ||||||||||||
| Granted |
— | — | ||||||||||||||
| Exercised |
(174,378 | ) | 0.81 | |||||||||||||
| Forfeited |
(840,002 | ) | 0.81 | |||||||||||||
| Expired |
(11,077 | ) | 0.81 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance as of June 30, 2022 |
15,310,677 | 0.81 | 7.96 | 75,144 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Unvested as of June 30, 2022 |
4,698,271 | 0.81 | 7.77 | 73,479 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Exercisable as of June 30, 2022 |
10,612,406 | 0.81 | 7.43 | 52,098 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The aggregate intrinsic value of stock options was calculated as the difference between the exercise price of the stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.
The weighted average grant date fair values per share of stock options granted during the six months ended June 30, 2022 was nil as no stock options were granted. The weighted average grant date fair values per share of stock options granted during the six months ended June 30, 2021 was 0.62.
The total fair values of the stock options vested during the six months ended June 30, 2022 and 2021 was $1,703,000 and $535,000 respectively.
18
Common stock warrants
On April 14, 2022, 617,972 common stock warrants with an exercise price of $1.75 expired. As of June 30, 2022 there are no common stock warrants outstanding.
Preferred stock warrants
The Company did not record any movements during the six months ended June 30, 2022.
As of June 30, 2022, the following United States dollar preferred stock warrants were outstanding and exercisable:
| Number of warrants outstanding |
Weighted average exercise price ($) |
Expiry Date | Number exercisable |
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| 3,247,637 | $ | 1.92 | 29-Nov-26 | 1,299,055 | ||||||||||||
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| Total, June 30, 2022 |
3,247,637 | $ | 1.92 | 1,299,055 | ||||||||||||
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Stock-based compensation
The following table summarizes the stock-based compensation expense classified in the consolidated statements of operations and comprehensive loss as follows (in thousands):
| Three months ended June 30, |
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| 2022 | 2021 | |||||||
| Research and development |
$ | 117 | $ | 58 | ||||
| General and administrative |
641 | 74 | ||||||
| Sales and marketing |
58 | 37 | ||||||
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| Total stock-based compensation |
$ | 816 | $ | 169 | ||||
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| Six months ended June 30, |
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| 2022 | 2021 | |||||||
| Research and development |
$ | 210 | $ | 88 | ||||
| General and administrative |
1,270 | 173 | ||||||
| Sales and marketing |
120 | 69 | ||||||
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| Total stock-based compensation |
$ | 1,600 | $ | 330 | ||||
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| 9. | Commitment and contingencies |
Warrant Transaction Agreements
In November 2020, contemporaneously with a revenue arrangement, the Company entered into a contract, pursuant to which the Company agreed to issue to a customer a warrant to acquire up to 3,247,637 shares of Class A Preferred Share (the “Warrant Preferred Shares”), subject to certain vesting requirements. As the warrant was issued in connection with an existing commercial agreement with a customer, the value of the warrant was determined to be consideration payable to the customer and consequently will be treated as a reduction to revenue recognized under the corresponding revenue arrangement. Approximately 40% of the Warrant Preferred Shares vested and became immediately exercisable on August 13, 2020. The remaining Warrant Preferred Shares will vest and become exercisable upon satisfaction of certain milestones based on revenue generated under the
19
commercial agreement with the customer, to the extent certain prepayments are made by the customer. As of June 30, 2022, these revenue-based milestones have yet to be met. The exercise price for the Warrant Preferred Shares is $1.92 per share and the warrant is exercisable through November 29, 2026.
The fair value of the Warrant Preferred Shares at the date of issuance was determined to be $1.1 million. During the year ended December 31, 2021, no Warrant Preferred Shares were vested or probable of vesting. As of December 31, 2020, Warrant Preferred Shares with a fair value of $451,000 were vested and recorded into cost of revenue.
In April 2020, the Company entered into a contract pursuant to which the Company agreed to issue to a customer a warrant to acquire 617,972 shares of the Company’s common stock (“Warrant Common Share” and collectively with the Warrant Preferred Shares, the “Warrant Shares”), at a fixed price of $1.75 per Warrant Common Share. During the six month period ended June 30, 2022, no Warrant Common Shares were exercised prior to the expiration date.
The Company estimated the fair value of Warrant Shares on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each warrant. The estimated fair value of Class A Preferred Shares and common stock was based on the Class A Preferred Shares and common stock offering price due to its proximity to the grant date of the Warrant Shares. The estimated term is based on the contractual life of the Warrant Shares. The remaining assumptions were developed consistent with the methodologies described further in Note 12—Share Based Compensation.
Lease obligation
In November 2021, the Company amended a building lease to extend the term by ten years and six months through December 31, 2033. The lease amendment constituted a modification as it extended the original lease term and required evaluation of the remeasurement of the lease liability and corresponding right-of-use asset. The reassessment resulted in the Company continuing to classify the lease as an operating lease and remeasurement of the lease liability on the basis of the extended lease term. The total right-of-use asset recorded in association with the lease extension was $6.8 million with a corresponding operating lease liability.
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, 2022 and 2021, the Company has not been subject to any litigation or pending litigation claims.
20
| 10. | Earnings per share |
The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):
| For the three month period ended June 30, |
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| 2022 | 2021 | |||||||
| Numerator: |
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| Net loss |
$ | (13,198 | ) | $ | (4,668 | ) | ||
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| Denominator: |
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| Weighted-average common shares outstanding, basic and diluted |
112,023,503 | 111,877,937 | ||||||
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| Net loss per share, basic and diluted |
$ | (0.12 | ) | $ | (0.04 | ) | ||
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| For the six month period ended June 30, |
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| 2022 | 2021 | |||||||
| Numerator: |
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| Net loss |
$ | (24,815 | ) | $ | (13,496 | ) | ||
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| Denominator: |
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| Weighted-average common shares outstanding, basic and diluted |
111,981,014 | 111,865,630 | ||||||
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| Net loss per share, basic and diluted |
$ | (0.22 | ) | $ | (0.12 | ) | ||
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As of June 30, 2022 and 2021, the Company’s potentially dilutive securities were stock options and the Warrant Shares.
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:
| June 30, 2022 |
December 31, 2021 |
|||||||
| Options to purchase common stock |
15,311 | 16,336 | ||||||
| Warrants to purchase common stock |
— | 618 | ||||||
| Warrants for Preferred shares |
3,248 | 3,248 | ||||||
21
| 11. | Geographic areas |
The following table presents a summary of revenue by geography for the three and six month periods ended June 30, 2022 and 2021:
| Three months ended June 30, |
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| 2022 | 2021 | |||||||
| United States |
$ | 655 | $ | 622 | ||||
| Japan |
282 | 354 | ||||||
| Germany |
257 | 65 | ||||||
| Other |
177 | 96 | ||||||
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| Total revenue |
$ | 1,371 | $ | 1,137 | ||||
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| Six months ended June 30, |
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| 2022 | 2021 | |||||||
| United States |
$ | 1,439 | $ | 1,325 | ||||
| Japan |
709 | 921 | ||||||
| Germany |
520 | 127 | ||||||
| Other |
415 | 173 | ||||||
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| Total revenue |
$ | 3,083 | $ | 2,546 | ||||
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Other includes EMEA not including Russia or Ukraine, Canada and Australia.
The following table sets forth the long-lived assets, consisting of property and plant, net, and operating lease right-of-use assets, by geographic area as of June 30, 2022 and December 31, 2021 as follows (in thousands):
| June 30, 2022 |
December 31, 2021 |
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| Canada |
$ | 10,463 | $ | 11,251 | ||||
| United States |
427 | 576 | ||||||
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| Total long-lived assets |
$ | 10,890 | $ | 11,827 | ||||
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As of June 30, 2022 and December 31, 2021, substantially all of the Company’s long-lived assets are located in Canada and in the United States.
22
Significant customers
The Company had significant customers during the three and six month periods ended June 30, 2022 and 2021. A significant customer is defined as one that comprises up to ten percent or more of total revenues in a particular year or ten percent of outstanding accounts receivable balance as of the year end.
| Three months ended June 30, |
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| 2022 | 2021 | |||||||
| Customer A |
17 | % | 18 | % | ||||
| Customer B |
14 | % | 13 | % | ||||
| Customer C |
11 | % | 11 | % | ||||
| Six months ended June 30, |
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| 2022 | 2021 | |||||||
| Customer A |
15 | % | 20 | % | ||||
| Customer B |
14 | % | 12 | % | ||||
| Customer C |
10 | % | 10 | % | ||||
As of June 30, 2022 and 2021, there were no significant customers that comprised ten percent or more of outstanding accounts receivable balances.
All revenues derived from major customers above are included in the United States and Germany during the three and six month periods ended June 30, 2022 and the United States and Japan during the three and six month periods ended June 30, 2021.
| 12. | Subsequent events |
The Company has evaluated all events occurring through August 26, 2022, the date on which the condensed consolidated financial statements were issued. Except as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
On August 5, 2022, in accordance with the Transaction Agreement, D-Wave acquired 100% of the outstanding equity interests of DPCM and the Company. In line with the Transaction Agreement, the Company became an indirect subsidiary of D-Wave. For accounting purposes, the Business Combination will be accounted for as a reverse recapitalization whereby the Company will be treated as the accounting acquirer and DPCM will be treated as the acquired company. In connection with the close of the Business Combination, D-Wave was listed on the New York Stock Exchange under the symbol “QBTS” on August 8, 2022. Costs paid by the Company related to the Business Combination on August 5, 2022 were $11.5 million and will be treated as issuance costs and netted against additional paid-in-capital in the condensed consolidated balance sheet of D-Wave as of September 30, 2022. Cash received by the Company from the Business Combination included the PIPE Investment and DPCM cash on hand totaling $37.6 million, net of related transaction costs.
On August 5, 2022 the Company repaid the Venture Loan including accrued interest totaling $20.8 million. In addition to the $20.8 million, the Company paid a $1.0 million final payment fee to PSPIB.
Pursuant to the agreement entered into with the Investor on June 16, 2022, the Company paid the Investor a Commitment Fee entirely in Common Shares, in two tranches consisting of 127,180 and 254,360 Common Shares issued on August 5, 2022 and August 25, 2022, respectively.
23
Exhibit 99.2
D-WAVE SYSTEMS INC.’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations with D-Wave Systems’ audited consolidated financial statements for the year ended December 31, 2021, together with related notes thereto, and unaudited condensed consolidated financial statements for the three and six months ended June 30, 2022, together with related notes thereto, included elsewhere in D-Wave Quantum Inc.’s most recent Quarterly Report on Form 10-Q filed August 26, 2022 (the “Quarterly Report”). The discussion and the analysis should also be read together with the section of the Quarterly Report entitled “Business” and the unaudited pro forma combined financial information as of and for the three and six months ended June 30, 2022, and for the year ended December 31, 2021. The following discussion contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk factors” or in other parts of the Quarterly Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. In this section, unless otherwise specified, the terms “we”, “our”, “us” and “D-Wave” refer to D-Wave Systems Inc. and its consolidated subsidiaries. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.
Overview
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, Leap™ (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 Advantage™. 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 ended December 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 in Burnaby, British Columbia, Canada.
D-Wave’s business model is focused primarily on generating revenue from providing customers access to our quantum computing systems via the cloud in the form of Quantum Computing as a Service (“QCaaS”) products, and from providing professional services wherein we assist our customers in identifying and implementing quantum computing applications.
During the three months ended June 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 ended June 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 ended June 30, 2022 and 2021, our net loss was $13.2 million and $4.7 million, respectively. For the six months ended June 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 of June 30, 2022, we had an accumulated deficit of $350.1 million.
On August 5, 2022, following the Transaction, D-Wave became an indirect subsidiary of D-Wave Quantum Inc., a Delaware corporation organized and existing under the General Corporation Law of the State of the Delaware (the “DGCL”), as further described below.
The Transaction Agreement and PIPE Financing
On February 7, 2022, DPCM and D-Wave entered into a definitive agreement (the “Transaction Agreement”) by and among DPCM Capital, Inc, a Delaware corporation (“DPCM”), D-Wave, D-Wave Quantum, DWSI Holdings Inc., a Delaware corporation and a direct, wholly-owned subsidiary of D-Wave Quantum (“Merger Sub”), DWSI Canada Holdings ULC, a British Columbia unlimited liability company and a direct, wholly-owned subsidiary of D-Wave Quantum (“CallCo”), D-Wave Quantum Technologies Inc., a British Columbia corporation and a direct, wholly-owned subsidiary of CallCo, pursuant to which, among other
1
things: (a) Merger Sub merged with and into DPCM, with DPCM surviving as a direct, wholly-owned subsidiary of D-Wave Quantum, (b) D-Wave Quantum indirectly acquired all of the outstanding share capital of D-Wave and D-Wave became an indirect subsidiary of D-Wave Quantum, with D-Wave Quantum becoming a public company and a registrant with the United States Securities and Exchange Commission (the “SEC”) (the “Transaction”). D-Wave and DPCM believe that the Transaction and related proceeds will result in enhancing D-Wave’s leadership in commercial quantum computing.
While the legal acquirer in the Transaction Agreement is D-Wave Quantum, for financial accounting and reporting purposes under GAAP, D-Wave is the accounting acquirer and the Transaction will be accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting and the financial statements of D-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 as a recapitalization of D-Wave (i.e., a capital transaction involving the issuance of stock by D-Wave Quantum for the stock of D-Wave).
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 of June 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 on August 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 an SEC registrant and has listed the common shares in the stock of D-Wave Quantum and the warrants to purchase common shares in the stock of D-Wave Quantum on the New York Stock Exchange (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 expect D-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.
2
COVID-19 Update
In March 2020, the COVID-19 outbreak was declared a pandemic by the World 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 discussion and analysis of our financial condition and results of operations. 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 final prospectus and definitive proxy statement, dated July 13, 2022 (the “Proxy Statement/Prospectus”) filed by D-Wave Quantum with the SEC.
As of June 30, 2022 and December 31, 2021, D-Wave’s financial position, business, results of operation and financial condition were not significantly impacted due to the effects of the COVID-19 outbreak.
Key Components of Results of Operations
Revenue
We currently generate our revenue through subscription sales to access our 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.
3
Cost of Revenue
Our cost of revenue consists primarily of all direct and indirect expenses related to providing our QCaaS offering and delivering our professional services, including personnel-related expenses and costs associated with maintaining the cloud platform on which the QCaaS resides. Cost of revenue 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.
Operating Expenses
Our operating expenses consist of research and development, general and administrative and sales and marketing expenses.
Research and Development
Research and development expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, fabrication costs, lab supplies, and cloud computing resources and allocated facility costs for our research and development functions. Unlike a standard computer, design and development efforts continue throughout the useful life of our quantum computing systems to ensure proper calibration and optimal functionality. Research and development expenses also include purchased hardware components, fabrication and software costs related to quantum computing systems constructed for research purposes that do not have a high probability of providing 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 consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel and outside professional services expenses including legal, audit and accounting services, insurance, other administrative expenses and allocated facility costs for our administrative functions.
We expect our 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 of 2002 and prepare and distribute periodic reports as required by the rules and regulations of the SEC. 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
4
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 (expense), 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.
Results of Operations
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 | ||||||||||||
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| Total gross profit |
785 | 689 | 1,914 | 1,800 | ||||||||||||
| Operating expenses: |
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| 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 | ||||||||||||
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| Total operating expenses |
12,770 | 10,025 | 24,544 | 20,101 | ||||||||||||
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|
|
|
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| Loss from operations |
(11,985 | ) | (9,336 | ) | (22,630 | ) | (18,301 | ) | ||||||||
| Other income (expense): |
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| Interest expense |
(1,746 | ) | (207 | ) | (2,538 | ) | (385 | ) | ||||||||
| Government assistance |
— | 4,586 | — | 4,586 | ||||||||||||
| Other income (expense), net |
533 | 289 | 353 | 604 | ||||||||||||
|
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|
|
|
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|
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| Total other income (expense), net |
(1,213 | ) | 4,668 | (2,185 | ) | 4,805 | ||||||||||
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|
|
|
|
|
|
|
|
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| Net loss |
$ | (13,198 | ) | $ | (4,668 | ) | $ | (24,815 | ) | $ | (13,496 | ) | ||||
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| Foreign currency translation adjustment, net of tax |
32 | (38 | ) | (38 | ) | 11 | ||||||||||
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| Net comprehensive loss |
$ | (13,166 | ) | $ | (4,706 | ) | $ | (24,853 | ) | $ | (13,485 | ) | ||||
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Comparison of the Three Months Ended June 30, 2022 and 2021
Revenue
Revenue increased $234,000, or 21%, to $1.4 million for the three months ended June 30, 2022 as compared to $1.1 million for the three months ended June 30, 2021. The increase in revenue was driven by an increase in QCaaS revenue of $215,000.
Cost of Revenue
Cost of revenue increased $138,000, or 31%, to $586,000 for the three months ended June 30, 2022 as compared to $448,000 for the three months ended June 30, 2021. The increase in cost of revenue was driven primarily by:
| • | An increase in personnel-related costs of $131,000 associated with the growth of our QCaaS revenue during the three months ended June 30, 2022; |
5
| • | A decrease in software related costs of $93,000 due to design and implementation changes; |
| • | An increase of $52,000 related to maintenance and repair of customer systems; and |
| • | An increase of $46,000 related to the increase of depreciation of customer systems, and travel. |
Operating Expenses
Research and Development Expenses
| 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-related costs of $337,000 due to an increase in headcount and which included an increase of $60,000 of stock based-compensation; |
| • | 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 |
| • | 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 $1.5 million, or 58%, to $4.0 million for the three months ended June 30, 2022 as compared to $2.5 million for the three months ended June 30, 2021. The increase was driven primarily by:
| • | An increase of $1.0 million in personnel-related expenses due to an increase in headcount and which included an increase of $567,000 in stock-based compensation; |
| • | An increase of $288,000 in professional services from legal and accounting consultants; and |
| • | An increase of $112,000 in other expenses. |
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 the SEC 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 | % | ||||||||
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Sales and marketing expenses increased $513,000, or 42%, to $1.7 million for the three months ended June 30, 2022 as compared to $1.2 million for the three months ended June 30, 2021. The increase was primarily due to:
| • | An increase of $301,000 in personnel-related costs due to an increase in headcount and which included an increase of $20,000 in stock-based compensation; |
| • | An increase of $187,000 in public relations, conferences and promotion expenses; and |
| • | An increase of $25,000 in other expenses. |
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 penetrate the United States and international markets.
Other Income (Expense), 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 pursuant to the Venture Loan Agreement (the “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.
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 the Quarterly Report for details regarding the government assistance programs.
7
Comparison of the Six Months Ended June 30, 2022 and 2021
Revenue
Revenue increased $537,000, or 21%, to $3.1 million for the six months ended June 30, 2022 as compared to $2.5 million for the six months ended June 30, 2021. The increase in revenue was primarily driven by an increase in QCaaS revenue of $477,000.
Cost of Revenue
Cost of revenue increased $423,000, or 57%, to $1,169,000 for the six months ended June 30, 2022 as compared to $746,000 for the six months ended June 30, 2021. The increase in cost of revenue was primarily driven by:
| • | An increase in personnel-related costs of $290,000 associated with the growth of our QCaaS revenue during the six months ended June 30, 2022; |
| • | An increase of $118,000 related to software costs; |
| • | An increase of $67,000 related to the increase of depreciation of customer systems; and |
| • | An increase of $66,000 related to the related to maintenance and repair of customer systems. |
Operating Expenses
Research and Development Expenses
| 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 increase of $155,000 in fabrication costs; and |
| • | The increases above are partially offset by a decrease of $133,000 in supplies and analytical costs. |
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
| 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 increase of $512,000 in professional services from legal and accounting consultants; |
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| • | An increase of $200,000 related to increase from software licensing; and |
| • | An increase of $188,000 in other expenses. |
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 the SEC 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 $1.0 million or 45%, to $3.3 million for the six months ended June 30, 2022 as compared to $2.3 million for the six months ended June 30, 2021. The increase was primarily due to:
| • | 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 increase of $298,000 in public relations, conferences and promotion expenses. |
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 penetrate the United States and international markets.
Other Income (Expense), 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.
9
Government assistance
| Six Months Ended June 30 | Change | |||||||||||||||
| (In thousands) | 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 the Quarterly 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
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management believes that the funds available under the Purchase Agreement would be sufficient to fund our operations for at least 18 months, subject to the terms and conditions of the Purchase Agreement.
Venture Loan and Security Agreement
On March 3, 2022, we entered into a Venture Loan Agreement (the “Venture Loan Agreement”), by and between the Borrowers, as defined in the agreement, and PSPIB Unitas Investments II Inc. (“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 on March 3, 2022. The second tranche in an aggregate principal amount of $5.0 million was advanced to D-Wave on June 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 (as defined in the Venture Loan Agreement).
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 the Quarterly Report, and such description is qualified in its entirety by the full text of such exhibit.
On August 5, 2022, the Company repaid the Venture Loan including accrued interest totaling $20.8 million. In addition to the $20.8 million, the Company paid a $1.0 million final payment fee to PSPIB.
Cash Flows
The following table sets forth our cash flows for the period indicated:
| Six Months Ended June 30, | ||||||||
| 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 | |||||
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| Net (decrease) increase in cash and cash equivalent |
$ | 983 | $ | (8,144 | ) | |||
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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.
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Net cash used in operating activities during the six months ended June 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 ended June 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 June 30, 2022 was $0.2 million, representing additions of $0.2 million in property and equipment primarily related to the development and upgrade of our quantum computing systems.
Net cash used in investing activities during the six months ended June 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 Provided by Financing activities
Net cash provided by financing activities during the six months ended June 30, 2022 was $22.8 million, primarily reflecting proceeds received from the Venture Loan entered into signed on March 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 provided by financing activities during the six months ended June 30, 2021 was $13.1 million, primarily reflecting net proceeds received from government programs (SIF).
Contractual Obligations and Commitments
The following table summarizes our non-cancellable contractual obligations and other commitments as of December 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 by period (2) | ||||||||||||||||||||
| Total | Less than 1 year |
1 - 3 year | 4 - 5 year | More than 5 years |
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| Lease commitment (1) |
$ | 16,356 | $ | 1,687 | $ | 2,563 | $ | 2,458 | $ | 9,648 | ||||||||||
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| Total |
$ | 16,356 | $ | 1,687 | $ | 2,563 | $ | 2,458 | $ | 9,648 | ||||||||||
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| (1) | Includes operating lease liabilities for certain of our offices and facilities. |
| (2) | Excludes the Venture Loan Agreement entered into on March 3, 2022 by and between the Borrowers, and PSPIB, as the lender. |
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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Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in foreign currency exchange rates. As of June 30, 2022, we have not, to date, been exposed to material risks given our early stage of operations. We have not engaged in any hedging activities since our inception.
Credit risk
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. We maintain cash and cash equivalents with major and reputable financial institutions. Deposits held with the financial institutions may exceed the amount of insurance provided by the Canadian Deposit Insurance Corporation on such deposits but may be redeemed upon demand. We perform periodic evaluations of the relative credit standing of the financial institutions. With respect to accounts receivable, we monitor the credit quality of our customers as well as maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments.
Concentration risk
Agreements which potentially subject the Company to concentration risk consist principally of three customer agreements for the three month and six month periods ended June 30, 2022, respectively. During the three month period ended June 30, 2022, the Company earned 17%, 14% and 11% of its total revenue from three customers. During the three month period ended June 30, 2021, the Company earned 18%, 13% and 11% of its total revenue from three customers. During the six month period ended June 30, 2022, the Company earned 15%, 14% and 10% of its total revenue from three customers. During the six month period ended June 30, 2021, the Company earned 20%, 12% and 10% of its total revenue from three customers.
Interest rate risk
We are not currently exposed to significant market risk related to changes in interest rates. As of June 30, 2022, the Company did not have any cash equivalents nor short-term money market funds.
Foreign currency risk
We are not currently exposed to significant market risk related to changes in foreign currency exchange rates. Our operations may be subject to fluctuations in foreign currency exchange rates in the future. Our customers are primarily located in the United States, Japan, Germany and Canada; therefore, foreign exchange risk exposures arise from transactions denominated in currencies other than our functional and reporting currency (United States dollars). To date, a majority of our sales have been denominated in United States dollars and a significant portion of our operating expenses are denominated in Canadian dollars. We also purchase certain of our key manufacturing inputs in Euros. As we expand our presence in international markets, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements to minimize the impact of these fluctuations in the exchange rates. We will periodically reassess our approach to manage our risk relating to fluctuations in currency rates.
We do not believe that foreign currency risk had a material effect on our business, financial condition, or results of operations during the periods presented.
Inflation risk
Inflation generally affects us by increasing our cost of labor and purchase of materials. We do not believe that inflation had a significant impact on our results of operations for any periods presented in our consolidated
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financial statements. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs, and our inability or failure to do so could harm our business, financial condition and results of operations.
Concentration of credit risk
We deposit our cash with financial institutions, and, at times, such balances may exceed federally insured limits. Management believes the financial institutions that hold our cash and cash equivalents are financially sound and, accordingly, minimal credit risk exists with respect to cash and cash equivalents.
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Exhibit 99.3
INDEX TO FINANCIAL STATEMENTS
Condensed consolidated financial statements of D-Wave Quantum, Inc. as of June 30, 2022
| Page | ||||
| Unaudited condensed consolidated balance sheets |
2 | |||
| Unaudited condensed consolidated statements of stockholders’ equity |
3 | |||
| Unaudited condensed consolidated statements of cash flows |
4 | |||
| Notes to unaudited condensed consolidated financial statements |
5 | |||
D-Wave Quantum Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| June 30, 2022 |
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| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ | 1 | ||
| Total current assets |
$ | 1 | ||
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| Total assets |
$ | 1 | ||
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| Liabilities and stockholders’ equity |
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| Stockholders’ equity: |
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| Common stock, no par value; unlimited number of shares authorized; 100 and nil shares issued and outstanding as of June 30, 2022 and January 24, 2022, respectively. |
1 | |||
| Total stockholders’ equity |
1 | |||
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| Total liabilities and stockholders’ equity |
$ | 1 | ||
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See accompanying notes to the condensed consolidated financial statements.
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D-Wave Quantum Inc.
Condensed Consolidated Statements of Stockholders’ Equity
| Common stock | Total stockholders’ equity |
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| (In thousands, except share data) | Shares | Amount | ||||||||||
| Balances at January 24, 2022 |
— | $ | — | $ | — | |||||||
| Issuance of common stock |
100 | 1 | 1 | |||||||||
| Stock-based compensation |
— | |||||||||||
| Net loss |
— | |||||||||||
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| Balances at June 30, 2022 |
100 | $ | 1 | $ | 1 | |||||||
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3
D-Wave Quantum Inc.
Condensed Consolidated Statements of Cash Flows
| For the period from January 24, 2022 to June 30, 2022 |
||||
| Cash flows from operating activities: |
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| Net loss |
$ | — | ||
| Cash flows from financing activities: |
||||
| Proceeds from issuance of common stock |
1 | |||
| Debt payments |
— | |||
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| Net cash provided by financing activities |
1 | |||
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| Effect of exchange rate changes on cash and cash equivalents |
— | |||
| Net (decrease) increase in cash and cash equivalents |
1 | |||
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| Cash and cash equivalents at beginning of period |
$ | — | ||
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| Cash and cash equivalents at end of period |
$ | 1 | ||
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4
D-Wave Quantum Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 1. | Background and Nature of Operations |
D-Wave Quantum Inc. (“D-Wave” or the “Company”) was incorporated as a corporation organized and existing 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 “Business Combination”) pursuant to the definitive agreement entered into on February 7, 2022 (the “Transaction Agreement”). On August 5, 2022, in conjunction with the Business Combination, DPCM and D-Wave Systems became wholly owned subsidiaries of and are operated by the Company. Upon the completion of the Business Combination, the Company succeeded to substantially all of the operations of its predecessor, D-Wave Systems.
In conjunction with the Business Combination, D-Wave Systems and the Company entered into an agreement with Lincoln Park Capital Fund LLC (the “Investor”) on June 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’ par value $0.0001 per share common stock through an Equity Line of Credit (“ELOC”). The ELOC will provide D-Wave Systems and the Company with additional liquidity to fund the business, subject to the conditions set forth in the agreement.
| 2. | Basis of Presentation and Accounting |
The unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America. Separate balance sheets, statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows have not been presented because there have only been nominal activities in this entity as of June 30, 2022. For the period ended June 30, 2022, the Company’s only activity was the issuance of 100 shares of common stock, each having a par value of $0.0001 per share.
The condensed consolidated balance sheet includes the accounts of the Company and its wholly owned subsidiary during the relevant periods. The Company did not have any operations for the period ended June 30, 2022.
| 3. | Summary of Significant Accounting Policies – Use of Estimates |
The preparation of the financial statements in conformity with the accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
| 4. | Subsequent Event |
The Company evaluated subsequent events and transactions that occurred after the balance sheet data up to the date that the condensed consolidated financial statements were issued. Except as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
Business Combination
On August 5, 2022, in accordance with the Transaction Agreement, the Company acquired 100% of the outstanding equity interests of DPCM and D-Wave Systems. As set forth in the Transaction Agreement, D-Wave Systems became an indirect subsidiary of D-Wave Quantum. For accounting purposes, the Business Combination
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will be accounted for as a reverse recapitalization whereby D-Wave Systems will be treated as the accounting acquirer and DPCM will be treated as the acquired company. Cash received by the Company from the Business Combination, including the PIPE Investment (as defined below) and DPCM cash on hand, totaled $37.6 million, net of related transaction costs.
On August 8, 2022, in connection with the close of the Business Combination, the Company Shares, as defined below, and the warrants to purchase Company Shares (the “Company Warrants”) were listed and began trading on the New York Stock Exchange under the symbols “QBTS” and “QBTS.WS”, respectively. The Company Warrants arose from the Business Combination and reflect the Warrants from D-Wave Systems as discussed in Note 9 of D-Wave Systems’ condensed consolidated financial statements.
2022 Equity Incentive Plan
On August 5, 2022, the DPCM stockholders considered and approved the D-Wave Quantum 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan became effective immediately upon the Closing. The 2022 Plan initially makes available a maximum number of 16,965,849 common shares in the stock of D-Wave (“Company Shares”). Additionally, the number of shares reserved for issuance under the 2022 Plan will increase on January 1st of each year for a period of ten years commencing on January 1, 2023 and ending on (and including) January 1, 2032, in an amount equal to the lesser of (a) 5% of the fully-diluted number of Company Shares outstanding on December 31st of the immediately preceding calendar year (inclusive of the Share Pool (as defined in the 2022 Plan) and the share reserve under the 2022 Plan (or any successor to either of the foregoing)) and (b) such smaller number of shares as is determined by the D-Wave board of directors.
Employee Stock Purchase Plan
On August 5, 2022, the DPCM stockholders considered and approved the D-Wave Quantum Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective immediately upon the Closing. The ESPP initially makes available for sale a maximum number of 8,036,455 Company Shares. Additionally, the number of shares reserved for issuance under the ESPP will increase on January 1st of each year for a period of ten years commencing on January 1, 2023 and ending on (and including) January 1, 2032, in an amount equal to the lesser of (a) 1% of the fully diluted number of Company Shares outstanding on December 31st of the immediately preceding calendar year (inclusive of the share reserve under the ESPP and the 2022 Plan (or any successor to either of the foregoing)), (b) 1,607,291 shares and (c) such smaller number of shares as is determined by the D-Wave board of directors.
6
Exhibit 99.4
D-WAVE QUANTUM INC.’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read “D-Wave Quantum Inc.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” together with the condensed financial statements and related notes included elsewhere in D-Wave Quantum Inc.’s most recent Quarterly Report on Form 10-Q filed August 26, 2022 (the “Quarterly 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” of the Quarterly Report. 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 Quarterly Report.. In this section, unless otherwise specified, the terms “we”, “our”, “us” and “D-Wave” refer to D-Wave Quantum Inc. and its consolidated subsidiaries, and all other capitalized terms have the meanings ascribed thereto elsewhere in the Quarterly Report. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.
Overview
D-Wave was incorporated on January 24, 2022, as a corporation organized and existing under General Corporation Law of the State of the Delaware (the “DGCL”), with a registered office at 215 Little Falls Drive, Wilmington, New Castle County, Delaware 19808, and formed for the purpose of effecting the business combination between DPCM and D-Wave (the “Transaction”) pursuant to the Transaction Agreement (as defined below). On August 5, 2022, we consummated our Transaction with DPCM and D-Wave Systems. D-Wave’s principal offices are located at 3033 Beta Avenue, Burnaby, British Columbia, V5G 4M9, Canada.
As the Practical 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 Quantum Computing as a Service (“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
Through June 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 Transaction. Prior to the closing of the Transaction, we did not generate any revenue or incur any material expenses.
Liquidity and Capital Resources
On August 5, 2022, in accordance with the definitive agreement entered into on February 7, 2022 (the “Transaction Agreement”) Transaction Agreement, we acquired 100% of the outstanding equity interests of D-Wave Systems Inc., a British Columbia corporation (“D-Wave Systems”) and DPCM Capital, Inc., a Delaware corporation. In connection with the close of the Transaction, we received, among other things, DPCM’s cash on hand and the PIPE Financing, which totaled $37.6 million, net of related transaction costs. See section titled “D-Wave Systems Inc.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 12 to D-Wave’s condensed consolidated balance sheet included elsewhere in the Quarterly Report for more information.
In conjunction with the Transaction, D-Wave Systems and D-Wave entered into a Purchase Agreement with (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) on June 16, 2022 which provides D-Wave the sole right, but not the obligation, to direct Lincoln Park to buy specified dollar amounts up to $150.0 million of D-Wave’s par value $0.0001 per share common stock through the Purchase Agreement. The Purchase Agreement will provide D-Wave Systems and D-Wave with additional liquidity to fund the business, subject to the conditions set forth in the agreement.
1
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.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 the D-Wave Systems Inc. condensed consolidated balance sheet included elsewhere in the Quarterly 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
In April 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 of 1933, as amended, 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 the United States Securities and Exchange Commission.
2
Exhibit 99.5
INDEX TO FINANCIAL STATEMENTS
DPCM Capital, Inc. Financial Statements as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021
| Page | ||||
| Financial Statements: |
||||
| Condensed Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021 |
2 | |||
| Condensed Statements of Operations for the three and six months ended June 30, 2022 and 2021 (Unaudited) |
3 | |||
| Condensed Statements of Changes in Stockholders’ Deficit for the three and six months ended June 30, 2022 and 2021 (Unaudited) |
4 | |||
| Condensed Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (Unaudited) |
5 | |||
| Notes to Condensed Financial Statements (Unaudited) |
6 | |||
DPCM CAPITAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2022 |
December 31, 2021 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets |
||||||||
| Cash |
$ | 77,404 | $ | 124,720 | ||||
| Prepaid expenses |
70,489 | 176,223 | ||||||
|
|
|
|
|
|||||
| Total Current Assets |
147,893 | 300,943 | ||||||
| Cash and marketable securities held in Trust Account |
300,626,900 | 300,183,322 | ||||||
|
|
|
|
|
|||||
| TOTAL ASSETS |
$ | 300,774,793 | $ | 300,484,265 | ||||
|
|
|
|
|
|||||
| LIABILITIES, REDEEMABLE COMMON STOCK, AND STOCKHOLDERS’ DEFICIT |
||||||||
| Current Liabilities |
||||||||
| Accounts payable and accrued expenses |
$ | 5,291,532 | $ | 2,889,095 | ||||
| Income taxes payable |
19,801 | — | ||||||
| Promissory note—related party |
420,000 | — | ||||||
|
|
|
|
|
|||||
| Total Current Liabilities |
5,731,333 | 2,889,095 | ||||||
| Deferred underwriting fee payable |
— | 10,500,000 | ||||||
| Warrant liabilities |
6,300,000 | 10,787,400 | ||||||
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|
|
|||||
| Total Liabilities |
12,031,333 | 24,176,495 | ||||||
|
|
|
|
|
|||||
| Commitments and Contingencies (Note 6) |
||||||||
| Class A common stock subject to possible redemption, 30,000,000 shares at redemption value at June 30, 2022 and December 31, 2021 |
300,114,082 | 300,000,000 | ||||||
| Stockholders’ Deficit |
||||||||
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding |
— | — | ||||||
| Class A common stock, $0.0001 par value; 100,000,000 shares authorized; none issued or outstanding (excluding 30,000,000 shares subject to possible redemption at June 30, 2022 and December 31, 2021) |
— | — | ||||||
| Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 7,500,000 shares issued and outstanding at June 30, 2022 and December 31, 2021 |
750 | 750 | ||||||
| Additional paid-in capital |
10,151,418 | — | ||||||
| Accumulated deficit |
(21,522,790 | ) | (23,692,980 | ) | ||||
|
|
|
|
|
|||||
| Total Stockholders’ Deficit |
(11,370,622 | ) | (23,692,230 | ) | ||||
|
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|
|
|
|||||
| TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT |
$ | 300,774,793 | $ | 300,484,265 | ||||
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|
|||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
DPCM CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating and formation costs |
$ | 788,202 | $ | 699,331 | $ | 2,975,487 | $ | 1,481,203 | ||||||||
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|
|
|
|
|
|
|||||||||
| Loss from operations |
(788,202) | (699,331 | ) | (2,975,487 | ) | (1,481,203 | ) | |||||||||
| Other income (expense): |
||||||||||||||||
| Interest earned on marketable securities held in Trust Account |
378,382 | 12,697 | 427,040 | 71,548 | ||||||||||||
| Change in fair value of warrant liabilities |
5,769,000 | (640,000 | ) | 4,487,400 | 15,480,000 | |||||||||||
| Reduction of deferred underwriting fee |
234,500 | — | 234,500 | — | ||||||||||||
| Unrealized gain (loss) on marketable securities held in Trust Account |
18,814 | (7,324 | ) | 16,538 | (6,283 | ) | ||||||||||
|
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|
|
|||||||||
| Other income (expense), net |
6,400,696 | (634,627 | ) | 5,165,478 | 15,545,265 | |||||||||||
| Income (loss) before provision for income taxes |
5,612,494 | (1,333,958 | ) | 2,189,991 | 14,064,062 | |||||||||||
| Provision for income taxes |
(19,801 | ) | — | (19,801 | ) | — | ||||||||||
|
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|
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|
|
|
|||||||||
| Net income (loss) |
$ | 5,592,693 | $ | (1,333,958 | ) | $ | 2,170,190 | $ | 14,064,062 | |||||||
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|||||||||
| Basic and diluted weighted average shares outstanding, Class A common stock |
30,000,000 | 30,000,000 | 30,000,000 | 30,000,000 | ||||||||||||
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|
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|||||||||
| Basic and diluted net (loss) income per share, Class A common stock |
$ | 0.15 | $ | (0.04 | ) | $ | 0.06 | $ | 0.38 | |||||||
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|||||||||
| Basic and diluted weighted average shares outstanding, Class B common stock |
7,500,000 | 7,500,000 | 7,500,000 | 7,500,000 | ||||||||||||
|
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|
|
|
|
|
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|||||||||
| Basic and diluted net (loss) income per share, Class B common stock |
$ | 0.15 | $ | (0.04 | ) | $ | 0.06 | $ | 0.38 | |||||||
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|||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
DPCM CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2022
| Class A Common Stock |
Class B Common Stock |
Additional Paid-in |
Accumulated | Total Stockholders’ |
||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance — January 1, 2022 |
— | $ | — | 7,500,000 | $ | 750 | $ | — | $ | (23,692,980 | ) | $ | (23,692,230 | ) | ||||||||||||||
| Net loss |
— | — | — | — | — | (3,422,503 | ) | (3,422,503 | ) | |||||||||||||||||||
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|
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| Balance – March 31, 2022 |
— | $ | — | 7,500,000 | $ | 750 | $ | — | $ | (27,115,483 | ) | $ | (27,114,733 | ) | ||||||||||||||
| Remeasurement of Class A ordinary shares to redemption amount |
— | — | — | — | (114,082 | ) | |
— |
|
(114,082 | ) | |||||||||||||||||
| Reduction of deferred underwriting fee |
— | — | — | — | 10,265,500 | — | 10,265,500 | |||||||||||||||||||||
| Net income |
— | — | — | — | — | 5,592,693 | 5,592,693 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance – June 30, 2022 |
— | $ | — | 7,500,000 | $ | 750 | $ | 10,151,418 | $ | (21,522,790 | ) | $ | (11,370,622 | ) | ||||||||||||||
|
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|
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|
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|
|||||||||||||||
THREE AND SIX MONTHS ENDED JUNE 30, 2021
| Class A Common Stock |
Class B Common Stock |
Additional Paid-in |
Accumulated | Total Stockholders’ |
||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance — January 1, 2021 |
— | $ | — | 7,500,000 | $ | 750 | $ | — | $ | (47,938,357 | ) | $ | (47,937,607 | ) | ||||||||||||||
| Net income |
— | — | — | — | — | 15,398,020 | 15,398,020 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance – March 31, 2021 |
— | $ | — | 7,500,000 | $ | 750 | $ | — | $ | (32,540,337 | ) | $ | (32,539,587 | ) | ||||||||||||||
| Net loss |
— | — | — | — | — | (1,333,958 | ) | (1,333,958 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance – June 30, 2021 |
— | $ | — | 7,500,000 | $ | 750 | $ | — | $ | (33,874,295 | ) | $ | (33,873,545 | ) | ||||||||||||||
|
|
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|
|
|||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
DPCM CAPITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended June 30, |
||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: |
||||||||
| Net income |
$ | 2,170,190 | $ | 14,064,062 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Interest earned on marketable securities held in Trust Account |
(427,040 | ) | (71,548 | ) | ||||
| Change in fair value of warrant liabilities |
(4,487,400 | ) | (15,480,000 | ) | ||||
| Unrealized (gain) loss on marketable securities held in Trust Account |
(16,538 | ) | 6,283 | |||||
| Reduction of deferred underwriting fee |
(234,500 | ) | — | |||||
| Changes in operating assets and liabilities: |
||||||||
| Prepaid expenses |
105,734 | 48,970 | ||||||
| Income taxes payable |
19,801 | — | ||||||
| Accounts payable and accrued expenses |
2,402,437 | 701,110 | ||||||
|
|
|
|
|
|||||
| Net cash used in operating activities |
(467,316 | ) | (731,123 | ) | ||||
|
|
|
|
|
|||||
| Cash Flows from Financing Activities: |
||||||||
| Proceeds from promissory note—related party |
420,000 | — | ||||||
|
|
|
|
|
|||||
| Net cash provided by financing activities |
420,000 | — | ||||||
|
|
|
|
|
|||||
| Net Change in Cash |
(47,316 | ) | (731,123 | ) | ||||
| Cash – Beginning of period |
124,720 | 1,084,557 | ||||||
|
|
|
|
|
|||||
| Cash – End of period |
$ | 77,404 | $ | 353,434 | ||||
|
|
|
|
|
|||||
| Non-cash investing and financing activities: |
||||||||
| Reduction of deferred underwriting fee |
(10,265,500 | ) | — | |||||
|
|
|
|
|
|||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
DPCM Capital, Inc. (the “Company”) was a blank check company incorporated in Delaware on March 24, 2020. The Company was formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”).
Although the Company was not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company focused on businesses in the technology sector. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
All activity through June 30, 2022 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination and consummating the Transaction, as defined and described in Note 6.
The registration statement for the Company’s Initial Public Offering was declared effective on October 20, 2020. On October 23, 2020, the Company consummated the Initial Public Offering of 30,000,000 units (the “Units” and, with respect to the shares of Class A common stock and warrants included in the Units sold, the “Public Shares” and “Public Warrants”, respectively), generating gross proceeds of $300,000,000, which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 8,000,000 warrants (the “Private Placement Warrants”, and collectively with the Public Warrants, the “Warrants”) at a price of $1.00 per Private Placement Warrant, in a private placement to CDPM Sponsor Group, LLC (the “Sponsor”), generating gross proceeds of $8,000,000, which is described in Note 4.
Transaction costs amounted to $16,977,876, consisting of $6,000,000 of underwriting fees, $10,500,000 of deferred underwriting fees and $477,876 of other offering costs.
Following the closing of the Initial Public Offering on October 23, 2020, an amount of $300,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”), located in the United States and invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account, as described below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. On August 5, 2022 (the “Closing Date”), the Company consummated the previously announced Transaction, as described in Note 6.
6
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The Company provided its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination. On August 2, 2022, stockholders holding 29,097,787 shares of Class A Common Stock exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account. As a result, $291,365,553.22 (approximately $10.01 per share) will be removed from the Company’s Trust Account to pay such stockholders. There were no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
Liquidity and Going Concern
As of June 30, 2022, the Company had $77,404 in its operating bank accounts, and an adjusted working capital deficit of $5,070,622, which excludes $301,160 of interest earned on the Trust Account that is available to pay franchise and income taxes payable and $211,658 of franchise taxes paid from the operating account which are reimbursable with the interest earned on the Trust Account.
The Company may need to raise additional capital through loans or additional investments from its initial stockholders, officers or directors or their affiliates. The Company’s initial stockholders, officers or directors or their affiliates may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction and reducing overhead expenses. Other than the Sponsor Affiliate Note and the Sponsor Note, in each case as described in Note 5, the Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
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 liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern, which is considered to be one year from the issuance of these financial statements. On August 5, 2022, the Company consummated the Transaction, and the uncertainty of the liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information
7
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 15, 2022. The interim results for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
8
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these consolidated financial statements is the determination of the fair value of the warrant liabilities. Such estimates may be subject to change as more current information becomes available and, accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of June 30, 2022 and December 31, 2021.
Cash and marketable Securities Held in Trust Account
At June 30, 2022 and December 31, 2021, substantially all of the assets held in the Trust Account were held in U.S. Treasury securities. Interest income is recognized when earned. The Company’s portfolio of marketable securities is comprised solely of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule2a-7of the Investment Company Act. Upon the closing of the Initial Public Offering and the private placement, $300 million was placed in the Trust Account and invested in money market funds that invest in U.S. government securities. All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in interest earned on marketable securities held in Trust Account in the accompanying statement of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
Warrant Liabilities
The Company accounts for the Warrants in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. These liabilities are subject tore-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Placement Warrants and the Public Warrants for periods where no observable traded price was available are valued using a binomial lattice model. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
Offering Costs
Offering costs consisted of legal, accounting and other expenses incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs allocated to warrant liabilities were expensed as incurred in the consolidated statements
9
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
of operations. Offering costs associated with the Class A common stock issued were initially charged to temporary equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering. Offering costs amounting to $16,596,320 were charged to temporary equity upon the completion of the Initial Public Offering. Transaction costs related to derivative liability incurred through the consolidated balance sheet date and directly related to the Initial Public Offering amounting to $381,556, were charged to operations upon the completion of the Initial Public Offering.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ deficit. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheets.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable Class A common stock resulted in charges against additional paid-in capital and accumulated deficit.
At June 30, 2022 and December 31, 2021, the Class A common stock subject to redemption reflected in the condensed consolidated balance sheets is reconciled in the following table:
| Gross proceeds |
$ | 300,000,000 | ||
| Less: |
||||
| Proceeds allocated to Public Warrants |
$ | (6,600,000 | ) | |
| Class A common stock issuance costs |
$ | (16,596,320 | ) | |
| Plus: |
||||
| Accretion of carrying value to redemption value |
$ | 23,196,320 | ||
|
|
|
|||
| Class A common stock subject to possible redemption at December 31, 2021 and March 31, 2022 |
$ | 300,000,000 | ||
| Plus: |
||||
| Remeasurement of carrying value to redemption value |
$ | 114,082 | ||
|
|
|
|||
| Class A common stock subject to possible redemption at June 30, 2022 |
$ | 300,114,082 | ||
|
|
|
10
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of June 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.
ASC 740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods under ASC 740-270-30-5. Our effective tax rate was 0.35% and 0% for the three months ended June 30, 2022 and 2021, respectively, and 0.90% and 0% for the six months ended June 30, 2022 and 2021, respectively. The effective tax rate differs from the statutory tax rate of 21% for the three months and six months ended June 30, 2022 and 2021, due to changes in fair value in warrant liability, and the valuation allowance on the deferred tax assets.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months..
Net Income (Loss) per Common Stock
Net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The Company applies the two-class method in calculating earnings per share. Accretion associated with the redeemable shares of Class A common shares is excluded from earnings per share as the redemption value approximates fair value.
The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events. The warrants are exercisable to purchase 18,000,000 shares of Class A common stock in the aggregate. As of June 30, 2022 and 2021, the Company did not have any dilutive securities or other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted net income (loss) per share of common stock is the same as basic net income (loss) per share of common stock for the periods presented.
11
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The following table reflects the calculation of basic and diluted net income (loss) per common stock (in dollars, except per share amounts):
| Three Months Ended June 30, 2022 |
Three Months Ended June 30, 2021 |
Six Months Ended June 30, 2022 |
Six Months Ended June 30, 2021 |
|||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||||||||
| Basic and diluted net income (loss) per common stock |
||||||||||||||||||||||||||||||||
| Numerator: |
||||||||||||||||||||||||||||||||
| Allocation of net income (loss), as adjusted |
$ | 4,474,154 | $ | 1,118,539 | $ | (1,067,166 | ) | $ | (266,792 | ) | $ | 1,736,152 | $ | 434,038 | $ | 11,251,250 | $ | 2,812,812 | ||||||||||||||
| Denominator: |
||||||||||||||||||||||||||||||||
| Basic and diluted weighted average shares outstanding |
30,000,000 | 7,500,000 | 30,000,000 | 7,500,000 | 30,000,000 | 7,500,000 | 30,000,000 | 7,500,000 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Basic and diluted net income (loss) per common stock |
$ | 0.15 | $ | 0.15 | $ | (0.04 | ) | $ | (0.04 | ) | $ | 0.06 | $ | 0.06 | $ | 0.38 | $ | 0.38 | ||||||||||||||
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximate the carrying amounts represented in the accompanying condensed consolidated balance sheet, primarily due to their short-term nature, except for warrant liabilities (see Note 9).
Fair Value Measurements
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature, except for warrant liabilities (see Note 9).
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair
12
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the consolidated balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 30,000,000 Units at a purchase price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-third of one redeemable warrant. Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (see Note 8).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 8,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, for an aggregate purchase price of $8,000,000. Each Private Placement Warrant is exercisable to purchase one share of Class A common stock at a price of $11.50 per share. A portion of the proceeds from the Private Placement Warrants were added to the proceeds from the Initial Public Offering held in the Trust Account. There were no redemption rights or liquidating distributions from the Trust Account with respect to the Private Placement Warrants.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On June 22, 2020, the Company issued an aggregate of 5,750,000 shares of Class B common stock to the Sponsor (the “Founder Shares”) for an aggregate purchase price of $25,000, for which the Company received payment for the Founder Shares on August 21, 2020. On August 18, 2020, the Sponsor transferred an aggregate of 80,000 Founder Shares to the Company’s independent directors for their original purchase price of approximately $0.004 per share. Subsequently, on August 27, 2020, the Sponsor transferred an aggregate of 70,000 Founder Shares to the Company’s special advisors for their original purchase price. These 150,000 Founder Shares were not subject to forfeiture in the event the underwriter’s over-allotment option was not
13
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
exercised. On October 2, 2020, the Company effected a stock dividend of 1,437,500 shares with respect to the Class B common stock, resulting in an aggregate of 7,187,500 Founder Shares issued and outstanding. On October 2, 2020, the Sponsor transferred 18,750 Founder Shares to one of the Company’s special advisors. On October 20, 2020, the Company effected a stock dividend of 1,437,500 shares with respect to the Class B common stock, resulting in an aggregate of 8,625,000 Founder Shares issued and outstanding. All shares and per-share amounts have been retroactively restated to reflect the share transactions.
The Founder Shares included an aggregate of up to 1,125,000 shares of Class B common stock subject to forfeiture by the Sponsor to the extent that the underwriter’s over-allotment option was not exercised in full or in part, so that the initial stockholders would own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering. On December 7, 2020, the underwriter’s election to exercise its over-allotment option expired unexercised, resulting in the forfeiture of 1,125,000 shares by the Sponsor. Accordingly, there are 7,500,000 Founder Shares issued and outstanding as of June 30, 2022 and December 31, 2021.
The initial stockholders have agreed that, subject to certain limited exceptions, the Founder Shares will not be transferred, assigned or sold until the earlier of (A) one year after the completion of a Business Combination or (B) subsequent to a Business Combination, (x) if the last reported sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any30-tradingday period commencing at least 150 days after a Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the stockholders having the right to exchange their common stock for cash, securities or other property.
Administrative Services Agreement
The Company entered into an agreement, commencing on October 20, 2020 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay the Sponsor a total of up to $10,000 per month for office space, utilities and secretarial and administrative support. For the three and six months ended June 30, 2022, the Company incurred $30,000 and $60,000 in fees for these services, respectively. support. For the three and six months ended June 30, 2021, the Company incurred $30,000 and $60,000 in fees for these services, respectively. As of June 30, 2022 and December 31, 2021, there were $200,000 and $140,000 of administrative fees included in accounts payable and accrued expenses in the accompanying balance sheets, respectively.
Related Party Loans
On February 28, 2022, the Sponsor issued an unsecured promissory note of up to $1,000,000 to an affiliate of the Sponsor (the “Sponsor Affiliate Note”), in connection with providing the Company with additional working capital. The Sponsor Affiliate Note is not convertible and bears no interest. The Sponsor Affiliate Note is due and payable upon the earlier of the date on which the Company consummates its initial Business Combination or the date that the winding up of the Company is effective. As of June 30, 2022, the Sponsor had borrowed a total of $200,000 under the Sponsor Affiliate Note, which amount was delivered to the Company for its working capital needs.
14
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
On April 13, 2022, the Company issued an unsecured promissory note of up to $1,000,000 to the Sponsor (the “Sponsor Note”), of which $220,000 was funded by the Sponsor upon execution of the Sponsor Note, in connection with providing the Company with additional working capital. The Sponsor Note is not convertible and bears no interest. The Sponsor Note is due and payable upon the earlier of the date on which the Company consummates its initial Business Combination or the date that the winding up of the Company is effective. As of June 30, 2022 the Company had borrowed a total of $220,000 under the Sponsor Note.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration and Stockholder Rights Agreement
Pursuant to a registration and stockholder rights agreement entered into on October 20, 2020, the holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants issued upon conversion of the Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration and stockholder rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriter was entitled to a deferred fee of $0.35 per Unit, or $10,500,000 in the aggregate. Subject to the terms of the underwriting agreement, (i) the deferred fee was placed in the Trust Account and was to be released to the underwriter only upon the completion of a Business Combination and (ii) the deferred fee would have been waived by the underwriter in the event that the Company did not complete a Business Combination.
On June 15, 2022, UBS agreed to waive its entitlement to the deferred underwriting commission of $10,500,000 to which it became entitled upon completion of the Company’s Initial Public Offering, subject to the consummation of the Transaction. As a result, the Company recognized $234,500 of income and $10,265,500 was recorded to additional paid-in capital in relation to the reduction of the deferred underwriter fee in the accompanying condensed financial statements. As of June 30, 2022 and December 31, 2021, the deferred underwriting fee payable is $0 and $10,500,000, respectively.
Transaction Agreement
On February 7, 2022, the Company entered into a transaction agreement (as amended, the “Transaction Agreement”) with D-Wave Quantum Inc., a Delaware corporation and the Company’s direct, wholly-owned subsidiary (“NewCo”), DWSI Holdings Inc., a Delaware corporation and a direct, wholly-owned subsidiary of NewCo (“Merger Sub”), DWSI Canada Holdings ULC, a British Columbia unlimited liability company and a direct, wholly-owned subsidiary of NewCo (“CallCo”),- D-Wave Quantum Technologies Inc., a British Columbia corporation and a direct, wholly-owned subsidiary of CallCo (“ExchangeCo”), and D-Wave Systems Inc., a British Columbia company(“D-Wave”),relating to a proposed Business Combination between the Company and D-Wave(the “Transaction”).
15
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
In connection with the Transaction, NewCo filed a registration statement on Form S-4 (File No. 333-263573) with the SEC on March 15, 2022 (the “NewCo Form S-4”) that included a preliminary prospectus with respect to NewCo’s securities to be issued in connection with the Transaction and a preliminary proxy statement with respect to the meeting of the Company’s stockholders to vote on the Transaction (the “Special Meeting”). On July 13, 2022, the NewCo Form S-4 was declared effective by the SEC and the Company subsequently filed the definitive proxy statement/prospectus (the “Definitive Proxy Statement/Prospectus”) with the SEC. On August 5, 2022, the Company, NewCo, Merger Sub, CallCo, ExchangeCo, and D-Wave consummated the Transaction, following the approval of the Company’s stockholders at the Special Meeting held on August 2, 2022.
Pursuant to the Transaction Agreement, among other things, (a) on the date of the closing of the Transaction (the “Closing”, and such date, the “Closing Date”), Merger Sub merged with and into the Company (the “Merger”), with the Company continuing as the surviving company after the Merger, as a result of which the Company has become a direct, wholly owned subsidiary of NewCo, with the Company’s stockholders receiving shares of NewCo common stock, par value $0.01 per share (“NewCo Common Shares”), in the Merger; and (b) immediately following the Merger, by means of a statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”), (i) CallCo acquired a portion of the issued and outstanding share capital of D-Wave (“D-Wave Shares”) from certain holders in exchange for NewCo Common Shares (the “NewCo Share Exchange”), (ii) CallCo contributed such D-Wave Shares to ExchangeCo in exchange for shares of ExchangeCo’s non-par value common stock (“ExchangeCo Common Shares”), (iii) following the NewCo Share Exchange, ExchangeCo acquired the remaining issued and outstanding D-Wave Shares from the remaining holders of D-Wave Shares in exchange for the exchangeable shares in the capital of ExchangeCo (the “Exchangeable Shares”) and (iv) as a result of the foregoing, D-Wave became a wholly-owned subsidiary of ExchangeCo. The holders of the Exchangeable Shares has certain rights as specified in the Exchangeable Share Term Sheet (as defined in the Transaction Agreement), including the right to exchange Exchangeable Shares for NewCo Common Shares.
The Transaction was structured to provide the public stockholders that did not redeem their Public Shares with a pro rata right to a pool of up to an additional 5,000,000 NewCo Common Shares. None of the holders of the Founder Shares received the benefit of such additional shares. Upon the Closing, the public stockholders that did not elect to redeem their Public Shares in connection with the Transaction received 1.4541326 NewCo Common Shares for each Public Share (the “Exchange Ratio”). Additionally, upon the Closing, all of the Company’s outstanding warrants were converted into the right to receive warrants of NewCo (“NewCo Warrants”). Each such NewCo Warrant is exercisable for 1.4541326 NewCo Common Shares, at any time commencing 30 days after the Closing.
The terms of the Transaction Agreement and other related ancillary agreements, including those briefly described below, are summarized in more detail in the Definitive Proxy Statement/Prospectus.
Sponsor Support Agreement
Concurrently with the execution of the Transaction Agreement, the Company entered into a sponsor support agreement (the “Sponsor Support Agreement”) with the Sponsor, NewCo and D-Wave, pursuant to which, among other things, the Sponsor agreed to (i) vote in favor of the Transaction Agreement and the Transaction, (ii) a certain number of NewCo common shares becoming subject to certain vesting conditions immediately prior to, and contingent upon, the closing of the Transaction, (iii) reimburse or otherwise compensate the Company for certain expenses in excess of the Company’s permitted expenses under the Transaction Agreement and (iv) the forfeiture of certain Founder Shares.
16
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
On June 16, 2022, the Sponsor, the Company, NewCo and D-Wave entered into the Amended and Restated Sponsor Support Agreement (the “A&R SSA”). Pursuant to the A&R SSA, the parties thereto agreed to amend and restate the Sponsor Support Agreement dated as of February 7, 2022 (the “Original SSA”) to, among other things, (i) vote in favor of the Transaction Agreement and the Transaction, (ii) reimburse or otherwise compensate the Company for an aggregate amount of fees, expenses, commissions or other amounts incurred by or on behalf of, or otherwise payable (and not otherwise expressly allocated to D-Wave or any of its subsidiaries or any holder of D-Wave shares, D-Wave options or D-Wave warrants pursuant to the terms of the Transaction Agreement or any ancillary document), whether or not due, by the parties in connection with the negotiation, preparation or execution of the Transaction Agreement or any ancillary documents, the performance of its covenants or agreements in the Transaction Agreement or any ancillary document or the consummation of the Transaction, including any Company Expenses in excess of the sum of $6,750,000 and (iii) the forfeiture of 4,484,425 shares of the Company class B common stock.
Transaction Support Agreements
Concurrently with the execution of the Transaction Agreement, the Company entered into transaction support agreements with D-Wave and certain D-Wave shareholders (collectively, the “Supporting Shareholders”), pursuant to which each such Supporting Shareholder agreed to, among other things, support and vote in favor of the Company Arrangement Resolution (as defined in the Transaction Agreement).
PIPE Subscription Agreements
Concurrently with the execution of the Transaction Agreement, the Company entered into subscription agreements with NewCo and certain investors (collectively, the “PIPE Investors”), pursuant to which, among other things, each PIPE Investor subscribed to and agreed to purchase on the date of the closing of the Transaction (the “Closing Date”), and NewCo agreed to issue and sell to each such PIPE Investor on the Closing Date, the number of NewCo common shares (“PIPE Shares”) equal to the purchase price set forth therein, divided by $10.00 and multiplied by the Exchange Ratio (as defined in the Transaction Agreement), totaling $40.0 million of PIPE Shares in the aggregate, such that the PIPE Investors purchased 5,816,528 PIPE Shares in the aggregate.
Financial Advisor Engagements
On September 23, 2021, the Company engaged Citigroup Global Markets Inc. (“Citi”) as its capital markets advisor in connection with the Transaction. Pursuant to this engagement, the Company agreed to pay to Citi a capital markets advisory fee of $10,000,000 ($1,000,000 of which was payable in the sole discretion of the Company), contingent and payable upon the closing of the Transaction.
On September 23, 2021, the Company engaged Citi and Morgan Stanley & Co. LLC (“Morgan Stanley”) as co-placement agents in connection with the transactions set forth in the PIPE Subscription Agreements (the “PIPE Financing”). Pursuant to this engagement, the Company agreed to pay to each of Citi and Morgan Stanley a placement fee equal to 2.00% (for a total of 4.00%) of the gross proceeds received by the Company upon consummation of the PIPE Financing (excluding any proceeds from PIPE Investors identified by the Company or D-Wave without the involvement of Citi or Morgan Stanley), contingent and payable upon consummation of the PIPE Financing.
On February 7, 2022, the Company engaged UBS Securities LLC (“UBS”) as its nonexclusive capital markets adviser. UBS was not entitled to any fee pursuant to this engagement.
17
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
On May 13, 2022, (a) Citi resigned from its role as capital markets advisor to DPCM and waived any fees to which it was entitled pursuant to its engagement, including its capital markets advisory fee of $10,000,000 ($1,000,000 of which was payable in the sole discretion of the Company), and (b) each of Citi and Morgan Stanley resigned from their roles as co-placement agents in connection with the PIPE Financing and waived any fees to which they were entitled pursuant to their respective engagements, which would have been equal to 2.00% (for a total of 4.00%) of the gross proceeds received by the Company or NewCo upon consummation of the PIPE Financing (excluding any proceeds from PIPE Investors identified by Company or D-Wave without the involvement of Citi or Morgan Stanley); however no PIPE Investors that eventually participated in the PIPE Financing were sourced by Citi or Morgan Stanley.
On May 20, 2022, UBS resigned from its role as capital markets advisor to DPCM (for which engagement it was not entitled to any fee).
NOTE 7. STOCKHOLDERS’ DEFICIT
Preferred Stock—The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
Class A Common Stock—The Company is authorized to issue 100,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At June 30, 2022 and December 31, 2021, there were 30,000,000 shares of Class A common stock issued and outstanding, including Class A common stock subject to possible redemption which is presented as temporary equity.
Class B Common Stock—The Company is authorized to issue 10,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class B common stock are entitled to one vote for each share. At June 30, 2022 and December 31, 2021, there were 7,500,000 shares of Class B common stock issued and outstanding.
Holders of Class B common stock will have the right to elect all of the Company’s directors prior to a Business Combination. Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders except as required by law.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 20% of the sum of the total number of all shares of common stock outstanding upon the completion of the Initial Public Offering plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in a Business Combination and any private placement-equivalent warrants issued upon conversion of Working Capital Loans).
18
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 8. WARRANT LIABILITIES
As of June 30, 2022 and December 31, 2021, there were 10,000,000 Public Warrants and 8,000,000 Private Placement Warrants outstanding.
Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable 30 days after the completion of a Business Combination. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue a share of Class A common stock upon exercise of a warrant unless the share of Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company will agree that as soon as practicable, but in no event later than twenty business days after the closing of a Business Combination, the Company will use its commercially reasonable efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of Class A common stock issuable upon exercise of the warrants. The Company will use its commercially reasonable efforts to cause the same to become effective within 60 business days following a Business Combination and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but the Company will be required to use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Redemption of warrants when the price per share of Class A common stock equals or exceeds $18.00. Once the Public Warrants become exercisable, the Company may redeem the Public Warrants (except with respect to the Private Placement Warrants):
| • | in whole and not in part; |
| • | at a price of $0.01 per warrant; |
| • | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and |
19
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
| • | if, and only if, the last reported sale price of the Class A common stock for any 20 trading days within a30-tradingday period ending three business days before the Company sends the notice of redemption to the warrant holders (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like). |
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of warrants when the price per share of Class A common stock equals or exceeds $10.00. Once the Public Warrants become exercisable, 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 Class A common stock; |
| • | if, and only if, the Reference Value equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like); and |
| • | if the Reference Value is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above. |
| • | if, and only if, there is an effective registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and a current prospectus relating thereto available throughout the30-dayperiod 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 shares of Class A common stock 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 Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per Class A common (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the initial stockholders or their affiliates, without taking into account any Founder Shares held by the initial stockholders or their affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Class A common stock during the 20 trading day period starting on the trading day prior to the
20
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
day on which the Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $10.00 and $18.00 per share redemption trigger prices will be adjusted (to the nearest cent) to be equal to 100% and 180% of the higher of the Market Value and the Newly Issued Price, respectively.
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
NOTE 9. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that arere-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
| Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
| Level 3: | Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. | |
At June 30, 2022, assets held in the Trust Account were comprised of $300,623,778 in U.S. Treasury Securities and $3,122 in cash.
21
DPCM CAPITAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | June 30, 2022 |
Level | December 31, 2021 |
||||||||||||
| Assets: |
||||||||||||||||
| Cash and marketable securities held in Trust Account |
1 | $ | 300,626,900 | 1 | $ | 300,183,322 | ||||||||||
| Liabilities: |
||||||||||||||||
| Warrant Liabilities – Public Warrants |
1 | $ | 3,500,000 | 1 | $ | 5,993,000 | ||||||||||
| Warrant Liabilities – Private Placement Warrants |
2 | 2,800,000 | 2 | $ | 4,794,400 | |||||||||||
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.
The Warrants were initially valued using a binomial lattice model, which is considered to be a Level 3 fair value measurement. The binomial lattice model’s primary unobservable input utilized in determining the fair value of the Warrants is the expected volatility of the common stock. The expected volatility as of the Initial Public Offering date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. The expected volatility as of subsequent valuation dates was implied from the Company’s own Public Warrant pricing. For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrant price was used as the fair value of the Warrants as of each relevant date. The measurement of the Public Warrants after the detachment of the Public Warrants from the Units is classified as Level 1 due to the use of an observable market quote in an active market. The subsequent measurements of the Private Placement Warrants after the detachment of the Public Warrants from the Units are classified as Level 2 due to the use of an observable market quote for a similar asset in an active market.
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.
NOTE 11. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, other than the below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
On August 2, 2022, Stockholders holding 29,097,787 shares of Class A Common Stock exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account. As a result, $291,365,553.22 (approximately $10.01 per share) was removed from the Company’s Trust Account to pay such stockholders.
On August 5, 2022, the Company completed the Transaction, as described in Note 6.
22
Exhibit 99.6
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DPCM CAPITAL, INC.
References in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our” or the “Company” refer to DPCM Capital, Inc. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to CDPM Sponsor Group, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in the Company’s most recent Quarterly Report on Form 10-Q filed August 15, 2022. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s most recent Quarterly Report on Form 10-Q filed August 15, 2022 and the Company’s Annual Report on Form10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 15, 2022 (the “Form 10-K”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We were a blank check company formed under the laws of the State of Delaware on March 24, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Business Combination”).
On August 5, 2022, we completed our Business Combination with D-Wave as described below.
The Transaction
On February 7, 2022, we entered into a transaction agreement (as amended, the “Transaction Agreement”) with D-Wave Quantum Inc., a Delaware corporation and our direct, wholly-owned subsidiary (“NewCo”), DWSI Holdings Inc., a Delaware corporation and a direct, wholly-owned subsidiary of NewCo (“Merger Sub”), DWSI Canada Holdings ULC, a British Columbia unlimited liability company and a direct, wholly-owned subsidiary of NewCo (“CallCo”), D-Wave Quantum Technologies Inc., a British Columbia corporation and a direct, wholly-owned subsidiary of CallCo (“ExchangeCo”), and D-Wave Systems Inc., a British Columbia company(“D-Wave”),relating to a proposed Business Combination between the Company and D-Wave (the “Transaction”).
In connection with the Transaction, NewCo filed a registration statement on Form S-4 (File No. 333-263573) with the SEC on March 15, 2022 (the “NewCo FormS-4”) that included a preliminary prospectus with respect to NewCo’s securities to be issued in connection with the Transaction and a preliminary proxy statement with respect to the meeting of our stockholders to vote on the Transaction (the “Special Meeting”). On July 13, 2022, the NewCo Form S-4 was declared effective by the SEC and we subsequently filed the definitive proxy statement/prospectus (the “Definitive Proxy Statement/Prospectus”) with the SEC. On August 5, 2022, the Company, NewCo, Merger Sub, CallCo, ExchangeCo, and D-Wave consummated the Transaction, following the approval of our stockholders at the Special Meeting held on August 2, 2022.
Transaction Agreement
Pursuant to the Transaction Agreement, among other things, (a) on the date of the closing of the Transaction (the “Closing”, and such date, the “Closing Date”), Merger Sub merged with and into the Company (the “Merger”), with the Company continuing as the surviving company after the Merger, as a result of which we became a direct, wholly owned subsidiary of NewCo, with our stockholders receiving shares of NewCo common stock, par value $0.01 per share (“NewCo Common Shares”), in the Merger; and (b) immediately following the Merger, by means of a statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”), (i) CallCo acquired a portion of the issued and outstanding share capital of D-Wave(“D-Wave Shares”) from certain holders in exchange for NewCo Common Shares (the “NewCo Share Exchange”), (ii) CallCo contributed such D-Wave Shares to ExchangeCo in exchange for shares of ExchangeCo’s non-par value common stock (“ExchangeCo Common Shares”), (iii) following the NewCo Share Exchange, ExchangeCo acquired the remaining issued and outstanding D-Wave Shares from the remaining holders of D-Wave Shares in exchange for the exchangeable shares in the capital of ExchangeCo (the “Exchangeable Shares”) and (iv) as a result of the foregoing, D-Wavebecame a wholly-owned subsidiary of ExchangeCo. The holders of the Exchangeable Shares have certain rights as specified in the Exchangeable Share Term Sheet (as defined in the Transaction Agreement), including the right to exchange Exchangeable Shares for NewCo Common Shares.
The Transaction was structured to provide our public stockholders that did not redeem their shares of our Class A common stock with a pro rata right to a pool of up to an additional 5,000,000 NewCo Common Shares. None of the holders of the Founder Shares (as defined below) received the benefit of such additional shares. Upon the Closing, the public stockholders that did not elect to redeem their shares of our Class A common stock in connection with the Transaction received 1.4541326 NewCo Common Shares for each share of Class A common stock (the “Exchange Ratio”). Additionally, upon the Closing, all of our outstanding warrants converted into the right to receive warrants of NewCo (“NewCo Warrants”). Each such NewCo Warrant is exercisable for 1.4541326 NewCo Common Shares, at any time commencing 30 days after the Closing.
2
The terms of the Transaction Agreement and other related ancillary agreements, including those briefly described below, are summarized in more detail in the Definitive Proxy Statement/Prospectus.
Sponsor Support Agreement
Concurrently with the execution of the Transaction Agreement, we entered into a sponsor support agreement (the “Sponsor Support Agreement”) with the Sponsor, NewCo and D-Wave, pursuant to which, among other things, the Sponsor agreed to (i) vote in favor of the Transaction Agreement and the Transaction, (ii) a certain number of NewCo Common Shares becoming subject to certain vesting conditions immediately prior to, and contingent upon, the Closing, (iii) reimburse or otherwise compensate the Company for certain expenses in excess of our permitted expenses under the Transaction Agreement and (iv) the forfeiture of certain Founder Shares.
Pursuant to the terms of the Sponsor Support Agreement, immediately prior to the Closing, the Sponsor has agreed to forfeit 1,196,663 Founder Shares, and to potentially forfeit an additional 906,563 Founder Shares depending on the Transaction-related expenses and amount of redemptions by our public stockholders in connection with the Transaction. The Sponsor will also subject 1,813,125 NewCo Common Shares (the “Earn-out Shares”) it receives in the Transaction to an earn-out based on the price of the NewCo Common Shares following the Closing, as follows: if, at any time during the period following the Closing and expiring on the fifth anniversary of the Closing Date, the last reported sales price of the NewCo Common Shares equals or exceeds an amount equal to (x)(1) $10.00 divided by (2) the Exchange Ratio multiplied by (y) 1.2, for any 20 trading days within any 30-tradingday period, the Earn-out Shares will automatically vest and no longer be subject to forfeiture pursuant to the Sponsor Support Agreement.
On June 16, 2022, the Sponsor, the Company, NewCo and D-Wave entered into the Amended and Restated Sponsor Support Agreement (the “A&R SSA”). Pursuant to the A&R SSA, the parties thereto agreed to amend and restate the Sponsor Support Agreement dated as of February 7, 2022 (the “Original SSA”) to, among other things, (i) vote in favor of the Transaction Agreement and the Transaction, (ii) reimburse or otherwise compensate the Company for an aggregate amount of fees, expenses, commissions or other amounts incurred by or on behalf of, or otherwise payable (and not otherwise expressly allocated to D-Wave or any of its subsidiaries or any holder of D-Wave shares, D-Wave options or D-Wave warrants pursuant to the terms of the Transaction Agreement or any ancillary document), whether or not due, by the parties in connection with the negotiation, preparation or execution of the Transaction Agreement or any ancillary documents, the performance of its covenants or agreements in the Transaction Agreement or any ancillary document or the consummation of the Transaction, including any Company Expenses in excess of the sum of $6,750,000 and (iii) the forfeiture of 4,484,425 Founder Shares.
Transaction Support Agreements
Concurrently with the execution of the Transaction Agreement, we entered into the transaction support agreements with D-Wave and certain D-Wave shareholders (collectively, the “Supporting Shareholders”), pursuant to which each such Supporting Shareholder agreed to, among other things, support and vote in favor of the Company Arrangement Resolution (as defined in the Transaction Agreement).
PIPE Subscription Agreements
Concurrently with the execution of the Transaction Agreement, we entered into subscription agreements with NewCo and certain investors (collectively, the “PIPE Investors”), pursuant to which, among other things, each PIPE Investor subscribed to and agreed to purchase on the Closing Date, and NewCo agreed to issue and sell to each such PIPE Investor on the Closing Date, the number of NewCo Common Shares (“PIPE Shares”) equal to the purchase price set forth therein, divided by $10.00 and multiplied by the Exchange Ratio (as defined in the Transaction Agreement), totaling $40.0 million of PIPE Shares in the aggregate, such that the PIPE Investors purchased 5,816,528 PIPE Shares in the aggregate (the “PIPE Financing”).
On May 13, 2022, each of Citi and Morgan Stanley resigned from their roles as co-placement agents in connection with the PIPE Financing and waived any fees to which they were entitled pursuant to their respective engagements.
3
Registration Rights and Lock-Up Agreement
At the Closing of the Transaction, NewCo, the Sponsor, the other holders of Founder Shares and each D-Wave shareholder party thereto, pursuant to the Plan of Arrangement, became parties to a registration rights and lock-up agreement, pursuant to which, among other things, each of the Sponsor, the other holders of Founder Shares and such D-Wave shareholders (a) agreed not to effect any sale or distribution of certain equity securities of NewCo held by any of them during the lock-up period described therein and (b) were granted certain registration rights with respect to their respective NewCo Common Shares, in each case, on the terms and subject to the conditions set forth therein.
4
Results of Operations
Our only activities through June 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, since the Initial Public Offering, our activity has been limited to identifying a target company for a Business Combination and consummating the Transaction. Until the consummation of the Transaction, we generated non-operating income in the form of interest income on marketable securities held in the trust account established for the benefit of our public stockholders in connection with the Initial Public Offering (the “Trust Account”), and we incurred expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, a Business Combination, including the Transaction.
For the three months ended June 30, 2022, we had net income of $5,592,693, which consists of change in fair value of warrant liabilities of $5,769,000, unrealized gain on marketable securities held in the Trust Account of $18,814, interest earned on marketable securities held in the Trust Account of $378,382, reduction of deferred underwriting fee of $234,500, offset by operating costs of $788,202 and provision for income taxes of $19,801.
For the six months ended June 30, 2022, we had net income of $2,170,190, which consists of change in fair value of warrant liabilities of $4,487,400, unrealized gain on marketable securities held in the Trust Account of $16,538, interest earned on marketable securities held in the Trust Account of $427,040, reduction of deferred underwriting fee of $234,500, offset by operating costs of $2,975,487 and provision for income taxes of $19,801.
For the three months ended June 30, 2021, we had net loss of $1,333,958, which consists of change in fair value of warrant liabilities of $640,000, operating costs of $699,331 and unrealized loss on marketable securities held in the Trust Account of $7,324, offset by interest earned on marketable securities held in the Trust Account of $12,697.
For the six months ended June 30, 2021, we had net income of $14,064,062, which consists of the change in fair value of warrant liabilities of $15,480,000, and interest earned on marketable securities held in the Trust Account of $71,528, offset by operating costs of $1,481,203 and unrealized loss on marketable securities held in the Trust Account of $6,283.
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering, our only source of liquidity was an initial purchase of shares of Class B common stock, par value $0.0001 per share (“Founder Shares”), by the Sponsor and loans from the Sponsor.
On October 23, 2020, we consummated the Initial Public Offering of 30,000,000 units (“Units”), at $10.00 per unit, generating gross proceeds of $300,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the Private Placement of 8,000,000 Private Placement Warrants to the Sponsor at a price of $1.00 per Private Placement Warrant, generating gross proceeds of $8,000,000.
Following the Initial Public Offering and the sale of the Private Placement Warrants, a total of $300,000,000 was placed in the Trust Account. We incurred $16,977,876 in transaction costs, including $6,000,000 of underwriting fees, $10,500,000 of deferred underwriting fees and $477,876 of other costs.
For the six months ended June 30, 2022, cash used in operating activities was $467,316. Net income of $2,170,190 was affected by interest earned on marketable securities held in the Trust Account of $427,040, change in fair value of warrant liabilities of $4,487,400, reduction of deferred underwriting fee of $234,500 and unrealized gain on marketable securities held in the Trust Account of $16,538. Changes in operating assets and liabilities provided $2,527,972 of cash for operating activities.
For the six months ended June 30, 2021, cash used in operating activities was $731,123. Net income of $14,064,062 was affected by interest earned on marketable securities held in the Trust Account of $71,548, change in fair value of warrant liabilities of $15,480,000 and unrealized loss on marketable securities held in the Trust Account of $6,283. Changes in operating assets and liabilities provided $750,080 of cash for operating activities.
5
As of June 30, 2022, we had cash and marketable securities held in the Trust Account of $300,626,900 (including $626,900 of interest income and unrealized gains) consisting of U.S. Treasury Bills with a maturity of 185 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through June 30, 2022, we had not withdrawn any interest earned from the Trust Account.
As of June 30, 2022, we had cash of $77,404 outside of the Trust Account. Until the consummation of the Transaction, we used the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
6
On February 28, 2022, the Sponsor issued an unsecured promissory note of up to $1,000,000 to an affiliate of the Sponsor (the “Sponsor Affiliate Note”), in connection with providing us with additional working capital. The Sponsor Affiliate Note is not convertible and bears no interest. The Sponsor Affiliate Note is due and payable upon the earlier of the date on which we consummate our initial Business Combination or the date that the winding up of the Company is effective. As of June 30, 2022, the Sponsor had borrowed a total of $200,000 under the Sponsor Affiliate Note, which amount was delivered to us for our working capital needs.
On April 13, 2022, we issued an unsecured promissory note of up to $1,000,000 to the Sponsor (the “Sponsor Note”), of which $220,000 was funded by the Sponsor upon execution of the Sponsor Note, in connection with providing us with additional working capital. The Sponsor Note is not convertible and bears no interest. The Sponsor Note is due and payable upon the earlier of the date on which we consummate our initial Business Combination or the date that the winding up of the Company is effective. As of June 30, 2022 the Company had borrowed a total of $220,000 under the Sponsor Note.
The Company may need to raise additional capital through loans or additional investments from its initial stockholders, officers or directors or their affiliates. The Company’s initial stockholders, officers or directors or their affiliates may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction and reducing overhead expenses. Other than the Sponsor Affiliate Note and the Sponsor Note, in each case as described above, the Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.
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 liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern, which is considered to be one year from the issuance of these financial statements. On August 5, 2022, we consummated the Transaction, and the uncertainty of the liquidity conditionraises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2022.
Contractual Obligations
Other than the Sponsor Affiliate Note and the Sponsor Note described above, we did not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or long-term liabilities, other than an agreement to pay the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on October 20, 2020 and continued to incur these fees monthly until the completion of the Transaction.
The underwriter of the Initial Public Offering was entitled to a deferred fee of $0.35 per Unit, or $10,500,000 in the aggregate. Subject to the terms of the underwriting agreement, (i) the deferred fee was placed in the Trust Account and was to be released to the underwriter only upon the completion of a Business Combination and (ii) the deferred fee would have been waived by the underwriter in the event that we did not complete a Business Combination.
On June 15, 2022, UBS agreed to waive its entitlement to the deferred underwriting commission of $10,500,000 to which it became entitled upon completion of the Company’s Initial Public Offering, subject to the consummation of the Transaction.
We are also party to the Transaction Agreement and related ancillary agreements, as described above.
7
Critical Accounting Policies and Estimates
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Warrant Liabilities
We account for our warrants in accordance with the guidance contained in ASC815-40under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the warrants as liabilities at their fair value and adjust the warrants to fair value at each reporting period. These liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Placement Warrants and the public warrants for periods where no observable traded price was available are valued using a binomial lattice model. For periods subsequent to the detachment of the public warrants from the Units, the public warrant quoted market price was used as the fair value as of each relevant date.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory redemption is classified as a liability instrument and measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ deficit. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ deficit section of our condensed balance sheets.
8
Net Income (Loss) Per Common Stock
Net income (loss) per common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. We apply the two-class method in calculating income (loss) per common stock. Accretion associated with the redeemable shares of Class A common stock is excluded from income (loss) per common stock as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current accounting principles generally accepted in the United States of America (“GAAP”). ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
9
Exhibit 99.7
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On February 7, 2022, DPCM Capital, Inc. (“DPCM”), D-Wave Quantum Inc., a Delaware corporation and a direct, wholly-owned subsidiary of DPCM (“D-Wave Quantum”), DWSI Holdings Inc., a Delaware corporation and a direct, wholly-owned subsidiary of D-Wave Quantum (“Merger Sub”), DWSI Canada Holdings ULC, a British Columbia unlimited liability company and a direct, wholly-owned subsidiary of D-Wave Quantum (“CallCo”), D-Wave Quantum Technologies Inc., a British Columbia corporation and a direct, wholly-owned subsidiary of CallCo (“ExchangeCo”) and D-Wave Systems Inc., a British Columbia company (“D-Wave”) entered into a Transaction Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Transaction Agreement”) relating to a business combination between DPCM and D-Wave (the “Transaction”). On August 5, 2022 (the “Closing Date”), the Transaction was consummated with DPCM and D-Wave became wholly-owned subsidiaries of D-Wave Quantum and the stockholders of DPCM becoming stockholders of D-Wave Quantum. The shares of common stock, par value $0.0001 per share, of D-Wave Quantum (the “D-Wave Quantum Common Shares”) and the warrants to purchase D-Wave Quantum Common Shares (the “D-Wave Quantum Warrants”) trade on the New York Stock Exchange (the “NYSE”) under the symbols “QBTS” and “QBTS.WS”, respectively. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.
The following unaudited pro forma condensed combined financial statements have been prepared based on the historical unaudited financial statements of DPCM as of and for the six months ended June 30, 2022, the audited financial statements of DPCM for the year ended December 31, 2021, the historical unaudited consolidated financial statements of D-Wave as of and for the six months ended June 30, 2022, and the audited consolidated financial statements of D-Wave for the year ended December 31, 2021 as adjusted to give effect to the Transaction. The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Transaction as if it had been consummated on June 30, 2022. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 gives effect to the Transaction as if it had occurred on January 1, 2021. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2022 gives effect to the Transaction as if it had occurred on January 1, 2021.
The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Transaction occurred on the dates indicated. Further, the pro forma combined financial information may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma combined financial statements have been derived from and should be read in conjunction with:
| • | the accompanying notes to the unaudited pro forma condensed combined financial statements; |
| • | the historical unaudited financial statements of DPCM as of and for the six months ended June 30, 2022, and the audited financial statements for the year ended December 31, 2021, and the related notes incorporated by reference in the Amended Current Report Form 8-K (the “Form 8-K Amendment”) to which this document is filed as an exhibit; |
| • | the historical unaudited consolidated financial statements of D-Wave as of and for the six months ended June 30, 2022, and the audited consolidated financial statements for the year ended December 31, 2021, and the related notes incorporated by reference in the Form 8-K Amendment; and |
| • | the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in DPCM’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2022, filed with the Securities and Exchange Commission (the “SEC”) on August 15, 2022 and incorporated by reference in the Form 8-K Amendment, and the sections entitled “D-Wave Quantum Inc. Management’s Discussion and Analysis of Financial Condition and Results,” and “D-Wave Systems Inc. Management’s Discussion and Analysis of Financial Condition and Results”, contained in D-Wave Quantum’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2022, filed with the SEC on August 26, 2022, and incorporated by reference in the Form 8-K Amendment. |
The unaudited pro forma condensed combined financial data below reflects the 29,097,787 shares of the outstanding DPCM Class A common stock, par value $0.0001 (“DPCM Class A Common Stock”) that were redeemed, resulting in an aggregate payment of $291.3 million out of the trust account, at a redemption price of $10.01 per share.
Description of the Transaction
As noted above, on February 7, 2022, DPCM entered into the Transaction Agreement with D-Wave Quantum, Merger Sub, CallCo, ExchangeCo and D-Wave. Pursuant to the Transaction Agreement and in connection therewith, among other things and subject to the terms and conditions contained therein:
| • | On the Closing Date, Merger Sub will merge with and into DPCM, as a result of which DPCM will become a direct, wholly-owned subsidiary of D-Wave Quantum, with the stockholders of DPCM receiving D-Wave Quantum Common Shares (the “DPCM Merger”); |
| • | At the time at which the certificate of merger has been duly filed with the Secretary of State of the State of Delaware and has become effective in accordance with the Delaware General Corporation Law (“DGCL”) or such later time as DPCM and Merger Sub may agree and specify in the Certificate of Merger pursuant to the DGCL (the “Effective Time”), (a) each issued and outstanding share of DPCM Class A Common Stock (other than any shares of DPCM Class A Common Stock or shares of DPCM’s Class B common stock, par value $0.0001 per share (“DPCM Class B Common Stock”) held in DPCM’s treasury or owned by D-Wave or any other wholly-owned subsidiary of D-Wave or DPCM immediately prior to the Effective Time (the “Excluded Shares”) and after giving effect to the right of the holders of DPCM Class A Common Stock to redeem all or a portion of their DPCM Class A Common Stock will be automatically converted into and exchanged for the right to receive from the depositary, for each share of DPCM Class A Common Stock, 1.4541326 D-Wave Quantum Common Shares (the “Exchange Ratio”) and (b) each issued and outstanding share of DPCM Class B Common Stock (other than any Excluded Shares) will be automatically converted into and exchanged for the right to receive from the depositary, one D-Wave Quantum Common Share; |
| • | Immediately following the DPCM Merger, the parties will proceed to effect the Arrangement on the terms and subject to the conditions set forth in the statutory plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”) and the Transaction Agreement or made at the direction of the Supreme Court of British Columbia (the “Court”) in accordance with the final order of the Court pursuant to Section 291 of the Business Corporations Act (British Columbia), in a form acceptable to D-Wave and DPCM, each acting reasonably, approving the Arrangement with the prior written consent of DPCM and D-Wave, each such consent not to be unreasonably withheld, conditioned, or delayed. Pursuant to the Plan of Arrangement, (i) CallCo will acquire a portion of the issued and outstanding share capital of D-Wave (the “D-Wave Shares”) from certain holders in exchange for D-Wave Quantum Common Shares (the “D-Wave Quantum Share Exchange”), (ii) CallCo will contribute such D-Wave Shares to ExchangeCo in exchange for shares of ExchangeCo’s non-par value common stock, (iii) following the D-Wave Quantum Share Exchange, ExchangeCo will acquire the remaining issued and outstanding D-Wave Shares from the remaining holders of D-Wave Shares in exchange for exchangeable shares in the capital of ExchangeCo (the “Exchangeable Shares”) and (iv) as a result of the foregoing, D-Wave will become a wholly-owned subsidiary of ExchangeCo. The holders of the Exchangeable Shares will have certain rights as specified in the Exchangeable Share Support Agreement and the Voting and Exchange Trust Agreement, including the right to exchange Exchangeable Shares for D-Wave Quantum Common Shares (the “Arrangement”); |
| • | Immediately following the consummation of the DPCM Merger, pursuant to the Plan of Arrangement, each outstanding D-Wave Share will be automatically converted into and exchanged the right to receive a number of D-Wave Quantum Common Shares or Exchangeable Shares equal to, in the aggregate, the Per Share D-Wave Stock Consideration (as defined in the Transaction Agreement); |
| • | Concurrently with the execution of the Transaction Agreement, certain investors (the “PIPE Investors”) entered into subscription agreements (the “PIPE Subscription Agreements”) , pursuant to which, among other things, each PIPE Investor subscribed to and agreed to purchase on the Closing Date, and D-Wave Quantum agreed to issue and sell to each such PIPE Investor on the Closing Date, the number of D-Wave Quantum Common Shares equal to the purchase price set forth therein, divided by $10.00 and multiplied by the Exchange Ratio, in each case, on the terms and subject to the conditions set forth therein (the “PIPE Shares”); and |
| • | On June 16, 2022, we entered into the Purchase Agreement with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from us, at our option, up to $150,000,000 of Common Shares from time to time over a 36-month period following the Commencement Date. The Purchase Agreement is subject to certain limitations including but not limited to, the filing and effectiveness of the Lincoln Park Registration Statement. Pursuant to the Purchase Agreement, we also agreed to pay Lincoln Park the Commitment Fee of $2,625,000. We paid the Commitment Fee entirely in Common Shares, in two tranches consisting of 127,180 and 254,360 Common Shares issued on August 5, 2022 and August 25, 2022, respectively. |
2
Forfeiture Shares
Prior to the Transaction, CDPM Sponsor Group, LLC (the “Sponsor”) was the beneficial and record owner of 7,252,500 shares of the 7,500,000 outstanding shares of DPCM Class B Common Stock, or the Founder Shares. Pursuant to the terms of the Amended and Restated Sponsor Support Agreement entered into on June 16, 2022, immediately prior to the Closing, the Sponsor has agreed to forfeit 4,484,425 Founder Shares (the “Forfeited Shares”).
Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of Regulation S-X of the SEC as amended by the final rule, Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Release No. 33-10786 replaces the historical pro forma adjustments criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). DPCM has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma combined financial information. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company upon consummation of the Transaction.
The unaudited pro forma combined balance sheet as of June 30, 2022, was derived from the unaudited historical balance sheet of DPCM as of June 30, 2022, and the unaudited historical balance sheet of D-Wave as of June 30, 2022 and gives effect to the Transaction as if it had been consummated on June 30, 2022. The unaudited pro forma combined statement of operations for the six months ended June 30, 2022, combines the historical statement of operations of DPCM for the six months ended June 30, 2022, and the historical statement of operations of D-Wave for the six months ended June 30, 2022, and gives effect to the Transaction as if it had been consummated on January 1, 2021. The unaudited pro forma combined statement of operations for the year ended December 31, 2021, combines the historical statement of operations of DPCM for the year ended December 31, 2021, and the historical statement of operations of D-Wave for the year ended December 31, 2021, and gives effect to the Transaction as if it had been consummated on January 1, 2021.
Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.
The pro forma adjustments reflecting the consummation of the Transaction are based on certain currently available information and certain assumptions and methodologies that each of D-Wave and DPCM believes are reasonable under the circumstances. The pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments, and it is possible the differences may be material. Each of D-Wave and DPCM believes that its assumptions and methodologies provide a reasonable basis for presenting all the significant effects of the Transaction based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma combined financial information.
The unaudited pro forma combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Transaction. DPCM and D-Wave have not had any historical relationship prior to the Transaction. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
The unaudited pro forma condensed combined financial data below reflects the 29,097,787 shares of the outstanding DPCM Class A Common Stock that was redeemed, resulting in an aggregate payment of $291.3 million out of the Trust Account that holds the proceeds of the initial public offering of DPCM (including interest not previously released to DPCM to pay its taxes) (“Trust Account”), at a redemption price of $10.01 per share.
Included in the shares outstanding and weighted average shares outstanding as presented in the unaudited pro forma condensed combined financial statements are the shares of D-Wave Quantum to be issued to D-Wave stockholders on the Closing Date, the D-Wave Quantum Common Shares to be issued to existing DPCM investors, the D-Wave Quantum Common Shares to be issued in respect of the Founder Shares, the initial tranche of shares to be issued to Lincoln Park to satisfy the Commitment Fee under the Purchase Agreement, and the PIPE Shares.
3
Upon the consummation of the Transaction, shares outstanding as presented in the unaudited pro forma condensed combined financial statements include the following:
| (Shares In thousands) |
Shares | % | ||||||
| D-Wave Stockholders |
99,737 | 91 | % | |||||
| PIPE Investors |
5,817 | 5 | % | |||||
| DPCM Public Stockholders |
1,312 | 1 | % | |||||
| Initial tranche Commitment Fee—Lincoln Park |
127 | 0 | % | |||||
| Shares held by Sponsor |
2,769 | 3 | % | |||||
| Additional Former Class B Holder shares |
247 | 0 | % | |||||
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|
|
|
|
|||||
| Total D-Wave Quantum Common Shares |
110,009 | 100 | % | |||||
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|
|
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The unaudited pro forma condensed combined financial statements are for illustrative purposes only and are not necessarily indicative of what the actual results of operations and financial position would have been had the Transaction taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of D-Wave Quantum.
The warrants of DPCM issued to its public stockholders (“Public Warrants”) and the warrants of DPCM held by Sponsor that were issued to the Sponsor at the closing of DPCM’s initial public offering (“Private Warrants”) have been reported as liability-classified instruments that will be subsequently remeasured at fair value in future reporting periods, with changes in fair value recognized in earnings. The warrants of D-Wave have been classified as permanent equity.
On November 20, 2020, D-Wave entered into an agreement (the “SIF Agreement”) with the Strategic Innovation Fund (“SIF”), whereby SIF agreed to make a repayable contribution to D-Wave of up to $40.0 million. The contractual repayment period is 15 years and commences in the first year in which D-Wave reports annual revenue of $70.0 million. Pursuant to the SIF Agreement, repayment of the SIF contribution could be triggered early upon default of the agreement, termination of the agreement or upon a change of control (as defined in the SIF Agreement) that has not been approved by the Canadian government. The Canadian government approved the transaction with DPCM conditionally on May 9, 2022, with all conditions being satisfied on the closing date of the transaction.
Accounting for the Transaction
The Transaction represents a reverse merger and will be accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States. Under this method of accounting, DPCM, as a direct wholly-owned subsidiary of D-Wave Quantum, who is the legal acquirer, will be treated as the “acquired” company for financial reporting purposes and D-Wave will be treated as the accounting acquirer. This determination was primarily based on evaluation of the following facts and circumstances:
| • | D-Wave’s existing stockholders will have the majority of the voting interest in the combined entity as described above with an approximate 91% voting interest; |
| • | The combined company’s board of directors will have seven board members consisting of one board member designated by DPCM, three board members retained from the D-Wave board, and three additional, independent board member; |
| • | D-Wave senior management will comprise all the senior management of the combined company; and |
| • | D-Wave operations will comprise the ongoing operations of the combined company. |
Accordingly, for accounting purposes, the Transaction will be treated as the equivalent of a capital transaction in which D-Wave is issuing stock for the net assets of DPCM, accompanied by a recapitalization. The net assets of DPCM will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Transaction will be those of D-Wave.
4
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2022
(In thousands, except share and per share information)
| Historical | ||||||||||||||||||||
| DPCM Capital, Inc. |
D-Wave Systems Inc. |
Pro Forma Adjustments |
D-Wave Quantum Inc. Pro Forma |
|||||||||||||||||
| Assets |
||||||||||||||||||||
| Current assets: |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 78 | $ | 10,466 | $ | 300,627 | (a | ) | $ | 22,938 | ||||||||||
| 40,000 | (b | ) | ||||||||||||||||||
| (21,525 | ) | (h | ) | |||||||||||||||||
| (15,019 | ) | (e | ) | |||||||||||||||||
| (291,269 | ) | (g | ) | |||||||||||||||||
| (420 | ) | (l | ) | |||||||||||||||||
| Trade accounts receivable, net |
— | 918 | 918 | |||||||||||||||||
| Receivable research incentives |
— | 2,451 | 2,451 | |||||||||||||||||
| Inventories |
— | 2,148 | 2,148 | |||||||||||||||||
| Prepaid expenses and other current assets |
70 | 1,529 | 1,101 | (j | ) | 4,450 | ||||||||||||||
| 1,750 | (k | ) | ||||||||||||||||||
| Deferred offering costs |
— | 5,671 | (5,671 | ) | (e | ) | — | |||||||||||||
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|
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|
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| Total current assets |
148 | 23,183 | 9,574 | 32,905 | ||||||||||||||||
| Property and equipment, net |
— | 2,772 | 2,772 | |||||||||||||||||
| Operating lease right-of-use assets |
— | 8,118 | 8,118 | |||||||||||||||||
| Intangible assets, net |
— | 262 | 262 | |||||||||||||||||
| Other noncurrent assets |
— | 1,350 | 1,350 | |||||||||||||||||
| Cash and marketable securities held in Trust Account |
300,627 | — | (300,627 | ) | (a | ) | — | |||||||||||||
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|
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| Total assets |
$ | 300,775 | $ | 35,685 | $ | (291,053 | ) | $ | 45,407 | |||||||||||
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5
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2022
(In thousands, except share and per share information)
| Liabilities and stockholders’ equity (deficit) |
||||||||||||||||||||
| Current liabilities: |
||||||||||||||||||||
| Trade accounts payable |
— | 2,483 | 2,483 | |||||||||||||||||
| Accounts payable; accrued expenses and other current liabilities |
5,731 | 8,295 | (5,671 | ) | (e | ) | 9,685 | |||||||||||||
| (420 | ) | (1 | ) | |||||||||||||||||
| 1,750 | (k | ) | ||||||||||||||||||
| Current portion of operating lease liabilities |
— | 1,573 | 1,573 | |||||||||||||||||
| Loans payable, current |
— | 21,353 | (21,108 | ) | (h | ) | 245 | |||||||||||||
| Deferred revenue, current |
— | 2,595 | 2,595 | |||||||||||||||||
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|
|
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| Total current liabilities |
5,731 | 36,299 | (25,449 | ) | 16,581 | |||||||||||||||
| Warrant liabilities |
6,300 | — | 6,300 | |||||||||||||||||
| Operating lease liabilities, net of current portion |
— | 6,556 | 6,556 | |||||||||||||||||
| Loans payable noncurrent |
— | 12,903 | 12,903 | |||||||||||||||||
| Deferred revenue, noncurrent |
— | 20 | 20 | |||||||||||||||||
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|
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| Total liabilities |
$ | 12,031 | $ | 55,778 | $ | (25,449 | ) | $ | 42,360 | |||||||||||
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|
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| DPCM Class A common stock subject to possible redemption |
300,114 | — | (300,114 | ) | (f | ) | — | |||||||||||||
| Stockholders’ equity (deficit): |
||||||||||||||||||||
| D-Wave Non-redeemable convertible preferred stock |
— | 189,881 | (189,881 | ) | (c | ) | — | |||||||||||||
| D-Wave Common stock |
— | 2,811 | (2,811 | ) | (c | ) | — | |||||||||||||
| DPCM Class B common stock |
1 | — | (1 | ) | (f | ) | — | |||||||||||||
| D-Wave Quantum common stock |
— | — | (3 | ) | (g | ) | 76 | |||||||||||||
| 43 | (f | ) | ||||||||||||||||||
| — | (j | ) | ||||||||||||||||||
| 58 | (b | ) | ||||||||||||||||||
| (22 | ) | (c | ) | |||||||||||||||||
| Additional paid-in capital |
10,151 | 147,779 | 39,942 | (b | ) | 364,292 | ||||||||||||||
| 300,072 | (f | ) | ||||||||||||||||||
| (21,522 | ) | (d | ) | |||||||||||||||||
| (15,019 | ) | (e | ) | |||||||||||||||||
| 192,714 | (c | ) | ||||||||||||||||||
| 340 | (i | ) | ||||||||||||||||||
| 1,101 | (j | ) | ||||||||||||||||||
| (291,266 | ) | (g | ) | |||||||||||||||||
| Accumulated deficit |
(21,522 | ) | (350,083 | ) | 21,522 | (d | ) | (350,840 | ) | |||||||||||
| (417 | ) | (h | ) | |||||||||||||||||
| (340 | ) | (i | ) | |||||||||||||||||
| Accumulated other comprehensive loss |
— | (10,481 | ) | (10,481 | ) | |||||||||||||||
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|
|
|
|
|
|
|||||||||||||
| Total stockholders’ equity (deficit) |
$ | (11,370 | ) | $ | (20,093 | ) | $ | 34,510 | $ | 3,047 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities and stockholders’ equity (deficit) |
$ | 300,775 | $ | 35,685 | $ | (291,053 | ) | $ | 45,407 | |||||||||||
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited pro forma condensed combined financial statements.
6
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2021
(In thousands, except share and per share amounts)
| Historical | ||||||||||||||||||||
| (In thousands, except share and per share data) | DPCM Capital, Inc | D-Wave Systems Inc. |
Pro Forma Adjustments |
D-Wave Quantum Inc. Pro Forma |
||||||||||||||||
| Revenue |
$ | — | $ | 6,279 | $ | 6,279 | ||||||||||||||
| Cost of revenue: |
— | 1,750 | 1,750 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total gross profit |
— | 4,529 | 4,529 | |||||||||||||||||
| Operating expenses: |
||||||||||||||||||||
| Research and development |
— | 25,401 | 25,401 | |||||||||||||||||
| General and administrative |
3,782 | 11,897 | 340 | (cc | ) | 16,019 | ||||||||||||||
| Sales and marketing |
— | 6,179 | 6,179 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total operating expenses |
3,782 | 43,477 | 340 | 47,599 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Loss from operations |
(3,782 | ) | (38,948 | ) | (340 | ) | (43,070 | ) | ||||||||||||
| Other income (expense): |
— | |||||||||||||||||||
| Interest expense |
— | (1,728 | ) | (417 | ) | (dd | ) | (2,145 | ) | |||||||||||
| Government assistance |
— | 7,167 | 7,167 | |||||||||||||||||
| Change in fair value of warrant liabilities |
27,913 | — | 27,913 | |||||||||||||||||
| Interest earned on marketable securities held in Trust Account |
116 | — | (116 | ) | (aa | ) | — | |||||||||||||
| Unrealized loss on marketable securities held in Trust Account |
9 | — | (9 | ) | (aa | ) | — | |||||||||||||
| Gain on investment in marketable securities |
1,163 | 1,163 | ||||||||||||||||||
| Other income (expense), net |
— | 801 | 801 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total other income (expense), net |
28,038 | 7,403 | (542 | ) | 34,899 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) before taxes |
$ | 24,256 | $ | (31,545 | ) | $ | (882 | ) | $ | (8,171 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Provision for income taxes |
(10 | ) | — | — | (10 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) |
$ | 24,246 | $ | (31,545 | ) | $ | (882 | ) | $ | (8,181 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) per share, basic and diluted |
(0.28 | ) | (0.08 | ) (bb) | ||||||||||||||||
| Net income per share, Class A common stock, basic and diluted |
0.65 | |||||||||||||||||||
| Net income per share, Class B common stock, basic and diluted |
0.65 | |||||||||||||||||||
| Weighted-average shares outstanding ,basic and diluted |
— | 111,911,127 | 108,907,982 | |||||||||||||||||
| Weighted average shares outstanding, Class A common stock, basic and diluted |
30,000,000 | — | ||||||||||||||||||
| Weighted average shares outstanding, Class B common stock, basic and diluted |
7,500,000 | — | ||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements.
7
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2022
(In thousands, except share and per share amounts)
| Historical | ||||||||||||||||||||
| DPCM Capital, Inc | D-Wave Systems Inc. |
Pro Forma Adjustments |
D-Wave Quantum Inc. Pro Forma |
|||||||||||||||||
| Revenue |
$ | — | $ | 3,083 | $ | 3,083 | ||||||||||||||
| Cost of revenue: |
— | 1,169 | 1,169 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total gross profit |
— | 1,914 | 1,914 | |||||||||||||||||
| Operating expenses: |
||||||||||||||||||||
| Research and development |
— | 13,599 | 13,599 | |||||||||||||||||
| General and administrative |
2,975 | 7,606 | 10,581 | |||||||||||||||||
| Sales and marketing |
— | 3,339 | 3,339 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Total operating expenses |
2,975 | 24,544 | 27,519 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||
| Loss from operations |
(2,975 | ) | (22,630 | ) | (25,605 | ) | ||||||||||||||
| Other income (expense): |
||||||||||||||||||||
| Interest expense |
— | (2,538 | ) | 606 | (cc | ) | (1,932 | ) | ||||||||||||
| Reduction of deferred underwriting fees |
235 | — | 235 | |||||||||||||||||
| Change in fair value of warrant liabilities |
4,487 | — | 4,487 | |||||||||||||||||
| Interest earned on marketable securities held in Trust Account |
427 | — | (427 | ) | (aa | ) | — | |||||||||||||
| Unrealized loss on marketable securities held in Trust Account |
17 | — | (17 | ) | (aa | ) | — | |||||||||||||
| Other income (expense), net |
— | 353 | 353 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total other income (expense), net |
5,166 | (2,185 | ) | 162 | 3,143 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) before taxes |
$ | 2,191 | $ | (24,815 | ) | $ | 162 | $ | (22,462 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Provision for income taxes |
(20 | ) | — | — | (20 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) |
$ | 2,171 | $ | (24,815 | ) | $ | 162 | $ | (22,482 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) per share, basic and diluted |
$ | (0.22 | ) | $ | (0.20 | ) (bb) | ||||||||||||||
| Net income per share, Class A common stock, basic and diluted |
$ | 0.06 | ||||||||||||||||||
| Net income per share, Class B common stock, basic and diluted |
$ | 0.06 | ||||||||||||||||||
| Weighted-average shares outstanding ,basic and diluted |
— | 111,981,014 | 110,008,180 | |||||||||||||||||
| Weighted average shares outstanding, Class A common stock, basic and diluted |
30,000,000 | — | ||||||||||||||||||
| Weighted average shares outstanding, Class B common stock, basic and diluted |
7,500,000 | — | ||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements.
8
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2022
The pro forma notes and adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
Pro forma Transaction Accounting Adjustments:
| (a) | Reflects the reclassification of the cash and marketable securities held in the Trust Account to cash and cash equivalents, subsequent to DPCM public stockholders exercising their right to have redeemed their shares of DPCM Class A Common Stock for their pro rata share of the Trust Account. |
| (b) | Reflects the proceeds of $40.0 million from the issuance and sale of D-Wave Quantum Common Shares at a par value of $0.0001 in the PIPE financing pursuant to the PIPE Subscription Agreements. PIPE Investors will receive 5,816,530 (5,816,528 as a result of rounding) D-Wave Quantum Common Shares. |
| (c) | Reflects the recapitalization of D-Wave through the contribution of all outstanding common shares and convertible preferred shares of D-Wave to DPCM and the issuance of 99.7 million (conversion ratio of 0.889657) D-Wave Quantum Common Shares (including 48.4 million Exchangeable Shares). As a result of the recapitalization, the carrying value of common shares of $2.8 million and non-redeemable convertible preferred shares of $189.9 million of D-Wave were derecognized. D-Wave Quantum Common Shares issued as part of the recapitalization were recorded to common shares in the amount $22,000 and Additional paid-in capital in the amount of $192.7 million. |
| (d) | Reflects the elimination of DPCM’s historical accumulated deficit. |
| (e) | Reflects the pro forma adjustment to record the payment of preliminary estimated transaction costs incurred by DPCM and D-Wave for legal, financial advisory, accounting, auditing, and other professional fees. Costs directly attributable to the Transaction (excluding DPCM underwriter’s fees described in (b)) amount to $15.0 million and consist of $12.9 million relating to legal, accounting, auditing, $750,000 relating to printing, $400,000 related to D&O insurance, $412,000 related to the NYSE and other filing fees, and $593,000 related to other professional fees. Such costs are recorded as a reduction to additional paid-in capital. Additionally, it reflects the reduction of deferred offering costs by $5.7 million for transaction costs capitalized by D-Wave and accrued liabilities by $5.7 million for transaction costs accrued by D-Wave. |
| (f) | Reflects the conversion of 902,213 shares of DPCM Class A Common Stock into 1,311,937 D-Wave Quantum Common Shares (Exchange Ratio of 1.4541326). Reflects the conversion of 7,500,000 shares of DPCM Class B Common Stock into 3,015,575 D-Wave Quantum Common Shares (after giving effect to the forfeiture of the 4,484,425 Forfeited Shares). D-Wave Quantum’s Common Shares issued as part of the conversion were recorded to common stock in the amount of $43,000 and additional paid-in capital in the amount of $300.0 million, which assumes no holders of shares of DPCM Class A Common Stock exercise their redemption rights. |
| (g) | Reflects that DPCM’s public stockholders exercised their redemption rights with respect to 29,097,787 shares of DPCM Class A Common Stock prior to the consummation of the Transaction at a redemption price of approximately $10.01 per share, or approximately $291.3 million in cash. 7,500,000 shares of DPCM Class B Common Stock were converted into 3,015,575 D-Wave Quantum Common Shares (after giving effect to the forfeiture of the 4,484,425 Forfeited Shares). |
| (h) | Reflects D-Wave’s payment of its first tranche of $15.0 million received as of March 31, 2022 and the second tranche of $5.0 million received as of June 30, 2022, totaling $20.0 million of its short-term debt with PSPIB Unitas Investments II Inc. This adjustment reflects a $1.0 million final payment fee (calculated as 5.0% of outstanding principal) and the eliminations of the short-term debt carrying value of $21.1 million and the unamortized debt discount due to unamortized debt issuance costs of $417,000. |
| (i) | Reflects the stock-based compensation for stock options that are subject to accelerated vesting upon the consummation of the Transaction. |
| (j) | Reflects the Closing Date issuance of 127,180 shares of D-Wave Quantum common stock to Lincoln Park to satisfy the initial tranche of the Commitment Fee under the Purchase Agreement. This adjustment reflects an increase of $1.1 million to additional paid-in capital and deferred issuance costs and an immaterial increase to D-Wave Quantum common stock. The deferred issuance costs are recorded at the Closing Date fair value of the 127,180 shares issued and are classified within prepaid expenses and other current assets in the unaudited pro forma condensed combined balance sheet. |
| (k) | Reflects a liability incurred on the Closing Date for the second tranche of the Commitment Fee under the Purchase Agreement with Lincoln Park. This adjustment reflects an increase of $1.75 million to deferred issuance costs and accounts payable, accrued expenses and other current liabilities. The liability for this adjustment was satisfied by the issuance of 254,360 shares of D-Wave Quantum common stock on August 25, 2022. |
10
| (l) | Reflects repayment of the Sponsor Note and Sponsor Affiliate Note upon the Closing. The Sponsor Note and Sponsor Affiliate Note are classified within accounts payable, accrued expenses and other current liabilities in the unaudited pro forma condensed combined balance sheet. |
Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations for the Year Ended December 31, 2021
The pro forma notes and adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
Pro forma Transaction Accounting Adjustments:
| (aa) | Reflects the pro forma adjustment to eliminate the interest income earned and unrealized gain on marketable securities held in the Trust Account. |
| (bb) | Reflects the pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations based upon the number of D-Wave Quantum Common Shares outstanding at the closing of the Transaction, assuming the Transaction occurred on January 1, 2021. As the unaudited pro forma condensed combined statement of operations is in a loss position, anti-dilutive instruments were not included in the calculation of diluted weighted average number of common shares outstanding (the anti-dilutive instruments are described below). |
| (cc) | Reflects the stock-based compensation for stock options that are subject to accelerated vesting upon the consummation of the Transaction. |
| (dd) | Reflects an adjustment to eliminate the unamortized debt discount due to unamortized debt issuance costs of $417,000. |
Pro Forma weighted average common shares outstanding—basic and diluted is calculated as follows:
| Year Ended December 31, 2021 | ||||
| (In thousands, except per share data) |
||||
| Numerator: |
||||
| Pro forma net loss |
$ | (8,181 | ) | |
| Denominator: |
||||
| Public shareholders |
1,312 | |||
| PIPE investors |
5,817 | |||
| Initial tranche Commitment Fee—Lincoln Park |
127 | |||
| Sponsor shares |
2,769 | |||
| Additional Former Class B Holder shares |
248 | |||
| D-Wave shareholders |
98,636 | |||
|
|
|
|||
| Pro forma weighted average shares outstanding, basic and diluted |
108,909 | |||
|
|
|
|||
| Pro forma basic and diluted net loss per share(1) |
$ | (0.08 | ) | |
|
|
|
|||
| (1) | Because basic and diluted weighted average shares outstanding are the same in a net loss position, combined pro forma net loss per share excludes 10,000,000 Public Warrants and 8,000,000 Private Warrants of DPCM and 3,406,413 (conversion ratio 0.881210) warrants of D-Wave as of December 31, 2021. |
11
Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations for the Six Months Ended June 30, 2022
The pro forma notes and adjustments, based on preliminary estimates that could change materially as additional information is obtained, are as follows:
Pro forma Transaction Accounting Adjustments:
| (aa) | Reflects the pro forma adjustment to eliminate the interest income earned and unrealized gain on marketable securities held in Trust Account held in the Trust Account. |
| (bb) | Reflects the pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statements of operations based upon the number of D-Wave Quantum Common Shares outstanding at the closing of the Transaction, assuming the Transaction occurred on January 1, 2021. As the unaudited pro forma condensed combined statement of operations is in a loss position, anti-dilutive instruments were not included in the calculation of diluted weighted average number of common shares outstanding (the anti-dilutive instruments are described below). |
| (cc) | Reflects the elimination of interest expense on short-term debt with PSPIB Unitas Investments II Inc., as it is assumed the related debt balance would have been paid as if the Transaction had occurred on January 1, 2021. |
Pro Forma weighted average common shares outstanding—basic and diluted is calculated as follows:
| Six Months Ended June 30, 2022 | ||||
| (In thousands, except per share data) |
||||
| Numerator: |
||||
| Pro forma net loss |
$ | (22,482 | ) | |
| Denominator: |
||||
| Public Stockholders |
1,312 | |||
| PIPE investors |
5,817 | |||
| Initial tranche Commitment Fee—Lincoln Park |
127 | |||
| Sponsor shares |
2,769 | |||
| Additional Former Class B Holder shares |
247 | |||
| D-Wave shareholders |
99,737 | |||
|
|
|
|||
| Pro forma weighted average shares outstanding, basic and diluted |
110,009 | |||
|
|
|
|||
| Pro forma basic and diluted net loss per share(1) |
$ | (0.20 | ) | |
|
|
|
|||
| (1) | Because basic and diluted weighted average shares outstanding are the same in a net loss position, combined pro forma net loss per share excludes 14,451,000 Public Warrants and 11,633,000 Private Warrants of DPCM and 3,247,637 (conversion ratio 0.8896570) warrants of D-Wave as of June 30, 2022. |
D-Wave’s pro forma options and warrants are as follows based on a conversion ratio of 0.8896570
| (Shares In thousands) | Shares | |||
| D-Wave Warrants |
2,889 | |||
| D-Wave Option |
13,621 | |||
|
|
|
|||
| Total D-Wave Quantum issuable to D-Wave (Dilutive) |
16,510 | |||
|
|
|
|||
12
DPCM’s anti-dilutive pro forma Warrants are as follows:
| (Shares In thousands) | Shares | |||
| Public Warrants |
14,541 | |||
| Private Warrants |
11,633 | |||
|
|
|
|||
| Total Dilutive Shares |
26,174 | |||
|
|
|
|||
13