As filed with the U.S. Securities and Exchange Commission on July 10, 2023
Registration No. 333-269732
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
D-Wave Quantum Inc.
(Exact Name of Registrant as Specified in its Certificate
of Incorporation)
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Delaware
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7374
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88-1068854
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(State or Other Jurisdiction of Incorporation or Organization)
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(Primary Standard Industrial Classification Code Number)
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(IRS Employer
Identification Number)
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3033 Beta Avenue
Burnaby, British Columbia V5G 4M9
Canada
Tel: (604) 630-1428
(Address, including Zip Code, and Telephone Number, including Area Code, of Principal
Executive Offices)
Corporation Service Company
251 Little Falls Drive
Wilmington, New Castle County, Delaware
19808
Tel: (650) 560-4753
(Name, Address, including Zip Code, and Telephone Number, including Area Code, of
Agent for Service)
Copies to:
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Alan Baratz
D-Wave Quantum Inc.
3033 Beta Avenue
Burnaby, British Columbia V5G 4M9
Canada
Tel: (604) 630-1428
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Michael M. Mills, Jr.
Holland & Knight LLP
100 North Tampa Street
Suite 4100
Tampa, Florida 33602
Tel: (813) 227-8500
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Approximate date of commencement of proposed sale
to the public: From time to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☒
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☐
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Emerging Growth Company
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☒
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholder may issue or sell these securities
until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 10, 2023
PRELIMINARY PROSPECTUS
D-WAVE QUANTUM INC.
Up to 35,000,000 Common Shares
This prospectus relates to the resale, from time to time, of up
to 35,000,000 Common Shares, par value $0.0001 per share (the “Common Shares”), by the selling stockholder, Lincoln Park Capital Fund, LLC (“Lincoln Park” or the “Selling Stockholder”).
The Common Shares to which this prospectus relates includes
shares that may be issued to Lincoln Park pursuant to a purchase agreement between us, D-Wave Systems Inc. (“D-Wave Systems”), DPCM Capital Inc. (“DPCM”) and Lincoln Park dated June 16, 2022 (the “Purchase Agreement” or the “Lincoln Park
Purchase Agreement”). Pursuant to the Purchase Agreement, Lincoln Park has agreed to purchase from D-Wave Quantum, at the option of D-Wave Quantum, up to $150,000,000 of Common Shares from time to time, at our discretion after October 26, 2022
(the date on which the First LP Registration Statement (as defined below) was declared effective by the Securities and Exchange Commission (“SEC”)) and after satisfaction of other conditions in the Purchase Agreement (the “Commencement Date”).
Under the registration statement previously filed with the SEC,
and declared effective by the SEC on October 26, 2022, in connection with the Purchase Agreement (the “First LP Registration Statement”), we have registered 15,500,000 Common Shares, all of which have been sold to Lincoln Park to date. In
accordance with our obligations under the Registration Rights Agreement, we are registering additional shares under this prospectus.
Lincoln Park is an “underwriter” within the meaning of Section
2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”). See “Plan of Distribution” on page 167 for more information about how Lincoln Park may sell the Common Shares being registered pursuant to this
prospectus.
Lincoln Park may sell the Common Shares described in this
prospectus in a number of different ways and at varying prices. The price that Lincoln Park will pay for the shares to be resold pursuant to this prospectus (which will be equitably adjusted for any reorganization, recapitalization, non-cash
dividend, forward or reverse stock split, or other similar transaction occurring during the business days used to compute such price) will depend upon the timing of sales and will fluctuate based on the trading price of the Common Shares and,
depending on whether the purchase is a Regular Purchase (as defined below) or an Accelerated Purchase (as defined below), will be set as either (a) the lower of (i) the lowest trading price for Common Shares on the applicable Purchase Date (as
defined below) and (ii) the average of the three lowest closing sale prices for Common Shares during the ten consecutive business days ending on the business day immediately preceding such Purchase Date or (b) a purchase price equal to the
lesser of 95% of (x) the closing sale price of Common Shares on the Accelerated Purchase Date (as defined below) and (y) of the volume weighted average price of Common Shares on the Accelerated Purchase Date (during a time period specified in
the Purchase Agreement). The Purchase Agreement prohibits D-Wave Quantum from directing Lincoln Park to purchase any D-Wave Quantum Common Shares if the closing price of the D-Wave Quantum Common Shares is less than the floor price of $1.00
(the “Floor Price”). See the section entitled “Lincoln Park Transaction.”
While the Purchase Agreement limits the rate at which we can sell
Common Shares to Lincoln Park, due to the significant number of Common Shares that were redeemed in connection with the Transaction (as defined below), the number of Common Shares that we can sell to Lincoln Park under the Purchase Agreement
could constitute a considerable percentage of our public float at the time of such sales. As a result, the resale by Lincoln Park of Common Shares pursuant to this prospectus could have a significant negative impact on the trading price of the
Common Shares. See “Lincoln Park Transaction” on page 169 for more information.
We have agreed to bear all of the expenses incurred in connection
with the registration of the shares to which this prospectus relates. Lincoln Park will pay or assume discounts, commissions, and fees of underwriters, selling brokers or dealer managers, if any, incurred in connection with the sale of Common
Shares.
We are an “emerging growth company” under applicable Securities
and Exchange Commission (“SEC”) rules and, as such, have elected to comply with certain reduced public company disclosure requirements for this prospectus and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth
Company.”
In the future, we may become a “controlled company” within the
meaning of the rules of the New York Stock Exchange (the “NYSE”). As a result, we may qualify for exemptions from certain corporate governance requirements that would otherwise be applicable to NYSE-listed companies. While we do not intend to
utilize any of the exemptions available to a “controlled company”, if we were to become one, we would be able to elect not to comply with certain corporate governance requirements of the NYSE, including: the requirement that a majority of our
board of directors consist of “independent directors” as defined under the rules of the NYSE; the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the
committee’s purpose and responsibilities; the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and
responsibilities; and the requirement for an annual performance evaluation of the compensation and nominating and corporate governance committees.
Our Common Shares are listed on the NYSE under the symbol
“QBTS”. On July 7, 2023 the last reported sales prices of the Common Shares on the NYSE was $1.86.
Investing in our securities involves a high degree of risk. You
should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 21 of this prospectus, and under similar headings in any amendments or supplements to this prospectus.
Neither the SEC nor any state securities commission has approved
or disapproved of these securities, or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is July 10, 2023.
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This Prospectus is part of a registration statement on Form S-1
that we filed with the SEC. The Selling Stockholder may offer, sell or distribute all or a portion of the Common Shares hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices, from time to
time in one or more offerings as described in this prospectus. We will not receive any of the proceeds from such sales of the Common Shares, except with respect to amounts received by us upon the exercise of the Warrants. We will bear all
costs, expenses and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue sky” laws. The Selling Stockholder will bear all commissions and discounts, if any,
attributable to its sale of Common Shares. See “Plan of Distribution.”
We may also file a prospectus supplement or post-effective
amendment to the registration statement of which this prospectus forms a part that may contain material information relating to these offerings. The prospectus supplement or post-effective amendment may also add, update or change information
contained in this prospectus with respect to that offering. If there is any inconsistency between the information in this prospectus and the applicable prospectus supplement or post-effective amendment, you should rely on the prospectus
supplement or post-effective amendment, as applicable. Before purchasing any securities, you should carefully read this prospectus, any post-effective amendment, and any applicable prospectus supplement, together with the additional information
described in the “Where You Can Find More Information” section of this prospectus.
Neither we nor the Selling Stockholder have authorized anyone to
provide you with any information or to make any representations other than those contained in this prospectus, any post-effective amendment, or any applicable prospectus supplement prepared by or on behalf of us or to which we have referred
you. We and the Selling Stockholder take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the Selling Stockholder will not make an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, any post-effective amendment and any applicable prospectus supplement to this prospectus is accurate
only as of the date on its respective cover. Our business, financial condition, results of operations and prospects may have changed since those dates. This prospectus contains, and any post-effective amendment or any prospectus supplement may
contain, market data and industry statistics and forecasts that are based on independent industry publications and other publicly available information. Although we believe these sources are reliable, we do not guarantee the accuracy or
completeness of this information and we have not independently verified this information. In addition, the market and industry data and forecasts that may be included in this prospectus, any post-effective amendment or any prospectus supplement
may involve estimates, assumptions and other risks and uncertainties and are subject to change based on various factors, including those discussed in the “Risk Factors” section of this prospectus, any post-effective amendment and the applicable
prospectus supplement. Accordingly, investors should not place undue reliance on this information.
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We and our respective subsidiaries own or have rights to
trademarks, trade names and service marks that we use in connection with the operation of our business. In addition, their names, logos and website names and addresses are their trademarks or service marks. Other trademarks, trade names and
service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, in some cases, the trademarks, trade names and service marks referred to in this prospectus are listed without the applicable ®, ™
and SM symbols, but they will assert, to the fullest extent under applicable law, their rights to these trademarks, trade names and service marks.
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In this prospectus, we present industry data, information and
statistics regarding the markets in which we compete as well as publicly available information, industry and general publications and research and studies conducted by third parties. This information is supplemented where necessary with our own
internal estimates and information obtained from discussions with our customers, taking into account publicly available information about other industry participants and our management’s judgment where information is not publicly available.
This information appears in “Business” and other sections of this prospectus.
Industry publications, research, studies and forecasts generally
state that the information they contain has been obtained from sources believed to be reliable. However, forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the
other forward-looking statements in this prospectus. These forecasts and forward-looking information are subject to uncertainty and risk due to a variety of factors, including those described under “Risk Factors.” These and other factors could
cause results to differ materially from those expressed in any forecasts or estimates.
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Unless otherwise stated or unless the context otherwise requires,
the terms “D-Wave Quantum,” “D-Wave,” “Company,” “the registrant,” “we,” “us” and “our” refers to D-Wave Quantum Inc., a Delaware corporation, together with its subsidiaries.
In addition, in this prospectus:
“Amended and Restated Sponsor Support Agreement” means the letter agreement, dated
as of June 16, 2022, by and among DPCM, the Sponsor, D-Wave Systems and D-Wave Quantum, which superseded and replaced the letter agreement, dated as of February 7, 2022, by and among DPCM, the Sponsor, D-Wave and D-Wave Quantum.
“Assignment, Assumption and Amendment Agreement” means that certain Assignment,
Assumption and Amendment Agreement, entered into immediately prior to the Effective Time, by and among DPCM, D-Wave Quantum, Continental Stock Transfer & Trust Company, as the existing warrant agent, and Computershare, as the successor
warrant agent.
“CallCo” means DWSI Canada Holdings ULC, a British Columbia unlimited liability
company and a direct, wholly-owned subsidiary of D-Wave Quantum.
“Computershare” means, together, Computershare Inc., a Delaware corporation and its
affiliate, Computershare Trust Company, N.A., a federally chartered trust company.
“Court of Chancery” means the Court of Chancery of the State of Delaware.
“D-Wave Equityholders” means the shareholders of D-Wave Systems and the holders of
other equity interests in D-Wave Systems (including D-Wave Options and D-Wave Warrants), in each case, prior to the Effective Time.
“D-Wave Option” means each option to purchase shares of common stock of D-Wave
Systems issued and outstanding under D-Wave’s 2020 Equity Incentive Plan that, at the Effective Time, became exercisable for a Common Share.
“D-Wave Shares” means shares of D-Wave Systems Inc. outstanding prior to the
consummation of the Transaction.
“D-Wave Quantum” means D-Wave Quantum Inc., a Delaware corporation.
“D-Wave Quantum Charter” means the amended and restated certificate of
incorporation of D-Wave Quantum.
“D-Wave Warrants” means the warrants exercisable for D-Wave Systems preferred stock
that were outstanding as of immediately prior to the consummation of the Transaction, that, at the Effective Time, became exercisable for Common Shares.
“DGCL” means the Delaware General Corporation Law.
“DPCM Board” means the board of directors of DPCM.
“DPCM Class A Common Stock” means the shares of DPCM’s Class A common stock, par
value $0.0001 per share.
“DPCM Class B Common Stock” means the shares of DPCM’s Class B common stock, par
value $0.0001 per share.
“DPCM Common Stock” means the DPCM Class A Common Stock and DPCM Class B Common
Stock.
“DPCM IPO” means DPCM’s initial public offering, consummated on November 17, 2020,
through the sale of 30,000,000 DPCM Units at $10.00 per DPCM Unit.
“DPCM Merger” means the merger of Merger Sub with and into DPCM.
“DPCM Public Stockholders” means holders of Public Shares, including the Initial
Stockholders to the extent the Initial Stockholders hold Public
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Shares; provided, that the Initial Stockholders are considered a “DPCM Public
Stockholder” only with respect to any Public Shares held by them.
“DPCM Unit” means one share of DPCM Class A Common Stock and one-third of one
warrant of DPCM, whereby each whole warrant entitled the holder thereof to purchase one share of DPCM Class A Common Stock at an exercise price of $11.50 per share of DPCM Class A Common Stock, sold in the DPCM IPO.
“DPCM Warrants” means, collectively, the Public Warrants and the Private Warrants.
“Effective Time” means the time the Certificate of Merger in respect of the DPCM
Merger became effective in accordance with the DGCL.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, together with
the rules and regulations promulgated thereunder.
“Exchange Ratio” means 1.4541326 Common Shares received by non-redeeming DPCM
Public Stockholders for each share of DPCM Class A Common Stock exchanged in the Transaction.
“Exchangeable Shares” means the exchangeable shares in the capital of ExchangeCo.
“ExchangeCo” means D-Wave Quantum Technologies Inc., a British Columbia corporation
and a direct, wholly-owned subsidiary of CallCo.
“GAAP” means generally accepted accounting principles in the United States.
“Initial Stockholders” means the Sponsor and certain of DPCM’s former officers,
directors and other special advisors.
“IRS” means the U.S. Internal Revenue Service.
“Merger” means the transactions contemplated by the Transaction Agreement,
including, among other things, (a) Merger Sub merged with and into DPCM, with DPCM surviving as a direct, wholly-owned subsidiary of D-Wave, (b) D-Wave indirectly acquired all of the outstanding share capital of D-Wave Systems and D-Wave
Systems became an indirect subsidiary of D-Wave, with D-Wave becoming a public company and an SEC registrant as successor to DPCM.
“Merger Sub” means DWSI Holdings Inc., a Delaware corporation and a direct,
wholly-owned subsidiary of D-Wave Quantum.
“PIPE Financing” means the sale to the PIPE Investors of an aggregate number of
Common Shares in exchange for an aggregate purchase price of $40.0 million pursuant to the PIPE Subscription Agreements.
“PIPE Investors” means persons that entered into subscription agreements to
purchase Common Shares pursuant to the PIPE Subscription Agreements on or prior to the date of the Transaction Agreement, which included certain D-Wave Equityholders and certain Initial Stockholders.
“PIPE Subscription Agreements” means those certain subscription agreements executed
by PIPE Investors on or before the date of the Transaction Agreement in connection with the PIPE Financing.
“Private Warrants” means the warrants held by the Sponsor that were issued to the
Sponsor at the closing of the DPCM IPO, each of which was exercisable, at an exercise price of $11.50, for one share of DPCM Class A Common Stock, in accordance with its terms, prior to the consummation of the Transaction.
“Public Shares” means the DPCM Class A Common Stock included in the DPCM Units
issued in the DPCM IPO.
“Public Warrants” means the warrants included in the DPCM Units issued in the DPCM
IPO, each of which was exercisable, at an exercise price of $11.50, for one share of DPCM Class A Common Stock, in accordance with its terms, prior to the consummation of the Transaction.
“Registration Rights and Lock-Up Agreement” means that certain Registration Rights
and Lock-Up Agreement, deemed to be entered into among D-Wave Quantum, certain holders of DPCM Class B Common Stock, and certain shareholders of D-Wave pursuant to the Plan of Arrangement.
“Rule 144” means Rule 144 under the Securities Act.
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“Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. “Sponsor” means CDPM Sponsor Group, LLC, a Delaware limited liability company.
“Transaction Agreement” means, as amended, amended and restated, supplemented or
otherwise modified from time to time, the Transaction Agreement, dated as of February 7, 2022, by and among DPCM, D-Wave Quantum, Merger Sub, CallCo, ExchangeCo and D-Wave. “Trust Account” means the trust account of DPCM that held the proceeds
from the DPCM IPO.
“Trustee” or “Transfer Agent,” as applicable, means Computershare.
“U.S. Tax Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Warrant Agreement” means the Warrant Agreement, by and between DPCM and
Continental Stock Transfer & Trust Company, as warrant agent, dated as of October 20, 2020, which was amended and supplemented by the Assignment, Assumption and Amendment Agreement.
“Warrants” means the Warrants of D-Wave Quantum, which are exercisable for Common
Shares.
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Certain statements in this prospectus may constitute
“forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Our
forward-looking statements include, but are not limited to, statements regarding D-Wave Quantum’s and D-Wave Quantum’s management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements
that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking statements by the following
words: “believe,” “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “trend,” “believe,” “estimate,” “predict,” “project,” “potential,” “seem,” “seek,” “future,” “outlook,” “forecast,” “projection,” “continue,”
“ongoing,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve risks, uncertainties, and other factors that may cause actual results, levels
of activity, performance, or achievements to be materially different from the information expressed or implied by these forward-looking statements. We caution you that these statements are based on a combination of facts and factors currently
known by us and our projections of the future, which are subject to a number of risks. Forward-looking statements in this prospectus may include, for example, statements about:
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the expected benefits of the Merger (as defined below);
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D-Wave Quantum’s future growth and innovations;
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the increased adoption of quantum computing solutions and expansion of related market opportunities and use cases;
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the estimated total addressable market (“TAM”) for quantum computing and expectations regarding product development and
functionality;
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D-Wave Quantum’s financial and business performance following the Merger, including financial projections and business
metrics;
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changes in D-Wave Quantum’s strategy, future operations, financial position, estimated revenues and losses, projected costs,
prospects and plans;
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the ability of D-Wave Quantum’s products and services to meet customers’ compliance and regulatory needs;
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D-Wave Quantum’s ability to attract and retain qualified employees and management;
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D-Wave Quantum’s ability to develop and maintain its brand and reputation;
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developments and projections relating to D-Wave Quantum’s products, competitors and industry;
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the impact of the current economic environment due to inflation, increased interest rates, Ukraine/Russia conflict, and any
evolutions thereof;
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D-Wave Quantum’s expectations regarding its ability to obtain and maintain intellectual property protection and not infringe
on the rights of others;
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expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups
Act (the ‘‘JOBS Act”);
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D-Wave Quantum’s future capital requirements and sources and uses of cash;
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statements regarding the reseller agreement with Davidson Technologies, Inc. (“Davidson”), and Davidson’s and D-Wave’s
collaboration on an initiative to support classified quantum-hybrid applications;
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D-Wave Quantum’s ability to obtain funding for its operations and future growth; and
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D-Wave Quantum’s business, expansion plans and opportunities.
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These forward-looking statements are based on information
available as of the date of this prospectus, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties and are not predictions of actual performance. Accordingly, forward-looking statements
should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of
new information, future events or otherwise, except as may be required under applicable securities laws.
You should not place undue reliance on these forward-looking
statements in making an investment decision with respect to the securities offered under this prospectus. These forward-looking statements are not intended to serve as,
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and must not be relied on as, a guarantee, an assurance, a prediction or a
definitive statement of fact or probability regarding future performance, events or circumstances. Many of the factors affecting actual performance, events and circumstances are beyond the control of D-Wave Quantum. As a result of a number of
known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements.
Some factors that could cause actual results to differ include:
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anticipated trends, growth rates, and challenges in companies that are engaged in the business of quantum computing, such as
D-Wave Quantum, and in the markets in which they operate;
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the risk that D-Wave Quantum’s securities will not maintain a listing on the NYSE;
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D-Wave Quantum’s ability to recognize the anticipated benefits of the Merger, which may be affected by, among other things,
competition and the ability of D-Wave Quantum to grow and achieve and maintain profitability following the Merger;
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risks related to the uncertainty of the unaudited prospective forecasted financial information;
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risks related to the performance of D-Wave Quantum’s business and the timing of expected business or financial milestones;
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unanticipated technological or project development challenges, including with respect to the cost and or timing thereof;
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the performance of D-Wave Quantum’s products and services;
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the effects of competition on D-Wave Quantum’s business;
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changes in the business of D-Wave Quantum and D-Wave Quantum’s market, financial, political and legal conditions;
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the risk that D-Wave Quantum will need to raise additional capital to execute its business plan, which may not be available
on acceptable terms or at all;
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the risk that D-Wave Quantum may never achieve or sustain profitability;
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the risk that D-Wave Quantum is unable to secure or protect its intellectual property;
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changes in applicable laws or regulations;
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the effect of the current economic environment due to inflation, increased interest rates, Ukraine/Russia conflict,
geopolitical events, natural disasters, wars, terrorist acts or a combination of these factors on D-Wave Quantum’s business and the economy in general;
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the ability of D-Wave Quantum to execute its business model, including market acceptance of its planned products and
services;
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D-Wave Quantum’s ability to raise capital, including under the Purchase Agreement (as defined below) with Lincoln Park
Capital Fund, LLC (“Lincoln Park”);
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D-Wace Quantum’s ability to obtain funds under the Term Loan (as defined below);
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the possibility that D-Wave Quantum may be negatively impacted by other economic, business, and/or competitive factors;
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risks stemming from inflation;
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any changes to applicable tax laws, including U.S. tax laws; and
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other risks and uncertainties described in this prospectus, including those under the section titled “Risk Factors.”
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In addition, statements that “D-Wave Quantum believes” and similar
statements reflect D-Wave Quantum’s beliefs and opinions on the relevant subject. These statements are based upon information available to D-Wave Quantum as of the date of this prospectus, and while D-Wave Quantum believes such information
forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that such party has conducted an exhaustive inquiry into, or review of, all potentially available
relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
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This summary highlights selected information from this
prospectus and does not contain all of the information that is important to you in making an investment decision. This summary is qualified in its entirety by the more detailed information included in this prospectus. Before making your
investment decision with respect to our securities, you should carefully read this entire prospectus, including the information under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and
the financial statements included elsewhere in this prospectus.
Unless otherwise indicated or the context otherwise requires,
references in this prospectus to “Company”, “D-Wave Quantum,” “D-Wave,” “we,” “our,” “us” and other similar terms refer to D-Wave Quantum Inc. and our consolidated subsidiaries.
General
D-Wave Quantum Inc., a Delaware corporation, is the parent
holding company of D-Wave Systems Inc., 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. Its mission is to unlock the power of quantum computing today to benefit business and society. D-Wave does this by delivering customer value with practical quantum applications for
problems as diverse as logistics, artificial intelligence, materials sciences, drug discovery, scheduling, cybersecurity, fault detection, and financial modeling. D-Wave’s systems are being used by some of the world’s most advanced
organizations, including NEC Corporation (“NEC”), Volkswagen, DENSO, Lockheed Martin, Forschungszentrum Jülich, University of Southern California, and Los Alamos National Laboratory. With headquarters and the Quantum Engineering Center of
Excellence based near Vancouver, Canada, D-Wave’s U.S. operations are based in Palo Alto, California.D-Wave has a blue-chip investor base that includes the Public Sector Pension Investment Board (“PSP”), Goldman Sachs, BDC Capital, NEC, Aegis
Group Partners, and In-Q-Tel.
On February 7, 2022, D-Wave entered into the Transaction
Agreement with DPCM, D-Wave Systems, Merger Sub, CallCo, and ExchangeCo. Pursuant to the Transaction Agreement, in a series of transactions including the Arrangement (as defined below), among other things, Merger Sub merged with and into DPCM
with DPCM surviving the merger, as a result of which DPCM became a direct, wholly-owned subsidiary of D-Wave, with the stockholders of DPCM receiving Common Shares, and D-Wave Systems became an indirect subsidiary of D-Wave, as detailed
below. On August 5, 2022 (the “Closing Date”), the Merger and the Arrangement were consummated (the “Closing”).
Immediately following the DPCM Merger, the parties proceeded to
effect the Arrangement on the terms and subject to the conditions set forth in the Plan of Arrangement and the Transaction Agreement or made at the direction of the Court in accordance with the Interim Order or the Final Order (as defined
below). Pursuant to the Plan of Arrangement, (i) CallCo acquired a portion of the issued and outstanding D-Wave Shares from certain holders in exchange for Common Shares in the D-Wave Quantum Share Exchange (as defined below), (ii) CallCo
contributed such D-Wave Shares to ExchangeCo in exchange for ExchangeCo Common Shares, (iii) following the D-Wave Quantum Share Exchange, ExchangeCo acquired the remaining issued and outstanding D-Wave Shares from the remaining holders of
D-Wave Shares in exchange for 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 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 Common Shares, subject to the terms and conditions of the Exchangeable Shares (the “Arrangement”). In addition, pursuant to
and following the Arrangement, D-Wave Options and D-Wave Warrants became exercisable for Common Shares.
On February 7, 2022, concurrently with the execution of the
Transaction Agreement, the PIPE Investors entered into PIPE Subscription Agreements pursuant to which the PIPE Investors committed to purchase a number of PIPE Shares equal to the aggregate purchase price for all Common Shares subscribed for
by each PIPE Investor, divided by $10.00 and multiplied by the Exchange Ratio, for an aggregate purchase price of $40.0 million. On the Closing Date 5,816,528 Common Shares were issued to the PIPE Investors in the PIPE Financing, which closed
substantially concurrently with Closing.
On June 16, 2022, D-Wave Quantum, D-Wave Systems and DPCM
entered into the Purchase Agreement with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from D-Wave Quantum, at the option of D-Wave Quantum, up to $150,000,000 of Common Shares from time to time over a 36-month period
following the
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Commencement Date. In accordance with the Lincoln Park Purchase Agreement, on
the Closing Date, D-Wave Quantum issued 127,180 Common Shares to Lincoln Park in respect of $875,000 of the total Commitment Fee (as defined below). See “—Lincoln Park Transaction” below.
Prior to Closing, DPCM Public Stockholders exercised their
redemption rights in respect of 29,097,787 shares of DPCM Class A Common Stock. As a result, immediately prior to the Closing, there were 902,213 shares of DPCM Class A Common Stock outstanding.
As a result of the Merger, (i) each outstanding unit of DPCM was
separated immediately prior to the Effective Time into one share of DPCM Class A Common Stock and one-third of one warrant exercisable for one share of DPCM Class A Common Stock (each whole warrant, a “Public Warrant”), (ii) immediately prior
to Closing, Sponsor forfeited 4,484,425 of its 7,252,500 shares of Class B Common Stock, and, at the Effective Time, each remaining outstanding share of Class B Common Stock was converted into and exchanged for the right to receive one newly
issued Common Share, (iii) at the Effective Time, each outstanding share of Class A Common Stock was converted into and exchanged for the right to receive 1.4541326 newly issued Common Shares and (iv) at the Effective Time, pursuant to the
Warrant Agreement, as amended by the Assignment, Assumption and Amendment Agreement, each Public Warrant and Private Warrant was converted into a Warrant, with each warrant exercisable for 1.4541326 Common Shares for $11.50 per share, subject
to adjustment, with the exercise period beginning on September 4, 2022, the date that is 30 days following the Closing Date.
Following the closing of the PIPE Financing, and after giving
pro forma effect to redemptions of shares by DPCM Public Stockholders and the payment of transaction expenses, excluding repayments for loans and promissory notes, the transactions described above generated approximately $34.3 million for
D-Wave Quantum.
The Common Shares and Warrants are traded on the NYSE under the
ticker symbols “QBTS” and “QBTS.WT,” respectively.
The mailing address of D-Wave’s principal office is 3033 Beta
Avenue, Burnaby, British Columbia, V5G 4M9 Canada and its telephone number is (604) 630-1428.
Registration Rights and Lock-Up Agreement
Registration Rights and Lock-Up Agreement. At the Closing,
D-Wave Quantum, Sponsor, the other holders of DPCM Class B Common Stock and each D-Wave Shareholder (such stockholders, the “Registration Rights Holders”), pursuant to the Plan of Arrangement, became parties to the Registration Rights and
Lock-Up Agreement, pursuant to which, among other things, D-Wave Quantum is obligated to file a registration statement to register the resale of certain equity securities of D-Wave Quantum held by the Registration Rights Holders. The
Registration Rights and Lock-Up Agreement also provides the Registration Rights Holders with demand registration rights and “piggy-back” registration rights, in each case, subject to certain requirements and customary conditions. Subject to
certain exceptions, the Registration Rights and Lock-Up Agreement further provides for the securities of D-Wave Quantum held by the Registration Rights Holders to be locked-up for a period of time as set forth below.
Founder Lock-up Period. The Founder Lock-Up Period applies to the former holders of shares of DPCM Class B Common Stock who received Common Shares pursuant to the Transaction Agreement and refers to (i) with respect to the Founder
Shares, the period ending on the earlier of (A) August 5, 2023, the date that is one (1) year following the Closing and (B) the date on which (x) the last reported sale price of the Common Shares equals or exceeds $12.00 per share (as
adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any twenty (20) trading days within any thirty (30) consecutive trading day period commencing after the one hundred and fiftieth (150th) day
following the Closing, or (y) the completion by D-Wave Quantum of a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of D-Wave Quantum’s public shareholders having the right to exchange
their Common Shares for cash, securities or other property, and (ii) with respect to the Private Warrants, thirty (30) days after the Closing.
PSP Side Letter Agreement
On September 26, 2022, D-Wave Quantum and PSP entered into an
amended and restated side letter agreement (the “PSP Side Letter Agreement”) pursuant to which PSP agreed that for so long as PSP beneficially owns, directly or indirectly, Common Shares and Exchangeable Shares representing 50% or more of the
rights to vote at a meeting of the stockholders of D-Wave Quantum, whether directly or indirectly, including through any voting trust (i) PSP will not exercise the voting rights attached to any of such shares that would result in PSP voting,
whether directly
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or indirectly, including through any voting trust, more than 49.99% of the
voting interests eligible to vote at any meeting of the stockholders of D-Wave Quantum and (ii) PSP will vote such shares in favor of the election of the directors that are nominated by the board of directors of D-Wave Quantum or a duly
authorized committee thereof. Given that, as of March 31, 2023, PSP owns less than 50% of our Common Shares and Exchangeable Shares, the PSP Side Letter Agreement currently has no impact on PSP’s ability to vote its shares.
Lincoln Park Transaction
As described above, on June 16, 2022, we entered into the
Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has agreed to purchase from us up to an aggregate of $150,000,000 of Common Shares (subject to certain limitations) from time to time over the term of the Purchase
Agreement. Also on June 16, 2022, we entered into the Registration Rights Agreement, pursuant to which we have filed with the SEC the First LP Registration Statement and the registration statement that includes this prospectus to register for
resale under the Securities Act the Common Shares that have been or may be issued to Lincoln Park under the Purchase Agreement.
Under the First LP Registration Statement, we have registered
15,500,000 Common Shares, all of which have been sold to Lincoln Park to date. In order to continue issuing shares to Lincoln Park up to the $150,000,000 limit, we are registering additional shares under this prospectus. This prospectus
covers the resale by Lincoln Park of up to 35,000,000 Common Shares that we may sell to Lincoln Park under the Purchase Agreement from time to time. All sales are at our sole discretion.
We have the right, but not the obligation, from time to time to
direct Lincoln Park to purchase Common Shares having a value of up to $250,000 on any business day (the “Purchase Date”), which may be increased to up to $1,000,000 depending on certain conditions as set forth in the Purchase Agreement (and
subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement) (each, a “Regular Purchase”). The purchase price per
Common Share for a Regular Purchase will be the lower of: (i) the lowest trading price for Common Shares on the applicable Purchase Date and (ii) the average of the three lowest closing sale prices for Common Shares during the ten consecutive
business days ending on the business day immediately preceding such Purchase Date. The purchase price per Common Share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, forward or reverse stock split, or
other similar transaction occurring during the business days used to compute such price.
We also have the right, but not the obligation, to direct
Lincoln Park on each Purchase Date to make “accelerated purchases” on the following business day (the “Accelerated Purchase Date”) up to the lesser of (i) 300% of the number of Common Shares purchased pursuant to a Regular Purchase or (ii)
30% of the total number (or volume) of Common Shares traded on the NYSE during the period on the applicable Accelerated Purchase Date beginning at the Accelerated Purchase Commencement Time (as defined below) for such Accelerated Purchase and
ending at the Accelerated Purchase Termination Time (as defined below) for such Accelerated Purchase, at a purchase price equal to the lesser of 95% of (x) the closing sale price of Common Shares on the Accelerated Purchase Date and (y) of
the volume weighted average price of Common Shares on the Accelerated Purchase Date (during a time period between the Accelerated Purchase Commencement Time and the Accelerated Purchase Termination Time) (each, an “Accelerated Purchase”). We
have the right in our sole discretion to set a minimum price threshold for each Accelerated Purchase in the notice provided with respect to such Accelerated Purchase and we may direct multiple Accelerated Purchases in a day provided that
delivery of Common Shares has been completed with respect to any prior Regular Purchases and Accelerated Purchases that Lincoln Park has purchased.
“Accelerated Purchase Commencement Time” means the period
beginning at 9:30:01 a.m., Eastern time, on the applicable Accelerated Purchase Date, or such other time publicly announced by the NYSE as the official open (or commencement) of trading on the NYSE on such applicable Accelerated Purchase
Date.
“Accelerated Purchase Termination Time” means the earliest of
(A) 4:00:00 p.m., Eastern time, on such applicable Accelerated Purchase Date, or such other time publicly announced by the NYSE as the official close of trading on the NYSE on such applicable Accelerated Purchase Date, (B) such time, from and
after the Accelerated Purchase Commencement Time for such Accelerated Purchase, that the total number (or volume) of Common Shares traded on the NYSE has exceeded the number of Common Shares equal to (i) the applicable Accelerated Purchase
Share Amount (as defined below) to be purchased by the Investor pursuant to the applicable purchase notice delivered for such Accelerated Purchase (the “Accelerated Purchase Notice”), divided by (ii) 30%, and (C) such time, from
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and after the Accelerated Purchase Commencement Time for such Accelerated
Purchase, that the trade price for the Common Shares on the NYSE as reported by the NYSE, has fallen below the applicable minimum per share price threshold set forth in the applicable Accelerated Purchase Notice.
“Accelerated Purchase Share Amount” means, with respect to an
Accelerated Purchase, the number of Common Shares directed by the Company to be purchased by Lincoln Park in an Accelerated Purchase Notice, which number of Common Shares shall not exceed the lesser of (i) 300% of the number of Common Shares
directed by the Company to be purchased by Lincoln Park pursuant to the corresponding notice for the corresponding Regular Purchase and (ii) an amount equal to (A) 30% multiplied by (B) the total number (or volume) of Common Shares traded on
the NYSE during the period on the applicable Accelerated Purchase Date beginning at the Accelerated Purchase Commencement Time for such Accelerated Purchase and ending at the Accelerated Purchase Termination Time for such Accelerated
Purchase.
The Purchase Agreement may be terminated by us at any time, at
our sole discretion, without any cost or penalty, by giving one business day notice to Lincoln Park to terminate the Purchase Agreement.
Actual sales of Common Shares to Lincoln Park under the Purchase
Agreement will depend on a variety of factors to be determined by us from time to time, including (among others) market conditions, the trading price of Common Shares and determinations by us as to available and appropriate sources of funding
for our operations. The Purchase Agreement prohibits us from issuing or selling and Lincoln Park from acquiring any Common Shares if (i) the closing price of the Common Shares is less than the Floor Price of $1.00 or (ii) those Common Shares,
when aggregated with all other Common Shares then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership of more than 9.9% of the then issued and outstanding Common
Shares, as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder.
As of June 30, 2023, there were 128,028,663 Common Shares
outstanding, including the Exchangeable Shares and including 15,500,000 Common Shares that we have already issued to Lincoln Park under the Purchase Agreement. Although the Purchase Agreement provides that we may sell up to an aggregate of
$150,000,000 of Common Shares to Lincoln Park, only 35,000,000 Common Shares are being offered under this prospectus to Lincoln Park, which may be issued to Lincoln Park in the future under the Purchase Agreement, if and when we sell Common
Shares to Lincoln Park under the Purchase Agreement. Depending on the market prices of Common Shares at the time we elect to issue and sell shares to Lincoln Park under the Purchase Agreement, we may need to register for resale under the
Securities Act additional Common Shares in order to receive aggregate gross proceeds equal to the $150,000,000 total commitment available to us under the Purchase Agreement. At an assumed average purchase price equal to the Floor Price of
$1.00, we would need to register an additional 99,881,540 Common Shares, to bring the total number of shares issued to Lincoln Park to 150,381,540 in order to sell the entire $150 million of Common Shares to Lincoln Park under the Purchase
Agreement. We are not required to register any additional Common Shares.
If all of the 35,000,000 Common Shares offered by Lincoln
Park under this prospectus were issued and outstanding as of the date hereof, such Common Shares would represent approximately 27.3% of the total number of Common Shares (including Exchangeable Shares) outstanding as of June 30, 2023
(approximately 19.5% on a fully-diluted basis). If we elect to issue and sell more than the 35,000,000 Common Shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation, to do, we must first
register for resale under the Securities Act any such additional Common Shares, which could cause additional substantial dilution to our stockholders. The number of Common Shares ultimately offered for resale by Lincoln Park is dependent
upon the number of Common Shares we sell to Lincoln Park under the Purchase Agreement. On a combined basis with the 89,152,764 Common Shares previously registered on a separate registration statement relating to the issuance to and resale
by certain third parties unrelated to Lincoln Park (the “Resale Registration Statement”), the 15,500,000 Common Shares previously registered on the First LP Registration Statement, and the 35,000,000 Common Shares being registered on this
Registration Statement, we will have registered 139,652,764 Common Shares that may be sold and/or resold from time to time pursuant to the registration statements which represent approximately 109.1% of the Common Shares (including Common
Shares underlying Exchangeable Shares) outstanding as of June 30, 2023 (approximately 77.8% on a fully-diluted basis). Any sales of such Common Shares by Lincoln Park could similarly have a significant negative impact on the trading price
of Common Shares.
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The number of Common Shares ultimately offered for resale by
Lincoln Park is dependent upon the number of Common Shares we sell to Lincoln Park under the Purchase Agreement.
The Purchase Agreement specifically provides that we may not
issue or sell any Common Shares under the Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of the NYSE.
Issuances of Common Shares in this offering will not affect the
rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing stockholders will be diluted as a result of any such issuance. Although the number of Common Shares that our existing
stockholders own will not decrease, the Common Shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuance to Lincoln Park.
Other than as described above, there are no trading volume
requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of Common Shares to Lincoln Park.
The Purchase Agreement contains customary representations,
warranties, covenants, closing conditions and indemnification provisions by, among and for the benefit of the parties. Lincoln Park has agreed that neither it nor any of its agents, representatives or affiliates will enter into or effect,
directly or indirectly any short selling or hedging that establishes a net short position with respect to the Common Shares. There are no limitations on the use of proceeds, financial or business covenants, restrictions on future financings
(other than restrictions on our ability to enter into a similar type of agreement or equity line of credit during the term of the Purchase Agreement, excluding an At-The-Market transaction with a registered broker-dealer), rights of first
refusal, participation rights, penalties or liquidated damages in the Purchase Agreement.
The Purchase Agreement also includes certain events of default,
including, among others, a lapse in the effectiveness or availability of the registration statement of which this prospectus forms a part, the suspension of our Common Shares from the NYSE, failure to deliver Common Shares to Lincoln Park
within a specified period of time and certain events of bankruptcy. Lincoln Park does not have the right to terminate the Purchase Agreement upon any of the events of default set forth above. During an event of default following any
applicable grace or cure period, all of which are outside of Lincoln Park’s control, we may not direct Lincoln Park to purchase any Common Shares under the Purchase Agreement.
There are no restrictions on future financings, rights of first
refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement.
All 35,000,000 Common Shares registered in this offering which
have been or may be sold by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable.
See the section entitled “Lincoln Park Transaction” below.
Term Loan and Security Agreement
On April 13, 2023, we entered into the Term Loan and Security
Agreement, by and between us and PSPIB Unitas Investment II Inc., (“PSPIB” or the “Lender”), as the lender (the “Term Loan”). Under the Term Loan, loans in an aggregate principal amount of $50.0 million are to be made available to us in three
tranches, subject to certain terms and conditions.
The first tranche, in an aggregate principal amount of
$15.0 million was advanced on April 14, 2023 with second and third tranches, of $15.0 million and $20.0 million respectively, to be made available to us subject to certain conditions. Prior to PSPIB's advance of the first tranche, the Company
satisfied several closing conditions including the provision of a cash flow forecast and the board of directors' retention of an advisor. The second tranche, that shall be available to us as of July 12, 2023, is subject to us providing the
Lender with an IP valuation report, a board-approved operating budget for 2023 through 2027, and SIF’s consent to the grant of security interests in the Project IP associated with the SIF Loan. The third tranche, that shall be available to us
as of October 10, 2023, is subject to us closing a $25.0 million non-dilutive financing on terms reasonably acceptable to the Lender, providing the Lender with an IP valuation report, and a board-approved operating budget for 2023 through
2027. Each tranche is subject to a 2.0% drawdown fee and the Term Loan matures on March 31, 2027. The initial tranche of $15.0 million provides us with a roughly two month cash runway from the date of such advance.
At our discretion, the Term Loan bears interest on a monthly
basis at either (i) 10.0% payable in cash, or (ii) 11.0% payable in kind (PIK), with the latter added to the principal value of the Term Loan.
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The Term Loan requires that any proceeds from the issuance of
Common Stock under the LPC Purchase Agreement be applied towards the repayment of advances under the Term Loan in addition to a premium payment equal to 10.0% of the amount then prepaid to the Lender.
Upon the repayment or prepayment of the Term Loan, there is a
prepayment premium due to the Lender that is equal to 3.0% of the amount repaid / prepaid prior to the first anniversary of the closing of the Term Loan, 2.0% of the amount repaid / prepaid after the first anniversary and before the second
anniversary of the closing of the Term Loan, 1.0% of the amount repaid / prepaid after the second anniversary and before the third anniversary of the closing of the Term Loan and no prepayment premium due thereafter.
The Term Loan is secured by a first-priority security interest
in substantially all of our assets and contains certain operational and financial covenants and terminates in March 2027.
Summary Risk Factors
You should consider all the information contained in this
prospectus in making an investment decision with respect to the securities offered under this prospectus. The occurrence of one or more of the events or circumstances described in the section titled “Risk Factors,” alone or in combination
with other events or circumstances, may harm D-Wave Quantum's business, financial condition and operating results. Such risks include, but are not limited to:
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The sale or issuance of Common Shares to Lincoln Park may cause dilution and the sale of the Common Shares by Lincoln Park
that it acquires pursuant to the Purchase Agreement, or the perception that such sales may occur, could cause the price of Common Shares to decrease. In addition, certain of the Selling Securityholders purchased, or are able to
purchase, Common Shares at prices that are well below the current trading price of the Common Shares. As a result, the Selling Securityholders may effect sales of Common Shares well below prices significantly below the current market
price, which could cause market prices to decline further.
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D-Wave Quantum is in its growth stage which makes it difficult to forecast its future results of operations and its funding
requirements.
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D-Wave Quantum has a history of losses and expects to incur significant expenses and continuing losses for the foreseeable
future.
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D-Wave Quantum may be unable to maintain a listing on the NYSE, and such a delisting will likely make it more difficult for
us to raise capital on favorable terms in the future, would likely have a negative effect on the price of our securities and would impair your ability to sell or purchase our shares when you wish to do so.
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If D-Wave Quantum does not adequately fund its research and development efforts or use research and development teams
effectively or build a sufficient number of annealing quantum computer production systems, it may not be able to achieve its technological goals, meet customer and market demand, or compete effectively and D-Wave Quantum’s business
and operating results may be harmed.
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D-Wave Quantum depends on its ability to retain existing senior management and other key employees and qualified, skilled
personnel and to attract new individuals to fill these roles as needed. If D-Wave Quantum is unable to do so, such failure could adversely affect its business, results of operations and financial condition.
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D-Wave Quantum expects to require additional capital to pursue its business objectives, growth strategy and respond to
business opportunities, challenges or unforeseen circumstances, and it may be unable to raise capital or additional financing when needed on acceptable terms, or at all.
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D-Wave Quantum’s industry is competitive on a global scale, from both quantum and classical competitors, and D-Wave Quantum
may not be successful in competing in this industry or establishing and maintaining confidence in its long-term business prospects among current and future partners and customers, which would materially harm its reputation, business,
results of operations and financial condition.
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Any cybersecurity-related attack, significant data breach or disruption of the information technology systems,
infrastructure, network, third-party processors or platforms on which D-Wave Quantum relies could damage D-Wave Quantum’s reputation and adversely affect its business and financial results.
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Market adoption of cloud-based online quantum computing platform solutions is relatively new and unproven and may not grow
as D-Wave Quantum expects and, even if market demand increases, the demand for D-Wave Quantum’s QCaaS may not increase, or certain customers may be reluctant to use a cloud-based QCaaS for applications, all of which may harm D-Wave
Quantum’s business and results of operations.
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D-Wave Quantum may, in the future, be adversely affected by continuation or worsening of the global COVID-19 pandemic,
various COVID-19 strains or future pandemics.
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Unfavorable conditions in D-Wave Quantum's industry or the global economy, including uncertain geopolitical conditions such
as inflation, recessions and war, among others, could limit D-Wave Quantum's ability to grow the business and negatively affect D-Wave Quantum's results of operations.
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System failures, interruptions, delays in service, catastrophic events, inadequate infrastructure and resulting
interruptions in the availability or functionality of D-Wave Quantum’s products and services could harm its reputation or subject D-Wave Quantum to significant liability, and adversely affect its business, financial condition and
operating results.
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D-Wave Quantum may be unable to obtain, maintain and protect its intellectual property or prevent third parties from making
unauthorized use of its intellectual property, which could cause it to lose the competitive advantage resulting from its intellectual property.
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D-Wave Quantum’s patent applications may not result in issued patents or its patent rights may be contested, circumvented,
invalidated or limited in scope, any of which could have a material adverse effect on D-Wave Quantum’s ability to prevent others from interfering with the commercialization of its products and services.
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D-Wave Quantum may face patent infringement and other intellectual property claims that could be costly to defend and may
result in injunctions and significant damage awards or other costs. If third parties claim that D-Wave Quantum infringes upon or otherwise violates their intellectual property rights, D-Wave Quantum’s business could be adversely
affected.
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If the Merger's benefits do not meet the expectations of investors or securities analysts, the market price of D-Wave
Quantum’s securities may decline.
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Uncertainty about the effect of the Merger may affect D-Wave Quantum’s ability to retain key employees, integrate
management structures and may materially impact the management, strategy and results of its operation as a combined company.
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Financial projections with respect to D-Wave Quantum may not prove to be reflective of actual financial results.
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The historical financial results of D-Wave Quantum and unaudited pro forma financial information included elsewhere in this
prospectus may not be indicative of what D-Wave Quantum's actual financial position or results of operations would have been if it were a public company.
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D-Wave Quantum may be required to take write-downs or write-offs, or D-Wave Quantum may be subject to restructuring,
impairment or other charges that could have a significant negative effect on D-Wave Quantum’s financial condition, results of operations and the price of D-Wave Quantum’s securities, which could cause you to lose some or all of your
investment.
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The price of D-Wave Quantum's Common Shares has been and may continue to be volatile or may decline regardless of our
operating performance.
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D-Wave Quantum may amend the terms of the Warrants in a manner that may be adverse to holders with the approval by the
holders of at least a majority of the then outstanding Warrants.
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D-Wave Quantum may issue additional Common Shares or other equity securities without your approval, which would dilute your
ownership interests and may depress the market price of the Common Shares.
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The D-Wave Quantum Charter contains anti-takeover provisions that could adversely affect the rights of our stockholders.
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Implications of Being an Emerging Growth
Company
In April 2012, the JOBS Act was enacted. Section 107 of the JOBS
Act provides that an “emerging growth company” may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth
company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not
adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, as an emerging growth company, we may take advantage of certain reduced disclosure and
other requirements that are otherwise applicable generally to public companies. D-Wave Quantum will take advantage of these exemptions until such earlier time that it is no longer an emerging growth company. D-Wave Quantum will 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 our first public offering of securities; (ii) the last day of the fiscal year in which our total
annual gross revenue is equal to or more than $1.07 billion; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large
accelerated filer under the rules of the SEC.
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Issuer
D-Wave Quantum Inc.
Securities offered by the Selling Stockholder
35,000,000 Common Shares that we may sell to Lincoln Park, from time to time,
in accordance with the Purchase Agreement. All sales are at our sole discretion.
Common Shares to be outstanding
immediately after this offering
163,028,663 Common Shares (including outstanding Exchangeable Shares),
assuming a sale of 35,000,000 Common Shares under this prospectus. The actual number of Common Shares issued will vary depending on the prices at which we sell Common Shares, if any, to Lincoln Park.
Use of proceeds
We will receive no proceeds from the sale of Common Shares by Lincoln Park in
this offering. We may receive up to $150,000,000 in gross proceeds from the sale of Common Shares to Lincoln Park pursuant to the Purchase Agreement from time to time after the date that the registration statement of which this prospectus is
a part is declared effective. Any proceeds we receive, we intend to use for general corporate purposes, which may include acquisitions and other business opportunities and the repayment of indebtedness. See “Use of Proceeds” for additional
information.
NYSE ticker symbol
Our Common Shares are currently listed on the NYSE under the symbol “QBTS”.
Risk Factors
Any investment in the securities offered hereby is speculative and involves a
high degree of risk. You should carefully consider the information set forth under “Risk Factors” and elsewhere in this prospectus.
Unless we specifically state otherwise or the context otherwise
requires, the information above is as of March 31, 2023 and does not give effect to issuances of Common Shares, warrants or options to purchase Common Shares, or the exercise of warrants or options after such date, and excludes:
|
•
|
16,965,849 shares reserved under the 2022 Equity Incentive Plan (the “2022 Plan”);
|
|
•
|
8,036,455 shares reserved under the 2022 Employee Stock Purchase Plan (the “ESPP”);
|
|
•
|
2,889,282 Common Shares underlying D-Wave Warrants;
|
|
•
|
26,053,126 Common Shares underlying Warrants; and
|
|
•
|
11,949,501 Common Shares underlying outstanding D-Wave Options.
|
17
The following tables set forth a summary of our historical
consolidated financial data as of and for the periods indicated. We have derived the summary condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022 from the unaudited condensed consolidated financial statements of
D-Wave Quantum Inc. and its subsidiaries as of March 31, 2023 and the audited consolidated financial statements of D-Wave Quantum Inc. and its subsidiaries as of and for the years ended December 31, 2022, 2021 and 2020, included in this
prospectus. We have derived the summary condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 and 2022 from the unaudited condensed consolidated financial statements of D-Wave Quantum
Inc. and its subsidiaries as of and for the three months ended March 31, 2023 and as of December 31, 2022. We have derived the summary condensed consolidated statements of operations and comprehensive loss for the years ended December 31,
2022, 2021 and 2020 from the audited consolidated financial statements of D-Wave Quantum Inc. and its subsidiaries for the years ended December 31, 2022, 2021 and 2020. You should read this data together with our consolidated financial
statements and related notes included in this prospectus and the information in the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The summary
consolidated financial data included in this section is not intended to replace the consolidated financial statements and related notes and are qualified in their entirety by our consolidated financial statements and related notes included
elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any other period. The historical financial information for the periods prior to the completion of the Merger on August 5,
2022, is that of D-Wave Systems and the historical financial information for the periods ended subsequent to the completion of the Merger, is that of D-Wave Quantum.
18
D-Wave Quantum Inc.
Unaudited Condensed Consolidated Balance Sheets
(Unaudited)
|
|
| |
March 31,
|
| |
December 31,
|
|
(In thousands of U.S. dollars, except share and per share
data)
|
| |
2023
|
| |
2022
|
|
Assets
|
| |
|
| |
|
|
Current assets:
|
| |
|
| |
|
|
Cash
|
| |
$8,988
|
| |
$7,065
|
|
Trade accounts receivable, net
|
| |
542
|
| |
757
|
|
Inventories
|
| |
2,240
|
| |
2,196
|
|
Prepaid expenses and other current assets
|
| |
3,142
|
| |
3,907
|
|
Total current assets
|
| |
$14,912
|
| |
$13,925
|
|
Property and equipment, net
|
| |
2,041
|
| |
2,294
|
|
Operating lease right-of-use assets
|
| |
8,927
|
| |
9,133
|
|
Intangible assets, net
|
| |
228
|
| |
244
|
|
Other noncurrent assets
|
| |
1,351
|
| |
1,351
|
|
Total assets
|
| |
$27,459
|
| |
$26,947
|
|
Liabilities and stockholders’ (deficit) equity
|
| |
|
| |
|
|
Current liabilities:
|
| |
|
| |
|
|
Trade accounts payable
|
| |
5,608
|
| |
3,756
|
|
Accrued expenses and other current liabilities
|
| |
9,859
|
| |
8,640
|
|
Loans payable, current
|
| |
790
|
| |
1,671
|
|
Deferred revenue, current
|
| |
1,827
|
| |
1,781
|
|
Total current liabilities
|
| |
18,084
|
| |
15,848
|
|
Warrant liabilities
|
| |
1,254
|
| |
1,892
|
|
Operating lease liabilities, net of current portion
|
| |
7,165
|
| |
7,301
|
|
Loans payable, noncurrent
|
| |
8,260
|
| |
7,811
|
|
Deferred revenue, noncurrent
|
| |
9
|
| |
9
|
|
Total liabilities
|
| |
$34,772
|
| |
$32,861
|
|
Commitments and contingencies (Note 11)
|
| |
|
| |
|
|
Stockholders’ (deficit) equity:
|
| |
|
| |
|
|
Common stock par value $0.0001 per share; 675,000,000
shares authorized at March 31, 2023 and December 31, 2022, respectively; 127,173,552 shares and 113,335,530 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.
|
| |
12
|
| |
11
|
|
Additional paid-in capital
|
| |
404,501
|
| |
381,274
|
|
Accumulated deficit
|
| |
(401,405)
|
| |
(376,797)
|
|
Accumulated other comprehensive loss
|
| |
(10,421)
|
| |
(10,402)
|
|
Total stockholders’ (deficit) equity
|
| |
$(7,313)
|
| |
$(5,914)
|
|
Total liabilities and stockholders’ equity
|
| |
$27,459
|
| |
$26,947
|
19
D-Wave Quantum Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
|
|
| |
Three months ended March 31,
|
| |
Year ended December 31,
|
|||||||||
|
(In thousands, except share and per share data)
|
| |
2023
|
| |
2022
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Revenue
|
| |
$1,583
|
| |
$1,713
|
| |
$7,173
|
| |
$6,279
|
| |
$5,160
|
|
Cost of revenue
|
| |
1,162
|
| |
616
|
| |
2,923
|
| |
1,750
|
| |
915
|
|
Total gross profit
|
| |
421
|
| |
1,097
|
| |
4,250
|
| |
4,529
|
| |
4,245
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
10,915
|
| |
6,802
|
| |
32,101
|
| |
25,401
|
| |
20,411
|
|
General and administrative
|
| |
11,296
|
| |
3,646
|
| |
21,539
|
| |
11,897
|
| |
11,587
|
|
Sales and marketing
|
| |
2,900
|
| |
1,600
|
| |
10,068
|
| |
6,179
|
| |
3,714
|
|
Total operating expenses
|
| |
25,111
|
| |
12,048
|
| |
63,708
|
| |
43,477
|
| |
35,712
|
|
Loss from operations
|
| |
(24,690)
|
| |
(10,951)
|
| |
(59,458)
|
| |
(38,948)
|
| |
(31,467)
|
|
Other income (expense), net:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
(454)
|
| |
(525)
|
| |
(4,633)
|
| |
(1,728)
|
| |
(5,257)
|
|
Government assistance
|
| |
—
|
| |
—
|
| |
|
| |
7,167
|
| |
12,027
|
|
Non-cash interest income on SIF
|
| |
—
|
| |
—
|
| |
5,673
|
| |
—
|
| |
—
|
|
Gain on debt extinguishment
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
3,873
|
|
Gain on settlement of warrant liability
|
| |
—
|
| |
—
|
| |
|
| |
—
|
| |
7,836
|
|
Gain on investment in marketable securities
|
| |
—
|
| |
—
|
| |
|
| |
1,163
|
| |
—
|
|
Change in fair value of warrant liabilities
|
| |
638
|
| |
—
|
| |
6,173
|
| |
—
|
| |
—
|
|
Lincoln Park Purchase Agreement issuance costs
|
| |
—
|
| |
—
|
| |
(629)
|
| |
—
|
| |
—
|
|
Other income (expense), net
|
| |
(102)
|
| |
(181)
|
| |
1,345
|
| |
801
|
| |
2,969
|
|
Total other income (expense), net
|
| |
82
|
| |
(706)
|
| |
7,929
|
| |
7,403
|
| |
21,448
|
|
Net loss
|
| |
$(24,608)
|
| |
$(11,657)
|
| |
$(51,529)
|
| |
$(31,545)
|
| |
$(10,019)
|
|
Net loss per share, basic and diluted
|
| |
$(0.20)
|
| |
$(0.09)
|
| |
$(0.43)
|
| |
$(0.25)
|
| |
$(0.08)
|
|
Weighted-average shares * used in computing net loss per
share, basic and diluted
|
| |
123,144,097
|
| |
125,385,841
|
| |
119,647,777
|
| |
125,342,746
|
| |
127,161,731
|
|
Comprehensive loss:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net loss
|
| |
$(24,608)
|
| |
$(11,657)
|
| |
$(51,529)
|
| |
$(31,545)
|
| |
$(10,019)
|
|
Foreign currency translation adjustment, net of tax
|
| |
(19)
|
| |
(70)
|
| |
41
|
| |
15
|
| |
(82)
|
|
Net comprehensive loss
|
| |
$(24,627)
|
| |
$(11,727)
|
| |
$(51,488)
|
| |
$(31,530)
|
| |
$(10,101)
|
*
Weighted-average shares have been retroactively restated to give effect to the Merger.
Weighted-average shares have been retroactively restated to give effect to the Merger.
20
In this section, unless otherwise specified,
the terms “we”, “our”, “us,” “D-Wave,” and “D-Wave Quantum” refer to D-Wave Quantum Inc. and its consolidated subsidiaries. Investment in our securities involves risk. You should carefully review the following risk factors in addition to the
other information included in this prospectus, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements. Please see the section entitled “Where You Can Find More Information” in this prospectus.
You should carefully review and consider the following risk factors and other information in this prospectus, including the financial statements and notes to the financial statements included herein, in evaluating an investment in D-Wave's
securities. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may have a material adverse effect on the business, cash flows, financial
condition and results of operations of D-Wave Quantum. The risks discussed below may not prove to be exhaustive and are based on certain assumptions made by us that later may prove to be incorrect or incomplete. We may face additional risks and
uncertainties that are not presently known to us, or that are currently deemed immaterial, which may also impair D-Wave's business or financial condition. The following discussion should be read in conjunction with the financial statements and
notes to the financial statements included herein and “Unaudited Pro Forma Condensed Combined Financial Information” included herein.
Risks Related to the Offering
The sale or issuance of
Common Shares to Lincoln Park may cause dilution and the sale of the Common Shares by Lincoln Park that it acquires pursuant to the Purchase Agreement, or the perception that such sales may occur, could cause the price of Common Shares to
decrease. In addition, certain of the Selling Securityholders purchased, or are able to purchase, Common Shares at prices that are well below the current trading price of the Common Shares. As a result, the Selling Securityholders may effect
sales of Common Shares at prices significantly below the current market price, which could cause market prices to decline further.
On June 16, 2022, we entered into the Purchase Agreement with
Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $150.0 million of Common Shares. On August 5, 2022, and August 25, 2022, we issued 127,180 Common Shares and 254,360 Common Shares, respectively, to Lincoln Park as
Commitment Shares. Pursuant to the Purchase Agreement, Lincoln Park agreed to purchase from us a total of up to $150.0 million of Common Shares from time to time over a 36-month period (any such Common Shares, the “Purchased Shares”). The
purchase price for the Common Shares that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the trading price of Common Shares. We generally have the right to control the timing and amount of any future sales of
Common Shares to Lincoln Park. Additional sales of Common Shares, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. While the Purchase Agreement limits the rate at which we can sell Common
Shares to Lincoln Park, due to the significant number of Common Shares that were redeemed in connection with the Merger, the number of Common Shares that we can sell to Lincoln Park under the Purchase Agreement could constitute a considerable
percentage of our public float at the time of such sales. As a result, the resale by Lincoln Park of Purchased Shares pursuant to this prospectus could have a significant negative impact on the trading price of Common Shares. The 35,000,000
Common Shares that may be resold into the public markets pursuant to this prospectus represent approximately 27.3% of the Common Shares outstanding as of June 30, 2023 (including Exchangeable Shares), prior to giving effect to this offering.
We may ultimately decide to sell to Lincoln Park all, some or none of the Common Shares that may be available for us to sell pursuant to the Purchase Agreement.
For illustrative purposes, at an approximate minimum average
purchase price of $2.97 per Common Share, the offering of Common Shares pursuant to this prospectus (which provides for the sale of 35,000,000 Common Shares) when combined with the 15,500,000 Common Shares previously registered on the First LP
Registration Statement, would be sufficient to sell the entirety of the $150 million of Common Shares permitted to be sold to Lincoln Park under the Purchase Agreement. At a lower average purchase price per share, the registration of additional
Common Shares would be required if we sought to sell the entire $150 million of Common Shares. At an assumed average purchase price equal to the Floor Price of $1.00, we would need to register an additional 99,881,540 Common Shares (or
150,381,540 Common Shares in aggregate, which includes the 15,500,000 Common Shares previously registered on the First LP Registration Statement) in order to sell the entire $150 million of Common Shares to Lincoln Park under the Purchase
Agreement. Assuming that the Common Shares were sold, both for this offering and the offering under the First LP Registration Statement, at an average price equal to the Floor Price of $1.00 per Share and that we were to register sufficient
additional Common Shares in order to sell the entire $150 million of Common Shares to Lincoln Park under the Purchase Agreement, after giving effect to the assumed sale of such 150,000,000 Common
21
Shares and after deducting estimated offering expenses of $500,000 payable by us,
our pro forma as-adjusted net tangible book value as of March 31, 2023 would have been approximately $133.0 million, or $0.48 per share. This represents an immediate increase in net tangible book value of $0.61 per share to existing
shareholders and an immediate dilution of $0.52 per Common Share to investors in this offering.
If and when we do sell Common Shares to Lincoln Park, after
Lincoln Park has acquired such Common Shares, Lincoln Park may resell all, some or none of such Common Shares at any time or from time to time in its discretion, subject to compliance with securities laws. Therefore, sales to Lincoln Park by us
could result in substantial dilution to the interests of other holders of its Common Shares. Additionally, the sale of a substantial number of Common Shares to Lincoln Park, or the anticipation of such sales, could make it more difficult for us
to sell equity or equity-related securities in the future at a time and at a price that it might otherwise wish to effect sales. See “Lincoln Park Transaction” on page 169 for more information regarding the Purchase
Agreement.
Any sales of Common Shares into the public market could have a
significant negative impact on the trading price of our Common Shares. This impact may be heightened by the fact that sales to Lincoln Park will generally be at prices below the then current trading price of the Common Shares pursuant to the
pricing formula contemplated by the Purchase Agreement. See “Lincoln Park Transaction.” If the trading price of our Common Shares declines, sales of Common Shares to Lincoln Park pursuant to the Purchase Agreement may be a less attractive
source of capital and/or may not allow us to raise capital at rates that would be possible if the trading price of our Common Shares was higher.
In addition, we have filed the Resale Registration Statement,
which registration statement was declared effective by the SEC on October 26, 2022, registering the issuance to and resale by certain third parties unrelated to Lincoln Park of up to an aggregate of 89,152,764 Common Shares and 8,000,000
Warrants issued prior to, or in connection with, the Merger. The Common Shares being registered for resale by such third parties into the public markets pursuant to the Resale Registration Statement represent a substantial majority of the
number of Common Shares outstanding as of March 31, 2023, and the number of Common Shares that the Selling Securityholders may sell into the public markets pursuant to the Resale Registration Statement may exceed our public float. The
89,152,764 Common Shares (including Common Shares underlying Warrants and Common Shares underlying Exchangeable Shares (as defined below)) that may be resold pursuant to the Resale Registration Statement represent approximately 69.6% of the
Common Shares (including Common Shares underlying Exchangeable Shares) outstanding as of June 30, 2023 (approximately 49.7% on a fully-diluted basis). On a combined basis with the 89,152,764 Common Shares previously registered on the Resale
Registration Statement, the 15,500,000 Common Shares previously registered on the First LP Registration Statement and the 35,000,000 Common Shares being registered on this registration statement, we will have registered 139,652,764 Common
Shares that may be sold and/or resold from time to time pursuant to the registration statements which represent approximately 109.1% of the Common Shares (including Common Shares underlying Exchangeable Shares) outstanding as of June 30, 2023
(approximately 77.8% on a fully-diluted basis). The shareholders selling pursuant to the Resale Registration Statement will determine the timing, pricing and rate at which they sell such shares into the public market and such sales could have
a significant negative impact on the trading price of Common Shares. Although the current trading price or Common Shares is below $10.00 per share, which was the sales price for DPCM Units in the DPCM IPO, certain of the investors who have
resale rights under the Resale Registration Statement have an incentive to sell because they purchased Common Shares (or securities underlying Common Shares) and/or Warrants at prices below the DPCM IPO price. Sales by such investors may
prevent the trading price of our securities from exceeding the initial public offering price and may cause the trading prices of our securities to experience a further decline.
See “—We may issue additional Common Shares or other equity
securities without your approval, which would dilute your ownership interests and may depress the market price of the Common Shares.”
Our management team may
invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a significant return.
Our management will have broad discretion over the use of proceeds
from the sale of Common Shares to Lincoln Park pursuant to the Purchase Agreement, if any, subject to certain conditions and restrictions under the Term Loan. Principally, the Term Loan requires that any proceeds from the issuance of Common
Shares under the Purchase Agreement be applied towards the repayment of advances under the Term Loan in addition to a premium payment equal to 10% of the amount then prepaid to the Lender. Additionally, under the Term Loan, issuances of Common
Shares under the Purchase Agreement must be approved by D-Wave’s board of directors. We intend to use the net proceeds from the sale of Common Shares to Lincoln Park pursuant to the Purchase Agreement, if any, for general
22
corporate purposes, which may include acquisitions and other business
opportunities and the repayment of indebtedness. Our management will have considerable discretion in the application of the proceeds from the sale of Common Shares to Lincoln Park pursuant to the Purchase Agreement, if any, and you will not
have the opportunity, as part of your investment decision, to assess whether such proceeds are being used appropriately. The proceeds from the sale of Common Shares to Lincoln Park pursuant to the Purchase Agreement, if any, may be used for
corporate purposes that do not increase our operating results or enhance the value of Common Shares.
The terms of the Purchase
Agreement and the Term Loan limit the amount of Common Shares we may sell to Lincoln Park and the trading price of the Common Shares may decline as a result of the sale of Common Shares pursuant to the Purchase Agreement or under the Resale
Registration Statement, each of which may limit our ability to utilize the Purchase Agreement to enhance our cash resources.
The Purchase Agreement includes restrictions on our ability to
sell Common Shares to Lincoln Park, including: a Floor Price of $1.00 below which D-Wave Quantum may not sell any Common Shares to Lincoln Park unless and until the price of our Common Shares subsequently exceeds the Floor Price; and, subject
to specified limitations, if a sale would cause Lincoln Park and its affiliates to beneficially own more than 9.9% of our issued and outstanding Common Shares (the “Beneficial Ownership Limitation”). The price of our Common Shares has been as
low as $0.41 on May 12, 2023, which is below the Floor Price required to satisfy the Floor Price Limitation. Accordingly, we may be unable to sell any or all of the remaining $150.0 million of Common Shares in this offering, which would have an
adverse impact on our ability to satisfy our capital needs and could materially adversely impact our business. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when
needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
The conditions and restrictions of the Term Loan may also limit
the number of Common Shares we issue to Lincoln Park. The Term Loan requires that any proceeds from the issuance of Common Shares under the Purchase Agreement be applied towards the repayment of advances under the Term Loan in addition to a
premium payment equal to 10% of the amount then prepaid to the Lender. Additionally, under the Term Loan, issuances of Common Shares under the Purchase Agreement must be approved by D-Wave’s board of directors.
In addition, there is a risk that the sale of a substantial number
of our Common Shares pursuant to the Purchase Agreement or the Resale Registration Statement will have a depressive effect on the price of our Common Shares, which may affect the ability or rate at which Lincoln Park may sell Common Shares,
will increase the likelihood that we would need to register a significant amount of additional Common Shares to sell all $150.0 million of Common Shares in this offering and, as a result of the foregoing, may restrict the amount or timing of
additional financing we are able to obtain pursuant to the Purchase Agreement in light of the Floor Price Limitation and the Beneficial Ownership Limitation. If we cannot sell the full amount of the Common Shares that Lincoln Park has committed
to purchase because of these limitations, we may be required to utilize more costly and time-consuming means of accessing the capital markets, which could materially adversely affect our liquidity and cash position. If we choose to sell more
Common Shares than are offered under this prospectus, assuming that we are not constrained from doing so as a result of the Floor Price Limitation, Beneficial Ownership Limitation, market or other conditions, we must first register for resale
under the Securities Act such additional Common Shares.
We expect to require
additional capital to pursue our business objectives, growth strategy and respond to business opportunities, challenges or unforeseen circumstances, and we may be unable to raise capital or additional financing when needed on acceptable terms,
or at all.
We expect to seek additional equity or debt financing in the
future to fund our growth, such as use of the committed funds under the Purchase Agreement, increase the capabilities of our annealing quantum computers, develop gate-model quantum computers, enhance our platform-as-a-service and other products
and services, expand go-to-market functions and drive market demand, grow and manage our professional services offerings, respond to competitive pressures or make acquisitions or other investments. Our business plans may change, general
economic, financial or political conditions in our markets may deteriorate or other circumstances may arise, in each case that have a material adverse effect on our cash flows and the anticipated cash needs of our business. Any of these events
or circumstances could result in significant additional funding needs, requiring us to raise additional capital. We cannot predict the timing or amount of any such capital requirements at this time. If financing is not available on satisfactory
terms, or at all, we may be unable to expand our business at the rate desired and our results of operations may suffer. In addition, any financing through issuances of equity securities would be dilutive to holders of our shares.
23
D-Wave Quantum is required to satisfy certain conditions in
order to be able to commence purchases by Lincoln Park under the Purchase Agreement. Once such conditions are satisfied, certain purchases by Lincoln Park under the Purchase Agreement are subject to ownership limitations restricting Lincoln
Park from owning more than 9.9% of the then total outstanding Common Shares and a floor price of $1.00 at which D-Wave Quantum may not sell to Lincoln Park any Common Shares. If any of these conditions are not satisfied or limitations are in
effect, we may not be able to utilize all or part of the committed funds under the Purchase Agreement, which would have an adverse impact on our ability to satisfy our capital needs and could materially adversely impact our business. Adequate
additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
D-Wave Quantum generally
has the right to control the timing and amount of any future sales of Common Shares to Lincoln Park, subject to certain conditions and restrictions under the Term Loan. Additional sales of Common Shares, if any, to Lincoln Park will depend upon
market conditions and other factors to be determined by D-Wave Quantum.
D-Wave Quantum may ultimately decide to sell to Lincoln Park all,
some or none of the Common Shares that may be available for D-Wave Quantum to sell pursuant to the Purchase Agreement, subject to certain restrictions under the Term Loan like the requirement for approval from D-Wave’s board of directors to
issue more Common Shares under the Purchase Agreement and the requirement that proceeds from the issuance of Common Shares under the Purchase Agreement be applied towards the repayment of advances under the Term Loan, with a penalty of 10% of
the amount prepaid. After this registration statement becomes effective, if and when D-Wave Quantum does sell Common Shares to Lincoln Park, Lincoln Park may resell all, some or none of such shares at any time or from time to time in its
discretion, subject to compliance with applicable securities laws. Therefore, sales to Lincoln Park by D-Wave Quantum could result in substantial dilution to the interests of other holders of Common Shares. Additionally, the sale of a
substantial number of Common Shares to Lincoln Park, or the anticipation of such sales, could make it more difficult for D-Wave Quantum to sell equity or equity-related securities in the future at a time and at prices that it might otherwise
wish to effect such sales.
Sales of a substantial
amount of the Common Shares in the public markets, or the perception that such sales may occur, may cause the market price of the Common Shares to decline.
Pursuant to the Registration Rights and Lock-Up Agreement,
following the consummation of the Merger and subject to certain exceptions the Initial Stockholders and D-Wave Equityholders who received Common Shares as consideration pursuant to the Transaction Agreement are contractually restricted from
selling or transferring any of their shares.
However, following the expiration of the D-Wave Lock-Up Period and
the Founder Lock-up Period, as applicable, such Initial Stockholders and D-Wave Equityholders will not be restricted from selling Common Shares held by them, other than by applicable securities laws. In particular, the D-Wave Lock-Up Period
expired on February 5, 2023, resulting in approximately 99.7 million Common Shares (including Common Shares underlying Exchangeable Shares) becoming available for resale, approximately 44.7 million of which are currently registered for resale
pursuant to the Resale Registration Statement. See “Shares Eligible for Future Sale”. As such, sales of a substantial number of Common Shares in the public market could occur at any time. These sales, or the perception in the market that the
holders of a large number of shares intend to sell shares, could reduce the market price of Common Shares.
As restrictions on resale end and registration statements, such as
this one, are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in the price of the Common Shares or the market price of the Common Shares could decline if the holders of
currently restricted Common Shares sell them or are perceived by the market as intending to sell them. Moreover, the sale of shares under the Purchase Agreement or the Resale Registration Statement, any announcement or other public disclosure
regarding such sales should they occur, the perceived risk of such sales, the dilution that would result from such sales should they occur and the resulting downward pressure on our share price as a result of the foregoing could encourage
investors to engage in short sales of the Common Shares. By increasing the number of Common Shares offered for sale as a result of the resale registration statements we have filed, material amounts of short selling could further contribute to
progressive price declines in our Common Shares.
After this registration statement becomes effective, if and when
D-Wave Quantum does sell Common Shares to Lincoln Park, Lincoln Park may resell all, some or none of such shares at any time or from time to time in its
24
discretion, subject to compliance with applicable securities laws. Therefore,
sales to Lincoln Park by D-Wave Quantum could result in substantial dilution to the interests of other holders of Common Shares. Additionally, the sale of a substantial number of Common Shares to Lincoln Park, or the anticipation of such sales,
could make it more difficult for D-Wave Quantum to sell equity or equity-related securities in the future at a time and at prices that it might otherwise wish to effect such sales.
We may issue additional
Common Shares or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of the Common Shares.
We may issue additional shares of common stock or other equity
securities of equal or senior rank in the future in connection with, among other things, financings, future acquisitions, repayment of outstanding indebtedness, employee benefit plans and exercises of outstanding options, warrants and other
convertible securities without stockholder approval, in a number of circumstances.
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 Floor Price Limitation, the Beneficial Ownership Limitation, and the filing and effectiveness of this 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.
If and when we do sell shares to Lincoln Park, Lincoln Park may
resell all, some or none of those Common Shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of
Common Shares. In addition, if we sell a substantial number of Common Shares to Lincoln Park under the Purchase Agreement, or if investors expect that we will do so, the actual sales of Common Shares or the mere existence of our arrangement
with Lincoln Park may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. While we are currently registering only 35,000,000 Common
Shares, we may register and issue up to 150,381,540 Common Shares in total to Lincoln Park if, for example, all the Common Shares were issued to Lincoln Park at the Floor Price of $1.00. As of March 31, 2023 we have sold 15,118,460 Common
Shares pursuant to the Purchase Agreement, not including the Commitment Shares.
For illustrative purposes, the following table sets forth the
total number of Common Shares that would need to be sold at varying assumed average purchase prices per share in order to achieve $150,000,000 of gross proceeds from our sale of Common Shares to Lincoln Park under the Purchase Agreement.
However, as described elsewhere in this prospectus, our use of the Purchase Agreement may be limited as a result of the Floor Price Limitation, the Beneficial Ownership Limitation, market and other conditions, such that we may not be able to
achieve $150,000,000 of gross proceeds from sales to Lincoln Park, or even a substantial portion of such proceeds. See “—The terms of the Purchase Agreement limit the amount of Common Shares we may sell to Lincoln Park and the trading price of
the Common Shares may decline as a result of the sale of Common Shares pursuant to the Purchase Agreement or under the Resale Registration Statement, each of which may limit our ability to utilize the Purchase Agreement to enhance our cash
resources”:
|
Assumed Average Purchase Price Per Share
|
| |
Number of Common
Shares that may be Issued
in this Offering
if Full Purchases Made
under the Purchase
Agreement(1)
|
| |
Proceeds from the Sale of
Common Shares to Lincoln Park
Under the Purchase Agreement(2)
|
|
$14.00
|
| |
9,292,857
|
| |
$150,000,000
|
|
$13.00
|
| |
10,007,692
|
| |
$150,000,000
|
|
$12.00
|
| |
10,841,666
|
| |
$150,000,000
|
|
$11.00
|
| |
11,827,272
|
| |
$150,000,000
|
|
$10.00
|
| |
13,010,000
|
| |
$150,000,000
|
|
$9.00
|
| |
14,455,555
|
| |
$150,000,000
|
|
$8.00
|
| |
16,262,500
|
| |
$150,000,000
|
|
$7.00
|
| |
18,585,714
|
| |
$150,000,000
|
25
|
Assumed Average Purchase Price Per Share
|
| |
Number of Common
Shares that may be Issued
in this Offering
if Full Purchases Made
under the Purchase
Agreement(1)
|
| |
Proceeds from the Sale of
Common Shares to Lincoln Park
Under the Purchase Agreement(2)
|
|
$6.00
|
| |
21,683,333
|
| |
$150,000,000
|
|
$5.00
|
| |
26,020,000
|
| |
$150,000,000
|
|
$4.00
|
| |
32,525,000
|
| |
$150,000,000
|
|
$3.00
|
| |
35,000,000
|
| |
$124,900,000
|
|
$2.00
|
| |
35,000,000
|
| |
$89,900,000
|
|
$1.98(3)
|
| |
35,000,000
|
| |
$89,200,000
|
|
$1.00(4)
|
| |
35,000,000
|
| |
$54,900,000
|
|
(1)
|
Excludes the 381,540 Commitment Shares previously issued to Lincoln Park.
|
|
(2)
|
Includes the $19.9 million in proceeds previously received from issuing Common Shares to Lincoln Park.
|
|
(3)
|
The closing price of our Common Shares on July 6, 2023.
|
|
(4)
|
The Floor Price under the Purchase Agreement.
|
Our issuance of additional shares of common stock or other equity
securities of equal or senior rank would have the following effects:
|
•
|
holders of Common Shares’ proportionate ownership interest in D-Wave Quantum would decrease;
|
|
•
|
the amount of cash available per share, including for payment of dividends (if any) in the future, may decrease;
|
|
•
|
the relative voting strength of each previously outstanding share of Common Shares may be diminished; and
|
|
•
|
the market price of the Common Shares may decline.
|
Risks Related to D-Wave Quantum’s Financial Condition and Status as an
Early-Stage Company
We are in our growth stage
which makes it difficult to forecast our future results of operations and our funding requirements.
Near term, our ability to generate revenue will largely be
dependent on our ability to continue to develop and produce annealing quantum computers and hybrid quantum-classical solvers that are able to solve customer business problems at scale. Longer term, our ability to generate revenue will also be
dependent on our ability to develop, produce and commercialize gate-model quantum computers. We have commercialized annealing quantum computers, but we have not yet commercialized a gate-model quantum computer. Our product roadmap may not be
realized as quickly as hoped, or at all.
Our ability to scale our business is dependent upon building
referenceable quantum-hybrid applications. Additionally, we must accelerate sales cycles to meet revenue projections and our business depends on our ability to successfully upsell customers through our on-board process and move them into
production applications.
The development of our scalable business model will require the
incurrence of a substantially higher level of costs than incurred to date, while our revenues may not substantially increase until more powerful products are produced, which requires a number of technological advancements which may not occur on
the currently anticipated timetable or at all. As a result, our historical results should not be considered indicative of our future performance. Further, in future periods, our growth could slow or decline for any number of reasons, including
but not limited to failing to achieve targeted demand for our services, increased competition, changes to technology, inability to scale up our technology, a decrease in the growth of the overall market, or our failure, for any reason, to
continue to take advantage of growth opportunities.
We have also encountered, and will continue to encounter, risks
and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties and our future growth are incorrect or change, or if we do not address these risks
successfully, our operating and financial results and our funding needs could differ materially from our expectations, and our business could suffer. Our
26
success as a business ultimately relies upon fundamental research and development
breakthroughs in the coming years and decade. There is no certainty these research and development milestones will be achieved for the costs we have forecast or as quickly as hoped, or at all.
We have a history of
losses and expect to incur significant expenses and continuing losses for the foreseeable future.
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
and Security Agreement, dated as of March 3, 2022, between D-Wave, D-Wave US Inc., D-Wave Government Inc., D-Wave Commercial Inc., D-Wave International Inc., D-Wave Quantum Solutions Inc. and Omni Circuit Boards Ltd., as borrower, and PSPIB
Unitas Investments II Inc. (“PSPIB”), as lender. During the year ended December 31, 2022, 2021, and 2020 we incurred net losses of $51.5 million, $31.5 million, and $10.1 million respectively. We expect to incur additional losses and higher
operating expenses for the foreseeable future as we operate as a public company and 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. Due to the large number of DPCM stockholders that exercised their redemption rights in connection with the
Merger, only approximately $9 million of cash from the DPCM Trust Account became available to D-Wave Quantum as of the closing of the Merger, out of approximately $300 million that had been available, which significantly reduced the potential
enhancement to our liquidity and capital resources that was sought to be achieved through the Merger. If D-Wave is unable to obtain additional financing, operations will be scaled back or discontinued. These conditions give rise to material
uncertainties that cast substantial doubt on the ability of D-Wave to continue as a going concern.
In addition, in connection with the Merger, the board of directors
of DPCM considered, among other things, internal financial forecasts prepared by, or at the direction of, the management of D-Wave Quantum (the “Transaction Forecasts”). None of these projections or forecasts were prepared with a view towards
public disclosure or compliance with the published guidelines of the SEC, U.S. GAAP, International Financial Reporting Standards (“IFRS”) or the guidelines established by the American Institute of Certified Public Accountants for preparation
and presentation of financial forecasts. Neither DPCM’s independent registered public accounting firm nor D-Wave Quantum’s independent registered public accounting firm, PricewaterhouseCoopers LLP, have audited, reviewed, examined, compiled nor
applied agreed-upon procedures with respect to the unaudited prospective financial information, and accordingly, they do not express an opinion or any other form of assurance with respect thereto. Any projections and forecasts were inherently
based on various estimates and assumptions that were subject to the judgment of those preparing them. Projections and forecasts were also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of
which were difficult or impossible to predict and many of which were beyond the control of D-Wave Quantum. With respect to certain key metrics, including revenue, we do not anticipate meeting the Transaction Forecasts due primarily to (i) the
timing of closing the Merger in August 2022, which was later than the assumed closing in June 2022, and (ii) the significant redemptions of DPCM stockholders, which has adversely affected our liquidity position and ability to pursue certain
growth opportunities, and which will require us to seek alternative sources of financing as described below. See “—General Risk Factors—Financial projections with respect to D-Wave Quantum may not prove
to be reflective of actual financial results.”
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 (including sales pursuant to the Purchase Agreement, assuming we are able to make such sales) and/or debt financings or other
capital sources, including strategic partnerships. However, we may be unable to raise sufficient 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
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.
27
Following the Merger, we had 18,000,000 Warrants outstanding
(17,916,609 Warrants as of March 31, 2023), each Warrant being exercisable for 1.4541326 Common Shares at an exercise price of $11.50. Whether warrantholders will exercise their Warrants, and therefore the amount of cash proceeds we would
receive upon exercise, is dependent upon the trading price of the Common Shares. Therefore, if and when the trading price of the Common Shares is less than approximately $7.91, the effective exercise price of the Warrants per one Common Share,
we expect that warrantholders would not exercise their Warrants. We could receive up to an aggregate of approximately $207 million if all of the Warrants are exercised for cash, but we would only receive such proceeds if and when the
warrantholders exercise the Warrants. The Warrants may not be or remain in the money during the period they are exercisable and prior to their expiration, and the Warrants may not be exercised prior to their maturity on August 5, 2027, even if
they are in the money, and as such, the Warrants may expire worthless and we may receive minimal proceeds, if any, from the exercise of Warrants. To the extent that any of the Warrants are exercised on a “cashless basis,” we will not receive
any proceeds upon such exercise. As a result, we do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on other sources of cash discussed below to continue to fund our operations. 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 have not yet achieved profitability on an annual or quarterly
basis and we do not know if we will be able to achieve or sustain, if achieved, profitability. We plan to continue to invest in our research and development, sales, marketing and professional services efforts, and we anticipate that our
operating expenses will continue to increase as we scale our business and expand our operations. Our general and administrative expenses have increased and are expected to continue to increase as a result of our growth and operating as a public
company. 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. Our expenses may
be greater than we anticipate, and our investments intended to reach our technical targets and scale our business and make our technical infrastructure more efficient may not be successful. Our ability to achieve and sustain profitability is
based on numerous factors, many of which are beyond our control. We may never be able to generate sufficient revenue to achieve or sustain profitability.
On June 16, 2022, D-Wave Quantum, D-Wave Systems and DPCM entered
into the Purchase Agreement pursuant to which Lincoln Park agreed to purchase from D-Wave Quantum, at the option of D-Wave Quantum, up to $150,000,000 of Common Shares from time to time over a 36-month period following the Commencement Date.
However, the use of the Purchase Agreement to fund operations is subject to significant limitations, including but not limited to, the Floor Price Limitation and the Beneficial Ownership Limitation. Although the closing price of our shares
since May 22, 2023 has been above $1.00, from February 14, 2023 to May 19, 2023, our stock price closed each day below the $1.00 Floor Price. We are aware, however, that such use of the Purchase Agreement, if available, may cause significant
dilution, depress our share price, and make it more difficult to achieve required financing.
In addition, on April 13, 2023, the Company entered into the Term
Loan. The Term Loan contains certain restrictions and conditions, some of which affect the Company’s issuance of Common Shares under the Purchase Agreement. Principally, if the Company issues Common Shares, including under the Purchase
Agreement, then the Company must promptly prepay the loans in an aggregate amount equal to the proceeds thereof, with such prepayment being subject to the prepayment penalty and an additional premium, for issuances under the Purchase Agreement,
equal to 10% of the amount then prepaid to PSPIB.
In addition, we may make decisions that would reduce our
short-term operating results if we believe those decisions will improve the experiences of our customers or if we believe such decisions will improve our operating results over the long-term. These decisions may not be consistent with the
expectations of investors and may not produce the long-term benefits we expect, in which case our business may be materially and adversely affected. See “Liquidity and going concern” in the notes to the audited consolidated financial statements
of D-Wave Systems as of and for the years ended December 31, 2022 and 2021, in the audited consolidated financial statements of D-Wave for the year ended December 31, 2022, in the condensed consolidated financial statements of D-Wave as of
March 31, 2023 and 2022 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
28
Our ability to receive
the advancement of funds under the Term Loan are subject to a number of conditions, which, if not met, may prohibit us from receiving advancements under the Term Loan, which would negatively impact our financial condition.
The Term Loan makes an aggregate principal amount of $50.0 million
available to the Company in three tranches, each subject to certain conditions being met. If we cannot meet each such conditions, we may not receive the associated advancement of funds under the Term Loan. Prior to PSPIB's advance of the first
tranche, the Company satisfied several closing conditions including the provision of a cash flow forecast and the board of directors' retention of an advisor. The second tranche, that shall be available to us as of July 12, 2023, is subject to
us providing the Lender with an IP valuation report, a board-approved operating budget for 2023 through 2027, and SIF’s consent to the grant of security interests in the D-Wave’s intellectual property associated with the SIF Loan. The third
tranche, that shall be available to us as of October 10, 2023, is subject to us closing a $25.0 million non-dilutive financing on terms reasonably acceptable to the Lender and the IP valuation report and board-approved operating budget for 2023
through 2027 remaining satisfactory to the Lender. Failure to satisfy these or any other conditions in the Term Loan could prevent us from receiving all available funds under the Term Loan, which would negatively impact our financial condition.
If we do not adequately
fund our research and development efforts or use research and development teams effectively or build a sufficient number of annealing quantum computer production systems, we may not be able to achieve our technological goals, build sufficient
systems, meet customer and market demand, or compete effectively and our business and operating results may be harmed.
To remain competitive, we must continue to develop new product
offerings and reach technological milestones, as well as add features and enhancements to our existing platform and products. Maintaining adequate research and development personnel and resources to meet the demands of the market is essential.
If we experience high employee or management turnover, or a lack of other research and development resources, we may miss market opportunities. The success of our business is dependent on our research and development teams developing a roadmap
that allows us to achieve technical milestones for both annealing and gate-model quantum computing, including with respect to our hybrid solvers and our Leap and Ocean platforms, retain and increase the spending of our existing customers and
attract new customers. The computing industry is quickly evolving and we may invest significantly in particular functionality or integrations that may become obsolete in the future, and any future product offerings, features or enhancements
that we develop may be unsuccessful. The success of any new product offerings, enhancements or features depends on several factors, including our understanding of market demand, timely execution, successful introduction, and market acceptance.
We may not successfully develop new features or enhance our existing platform and products to meet customer needs or our new products, features or enhancements may not achieve adequate acceptance in the market. Additionally, our improvements
and enhancements may not result in our ability to recoup our investments in a timely manner, or at all. We may make significant investments in new offerings, features or enhancements that may not achieve expected returns. Further, many of our
competitors may expend a considerably greater amount of funds on their research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors’ research and
development programs. Our failure to maintain adequate research and development resources, to use our research and development resources efficiently or to compete effectively with the research and development programs of our competitors could
materially adversely affect our business.
Our estimates of the
magnitude of the market opportunity, forecasts of market growth and our operating metrics may prove to be inaccurate and may not be indicative of our future growth.
Our estimates of market opportunity included in this prospectus
may prove to be inaccurate and may not be indicative of our future growth or performance. Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to
be accurate. While our estimate of the TAM included in this prospectus is made in good faith and is based on assumptions and estimates we believe to be reasonable under the circumstances, this estimate may not prove to be accurate. Further,
even if the estimate of our market opportunity does prove to be accurate, we could fail to capture significant portions, or any portion, of the available markets. Alternatives to our quantum computing products may present themselves and if they
do, could substantially reduce the market for our computing services. Advances in classical computing may prove more robust for longer than currently anticipated and could adversely affect the timing of any quantum advantage being achieved, if
at all. Any expansions in our markets depend on a number of factors, including the cost, performance, and perceived value associated with our products and services. In making such forecasts, we rely on
29
data provided by industry sources and customers, among other things, that we have
not independently verified and such data may not be accurate, and any inaccuracy will affect the accuracy of our forecasts. The accuracy of our forecasts may also be affected by human error in the interpretation of such data.
Our business could be harmed if we fail to
manage growth effectively.
If we fail to manage growth effectively, our business, results of
operations and financial condition could be harmed. We anticipate that a period of significant expansion will be required to address potential growth. This expansion will place a significant strain on our management, operational and financial
resources. Expansion will require significant cash investments and management resources. Such investments may not result in additional sales of our products or services, and we may not be able to avoid cost overruns or be able to hire
additional personnel as required. In addition, we will also need to ensure our compliance with regulatory requirements in various jurisdictions applicable to the sale, installation and servicing of our products. To manage the growth of our
operations and personnel, we must establish appropriate and scalable operational and financial systems, procedures and controls and establish and maintain a qualified finance, administrative and operations staff. We may be unable to acquire the
necessary capabilities and personnel required to manage growth or to identify, manage and exploit potential strategic relationships and market opportunities. The growth we have experienced in our business places significant demands on our
operational infrastructure. The scalability and flexibility of our platform depends on the functionality of our technology and network infrastructure and its ability to handle increased traffic and demand for processing and bandwidth. Any
problems with the transmission of increased data and requests could result in harm to our brand or reputation.
Our growth has placed, and will likely continue to place, a
significant strain on our managerial, administrative, operational, financial and other resources. As we grow, we will be required to continue to improve our operational and financial controls and reporting procedures and we may not be able to
do so effectively. Furthermore, some members of our management do not have significant experience managing a large global business operation, so our management may not be able to manage such growth effectively. As such, we may be unable to
manage our revenue and expenses effectively in the future, which may negatively impact our gross profit or operating expenses. In managing our growing operations, we are also subject to the risks of over-hiring and/or overcompensating our
employees and over-expanding our operating infrastructure. We intend to further expand our overall business, including headcount, with no assurance that our revenues will continue to grow. In addition, North America is currently experiencing
one of the most competitive markets for human capital talent in recent times. Coupled with the incredibly complex nature of the quantum industry, we may face significant challenges and delays in hiring and challenges with employee retention.
If we fail to attract
new customers and retain and increase the spending of existing customers, our revenue, business, results of operations, financial condition and growth prospects would be harmed.
Even if the market in which we compete achieves the forecasted
growth, our business could fail to grow at similar rates, if at all. Our success will depend upon our ability to expand our platform’s capabilities, scale our operations, increase our sales capability and successfully complete professional
services projects, that may or may not progress to in-production applications.
Our long-term growth will ultimately be dependent upon our ability
to successfully scale up manufacturing of our products in sufficient quantity and quality and in a cost-effective manner. Unforeseen issues associated with scaling up and constructing quantum computing technology at commercially viable levels
could negatively impact our business, financial condition and results of operations.
Our growth is dependent upon our ability to successfully market
and sell quantum computing technology. One of our marketing strategies is to drive traffic to our cloud-based services. We utilize various unpaid content marketing strategies, including customer events, seminars, webinars, blogs, thought
leadership and social media engagement, as well as paid advertising and third-party event sponsorship, to attract prospective users of our cloud-based services. These unpaid or paid efforts may not attract a sufficient volume and quality of
traffic to our cloud-based services and, in the future, we may be required to increase our marketing spend to achieve our volume and quality of traffic targets.
30
We depend on our ability
to retain existing senior management and other key employees and qualified, skilled personnel and to attract new individuals to fill these roles as needed. If we are unable to do so, such failure could adversely affect our business, results of
operations and financial condition.
Our future performance depends on the continued service and
contributions of our senior management, and other key employees to execute on our business plan, to develop our platform and products, to attract and retain customers and to identify and pursue strategic opportunities. The failure to properly
manage succession plans, develop leadership talent, and/or the loss of services of senior management or other key employees could significantly delay or prevent the achievement of our strategic objectives. From time to time, there may be
changes in our senior management team resulting from the hiring or departure of executives, which could disrupt our business. In addition, our ability to identify, hire, develop, motivate and retain qualified personnel will directly affect our
ability to maintain and grow our business, and such efforts will require significant time, expense and attention. The inability to attract or retain qualified personnel or delays in hiring required personnel may seriously harm our business,
financial condition and operating results. Our ability to continue to attract and retain highly skilled personnel, specifically employees with technical and engineering skills and employees with high levels of experience in designing and
developing software, will be critical to our future success. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that such personnel have been improperly solicited or have divulged proprietary or
other confidential information. The loss of service of senior management or other key employees could significantly delay or prevent the achievement of our development and strategic objectives. The replacement of any of our senior management
personnel or other key employees would likely involve significant time and costs, and such loss could adversely affect our revenue, business, results of operations and financial condition.
Our business and growth are dependent on the
success of our strategic relationships with third parties.
We depend on, and anticipate that we will continue to depend on,
various third-party suppliers in order to sustain and grow our business. Failure of any of these suppliers to continue to provide products and services to maintain, support or secure their technology platforms or our integrations, or errors or
defects in their technologies, products or services, could adversely affect our relationships with our customers, damage our brand and reputation and result in delays or difficulties in our ability to provide our platform. Our ability to
produce and scale our annealing and gate model quantum computers is dependent also upon components we must source from the electronics and semiconductor industries. Shortages or supply interruptions in any of these components will adversely
impact our financial performance.
Our platform and products depend on the ability to access and
integrate with third-party cloud providers. In particular, we have developed our platform and products to integrate with certain third-party cloud providers and the third-party applications of other parties. If we choose or are required to
change cloud providers, we will incur costs to port our platform and products to a new service and may experience service interruptions during a change of cloud provider. Generally, third-party cloud providers and the data we receive from the
third-party cloud providers are written and controlled by the application provider. Any changes or modifications to the third-party cloud providers or the data provided could negatively impact the functionality of, or require us to make changes
to, our platform and products, which would need to occur quickly to avoid interruptions in service for our customers. See “Our products and services are dependent upon our relationship with third-party
providers and any disruption of or interference with our use of such third-party providers would adversely affect our business, results of operations and financial condition.”
Scaling our business is heavily dependent on our ability to build
and maintain relationships with consulting and service partners and assist them in establishing or expanding their business by developing solutions that utilize our products and services. Solutions that utilize our products and services may
compete with other quantum or classical-computing based solutions developed and/or marketed by other suppliers and our solutions may lose favor with our partners. Our current distribution partners may cease or reduce marketing our solutions
with limited or no notice and with little or no penalty. Our distribution partners will generally have no obligation to maintain or renew their contractual arrangements with us and generally may terminate such arrangements with limited notice
and/or transition periods. New distribution partners require extensive training and could take extended periods to achieve productivity. If any of our current or potential partners elect to not utilize our products or services, or reduce their
current or potential use of our technology in favor of competing products, we may have to change our product strategies, which could have a material and adverse effect on our business, operating results and financial condition.
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Currency exchange rate fluctuations may
negatively affect our results of operations.
Our revenues are denominated in U.S. dollars, while some of our
operating expenses, including relating to employees, are incurred in Canadian dollars. As a result, our results of operations will be adversely impacted by an increase in the value of the Canadian dollar relative to the U.S. dollar. Exchange
rate fluctuations may also affect our revenue growth rates as some of our customer agreements are priced in the local currency of the country in which the customer is located and is also expected to be denominated in that currency. As a result,
we will be further exposed to currency fluctuations to the extent non-U.S. dollar revenues from our platform increase. The value of the Canadian dollar relative to the U.S. dollar has varied significantly and investors are cautioned that past
and current exchange rates are not indicative of future exchange rates.
Risks Related to D-Wave Quantum’s Business and Industry
The immature market for
quantum computing may lead to us misreading market demand and the timeframes it will take to close customer contracts and grow revenue, which would adversely affect our business, results of operations and financial condition.
In order to grow our business, we will need to continually evolve
and scale our business and operations to meet customer and market demand. Quantum computing technology has a limited history of being sold at large-scale commercial levels. Evolving and scaling our business and operations places increased
demands on our management as well as our financial and operational resources to:
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effectively manage organizational change;
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design scalable processes;
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accelerate and/or refocus research and development activities;
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expand supply chain and distribution capacity, and ultimately expand manufacturing capacity;
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increase sales and marketing efforts;
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scale and manage our professional services;
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broaden customer-support and services capabilities;
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maintain or increase operational efficiencies;
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scale support operations in a cost-effective manner;
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implement appropriate operational and financial systems; and
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maintain effective financial disclosure controls and procedures.
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We may not be able to scale our products and services as necessary
to meet market demand. We have no experience in scaling our cloud services infrastructure or professional services globally. We may not be able to cost-effectively manage the scale of our cloud services infrastructure or professional services
at a scale or quality consistent with customer demand in a timely or economical manner.
We are currently constructing advanced generations of our
products. As noted above, there are significant technological and logistical challenges associated with developing, producing, marketing, selling and distributing products in the advanced technology industry, including our products, and we may
not be able to resolve all of the difficulties that may arise in a timely or cost-effective manner, or at all.
Our technical roadmap and
plans for commercialization involve technology that is not yet available for customers and may never become available or meet desired technical specifications.
Our current and planned products are inherently complex and
incorporate technology and components that have not been used for other applications and that may contain defects and errors, particularly when first introduced. We have a limited frame of reference from which to evaluate the long-term
performance of our products and services and we may be unable to detect and fix any defects in our quantum computers or cloud services infrastructure prior to the sale of products or services to potential consumers. Our products may contain
defects in design, manufacturing and/or delivery that may cause them to fail to perform as expected or may require repair, recalls and/or design changes. We also cannot guarantee the consistency of our cloud services offerings. These could be
affected by
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infrastructure downtime either within our own service or because of third-party
service providers on which we are dependent. If our products or services fail to perform as expected, customers may delay orders or terminate further orders, each of which could adversely affect our sales and brand and could adversely affect
our business, prospects and results of operations.
If we cannot evolve and scale our business and operations
effectively, we may not be able to execute our business strategies in a cost-effective manner and our business, financial condition, profitability and results of operations could be adversely affected.
Building quantum computers requires advances in both science and
engineering, and we may not have the ability to deliver those advances. The markets in which we operate are still rapidly evolving and highly competitive and the impact of rapidly changing science and engineering technologies could have an
impact on the delivery of our technical roadmap which means that future generations of products both in quantum annealing and in gate model may be delayed or may never be delivered. We could also face the same challenges in our ability to scale
our hybrid solvers to effectively meet commercial requirements. If this happens, our technical roadmap may be delayed or may never be achieved, either of which would have a material impact on our business, financial condition or results of
operations.
Our business model
includes a relatively new four-phase engagement model, with customers transitioning through the phases. If we cannot successfully convert customers through the phases to the extent or at the rate that we expect, our business will be negatively
impacted and could fail.
Our success depends, in significant part, on our ability to engage
our customers through all four phases of our engagement model (discovery, proof of concept, pilot deployment and full production) and collaboratively work with our customers and demonstrate the value of our technology. This engagement model was
introduced in early 2021 and is a shift from our historical sales model. If our customers do not dedicate sufficient resources to each phase of our engagement model or their challenges or technology are not addressable by or compatible with our
products and services, then our anticipated projections and revenues would be impacted. In addition, our products and services may not meet our customers’ functional, performance, technical or other requirements, which would have a negative
impact on revenues. The market for our technology is still rapidly evolving and we may be required to change the duration, pricing, or structure of any or all of the phases of our model as we continue to develop our technology and deliver more
engagement.
If our customers do not perceive the benefits of our technology,
or if our technology does not drive continued progression of customers through the four phases, then our market may not develop as we anticipate, or at all, or it may develop slower than we expect. If any of these events occur, it could have a
material adverse effect on our business, financial condition or results of operations.
Our industry is
competitive on a global scale, from both quantum and classical competitors, and we may not be successful in competing in this industry or establishing and maintaining confidence in our long-term business prospects among current and future
partners and customers, which would materially harm our reputation, business, results of operations and financial condition.
The markets in which we operate are rapidly evolving and highly
competitive. As these markets continue to mature and new technologies and competitors enter such markets, we expect competition to intensify. Our current competitors include:
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large, well-established tech companies that generally compete in all of our markets, including Google, Quantinuum, IBM,
Microsoft and AWS;
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countries such as China, Russia, Canada, the United States, Australia and the United Kingdom, and those in the European Union
as of the date of this prospectus and we believe additional countries in the future;
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less-established public and private companies with competing technology, including companies located outside the United
States;
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existing or new entrants seeking to enter the quantum annealing space; and
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new or emerging entrants seeking to develop competing technologies.
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We compete based on various factors, including technology,
performance, platform availability, price, brand recognition and reputation, customer support and differentiated capabilities, including ease of administration and use,
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scalability and reliability, data governance and security. Many of our competitors
have substantially greater brand recognition, customer relationships, and financial, technical and other resources, including an experienced sales force and sophisticated supply chain management. They may be able to respond more effectively
than us to new or changing opportunities, technologies, standards, customer requirements and buying practices. In addition, many countries are focused on developing quantum computing solutions either in the private or public sector and may
subsidize quantum computers which may make it difficult for us to compete. Many of these competitors do not face the same challenges we do in growing our business. In addition, other competitors might be able to compete with us by bundling
their other products and services in a way that does not allow us to offer a competitive solution.
Additionally, we must be able to achieve our objectives in a
timely manner lest quantum computing lose ground to competitors, including competing technologies. Because there are a large number of market participants, including certain sovereign nations, focused on developing quantum computing technology,
we must dedicate significant resources to achieving any technical objectives on the timelines established by our management team. Any failure to achieve objectives in a timely manner could adversely affect our business, operating results and
financial condition.
For all of these reasons, competition may negatively impact our
ability to maintain and grow consumption of our platform or put downward pressure on our prices and gross margins, any of which could materially harm our reputation, business, results of operations, and financial condition.
Our products and
services are dependent upon our relationship with third-party providers and any disruption of or interference with our use of such third-party providers would adversely affect our business, results of operations and financial condition.
We rely upon third parties to operate our platform, third party
facilities to house some of our systems and third parties to provide our services. Any disruption of or interference with our use of such third-party providers or locations would adversely affect our business, results of operations and
financial condition. If these services provided by third parties become unavailable due to extended outages, interruptions, or because they are no longer available on commercially reasonable terms, we could experience delays in our ability to
provide our solutions or run our business and our expenses could increase, our ability to manage finances could be interrupted, and our processes for managing sales of our platform and supporting our customers could be impaired until equivalent
services, if available, are identified, obtained, and implemented.
We have experienced, and expect that in the future we may
experience, interruptions, delays and outages in service and availability from time to time due to a variety of factors, including infrastructure changes, human or software errors, website hosting disruptions and capacity constraints. Capacity
constraints could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks. In addition, if our security, or that of our hosting provider, is compromised, our platform or products are
unavailable or our users are unable to use our products within a reasonable amount of time or at all, then our business, results of operations and financial condition could be adversely affected. Our ability to conduct security audits on our
hosting provider is limited and our contracts do not contain strong indemnification terms in our favor. In some instances, we may not be able to identify and/or remedy the cause or causes of these performance problems within a period of time
acceptable to our customers. It may become increasingly difficult to maintain and improve our platform performance, especially during peak usage times, as our products become more complex and the usage of our products increases. To the extent
that we do not effectively address capacity constraints, either through our hosting provider or an alternative provider of cloud infrastructure, our business, results of operations and financial condition may be adversely affected. In addition,
any changes in service levels from our hosting provider may adversely affect our ability to meet our customers’ requirements.
Any of the above circumstances or events may harm our reputation,
cause customers to stop using our products, impair our ability to attract new customers and increase revenue from existing customers, subject us to financial penalties and liabilities under our service level agreements and otherwise harm our
revenue, business, results of operations and financial condition.
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The design and
manufacturing of our quantum computers are dependent on a number of critical suppliers and unknown supply chain issues that could delay the introduction of our products and services or cause a significant disruption in our supplier base could
have a material adverse effect on our business, financial condition and results of operations.
We are reliant on our own manufacturing of components as well as
on third-party suppliers for components necessary to develop and manufacture our quantum computing solutions. Factors that could have an adverse impact on the availability of these components include:
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our inability to enter into agreements with suppliers on commercially reasonable terms, or at all;
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difficulties of suppliers ramping up their supply of materials to meet our requirements;
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a significant increase in the price of one or more components, including due to industry consolidation occurring within one
or more component supplier markets or as a result of decreased production capacity at manufacturers;
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any reductions or interruption in supply, including due to technological problems, equipment malfunctions, regulatory actions
or disruptions on our global supply chain as a result of large scale public health restrictions or geopolitical factors, which we have experienced, and may in the future experience;
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financial problems of either contract manufacturers or component suppliers;
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significantly increased freight charges, or raw material costs and other expenses associated with our business;
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a failure to develop our supply chain management capabilities and recruit and retain qualified professionals;
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a failure to adequately authorize procurement of inventory;
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a failure to adequately maintain our or our suppliers’ manufacturing equipment; or
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a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs.
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If any of the aforementioned factors were to materialize, it could
cause us to halt production of our quantum computing solutions and/or entail higher manufacturing costs, any of which could materially adversely affect our business, operating results, and financial condition and could materially damage
customer relationships. Additionally, other factors beyond our control or which we do not presently anticipate could also affect our suppliers’ ability to deliver components to us on a timely basis.
We do not have the
history with our solutions or pricing models necessary to accurately predict optimal pricing necessary to attract new customers and retain existing customers.
We may need to change our pricing model from time to time. As the
market for our platform matures, or as competitors introduce new solutions that compete with ours, we may be unable to attract new customers at the same prices or based on the same pricing models that we have used historically. Our assessments
of competitive pricing may not be accurate and we could be underpricing or overpricing our platform and services. Further, in the past we concentrated on selling the hardware needed for customers to run dedicated systems. We have now
transitioned from selling systems to selling cloud services and have added professional services as well. Our limited history of selling cloud and professional services means we do not have long-term market data on the optimal method of pricing
our services and maximizing the opportunities they represent. If we do not implement a services-based business well, our financial results may suffer. In addition, if the offerings on our platform or our services change, we may need to revise
our pricing strategies. Any such changes to our pricing strategies or our ability to efficiently price our offerings could adversely affect our business, results of operations and financial condition. In addition, as we continue to expand
internationally, we also must determine the appropriate pricing strategy to enable us to compete effectively internationally. Pricing pressures and decisions could result in reduced sales, reduced margins, losses or the failure of our platform
to achieve or maintain more widespread market acceptance, any of which could negatively impact our overall business, results of operations and financial condition. Moreover, larger organizations, which are a primary focus of our direct sales
efforts, may demand substantial price concessions. As a result, we may be required to price below our targets in the future, which could adversely affect our revenue, gross margin, profitability, cash flows and financial condition.
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Competitive pressures
may put pressure on our pricing, which may require us to reduce our pricing in order to provide competitively priced access to our products and services.
We face competition in various aspects of our business and expect
that such competition to intensify in the future as existing and new companies introduce and enhance existing services or create new services. The markets for our services in general are competitive. Competition in these markets may increase
further if economic conditions or other circumstances cause customer bases and client spending to decrease and service provides to compete for fewer client resources. Our competitors may be able to undertake more effective marketing campaigns,
obtain more data, adopt more aggressive pricing policies, make more attractive offers to potential employees, clients and advertisers, or may be able to respond more quickly to new or emerging technologies or changes in user requirements. If we
are unable to retain clients or obtain new clients, our revenues could decline. Increased competition could result in lower revenues and higher expenses, which would reduce our profitability.
The quantum computing
industry is in its early stages and is volatile, and if it does not develop, if it develops slower than we expect, if it develops in a manner that does not require use of our products and services, if it encounters negative publicity or if our
solution does not drive commercial engagement, the growth of our business will be harmed.
The nascent market for quantum computers is still rapidly
evolving, characterized by rapidly changing technologies, competitive pricing and competitive factors, evolving government regulation and industry standards, and changing customer demands and behaviors. If the market for quantum computers in
general does not develop as expected, or develops more slowly than expected, our business, prospects, financial condition and operating results could be harmed.
We have focused our efforts on the optimization market with our
annealing quantum computers, and in the near term expect our business to grow from this market. If optimization does not require quantum computing or if other classical or quantum solutions perform better than our products and services, we
could see a decrease in customer uptake and revenue.
In addition, our growth and future demand for our products is
highly dependent upon the adoption by developers and customers of quantum computing, as well as on our ability to demonstrate the value of quantum computing to our customers. Delays in future generations of our quantum computers or technical
failures at other quantum computing companies could limit market acceptance of our solution. Negative publicity concerning our solution or the quantum computing industry as a whole could limit market acceptance of our solution. While we believe
quantum computing will solve many large-scale problems, we do not yet have evidence that quantum computers will be able to do so and such problems may never be solvable by quantum computing technology. If our customers do not perceive the
benefits of our solution, or if our solution does not drive customer engagement, then our market may not develop at all, or it may develop more slowly than we expect. If any of these events occur, it could have a material adverse effect on our
business, financial condition or results of operations. If progress towards “quantum advantage” (as described below) slows relative to expectations, it could adversely impact revenues and customer confidence to continue to pay for testing,
access and “quantum readiness.” This would harm or even eliminate revenues in the period before quantum advantage.
If our products and
services fail to deliver customer value to a broader range of customers than classical approaches, our business, financial condition and future prospects may be harmed.
“Quantum advantage” refers to the moment when a quantum computer
can compute faster than existing classical computers, while quantum supremacy is achieved once quantum computers are powerful enough to complete calculations that traditional supercomputers cannot perform at all. Broad quantum advantage is when
quantum advantage is seen in many applications and developers prefer quantum computers to a traditional computer. No current quantum computers, including the D-Wave quantum hardware, have reached a broad quantum advantage, and they may never
reach such advantage. Achieving a broad quantum advantage will be critical to the success of any quantum computing company, including us. However, achieving quantum advantage would not necessarily lead to commercial viability of the technology
that accomplished such advantage, nor would it mean that such system could outperform classical computers in tasks other than the one used to determine a quantum advantage. Other companies, including some of our customers, are working on
classical approaches that target similar use cases, increasing competition and risk of not capturing market share. As quantum computing technology continues to mature, broad quantum advantage may take decades to be realized, if ever. If we
cannot develop quantum computers that have quantum advantage, customers may not continue to purchase our products and services. If customers decide
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to wait until broad quantum advantage is reached, this could impair the growth of
our business. If other companies’ quantum computers reach a broad quantum advantage prior to the time ours reaches such capabilities, it could lead to a loss of customers. If any of these events occur, it could have a material adverse effect on
our business, financial condition or results of operations. This is also true for our quantum-hybrid solvers in that they must also continue to deliver value compared to classical approaches.
We use quantum-classical hybrid solutions to get the customer the
optimal answer to their particular problem. Since quantum computing is a new form of computing, some customers may want to understand the details of how our products operate. However, because this is proprietary and trade secret information we
cannot or may not want to share, we may lose customers as a result.
Real or perceived errors,
failures or bugs in our products and services could materially and adversely affect our operating results, financial condition and growth prospects.
The hardware and software underlying our platform and products is
highly technical and complex. Our hardware and software have previously contained, and may now or in the future contain, undetected errors, bugs or vulnerabilities. In addition, errors, failures and bugs may be contained in our software
utilized in building and operating our products or may result from errors in the deployment or configuration of QCaaS software. Some errors in our products may only be discovered after a product has been deployed or may never be generally
known. In some instances, despite internal testing, we may not be able to identify the cause or causes of these problems or risks within an acceptable period of time. Any errors, bugs or vulnerabilities discovered in our products after it has
been deployed, or never generally discovered, could result in interruptions in platform availability, product malfunctioning or data breaches. Since our customers may use our services for processes that are critical to their businesses, errors,
and defects, security vulnerability, service interruptions or software bugs in our platform could result in losses to our customers and thereby result in damage to our reputation, adverse effects upon customers and users, loss of customers and
relationships with third parties, significant expenditures of capital, a delay or loss in market acceptance, loss of revenue or liability for damages. In addition, provisions typically included in our agreements with our customers that attempt
to limit our exposure to claims may not be enforceable or adequate and may not otherwise protect us from liabilities or damages with respect to any particular claim. Even if not successful, a claim brought against us by any of our customers
would likely be time-consuming and costly to defend and could seriously damage our reputation and brand, making it harder for us to sell our solutions and retain our customers.
If we cannot successfully
execute on our strategy, including changing customer needs and new technologies and other market requirements, or achieve our objectives in a timely manner, our business, financial condition and results of operations could be harmed.
The quantum computing market is characterized by rapid
technological change, changing user requirements, uncertain product lifecycles and evolving industry standards. We believe that the pace of innovation will continue to accelerate as technology changes and different approaches to quantum
computing mature on a broad range of factors, including system architecture, error correction, performance and scale, ease of programming, user experience, markets addressed, types of data processed, and data governance and regulatory
compliance. Our future success depends on our ability to continue to innovate and increase customer adoption of our products and services. If we are unable to enhance our products and services to keep pace with these rapidly evolving customer
requirements, or if new technologies emerge that are able to deliver competitive products at lower prices, more efficiently, with better functionality, more conveniently, or more securely than our platform, our business, financial condition and
results of operations could be adversely affected.
A key application of our technology is for optimization problems
which, while a very broad market, requires continued research and development in order for our products and services to fully address the optimization market, and if that research and development is not successful this may limit its adoption to
a narrow range of customers. If we cannot successfully attract a broader range of customers to our quantum annealing technology, our business will be negatively impacted and could fail.
In addition, our planned quantum gate system, which is a strategic
milestone for our technical roadmap and commercialization, is not yet available for customers and may not become available on the timelines we expect or at all.
Even if we are successful in executing on our product roadmap and
strategy and delivering increasingly more powerful quantum computing systems and services, competitors in the industry may achieve technological breakthroughs which render our products and services obsolete or inferior to other products and
services.
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Our continued growth and success depend on our ability to
innovate and develop quantum computing technology in a timely manner and effectively market these products. Without timely innovation and development, our quantum computing solutions could be rendered obsolete or less competitive by changing
customer preferences or because of the introduction of a competitor’s more advanced technologies. Any technological breakthroughs which render our technology obsolete or inferior to other products could have a material effect on our business,
financial condition or results of operations.
Any cybersecurity-related
attack, significant data breach or disruption of the information technology systems, infrastructure, network, third-party processors or platforms on which we rely could damage our reputation and adversely affect our business and financial
results.
Our operations rely on information technology systems for the use,
storage and transmission of sensitive and confidential information with respect to our customers, our customers’ customers, our employees and other third parties. A malicious cybersecurity-related attack, intrusion or disruption by either an
internal or external source or other breach of the systems on which our platform and products operate, and on which our employees conduct business, could lead to unauthorized access to, use of, loss of or unauthorized disclosure of sensitive
and confidential information, disruption of our services, viruses, worms, spyware, or other malware being served from our platform, networks, or systems; and resulting regulatory enforcement actions, litigation, indemnity obligations and other
possible liabilities, as well as negative publicity, which could damage our reputation, impair sales and harm our business. Cyberattacks and other malicious internet-based activity continue to increase, and cloud-based platform providers of
products and services have been and are expected to continue to be targeted. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), phishing, employee theft or misuse and denial-of-service attacks,
sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). Cyberattacks may also gain publishing access to our customers’ accounts on our platform, using that access to
publish content without authorization. Despite efforts to create security barriers to such threats, it is not feasible, as a practical matter, for us to entirely mitigate these risks. If our security measures are compromised as a result of
third-party action, employee, customer, or user error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our reputation would be damaged, our data, information or intellectual property, or those of our customers and
our customers’ consumers, may be destroyed, stolen or otherwise compromised, our business may be harmed and we could incur significant liability. We have not always been able in the past, and may be unable in the future to anticipate or prevent
techniques used to obtain unauthorized access to or compromise of our systems because they change frequently and are generally not detected until after an incident has occurred. We also cannot be certain that we will be able to prevent
vulnerabilities in our software or address vulnerabilities that we may become aware of in the future.
In addition, there may be an increased risk of cyberattacks by
state actors due to the current conflict between Russia and the Ukraine. Any increase in such attacks on us or our systems could adversely affect our platform, networks, systems or other operations. Although we maintain cybersecurity policies
and procedures to manage risk to our information technology systems, continuously adapt our systems and processes to mitigate such threats, and plan to enhance our protections against such attacks, we may not be able to address these
cybersecurity threats proactively or implement adequate preventative measures and we may be unable to promptly detect and address any such disruption or security breach, if at all.
Further, as we rely on third-party cloud infrastructure, we depend
in part on third-party security measures to protect against unauthorized access, cyberattacks and the mishandling of data and information. If these third parties fail to adhere to adequate data security procedures, or in the event of a breach
of their networks, our own, our customers’ and our customers’ consumers’ data may be improperly accessed, used or disclosed. Any cybersecurity event, including any vulnerability in our software, cyberattack, intrusion or disruption or any
failure or breach unrelated to our own action or inaction, could result in significant increases in costs, including costs for remediating the effects of such an event; lost revenue due to network downtime, a decrease in customer and user
trust; increases in insurance premiums due to cybersecurity incidents; increased exposure to a risk of litigation and possible liability; increased costs to address cybersecurity issues and attempts to prevent future incidents; and harm to our
business, financial results and our reputation because of any such incident.
We include limitation of liability provisions in our standard
subscription agreements; however, such provisions may not be enforceable or adequate and may not otherwise protect us from any such liabilities or damages with respect to any claim related to a cybersecurity incident or other potential claim
referred to above. In addition, our existing general liability insurance coverage and coverage for cyber liability or errors or omissions may not continue
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to be available on acceptable terms or may not be available in sufficient amounts
to cover one or more large claims and our insurer may deny coverage with respect to future claims. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our
insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, would harm our business.
Many governments have enacted laws requiring companies to provide
notice of data security incidents involving certain types of personal data. In addition, some of our customers require us to notify them of data security breaches. Security compromises experienced by our competitors, by our customers or by us
may lead to public disclosures, which may lead to widespread negative publicity. Any security compromise in our industry, whether actual or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures,
negatively affect our ability to attract new customers, encourage consumers to restrict use of our platform, cause existing customers to elect not to renew their subscriptions or subject us to third-party lawsuits, regulatory fines or other
action or liability, which could harm our business.
Market adoption of
cloud-based online quantum computing platform solutions is relatively new and unproven and may not grow as we expect and, even if market demand increases, the demand for our QCaaS may not increase, or certain customers may be reluctant to use a
cloud-based QCaaS for applications, all of which may harm our business and results of operations.
We derive substantially all of our revenue from our cloud-based
quantum computing platform and professional services, which we expect to continue for the foreseeable future. As such, the market acceptance of our platform is critical to our continued success. It is difficult to predict customer adoption
rates and demand for our solutions and professional services, the entry of competitive platforms and service providers, or the future growth rate and size of our markets.
In addition, in order for cloud-based solutions to be widely
accepted, organizations must overcome any concerns with moving sensitive information to a cloud-based platform. In addition, demand for our platform in particular is affected by a number of other factors, some of which are beyond our control.
These factors include continued market acceptance of our cloud-based quantum computing platform and cloud-based QCaaS, the pace at which existing customers realize benefits from the use of our platform and decide to expand deployment of our
platform across their business, the timing of development and release of new products by our competitors, technological change, reliability and security, the pace at which enterprises undergo digital transformation, and developments in data
privacy regulations. In addition, we expect that the needs of our customers will continue to rapidly change and increase in complexity. We will need to improve the functionality and performance of our platform continually to meet those rapidly
changing, complex demands. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of relevant solutions in general or our platform in particular, our business operations, financial results, and
growth prospects will be materially and adversely affected.
Government actions and
regulations, such as tariffs and trade protection measures, may limit our ability to provide products and services to our customers and obtain products from our suppliers, which could have a material adverse impact on our business operations,
financial results and growth plans.
We currently offer our platform in 39 countries and our
international sales are a substantial and critical part of our current business and future growth plans. Our international sales and the use of our platform in various countries subject us to risks that we do not generally face with respect to
domestic sales within North America. For example, we may face additional risks relating to:
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lack of familiarity and burdens and complexity involved with complying with multiple, conflicting and changing foreign laws,
standards, regulatory requirements, tariffs, export controls and other barriers;
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difficulties in ensuring compliance with countries’ multiple, conflicting and changing privacy, data security, international
trade, customs and sanctions laws;
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differing technology standards; and
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new and uncertain protection for intellectual property rights in some countries.
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We may be unsuccessful in navigating such risks, which could have
a material adverse impact on our business operations, financial results and growth plans.
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If we engage in
acquisitions, divestitures, strategic investments or strategic partnerships and fail to achieve favorable results, our business, financial condition and operating results could be harmed.
We may in the future make acquisitions, divestitures or certain
investments. Any transactions that we enter into could be material to our financial condition and results of operations. The process of acquiring and integrating another company or technology could create unforeseen operating difficulties and
expenditures. Acquisitions and investments involve a number of risks, such as:
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use of resources that are needed in other areas of our business;
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in the case of an acquisition, implementation or remediation of controls, procedures and policies of the acquired company;
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in the case of an acquisition, difficulty integrating the accounting systems and operations of the acquired company,
including potential risks to our corporate culture;
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in the case of an acquisition, coordination of product, engineering and selling and marketing functions, including
difficulties and additional expenses associated with supporting legacy services and products and hosting infrastructure of the acquired company, as applicable, difficulties associated with supporting new products or services, difficulty
converting the customers of the acquired company onto our platform and difficulties associated with contract terms, including disparities in the revenues, licensing, support or professional services model of the acquired company;
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in the case of an acquisition, retention and integration of employees from the acquired company;
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in the case of an acquisition, past intellectual property infringement or data security issues arising from the acquired
company;
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unforeseen costs or liabilities;
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adverse effects on our existing business relationships with customers as a result of the acquisition or investment;
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the possibility of adverse tax consequences;
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litigation or other claims arising in connection with the acquired company or investment; and
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in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address
the particular economic, currency, political and regulatory risks associated with specific countries.
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In addition, a significant portion of the purchase price of
companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take
charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations. Acquisitions and investments may also result in dilutive issuances of equity securities, which could adversely
affect our share price, or result in issuances of securities with superior rights and preferences to our common shares or the incurrence of debt with restrictive covenants that limit our future uses of capital in pursuit of business
opportunities.
We may not be able to identify acquisition or investment
opportunities that meet our strategic objectives, or to the extent such opportunities are identified, we may not be able to negotiate terms with respect to the acquisition or investment that are acceptable to us. At this time, we have made no
commitments or agreements with respect to any such material transactions.
We may in the future be
adversely affected by continuation or worsening of the global COVID-19 pandemic, its various strains or future pandemics.
The COVID-19 pandemic has caused, and may result in further,
significant disruption of global financial markets and economic uncertainty. The COVID-19 pandemic has reached across the globe, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines,
and travel bans intended to control the spread of the virus. We have modified our business practices in response to the COVID-19 pandemic and we may take further actions as required by government authorities or that we determine are warranted.
For instance, we have enabled our employees to work remotely, implemented travel restrictions for all non-essential business and shifted company events to virtual-only experiences, and we may deem it advisable to similarly alter,
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postpone or cancel additional events in the future. While we may ease these
restrictions in response to evolving conditions relating to the COVID-19 pandemic, it is unclear what the extent of these restrictions will be in the future, and there is no certainty that any such measures will be sufficient to mitigate the
direct and indirect effects of the virus, which could continue to adversely affect our business, financial condition and results of operations. Additionally, economic uncertainty as a result of the COVID-19 pandemic may cause our current or
potential future customers to modify, delay or cancel plans to purchase our products and services.
The duration and extent to which the COVID-19 pandemic impacts our
financial results will depend on future developments, which are highly uncertain and cannot be predicted, including: new information that may emerge concerning the severity and transmission rate of COVID-19 and any variants thereof; the
continued rollout-of mass vaccinations for COVID-19; the extent and effectiveness of containment measures and vaccines; the impact of the COVID-19 pandemic and related restrictions on economic activity and domestic and international trade
during the pandemic and in the post-pandemic recovery period and the impact of these and other factors on our employees, customers, vendors and partners, including their respective productivity; and the actions taken by governments to curtail
or treat its impact, including shelter in place directives, business limitations and shutdowns, travel bans and restrictions, loan payment deferrals (whether government-mandated or voluntary), moratoriums on debt collection activities and other
actions, which, if imposed or extended, may impact the economies in which we now, or may in the future, operate.
Our limited operating history combined with the uncertainty
created by the COVID-19 pandemic significantly increases the difficulty of forecasting operating results and of strategic planning. If we are unable to effectively predict and manage the impact of the COVID-19 pandemic on our business, our
results of operations and financial condition may be negatively impacted.
System failures,
interruptions, delays in service, catastrophic events, inadequate infrastructure and resulting interruptions in the availability or functionality of our products and services could harm our reputation or subject us to significant liability, and
adversely affect our business, financial condition and operating results.
Our brand, reputation and ability to attract, retain and serve our
customers are also dependent upon the reliable performance of our platform, including our underlying technical infrastructure. Our systems and those of our third-party data center facilities may experience service interruptions, human error,
earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks and other geopolitical unrest, computer viruses, or other events. Our
systems are also subject to break-ins, sabotage, and acts of vandalism. Our platform and technical infrastructure may not be adequately designed with sufficient reliability and redundancy and our disaster recovery planning, which includes using
geographically distinct and multi-region data centers, may not be sufficient to avoid performance delays or outages that could be harmful to the businesses of our customers and our business. Our disaster recovery plan stores some of our
electronic data to a cloud back up system center in the event of a catastrophe, but such program may not be sufficient to recover all information or for all eventualities.
We have in the past experienced and may in the future experience
service interruptions which disrupt the availability or reduce the speed or functionality of our platform. These events have resulted and likely will result in loss of revenue and could result in significant expense to remedy resultant data
loss or corruption and/or recover from the interruption. A prolonged interruption in the availability or reduction in the speed or other functionality of our platform could materially harm our reputation and business. Frequent or persistent
interruptions in access to functionality of our platform could cause our customers to believe that our platform is unreliable. If our platform is unavailable when our customers attempt to access it, or if it does not perform to expected levels,
our customers may cease to use our platform entirely. Moreover, to the extent that any system failure or similar event results in damages to customers or their businesses, these customers could seek compensation from us for their losses, and
those claims, even if unsuccessful, would likely be time-consuming and costly to address. While we have implemented measures intended to prevent or mitigate such interruptions, such measures may not be successful in preventing service
interruptions in the future.
Unfavorable conditions in
our industry or the global economy, including uncertain geopolitical conditions such as inflation, recessions and war, among others, could limit our ability to grow our business and negatively affect our results of operations.
Our results of operations may vary based on the impact of changes
in our industry or the global economy on us or our customers and potential customers. Negative conditions in the general economy in Canada, the U.S. and
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foreign jurisdictions, including conditions resulting from changes in gross
domestic product growth, financial and credit market fluctuations, inflation, tightening of the credit markets, including as a result of bank failures and any resulting issues in the broader U.S. financial system, any higher interest rates,
recessions, international trade relations, pandemics (such as the COVID-19 pandemic), political turmoil, uncertain geopolitical conditions, natural catastrophes, warfare, and terrorist attacks could negatively impact our business, financial
condition, results of operation, and liquidity or cause a decrease in business investments, including the progress on development of quantum technologies, and negatively affect the growth of our business. In February 2022, Russia launched a
large-scale invasion of Ukraine. The extent and duration of the military action, resulting sanctions and resulting future market disruptions, are impossible to predict, but could be significant. Although we do not have business operations or
customers in Russia or Ukraine, sanctions, an increase in cyberattacks and increases in energy costs, among other potential impacts on regional and global economic environment and currencies, may cause demand for our products and services to be
volatile, cause abrupt changes in our customers’ buying patterns, interrupt our ability to supply products to this or other regions or limit customers’ access. In addition, in challenging economic times, our current or potential future
customers may experience cash flow problems and as a result may modify, delay or cancel plans to purchase our products and services. Many of our customers invest in quantum computing products and services as part of their medium to longer-term
strategies to optimize aspects of their business, and significant global disruptions such as the COVID-19 pandemic or geopolitical conflicts may result in potential customers focusing on short-term challenges, resulting in a reduction in their
investments in quantum computing. Additionally, if our customers are not successful in generating sufficient revenue or are unable to secure financing, they may not be able to pay, or may delay payment of, accounts receivable due to us.
Moreover, our key suppliers may reduce their output or become insolvent, thereby adversely impacting our ability to manufacture our products. Furthermore, uncertain economic conditions may make it more difficult for us to raise funds through
borrowings or private or public sales of debt or equity securities. We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry.
Rising inflation may
result in increased costs of operations and negatively impact the credit and securities markets generally and rising interest rates may result in increased costs of capital for us, each of which could have a material adverse effect on our
results of operations and the market price of the Common Shares.
Inflation has accelerated in the U.S., Canada and globally due in
part to global supply chain issues, the Ukraine-Russia war, a rise in energy prices, and strong consumer demand as economies continue to reopen from restrictions related to the COVID-19 pandemic. An inflationary environment can increase our
cost of labor, as well as our other operating costs, which may have a material adverse impact on our financial results. In addition, economic conditions could impact and reduce the number of customers who purchase our products or services as
credit becomes more expensive or unavailable. Although interest rates have increased and are expected to increase further, inflation may continue. Further, increased interest rates could have a negative effect on the securities markets
generally and increase the cost of capital to us, in particular, which may, in turn, have a material adverse effect on the market price of the Common Shares.
If we fail to offer
high-quality customer support, or if the cost of such support is not consistent with corresponding levels of revenue, our business, results of operations and reputation may be harmed.
Due to our innovative technology and our planned technical
roadmap, our customers will require particular support and service functions, some of which are not currently available, and may never be available. If we experience delays in adding such support capacity or servicing our customers efficiently,
or experience unforeseen issues with the reliability of our technology, it could overburden our servicing and support capabilities. Similarly, increasing the number of our products and services would require us to rapidly increase the
availability of these services. Failure to adequately support and service our customers may inhibit our growth and ability to expand.
Our current customers rely on our customer support organization to
respond to inquiries and resolve issues related to their use of our platform quickly and effectively. Our customer support relies on third-party technology platforms, which may become unavailable or otherwise prevent our customers and customer
support team from interacting on a timely basis. Our response times to customers and prospects may be impacted for reasons outside our control, such as changes to software and computing services, which may interrupt aspects of our service to
our customers. From time to time, we experience spikes in the number of customer support tickets that we receive, which may result in an increase in customer requests and significant delays in responding to our customers’ requests. Customer
demand for support may also increase as we expand and enhance our operations and product offerings.
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Increased customer demand for our support services, without corresponding revenue
increases, could increase our costs and harm our operating results. As we continue to grow our operations and support our global user base, we need to continue to provide efficient and high-quality support that meets our customers’ needs
globally at scale. Our sales process is highly dependent on the ease of use of our platform and products, our business reputation and positive recommendations from our existing customers. Any failure to maintain a high-quality customer support
organization, or a market perception that we do not maintain such levels of support, could harm our reputation, our ability to sell to existing and prospective customers and our business, results of operation and financial condition.
Risks Related to Litigation and Government Regulation
Changing Canadian and U.S.
federal, state, provincial and foreign laws and regulations related to privacy, information security and data protection could adversely affect how we collect and use personal information and harm our brand.
We may receive, store and otherwise process personal information
and other data from and about our customers, employees and from other stakeholders, like our vendors. There are numerous federal, provincial, local and international laws and regulations regarding privacy, data protection, information security
and the storing, sharing, use, processing, transfer, disclosure, retention and protection of personal information and other content, the scope of which is rapidly changing, subject to differing interpretations and may be inconsistent among
regions, countries and states, or conflict with other legal requirements. We are also subject to contractual obligations from our customers and other third parties related to privacy, data protection and information security, and disclosures
and commitments made in our privacy policies. We strive to comply with applicable laws, regulations, policies and other legal obligations relating to privacy, data protection and information security. However, the regulatory framework for
privacy, data protection and information security worldwide is, and is likely to remain, uncertain for the foreseeable future, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that
is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.
We also expect that there will continue to be new laws,
regulations and industry standards concerning privacy, data protection and information security proposed and enacted in various jurisdictions. The United States, Canada, the European Union, the United Kingdom and other jurisdictions in which we
operate are increasingly adopting or revising privacy, information security and data protection laws and regulations that could have a significant impact on our current and planned privacy, data protection and information security-related
practices, our collection, use, sharing, retention and safeguarding of customer, consumer and/or employee information, as well as any other third-party information we receive, and some of our current or planned business activities. New and
changing laws, regulations, and industry standards concerning privacy, data protection and information security may also impact the computing services and software industry platforms and data providers we utilize, and thereby indirectly impact
our business. In the United States, this includes the CCPA which came into effect on January 1, 2020. In the European Union and the United Kingdom, this includes the GDPR which came into effect in May 2018. In Canada, this includes Canada’s
PIPEDA and the Personal Information Protection Act in British Columbia. While we have taken measures to comply with applicable requirements contained in the GDPR, we may need to continue to make
adjustments as more clarification and guidance on the requirements of the GDPR and how to comply with such requirements becomes available. Further, Brexit has created uncertainty with regard to the regulation of data protection in the United
Kingdom, including how the United Kingdom version of the GDPR will be implemented alongside its existing United Kingdom data protection regulations and how data transfers to and from the United Kingdom will generally be regulated.
Uncertainty in the laws and regulations affecting cross border
transfers of personal data may affect the demand and functionality of our services. In the past, we have relied on a variety of adequacy mechanisms, including the European Commission Decision 2002/2/EC regarding the adequacy of Canadian law,
Standard Contractual Clauses, and Binding Corporate Rules, to enable us to provide our services around the globe at scale. Different European data protection regulators may impose additional requirements or apply differing standards for the
transfer of personal data or even prohibit data transfers to certain non-European Union countries, like the United States and Canada. Such standards may be particularly targeted at the software companies with whom we work. This creates
significant additional uncertainty regarding our ability to lawfully transfer certain personal data from the European Union and we may need to implement substantial changes to our information technology infrastructure as a result, which could
take time and be costly. In addition, the CCPA affords consumers expanded privacy protections and control over the collection, use and sharing of their personal information. The potential effects of this legislation are far-reaching and may
require us to modify our data processing practices and policies and to incur substantial costs and expenses in
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an effort to comply. For example, the CCPA gives California residents expanded
rights to access and require deletion of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The California State Attorney General began
enforcing the CCPA on July 1, 2020; to the extent that we have not fully implemented the data processing practices and policies necessary to comply with the CCPA, the Attorney General may serve us with an enforcement notice under the CCPA and
impose civil penalties for violations. The CCPA also provides for a private right of action for data breaches that may increase data breach litigation.
With laws and regulations such as the CCPA in the United States,
the PIPEDA in Canada, and GDPR in the European Union imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in
addressing their requirements and making necessary changes to our policies and practices and may incur significant costs and expenses in an effort to do so. For example, the increased consumer control over the sharing of their personal
information afforded by CCPA may affect our customers’ ability to share such personal information with us or may require us to delete or remove consumer information from our records or data sets, which may create considerable costs for our
organization. In addition, any failure or perceived failure by us to comply with our privacy policies, our privacy, data protection- or information security-related obligations to customers, users or other third parties or any of our other
legal obligations relating to privacy, data protection or information security may result in governmental investigations or enforcement actions, litigation, claims or public statements against us by consumer advocacy groups or others, and could
result in significant liability, loss of relationships with key third parties, or cause our users to lose trust in us, which could have an adverse effect on our reputation and business. Furthermore, the costs of compliance with, and other
burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our users may limit the adoption and use of, and reduce the overall demand for, our platform.
Additionally, if the third parties we work with, such as vendors
or developers, violate applicable laws or regulations or our policies, such violations may also put our customers’ and their users at risk and could in turn have an adverse effect on our business. Any significant change to applicable laws,
regulations or industry practices regarding the collection, use, retention, security or disclosure of such content, or regarding the manner in which the express or implied consent of such persons for the collection, use, retention or disclosure
of such content is obtained, could increase our costs and require us to modify our services and features, possibly in a material manner, which we may be unable to complete and may limit our ability to store and process user data or develop new
services and features. All of these implications could adversely affect our revenue, results of operations, business and financial condition.
We are subject to United
States, Canadian and foreign anti-corruption, anti-bribery and similar laws, and non-compliance with such laws may subject us to criminal or civil liability and harm our business.
We are subject to a variety of laws and regulations in the United
States, Canada and foreign jurisdictions related to anti-corruption, anti-bribery and similar laws, including governing cross-border and domestic money transmission, gift cards and other prepaid access instruments, electronic fund transfers,
taxation reporting requirements, foreign exchange, privacy and data protection, banking and import and export restrictions. We are also subject to various anti-corruption and anti-money laundering laws, including the Foreign Corrupt Practices Act (U.S.), the United States domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA Patriot Act, the U.K. Bribery Act 2010 and Proceeds of Crime Act 2002, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) and its regulations, and other anti-bribery and anti-money laundering laws in countries in which we conduct activities. Concerns
about the use of payment processing platforms for illegal conduct, such as money laundering or to support terrorist activities, may result in legislation or other governmental action that could require changes to our platform. In addition,
depending on how our customer base evolves, and as we expand into new geographies, we expect to become subject to additional laws in the United States, Canada, Europe and elsewhere. Any non-compliance with such laws may subject us to criminal
or civil liability and harm our business.
We are subject to export
and import controls and economic sanctions laws that could impair our ability to offer our products or make our platform available in some jurisdictions, or subject us to liability if we are not in compliance with applicable laws.
As a result of our international operations, we are subject to a
number of United States, Canadian and foreign laws relating to economic sanctions and to export and import controls which presently limit and could further limit our ability to offer our platform in certain jurisdictions or to certain
customers. In addition, the export of our software
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in certain jurisdictions may require governmental authorizations. Various
jurisdictions also regulate the import of certain technology, including imposing import permitting and licensing requirements, and have enacted laws that could limit our ability to offer our platform in those countries. Complying with export or
import controls and economic sanctions may be time-consuming and result in the delay or loss of business opportunities.
Any change in export or import controls, economic sanctions or
related legislation, or change in the countries, governments, persons, or technologies targeted by such restrictions or legislation, could result in decreased use of our platform by customers or in our decreased ability to offer our platform
internationally, which would harm our business, operating results and financial condition. Furthermore, failure to comply with export or import controls or with economic sanctions may expose us to government investigations and penalties, which
could harm our business, operating results and financial condition.
Governmental decisions
with respect to perceived national security risks associated with quantum computing technology could impede the selling of our products and services.
Political challenges between the United States and countries in
which our suppliers are located, including China, and changes to trade policies, including tariff rates and customs duties, trade relations between the United States and China and other macroeconomic issues could adversely impact our business.
Specifically, United States-China trade relations remain uncertain and quantum computing has been designated as a technology with national security implications in many countries, including the United States and Canada. The United States
administration has announced tariffs on certain products imported into the United States with China as the country of origin, and China has imposed tariffs in response to the actions of the United States. There is also a possibility of future
tariffs, trade protection measures or other restrictions imposed on our products or on our customers by the United States, China or other countries that could have a material adverse effect on our business. To the extent our technology is
deemed a matter of national security, our business could be subject to increased restrictions or regulations, our customer and supplier base may be restricted, our TAM may be reduced and our business, operating results and financial condition
could be harmed.
We are subject to
requirements relating to environmental and safety regulations which could adversely affect our business, results of operation and reputation.
We are subject to numerous federal, state and local environmental
laws and regulations governing, among other things, solid and hazardous waste storage, treatment and disposal, and remediation of releases of hazardous materials. There are significant capital, operating and other costs associated with
compliance with these environmental laws and regulations. Environmental laws and regulations may become more stringent in the future, which could increase costs of compliance or require us to manufacture with alternative technologies and
materials.
Federal, state and local authorities also regulate a variety of
matters, including, but not limited to, health, safety and permitting in addition to the environmental matters discussed above. New legislation and regulations may require us to make material changes to our operations, resulting in significant
increases to the cost of production.
Our hardware has operational hazards such as but not limited to
hazardous operating temperatures and high voltage and/or high current electrical systems typical of large computer processing equipment and related safety incidents.
There may be environmental or safety incidents that damage
machinery or product, slow or stop production, or harm employees or third parties. Consequences may include litigation, regulation, fines, increased insurance premiums, mandates to temporarily halt production, workers’ compensation claims, or
other actions that impact our brand, finances, or ability to operate.
Future investments in
D-Wave Quantum Common Shares may be subject to U.S. foreign investment regulations.
Investments that involve the acquisition of, or investment in, a
U.S. business by a non-U.S. investor may be subject to U.S. laws that regulate foreign investments in U.S. businesses and access by foreign persons to technology developed and produced in the United States. These laws include Section 721 of the
Defense Production Act of 1950, as amended by the Foreign Investment Risk Review Modernization Act of 2018, and the regulations at 31 C.F.R. Parts 800 and 802, as amended, administered by the Committee on Foreign Investment in the United States
(“CFIUS”).
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Whether CFIUS has jurisdiction to review an acquisition or
investment transaction depends on, among other factors, the nature and structure of the transaction, including the level of beneficial ownership interest and the nature of any information or governance rights involved. For example, investments
that result in “control” of a “U.S. business” by a “foreign person” (in each case, as such terms are defined in 31 C.F.R. Part 800) always are subject to CFIUS jurisdiction. Significant CFIUS reform legislation, which was fully implemented
through regulations that became effective in 2020, expanded the scope of CFIUS’s jurisdiction to investments that do not result in control of a U.S. business by a foreign person, but afford certain foreign investors certain information or
governance rights in a U.S. business that has a nexus to “critical technologies,” “covered investment critical infrastructure,” and/or “sensitive personal data” (in each case, as such terms are defined in 31 C.F.R. Part 800).
The Merger has resulted in investments in our U.S. subsidiary by
non-U.S. persons that could be considered by CFIUS to result in a covered control transaction that CFIUS would have authority to review. PSP is a Canadian Crown corporation and, as of March 31, 2023, held approximately 47 percent of the issued
and outstanding D-Wave Quantum Common Shares (including Exchangeable Shares). CFIUS or another U.S. governmental agency could choose to review past or proposed transactions involving new or existing foreign investors in D-Wave Quantum, even if
a filing with CFIUS is or was not required at the time of such transaction.
Any review and approval of an investment or transaction by CFIUS
may have outsized impacts on transaction certainty, timing, feasibility, and cost, among other things. CFIUS policies and agency practices are rapidly evolving, and, in the event that CFIUS reviews one or more proposed or existing investment by
investors, there can be no assurances that such investors will be able to maintain, or proceed with, such investments on terms acceptable to the parties to the transaction or such investors. Among other things, CFIUS could seek to impose
limitations or restrictions on, or prohibit, investments by such investors (including, but not limited to, limits on purchasing D-Wave Quantum Common Shares, limits on information sharing with such investors, requiring a voting trust,
governance modifications, or forced divestiture, among other things), or CFIUS could require us to divest a portion of D-Wave Quantum.
Risks Related to D-Wave Quantum’s Intellectual Property
We may be unable to obtain,
maintain and protect our intellectual property rights and proprietary information or prevent third parties from making unauthorized use of our technology, which could cause it to lose its competitive advantage.
Our intellectual property is important to our business. We rely on
a combination of confidentiality clauses, assignment agreements and license agreements with employees and third parties, patents, trade secrets, copyrights, and trademarks to protect our intellectual property and competitive advantage, all of
which offer only limited protection. The steps we take to protect our intellectual property require significant resources and may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or
if we do not detect unauthorized use of our intellectual property. We may be required to use significant resources to obtain, monitor and protect our intellectual property. Despite our precautions, it may be possible for unauthorized third
parties to copy our platform and our products and use information that we regard as proprietary to create products and services that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and
disclosure of our proprietary information may be unenforceable under the laws of certain jurisdictions and foreign countries. In addition, we may not be able to acquire or maintain appropriate domain names in all countries in which we do
business or prevent third parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks, and other intellectual property. Furthermore, regulations governing domain names may not protect our
trademarks or similar proprietary rights.
We enter into confidentiality and intellectual property agreements
with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances. These agreements may not be effective in securing ownership of our intellectual
property or controlling access to our proprietary information and trade secrets. The confidentiality agreements on which we rely to protect certain technologies may be breached, may not be adequate to protect our confidential information, trade
secrets and proprietary technologies and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, trade secrets or proprietary technology. Further, these agreements do not prevent our
competitors or others from independently developing technology that is substantially equivalent or superior to our technology. In addition, others may independently discover our trade secrets and confidential information, and in such cases, we
likely would not be able to assert any trade secret rights against such parties. Additionally, we may from time to time be subject to opposition or similar proceedings with respect to applications for registrations of our
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intellectual property, including our trademarks. While we aim to acquire adequate
protection of our brand through trademark registrations in key markets, occasionally third parties may have already registered or otherwise acquired rights to identical or similar marks for services that also address our market. We rely on our
brand and trademarks to identify our platform and to differentiate our platform and services from those of our competitors, and if we are unable to adequately protect our trademarks third parties may use our brand names or trademarks similar to
ours in a manner that may cause confusion in the market, which could decrease the value of our brand and adversely affect our business and competitive advantages.
Policing unauthorized use of our intellectual property and
misappropriation of our technology and trade secrets is difficult and we may not always be aware of such unauthorized use or misappropriation. Despite our efforts to protect our intellectual property rights, unauthorized third parties may
attempt to use, copy or otherwise obtain and market or distribute our intellectual property rights or technology or otherwise develop services with the same or similar functionality as our platform and products. If our competitors infringe,
misappropriate or otherwise misuse our intellectual property rights and we are not adequately protected, or if our competitors are able to develop a platform or product with the same or similar functionality as ours without infringing our
intellectual property, our competitive advantage and results of operations could be harmed. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could
result in the impairment or loss of portions of our intellectual property. As a result, we may be aware of infringement by our competitors, but may choose not to bring litigation to enforce our intellectual property rights due to the cost, time
and distraction of bringing such litigation. Furthermore, if we do decide to bring litigation, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits challenging or opposing our right to
use and otherwise exploit particular intellectual property, services and technology or the enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as
any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our platform, prevent or delay introductions of new or enhanced
solutions, result in our substituting inferior or more costly technologies into our platform or injure our reputation. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to
developing and protecting their technology or intellectual property rights than we do.
Our patent applications
may not result in issued patents or our patent rights may be contested, circumvented, invalidated or limited in scope, any of which could have a material adverse effect on our ability to prevent others from interfering with the
commercialization of our products.
Our patent applications may not result in issued patents, which
may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours. The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a
result, we cannot be certain that any patent applications we have or will file will result in patents being issued, or that our patents and any patents that may be issued to us will afford protection against competitors with similar technology.
Numerous patents and pending patent applications owned by others exist in the fields in which we have developed and are developing our technology. In addition to those who may have patents or patent applications directed to relevant technology
with an effective filing date earlier than any of our existing patents or pending patent applications, any of our existing or pending patents may also be challenged by others on the basis that they are otherwise invalid or unenforceable.
Furthermore, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued United States
patents will be issued.
Even if our patent applications succeed and we are issued patents
in accordance with them, it is still uncertain whether these patents will be contested, circumvented, invalidated or limited in scope in the future. The rights granted under any issued patents may not provide us with meaningful protection or
competitive advantages, and some foreign countries provide significantly less effective patent enforcement than in the United States. In addition, the claims under any patents that issue from our patent applications may not be broad enough to
prevent others from developing technologies that are similar or that achieve results similar to ours. The intellectual property rights of others could also bar us from licensing and exploiting any patents that issue from our pending
applications. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that they need to license or design around, either of which would increase costs and may adversely affect our
business, prospects, financial condition and operating results.
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We may face patent
infringement and other intellectual property claims that could be costly to defend, result in injunctions and significant damage awards or other costs. If third parties claim that we infringe upon or otherwise violate their intellectual
property rights, our business could be adversely affected.
The computing and software industries are characterized by the
existence of a large number of patents and frequent claims and related litigation regarding patents, copyright and other intellectual property rights. Third parties may assert that our platform, solutions, technology, methods or practices
infringe, misappropriate or otherwise violate their intellectual property. We face the risk of claims that we have infringed upon or otherwise violated third parties’ intellectual property rights. Our future success depends in part on not
infringing upon or otherwise violating the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon or otherwise violating their intellectual property rights, and we
may be found to be infringing upon or otherwise violating such rights. We may be unaware of the intellectual property rights of others that may cover some or all of our technology or conflict with our trademark rights. Any claims of
intellectual property infringement or other intellectual property violations, even those without merit, could:
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be expensive and time consuming to defend;
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cause us to cease making, licensing or using our platform or products that incorporate the challenged intellectual property;
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require us to modify, redesign, reengineer or rebrand our platform or products, if feasible;
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cause significant delays in introducing new or enhanced services or technology;
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divert management’s attention and resources; or
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require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual
property.
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Any royalty or licensing agreements, if required, may not be
available to us on acceptable terms or at all. A successful claim of infringement against us could result in our being required to pay significant damages, enter into costly settlement agreements, or prevent us from offering our platform or
products, any of which could have a negative impact on our operating profits and harm our future prospects. We may also be obligated to indemnify our customers or business partners in connection with any such litigation and to obtain licenses,
modify our platform or products, or refund subscription fees, which could further exhaust our resources. Such disputes could also disrupt our platform or products, adversely affecting our customer satisfaction and ability to attract customers.
Some of our intellectual
property has been conceived or developed pursuant to government-funding agreements which impose certain obligations on us. Compliance with such obligations may limit our ability to freely transfer our assets without incurring substantial
additional repayment obligations.
Our government-funding agreements may contain certain restrictive
covenants that either limit our ability to, or require a prepayment, in the event we incur additional indebtedness or liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of
business, add new offices or business locations, make certain investments, pay dividends, transfer or dispose of certain assets, liquidate or dissolve, amend certain material agreements and enter into various specified transactions. We,
therefore, may not be able to engage in any of the foregoing transactions unless we obtain the consent required by these agreements. Furthermore, our future working capital, borrowings or equity financing could be unavailable to repay or
refinance the amounts outstanding under any of these agreements.
In addition, we may also incur additional indebtedness in the
future. The instruments governing such indebtedness could contain provisions that are as, or more, restrictive than those to which we are presently subject. Any such present or future restrictions may limit our ability to meet our business,
financing or other goals which could have a material adverse effect on our business and results of operations.
Risks Related to Being a Public Company
Our management has limited
experience operating a public company, and thus its success in such endeavors cannot be guaranteed.
Our executive officers have limited experience in the management
of a publicly traded company. Our management team may not successfully or effectively manage D-Wave Quantum’s transition to a public company that is subject to significant regulatory oversight and reporting obligations under U.S. securities
laws. Their limited
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experience in dealing with the increasingly complex laws pertaining to public
companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to the management and growth of the post-combination
company. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal control over financial reporting required of public companies in the United States.
This could impact our ability or prevent us from timely reporting our operating results, timely filing required reports with the SEC and complying with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”). The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the United States may require costs greater than expected. It is
possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company, which will increase our operating costs in future periods.
For the year ended December 31, 2022 and the quarter ended March
31, 2023, we had a material weakness in our internal control over financial reporting specifically pertaining to our control environment in relation to our financial statement close process (i.e., lack of sufficient accounting and financial
reporting personnel with requisite knowledge and experience in the application of complex areas of GAAP and SEC rules to facilitate accurate and timely financial reporting and to perform sufficient review over certain financial statement
areas), as previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”). As a result, we were unable to file the Form 10-K and our Quarterly Report on Form 10-Q for the period ended
March 31, 2023 by their respective initial deadlines.
Although we were able to file the 10-Q within the extension period
provided pursuant to SEC rules, we were not able to file the Form 10-K within the applicable extension period and there is no assurance that we will be able to timely file our periodic reports in the future. Our failure to file periodic and
certain current reports with the SEC in a timely manner, among other things, has delayed us, and could further preclude or delay us in the future, from being eligible to use a short form registration statement on Form S-3 to register certain
sales of our Common Shares by us or our stockholders and could even result in the delisting and suspension of trading of our Common Shares on the NYSE and/or the revocation of our registration by the SEC.
If we are unable for any
reason to meet the continued listing requirements of the NYSE, such action or inaction could result in a delisting of our securities.
On March 16, 2023, we were notified by the NYSE that we were
not in compliance with Section 802.01C of the NYSE Listed Company Manual (the “Minimum Price Requirement”) because the average closing price of our Common Shares was less than $1.00 over a consecutive 30 trading-day period. The notice had no
immediate impact on the listing of our Common Shares, which continued to be listed and traded on the NYSE during the period allowed to regain compliance, subject to our compliance with other listing standards. On July 3, 2023, the NYSE
notified us that we had regained compliance with the Minimum Price Requirement based on the average closing share price of our Common Shares for the 30 trading-days ended June 30, 2023 being at least $1.00 and the closing share price of our
Common Shares on June 30, 2023 being at least $1.00.
Although we have regained compliance with the Minimum Price
Requirement, there is no guarantee that we will remain in compliance with NYSE listing standards and we may become subject to delisting. The delisting of our Common Shares from the NYSE will likely make it more difficult for us to raise
capital on favorable terms in the future. Such a delisting would likely have a negative effect on the price of our securities and would impair your ability to sell or purchase our securities when you wish to do so. In the event of a
delisting, actions taken by us to restore compliance with listing requirements may not allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent such securities from dropping
below any minimum bid price requirement or prevent future non-compliance with the NYSE listing requirements.
If securities or industry
analysts do not publish research, or publish inaccurate or unfavorable research, about D-Wave Quantum’s business, the price and trading volume of D-Wave Quantum’s securities could decline.
The trading market for D-Wave Quantum’s securities will be
influenced by the research and reports that industry or securities analysts may publish about D-Wave Quantum, its business, market or competitors. Securities and industry analysts do not currently, and may never, publish research on D-Wave
Quantum. If no securities or industry analysts commence coverage of D-Wave Quantum, D-Wave Quantum’s share price and trading volume would likely be negatively impacted. If any of the analysts who may cover D-Wave Quantum change their
recommendation
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regarding the Common Shares adversely, or provide more favorable relative
recommendations about D-Wave Quantum’s competitors, the price of the Common Shares would likely decline. If any analyst who may cover D-Wave Quantum were to cease coverage of D-Wave Quantum or fail to regularly publish reports on it, D-Wave
Quantum could lose visibility in the financial markets, which in turn could cause its share price or trading volume to decline.
There is a risk that we
will fail to maintain an effective system of internal controls and our ability to produce timely and accurate financial statements or comply with applicable regulations could be adversely affected. We may identify more material weaknesses, in
addition to the material weakness identified below, in our internal controls over financing reporting which we may not be able to remedy in a timely manner.
As a public company, we operate in an increasingly demanding
regulatory environment, which requires us to comply with the Sarbanes-Oxley Act, the regulations of the NYSE, the rules and regulations of the SEC, expanded disclosure requirements, accelerated reporting requirements and more complex accounting
rules. Responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us
to produce reliable financial reports and are important to help prevent financial fraud. Prior to the Merger, we had never been required to test our internal controls within a specified period and, as a result, we may experience difficulty in
meeting these reporting requirements in a timely manner.
The process of building our accounting and financial functions and
infrastructure has, and will continue to, require significant additional professional fees, internal costs and management efforts. We may need to further enhance and/or implement a new internal system to combine and streamline the management of
our financial, accounting, human resources and other functions. However, the enhancement and/or implementation of a system have and may continue to result in substantial costs. Any disruptions or difficulties in implementing or using such a
system could adversely affect our controls and harm our business. Moreover, such disruption or difficulties could result in unanticipated costs and diversion of management’s attention. In addition to the material weakness identified below, we
may discover additional weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not
prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are not able to comply with the requirements of Section 404
of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If we cannot provide reliable financial reports or
prevent fraud, our business and results of operations could be harmed, investors could lose confidence in our reported financial information and we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory
authorities.
We have identified a
material weakness in our internal control over financial reporting. If we fail to remedy this weakness or maintain an effective system of internal controls, then our ability to produce timely and accurate financial statements or comply with
applicable regulations could be adversely affected. We may identify additional material weaknesses in our internal controls over financing reporting which we may not be able to remedy in a timely manner.
In connection with the preparation and audit of D-Wave's financial
statements as of and for the fiscal year ended December 31, 2022 and D-Wave Systems’ financial statements as of and for the fiscal years ended December 31, 2021 and 2020 and in preparation of D-Wave’s financial statements for the quarterly
period ended March 31, 2023, material weaknesses were identified in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that
there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, a material weakness was identified in D-Wave design and operation of
controls related to its financial statement close process: D-Wave lacks sufficient accounting and financial reporting personnel with requisite knowledge and experience in the application of complex areas of GAAP and SEC rules to facilitate
accurate and timely financial reporting and lacked adequate accounting personnel to perform sufficient review over certain areas including derivative accounting, non-routine revenue transactions, equity, government assistance, merger
accounting, taxes, deferred revenue, accounts receivable, stock-based compensation, prepaid expenses, lease accounting, financial statement disclosures, and classification within the consolidated statements of cash flow, which
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resulted in a number of material year end audit adjustments made prior to the
issuance of the financial statements of D-Wave Systems and D-Wave, as applicable, for the years ended December 31, 2022, 2021 and 2020.
This material weakness resulted in errors in the unaudited
condensed consolidated financial statements for the nine months ended September 30, 2022 that were restated on Form 10-Q/A (the “Restatement”) filed with the SEC on April 18, 2023. Additionally, this material weakness could result in
misstatements of the related accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. We are implementing measures designed to
improve our internal control over financial reporting to remediate this material weakness including adding additional qualified accounting personnel with experience with complex GAAP and SEC rules, engaging consultants to assist with the
financial statement close process, and segregating duties among accounting personnel to enable adequate review controls. The primary costs associated with such measures are corresponding recruiting and additional salary and consulting costs,
which are difficult to estimate at this time but which may be significant. These additional resources and procedures are intended to enable us to broaden the scope and quality of our internal review of underlying information related to
financial reporting and to formalize and enhance our internal control procedures.
The material weakness will not be considered remediated until our
remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively. We are continuing
to work on the implementation of our remediation plan, following which we will continue to test such controls over time. We cannot predict the success of such efforts or the outcome of its assessment of the remediation efforts. Our efforts may
not remediate this material weakness in our internal control over financial reporting, or additional material weaknesses may be identified in the future. A failure to implement and maintain effective internal control over financial reporting
could result in errors in our consolidated financial statements that could result in a restatement of our financial statements, and could cause us to fail to meet our reporting obligations, any of which could diminish investor confidence in us
and cause a decline in the price of our common stock.
Our independent registered public accounting firm will not be
required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. At such time, our independent registered public accounting
firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.
We will incur increased
costs as a result of our operation as a public company, and our management will be required to devote substantial time and resources to employing new compliance initiatives in order to comply with the regulatory requirements applicable to
public companies.
Following the completion of the Merger, we became a public company
and, as a result, we will incur significant legal, accounting and other expenses that we did not incur as a private company. As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the
Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted, and to be adopted, by the SEC and the NYSE. Our management and other personnel will need to devote a substantial amount of time to these compliance
initiatives. Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, we expect these rules and regulations to
make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be forced to accept reduced policy limits or incur substantially higher costs to maintain the same or similar coverage. We cannot
predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board
of directors, our board committees or as executive officers.
Risks Related to Ownership of the Common Shares
D-Wave will have broad
discretion in the use of its cash, cash equivalents and investments, and it may invest or spend such amounts in ways with which you may not agree or in ways which may not yield a return.
D-Wave Quantum’s management will have considerable discretion in
the application of its cash, cash equivalents and investments, and its stockholders will not have the opportunity to approve how such funds are being used. If such funds are used for corporate purposes that do not result in an increase to the
value of its business, D-Wave Quantum’s stock price could decline. Pending their use, D-Wave Quantum may invest its cash, cash equivalents and investments in a manner that does not produce income or that loses value.
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D-Wave may be required
to take write-downs or write-offs, or D-Wave may be subject to restructuring, impairment or other charges that could have a significant negative effect on D-Wave’s financial condition, results of operations and the price of D-Wave’s securities,
which could cause you to lose some or all of your investment.
Factors outside of D-Wave’s control may, at any time, arise. As a
result of these factors, D-Wave may be forced to write-down or write-off assets, restructure its operations, or incur impairment or other charges that could result in D-Wave reporting losses, as other companies that have recently consummated
business combinations with special purpose acquisition companies have been required to do. Even if certain risks were identified in the past, unexpected risks may arise, and previously known risks may materialize in a manner not consistent with
prior expectation. Even though these charges may be non-cash items and therefore not have an immediate impact on D-Wave’s liquidity, the fact that D-Wave reports charges of this nature could contribute to negative market perceptions about
D-Wave or its securities. In addition, charges of this nature may cause D-Wave to be unable to obtain future financing on favorable terms or at all.
D-Wave may be subject to securities litigation,
which is expensive and could divert management attention.
The price of the Common Shares has been and may continue to be
volatile. For example, the price per Common Share peaked at a high price of $13.23 on August 10, 2022, shortly following the completion of the Merger, and has since declined, and reached a low of $0.41 per Common Share on May 12, 2023. In the
past, companies that have experienced volatility in the market price of their stock have been subject to securities litigation, including class action litigation. D-Wave may be the target of this type of litigation in the future. Litigation of
this type could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on D-Wave’s business, financial condition, and results of operations. Any adverse determination in
litigation could also subject D-Wave to significant liabilities.
If securities or industry
analysts do not publish research, or publish inaccurate or unfavorable research, about D-Wave Quantum’s business, the price and trading volume of D-Wave Quantum’s securities could decline.
The trading market for D-Wave Quantum’s securities will be
influenced by the research and reports that industry or securities analysts may publish about D-Wave Quantum, its business, market or competitors. Securities and industry analysts currently publishing research on D-Wave Quantum may not continue
to, and additional securities and industry analysts may never, publish research on D-Wave Quantum. If the number of securities or industry analysts is reduced or coverage is eliminated, D-Wave Quantum’s share price and trading volume would
likely be negatively impacted. If any of the analysts who currently or may in future cover D-Wave Quantum change their recommendation regarding the Common Shares adversely, or provide more favorable relative recommendations about D-Wave
Quantum’s competitors, the price of the Common Shares would likely decline. If any analyst who may cover D-Wave Quantum were to cease coverage of D-Wave Quantum or fail to regularly publish reports on it, D-Wave Quantum could lose visibility in
the financial markets, which in turn could cause its share price or trading volume to decline.
The price of our Common
Shares has been and may continue to be volatile or may decline regardless of our operating performance.
The market price of Common Shares has fluctuated significantly and
may continue to do so in response to numerous factors, many of which are beyond its control, including:
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actual or anticipated fluctuations in its revenue or other operating metrics;
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changes in the financial guidance provided to the public or D-Wave Quantum’s failure to meet this guidance;
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failure of securities analysts to initiate or maintain coverage of D-Wave Quantum, changes in financial estimates by any
securities analysts who follow D-Wave Quantum, or its failure to meet the estimates or the expectations of investors;
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changes in accounting standards, policies, guidelines, interpretations, or principles;
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the economy as a whole and market conditions in its industry;
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rumors and market speculation involving D-Wave Quantum or other companies in its industry;
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announcements by D-Wave Quantum or its competitors of significant innovations, acquisitions, strategic partnerships, joint
ventures, or capital commitments;
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new laws or regulations or new interpretations of existing laws or regulations applicable to its business;
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lawsuits threatened or filed against us;
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other events or factors, including those resulting from war, incidents of terrorism, or responses to these events;
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the expiration of contractual lock-up or market standoff agreements; and
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sales of additional Common Shares by D-Wave Quantum or its stockholders.
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In addition, the stock markets have experienced extreme price and
volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of
those companies. For example, the price per Common Share peaked at a high price of $13.23 on August 10, 2022, shortly following the completion of the Merger, and has since declined, and reached a low of $0.41 per Common Share on May 12, 2023.
In the past, stockholders have instituted securities class action litigation following periods of market volatility. If D-Wave Quantum were to become involved in securities litigation, it could be subjected to substantial costs, divert
resources and the attention of management from its business, and harm its business.
The Warrants may have an adverse effect on the
market price of the Common Shares.
As of March 31, 2023, there were 17,916,609 Warrants outstanding,
with each Warrant exercisable for 1.4541326 Common Shares, subject to adjustment, at $11.50 per Common Share, as of September 4, 2022. Such Warrants, if exercised, would increase the number of issued and outstanding Common Shares and be
dilutive to the Common Shares then outstanding.
The D-Wave Quantum Charter
contains anti-takeover provisions that could adversely affect the rights of its stockholders.
The D-Wave Quantum Charter contains provisions to limit the
ability of others to acquire control of D-Wave Quantum or cause it to engage in change-of-control transactions, including, among other things:
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provisions that authorize its board of directors, without action by its stockholders, to issue additional Common Shares and
preferred stock with preferential rights determined by its board of directors;
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provisions that permit only a majority of its board of directors, the chairperson of the board of directors or the chief
executive officer to call stockholder meetings and therefore do not permit stockholders to call special meetings of the stockholders;
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provisions generally eliminating stockholders’ ability to act by written consent;
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provisions requiring a two-thirds super majority vote to remove a director; and
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provisions requiring certain amendments to our governing documents be made by a two-thirds super majority vote.
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These provisions could have the effect of depriving holders of our
Common Shares of an opportunity to sell their Common Shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of D-Wave Quantum in a tender offer or similar transaction.
The D-Wave Quantum Charter
provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware is the sole and exclusive forum for certain stockholder litigation matters, which could limit D-Wave Quantum’s stockholders’ ability to obtain a
favorable judicial forum for disputes with D-Wave Quantum or D-Wave Quantum’s directors, officers, employees or stockholders.
The D-Wave Quantum Charter requires, to the fullest extent
permitted by law, that, unless DPCM’s consent in writing to the selection of an alternative forum, (a) any derivative action or proceeding brought on behalf of D-Wave Quantum; (b) any claim or cause of action for breach of a fiduciary duty owed
by any current or former director, officer, employee, agent or stockholder of D-Wave Quantum to D-Wave Quantum or D-Wave Quantum’s stockholders; (c) any claim or cause of action against D-Wave Quantum or any current or former director, officer
or other employee of D-Wave Quantum, arising out of or pursuant to any provision of the DGCL, the D-Wave Quantum Charter or the amended and restated bylaws of D-Wave Quantum (the “D-Wave Quantum Bylaws”)
(as each may
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be amended from time to time); (d) any claim or cause of action seeking to
interpret, apply, enforce or determine the validity of the D-Wave Quantum Charter or the D-Wave Quantum Bylaws (as each may be amended from time to time, including any right, obligation or remedy thereunder); (e) any claim or cause of action as
to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; and (f) any claim or cause of action against D-Wave Quantum or any current or former director, officer or other employee of the corporation, governed by
the internal-affairs doctrine or otherwise related to the corporation’s internal affairs, in all cases to the fullest extent permitted by law and subject to the court having personal jurisdiction over the indispensable parties named as
defendants. Subject to the preceding sentence, the federal district courts of the United States of America are to be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However,
such forum selection provisions do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction or for which there is
concurrent federal and state jurisdiction.
The choice of forum provision may limit a stockholder’s ability to
bring a claim in a judicial forum that it finds favorable for disputes with D-Wave Quantum or its directors, officers, or other employees, which may discourage such lawsuits against D-Wave Quantum and its directors, officers, and other
employees. Alternatively, if a court were to find the choice of forum provision contained in the D-Wave Quantum Charter to be inapplicable or unenforceable in an action, D-Wave Quantum may incur additional costs associated with resolving such
action in other jurisdictions, which could harm D-Wave Quantum’s business, results of operations, and financial condition.
Because D-Wave Quantum has
no current plans to pay cash dividends on Common Shares for the foreseeable future, you may not receive any return on investment unless you sell Common Shares for a price greater than that which you paid for it.
D-Wave Quantum has not paid any dividends to its stockholders and
has no intention to pay dividends on Common Shares for the foreseeable future. D-Wave Quantum’s board of directors will consider whether or not to institute a dividend policy. The determination to pay dividends will depend on many factors,
including, among others, D-Wave Quantum’s financial condition, current and anticipated cash requirements, contractual restrictions and financing agreement covenants, solvency tests imposed by applicable corporate law and other factors that
D-Wave Quantum’s board of directors may deem relevant. In addition, D-Wave Quantum’s ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness it or its subsidiaries incur. As a result, you may not
receive any return on an investment in Common Shares unless you sell Common Shares for a price greater than that which you paid for it. See the section entitled, “Market Price of Our Securities and Dividends.”
General Risk Factors
Our business is exposed to
risks associated with litigation and may become subject to litigation, investigations and regulatory proceedings including product liability claims, which could harm our financial condition and liquidity if we are not able to successfully
defend or insure against such claims.
From time to time in the ordinary course of our business, we may
become involved in various legal proceedings, including commercial, product liability, employment, class action and other litigation and claims, as well as governmental and regulatory investigations and proceedings. Such matters can be
time-consuming, divert management’s attention and resources and cause us to incur significant expenses. In addition, our insurance or indemnities may not cover all claims that may be asserted against us, and any claims asserted against us,
regardless of merit or eventual outcome, may harm our reputation. Furthermore, because litigation is inherently unpredictable, the results of such actions may have a material adverse effect on our business, operating results or financial
condition.
Unanticipated changes in
effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition.
We may be subject to taxes by the U.S. federal, state, local and
foreign tax authorities. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
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allocation of expenses to and among different jurisdictions;
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changes in the valuation of our deferred tax assets and liabilities;
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expected timing and amount of the release of any tax valuation allowances;
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tax effects of stock-based compensation;
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costs related to intercompany restructurings;
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changes in tax laws, tax treaties, regulations or interpretations thereof; or
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lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated
future earnings in jurisdictions where we have higher statutory tax rates.
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In addition, we may be subject to audits of our income, sales and
other taxes by U.S. federal, state, and local and foreign taxing authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition.
Changes in tax laws or
regulations that are applied adversely to us may materially adversely affect our business, prospects, financial condition and operating results.
New income, sales, use or other tax laws, statutes, rules,
regulation or ordinances could be enacted at any time, or interpreted, changed, modified or applied adversely to us, any of which could adversely affect our business, prospects, financial performance and operating results. In particular,
presidential, congressional, state and local elections in the United States could result in significant changes in, and uncertainty with respect to, tax legislation, regulation and government policy directly affecting our business or indirectly
affecting us because of impacts on our customers, suppliers and manufacturers. For example, the United States government has recently enacted the Inflation Reduction Act of 2022 which, among other things, significantly changes the taxation of
business entities including by imposing an alternative minimum tax on certain corporations, and may, from time to time, enact other changes to the taxation of business entities, the likelihood of which is unclear. We are currently unable to
predict whether such changes will occur and, if so, the ultimate impact on our business. To the extent that such changes have a negative impact on us, including as a result of related uncertainty, these changes may materially and adversely
affect our business, prospects, financial condition and operating results.
If we do not meet the
expectations of investors or securities analysts, the market price of our securities may decline.
If we do not meet the expectations of investors or securities
analysts, the market price of our securities may decline. In addition, fluctuations in the price of our securities could contribute to the loss of all or part of your investment. The trading price of our securities could be volatile and subject
to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices
significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of our securities may include:
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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies
perceived to be similar to it;
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changes in the market’s expectations about our operating results;
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success of competitors;
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our operating results failing to meet the expectation of securities analysts or investors in a particular period;
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changes in financial estimates and recommendations by securities analysts concerning D-Wave Quantum or the industries in
which D-Wave Quantum operates;
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operating and share price performance of other companies that investors deem comparable to D-Wave Quantum;
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D-Wave Quantum’s ability to market new and enhanced products and technologies on a timely basis;
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changes in laws and regulations affecting our business;
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our ability to meet compliance requirements;
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commencement of, or involvement in, litigation involving D-Wave Quantum;
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changes in D-Wave Quantum’s capital structure, such as future issuances of securities or the incurrence of additional debt;
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the volume of Common Shares available for public sale;
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any changes in our board of directors or management;
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sales of substantial amounts of Common Shares by our directors, executive officers or significant stockholders or the
perception that such sales could occur; and
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general economic and political conditions such as recessions, interest rates, international currency fluctuations and acts of
war or terrorism. See “—Risks Related to D-Wave Quantum’s Business and Industry”
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Broad market and industry factors may materially harm the market
price of our securities irrespective of our operating performance. The stock market in general, and the NYSE in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies
which investors perceive to be similar to D-Wave Quantum could depress D-Wave Quantum’s share price regardless of D-Wave Quantum’s business, prospects, financial conditions or results of operations. A decline in the market price of our
securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
D-Wave Quantum qualifies
as an “emerging growth company” within the meaning of the Securities Act, and if D-Wave Quantum takes advantage of certain exemptions from disclosure requirements available to emerging growth companies, it could make D-Wave Quantum’s securities
less attractive to investors and may make it more difficult to compare D-Wave Quantum’s performance to the performance of other public companies.
D-Wave Quantum qualifies as an “emerging growth company” as
defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, D-Wave Quantum is eligible for, and intends to take advantage of, certain exemptions from various reporting requirements applicable to other public
companies that are not emerging growth companies for as long as it continues to be an emerging growth company, including (a) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act, (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced disclosure obligations regarding executive compensation in its periodic reports and
proxy statements. D-Wave Quantum will remain an emerging growth company until the earliest of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of common equity securities pursuant to an
effective registration statement, (b) in which D-Wave Quantum has total annual gross revenue of at least $1.235 billion, or (c) in which D-Wave Quantum is deemed to be a large accelerated filer, which means the market value of Common Shares
that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which D-Wave Quantum has issued more than $1.0 billion in non-convertible debt during the prior three-year period.
In addition, Section 107 of the JOBS Act also provides that an
emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as D-Wave Quantum is an emerging growth company. An emerging growth
company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to opt out of such extended transition period and, therefore, D-Wave Quantum may not
be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Investors may find our securities less attractive because we will rely on these exemptions, which may result in a less
active trading market for the Common Shares and the price of the Common Shares may be more volatile.
In the future, we may
become a “controlled company” within the meaning of the rules of the NYSE. As a result, we may qualify for exemptions from certain corporate governance requirements that would otherwise be applicable to NYSE-listed companies.
D-Wave Quantum’s principal stockholder, PSP, beneficially owned
approximately 47 percent of the issued and outstanding shares of D-Wave Quantum (including Exchangeable Shares) as of March 31, 2023. On September 26, 2022, D-Wave Quantum and PSP entered into the PSP Side Letter Agreement, pursuant to which
PSP agreed that for so long as PSP beneficially owns, directly or indirectly, Common Shares and Exchangeable Shares representing 50 percent or more of the rights to vote at a meeting of the stockholders of D-Wave Quantum, whether directly or
indirectly, including through any voting trust (i) PSP will not exercise the voting rights attached to any of such shares that would result in PSP voting, whether directly or indirectly, including through any voting trust, more than
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49.99 percent of the voting interests eligible to vote at any meeting of the
stockholders of D-Wave Quantum and (ii) PSP will vote such shares in favor of the election of the directors that are nominated by the board of directors of D-Wave Quantum or a duly authorized committee thereof. Given that, as of March 31, 2023,
PSP owns less than 50 percent of our Common Shares and Exchangeable Shares the PSP Side Letter Agreement currently has no impact on PSP's ability to vote its shares. However, as a result of the limitations imposed by the PSP Side Letter
Agreement, if PSP were to own 50 percent or more of our Common Shares and Exchangeable Shares, we do not believe that we are a “controlled company” within the meaning of the corporate governance standards of the NYSE, which require that more
than 50 percent of the voting power for the election of directors be held by an individual, group or entity, and we are not currently utilizing any of the “controlled company” exemptions. However, we may become a “controlled company” in the
future. If we become a “controlled company”, we would be able to elect not to comply with certain corporate governance requirements of the NYSE, including:
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the requirement that a majority of our board of directors consist of “independent directors” as defined under the rules of
the NYSE;
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the requirement that we have a compensation committee that is composed entirely of independent directors with a written
charter addressing the committee’s purpose and responsibilities;
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the requirement that we have a nominating and corporate governance committee that is composed entirely of independent
directors with a written charter addressing the committee’s purpose and responsibilities; and
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the requirement for an annual performance evaluation of the compensation and nominating and corporate governance committees.
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Regardless of whether we become a “controlled company”, we do not
intend to utilize any of the exemptions available to a “controlled company.” However, despite our intent, we would be able to elect to utilize such exemptions at our discretion if and for so long as we are a “controlled company.” Accordingly,
if in the future we were to become a “controlled company” and we exercised our discretion to utilize such “controlled company” exemptions, you may not have the same protections afforded to stockholders of companies that are subject to all of
the corporate governance requirements of the NYSE.
The interests of D-Wave
Quantum’s principal stockholder, which is able to exert significant influence on the election of the members of D-Wave Quantum’s board of directors and other significant corporate decisions, may conflict with the interests of D-Wave Quantum or
its stockholders in the future.
D-Wave Quantum’s principal stockholder, PSP beneficially owned
approximately 47 percent of the issued and outstanding shares of D-Wave Quantum (including Exchangeable Shares) as of March 31, 2023, and is therefore able to exert significant influence on the vote on all matters submitted to a vote of D-Wave
Quantum stockholders, which would enable it to significantly influence the election of the members of D-Wave Quantum’s board of directors and other significant corporate decisions. In particular, for so long as PSP continues to own a
significant percentage of such shares, PSP may be able to prevent a change of control of D-Wave Quantum or a change in the composition of its board of directors and could effectively preclude any unsolicited acquisition of D-Wave Quantum. Such
concentration of ownership could deprive you of an opportunity to receive a premium for your Common Shares as part of a sale of D-Wave Quantum, and ultimately may affect the market price of such shares. PSP and its affiliates engage in a broad
spectrum of activities, and in the ordinary course of their business may engage in activities where their interests conflict with the interests of D-Wave Quantum or those of its other stockholders.
On September 26, 2022, D-Wave Quantum and PSP entered into the PSP
Side Letter Agreement pursuant to which PSP agreed that for so long as PSP beneficially owns, directly or indirectly, Common Shares and Exchangeable Shares representing 50 percent or more of the rights to vote at a meeting of the stockholders
of D-Wave Quantum, whether directly or indirectly, including through any voting trust (i) PSP will not exercise the voting rights attached to any of such shares that would result in PSP voting, whether directly or indirectly, including through
any voting trust, more than 49.99 percent of the voting interests eligible to vote at any meeting of the stockholders of D-Wave Quantum and (ii) PSP will vote such shares in favor of the election of the directors that are nominated by the board
of directors of D-Wave Quantum or a duly authorized committee thereof. Given that, as of March 31, 2023, PSP owns less than 50 percent of our Common Shares and Exchangeable Shares the PSP Side Letter Agreement currently has no impact on PSP's
ability to vote its shares.
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Financial projections
with respect to D-Wave Quantum may not prove to be reflective of actual financial results.
In connection with the Merger, the board of directors of DPCM
considered, among other things, internal financial forecasts prepared by, or at the direction of, the management of D-Wave Quantum. D-Wave Quantum does not, as a matter of general practice, publicly disclose long-term forecasts or internal
projections of its future performance, revenue, financial condition or other results. None of these projections or forecasts were prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, U.S. GAAP,
IFRS or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts. Neither DPCM’s independent registered public accounting firm nor D-Wave Quantum’s independent
registered public accounting firm, PricewaterhouseCoopers LLP, have audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the unaudited prospective financial information, and accordingly, they do not express
an opinion or any other form of assurance with respect thereto. These projections and forecasts are inherently based on various estimates and assumptions that are subject to the judgment of those preparing them. These projections and forecasts
are also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of D-Wave Quantum. There can be no assurance
that D-Wave Quantum’s financial condition, including its cash flows or results of operations, will be consistent with those set forth in such projections and forecasts, which could have an adverse impact on the market price of the Common Shares
or the business, financial condition and results of operations of D-Wave Quantum.
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We will not receive any proceeds from the sale of Common Shares by
Lincoln Park in this offering. We may receive up to $150.0 million in gross proceeds from the Common Shares that we may sell to Lincoln Park pursuant to the Purchase Agreement from time to time after the date that the registration statement of
which this prospectus is a part is declared effective. We estimate that the gross proceeds to us from the sale of Common Shares to Lincoln Park pursuant to the Purchase Agreement will be up to $150.0 million over up to an approximately 36-month
period, assuming that we sell the full amount of Common Shares that we have the right, but not the obligation, to sell to Lincoln Park under the Purchase Agreement, and before other estimated fees and expenses. We may sell fewer than all of the
Common Shares offered by this prospectus, in which case our net offering proceeds will be less. Because we are not obligated to sell any Common Shares under the Purchase Agreement, the actual total offering amount and proceeds to us, if any,
are not determinable at this time. See “Plan of Distribution” elsewhere in this prospectus for more information.
In addition, under the Term Loan, any proceeds from the issuance
of Common Shares under the Purchase Agreement must be applied towards the repayment of advances under the Term Loan in addition to a premium payment equal to 10% of the amount then prepaid to the Lender.
We intend to use the net proceeds from this offering for general
corporate purposes, which may include acquisitions and other business opportunities and the repayment of indebtedness.
The amounts and timing of our actual expenditures will depend on
numerous factors, including the factors described under “Risk Factors” in this prospectus and in any accompanying prospectus supplements, as well as the amount of cash used in our operations. We may find it necessary or advisable to use the net
proceeds for other purposes, and we will have broad discretion in the application of the net proceeds.
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The sale of Common Shares to Lincoln Park pursuant to the Purchase
Agreement will have a dilutive impact on our shareholders. In addition, the lower the price of the Common Shares is at the time we exercise our right to sell Common Shares to Lincoln Park, the more Common Shares we will have to sell to Lincoln
Park pursuant to the Purchase Agreement and our existing shareholders would experience greater dilution.
The price that Lincoln Park will pay for the Common Shares to be
resold pursuant to this prospectus will depend upon the timing of sales and will fluctuate based on the trading price of Common Shares.
As of March 31, 2023, our historical net tangible book deficit was
$16.5 million, or $0.13 per Common Share. Our historical net tangible book deficit per share represents total tangible assets less total liabilities divided by the number of Common Shares (including Exchangeable Shares) outstanding on March 31,
2023.
After giving effect to the assumed sale of 35,000,000 Common
Shares to Lincoln Park pursuant to the Purchase Agreement at a price of $1.02 per share, the last reported sales price of the Common Shares on the NYSE on May 22, 2023, (which represents aggregate sale proceeds of approximately $36 million),
and after deducting estimated offering expenses of $500,000 payable by us, our pro forma as-adjusted net tangible book value as of March 31, 2023 would have been approximately $18.7 million, or $0.12 per share. This represents an immediate
increase in net tangible book value of $0.245 per share to existing shareholders and an immediate dilution of $0.90 per Common Share to investors in this offering.
For further illustrative purposes, at an assumed average purchase
price equal to the Floor Price of $1.00, we would need to register an additional 99,881,540 Common Shares (or 150,381,540 in aggregate) in order to sell the entire $150 million of Common Shares to Lincoln Park under the Purchase Agreement. We
are not required to register any additional Common Shares.
Assuming that the Common Shares were sold at an average price
equal to the Floor Price of $1.00 per Share and that we were to register sufficient additional Common Shares in order to sell the entire $150 million of Common Shares to Lincoln Park under the Purchase Agreement, after giving effect to the
assumed sale of 150,000,000 Common Shares to Lincoln Park pursuant to the Purchase Agreement at a price of $1.00 per share, and after deducting estimated offering expenses of $500,000 payable by us, our pro forma as-adjusted net tangible book
value as of March 31, 2023 would have been approximately $133.0 million, or $0.48 per share. This represents an immediate increase in net tangible book value of $0.61 per share to existing shareholders and an immediate dilution of $0.52 per
Common Share to investors in this offering.
The number of Common Shares outstanding as of March 31, 2023 on a
pro forma basis after giving effect to the closing of the Merger and the other transactions contemplated thereby excludes:
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16,965,849 shares reserved under the 2022 Plan;
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8,036,455 shares reserved under the ESPP;
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2,889,282 Common Shares underlying outstanding D-Wave Warrants;
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26,053,126 Common Shares underlying outstanding Warrants; and
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11,949,501 Common Shares underlying outstanding D-Wave Options.
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To the extent that additional Common Shares are issued pursuant to
the foregoing, investors purchasing Common Shares in this offering will experience further dilution. In addition, we may offer other securities in other offerings due to market conditions or strategic considerations. To the extent we issue such
securities, investors may experience further dilution.
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Our Common Shares and Warrants began trading on the NYSE under
the symbols “QBTS” and “QBTS.WT”, respectively, on August 8, 2022. On July 7, 2023, the last reported sales prices of the Common Shares and Warrants were $1.86 and $0.18, respectively. As of June 30, 2023, there were approximately 119 holders
of record of our Common Shares, approximately 37 holders of record of our Exchangeable Shares and 3 holders of record of our Warrants. Such numbers do not include beneficial owners holding our securities through nominee names.
Dividends
D-Wave Quantum has not paid any dividends to its stockholders and
has no intention to pay any dividends on Common Shares for the foreseeable future. D-Wave Quantum's board of directors will consider whether or not to institute a dividend policy. The determination to pay dividends will depend on many factors,
including, among others, D-Wave Quantum's financial condition, current and anticipated cash requirements, contractual restrictions and financing agreement covenants, solvency tests imposed by applicable corporate law and other factors that
D-Wave Quantum's board of directors may deem relevant.
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Defined terms included below have the same meaning as terms
defined and included elsewhere in this prospectus. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.
On February 7, 2022, DPCM, D-Wave Quantum, Merger Sub, CallCo,
ExchangeCo, and D-Wave Systems entered into the Transaction Agreement relating to the Merger. On the Closing Date, the Merger was consummated and DPCM and D-Wave Systems became wholly-owned subsidiaries of D-Wave Quantum and the stockholders of
DPCM became stockholders of D-Wave Quantum. The Common Shares and the Warrants trade on the NYSE under the symbols “QBTS” and “QBTS.WT”, respectively.
The following unaudited pro forma condensed combined financial
information has been prepared based on the historical unaudited financial statements of DPCM as of and for the period from January 1, 2022 through August 5, 2022 and the historical audited consolidated financial statements of D-Wave Quantum as
of and for the year ended December 31, 2022, as adjusted to give effect to the Merger. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 gives effect to the Merger as if it had occurred on
January 1, 2022. The following unaudited pro forma condensed combined financial information does not include an unaudited pro forma condensed combined statement of financial position as of March 31, 2023 or December 31, 2022 as the financial
position of the combined company as of such dates is reflected in the historical unaudited condensed consolidated financial statements of D-Wave Quantum Inc. as of and for the three months ended March 31, 2023 and the historical audited
consolidated financial statements of D-Wave Quantum Inc. as of and for the year ended December 31, 2022, both of which appear elsewhere in this prospectus. The following unaudited pro forma condensed combined financial information does not
include an unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2023 as the financial results of the combined company for the three months ended March 31, 2023 can be found in the historical
unaudited condensed consolidated financial statements of D-Wave Quantum Inc. for the three months ended March 31, 2023, which appear elsewhere in this prospectus.
The unaudited pro forma condensed combined financial information
has been presented for illustrative purposes only and does not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Merger occurred on January 1, 2022. Further, the unaudited pro
forma condensed combined financial information may not be useful in predicting the future financial condition and results of operations of the combined company.
The unaudited pro forma condensed combined statements of
operations have been derived from and should be read in conjunction with:
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the accompanying notes to the unaudited pro forma condensed combined statements of operations;
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the historical unaudited financial statements of DPCM as of and for the six months ended June 30, 2022 and the related notes
included elsewhere in this prospectus;
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the historical audited consolidated financial statements of D-Wave Quantum for the year ended December 31, 2022 and the
related notes included elsewhere in this prospectus; and
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the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included
elsewhere in this prospectus and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in D-Wave Quantum’s annual report on Form 10-K for the year ended December 31,
2022, filed with the SEC on April 18, 2023.
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The unaudited pro forma condensed combined financial information
below reflects the 29,097,787 shares of the outstanding 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.
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Description of the Merger
As noted above, on February 7, 2022, DPCM entered into the
Transaction Agreement with D-Wave Quantum, Merger Sub, CallCo, ExchangeCo, and D-Wave Systems. Pursuant to the Transaction Agreement and in connection therewith, among other things and subject to the terms and conditions contained therein:
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On the Closing Date, the DPCM Merger was consummated;
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At 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 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 was automatically converted into and exchanged for the right to receive from the depositary, for each
share of DPCM Class A Common Stock, a number of Common Shares equal to the Exchange Ratio and (b) each issued and outstanding share of DPCM Class B Common Stock (other than any Excluded Shares) was automatically converted into and
exchanged for the right to receive from the depositary, one Common Share;
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Immediately following the DPCM Merger, the parties proceeded 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 acquired a portion of the issued and outstanding D-Wave Shares
from certain holders in exchange for Common Shares (the “D-Wave Quantum Share Exchange”), (ii) CallCo contributed 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 acquired the remaining issued and outstanding D-Wave Shares from the remaining holders of D-Wave Shares in exchange for Exchangeable Shares and (iv) as a result of the foregoing, D-Wave Systems
became a wholly-owned subsidiary of ExchangeCo. The holders of the Exchangeable Shares 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 Common Shares;
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Immediately following the consummation of the DPCM Merger, pursuant to the Plan of Arrangement, each outstanding D-Wave Share
was automatically converted into and exchanged for the right to receive a number of Common Shares or Exchangeable Shares equal to, in the aggregate, the Per Share D-Wave Stock Consideration (as defined in the Transaction Agreement);
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Concurrently with the execution of the Transaction Agreement, the PIPE Investors entered into 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 PIPE Shares;
and
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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 the Floor Price
Limitation, the Beneficial Ownership Limitation and
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the filing and effectiveness of this registration statement. See “Risk Factors—Risks Related to the Offering—The terms of the
Purchase Agreement limit the amount of Common Shares we may sell to Lincoln Park and the trading price of the Common Shares may decline as a result of the sale of Common Shares pursuant to the Purchase Agreement or under the Resale
Registration Statement, each of which may limit our ability to utilize the Purchase Agreement to enhance our cash resources”. 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.
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Forfeiture Shares
Prior to the Merger, 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 forfeited 4,484,425 Founder Shares (the “Forfeited Shares”).
Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information
was 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”). D-Wave Quantum has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined
financial information. The adjustments presented in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an understanding of the combined company upon
consummation of the Merger. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022, combines the historical unaudited statement of operations of DPCM for the period from January 1, 2022 to
August 5, 2022, and the historical audited consolidated statement of operations of D-Wave Quantum for the year ended December 31, 2022, and gives effect to the Merger as if it had been consummated on January 1, 2022.
The unaudited pro forma condensed combined financial information
does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Merger. DPCM and D-Wave Quantum have not had any historical relationship prior to the Merger. In addition,
DPCM and D-Wave Systems have not had any historical relationship prior to the Merger. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
The unaudited pro forma condensed combined financial information
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), at a redemption price of $10.01 per share.
Included in the weighted-average shares outstanding as presented
in the unaudited pro forma condensed combined financial information are the shares of D-Wave Quantum issued to D-Wave stockholders on the Closing Date, the Common Shares issued to existing DPCM investors, the Common Shares issued in respect of
the Founder Shares, the shares issued to Lincoln Park to satisfy the Commitment Fee under the Purchase Agreement, and the PIPE Shares.
The unaudited pro forma condensed combined financial information
has been presented for illustrative purposes only and does not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Merger occurred on January 1, 2022. Further, the unaudited pro
forma condensed combined financial information may not be useful in predicting the future financial condition and results of operations of the combined company.
The Public Warrants and the warrants of DPCM held by the 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 D-Wave Warrants have been classified as permanent equity.
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Accounting for the Merger
The Merger represents a reverse merger and has been 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, has been
treated as the “acquired” company for financial reporting purposes and D-Wave Quantum has been treated as the accounting acquirer. This determination was primarily based on evaluation of the following facts and circumstances. Upon consummation
of the Merger:
|
•
|
D-Wave Systems’ existing stockholders have the majority of the voting interest in the combined company;
|
|
•
|
The combined company’s board of directors has seven board members consisting of one board member designated by DPCM, three
board members retained from the D-Wave Systems board, and three additional independent board members;
|
|
•
|
D-Wave Systems’ senior management comprises all the senior management of the combined company; and
|
|
•
|
D-Wave Systems’ operations comprises the ongoing operations of the combined company.
|
Accordingly, for accounting purposes, the Merger was treated as
the equivalent of a capital transaction in which D-Wave Quantum issued stock for the net assets of DPCM, accompanied by a recapitalization. The net assets of DPCM were stated at historical cost, with no goodwill or other intangible assets
recorded. Operations prior to the Merger are those of D-Wave Systems.
65
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
(In thousands, except share and per share amounts)
|
|
| |
Historical
|
| |
|
| |
|
| |
|
| |
|
|||
|
|
| |
DPCM Capital, Inc
January 1, 2022 –
August 5, 2022
|
| |
D-Wave Quantum Inc.
Year Ended
December 31, 2022
|
| |
Transaction
Accounting
Adjustments
|
| |
|
| |
D-Wave Quantum Inc.
Pro Forma
|
| |
|
|
Revenue
|
| |
$—
|
| |
$7,173
|
| |
$—
|
| |
|
| |
$7,173
|
| |
|
|
Cost of Revenue
|
| |
—
|
| |
2,923
|
| |
—
|
| |
|
| |
2,923
|
| |
|
|
Total gross profit
|
| |
—
|
| |
4,250
|
| |
—
|
| |
|
| |
4,250
|
| |
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
—
|
| |
32,101
|
| |
—
|
| |
|
| |
32,101
|
| |
|
|
General and administrative
|
| |
3,366
|
| |
21,539
|
| |
—
|
| |
|
| |
24,905
|
| |
|
|
Sales and marketing
|
| |
—
|
| |
10,068
|
| |
—
|
| |
|
| |
10,068
|
| |
|
|
Total operating expenses
|
| |
3,366
|
| |
63,708
|
| |
—
|
| |
|
| |
67,074
|
| |
|
|
Loss from operations
|
| |
(3,366)
|
| |
(59,458)
|
| |
—
|
| |
|
| |
(62,824)
|
| |
|
|
Other income (expense):
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
—
|
| |
(4,633)
|
| |
855
|
| |
(a)
|
| |
(3,778)
|
| |
|
|
Non-cash interest income on SIF
|
| |
—
|
| |
5,673
|
| |
—
|
| |
|
| |
5,673
|
| |
|
|
Reduction of deferred underwriting fees
|
| |
235
|
| |
—
|
| |
—
|
| |
|
| |
235
|
| |
|
|
Change in fair value of warrant liabilities
|
| |
2,687
|
| |
6,173
|
| |
—
|
| |
|
| |
8,860
|
| |
|
|
Lincoln Park Purchase Agreement issuance costs
|
| |
—
|
| |
(629)
|
| |
—
|
| |
|
| |
(629)
|
| |
|
|
Interest earned on marketable securities held in Trust
Account
|
| |
786
|
| |
—
|
| |
(786)
|
| |
(b)
|
| |
—
|
| |
|
|
Other income, net
|
| |
—
|
| |
1,345
|
| |
—
|
| |
|
| |
1,345
|
| |
|
|
Total other income, net
|
| |
3,708
|
| |
7,929
|
| |
69
|
| |
|
| |
11,706
|
| |
|
|
Net income (loss) before taxes
|
| |
$342
|
| |
$(51,529)
|
| |
$69
|
| |
|
| |
$(51,118)
|
| |
|
|
Provision for income taxes
|
| |
(147)
|
| |
—
|
| |
—
|
| |
|
| |
(147)
|
| |
|
|
Net income (loss)
|
| |
$195
|
| |
$(51,529)
|
| |
$69
|
| |
|
| |
$(51,265)
|
| |
|
|
Net loss per share, basic and diluted
|
| |
|
| |
$(0.43)
|
| |
|
| |
|
| |
$(0.46)
|
| |
(c)
|
|
Net income per share, Class A common stock, basic and
diluted
|
| |
$0.01
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income per share, Class B common stock, basic and
diluted
|
| |
$0.01
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Weighted-average shares outstanding, basic and diluted
|
| |
|
| |
119,647,777
|
| |
|
| |
|
| |
110,620,638
|
| |
|
|
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
information.
66
Adjustments to the Unaudited Pro Forma Condensed
Combined Statement of Operations for the Year Ended December 31, 2022
The pro forma adjustments are as follows:
Pro Forma Transaction Accounting Adjustments:
|
(a)
|
Reflects the removal of interest expense on a loan with PSP as it is assumed that the loan would have not been entered into
if the Merger had occurred on January 1, 2022.
|
|
(b)
|
Reflects the elimination of interest income on marketable securities held in the Trust Account.
|
|
(c)
|
Reflects the pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined
statement of operations based upon the number of Common Shares outstanding at the closing of the Merger, assuming the Merger occurred on January 1, 2022. 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 the diluted weighted-average number of common shares outstanding (the anti-dilutive instruments are described below).
|
Pro forma net loss per share—basic and diluted is calculated as
follows:
|
|
| |
Year Ended December 31, 2022
|
|
(In thousands, except per share data)
|
| |
|
|
Numerator:
|
| |
|
|
Pro forma net loss
|
| |
$(51,265)
|
|
|
| |
|
|
Denominator:
|
| |
|
|
Public Stockholders
|
| |
1,347
|
|
PIPE investors
|
| |
5,817
|
|
Lincoln Park
|
| |
536
|
|
Sponsor shares
|
| |
2,769
|
|
Additional Former Class B Holder shares
|
| |
247
|
|
D-Wave shareholders
|
| |
99,905
|
|
Pro forma weighted-average shares outstanding, basic and diluted
|
| |
110,621
|
|
Pro forma basic and diluted net loss per share(1)
|
| |
$(0.46)
|
|
(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 public warrants as converted to common shares of 14,420,065, private warrants as converted to common shares of 11,633,060, D-Wave Systems warrant shares as converted to common shares of 2,889,282, and options to
purchase common stock as converted to common shares of 13,689,638.
|
See accompanying notes to the unaudited pro forma condensed combined financial
information.
67
Unless the context requires otherwise, references in this
section to “D-Wave,” “we,” “our” or “us” refer to D-Wave Quantum Inc., a Delaware corporation, and its consolidated subsidiaries following the consummation of the Merger, and prior to the Consummation of the Merger, to D-Wave Systems Inc., a
British Columbia corporation (“D-Wave Systems”).
Overview
Organizational Structure
The diagram below depicts a simplified version of D-Wave Quantum’s
organizational structure.
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 providing access to our quantum computers and delivering quantum offerings that are built to provide customer value for “commercial” use,
which we define 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 service. Today, customers can access our annealing quantum computer and quantum hybrid solvers, and we are developing a gate-model system with cross platform tools
to help address a broader range of customer problem sets in the longer term.
We are a pioneer in the quantum industry. We were the first
company to lease, deliver and install a quantum annealing system (2011). We were the first to enable early complex optimization applications on quantum computers, used by Volkswagen for taxi routing modelling (2017). We were the first to
demonstrate peer-reviewed quantum mechanical effects within a quantum annealer (2018), as published in both Science and Nature. We were the first to deliver real-time quantum access via the cloud (2018), and we continue serving our customers
via cloud-based offerings today.
We were also the first company to deliver hybrid solver services,
bringing quantum annealing and classical resources together to run problems with up to one million variables (2020). Most recently, we were the first to deliver a 5,000-qubit system (2020) and the first to demonstrate a three-million-times
speed-up on that system over the
68
best-known classical approaches—the latter published in Nature Communications
(2021). Today, we are the only quantum computing company building commercial annealing quantum computing systems and developing gate-model quantum computing systems. All of these achievements have resulted in a blue-chip customer base, which,
for the period ended March 31, 2023 included approximately two dozen Forbes Global 2000 companies and 68 commercial customers. For the period ended March 31, 2023, over 60 percent of our revenue was from commercial customers in a variety of
industries including financial services, manufacturing, automotive, pharmaceutical, information technology, retail and professional services.
Both our successful track record in commercializing annealing
quantum computing systems—we’ve developed and delivered five generations of annealing quantum systems for practical use by customers—and our deep scientific and technical capabilities in hardware and software are key market differentiators.
Delivered in the cloud, our real-time Quantum Computing as a Service (“QCaaS”) is available in 39 countries. Additionally, with our professional services-enabled application development capabilities, we are the only quantum computing company
that supports business applications at production scale today.
Our differentiated approach focuses on controlling the entire
production cycle, from fabricating the quantum chips that power our quantum computers to developing the associated software and open-source development tools for quantum applications. This full-stack approach, coupled with our real-time quantum
cloud delivery of those products, yields a regular, rapid product-to-market benefit. It also provides our customers with a powerful platform to address complex problems that can benefit from quantum computational power.
We believe that this product delivery and product enhancement
cadence, integrated with our services-enabled approach and three-pronged go-to-market model (across direct sales, re-sellers and developers), provides us with first-mover advantage and sustainable competitive differentiation. In combination,
this allows us to offer demonstrable and repeatable business value to our customers by identifying potential quantum use cases, piloting quantum hybrid applications, and working with customers to bring those applications into production.
Introduction to Quantum Computing
While classical computing technology has delivered significant
advancements in performance, it has limitations. In classical computation, binary information is encoded in bits that can be in a 0 or 1 state. Classical processors manipulate and transform this binary information to run classical algorithms
and perform computations. Still, many important and high-value problems remain problematic, which creates the irreplaceable demand for quantum computing capabilities. Our quantum computing systems harness the remarkable properties of quantum
mechanics, in which quantum bits (qubits) can be both 0 and 1 simultaneously and can provide previously unavailable computational resources to enable new algorithms and applications and provide solutions that are outside the reach of classical
computational computing systems.
The computational value of quantum computing underpins the promise
of even greater societal and business impact, from the creation of new products and identification of new lines of business to solutions unimagined in drug discovery, weather modelling, global supply chain distribution, financial market
portfolio optimization and new materials. As the only quantum computing company in the world building commercial annealing quantum computing systems and developing gate-model quantum computing systems, we can help customers benefit from a
simplified, cross-platform experience that provides access to the full breadth of potential quantum applications. This dual-system approach is crucial to serving the full quantum TAM, as different types of quantum systems benefit different
types of quantum applications: annealing systems are optimal for optimization problems, which today account for approximately 25 percent of the quantum TAM (as defined in “Our Growth Strategy” below); gate-model systems are best for
differential equations, such as those in quantum chemistry; and both annealing and gate-model systems can solve linear algebraic and factoring problems, such as those in cryptography. And as use of quantum computers accelerates, we expect to
find new, yet to be discovered, use cases that may be better suited for one or the other approach.
By offering both annealing and gate-model quantum computers, we
intend to impact the lifecycles of a broader range of use cases and serve as the only cross-platform solution for enterprise customers. For example, in the pharmaceutical sector, annealing systems are best suited for patient trial and supply
chain optimization, as well as protein folding, while gate-model systems are best suited to assist with drug discovery. And both systems will likely play a role in quantum machine learning for toxicity mitigation. In manufacturing, new
materials will be designed with gate-model systems, while factory automation improvements will be designed to deliver new products, built
69
with those new materials, to market more efficiently using annealing systems. By
providing both annealing and gate-model quantum computing capabilities, D-Wave will be able to address the entire TAM rather than only a portion thereof, unlocking customers’ ability to use annealing and gate-model systems as a single-point
solution.
Quantum computing enables our customers to find solutions to
problems that couldn’t previously be solved or to arrive at optimal solutions far more quickly—both of which can significantly improve our customers’ profitability. In a December 2022 report by Hyperion Research, a high performance computing
analysis firm, more than 80 percent of enterprises surveyed stated that they plan to increase their quantum computing commitment in the next two to three years, with more than one-third planning to invest at least $15 million annually in
quantum computing efforts. All of this contributes to acceleration in the use of, and demand for, quantum computing. The need for quantum computing solutions is here today, and we believe D-Wave is well positioned to capture a significant
portion of the commercial quantum computing market.
Our customers have included a highly diversified global portfolio
of blue-chip enterprise companies, including Mastercard, Deloitte, BASF, Volkswagen, Unisys, Siemens Healthineers, Davidson Technologies, ArcelorMittal, Pattison Food Group (formerly Save-On-Foods), DENSO, BBVA, NEC Corporation (“NEC”),
Accenture, and Lockheed Martin. In addition, thousands of developers around the globe have built early quantum software applications on our systems in areas as diverse as customer offer allocation, resource scheduling, job shop scheduling,
mobility, logistics, drug discovery, portfolio optimization and manufacturing processes, plus many more under development, demonstrating increased recognition of the benefits of quantum computing across industries.
We believe that most commercial quantum computation and successful
application development will be hybrid, meaning that problems will be solved using both quantum and classical resources. Much like the value of a graphical processing unit in classical computation, quantum computers are accelerators. Our
quantum hybrid approach offers customers the best of classical and quantum solvers, automatically determining which parts of problems are more suited to classical or quantum solutions and, in turn, enabling customers to see early quantum value
on their current computational problems while preparing them to address more complex problems in the future.
We have already demonstrated important results. As noted in a
recent peer-reviewed paper published in Nature Communications, our systems have demonstrated a three-million-times speed-up over the best-known classical approaches on an application in quantum materials simulation. This work illustrates that
quantum computing provides superior outcomes for certain types of problems. Our customers have also been able to realize demonstrable value. For example, we worked with Pattison Food Group to create a quantum hybrid solution that saw time spent
on grocery optimization tasks reduced from 25 hours to less than two minutes per week. In addition, we worked with SavantX, a quantum analytics company, to optimize cargo handling and truck scheduling at the Port of Los Angeles, increasing
daily crane deliveries at Pier 300 from 60 to 97, a 62 percent increase in productivity.
We believe that our hybrid quantum computing approach will
accelerate the value of quantum computing for enterprises today, and once fully-developed, our cross-platform offerings of both annealing and gate-model systems will provide customers with access to quantum computing for all of their use cases.
We believe we are poised to disrupt and revolutionize the notion of computational power. In turn, this will enable business and society to harness the value of the technology.
We are more than our innovative products. We are an organization
of professionals across many disciplines and boast distinguished domain experts with decades of experience in their respective fields. We believe the maturity of our technologies, our deep professional services expertise, our history of
delivering both scientific advancements and new quantum products via cloud services, and our proven track record of building and growing new markets fully equip us to partner with customers on their quantum journey and to continue to capture a
significant portion of the growing market.
70
All of our systems, tools and products are, and will continue
to be, focused on providing an accelerated path to practical, real-world applications that deliver measurable value to our customers.
Our Quantum Computers, Developer Tools and Quantum Hybrid Solvers
Delivered via QCaaS
We believe we are uniquely positioned to serve the growing market
for quantum computing solutions and services. Our revenue is derived from cloud-based QCaaS, which includes access to a quantum computer with more than 5,000 qubits and quantum-classical hybrid solvers that can solve problems with up to one
million variables. We also recognize revenue by helping customers build quantum hybrid applications through our professional services offerings. For a breakdown of revenue by type of product or service, please see Note 4 “Revenue from contracts
with customers” included in the notes to our audited consolidated financial statements. While we generate revenue from these products and services, we have a history of net losses since inception and experienced negative cash flows from
operations. See “Risk Factors—Risks Related to D-Wave Quantum’s Financial Condition and Status as an Early-Stage Company—We have a history of losses and expect to incur significant expenses and continuing losses for the foreseeable future.”
Advantage™ quantum computers: We are at the forefront of providing
annealing quantum computers. Today’s Advantage annealing quantum system was built for business and excels at optimization problems ubiquitous in real-world commercial applications, such as optimizing manufacturing processes and reducing waste.
Advantage is available in our Leap quantum cloud service, and access to Leap and other services can be purchased directly from D-Wave or through Amazon Web Services (“AWS”) Marketplace and other resellers such as NEC. We believe the industry is
on at least a 7-10 year timeline for delivering scaled, error corrected gate-model systems, and we expect our gate-model program to be competitive within that timeline. Our scalable gate-model program will extend the Advantage platform to
deliver gate-based quantum computing in a multilayer fabrication stack (as described below). We plan to do this by validating gate-model multi-layer fabrication, demonstrating scalable on-chip control, and ultimately delivering a 5,000 qubit
scaled gate-model system with either full or partial error correction. We intend to apply the learnings from our five generations of building annealing quantum computers to the manufacturing, scaling and implementation of the gate-model
program. While the development of the gate-model program is years away from commercialization, we’ll continue to invest in our Advantage annealing program (which is commercially available today) with future generations of increasingly more
powerful and connected quantum annealing systems.
A multilayer fabrication stack is composed of multiple alternating
layers of superconducting metals, dielectric insulators, as well as other superconducting device layers, that allow for a dense, or space efficient, implementation of complex circuitry. This approach allows us to integrate control and readout
circuitry into the fabric of the quantum
71
processor unit, and facilitates scaling to large processor sizes. Much like our
existing annealing quantum computers, access to the gate-model quantum computers will eventually be available via our Leap quantum cloud service, though there may be unique government classified applications that require stand-alone systems on
customer premises.
Our offerings include:
Leap™ quantum cloud service: We are also at the forefront of providing real-time quantum cloud service offerings for production quantum use cases. Launched in 2018, and available in 39 countries and counting around the world, the Leap quantum
cloud service was built to access state-of-the-art quantum computers and a quantum-classical hybrid solver service that can handle problems with up to one million variables. Users log in and immediately benefit from not only the quantum
systems and hybrid solvers, but also from a robust fully integrated development environment (“IDE”) and access to resources, tools and an emerging quantum developer community.
Ocean™ developer tools: Offering a full suite of open-source programming tools, the Ocean software development kit (“SDK”) simplifies the process of building quantum hybrid applications while reducing associated time and cost.
D-Wave Launch™ on-board to quantum computing
program: D-Wave Launch offers a phased approach to identifying and building in-production quantum hybrid applications. Across four distinct phases, our professional services team works with customers to help
identify which problems would be most impacted by quantum solutions, develop quantum proofs-of-concept, pilot hybrid quantum applications, and put those applications into production. Training and quantum computing access accompany the phases.
Customers and Applications
We categorize quantum use cases as either pre-production or
production. For more than 10 years, customers have been using our quantum computers for modelling, testing and research while also providing a feedback loop that has not only grown into a collection of examples of how the system can be used
today but also provides insight into emerging use cases. These are pre-production use cases.
We’re now observing a shift in certain quantum use cases, notably
optimization-based, that are beginning to move into production, with customers identifying real business problems, developing quantum hybrid proofs-of-concept, piloting them, and beginning to run those use cases in production environments.
But we believe that this is just the beginning. As quantum
annealing becomes more powerful and gate-model systems begin to come online over the next five to ten years, other pre-production and production use cases are expected to emerge.
Pre-production: As of 2022, hundreds of user-built early applications have been developed to run on our annealing quantum systems and in our hybrid solver service. Spanning a wide range of diverse industries, these applications include examples in
airline scheduling, election modelling, quantum chemistry simulation, manufacturing optimization, preventative health care, portfolio optimization and logistics.
For example:
|
•
|
Volkswagen has investigated multiple use cases, including a commercial application that required live access to a quantum
processor. During Web Summit 2019 in Lisbon, Volkswagen’s Quantum Shuttle project combined live Android data from buses, live traffic data, and access to a D-Wave hybrid solver through Leap to optimize bus routes in real time.
|
Production: Our
annealing quantum computer runs an algorithm that natively solves optimization problems. As a result, the use cases emerging from pre-production tend to fall into the optimization category. Applications include peptide design, employee
scheduling, last-mile vehicle routing, paint shop scheduling, financial portfolio return optimization, farm-to-market food delivery, digital marketing, Organic Light-Emitting Diode materials development, financial risk reduction, marketing
campaign optimization, shipping container logistics, ribonucleic acid folding, and clinical trial optimization.
Examples include:
|
•
|
SavantX, a quantum analytics company, worked with the Port of Los Angeles to create a quantum application specific to the
port’s third largest terminal - Pier 300 - to optimize cargo handling and truck scheduling using D-Wave’s annealing quantum computer. With the application, truck drivers are directed
|
72
to the right container based on a crane’s current location, reducing crane movement
while increasing crane productivity. The result of this system is the reduction of wait-time for truckers, and increased movement of containers out of the port. Per crane deliveries went from 60 to 97 per day following implementation, a 62
percent increase in productivity.
|
•
|
Pattison Food Group, a western Canadian grocery retailer, successfully used our hybrid solver service in Leap, which
incorporates the Advantage quantum processing unit (“QPU”), to find solutions to optimization problems in grocery logistics. The company was able to reduce the time needed for one optimization task from 25 hours to less than two minutes
per week. Although the gain from the time savings is significant, the real value is in allowing this business optimization process, previously done weekly, to be done in real time, providing optimal solutions to ever-changing inputs and
conditions. Pattison Food Group is now looking to apply our hybrid quantum capability to other challenges across its business.
|
|
•
|
BBVA, a global financial institution, along with financial quantum applications partner Multiverse Computing, set out to
identify management strategies that yield the highest Sharpe ratio—a metric reflecting the rate of return at a given level of risk. An algorithmic solver was used to find the optimal solution to a cost function equation that describes
the risk, return, and transaction costs associated with a given portfolio. Utilizing D-Wave’s hybrid solver service, BBVA was able to find the maximum value at the lowest risk in 171 seconds, even with 10382 possible portfolios. In
comparison, existing solutions either took an entire day or failed to find a solution.
|
|
•
|
Volkswagen identified a commercial optimization application, the binary paint shop problem, which was run on D-Wave’s hybrid
solver service. The solver outperformed four purely classical methods on problem sizes at commercial scale (N=3,000). In a separate project, similar inputs were tested using a leading ion trap system, which failed to find any commercial
solution.
|
We expect the movement from pre-production into production will
continue as quantum technologies advance. Below is an example of how this is expected to impact pharmaceuticals, while other verticals like manufacturing, logistics, financial services, mobility, energy and telecommunications also stand to
benefit.
Pharmaceuticals: Quantum annealing today is showing early promise in pharmaceutical use cases, including protein folding and optimization in drug trials, supply chain, and manufacturing. We consider these use cases to be moving out of pre-production
and into production. For example, Menten AI used our quantum hybrid solvers to design peptide therapeutics that could potentially help fight COVID-19. Menten AI was able to solve protein design problems by finding better solutions than those
of competing classical solvers for de novo (from scratch) protein design, which can create better proteins and ultimately enable new drug discoveries. Menten AI is now in wet-lab testing phase. As annealing quantum computers mature, we expect
to see use cases emerge that will utilize quantum machine learning for objectives such as anticipating drug toxicity. And as gate-model systems become less “noisy” and more error-tolerant, we expect to see an emergence in quantum chemistry
for new drug discovery.
Enterprises are beginning to see ongoing benefit from their
initial use cases. Moreover, the accumulated quantum learning experience is expected to accelerate the addition of new use cases, both as new applications emerge and technologies mature. The cycle of moving through pre-production into
production provides continuous learning and innovation. Providing tangible customer value is an important way in which we differentiate ourselves from other companies in the market, whose primary focus, out of necessity, is scientific discovery
rather than the delivery of quantum products for business-scale commercial applications.
Scientific applications: Notwithstanding our focus on commercial customer value, we’re also able to demonstrate excellence in scientific applications. Over the past several years, simulation of quantum magnetic systems has emerged as a
promising application and better means of studying the dynamics of the QPU. Responding to a 2021 Nature Communications paper on a simulation of topological phenomena in a quantum magnet using a D-Wave 2000Q system, Nobel laureate J. Michael
Kosterlitz, who won the prize for his work on this topic, said: “This paper represents a breakthrough in the simulation of physical systems which are otherwise essentially impossible.”
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The History of Building a Quantum Ecosystem
Building a quantum ecosystem of developers, talent, systems,
software, tools, and users has been a core focus of D-Wave. Throughout our history, we’ve demonstrated a successful track record of providing technology and innovation to customers. And we’ve gathered significant operational and commercial
experience for running a quantum computing company at scale. Our hardware and software expertise provides us with a unique capability to address customer needs.
The early years of D-Wave were largely dedicated to research and
development, leading to our first working qubits and scalable systems. In 2004, we made the critical and deliberate decision to focus on quantum annealing to deliver practical business value with quantum computing. By 2011, we’d officially
moved our research and development into a new phase when we announced our collaboration with Lockheed Martin, allowing for outside scientists and engineers to work with our quantum systems and to provide critical feedback on our continuing
quantum system development. Since the Lockheed Martin engagement, our technology has been used for a variety of research and academic applications at companies and institutions including Google, the Oak Ridge National Laboratory, Los Alamos
National Laboratory, Jülich Supercomputing Centre, NASA Quantum Artificial Intelligence Laboratory and University Space Research Organization. Through this early quantum access, we gained crucial feedback on how to improve quantum computers and
make them more accessible for practical use. As a result, each generation of our annealing quantum systems has enabled organizations to achieve dramatic improvements in performance.
In 2018, we removed barriers to access our annealing quantum
computing systems by launching Leap, which was the industry's first real-time, publicly accessible quantum cloud service that allowed developers to access live quantum processors and create applications using Python, a high-level
general-purpose programming language. D-Wave’s cloud approach facilitated and increased access to quantum computers, thereby allowing businesses, developers, and researchers to directly access our systems.
With thousands of developers active in Leap today, our focus on
growing an ecosystem of quantum developers is paving the way for increasingly diverse quantum computing applications. As founding mentors of the Creative Destruction Lab’s quantum work stream, we’ve mentored companies using quantum computing,
including OTI Lumionics, which is working on new material design; Menten AI with its drug discovery efforts; and Multiverse Computing, which is developing applications in the financial services space.
In 2019, our customers began to put application pilots into
production. As previously mentioned, Volkswagen debuted the first-ever real-time quantum application in limited production, a quantum shuttle service that carried people between conference centers in Lisbon, Portugal.
A year later, we released the Advantage quantum annealing
computer, a 5,000-qubit system, along with new quantum hybrid solvers in the Leap quantum cloud service. This marked an inflection point that allowed far larger, more complex, business-scale problems to be solved on our systems. And in 2021, we
released performance upgrades to the Advantage system and added a new hybrid solver to make it easier to solve problems with constraints. Business optimization problems use constraints, such as the distance a truck can travel before running out
of gas (rather than assuming the truck can run indefinitely). In 2022, we introduced new updates to our hybrid solver, enabling businesses to run quadratic optimization problems with continuous variables as well as weighted constraints and
introducing pre-solve techniques that simplify problem formulation. By incorporating constraints, the new solver is valuable in addressing real business problems of current and future customers.
In October 2021, we announced a preview of our next-generation
quantum computing platform, which will include both annealing and gate-model quantum computers. With the expansion of our products and services to include gate-model systems, we believe we will be poised to provide the multiplatform
computational power required to tackle a broad array of problems facing businesses.
Our Business Strategy and Differentiators
We are the Practical Quantum Computing Company for a reason. We
have the longest track record of a quantum computing company working with customers on real-world, computationally complex, optimization problems. We are the only company in the industry with operational and commercial experience running a
quantum computing business at scale. We are leaders in the development of the intersection of quantum hardware and software, unlocking greater ease of use and quantum hybrid application performance for customers. We are the only quantum
computing company building annealing and developing gate-model quantum computers. What’s more, our commercial-first approach focuses on building products delivered via the cloud that help enterprises solve complex business problems
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and drive business value today. Combined, this gives us a unique perspective on
how to anticipate and address the needs of customers, with a goal to accelerate quantum computing market creation and adoption.
Full stack for the entire quantum journey: We are the only quantum computing company building annealing and developing gate-based quantum systems with a full-stack, cross-platform vision for the future. Our quantum-in-the-cloud offering comprises a
complete portfolio of products and services that supports building in-production applications across broad use cases for businesses and developers. We currently deliver commercial annealing quantum systems via our Leap cloud service (QCaaS),
open-source application development tools and professional services that bring demonstrable business value to our customers. We’re also expanding into gate-model systems to provide coverage for a wider variety of customer use cases.
Cross-platform: Our platform-agnostic approach will help customers solve their toughest and most complex business problems without having to worry about which quantum technology approach or platform to use. Upon the development of our gate-model
systems, customers will not have to choose between annealing or gate-model systems, as our cross-platform open-source developer tools will enable them to invest in one tool and use it across multiple quantum systems.
Hybrid strategy: Some problems are solved with classical computing resources, others with quantum computing resources, but many are best solved with a combination of both. This is why our product strategy enables customers to tap into and harness
the power of both quantum and classical resources to satisfy their given use case. Our hybrid solvers (part of our Leap quantum cloud service) offer a seamless way for end users to easily leverage both our quantum and classical resources via
the cloud to run complex problems. Over 50 million problems have been run on the Advantage annealing quantum computer directly and through hybrid solvers since its launch in September 2020.
Annealing for optimization: While our strategy encompasses both annealing and gate-model technologies, we are the only quantum computing company in the world that builds and delivers access to annealing quantum computers. Quantum annealing
is uniquely effective at solving optimization problems, and this problem class makes up a significant proportion of the enterprise problem universe. Moreover, optimization use cases are suitable to a recurring revenue model, as many are
repeatable, real-time (always-on) processes. Recent publications point to the fact that annealing is better for solving optimization problems both today and in the future. Conversely, the pre-processing overhead and lesser performance of
current gate-model systems make them ineffective in solving optimization problems.
Practical quantum computing for accelerated
time-to-value: We build products and services that help enterprises solve complex business problems and deliver business value today. All of our systems, tools and products are, and will continue to be, focused
on providing an accelerated path to practical, real-world applications that deliver value to our customers.
Cloud-first and enterprise scale: The Leap quantum cloud service provides real-time access to production-grade annealing quantum computers with enterprise class performance and scalability. Leap is engineered for high reliability and availability
and provides the security and privacy measures needed for enterprises to go live with in-production quantum hybrid applications.
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Professional services accelerate QCaaS: Our model features a professional-services-enabled approach for application discovery
and proof-of-concept development, and a QCaaS model for recurring revenue as applications move to production. This model enables us to capture professional services revenue in the first half of the customer journey and recurring QCaaS
revenue in the second half once the application has been built and validated.
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Our Business Model
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Three-pronged go-to-market model: Our go-to-market model—across direct sales,
re-sellers and developers—extends our ability to scale sales.
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Our direct sales strategy involves: (1) growing our existing customer base by
accelerating the path from pre-production to in-production application deployment on Leap, our quantum cloud service; and (2) acquiring net new customers using D-Wave Launch, a services-enabled journey to the adoption of quantum
technology. For direct to enterprise sales, we sell through a four-phased customer engagement that we call D-Wave Launch. We describe phase 1 as our discovery phase. In this phase, our professional services organization works with
customers to identify one or more applications that are valuable for their business and that could be run on one of our quantum hybrid solvers. We describe phase 2 as our proof of concept (“PoC”) phase. In this phase, again our
professional services organization works with the customer to build out an actual software implementation and we begin to run the software on the Leap quantum cloud service to test if the implementation works correctly and if the
customer begins to see early business value. We describe phase 3 as our pilot deployment phase. In this phase, we expand the implementation to support running the application at business scale. For example: in the case of delivery
scheduling, we would add more vehicles to the model, for example from 10 to 100 trucks. Or in the case of a portfolio optimization problem, we would add additional portfolios to test the performance of the quantum hybrid solver at
larger business size problems. We describe phase 4 as putting the quantum hybrid application into full production. In this phase, our customer is running the problem in their environment while connected to the Leap quantum cloud
service, at full scale, deriving additional business benefits beyond those identified in earlier phases. Phases 1-3 are considered non-recurring revenue per application as they are phases that the customer moves through to get to full
production (phase 4). Phase 4 represents recurring revenue as the application in full production consumes QCaaS resources to run the full production application on an ongoing basis. As an application consumes QCaaS resources, D-Wave
recognizes the revenue. See “—Our Quantum Computers, Developer Tools and Quantum Hybrid Solvers Delivered via QCaaS—D-Wave Launch™ on-board to quantum computing program”.
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Our partner strategy involves: (1) expanding our reach by enabling AWS customers to
purchase Leap and other services through AWS Marketplace; (2) creating new markets and unlocking new use cases via systems consultants and integrators such as Deloitte and Accenture; and (3) building an ecosystem of global re-sellers
such as NEC and regional re-sellers such as Strangeworks and Sigma-i. For our partner-led strategy, we work with system integrators, independent software vendors, and cloud providers to resell our Leap quantum cloud service around the
globe to scale our business.
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Our developer strategy involves: (1) providing access to a free trial of Leap, our
quantum cloud service; (2) driving developer product usage, quantum application development, and community engagement to maximize developer conversions (from free to paid); and (3) lead generation, i.e., engaging our developer base for
potential new enterprise customer accounts. We do this by offering free, unlimited access to our Leap quantum cloud service platform. In this platform, users have unlimited “always on” access to demos, code samples, training materials,
an integrated developer environment, and a community forum. Initially, they also receive up to one minute of free use of the actual QPUs and additional free time on the quantum hybrid solvers. Because of the speed of the QPU, one minute
of QPU time is equal to running between 400 and 4000 different problems. Developers who attach their GitHub account to their Leap sign ups continue to receive one free minute monthly. There is currently no limit to the ability to
receive an additional one minute of free time each month, assuming developers continue to open source their work and associate their GitHub account. To date, more than 34,000 developers have joined our ecosystem.
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Our Growth Strategy
According to the Boston Consulting Group (“BCG”) the quantum
computing TAM is projected to grow from $2 billion to $5 billion in 2022-2025 to $450 billion to $850 billion by 2040 (and beyond) with 20 percent of the overall TAM being available to quantum hardware, software, and service providers, with the
remaining 80 percent of the TAM being the value captured by quantum computing end-users.
BCG estimates that combinatorial optimization problems, which are
best suited for annealing systems, will represent approximately 24 to 26 percent of the TAM, which translates to $500 million to $1.2 billion near-term growing to $112 billion to $212 billion longer-term. The 20 percent of this that is expected
to be available to quantum hardware, software and service providers is $100 million to $250 million near-term growing to $22 billion to $42 billion longer-term. This, coupled with the broad TAM for other emerging quantum use cases such as
quantum chemistry, quantum machine learning and quantum cryptography that our annealing and gate-model systems will support, represents a significant and growing opportunity.
We believe our full-stack, cross-platform approach, alongside our
go-to-market strategy, technical capabilities and product vision, positions us to capture a significant portion of the quantum TAM available to hardware, software and service providers.
Our overall growth strategy has three key focus areas: (1) build
the business; (2) advance the science; and (3) improve the technology.
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Build the business: We continue to build the business through a combination of QCaaS cloud services, professional services, and developer ecosystem growth. The key elements of this strategy are:
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Win the fast-growing optimization market: Quantum annealing is uniquely suited for
solving optimization problems and, as noted above, this problem class is anticipated to comprise $22 billion to $42 billion of the longer-term quantum computing TAM that is available to hardware, software and service providers. As the
only company in the world offering quantum annealing, we’ll continue to leverage this competitive position and acquire additional customers with optimization use cases across multiple verticals, including financial services,
manufacturing/logistics, mobility, and life sciences/pharmaceuticals.
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Direct sales, recurring revenue and expanding partner strategy: We’re pursuing
multiple revenue streams from our three-pronged go-to-market model. Our main line of business—cloud service—has seen significant year-over-year growth, which we anticipate will continue. Specifically, between 2018, when we introduced
our Leap cloud service, and the end of 2022, cloud revenue has grown at a compound annual growth rate of 37 percent. We have two types of cloud revenue contracts: large, multiyear engagements and smaller, recurring contracts that are
often multi-month in duration. We continue to acquire net new customers through the D-Wave Launch program and further drive recurring QCaaS revenue by moving existing customers from their pre-production journey into production
applications. We recognize professional services revenue from phase 1 (discovery) and phase 2 (PoC) of Launch projects, with many customers initially contracting for both. We’re seeing more than 80 percent of phase 1 (discovery)
projects convert into phase 2 (PoC) projects, demonstrating early customer value and continued engagement and retention. We also intend to expand our channel partner and reseller relationships to identify new geographies, customers, and
use cases, all of which could potentially utilize our products. We’ve also seen that as businesses identify and build use cases, customers learn more about quantum computing and begin to explore alternative use cases, yielding
additional professional services and QCaaS revenues.
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Grow our existing user base and developer ecosystem: Our developer ecosystem is a
source of innovation for new quantum applications, extended brand awareness, and new use case discovery. We plan to continue to drive developer community engagement and product adoption to grow the ecosystem.
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Advance the science: We advance the science through the pursuit and creation of new knowledge in the quantum space, with the goal of demonstrating customer value and ultimately quantum advantage (i.e., a computational quantum outcome that cannot be
achieved by any existing classical computation system) in a growing portfolio of problems. The key elements of this strategy are:
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Demonstrate the power of our quantum technology through benchmarking: Our annealing
quantum computers have outperformed the best classical computers in several specific use cases. As noted in a recent peer-reviewed paper published in Nature Communications, our systems demonstrated a solution to a problem three million
times faster than the best-known classical approaches on an application in quantum materials simulation. In the context of real-world applications, our customers have shown material efficiency improvements in solving business problems
(for example, up to 500 times faster for Pattison Food Group, as described above).
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Pursue the cutting edge and push the boundaries of quantum knowledge: We plan to
continue to create new knowledge in the quantum space that shows the power of our scientific and technological approaches and pushes the frontiers of quantum information science. We have an active research program that focuses on
quantifying the increases in performance we achieve with increasingly coherent quantum systems. And we’ve seen promising new results on interesting physics problems, currently in peer-review, because of even greater coherence in our
systems.
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Improve the technology: We improve the technology through continuous innovation in quantum annealing and gate-model development, hybrid algorithm advancement and leveraging customer and market feedback to inform our product innovations and lifecycle. The
key elements of this strategy are:
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Continue to invest in our differentiated quantum annealing technology: As discussed
above, while our technology approach encompasses both annealing and gate-model technologies, we are the only company that builds and delivers annealing quantum computers. Our extensive
intellectual property portfolio around our annealing systems and 10-year head start in superconducting expertise give us a first-mover advantage,
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making it difficult for others to enter this space. Annealing is the only quantum
computing model that, as part of the hybrid solver service, can efficiently solve large combinatorial optimization problems at enterprise scale, which make up approximately 25 percent of the addressable quantum market.
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Build and deliver a unified quantum platform that offers solutions for broad quantum use
cases for customers: The intersection of systems, software, services and tools is familiar to us. We’re utilizing our integrated engineering expertise to build a cross-platform quantum service with both annealing and gate-model
systems that we believe will be the first and only quantum computing offering to impact full product lifecycles across multiple industries.
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Extend our track record of continuous innovation, execution, and operational excellence:
We have a strong track record of innovation in building and delivering quantum annealing systems to market. From the D-Wave One, D-Wave Two, D-Wave 2X, D-Wave 2000Q, D-Wave 2000Q LN, Advantage and Advantage Performance Update to the
forthcoming Advantage 2 system, we have demonstrated a relentless pursuit of increased qubit count, coherence (qubit quality), qubit connectivity, and performance. This has resulted in a rapid increase in the complexity of problems our
customers are able to solve. We plan to continue this trajectory and focus on driving additional improvements in coherence and connectivity in our annealing systems to further expand the universe of solvable problems, while utilizing
this expertise to build our gate-model system.
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Our Technology Approach
Quantum computing technology landscape
There are two primary approaches to building quantum computers:
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Quantum annealing: Heavily inspired by physics and uniquely effective at solving
challenging, ubiquitous optimization problems, quantum annealing is the first and only approach to date that delivers large-scale quantum computing and is a core of our product platform.
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Gate-model computation: Heavily inspired by classical digital computation,
gate-model computation replaces classical registers of bits with qubits and performs a series of single and multiqubit operations, or gates, on the registers to run a computation. This includes superconducting, ion trap, and photonic
approaches to quantum computing.
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Our quantum systems approach
In 2004, D-Wave made a singular strategic choice, guided both by
analysis of the market for potential quantum applications and the state of available technology. Our decision to first develop a large-scale quantum annealing technology for optimization remains prescient today. Challenging optimization
problems are found across all areas of business, and a growing body of theoretical and empirical evidence identifies quantum annealing as the best approach for solving them. Exploiting the natural tendency of systems to remain in ground or low
energy configurations, this model of quantum computing is more error-tolerant than gate-model architectures and therefore easier to develop into a large-scale technology.
To quickly develop and scale a quantum computer based on quantum
annealing, we built a Manhattan Project-style organization. We have a multidisciplinary team of scientists, technicians, software developers and engineers of all types working together on all aspects of the technology, systems, and software. We
implement our qubits with superconducting circuits built in a multilayer integrated circuit process. Our fabrication is done with mature, proven, reliable and readily available industry-standard technology, processes, and components wherever
possible. As a result, we can work with existing third-party foundries without the need to invest capital in a new fabrication facility.
At the same time, some critical elements of the technology are
fabricated and tested with our own equipment, in our own facilities. We have an in-house team of superconducting application-specific integrated circuit designers, and we perform all our own superconducting circuit design. All testing and
characterization of superconducting circuits is performed in-house at our facilities by a team of scientists trained in cryogenic characterization and operation of superconducting circuits and devices. By collocating, co-developing, and
controlling both design and testing, we maximize speed of development and control product quality.
With our current product fabrication at Very Large-Scale
Integration (“VLSI”), we also benefit from the ability to integrate on-chip superconducting control circuitry. This can serve to tune and control qubits and implement scalable readout. “Scalable” in this context means that many tens of
thousands of devices can be controlled and read with only hundreds of wires—a characteristic rare in the quantum computing world. Our superconducting VLSI control circuitry has enabled us to scale our systems from a handful of qubits to the
more than 5,000 in the current Advantage system.
Control electronics are an integral part of all quantum computing
architectures, and we’ve designed and built more than seven generations of semiconductor-based electronics for control and readout of superconducting quantum processors. Co-developing the cryogenic superconducting and room temperature
semiconducting-based electronics is essential to optimizing performance.
Our Burnaby facility hosts system development and manufacturing.
To ensure that we have an efficient and sustainable manufacturing process that can continue to scale, we have capacity to expand across all our core technology areas: in fabrication, our existing foundry can scale to a level significantly
higher than our current throughput; we have plans to invest in a second fabrication source after we have demonstrated experience in leveraging a second source to speed up development, as was seen with our D-Wave 2000Q lower noise development;
our wiring and input/output manufacturing is in-house and we can scale this capability by adding production staff and resources; and electronics are designed in-house and built by third-party vendors, and with additional funding, electronics
manufacturing can easily be scaled.
Our development philosophy emphasizes systems engineering to
maximize customer benefit. This means that we must design the qubit, from the beginning, in a way that allows us to control, operate and read many thousands of qubits, not just tens of qubits.
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Scaling the quantum system: In addition to the growing number of qubits and couplers, and the increasing complexity of
problems our quantum computers can handle, other notable improvements we’ve made while transitioning from the D-Wave 2000Q to the Advantage quantum system (released in October 2020) include the following:
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Increasing the number of qubits from 2,000 to 5,000 (2.5 times)
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Increasing connectivity between qubits from 6 to 15 (2.5 times)
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Increasing problem precision (the precision to which a problem can be posed) by two times
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Reducing problem latency by 60 percent
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The increase in qubits and connectivity from the previous degree-6
topology to the degree-15 topology typically allows our Advantage processor to take inputs two to four times larger than those of the D-Wave 2000Q.
In addition, the Advantage annealing quantum system performance
update released in October 2021 included several key changes that boosted performance over the original Advantage release:
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An updated processor design that increased problem precision
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Improvements in system control enabled faster anneal times
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An increased yield of qubits and couplers that allows more complex problems to be solved
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Expansion into gate-model: Our early focus on quantum annealing directly lends itself to our gate-model efforts. Many of the lessons learned in building a superconducting quantum annealing system are transferable to building a scalable
superconducting gate-model quantum computer. Scale, superconducting chip fabrication, materials design, cryogenics, and intellectual property are all necessary and relevant for delivering a commercial, scalable gate-model system to the
market. Our deep experience and built-from-the-ground up commercial-scale design strategy, gives us a first-mover advantage over companies in the early stages of merely developing the building blocks of gate-model systems.
We believe the time is right to also pursue gate-model technology
because:
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Gate-model quantum computing (“GMQC”) theory has matured considerably since 2004.
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Over the past 20 years, we have accrued considerable experience and intellectual property in quantum systems engineering,
including cryogenics, environmental control, input/output and filtering, and scalable control and readout of superconducting devices. This can be directly brought to bear on building scalable GMQC technology.
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We have developed a mature superconducting VLSI design and manufacturing capability that can immediately be employed for our
gate-model program. This is the only physical implementation of a quantum computing technology that can be utilized for both quantum annealing and gate-model computers.
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While there’s still a need to further improve error-corrected GMQC
theory to reduce overheads, both in physical circuit size and gate sequence depth and to the point where it can truly be practical to implement, we understand that a confluence of new theoretical developments, coupled with our practical quantum
computing design experience, will ultimately be necessary to commercialize this technology.
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Power consumption and refrigeration: Our quantum computers draw 12 kilowatts of nominal power and have used the same-sized
dilution refrigerators for cooling since the 2010 release of the original D-Wave One system. The refrigerators’ cryocoolers require the bulk of this power to provide cooling to 4 kelvin. While the computational power of our systems has
dramatically increased with each product generation, the power requirements have remained the same and are expected to do so for at least the next two system product generations. This contrasts with competitors that are using and
developing massive dilution refrigerators, which will require increasingly more power to continue with technology development.
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D-Wave’s 20-plus years of reliable operation: We have been delivering commercial quantum computers for longer than many of our competitors have been in existence. Our experience allows us to operate a field-tested service and support organization that can
anticipate many technical challenges of quantum system deployment. Our Leap quantum cloud service has experienced more than 99 percent uptime from when it launched in 2018 to March 31, 2023.
Our Software, Tools and Cloud Services Approach
Software development: Our software teams use Agile and Scrum methodologies to ensure customer requirements are met and that the highest priority features are included in each release to maximize the utility of our system. The development process for
Ocean developer tools follows best practices for open-source products, and we use GitHub for all open-source code. As a result, developers can edit the code in their own repository and merge it with the original repository when it’s ready for
release, and external users can contribute to the codebase.
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Ocean software development kit: Available on the D-Wave GitHub repository, the Ocean SDK is a suite of open-source tools for solving challenging problems with quantum computers and quantum hybrid solvers. The latest Ocean packages are also
preinstalled in the Leap IDE. The Ocean software stack provides a chain of tools that implements the steps needed to solve problems on D-Wave solvers.
Leap quantum cloud service: We are the first and only quantum computing company to offer secure, real-time access to quantum computers and quantum hybrid solvers via the cloud. Multiple QPUs are online, and Leap is multi-region, which means
we have physical systems available in different geographical locations. In January 2022, we added to the quantum computers available within Leap by making public the 5,000-qubit Advantage quantum system at the Jülich Supercomputing Centre in
Germany. In May 2022, we introduced the first Advantage quantum system physically located in the United States at the University of Southern California’s Information Sciences Institute (ISI), which is accessible via the Leap quantum cloud
service.
Secure access and data protection: We implement industry-accepted controls and technology and combine enterprise-grade security features with comprehensive audits of our applications, systems and networks to ensure customer data is protected.
Leap hybrid solver service: Launched in 2020, the hybrid solver service (“HSS”) within Leap provides a combination of quantum and classical computation resources and advanced algorithms to solve problems of enterprise scale with up to one
million variables (and up to 20,000 variables for fully connected graph problems). Several hybrid solvers are available within the HSS today to support different problem formulations. Leap’s hybrid solvers enable customers to benefit from
D-Wave’s deep investment in researching, developing, optimizing, and maintaining quantum hybrid algorithms.
Key Strategic Relationships
NEC: We
entered into a strategic investment and subsequent global re-seller agreement with NEC in April 2019 and December 2021, respectively. The relationship includes reselling our Leap quantum cloud service in NEC’s core markets, primarily Japan
and Australia.
Lockheed Martin: We have been working with Lockheed Martin (“Lockheed”) since we leased the first commercial quantum computer to them in 2011. Since then, we have collaborated with Lockheed through the University of Southern California
(“USC”)-Lockheed Martin Quantum Computing Center (“QCC”), hosted at the USC Viterbi School of Engineering’s Information Sciences Institute. We renewed the Lockheed contract in 2020, which has led to important upgrades at the facility. On
May 12, 2022, we announced the deployment at the QCC of the first Advantage™ quantum system physically located in the United States. Advantage is the first quantum computer built for business that contains the new Advantage
performance update released in October 2021 and features the highly connected Pegasus topology and more than 5000 qubits.
Jülich Supercomputing Centre: In October 2021, we completed the installation of the first Advantage performance update quantum system with 5,000-plus qubits and 15-way connectivity at the Jülich Supercomputing Centre. This installation is the
cornerstone of the Jülich UNified Infrastructure for Quantum Computing lab. This quantum system is the first Leap installation outside of North America and provides cloud access to the first practically usable quantum computer for
researchers, governments and enterprise customers in Europe.
AWS: In
October 2022, we officially launched in AWS Marketplace, expanding and extending the reach of our quantum computing solutions to AWS’ broad customer base. Through AWS Marketplace, AWS customers can access our full Leap cloud service
capabilities, engage with easy-to-use quantum computing solutions, and connect directly with our professional services team.
Accenture:
We work closely with Accenture on joint quantum development projects for customers in telecommunications, financial services and pharmaceuticals, among other verticals. We regularly create joint go-to-market programs for the acceleration of
quantum computing within Global 2000 enterprises.
Deloitte: We
also work closely with Deloitte on quantum development projects, specifically in government, to help accelerate adoption of quantum computing solutions in the public sector.
uptownBasel:
In December 2022, we entered into a strategic collaboration with uptownBasel, a Switzerland-based competence center for Industry 4.0. D-Wave is serving as the center’s quantum optimization technology provider, giving
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tenants and customers access to the Advantage annealing quantum computer via the
Leap real-time quantum cloud service. In addition, the center’s customers can engage with D-Wave’s team of professional services experts to facilitate the analysis, formulation and ultimately creation of production-ready quantum computing
applications.
While strategically significant to our long-term goals, we have
determined that our current agreements or other arrangements with each of these respective parties, are not material to our business, financial condition or results of operations.
Operation Agreements
On July 31, 2006, we entered into an agreement with Cypress
Semiconductor Corporation (“Cypress”) for the purchase of available capacity of Cypress’ 8” wafer pilot line for the purposes of manufacturing wafers as well as services related to the use of such pilot line (the “Pilot Line Operation
Agreement”). In March 2007, the operating entity of Cypress that was obligated to perform services pursuant to the Pilot Line Operation Agreement was sold. On April 1, 2008, we agreed with SVTC Technologies, LLC., (“SVTC”), the successor
entity, to, among other things, amend the Pilot Line Operation Agreement to reflect that SVTC has taken the place of Cypress as a party to such agreement. The Pilot Line Operation Agreement provided for an initial term of five years followed by
automatic extension of one year and ended in September 2012. The Pilot Line Operation Agreement contains a worldwide, non-exclusive, irrevocable, perpetual, royalty-free and paid-up license to Cypress's recipe related to this process in favor
of D-Wave.
On December 31, 2012, we entered into an agreement with Cypress
for the purchase of available capacity of Cypress’ 8” wafer semiconductor line for the purposes of manufacturing wafers as well as services related to the use of such semiconductor line (the “Semiconductor Line Operation Agreement”). On
September 30, 2017, Cypress assigned the Semiconductor Line Operation Agreement to SkyWater Technology Foundry, Inc., to which we consented on November 9, 2017. The Semiconductor Line Operation Agreement, as amended, provides for an initial
term of ten years followed by automatic extensions of one year unless either party provides the other party six (6) months prior written notice of its intention to terminate the agreement. On March 1, 2023, we entered into an amendment to the
Semiconductor Line Operation Agreement to revise the pricing and quarterly commitments.
Competition
The quantum computing market is highly competitive. With new
technologies and entrants into the market, we expect competition to continue to increase. Our competitive differentiators include being the only provider in the world building annealing and developing gate-model quantum computers, our longtime
proven track record of delivering increasingly mature higher-performance quantum systems that scale, and our use cases with demonstrable business value.
In addition to being the only supplier of quantum annealing
systems, we’re also pursuing gate-model quantum computing with the announcement of our Clarity product roadmap in October 2021. We plan to validate gate-model multi-layer fabrication, demonstrate
scalable on-chip control, and ultimately deliver a 5,000 qubit scaled gate-model system with either full or partial error correction. We intend to apply the learning from our five generations of building annealing quantum computers to the
manufacturing, scale, and implementation of the gate-model program. At the same time, we’ll continue to invest in our Advantage annealing program with future generations of increasingly more powerful and connected quantum annealing systems.
Other companies, including Rigetti Computing, IBM, Google, IonQ, Quantinuum, PsiQuantum and Xanadu, are pursuing gate-model quantum computing, each using different technologies for the qubits and control, and each at different levels of
technical maturity. Approaches include superconducting, ion traps, photonics, spin qubits, and neutral atoms. A brief summary of a few of the approaches follows:
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The superconducting gate-model approach uses the same basic underlying technology as that found in our qubits. Still, there
are significant differences in the details of the implementations, levels of integration, and the performance achieved to date, particularly in optimization and material simulation.
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The ion trap approach uses the state of atoms trapped in electric fields that are manipulated by electric fields and lasers
for qubits. Current ion trap systems are in the range of about 20 qubits. While technologies such as optical interconnects have been proposed to connect many ion trap QPUs with high connectivity,
this level of integration has not yet been demonstrated at a large enough scale to be used for business-sized problems, and early customer comparisons suggest that such technology is not commercially viable.
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The photonic approach uses photons of light for qubits. These technologies are in the development stage, with little detail
available on their level of integration or roadmaps.
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Our successful technological offering and trusted commercial
readiness was made evident in 2018, when the Jülich Supercomputing Centre analyzed the quantum technology readiness levels (“QTRL”) across multiple quantum systems. Using a scale from one to nine, the centre rated our technology at QTRL 8
(scalable quantum computer qualified in test) and other superconducting providers from QTRL 4 to QTRL 5 (components integrated into small-scale systems without error-correction). Our technology was found to be the only one with current
commercial applications, while all other competing technologies were considered to be experimental devices.
With respect to larger technology companies versus pure quantum
computing enterprises, quantum cloud access providers, including Amazon Braket and Microsoft Azure, do not currently have the full-featured benefits of D-Wave’s real-time Leap quantum cloud service or quantum hybrid offerings. While some
providers plan to offer quantum systems as well, as of March 31, 2023, none of them offer users access to their own quantum computers. The quantum systems to which they offer access are developed by others such as IonQ, Rigetti or Quantinuum
and are significantly smaller in scale and capability when compared to D-Wave’s systems and our Leap and hybrid services.
Competitive analysis of the quantum industry should be viewed
through the lens of what advantage customers can realize with real-world commercial applications. With our extensive intellectual property portfolio, record of commercial execution, peer-reviewed speed-ups on real-world quantum chemistry
simulations, and emerging use cases demonstrating practical value to enterprise customers, we believe we’re well positioned to compete, grow, and capture a significant share of the quantum computing market.
Intellectual Property
Development, know-how and engineering skills are an essential
component of our business, resulting in the creation of our broad intellectual property portfolio. We rely on a combination of patents, trademarks, and trade secrets, as well as contractual provisions and restrictions, to establish and protect
our intellectual property and other proprietary rights in the United States, Canada, and other jurisdictions.
We pursue patent protection when we believe it is consistent with
our overall intellectual property strategy and is cost effective. We have accumulated a broad patent portfolio that covers all the main aspects of our technology, including systems and software, and we intend to protect our innovative
inventions.
Currently, we own all of our core intellectual property and do not
license out any of our material intellectual property. As of March 31, 2023, we owned more than 220 issued U.S. patents, which will expire between 2023 and 2041, and more than 220 additional issued and pending patents worldwide. Our pending and
issued patents target both the hardware and software sides of our business, including systems, qubits and other devices, fabrication, architecture, system software, cryogenics, hybrid quantum computing, and applications of quantum computing.
Currently, we own all of our core patent portfolio. As of March 31, 2023, we owned four registered U.S. trademarks and seven registered foreign trademarks. We had also registered domain names for websites we use in our business, such as
dwavequantum.com, dwavesys.com, qubits.com, and similar variations.
In addition to the above, we also protect our intellectual
property and other proprietary rights by entering into confidentiality and invention assignment agreements (or similar agreements) with our employees, consultants, collaborators, contractors, and other third parties.
Leadership
D-Wave is led by Dr. Alan Baratz, who became Chief Executive
Officer in 2020. Previously, as executive vice-president of research and development and chief product officer, he drove the development, delivery and support of all of D-Wave’s products, technologies and applications. Dr. Baratz has more than
25 years of experience in product development and bringing new products to market at leading technology companies and software startups. As the first president of JavaSoft at Sun Microsystems, Dr. Baratz oversaw the growth and adoption of Java
from its infancy to a robust platform supporting mission-critical applications in nearly 80 percent of Fortune 1000 companies. He has also held executive positions at Symphony, Avaya, Cisco and IBM; served as chief executive officer and
president of Versata, Zaplet and NeoPath Networks; and was a managing director at Warburg Pincus. Dr. Baratz holds a doctorate in computer science from the Massachusetts Institute of Technology.
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In addition, D-Wave has built an executive team that brings
breadth and depth in diverse areas of expertise, including technology leadership, corporate strategy and go-to-market execution. In particular, our executive team excels at building product roadmaps, delivering leading-edge technology products
through the development and commercialization of technology, enabling companies to achieve successful outcomes, driving technology adoption in the market, new market creation and growing revenue. Team members also draw from experience in taking
companies public and scaling private and public companies. We’re proud to represent gender parity within our executive team, with a 41 percent female representation across our broader leadership team as of March 31, 2023.
The Merger and Lincoln Park Transaction
On February 7, 2022, D-Wave entered into the Transaction Agreement
with DPCM, D-Wave Systems, Merger Sub, CallCo, and ExchangeCo. Pursuant to the Transaction Agreement, in a series of transactions including the Arrangement (as defined below), among other things, Merger Sub merged with and into DPCM with DPCM
surviving the merger, as a result of which DPCM became a direct, wholly-owned subsidiary of D-Wave, with the stockholders of DPCM receiving Common Shares, and D-Wave Systems became an indirect subsidiary of D-Wave, as detailed below. On
August 5, 2022 (the “Closing Date”), the Merger and the Arrangement were consummated (the “Closing”).
Immediately following the DPCM Merger, the parties proceeded 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) which gave effect to the
Arrangement (the “Plan of Arrangement”) and the Transaction Agreement or made at the direction of the Court in accordance with the Interim Order or the Final Order (each as defined in the Plan of Arrangement). Pursuant to the Plan of
Arrangement, (i) CallCo acquired a portion of the issued and outstanding D-Wave Shares from certain holders in exchange for Common Shares (the “D-Wave Quantum Share Exchange”), (ii) CallCo contributed such D-Wave Shares to ExchangeCo in
exchange for ExchangeCo Common Shares, (iii) following the D-Wave Quantum Share Exchange, ExchangeCo acquired the remaining issued and outstanding D-Wave Shares from the remaining holders of D-Wave Shares in exchange for Exchangeable Shares,
and (iv) as a result of the foregoing, D-Wave Systems became a wholly-owned subsidiary of ExchangeCo. The holders of the Exchangeable Shares have certain rights as specified in the Exchangeable Share Support Agreement (as defined in the Plan of
Arrangement and described elsewhere herein) and the Voting and Exchange Trust Agreement (as defined in the Plan of Arrangement and described elsewhere herein), including the right to exchange Exchangeable Shares for Common Shares, subject to
the terms and conditions of the Exchangeable Shares (the “Arrangement”). In addition, pursuant to and following the Arrangement, D-Wave Options and D-Wave Warrants became exercisable for Common Shares.
On February 7, 2022, concurrently with the execution of the
Transaction Agreement, the PIPE Investors entered into PIPE Subscription Agreements pursuant to which the PIPE Investors committed to purchase a number of Common Shares equal to the aggregate purchase price for all Common Shares subscribed for
by each PIPE Investor (the “PIPE Shares”), divided by $10.00 and multiplied by the Exchange Ratio, for an aggregate purchase price of $40.0 million. On the Closing Date 5,816,528 Common Shares were
issued to the PIPE Investors in the PIPE Financing, which closed substantially concurrently with Closing.
On June 16, 2022, D-Wave Quantum, D-Wave Systems and DPCM entered
into the Purchase Agreement pursuant to which Lincoln Park agreed to purchase from D-Wave Quantum, at the option of D-Wave Quantum, up to $150,000,000 of Common Shares from time to time over a 36-month period following the date we satisfied the
conditions set forth in the Purchase Agreement to commence sales under the Purchase Agreement (the “Commencement Date”), subject to certain limitations described below. In accordance with the Purchase
Agreement, on August 5, 2022, and August 25, 2022, we issued 127,180 Common Shares and 254,360 Common Shares, respectively, to Lincoln Park in respect of the total commitment fee (the “Commitment Fee”).
Prior to Closing, DPCM Public Stockholders exercised their
redemption rights in respect of 29,097,787 shares of DPCM Class A Common Stock. As a result, immediately prior to the Closing, there were 902,213 shares of DPCM Class A Common Stock outstanding.
As a result of the Merger, (i) each outstanding unit of DPCM was
separated immediately prior to the Effective Time into one share of DPCM Class A Common Stock and one-third of one warrant exercisable for one share of DPCM Class A Common Stock (each whole warrant, a “Public
Warrant”), (ii) immediately prior to Closing, Sponsor forfeited 4,484,425 of its 7,252,500 shares of Class B Common Stock, and, at the Effective Time, each remaining outstanding share of Class B Common Stock was converted into and
exchanged for the right to receive one newly
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issued Common Share, (iii) at the Effective Time, each outstanding share of
Class A Common Stock was converted into and exchanged for the right to receive 1.4541326 newly issued Common Shares and (iv) at the Effective Time, pursuant to the Warrant Agreement, as amended by the Assignment, Assumption and Amendment
Agreement, each Public Warrant and Private Warrant was converted into a Warrant, with each warrant exercisable for 1.4541326 Common Shares at an exercise price of $11.50, with the exercise period beginning on September 4, 2022, the date that
was 30 days following the Closing Date.
Following the closing of the PIPE Financing, and after giving pro
forma effect to redemptions of shares by DPCM Public Stockholders and the payment of transaction expenses, excluding repayments for loans and promissory notes, the transactions described above generated approximately $34.3 million for D-Wave
Quantum.
Registration Rights and Lock-Up Agreement
Registration Rights and Lock-Up Agreement. At the Closing, D-Wave Quantum, the Sponsor, the other holders of DPCM Class B Common Stock and each D-Wave Shareholder (such stockholders, the “Registration Rights Holders”), pursuant to the Plan of Arrangement,
became parties to the Registration Rights and Lock-Up Agreement, pursuant to which, among other things, D-Wave Quantum is obligated to file a registration statement to register the resale of certain equity securities of D-Wave Quantum held by
the Registration Rights Holders. The Registration Rights and Lock-Up Agreement also provides the Registration Rights Holders with demand registration rights and “piggy-back” registration rights, in each case, subject to certain requirements
and customary conditions. Subject to certain exceptions, the Registration Rights and Lock-Up Agreement further provides for the securities of D-Wave Quantum held by the Registration Rights Holders to be locked-up for a period of time as set
forth below.
D-Wave Lock-up Period. The D-Wave Lock-Up Period applied to the former shareholders of D-Wave Systems who received Common Shares or Exchangeable Shares pursuant to the Transaction Agreement and refers to the period that ended on February 5, 2023, the
date that was six (6) months following the Closing.
Founder Lock-up Period. The Founder Lock-Up Period applies to the former holders of shares of DPCM Class B Common Stock who received Common Shares pursuant to the Transaction Agreement and refers to (i) with respect to the 7,500,000 shares of DPCM Class B
Common Stock that were owned by the Initial Stockholders prior to the Merger (the “Founder Shares”), the period ending on the earlier of (A) August 5, 2023, the date that is one (1) year following the Closing and (B) the date on which (x) the
last reported sale price of the Common Shares equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) for any twenty (20) trading days within any thirty (30)
consecutive trading day period commencing after the one hundred and fiftieth (150th) day following the Closing, or (y) the completion by D-Wave Quantum of a liquidation, merger, stock exchange, reorganization or other similar transaction that
results in all of D-Wave Quantum’s public shareholders having the right to exchange their Common Shares for cash, securities or other property, and (ii) with respect to the Private Warrants, thirty (30) days after the Closing.
PSP Side Letter Agreement
On September 26, 2022, D-Wave Quantum and PSP entered into the PSP
Side Letter Agreement pursuant to which PSP agreed that for so long as PSP beneficially owns, directly or indirectly, Common Shares and Exchangeable Shares representing 50 percent or more of the rights to vote at a meeting of the stockholders
of D-Wave Quantum, whether directly or indirectly, including through any voting trust (i) PSP will not exercise the voting rights attached to any of such shares that would result in PSP voting, whether directly or indirectly, including through
any voting trust, more than 49.99 percent of the voting interests eligible to vote at any meeting of the stockholders of D-Wave Quantum and (ii) PSP will vote such shares in favor of the election of the directors that are nominated by the board
of directors of D-Wave Quantum or a duly authorized committee thereof. Given that, as of March 31, 2023, PSP owns less than 50 percent of our Common Shares and Exchangeable Shares, the PSP Side Letter Agreement currently has no impact on PSP’s
ability to vote its shares.
Lincoln Park Transaction
As described above, on June 16, 2022, we entered into the Purchase
Agreement with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us up to an aggregate of $150,000,000 of Common Shares (subject to certain limitations) from time to time over the term of the Purchase Agreement. Also on
June 16, 2022, we entered into the Registration Rights Agreement, pursuant to which we have filed the First LP Registration Statement and this registration statement (collectively, the “LP Registration Statements”) to register for resale under the Securities Act the Common Shares that have been or may be issued to Lincoln Park under the Purchase Agreement.
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Following the Commencement Date, we have the right, but not the
obligation, from time to time, to direct Lincoln Park to purchase Common Shares having a value of up to $250,000 on any business day (the “Purchase Date”), which may be increased to up to $1,000,000 depending on certain conditions as set forth
in the Purchase Agreement (and subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split, or other similar transaction as provided in the Purchase Agreement) (each, a “Regular
Purchase”). The purchase price per Common Share for a Regular Purchase will be the lower of: (i) the lowest trading price for Common Shares on the applicable Purchase Date and (ii) the average of the three lowest closing sale prices for Common
Shares during the ten consecutive business days ending on the business day immediately preceding such Purchase Date. The purchase price per Common Share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend,
forward or reverse stock split, or other similar transaction occurring during the business days used to compute such price.
From and after the Commencement Date, we also have the right, but
not the obligation, to direct Lincoln Park, on each Purchase Date, to make Accelerated Purchases (as defined below) on the following business day (the “Accelerated Purchase Date”) of up to the lesser of (i) 300 percent of the number of Common
Shares purchased pursuant to a Regular Purchase or (ii) 30 percent of the total number (or volume) of Common Shares traded on the NYSE during the period on the applicable Accelerated Purchase Date beginning at the Accelerated Purchase
Commencement Time (as defined below) for such Accelerated Purchase and ending at the Accelerated Purchase Termination Time (as defined below) for such Accelerated Purchase, at a purchase price equal to the lesser of 95 percent of (x) the
closing sale price of Common Shares on the Accelerated Purchase Date and (y) of the volume weighted average price of Common Shares on the Accelerated Purchase Date (during a time period between the Accelerated Purchase Commencement Time and the
Accelerated Purchase Termination Time) (each, an “Accelerated Purchase”). We have the right in our sole discretion to set a minimum price threshold for each Accelerated Purchase in the notice provided with respect to such Accelerated Purchase
and we may direct multiple Accelerated Purchases in a day provided that delivery of Common Shares has been completed with respect to any prior Regular Purchases and Accelerated Purchases that Lincoln Park has purchased.
“Accelerated Purchase
Commencement Time” means the period beginning at 9:30:01 a.m., Eastern time, on the applicable Accelerated Purchase Date, or such other time publicly announced by the NYSE as the official open (or commencement) of trading on the NYSE
on such applicable Accelerated Purchase Date.
“Accelerated Purchase
Termination Time” means the earliest of (A) 4:00:00 p.m., Eastern time, on such applicable Accelerated Purchase Date, or such other time publicly announced by the NYSE as the official close of trading on the NYSE on such applicable
Accelerated Purchase Date, (B) such time, from and after the Accelerated Purchase Commencement Time for such Accelerated Purchase, that the total number (or volume) of Common Shares traded on the NYSE has exceeded the number of Common Shares
equal to (i) the applicable Accelerated Purchase Share Amount (as defined below) to be purchased by Lincoln Park pursuant to the applicable purchase notice delivered for such Accelerated Purchase (the “Accelerated
Purchase Notice”), divided by (ii) 30 percent, and (C) such time, from and after the Accelerated Purchase Commencement Time for such Accelerated Purchase, that the trade price for the Common Shares on the NYSE as reported by the NYSE,
has fallen below the applicable minimum per share price threshold set forth in the applicable Accelerated Purchase Notice.
“Accelerated Purchase Share
Amount” means, with respect to an Accelerated Purchase, the number of Common Shares directed by the Company to be purchased by Lincoln Park in an Accelerated Purchase Notice, which number of Common Shares shall not exceed the lesser of
(i) 300 percent of the number of Common Shares directed by the Company to be purchased by Lincoln Park pursuant to the corresponding notice for the corresponding Regular Purchase and (ii) an amount equal to (A) 30 percent multiplied by (B) the
total number (or volume) of Common Shares traded on the NYSE during the period on the applicable Accelerated Purchase Date beginning at the Accelerated Purchase Commencement Time for such Accelerated Purchase and ending at the Accelerated
Purchase Termination Time for such Accelerated Purchase.
The Purchase Agreement may be terminated by us at any time, at our
sole discretion, without any cost or penalty, by giving one business day notice to Lincoln Park to terminate the Purchase Agreement.
Actual sales of Common Shares to Lincoln Park under the Purchase
Agreement will depend on a variety of factors to be determined by us from time to time, including (among others) market conditions, the trading price of Common Shares and determinations by us as to available and appropriate sources of funding
for our operations. The Purchase Agreement prohibits us from issuing or selling and Lincoln Park from acquiring any Common Shares if
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(i) the closing price of the Common Shares is less than the Floor Price of $1.00
or (ii) those Common Shares, when aggregated with all other Common Shares then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership of more than 9.9 percent of the
then issued and outstanding Common Shares, as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder.
The First LP Registration Statement registered the sale of
15,500,000 Common Shares under the Purchase Agreement and this registration statement is registering the sale of 35,000,000 Common Shares under the Purchase Agreement. The purchase price for the Common Shares that we may sell to Lincoln Park
under the Purchase Agreement will fluctuate based on the trading price of the Common Shares. We generally have the right to control the timing and amount of any future sales of Common Shares to Lincoln Park, subject to (i) the closing price
of our Common Shares exceeding the Floor Price and (ii) the other terms and conditions of the Purchase Agreement, as described herein. Additional sales of Common Shares, if any, to Lincoln Park will depend upon market conditions, as well as
other factors to be determined by us. While the Purchase Agreement limits the rate at which we can sell Common Shares to Lincoln Park, due to the significant number of Common Shares that were redeemed in connection with the Merger, the number
of Common Shares that we can sell to Lincoln Park under the Purchase Agreement could constitute a considerable percentage of our public float at the time of such sales. As a result, the resale by Lincoln Park of Purchased Shares pursuant to
the LP Registration Statements could have a significant negative impact on the trading price of Common Shares. The 15,500,000 Common Shares that may be resold into the public markets pursuant to the First LP Registration Statement represent
approximately 12.1% percent the Common Shares (including Exchangeable Shares) outstanding as of June 30, 2023 (approximately 8.6 percent on a fully-diluted basis). The 35,000,000 Common Shares that may be resold into the public markets
pursuant to this represent approximately 27.3 percent of the Common Shares (including Exchangeable Shares) outstanding as of June 30, 2023 (approximately 19.5 percent on a fully-diluted basis). We may ultimately decide to sell to Lincoln Park
all or only some of the Common Shares that may be available for us to sell pursuant to the Purchase Agreement and, as a result of certain conditions with respect to the use of the Purchase Agreement, including the Floor Price Limitation (as
defined below), we may be significantly constrained from selling Common Shares under the Purchase Agreement. As of March 31, 2023, we have issued and sold 15,118,460 Common Shares pursuant to the Purchase Agreement, not including the 127,180
and 254,360 commitment shares issued on August 5, 2022 and August 25, 2022, respectively (the “Commitment Shares”).
For illustrative purposes, at an approximate minimum average
purchase price of $2.97 per Common Share, the offering of Common Shares pursuant to the LP Registration Statements, which collectively provides for the sale of 50,500,000 Common Shares (including 381,540 Commitment Shares), would be
sufficient to sell the entirety of the $150.0 million of Common Shares permitted to be sold to Lincoln Park under the Purchase Agreement. At the current price of our Common Shares, which was $0.52 per share on March 17, 2023, the registration
of a significant number of additional Common Shares would be required if we sought to sell the entire $150.0 million of Common Shares. At an assumed average purchase price equal to the Floor Price, we would need to register an additional
95,066,594 Common Shares (or 145,566,594 Common Shares in aggregate) in order to sell the entire $150.0 million of Common Shares to Lincoln Park under the Purchase Agreement. Sales of any such additional Common Shares to Lincoln Park could
cause substantial dilution to our stockholders. The number of Common Shares ultimately offered for resale by Lincoln Park is dependent upon the number of Common Shares we sell to Lincoln Park under the Purchase Agreement. On a combined basis
with the 89,152,764 Common Shares that were registered on the Resale Registration Statement, we registered 139,652,764 Common Shares that may be resold pursuant to the LP Registration Statements and the Resale Registration Statement from time
to time representing approximately 109.1 percent of the Common Shares (including Common Shares underlying Exchangeable Shares) outstanding as of June 30, 2023 (approximately 77.8 percent on a fully-diluted basis). Any sales of such Common
Shares by Lincoln Park could similarly have a significant negative impact on the trading price of Common Shares.
The Purchase Agreement specifically provides that we may not issue
or sell any Common Shares under the Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of the NYSE.
Other than as described above, there are no trading volume
requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of Common Shares to Lincoln Park.
The Purchase Agreement contains customary representations,
warranties, covenants, closing conditions, and indemnification provisions by, among and for the benefit of the parties. Lincoln Park agreed that neither it nor any of its agents, representatives, or affiliates will enter into or effect,
directly or indirectly, any short selling or hedging
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that establishes a net short position with respect to the Common Shares. There are
no limitations on the use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on our ability to enter into a similar type of agreement or equity line of credit during the term of the Purchase
Agreement, excluding an At-The-Market transaction with a registered broker-dealer), rights of first refusal, participation rights, penalties, or liquidated damages in the Purchase Agreement.
The Purchase Agreement also includes certain events of default,
including, among others, a lapse in the effectiveness or availability of the registration statements, the suspension of our Common Shares from the NYSE, failure to deliver Common Shares to Lincoln Park within a specified period of time and
certain events of bankruptcy. Lincoln Park does not have the right to terminate the Purchase Agreement upon any of the events of default set forth above. During an event of default following any applicable grace or cure period, all of which are
outside of Lincoln Park’s control, we may not direct Lincoln Park to purchase any Common Shares under the Purchase Agreement.
There are no restrictions on future financings, rights of first
refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement.
As of March 31, 2023, we have issued and sold 15,118,460 Common
Shares pursuant to the Purchase Agreement, not including the Commitment Shares.
Term Loan and Security Agreement
On April 13, 2023, the Company entered into the Term Loan, with an
aggregate principal amount of $50.0 million to be made available to the Company, as defined in the Term Loan and Security Agreement, in three tranches. The first tranche, in an aggregate principal amount of $15.0 million, was advanced to the
Company on April 14, 2023, with the second and third tranches, of $15.0 million and $20.0 million, respectively, to be made available to the Company subject to certain conditions. Prior to PSPIB's advance of the first tranche, the Company
satisfied several closing conditions including the provision of a cash flow forecast and the board of directors' retention of an advisor. The second tranche, that shall be available to the Company as of July 12, 2023, is subject to the Company
providing the Lender with an IP valuation report, a board-approved operating budget for 2023 through 2027, and SIF’s consent to the grant of security interests in D-Wave's project intellectual property associated with the SIF Loan. The third
tranche, that shall be available to the Company as of October 10, 2023, is subject to the Company closing a $25.0 million non-dilutive financing on terms reasonably acceptable to the Lender, and the IP valuation report and board-approved
operating budget for 2023 through 2027 remaining satisfactory to the Lender. Each tranche is subject to a 2.0% drawdown fee and the Term Loan matures on March 31, 2027. The initial $15.0 million tranche is expected to provide the Company with
sufficient cash runway until the second $15.0 million tranche, assuming it is received when available on July 12, 2023. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the second and third
tranches.
At the discretion of the Company, the Term Loan bears interest on
a monthly basis at either (i) 10% payable in cash, or (ii) 11% payable in kind ('PIK'), with the latter added to the principal value of the Term Loan.
Upon the repayment or prepayment of the Term Loan, there is a
prepayment premium due the Lender that is equal to 3.0% of the amount repaid / prepaid prior to the first anniversary of the closing of the Term Loan, 2.0% of the amount repaid / prepaid after the first anniversary and before the second
anniversary of the closing of the Term Loan, 1.0% of the amount repaid / prepaid after the second anniversary and before the third anniversary of the closing of the Term Loan and no prepayment premium due thereafter. The Term Loan requires that
any proceeds from the issuance of Common Shares under the Purchase Agreement be applied towards the repayment of advances under the Term Loan in addition to a premium payment equal to 10% of the amount then prepaid to the Lender.
The Term Loan is secured by a first-priority security interest in
substantially all of the Company’s assets and contains certain operational and financial covenants.
Effect of Performance of the Purchase Agreement on Our Stockholders
All 50,500,000 Common Shares that were registered on the LP
Registration Statements, which have been or may be issued or sold by us to Lincoln Park under the Purchase Agreement, are expected to be freely tradable. It is anticipated that Common Shares registered on the LP Registration Statements will be
sold over a period of up to 36-months commencing on the Commencement Date. The Purchase Agreement includes restrictions on our ability to sell Common Shares to Lincoln Park, including: a Floor Price of $1.00 below which D-Wave Quantum may not
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sell any Common Shares to Lincoln Park unless and until the price of our Common
Shares subsequently exceeds the Floor Price of $1.00 (the “Floor Price Limitation”) and, subject to specified limitations, if a sale would cause Lincoln Park and its affiliates to beneficially own more
than 9.9 percent of our issued and outstanding Common Shares (the “Beneficial Ownership Limitation”). The sale by Lincoln Park of a significant amount of Common Shares registered on the LP Registration
Statements at any given time could cause the market price of Common Shares to decline and to be highly volatile. Sales of Common Shares to Lincoln Park, if any, will depend upon market conditions as well as other factors to be determined by us.
We may ultimately decide to sell to Lincoln Park all or only some of the additional Common Shares that may be available for us to sell pursuant to the Purchase Agreement, assuming we are not otherwise constrained from doing so pursuant to the
Floor Price Limitation, the Beneficial Ownership Limitation, or the other terms of the Purchase Agreement.
Sales to Lincoln Park by us under the Purchase Agreement may
result in substantial dilution to the interests of other holders of Common Shares. Additionally, when we sell shares to Lincoln Park, Lincoln Park may resell all, some, or none of those Common Shares at any time or from time to time in its
discretion. Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in a substantial decrease in the market price of Common Shares. In addition, if we sell a substantial number of Common Shares to Lincoln Park under the
Purchase Agreement, or if investors expect that we will do so, the actual sales of Common Shares or the mere existence of our arrangement with Lincoln Park may make it more difficult for us to sell equity or equity-related securities in the
future at a time and at a price that we might otherwise wish to effect such sales. However, we have the right to control the timing and amount of any additional sales of Common Shares to Lincoln Park and the Purchase Agreement may be terminated
by us at any time at our discretion without any cost to us.
Governmental Regulations
Environmental Regulations
We are subject to numerous federal, state, provincial, local, and
international environmental laws and regulations including requirements regarding the protection of the environment and human health. There are significant capital, operating and other costs associated with compliance with environmental laws
and regulations related to solid and hazardous waste storage, treatment and disposal, and remediation of releases of hazardous materials. In addition, various authorities also regulate health, safety and permitting. Laws and regulations may
become more stringent in the future, which could increase costs of compliance or require us to make material changes to our operations, resulting in significant increases to the cost of production.
Privacy and Data Protection Regulations
We may receive, store and otherwise process personal information
and other data from and about our customers, employees and from other stakeholders like our vendors. There are numerous federal, state, provincial, local and international laws and regulations regarding privacy, data protection, information
security and the storing, sharing, use, processing, transfer, disclosure, retention and protection of personal information and other content, the scope of which is rapidly changing, subject to differing interpretations and may be inconsistent
among regions, countries and states, or conflict with other legal requirements. We strive to comply with applicable laws, regulations, policies and other legal obligations relating to privacy, data protection and information security.
The United States, Canada, the European Union, the United Kingdom
and other countries in which we operate are increasingly adopting or revising privacy, information security and data protection laws and regulations that could have a significant impact on our current and planned privacy, data protection and
information security-related practices, our collection, use, sharing, retention and safeguarding of customer, consumer and/or employee information, as well as any other third-party information we receive, and some of our current or planned
business activities. In the United States, this includes the California Consumer Privacy Act of 2018 (“CCPA”) which came into effect on January 1, 2020. In the European Union and the United Kingdom, this includes the General Data Protection
Regulation (“GDPR”), which came into effect in May 2018. In Canada, this includes Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”) and the Personal Information Protection Act in British Columbia.
We expect that there will continue to be new or changing laws,
regulations and industry standards concerning privacy, data protection and information security proposed and enacted in other jurisdictions in which we operate. Such new or revised laws could impact our current and planned practices or business
activities; and may also impact the computing services and software industry platforms and data providers we utilize, and thereby indirectly impact
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our business. For example, uncertainty in the laws and regulations affecting cross
border transfers of personal data may affect the demand and functionality of our services and require us to implement substantial changes to our information technology infrastructure. In addition, laws affording consumers expanded privacy
protections and control over their personal information may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.
Human Capital Resources
Our employees are key to D-Wave’s success. As of March 31, 2023,
we had more than 215 employees across our systems, software, sales, marketing and corporate teams. Approximately 70 percent of D-Wave’s employees are based near our research and development headquarters in Burnaby, British Columbia, Canada. We
continue to grow D-Wave’s U.S. presence, primarily in the fabrication, software, professional services and go-to-market areas, and have a small presence in Japan and the United Kingdom. We also engage a small number of consultants and
contractors to supplement our permanent workforce. A majority of our employees are engaged in research and development and related functions, with approximately 20 percent having earned a PhD, many from the world’s top ranked universities. And
our go-to-market leaders have a track record of building and growing new markets, which we believe allows us to continue to build and capture the quantum computing market.
To date, D-Wave has not experienced any work stoppages, and none
of our employees are subject to a collective bargaining agreement or represented by a labor union.
Properties
We operate three facilities in North America. Our Canadian
operations and the Quantum Engineering Center of Excellence is located in Burnaby, B.C., outside of Vancouver, where we lease approximately 42,000 square feet of space under an agreement that expires in December 2033. Most of the facility is
used for research and development and manufacturing. We also lease approximately 7,000 square feet of space in Richmond, B.C., outside of Vancouver, under an agreement that expires in December 2024. That facility is used to develop and
manufacture proprietary superconducting circuit boards for internal consumption, and for customer sales. And our in-house fabrication activities are performed in a facility in Palo Alto, California, where we lease approximately 6,000 square
feet of space under an agreement that expires in June 2024. We are also committed to a lease for additional office space in Burnaby for a 9,100 square foot facility under an agreement that expires in June 2023. As it was not being fully
utilized, we subleased the space to a third party, which sublease expires in June 2023 in coordination with the original lease. We believe our current and planned facilities are adequate for the foreseeable future.
Legal Proceedings
From time to time, we may become involved in legal proceedings
arising in the ordinary course of business. There are currently no pending or threatened legal proceedings or claims against us that, in our opinion, are likely to have a material adverse effect on our business, operating results, financial
condition or cash flows. Defending such proceedings is costly and can impose a significant burden on management and team members. The results of any future litigation cannot be predicted with certainty, but regardless of the outcome, litigation
can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K (including exhibits), and any amendment to these reports are filed with the SEC. Such reports and other information filed by us with the SEC and are available free of charge on our website at www.dwavesys.com as soon as reasonably practicable after we electronically file that material with or furnish it to the SEC. For the avoidance of doubt, information contained on, or accessible through, our
website is not incorporated into, and does not form a part of, this prospectus or any other report or document we file with the SEC.
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You should read the following discussion and analysis of our
financial condition and results of operations together with D-Wave Quantum Inc's audited consolidated financial statements for the years ended December 31, 2022 and 2021, together with the notes thereto, and unaudited condensed financial
statements for the three months ended March 31, 2023, included elsewhere in this prospectus. The discussion and the analysis should also be read together with the section of this prospectus entitled “Business” and the unaudited pro forma
condensed combined financial information for the three months ended March 31, 2023 and for the year ended December 31, 2022 (in the section of this prospectus entitled “Unaudited Pro Forma Condensed Combined Financial Information”). The
following discussion contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a
result of various factors, including those risk factors under the section titled “Risk Factors” or in this prospectus. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. In
this section, unless otherwise specified, the terms “we”, “our”, “us”, D-Wave” or the “Company” refer to D-Wave Quantum Inc. and its subsidiaries following the Close of the Merger, and “D-Wave Systems” refers to D-Wave Systems Inc. and its
subsidiaries prior to the Closing of the Merger. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.
Overview
On February 7, 2022, D-Wave Systems entered into the Transaction
Agreement with DPCM, D-Wave, Merger Sub, CallCo, and ExchangeCo, pursuant to which the Merger occurred.
D-Wave was incorporated as a corporation organized and existing
under the DGCL on January 24, 2022. The Company was formed for the purpose of effecting a merger between DPCM, D-Wave, and certain other affiliated entities through a series of transactions constituting the Merger pursuant to the Transaction
Agreement. The closing of the Merger occurred on August 5, 2022 and is herein referred to as “the Closing.”
On the date of the Closing, DPCM and D-Wave Systems became
wholly-owned subsidiaries of, and are operated, by D-Wave. Upon the completion of the Merger, D-Wave succeeded to all of the operations of its predecessor, D-Wave Systems.
Following the Closing, the Common Shares and Warrants of D-Wave
commenced trading on the NYSE under the ticker symbols “QBTS” and “QBTS.WT,” respectively.
We are a commercial quantum computing company that provides
customers with a full suite of professional services and web-based access to our superconducting quantum computer systems and integrated software environment through our cloud service, LeapTM. Historically, we have developed our own
annealing superconducting quantum computer and associated software, and our current generation quantum system is the D-Wave AdvantageTM. We are a leader in the development and delivery of quantum computing systems, software and
services, and we are 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, we initiated the
development of a gate-model quantum computing system.
Our business model is focused primarily on generating revenue from
providing customers access to our quantum computing systems via the cloud in the form of QCaaS products, and from providing professional services wherein we assist our customers in identifying and implementing quantum computing applications. We
have three operating facilities, which we lease, in North America. These facilities are located in Burnaby, British Columbia, Richmond, British Columbia, and Palo Alto, California.
During the three months ended March 31, 2023 and 2022, we
recognized revenue from our cloud and professional services of $1.6 million and $1.7 million, respectively. During the years ended December 31, 2022, 2021, and 2020, we generated revenue totaling $7.2 million, $6.3 million, and $5.2 million
respectively. We have incurred significant operating losses since inception. For the three months ended March 31, 2023 and 2022, our net loss was $24.6 million and $11.7 million, respectively. For the years ended December 31, 2022, 2021, and
2020 our net loss was $51.5 million, $31.5 million, and $10.0 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 variety of go-to-market initiatives. As of March 31, 2023, we had an accumulated deficit of $401.4 million.
93
The Transaction Agreement and PIPE Financing
As noted above, the Merger pursuant to the Transaction Agreement
was consummated on August 5, 2022. While the legal acquirer in the Transaction Agreement is D-Wave Quantum Inc., for financial accounting and reporting purposes under GAAP, D-Wave Systems is the accounting acquirer and the Merger is 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 represent the continuation of our financial statements in many respects. Under this method of
accounting, DPCM is treated as the “acquired” company for financial reporting purposes. For accounting purposes, D-Wave Systems will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a
recapitalization of D-Wave Systems (i.e., a capital transaction involving the issuance of stock by D-Wave Quantum Inc. for the stock of D-Wave Systems Inc.).
As a result of the Merger, all of the shares of D-Wave Systems
common stock issued and outstanding immediately prior to the closing of the Merger (including D-Wave Systems common shares resulting from D-Wave Systems preferred stock conversion) were converted into an aggregate of 99,736,752 Common Shares
(including Exchangeable Shares). Additionally, all of the shares of DPCM Class A Common Stock and Class B Common Stock held by DPCM issued and outstanding immediately prior to the Closing were converted into an aggregate of 4,327,512 Common
Shares. Upon consummation of the Merger, the most significant change in our reported financial position and results of operations was an increase in cash of $49.0 million in gross proceeds from the Merger and PIPE Financing netted against
transaction costs of approximately $14.2 million.
In connection with the Merger, approximately 29.1 million shares
of DPCM Class A Common Stock were redeemed, which represented a significant portion of the publicly traded shares of DPCM outstanding immediately prior to the Merger and resulted in only approximately $9.0 million of cash from the DPCM Trust
Account becoming available to us. As discussed elsewhere in this prospectus, we entered into the Purchase Agreement, pursuant to which Lincoln Park agreed to purchase up to $150.0 million of Common Shares through the Purchase Agreement (subject
to certain limitations contained in the Purchase Agreement) from time to time over a 36-month period, to assist us in meeting our capital requirements. However, we may not sell any Common Shares to Lincoln Park unless the price of our Common
Shares exceeds the Floor Price of $1.00. Although our stock price has closed above $1.00 since May 22, 2023, from February 14, 2023 until May 19, 2023, our stock price closed each day below the $1.00 Floor Price. The resale of our Common Shares
by Lincoln Park related to the Purchase Agreement was registered under the Securities Act pursuant to the First LP Registration Statement. On February 13, 2023 we filed this registration statement to register the sale of additional shares
related to the Purchase Agreement.
Common Shares that may be resold into the public markets pursuant
to the Purchase Agreement could have a significant negative impact on the trading price of our Common Shares.
We have also filed the Resale Registration Statement registering
the issuance to and/or resale by certain third parties unrelated to the Purchase Agreement of certain securities issued prior to, or in connection with, the Merger. The Common Shares registered for resale from time to time pursuant to the
Resale Registration Statement represent a substantial majority of the number of the Common Shares outstanding as of March 31, 2023. The shareholders selling pursuant to the Resale Registration Statement will determine the timing, pricing and
rate at which they sell such Common Shares into the public market and such sales could have a significant negative impact on the trading price of our Common Shares. In addition, PSP, a beneficial owner of approximately 47% of our outstanding
Common Shares (including Common Shares underlying Exchangeable Shares) as of March 31, 2023, has registration rights with respect to all of its 55,068,914 shares not registered on the Resale Registration Statement, and, since its lock-up period
has concluded, may sell such shares either pursuant to a future registration statement or once Rule 144 under the Securities Act becomes available for such sales. Although the current trading price of the Common Shares is below $10.00 per
share, certain of the investors who have resale rights under the Resale Registration Statement have an incentive to sell because they purchased Common Shares and/or Warrants at prices below those offered in DPCM's IPO. Sales by such investors
may cause the trading prices of our securities to experience a further decline. As the trading price of our Common Shares has declined, sales of Common Shares to Lincoln Park pursuant to the Purchase Agreement have become a less attractive
source of capital. In addition, we may be unable to raise capital at rates that would be possible if the trading price of our Common Shares was higher.
As a result of the Merger, we became subject to the reporting
requirements under the Exchange Act and listing standards of the NYSE, which has required us to hire additional personnel and implement procedures and processes
94
to address applicable regulatory requirements and customary practices. We expect
D-Wave 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.
Our future results of consolidated operations and financial
position may not be comparable to historical results as a result of the Merger.
Macroeconomic and Business Environment
Russia-Ukraine Conflict
In February 2022, the Russian Federation launched an invasion of
the country of Ukraine resulting in conflict in the region and a variety of sanctions against the Russian Federation enacted by several governmental bodies, including the governments of the U.S., United Kingdom and Canada and the European
Union. The conflict has had, and continues to have, direct and indirect adverse effects on financial markets and global supply chain disruptions. We do not have any direct operations in either Russia or Ukraine and there were no material
impacts to our consolidated financial statements as of and for the period ended March 31, 2023 as a result of the situation. We will continue to monitor the situation as it evolves for potential impacts to our operating and financial results
such as increased inflation, supply chain, or cybersecurity risks in subsequent periods. Refer to the section titled “Risk Factors” disclosed herein for our assessment of risk factors surrounding inflationary, supply chain and cybersecurity
risks.
COVID-19 Update
While the crisis brought on by COVID-19 pandemic has shown signs
of abatement (e.g., new case rates remain below prior highs, the mortality rate remains low, and the Centers for Disease Control relaxed its guidance), the full magnitude of the pandemic’s effect on our financial condition, liquidity and future
results of operations remains uncertain. Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry and workforce. Economic uncertainty as a result of changing or worsening COVID-19 conditions
may cause our current or potential future customers to modify, delay or cancel plans to purchase our products and services. There were no material impacts to our consolidated financial statements as of and for the period ended March 31, 2023 as
a result of the COVID-19 outbreak. Refer to “Risk Factors” disclosed herein for our assessment of risk factors surrounding the pandemic.
Macroeconomic Environment
Unfavorable conditions in the economy in the United States, Canada
and abroad, including conditions resulting from changes in gross domestic product growth, labor shortages, supply chain disruptions, inflationary pressures, rising interest rates, financial and credit market fluctuations, banking collapses and
related uncertainty, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe or elsewhere, including military actions affecting Russia,
Ukraine or elsewhere, could cause a decrease in business investments on our products and negatively affect the growth of our business and our results of operations.
Key Components of Results of Operations
Revenue
We currently generate our revenue through subscription sales to
access our QCaaS cloud platform; professional services that include problem evaluation, proof of concept, and pilot application phases; training on our quantum computing systems; and 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 that there will be a decrease in our cloud based
recurring QCaaS revenue as a percentage of total revenue in 2023 when compared to 2022 due to increased demand for professional services engagements. In subsequent periods, we expect that the general trend will be for QCaaS revenue, as a
percentage of total revenue, to
95
increase due to an increasing number of QCaaS agreements being driven by the
completion of professional services engagements yielding production applications that require QCaaS services, as well as by customers that choose to access our Leap cloud service without utilizing our professional services organization.
Cost of Revenue
Our cost of revenue consists of all direct and indirect expenses
related to providing our QCaaS offering and delivering our professional services, personnel-related expenses, including stock-based compensation, and costs associated with maintaining the cloud platform on which we provide the QCaaS product.
Cost of revenue includes personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, and 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 the field service organization.
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 near-term future economic benefits, and may have no alternate future use. We
currently do not capitalize any research and development expenses.
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 performance of our annealing quantum computers, to complete the development of our gate model quantum computer,
broaden 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 general and administrative 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 expenses to increase as we establish more comprehensive compliance and governance functions, increased IT security and compliance, expanded internal controls over financial reporting in accordance with the Sarbanes-Oxley Act, and
prepare and distribute periodic reports as required by the rules and regulations of the SEC.
Sales and Marketing
Sales and marketing expenses consist primarily of
personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, direct advertising, marketing and promotional material costs, sales commission expense, consulting fees and allocated facility costs for our
sales and marketing functions. We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, expand our global customer base, and broaden our brand awareness. We expect our sales and
marketing expenses to continue to increase in absolute dollars for the foreseeable future.
96
Government Assistance
US GAAP for profit-oriented entities does not define government
assistance; nor is there specific guidance applicable to government assistance. We receive 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.
We recognize 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 our 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. We recognize grants and investment tax credits in an
amount equal to the estimated qualifying expenses incurred in each period multiplied 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 consolidated balance sheets as research incentives receivable. In circumstances where the grants received relate to prior period eligible expenses, we
recognize these grants as other income in our consolidated statement of operations and comprehensive loss in the current period. Upon entering into the transaction agreement on February 7, 2022, the Company is no longer a Canadian Controlled
Private Corporation. As a result, beginning February 7, 2022, Scientific Research and Development investment tax credits can be applied to reduce income taxes payable to the Canadian government. Any investment tax credits that are not realized
will be reflected as investment tax credit carryforwards.
We have received government loans under funding agreements that
bear interest at rates that are below market rates of interest or interest-free. We account 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
record interest expense for the loans at a market rate of interest. On the date that loan proceeds are earned, we recognize the portion of the loan proceeds allocated to grant funding as a discount to the carrying value of the loan which is
subsequently recognized as additional government assistance upon draw down of the qualified loan amounts. The valuation of the liability of the loans relies on a combination of valuation approaches that are dependent on significant estimates
and assumptions related to forecasts of future revenues and the discount rate. Should we not reach a benchmark year within 14 years post completion of the project, the SIF Loan will be forgiven. Once a benchmark year is reached, payment will
commence two years after reaching the benchmark year and will be repaid within 15 years. The carrying value (net present value) of the SIF Loan at each reporting period is highly sensitive to the estimated timing of loan payments. The Company
determined that a 5% decrease in projected gross revenue over the term of the SIF loan would not materially decrease its carrying value while a 20% decrease would decrease the carrying value by approximately $0.5 million.
Other income (expense), net
Our other income (expense), net is primarily comprised of change
in fair value of warrant liabilities assumed by D-Wave as part of the Merger (see Note 3 included in the notes to our condensed consolidated financial statements for the period ended March 31, 2023 and Note 3 included in the notes to our
consolidated financial statements for the year ended December 31, 2022 included elsewhere in this prospectus), gain on investment in marketable securities, government assistance, interest expense, non-cash interest income on SIF and other
miscellaneous income and expense unrelated to our core operations.
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Results of Operations
The following table sets forth our results of operations for the
periods indicated (in thousands):
|
|
| |
Three Months ended March 31*,
|
| |
Year Ended December 31,
|
|||||||||
|
|
| |
2023
|
| |
2022
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Revenue
|
| |
$1,583
|
| |
$1,713
|
| |
$7,173
|
| |
$6,279
|
| |
$5,160
|
|
Cost of revenue
|
| |
1,162
|
| |
616
|
| |
2,923
|
| |
1,750
|
| |
915
|
|
Total gross profit
|
| |
421
|
| |
1,097
|
| |
4,250
|
| |
4,529
|
| |
4,245
|
|
Operating expenses:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Research and development
|
| |
10,915
|
| |
6,802
|
| |
32,101
|
| |
25,401
|
| |
20,411
|
|
General and administrative
|
| |
11,296
|
| |
3,646
|
| |
21,539
|
| |
11,897
|
| |
11,587
|
|
Sales and marketing
|
| |
2,900
|
| |
1,600
|
| |
10,068
|
| |
6,179
|
| |
3,714
|
|
Total operating expenses
|
| |
25,111
|
| |
12,048
|
| |
63,708
|
| |
43,477
|
| |
35,712
|
|
Loss from operations
|
| |
(24,690)
|
| |
(10,951)
|
| |
(59,458)
|
| |
(38,948)
|
| |
(31,467)
|
|
Other income (expense), net:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense
|
| |
(454)
|
| |
(525)
|
| |
(4,633)
|
| |
(1,728)
|
| |
(5,257)
|
|
Government assistance
|
| |
—
|
| |
—
|
| |
—
|
| |
7,167
|
| |
12,027
|
|
Non-cash interest income on SIF
|
| |
—
|
| |
—
|
| |
5,673
|
| |
—
|
| |
—
|
|
Gain on debt extinguishment
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
3,873
|
|
Gain on settlement of warrant liability
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
7,836
|
|
Gain on investment in marketable securities
|
| |
—
|
| |
—
|
| |
—
|
| |
1,163
|
| |
—
|
|
Change in fair value of warrant liabilities
|
| |
638
|
| |
—
|
| |
6,173
|
| |
—
|
| |
—
|
|
Lincoln Park Purchase Agreement issuance costs
|
| |
—
|
| |
—
|
| |
(629)
|
| |
—
|
| |
—
|
|
Other income (expense), net
|
| |
(102)
|
| |
(181)
|
| |
1,345
|
| |
801
|
| |
2,969
|
|
Total other income (expense), net
|
| |
$82
|
| |
$(706)
|
| |
$7,929
|
| |
$7,403
|
| |
$21,448
|
|
Net loss
|
| |
$(24,608)
|
| |
$(11,657)
|
| |
$(51,529)
|
| |
$(31,545)
|
| |
$(10,019)
|
|
Foreign currency translation adjustment, net of tax
|
| |
(19)
|
| |
(70)
|
| |
41
|
| |
15
|
| |
(82)
|
|
Net comprehensive loss
|
| |
$(24,627)
|
| |
$(11,727)
|
| |
$(51,488)
|
| |
$(31,530)
|
| |
$(10,101)
|
|
*
|
Our results of operations for the three months ended March 31, 2023 and 2022 are unaudited.
|
Comparison of the Three Months Ended March 31,
2023 and 2022
Revenue
Revenue decreased $0.1 million, or 8%, to $1.6 million for the
three months ended March 31, 2023 as compared to $1.7 million for the three months ended March 31, 2022. The decrease in revenue was primarily driven by lower QCaaS revenue due to non-renewal for several customer contracts that were partially
replaced with new customer contracts.
Cost of Revenue
Cost of revenue increased $0.5 million, or 89%, to $1.2 million
for the three months ended March 31, 2023 as compared to $0.6 million for the three months ended March 31, 2022. The increase in cost of revenue was driven primarily by:
|
•
|
An increase in personnel-related costs of $0.3 million related to higher salaries; and
|
|
•
|
An increase of $0.3 million related to stock-based compensation expense.
|
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Operating Expenses
Research and Development Expenses
|
|
| |
Three months ended March 31,
|
| |
Change
|
||||||
|
|
| |
2023
|
| |
2022
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Research and development
|
| |
$10,915
|
| |
$6,802
|
| |
$4,113
|
| |
60%
|
Research and development expenses increased by $4.1 million, or
60%, to $10.9 million for the three months ended March 31, 2023 compared to $6.8 million for the three months ended March 31, 2022. The increase was primarily a result of our continuous efforts to broaden the functionality of our QCaaS cloud
platform and improve the reliability, availability and scalability of our cloud platform. In particular, our personnel-related expenses increased $3.1 million (including $2.7 million related to stock-based compensation expense), and our wafer
fabrication costs increased $0.9 million due to higher activity demands and production rates.
Our research and development expenses also increased $0.4 million
as a result of a reduction in Scientific Research and Experimental Development expenditure credits during the year due to the Company’s loss of Canadian Controlled Private Corporation (“CCPC”) status
after we entered into the Transaction Agreement on February 7, 2022.
General and Administrative Expenses
|
|
| |
Three months ended March 31,
|
| |
Change
|
||||||
|
|
| |
2023
|
| |
2022
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
General and administrative
|
| |
$11,296
|
| |
$3,646
|
| |
$7,650
|
| |
210%
|
General and administrative expenses increased $7.7 million, or
210%, to $11.3 million for the three months ended March 31, 2023 as compared to $3.6 million for the three months ended March 31, 2022. The increase was primarily a result of operating as a public company. In particular, our third-party
professional services from legal, accounting, and tax increased $2.8 million, our personnel-related expenses increased $3.5 million (including $2.7 million related to stock-based compensation expense), along with an increase of $0.8 million in
Directors and Officers insurance costs and increase of $0.3 million in SEC filing fees.
Sales and Marketing Expenses
|
|
| |
Three months ended March 31,
|
| |
Change
|
||||||
|
|
| |
2023
|
| |
2022
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Sales and marketing
|
| |
$2,900
|
| |
$1,600
|
| |
$1,300
|
| |
81%
|
Sales and marketing expenses increased $1.3 million, or 81%, to
$2.9 million for the three months ended March 31, 2023 as compared to $1.6 million for the three months ended March 31, 2022. The increase was primarily a result of our efforts in expanding and broadening our brand awareness through conference
and travel costs that increased $0.6 million, through hiring as our personnel-related expenses increased $0.5 million (including $0.3 million related to stock-based compensation expense), and through an increase of $0.2 million in investments
in our sales and marketing organization.
Other Income (Expense), net
Interest Expense
|
|
| |
Three months ended March 31,
|
| |
Change
|
||||||
|
|
| |
2023
|
| |
2022
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Interest expense
|
| |
$454
|
| |
$525
|
| |
$(71)
|
| |
(14)%
|
Interest expense decreased $0.1 million or 14%, to $0.5 million
for the three months ended March 31, 2023 as compared to $0.5 million for the three months ended March 31, 2022. A decrease of $0.2 million was due to a lower
99
debt balance in the current period compared to the prior period due to the
repayment of the $21.8 million Venture Loan and final payment fee on August 5, 2022. The remaining decrease of $0.1 million was due to a decrease in the principal balance of our SIF Loan.
Change in fair value of warrant liabilities
|
|
| |
Three months ended March 31,
|
| |
Change
|
||||||
|
|
| |
2023
|
| |
2022
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Change in fair value of warrant liabilities
|
| |
$638
|
| |
$—
|
| |
$638
|
| |
100%
|
Change in fair value of warrant liabilities increased by
$0.6 million for the three months ended March 31, 2023 as compared to nil for the three months ended March 31, 2022. In August 2022, we assumed the warrant liabilities from DPCM as part of the Merger. See Note 3 and Note 8 of our condensed
consolidated financial statements as of and for the period ended March 31, 2023 included elsewhere in this Form 10-Q for details regarding our warrants.
Other income (expense), net
|
|
| |
Three months ended - March 31st
|
| |
Change
|
||||||
|
|
| |
2023
|
| |
2022
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Other income (expense), net
|
| |
$(102)
|
| |
$(181)
|
| |
$79
|
| |
(44)%
|
Other income (expense), increased $0.1 million to $0.1 million for
the three months ended March 31, 2023 as compared to $0.2 for the three months ended March 31, 2022. The decrease was primarily due to a $0.1 million decrease in foreign exchange loss.
Comparison of the Year Ended December 31, 2022 and
2021
Revenue
Revenue increased by $0.9 million, or 14%, to $7.2 million for the
year ended December 31, 2022 as compared to $6.3 million for the year ended December 31, 2021, with the increase due primarily to an increase in QCaaS revenue of $1.2 million partially offset by a $0.3 million decrease in professional services
revenue.
Cost of Revenue
Cost of revenue increased by $1.2 million, or 67%, to $2.9 million
for the year ended December 31, 2022 as compared to $1.8 million for the year ended December 31, 2021. The increase in cost of revenue was primarily driven by:
|
•
|
An increase in personnel-related costs of $0.5 million associated with the growth of our QCaaS revenue;
|
|
•
|
An increase of $0.3 million related to stock-based compensation expense;
|
|
•
|
An increase of $0.1 million related to the maintenance and repair of our quantum systems; and
|
|
•
|
An increase of $0.1 million related to the increase of depreciation of our quantum systems.
|
Operating Expenses
Research and Development Expenses
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Research and development
|
| |
$32,101
|
| |
$25,401
|
| |
$6,700
|
| |
26%
|
Research and development expenses increased by $6.7 million, or
26%, to $32.1 million for the year ended December 31, 2022 compared to $25.4 million for the year ended December 31, 2021. The increase in research and development expenses was primarily driven by:
|
•
|
An increase of $2.8 million in stock-based compensation expense primarily relating to new stock option and restricted stock
unit awards;
|
100
|
•
|
An increase in personnel-related costs of $1.5 million relating to higher salaries and an increase in headcount;
|
|
•
|
An increase in research and development expenditures of $1.5 million resulting from a reduction in Scientific Research and
Experimental Development expenditure credits during the year due to the Company’s loss of Canadian Controlled Private Corporation (“CCPC”) status after becoming a public company;
|
|
•
|
An increase of $0.6 million in wafer fabrication costs due to increased activity demands; and
|
|
•
|
An increase of $0.3 million associated with the increase in third party professional services for various research and
development initiatives as we continue to develop new products and enhance existing products, services and technologies.
|
We expect our research and development expenses to increase in
absolute dollars for the foreseeable future as we continue to develop new products and enhance existing products, services, and technologies.
General and Administrative Expenses
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
General and administrative
|
| |
$21,539
|
| |
$11,897
|
| |
$9,642
|
| |
81%
|
General and administrative expenses increased by $9.6 million, or
81%, to $21.5 million for the year ended December 31, 2022 as compared to $11.9 million for the year ended December 31, 2021. The increase was primarily driven by:
|
•
|
An increase of $4.5 million in third party professional services from legal and accounting consultants, including
$0.2 million in transfer agent fees;
|
|
•
|
An increase of $1.5 million in stock-based compensation due to the issuance of stock option and restricted stock unit awards;
|
|
•
|
An increase of $2.1 million in personnel-related expenses due to an increase in headcount and higher salaries;
|
|
•
|
An increase of $1.2 million related to the increase in Directors and Officers insurance costs;
|
|
•
|
An increase of $0.3 million related to an increase from software licensing fees; and
|
|
•
|
An increase of $0.1 million related to other operating costs.
|
We expect our general and administrative expenses to increase in
absolute dollars for the foreseeable future 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, higher audit fees, investor
relations activities, and other administrative and professional services.
Sales and Marketing Expenses
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Sales and marketing
|
| |
$10,068
|
| |
$6,179
|
| |
$3,889
|
| |
63%
|
Sales and marketing expenses increased by $3.9 million, or 63%, to
$10.1 million for the year ended December 31, 2022 as compared to $6.2 million for the year ended December 31, 2021. The increase was primarily due to:
|
•
|
An increase of $2.8 million in stock-based compensation due to the issuance of stock option and restricted stock unit awards;
|
|
•
|
An increase of $0.9 million in personnel-related costs resulting from an increase in headcount and higher salaries;
|
101
|
•
|
An increase of $0.4 million in public relations, advertising, and marketing costs;
|
|
•
|
An increase of $0.3 million in other expenses; with
|
|
•
|
The above increases partially offset by a decrease of $0.5 million in promotion and conference costs.
|
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
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Interest expense
|
| |
$(4,633)
|
| |
$(1,728)
|
| |
$(2,905)
|
| |
168%
|
Interest expense increased by $2.9 million, or 168%, to
$4.6 million for the year ended December 31, 2022 as compared to $1.7 million for the year ended December 31, 2021. The increase was due to a higher average debt balance throughout 2022 driven primarily by a $15.0 million Venture Loan (as
defined below) that became effective on March 3, 2022, was increased by an additional $5.0 million loan tranche on June 30, 2022, and was paid off on August 5, 2022. The increase was also driven by an increase in the average principal balance
of our Strategic Innovation Fund (“SIF”) government loan.
Government assistance
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Government assistance
|
| |
$—
|
| |
$7,167
|
| |
$(7,167)
|
| |
(100)%
|
Government assistance decreased by $7.2 million to nil for the
year ended December 31, 2022 as compared to $7.2 million for the year ended December 31, 2021. The decrease was due to the Company not receiving any government assistance from SIF for the year ended December 31, 2022. See Note 2 included in the
notes to our audited consolidated financial statements as of and for the year ended December 31, 2022 included elsewhere in this prospectus for details regarding the government assistance programs.
Non-cash interest income on SIF
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Non-cash interest income on SIF
|
| |
$5,673
|
| |
$—
|
| |
$5,673
|
| |
100%
|
Non-cash interest income on SIF increased by $5.7 million for the
year ended December 31, 2022 as compared to nil for the year ended December 31, 2021. The amount was related to a decrease in the average principal balance of our SIF loan as of December 31, 2022. See Note 2 included in the notes to our audited
consolidated financial statements as of and for the year ended December 31, 2022 included elsewhere in this prospectus for details regarding the government assistance programs.
Gain on investment in marketable securities
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Gain on investment in marketable securities
|
| |
$—
|
| |
$1,163
|
| |
$(1,163)
|
| |
-100%
|
102
During the year ended December 31, 2022, we did not record any
gain or loss on investment in marketable securities. During the year ended December 31, 2021, we recorded a $1.2 million gain on investment in marketable securities based on the valuation of one of the Company's investments.
Change in fair value of warrant liabilities
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Change in fair value of warrant liabilities
|
| |
$6,173
|
| |
$—
|
| |
$6,173
|
| |
100%
|
Change in fair value of warrant liabilities increased by
$6.2 million for the year ended December 31, 2022 as compared to nil for the year ended December 31, 2021. In August 2022, we assumed the warrant liabilities from DPCM as part of the Merger. See Note 2 and Note 11 of our audited consolidated
financial statements as of and for the year ended December 31, 2022 included elsewhere in this prospectus for details regarding our warrants.
Lincoln Park Purchase Agreement issuance costs
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Lincoln Park Purchase Agreement issuance costs
|
| |
$(629)
|
| |
$—
|
| |
$(629)
|
| |
100%
|
Lincoln Park Purchase Agreement issuance costs increased by
$0.6 million for the year ended December 31, 2022 as compared to nil for the year ended December 31, 2021.
Other income (expense), net
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2022
|
| |
2021
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Other income, net
|
| |
$1,345
|
| |
$801
|
| |
$544
|
| |
68%
|
Other income (expense), net increased by $0.5 million or 68%, to
$1.3 million for the year ended December 31, 2022 as compared to $0.8 million for the year ended December 31, 2021. The increase was largely driven by the net impact of foreign exchange gains and losses and SIF Loan interest expense.
Comparison of the Years Ended December 31, 2021
and 2020
Revenue
Revenue increased by $1.1 million, or 22%, to $6.3 million for the
year ended December 31, 2021 as compared to $5.2 million for the year ended December 31, 2020. The increase in revenue was primarily driven by:
|
•
|
An increase of $1.4 million in professional services revenue related to the completion of certain customer deliverables of
our remote systems;
|
|
•
|
An increase of $0.1 million in our QCaaS revenue; with
|
|
•
|
The above increases partially offset by a decrease of $0.4 million in other revenue mainly due to the completion of a
customer contract during the year ended December 31, 2020.
|
Cost of Revenue
Cost of revenue increased by $0.8 million, or 91%, to $1.8 million
for the year ended December 31, 2021 as compared to $0.9 million for the year ended December 31, 2020. The increase in cost of revenue was primarily driven by:
|
•
|
An increase of personnel-related costs of $0.9 million associated with providing services as a result of the growth of our
professional services and our QCaaS offerings during the year ended December 31, 2021;
|
103
|
•
|
Offset by a reduction of $0.1 million in other costs during the year ended December 31, 2021.
|
Operating Expenses
Research and Development Expenses
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Research and development
|
| |
$25,401
|
| |
$20,411
|
| |
$4,990
|
| |
24%
|
Research and development expenses increased by $5.0 million, or
24%, to $25.4 million for the year ended December 31, 2021 as compared to $20.4 million for the year ended December 31, 2020. The increase was primarily due to the completion of the Sustainable Development Technology Canada and BC Innovative
Clean Energy (“SDTC”) project in 2020 that offset $7.4 million of our research and development expenses in 2020. The increase was also due to an increase of $2.4 million of personnel-related expenses, partially offset by a decrease of
$1.2 million in stock-based compensation due to the recapitalization of D-Wave in 2020, a decrease of $3.4 million in fabrication costs due to lower fabrication activities, and a decrease of $0.5 million in depreciation costs.
General and Administrative Expenses
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
General and administrative
|
| |
$11,897
|
| |
$11,587
|
| |
$310
|
| |
3%
|
General and administrative expenses increased by $0.3 million, or
3%, to $11.9 million for the year ended December 31, 2021 as compared to $11.6 million for the year ended December 31, 2020. The increase was primarily due to a $0.3 million increase in personnel-related expenses and an increase in IT services
of $0.3 million, partially offset by a decrease of $0.3 million in professional services from legal and accounting consultants and a decrease of $25 thousand in other expenses. Overall, our general and administrative expenses are aligned with
prior year expenses.
Sales and Marketing Expenses
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Sales and marketing
|
| |
$6,179
|
| |
$3,714
|
| |
$2,465
|
| |
66%
|
Sales and marketing expenses increased by $2.5 million, or 66%, to
$6.2 million for the year ended December 31, 2021 as compared to $3.7 million for the year ended December 31, 2020. The increase was primarily due to an increase of $1.9 million in personnel-related costs, an increase of $0.2 million in
consulting fees to promote our cloud service offerings and an increase of $0.4 million in conference expenses, trade shows and other marketing related events. The increase in personnel-related costs includes an increase of $0.1 million in
stock-based compensation as a result of additional head count to the sales and marketing team.
Other Income (Expense), net
Interest Expense
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Interest expense
|
| |
$(1,728)
|
| |
$(5,257)
|
| |
$3,529
|
| |
(67)%
|
Interest expense decreased by $3.5 million, or 67%, to
$1.7 million for the year ended December 31, 2021 as compared to $5.3 million for the year ended December 31, 2020. The decrease was largely driven by the retirement of our interest-bearing convertible notes in April 2020.
104
Government Assistance
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Government assistance
|
| |
$7,167
|
| |
$12,027
|
| |
$(4,860)
|
| |
(40)%
|
Government assistance decreased by $4.9 million, or 40%, to
$7.2 million for the year ended December 31, 2021 as compared to $12.0 million for the year ended December 31, 2020. The decrease was mainly driven by the deemed interest benefit associated with the SIF Loan secured during the year ended
December 31, 2020.
Gain on Debt Extinguishment
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Gain on debt extinguishment
|
| |
$—
|
| |
$3,873
|
| |
$(3,873)
|
| |
(100)%
|
During the year ended December 31, 2020, we recorded $3.9 million
in gain on debt extinguishment largely driven by the extinguishment of our 2019 convertible notes due to a modification of the conversion feature, which resulted in a gain on our convertible debt, and the forgiveness of our loan with the
Technology Partnership of Canada. We did not record any gain on debt extinguishment during the year ended December 31, 2021 as all of our convertible notes were transferred to DWSI Holdings Inc., a Canadian corporation and predecessor of D-Wave
(“Old DWSI”) in exchange of its common shares and they remained in existence under Old DWSI until the amalgamation on January 1, 2021 at which time they were automatically cancelled.
Gain on Settlement of Warrant Liability
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Gain on settlement of warrant liability
|
| |
$—
|
| |
$7,836
|
| |
$(7,836)
|
| |
(100)%
|
During the year ended December 31, 2020, we recorded $7.8 million
in gain on settlement of warrant liability largely driven by the transfer to Old DWSI of all then-outstanding warrants in exchange for its common shares and they remained in existence under Old DWSI until the amalgamation on January 1, 2021, at
which time they were automatically cancelled. We did not record any gain on settlement of warrant liabilities during the year ended December 31, 2021 as no warrant conversion took place in 2021.
Gain on Investment in Marketable Securities
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Gain on investment in marketable securities
|
| |
$1,163
|
| |
$—
|
| |
$1,163
|
| |
100%
|
During the year ended December 31, 2021, we recorded $1.2 million
in gain on investment in marketable securities based on the valuation of one of the Company's investments. We did not record any gain on investment in marketable securities during the year ended December 31, 2020.
Other income, net
|
|
| |
Year Ended December 31,
|
| |
Change
|
||||||
|
|
| |
2021
|
| |
2020
|
| |
Amount
|
| |
%
|
|
|
| |
(In thousands, except percentages)
|
|||||||||
|
Other income, net
|
| |
$801
|
| |
$2,969
|
| |
$(2,168)
|
| |
(73)%
|
105
Other income, net decreased $2.2 million, or 73%, to
$0.8 million for the year ended December 31, 2021 as compared to $3.0 million for the year ended December 31, 2020. The decrease was largely driven by a reduction of prior period government assistance received from SDTC for our research and
development initiatives of $2.4 million, partially offset by the net impact of foreign exchange gains and losses of $0.2 million.
Liquidity and Capital Resources
We have incurred net losses and experienced negative cash flows
from operations since inception. To date, our primary sources of capital have been through private placements of convertible preferred shares, private placements of common stock, revenue from the sale of our products and services, government
assistance and debt financing. During the three months ended March 31, 2023 and 2022, we incurred net losses of $24.6 million and $11.7 million, respectively. During the years ended December 31, 2022, 2021, and 2020 we incurred net losses of
$51.5 million, $31.5 million, and $10.0 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. Due to the large number of DPCM
stockholders that exercised their redemption rights in connection with the Merger, only approximately $9.0 million of cash from the $300.0 million DPCM Trust Account became available to us as of the closing of the Merger, which significantly
reduced the potential enhancement to our liquidity and capital resources that was sought to be achieved through the Merger. If we are unable to obtain additional financing, operations will be scaled back or discontinued. These conditions give
rise to material uncertainties that cast substantial doubt on our ability to continue as a going concern.
In addition, in connection with the Merger, the board of directors
of DPCM considered, among other things, internal financial forecasts prepared by, or at the direction of, our management (the “Transaction Forecasts”). None of these projections or forecasts were
prepared with a view towards public disclosure or compliance with the published guidelines of the SEC, U.S. GAAP, IFRS or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of
financial forecasts. Neither DPCM’s independent registered public accounting firm nor our independent registered public accounting firm, PricewaterhouseCoopers LLP, have audited, reviewed, examined, compiled nor applied agreed-upon procedures
with respect to the unaudited prospective financial information, and accordingly, they do not express an opinion or any other form of assurance with respect thereto. Any projections and forecasts were inherently based on various estimates and
assumptions that were subject to the judgment of those preparing them. Projections and forecasts were also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which were difficult or
impossible to predict and many of which were beyond our control. With respect to revenue, we do not anticipate meeting the Transaction Forecasts due primarily to (i) the timing of closing the Merger in August 2022, which was later than the
assumed closing in June 2022, and (ii) the significant redemptions of DPCM stockholders, which has adversely affected our liquidity position and ability to pursue certain growth opportunities, and which will require us to seek alternative
sources of financing as described below.
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 (including sales pursuant to the Purchase Agreement) and/or debt financings or other capital sources, including strategic
partnerships. However, we may be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms, or at all. In particular, uncertain and unfavorable conditions in the United States and global
macroeconomic environment, including inflationary pressures, rising interest rates, banking collapses, and financial and credit market fluctuations, could reduce our ability to access capital 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 stockholders. 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.
106
Although we are currently in compliance with the continued
listing standards of the NYSE, we have previously not been in compliance with such standards. If we are unable to maintain compliance with and unable to cure any event of noncompliance with any continued listing standard of the NYSE within
the applicable timeframe and other parameters set forth by the NYSE, or if we fail to maintain compliance with certain continued listing standards that do not provide for a cure period, it will result in the delisting of our common stock from
the NYSE, which could negatively impact the trading price, trading volume and liquidity of, and have other material adverse effects on, our common stock and our ability to raise capital. For additional information refer to the section titled
Risk Factors—”If we are unable for any reason to meet the continued listing requirements of the NYSE, such action or inaction could result in a delisting of our securities” found
elsewhere in this prospectus.
As of March 31, 2023, we had 17,916,609 Warrants outstanding, each
Warrant being exercisable for 1.4541326 Common Shares of the Company at an exercise price of $11.50. Whether warrant holders will exercise their Warrants, and therefore the amount of cash proceeds we would receive upon exercise, is dependent
upon the trading price of the Common Shares. Therefore, if and when the trading price of the Common Shares is less than approximately $7.91, the effective exercise price of the Warrants per one Common Share, we expect that warrant holders will
not exercise their Warrants. Our Common Shares have closed below $7.91 since October 11, 2022. Therefore, we do not expect warrant holders to exercise their Warrants in the short-term and as such, we do not expect to rely on the cash exercise
of Warrants to fund our operations. Instead, we intend to rely on other sources of cash discussed below to continue to fund our operations. If we are unable to raise additional funds through equity or debt financings when needed, we will be
required to delay, limit, or substantially reduce our quantum computing development and go-to-market efforts.
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 Quantum’s Business and Industry” in this prospectus.
Venture Loan and Security Agreement
On March 3, 2022, we entered into the Venture Loan and Security
Agreement, by and between the Borrowers, as defined in the agreement, and PSPIB, as the lender (the “Venture Loan”). Under the Venture Loan, 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. D-Wave did not draw the third $5.0 million tranche.
The term loans under the Venture Loan bore 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 was accrued monthly and repaid on August 5, 2022.
The Venture Loan incorporated a final payment fee equal to 5.0% of
the principal balance of the loans payable upon repayment.
The Venture Loan was secured by a first-priority security interest
in substantially all of the Borrower’s assets and contained certain operational covenants. The Borrowers remained in compliance with all covenants under the Venture Loan for the term of the Venture Loan.
On August 5, 2022, the Company repaid the amount of principal
outstanding under the Venture Loan as well as accrued interest and the final fee that in the aggregate totaled $21.8 million.
Term Loan and Security Agreement
On April 13, 2023, we entered into the Term Loan. Under the Term
Loan, loans in an aggregate principal amount of $50.0 million are to be made available to us in three tranches, subject to certain terms and conditions.
The first tranche, in an aggregate principal amount of
$15.0 million was advanced on April 14, 2023 with second and third tranches, of $15.0 million and $20.0 million respectively, to be made available to us subject to certain conditions. Prior to PSPIB's advance of the first tranche, the Company
satisfied several closing conditions including the provision of a cash flow forecast and the board of directors' retention of an advisor. The second tranche, that shall be available to us as of July 12, 2023, is subject to us providing the
Lender with an IP valuation report, a
107
board-approved operating budget for 2023 through 2027, and SIF’s consent to the
grant of security interests in the project intellectual property associated with the SIF Loan. The third tranche, that shall be available to us as of October 10, 2023, is subject to us closing a $25.0 million non-dilutive financing on terms
reasonably acceptable to the Lender, and the IP valuation report and board-approved operating budget for 2023 through 2027 remaining satisfactory to the Lender. Each tranche is subject to a 2.0% drawdown fee and the Term Loan matures on
March 31, 2027. The initial $15.0 million tranche is expected to provide the Company with sufficient cash runway until the second $15.0 million tranche, assuming it is received when available on July 12, 2023. There can be no assurance that the
Company will be able to meet the conditions necessary to draw on the second and third tranches.
At our discretion, the Term Loan bears interest on a monthly basis
at either (i) 10.0% payable in cash, or (ii) 11.0% payable in kind (PIK), with the latter added to the principal value of the Term Loan.
The Term Loan requires that any proceeds from the issuance of
Common Shares under the Purchase Agreement be applied towards the repayment of advances under the Term Loan in addition to a premium payment equal to 10.0% of the amount then prepaid to the Lender.
Upon the repayment or prepayment of the Term Loan, there is a
prepayment premium due to the Lender that is equal to 3.0% of the amount repaid / prepaid prior to the first anniversary of the closing of the Term Loan, 2.0% of the amount repaid / prepaid after the first anniversary and before the second
anniversary of the closing of the Term Loan, 1.0% of the amount repaid / prepaid after the second anniversary and before the third anniversary of the closing of the Term Loan and no prepayment premium due thereafter.
The Term Loan is secured by a first-priority security interest in
substantially all of our assets and contains certain operational and financial covenants and terminates in March 2027.
Lincoln Park Purchase Agreement
As of March 31, 2023, the Company received $19.9 million in
proceeds through the issuance of 15,118,460 Common Shares to Lincoln Park under the Purchase Agreement, excluding the Commitment Shares.
To the extent that sufficient capital is not obtained through the
cash received in connection with the Term Loan and the issuance of Common Shares under the Purchase Agreement, management will be required to obtain additional capital through the issuance of additional debt and/or equity, or other
arrangements. However, there can be no assurance that D-Wave will be able to raise additional capital when needed or under acceptable terms. The issuance of additional equity may dilute existing stockholders and newly issued shares may contain
senior rights and preferences compared to the currently outstanding Common 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 will be scaled back or discontinued.
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” in this prospectus.
Cash Flows
The following tables set forth our cash flows for the periods
indicated (in thousands):
|
|
| |
Three Months Ended March 31,
|
| |
Year Ended December 31,
|
|||||||||
|
|
| |
2023
|
| |
2022
|
| |
2022
|
| |
2021
|
| |
2020
|
|
Net cash (used in) provided by:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Operating Activities
|
| |
$(13,574)
|
| |
$(9,509)
|
| |
$(45,226)
|
| |
$(34,800)
|
| |
$(29,287)
|
|
Investing Activities
|
| |
(76)
|
| |
(144)
|
| |
(498)
|
| |
(1,999)
|
| |
(789)
|
|
Financing Activities
|
| |
15,592
|
| |
17,872
|
| |
43,265
|
| |
24,913
|
| |
43,144
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
| |
(19)
|
| |
(41)
|
| |
41
|
| |
34
|
| |
(13)
|
|
Net (decrease) increase in cash and cash equivalents
|
| |
$1,923
|
| |
$8,178
|
| |
$(2,418)
|
| |
$(11,852)
|
| |
$13,055
|
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
108
operating cash flows are also affected by our working capital needs to support
growth in personnel-related expenditures and fluctuations in accounts payable, accounts receivable and other current assets and liabilities.
Net cash used in operating activities during the three months
ended March 31, 2023 was $13.6 million, resulting primarily from a net loss of $24.6 million, adjusted for non-cash charges of $0.5 million in depreciation and amortization, including amortization of operating right of use assets, $6.8 million
in stock-based compensation, $0.6 million in change in fair value of public and private warrants, $0.4 million in interest on government loans and $3.9 million in working capital adjustments.
Net cash used in operating activities during the three months
ended March 31, 2022 was $9.5 million, resulting primarily from a net loss of $11.7 million, adjusted for non-cash charges of $0.6 million in depreciation and amortization including amortization of operating right of use assets, $0.8 million in
stock-based compensation, $0.5 million in interest on government loans, $0.5 million in other non-cash activities and $0.3 million in working capital adjustments.
Net cash used in operating activities during the year ended
December 31, 2022 was $45.2 million, resulting primarily from a net loss of $51.5 million, adjusted for non-cash charges of $9.2 million in stock-based compensation, $5.7 million in non-cash interest income on SIF, $2.5 million in interest on
government loans, $6.2 million in change in fair value of Public and Private Warrants, $2.3 million in depreciation and amortization, including amortization of operating right of use assets, $1.8 million in interest expense on the Venture Loan,
$1.3 million in unrealized foreign exchange gain, $0.6 million in Lincoln Park Purchase Agreement issuance costs, $0.1 million of other non-cash charges, $3.0 million in working capital adjustments, $0.2 million in amortization on the Venture
Loan, and $0.1 million in realized gain on issuance of shares under the Lincoln Park Purchase Agreement.
Net cash used in operating activities during the year ended
December 31, 2021 was $34.8 million, resulting primarily from a net loss of $31.5 million, adjusted for $7.1 million in government grants, non-cash charges of $2.6 million in depreciation and amortization including amortization of operating
right of use assets, $1.7 million in stock-based compensation, $1.7 million in interest on government loans, $1.2 million in gain on D-Wave Systems' marketable securities, $1.2 million in working capital adjustments, $0.1 million in unrealized
foreign exchange gain and $0.3 million of other non-cash charges.
Net cash used in operating activities during the year ended
December 31, 2020 was $29.3 million, resulting primarily from a net loss of $10.0 million, adjusted for $12 million in government grants, $7.8 million in gain on settlement of our warrant liability, $7.1 million in working capital adjustments,
$3.9 million in gain on extinguishment of debt from our convertible notes, $5.1 million in interest expense on convertible notes, $3.0 million in stock-based compensation, non-cash charges of $2.7 million in depreciation and amortization
including amortization of operating right of use assets and $0.7 million of other non-cash charges.
Cash Flows Used in Investing Activities
Net cash used in investing activities during the three months
ended March 31, 2023 was $0.1 million, representing additions of $0.1 million in property and equipment and $12 thousand in software primarily related to the development and upgrade of our quantum computing systems.
Net cash used in investing activities during the three months
ended March 31, 2022 was $0.1 million representing additions of $0.1 million in property and equipment and software primarily related to the development of our quantum computing systems.
Net cash used in investing activities during the year ended
December 31, 2022 was $0.5 million, representing additions of $0.4 million in property and equipment and $0.1 million in software primarily related to the development and upgrade of our quantum computing systems.
Net cash used in investing activities during the year ended
December 31, 2021 was $2.0 million representing additions of $1.8 million in property and equipment and $0.2 million in software primarily related to the development of our quantum computing systems.
Net cash used in investing activities during the year ended
December 31, 2020 was $0.8 million representing additions of $0.7 million in property and equipment primarily related to the development of our quantum computing systems and additions of $0.1 million in intangible assets.
109
Cash Flows Provided by Financing Activities
Net cash provided by financing activities during the three months
ended March 31, 2023 was $15.6 million, primarily reflecting proceeds from the Lincoln Park Purchase Agreement of $15.7 million, stock option exercise proceeds of $0.5 million, and shareholder settlement proceeds of $0.2 million, partially
offset by payments for Directors and Officers Insurance of $0.9 million.
Net cash provided by financing activities during the three months
ended March 31, 2022 was $17.9 million, primarily reflecting net proceeds received from the Venture Loan for $14.7 million, and net proceeds received from the SIF Loan for $3.2 million.
Net cash provided by financing activities during the year ended
December 31, 2022 was $43.3 million, primarily reflecting proceeds from the PIPE Financing for $40.0 million; net proceeds received from the SIF Loan for $2.8 million; proceeds from the Merger, net of DPCM Class A shareholders redemption and
DPCM transactions costs for $4.1 million; proceeds from Lincoln Park Purchase Agreement of $4.3 million; proceeds received from issuance of D-Wave Systems common shares upon exercise of stock options for $1.1 million; and proceeds received from
the issuance of Common Shares upon exercise of the Public Warrants for $0.9 million. These proceeds were offset by the repayment of the Venture Loan which was entered into on March 3, 2022 and repaid on August 5, 2022 for $21.8 million (the
repayment included the proceeds from the Venture Loan for $20.0 million and $1.8 million related accrued interest and a final payment fee); and the payment of the D-Wave Systems transaction costs for $6.5 million.
Net cash provided by financing activities during the year ended
December 31, 2021 was $24.9 million, primarily reflecting net proceeds received from government programs (SIF) for $25.1 million.
Net cash provided by financing activities during the year ended
December 31, 2020 was $43.1 million, primarily reflecting net proceeds from the issuance of D-Wave Systems' non-redeemable convertible preferred stock.
Contractual Obligations and Commitments
The following table summarizes our non-cancellable contractual
obligations and other commitments as of December 31, 2022 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 (3)
|
||||||||||||
|
|
| |
Total
|
| |
Less than
1 year
|
| |
1 - 3 year
|
| |
4 - 5 year
|
| |
More than
5 years
|
|
Lease commitment(1)
|
| |
$14,227
|
| |
$1,533
|
| |
$2,478
|
| |
$2,367
|
| |
$7,849
|
|
Promissory note – related party(2)
|
| |
420
|
| |
420
|
| |
—
|
| |
—
|
| |
$—
|
|
Total
|
| |
$14,647
|
| |
$1,953
|
| |
$2,478
|
| |
$2,367
|
| |
$7,849
|
|
(1)
|
Includes operating lease liabilities for certain of our offices and facilities.
|
|
(2)
|
Promissory notes – related party are described in Note 13, Promissory note – related party
of the Notes to Consolidated Financial Statements included herein.
|
|
(3)
|
Excludes the Venture Loan entered into on March 3, 2022 by and between the Borrowers, and PSPIB, as the loan has since been
repaid.
|
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.
Critical Accounting Estimates
Our consolidated financial statements included in this prospectus
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions that affect the reported amounts and related disclosures for the periods presented. Our estimates are based on our historical
experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from
110
other sources. Actual results may differ significantly. Additionally, changes in
assumptions, estimates or assessments due to unforeseen events or otherwise could have a material impact on our financial position or results of operations.
The critical accounting estimates, assumptions and judgements we
believe to have the most significant impact on our audited annual consolidated financial statements are described below. See Note 2 to the audited consolidated financial statements included elsewhere in this prospectus for additional
information related to critical accounting estimates and significant accounting policies.
Government assistance
US GAAP for profit-oriented entities does not define government
assistance; nor is there specific guidance applicable to government assistance.
We receive 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.
We recognize 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 our 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. We recognize grants and investment tax credits in an
amount equal to the estimated qualifying expenses incurred in each period multiplied 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 consolidated balance sheets as research incentives receivable. In circumstances where the grants received relate to prior period eligible expenses, we
recognize these grants as other income in our consolidated statement of operations and comprehensive loss in the current period.
We have received government loans under funding agreements that
bear interest at rates that are below market rates of interest or interest-free. We account 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
record interest expense for the loans at a market rate of interest. On the date that loan proceeds are earned, we recognize the portion of the loan proceeds allocated to grant funding as a discount to the carrying value of the loan which is
subsequently recognized as additional government assistance upon draw down of the qualified loan amounts. The valuation of the liability of the loans relies on a combination of valuation approaches that are dependent on several significant
estimates and assumptions related to forecast of future revenues and the discount rate. Should the projected revenue not be achieved, the SIF Loan may be forgiven. The original fair value of the loan and the subsequent amortized cost value are
highly sensitive to the timing of loan payments and the discount rate. As of December 31, 2022, we determined that the discount rate to use in calculating the discounted cash flow for the SIF Loan was 26%. The annual repayment of the SIF Loan
is calculated based upon a formula using the Company’s fiscal year revenue multiplied by a repayment rate totaling 150% of total SIF Loan funds received to date. The contractual repayment period is 15 years and commences in the second 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. The Benchmark Year is expected to occur between 2025 to 2027. The Company determined that a 20%
decrease in projected revenue over the term of the SIF Loan would decrease the carrying value by approximately $0.5 million.
Revenue recognition
We recognize 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 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, D-Wave applies the following five
step approach:
|
•
|
identify the contract with the customers
|
|
•
|
identify the performance obligations;
|
111
|
•
|
determine the transaction price;
|
|
•
|
allocate the transaction price to the performance obligations; and
|
|
•
|
recognize revenue when (or as) the entity satisfies a performance obligation.
|
We generate revenue through subscription sales to access our QCaaS
cloud platform and from professional services related to assisting our customers with developing quantum proofs-of-concepts, pilot hybrid quantum applications and to put those applications into production. In addition, we also earn revenue
providing training regarding quantum computing systems and building related applications. In arrangements with re-sellers of our cloud services, the re-seller is considered the customer and we do 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. In addition, we apply judgment in evaluating any consideration payable to the customer
and whether it is in exchange for distinct goods or services or should be reflected as a reduction of revenue.
When we determine that our contracts with customers contain
multiple performance obligations, we allocate the transaction price based on the relative standalone selling price (“SSP”) method by comparing the SSP of each distinct performance obligation to the total value of the contract. We use a range of
amounts to estimate SSP for products and services sold together in a contract to determine whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly
observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. Standalone selling price is typically established as a range. In
situations in which the stated contract price for a performance obligation is outside of the applicable standalone selling price range and has a different pattern of transfer to the customer than the other performance obligations in the
contract, we will reallocate the total transaction price to each performance obligation based on the relative standalone selling price of each. At times, we may sell bundled services that include professional services, QCaaS and training. For
these bundled arrangements, our selling prices associated with QCaaS and training are observable, predictable and consistent. Accordingly, we use the residual method under which the total transaction price and observable SSP of the QCaaS and
training performance obligations are used to arrive at the estimated SSP of the professional services performance obligation.
The transaction price is the amount of consideration to which we
expect to be entitled in exchange for transferring goods and services to the customer. Revenue is recorded based on the transaction price.
Our contracts with customers may include renewals or other options
at fixed prices. Determining whether such options are considered distinct performance obligations that provide the customer with a material right and therefore should be accounted for separately requires significant judgment. Judgment is
required to determine the standalone selling price for each renewal option to determine whether the renewal pricing is reflective of the standalone selling price or is reflective of a discount that would provide the customer with a material
right. Based on our assessment of standalone selling prices, we determined that there were no significant material rights provided to our customers requiring separate recognition.
The timing of revenue recognition may not align with the right to
invoice the customer. We record accounts receivable when we have the unconditional right to issue an invoice and receive payment, regardless of whether revenue has been recognized. Deferred revenue is primarily composed of fees related to
QCaaS, which are generally billed in advance and recognized as revenue over the related subscription term. Unbilled receivables relate to revenue recognized for milestones completed under professional services contracts for which the related
milestone billing has not yet occurred.
In instances where the timing of revenue recognition differs from
the timing of the right to invoice, we have determined that a significant financing component generally does not exist. The primary purpose of our invoicing terms is to provide customers with a simplified and predictable way of purchasing the
services and not to receive financing from or provide financing to the customer. Additionally, we have elected the practical expedient terms that permit an entity not to recognize a significant financing component if the time between the
transfer of a good or service and payment is one year or less.
Payment terms on invoiced amounts are typically net 30 days. We do
not offer rights of return for our services in the normal course of business and contracts generally do not include service-type warranties that provide any
112
incremental service to the customer beyond providing assurance that the services
conform to applicable specifications or customer-specific or subjective acceptance provisions. We also exclude from revenue government-assessed and imposed taxes on revenue-generating activities that are invoiced to customers.
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. Each month we review
estimated contract costs through a process of aggregating actual costs incurred and estimating additional costs to completion based upon the current available information and status of the contract. The effect of any change in the estimated
gross margin rate for a contract is reflected in revenues in the period in which the change is known. Provisions for the full amount of anticipated losses on contracts are made in the period in which they become determinable.
Quantum computing systems
Quantum computing systems are included within property and
equipment, net on the consolidated balance sheet, and consist of hardware and labor costs associated with the building of our quantum computing systems. These costs are capitalized in the period the costs were incurred and expensed as incurred.
Costs to maintain quantum computing systems are expensed as incurred.
Judgement is used to determine when hardware and labor costs
incurred for our quantum computing systems should be capitalized as a result of our assessment of whether the system will provide a probable future economic benefit and whether or not the costs represent activities necessary to build the
systems, maintain the systems or to perform certain research and development functions. Judgement is also used to determine when the systems are placed into service and the estimated useful life of the associated systems.
Changes in these estimates can have a significant impact on the
assessment of capitalized costs which could result in material changes to reported property and equipment, net. The amount of depreciation expense associated with the quantum computing systems may also vary based on the estimated useful life.
Capitalized internally developed software
Capitalized internally developed software, which is included in
intangible assets, net, on the consolidated balance sheet, consists of costs to purchase and develop internal-use software, which we use to provide services to our customers.
Judgement is used to determine when costs to develop internal-use
software for a specific project should be capitalized and whether or not the costs represent activities necessary to enhance the functionality of the software or maintain the performance of the software, and whether it is considered probable
that the software will be used to perform the function intended. Judgement is also used to determine when the software is available for use as well as the estimated useful life of the software.
The assumptions used to capitalize internally developed software
costs consider when the preliminary project stage is completed, whether the software will perform the function intended, and whether the development activities enhance the functionality of the software or maintain the performance of the
software. Changes in these estimates can have a significant impact on the assessment of capitalized costs which could result in material changes to reported intangible assets, net. The amortization of capitalized internally developed software
may also be impacted by the estimated useful life associated with these intangible assets.
Impairment of long-lived assets
Long-lived assets, such as our quantum computing systems and
capitalized internally developed software are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
As of March 31, 2023, we did not have an impairment of any
long-lived assets. In determining whether a potential impairment exists, judgement is used in determining the level at which the assessment is made. We have determined that the company consists of one entity-wide asset group for purposes of
assessing whether a triggering event has occurred that would indicate the long-lived asset group’s carrying value is not recoverable. Impairment
113
calculations, if necessary, contain uncertainties because they require management
to make assumptions and to apply judgment to estimate future cash flows and asset fair values. Key assumptions used in estimating future cash flows and asset fair values include projected revenue growth and operating expenses, as well as
forecasting asset useful lives and selecting an appropriate discount rate with respect to any terminal value cash flows.
Triggering events occur when there are indicators that the
carrying value of a long-lived asset may not be recoverable. These indicators may include internal and external economic factors, including significant decrease in market price of our capital stock, adverse market conditions, and an adverse
change in the manner of which the asset is used. The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy including the pace of technological change
or specific technological challenges in building our quantum computing systems. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.
Warrant liabilities
Our Public Warrants and Private Warrants are liability-classified
financial instruments that were initially recorded at fair value on the issuance date and that are re-valued upon exercise or at each reporting date.
For periods subsequent to the detachment of the Public Warrants
from the Units, the closing price of the Public Warrants was used as the fair value of the Public Warrants and Private Warrants as of each relevant date. The subsequent measurements of the Public Warrants after the detachment of the Public
Warrants from the Units are classified as Level 1 fair value measurements due to the use of an observable market quote in an active market. The subsequent measurements of the Private Warrants after the detachment of the Public Warrants from the
Units are classified as Level 2 fair value measurements due to the use of an observable market quote for the Public Warrants, which are considered to be a similar asset in an active market.
Stock-based compensation
The Company accounts for its stock-based compensation in
accordance with ASC 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all stock-based payments to employees and directors, including grants qualified incentive stock options (“ISO”), nonqualified stock options (“NSO”), restricted
stock awards (“RSA”), restricted stock units (“RSU”), or stock appreciation rights (“SAR”), to be recognized as expense based on the estimated fair value of the awards as of the grant date. The Company uses the Black-Scholes option-pricing
model to estimate the grant date fair value of its ISOs and NSOs, and the Company uses the quoted market closing price of its Common Stock as reported on the NYSE for the fair value of RSUs. Stock-based compensation expense is recognized over
the requisite service period using the straight-line method and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. As such, the Company's stock-based compensation is reduced for the estimated
forfeitures at the grant date and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Stock-based compensation expenses to non-employees as
consideration for services received are measured on the date of performance at the fair value of the consideration received or the fair value of the equity instruments issued, using the Black-Scholes option-pricing model for ISOs and NSOs and
the NYSE quoted market price, whichever can be more reliably measured. Compensation expense for options granted to non-employees is remeasured each period as the underlying options vest.
The Black-Scholes option-pricing model requires the use of
subjective assumptions, which determine the fair value of share-based awards, including the fair value of the Company’s Common Shares, the option’s expected term, the price volatility of the underlying Common Shares, risk-free interest rates,
and the expected dividend yield of the Common Shares. The assumptions used to determine the fair value of the stock awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s
judgment.
Leases
We determine if an arrangement is a lease at inception. Operating
leases are included in operating lease right-of-use (“ROU”) assets and current operating lease liabilities and operating lease liabilities, net of current portion on our consolidated balance sheets. We recognize lease expense for our operating
leases on a straight-line basis over the term of the lease.
ROU assets represent our right to use an underlying asset for the
lease term and lease liabilities represent our obligation to make lease payments arising from a lease. ROU assets and operating lease liabilities are recognized at
114
the commencement date based on the present value of the future minimum lease
payments over the lease term. Operating lease ROU assets also include the impact of any lease incentives. Amendments to a lease are assessed to determine if it represents a lease modification or a separate contract. Lease modifications are
reassessed as of the effective date of the modification using an incremental borrowing rate based on the information available at the commencement date. For modified leases we also reassess the lease classification as of the effective date of
the modification.
The interest rate used to determine the present value of the
future lease payments is our incremental borrowing rate, because the interest rate implicit in our leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with
similar terms and payments, and in economic environments where the leased asset is located.
Our lease terms include periods under options to extend or
terminate the lease when it is reasonably certain that we will exercise that option in the measurement of its ROU assets and liabilities. We consider contractual-based factors such as the nature and terms of the renewal or termination,
asset-based factors such as physical location of the asset and entity-based factors such as the importance of the leased asset to our operations to determine the lease term. We generally use the base, non-cancelable, lease term when determining
the ROU assets and lease liabilities. The right-of-use asset is tested for impairment in accordance with Accounting Standards Codification Topic 360, Property, Plant, and Equipment.
Income Taxes
We account for income taxes under the asset and liability method,
which requires the recognition of deferred tax assets and liabilities for the estimated future tax consequences of events that have been included in the consolidated financial statements or in our tax returns. Under this method, deferred tax
assets and liabilities are determined on the basis of the differences between the financial statements and tax bases of assets and liabilities using the enacted tax rates and laws in effect for the years in which the differences are expected to
reverse. Deferred income taxes are classified as current or non-current, based on the classification of the related assets and liabilities giving rise to the temporary differences. A valuation allowance is provided when it is more likely than
not that some portion or all of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we consider factors such as past operating results and expected future taxable income within each jurisdiction in which
we operate.
To the extent that new information becomes available, which causes
us to change our judgment regarding the adequacy of tax liabilities or valuation allowances, such changes will impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued
liabilities for potential tax assessments are included in income tax expense.
We follow the authoritative guidance under ASC 740, which
clarifies the accounting for uncertainty in tax positions recognized in the financial statements. ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be
sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing the net
income (loss) by the weighted average number of our common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding for the period,
including potential dilutive shares assuming the dilutive effect of outstanding stock options and of convertible preferred stock.
For periods in which we have reported net losses, diluted net loss
per Common Share is the same as basic net loss per share, since dilutive Common Shares are not assumed to have been issued if their effect is anti-dilutive.
Recently Issued and Adopted Accounting Standards
A discussion of recent accounting pronouncements is included in
Note 2 to our unaudited condensed consolidated financial statements as of and for the period ended March 31, 2023 included elsewhere in this prospectus.
JOBS Act Accounting Election
In April 2012, 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
115
for complying with new or revised accounting standards. Therefore, as an emerging
growth company we 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 Quantum will take advantage of these exemptions until such time that it is no longer an emerging growth company. D-Wave Quantum will 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 SEC.
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 March 31, 2023, we have not, been exposed to material market 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 accounts receivable. We regularly maintain deposits with major and reputable financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation and the
Canadian Deposit Insurance Corporation. These deposits may be redeemed upon demand. We perform periodic evaluations of the relative credit standing of the financial institutions. Management believes the financial institutions that hold our cash
are financially sound and, accordingly, minimal credit risk exists with respect to cash. 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 customers for the years ended December 31, 2022 and 2021 and for the three months ended March 31, 2023. During the year ended December 31, 2022, the Company earned 14%, 12% and 11% of its total revenue from
three different customers respectively. During the year ended December 31, 2021, the Company earned 15%, 13% and 12% of its total revenue from three different customers respectively. During the period ended March 31, 2023, the Company earned
15% and 13% of its total revenue from two different customers, respectively.
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.
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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 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.
117
This section presents the executive and director compensation of
D-Wave Systems for the periods prior to the completion of the Merger on August 5, 2022, and the Company for the periods subsequent to the completion of the Merger on August 5, 2022. For the purposes of this “Executive and Director Compensation”
section “D-Wave Systems” refers to D-Wave Systems Inc., “D-Wave Quantum” and the “Company” refer to D-Wave Quantum Inc., and “D-Wave,” “us”, “we” and “our”, as the context requires, refers to either
D-Wave Quantum Inc. or D-Wave Systems Inc.
This section discusses the material components of the executive
compensation program for our executive officers who are named in the “Summary Compensation Table” below. In 2022, our “named executive officers” and their positions were as follows:
|
•
|
Alan E. Baratz, President, Chief Financial Officer and Director;
|
|
•
|
John M. Markovich, Chief Financial Officer; and
|
|
•
|
Victoria Brydon, Chief People Officer
|
Summary Compensation Table
The following table presents information regarding the
compensation of our named executive officers (“NEOs”) for the fiscal years ended December 31, 2022 and 2021.
|
Name and Principal
Position
|
| |
Year
|
| |
Salary
($)
|
| |
Stock
Awards
($)(1)
|
| |
Option
Awards
($)(2)
|
| |
Non-Equity
Incentive Plan
Compensation
($)(3)
|
| |
All Other
Compensation
($)(4)
|
| |
Total
($)
|
|
Alan E. Baratz
President & Chief Executive Officer,
Director
|
| |
2022
|
| |
491,667
|
| |
10,050,000
|
| |
—
|
| |
273,333
|
| |
1,348
|
| |
10,816,348
|
| |
2021
|
| |
450,000
|
| |
—
|
| |
—
|
| |
144,000
|
| |
1,329
|
| |
595,329
|
||
|
John M. Markovich(5)
Chief Financial Officer
|
| |
2022
|
| |
350,000
|
| |
3,517,500
|
| |
—
|
| |
144,000
|
| |
51
|
| |
4,011,551
|
| |
2021
|
| |
118,834
|
| |
—
|
| |
5,161,080
|
| |
30,294
|
| |
—
|
| |
5,310,208
|
||
|
Victoria Brydon
Chief People Officer
|
| |
2022
|
| |
191,528
|
| |
818,432
|
| |
537,600
|
| |
60,871
|
| |
122
|
| |
1,608,553
|
|
(1)
|
The amounts reported in this column reflect the grant date fair value of restricted share unit awards made under the 2022 Plan
(as defined below) to the NEOs listed in this table, computed in accordance with FASB ASC Topic 718 for stock-based compensation transactions. Assumptions used in the calculation of these amounts are included in note 2 to our audited
consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
|
|
(2)
|
The amounts reported in this column reflect the grant date fair value of stock option awards made under the 2022 Plan and 2020
Plan (as defined below) to the NEOs, computed in accordance with ASC 718 for stock-based compensation transactions. Assumptions used in the calculation of these amounts are included in note 12 to our audited consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. These amounts do not reflect the actual economic value that will be realized by the NEO upon the vesting of the stock options, the exercise of
the stock options, or the sale of the Common Shares underlying such stock options.
|
|
(3)
|
For 2022, the amounts reported in this column reflect annual cash incentive earned by each NEO determined by the Company’s
Compensation Committee.
|
For 2021, the amounts reported in this column reflect the annual bonus payable as
determined by the Compensation Committee.
|
(4)
|
For 2022 and 2021, the amounts reported in this column represent life insurance premiums paid by D-Wave for the benefit of the
NEOs and represent a reimbursement to Dr. Baratz for tax accounting expenses.
|
|
(5)
|
Mr. Markovich commenced employment on August 20, 2021.
|
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Outstanding Equity Awards at 2022 Fiscal Year-End
The following table presents information regarding outstanding
equity awards held by our NEOs as of December 31, 2022. All awards were granted pursuant to the 2020 Equity Incentive Plan (the “2020 Plan”) or the 2022 Equity Incentive Plan (the “2022 Plan”). Following the Merger, each option of D-Wave Systems granted under the 2020 plan became exercisable at its original option exercise price for 0.8896570 Common Shares. See the section titled
“—Equity Incentive Plans – 2020 Plan and 2022 Plan” below for additional information.
|
|
| |
Option Awards
|
| |
Stock Awards
|
||||||||||||
|
Name
|
| |
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable(1)
|
| |
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable(1)
|
| |
Option
Exercise
Price ($)
|
| |
Option
Expiration
Date
|
| |
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
|
| |
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(8)
|
|
Alan E. Baratz
|
| |
2,920,208
|
| |
—
|
| |
0.81
|
| |
5/5/2030
|
| |
2,500,000(5)
|
| |
3,600,000
|
|
John M. Markovich
|
| |
500,498
|
| |
1,000,888(2)
|
| |
0.82
|
| |
8/20/2031
|
| |
875,000(6)
|
| |
1,260,000
|
|
Victoria Brydon
|
| |
159,283
|
| |
—
|
| |
0.81
|
| |
5/05/30
|
| |
203,590(7)
|
| |
293,170
|
| |
68,666
|
| |
37,648(3)
|
| |
0.81
|
| |
5/05/30
|
| | | | ||||
| |
—
|
| |
120,000(4)
|
| |
10.07
|
| |
8/18/32
|
| |
|
| |
|
||
|
(1)
|
Except as otherwise noted, these amounts represent Common Shares issuable upon exercise of previously granted options of
D-Wave Systems, following the Merger.
|
|
(2)
|
The remaining portion of the option vests in equal monthly installments on the 20th of each month through August 20, 2025.
|
|
(3)
|
The remaining portion of the option vests in equal monthly installments on the 5th of each month through May 5, 2024.
|
|
(4)
|
The option vested as to 30,000 shares on February 16, 2023, with the remaining portion of the option vesting in equal monthly
installments on the 16th of each month through February 16, 2026.
|
|
(5)
|
1,000,000 of these restricted share units vest at a rate of 50% on the first and second anniversaries of the grant date of
October 27, 2022. 1,500,000 of these restricted share units vest at a rate of 50% on the first anniversary and then 25% on each of the second and third anniversaries of the grant date of October 27, 2022.
|
|
(6)
|
875,000 of these restricted shares vest at a rate of 50% on the first anniversary of the grant date and then 25% on each of
the second and third anniversaries of the grant date of October 27, 2022.
|
|
(7)
|
203,590 of these restricted shares will vest at a rate of 50% on the first anniversary of the grant date and then 25% on each
of the second and third anniversaries of the grant date of October 27, 2022.
|
|
(8)
|
The market value of these shares is based on the closing price of D-Wave Quantum on December 30, 2022 ($1.44 per share).
|
Employment Arrangements with Named Executive Officers
Alan E. Baratz. In January 2020, D-Wave Commercial Inc. (“D-Wave Commercial”), a wholly-owned
subsidiary of D-Wave, entered into an amended and restated employment agreement with Dr. Baratz which governs the current terms of his employment as D-Wave’s President and Chief Executive Officer. Dr. Baratz’s annual base salary for 2022
under such agreement was $450,000. Dr. Baratz is eligible to participate in our management bonus plan, with a target bonus percentage of 50% of his base salary, based on achievement of corporate objectives under our corporate bonus plan and
personal objectives set by our Board of Directors. For 2021, D-Wave Systems’ bonus plan achievement was based on objectives directed at providing stockholder value, with elements including product and technology development, financial metrics
and customer sales, and taking into account both individual and company-wide performance. Dr. Baratz is also eligible to participate in D-Wave Systems’ standard employee benefit plans and programs for D-Wave Systems’ US-based employees, and
is entitled to reimbursement of up to $7,500 per year for reasonable tax accounting expenses. Dr. Baratz’s employment agreement also provided for a grant of options, which are no longer outstanding as a result of the D-Wave Systems 2020
recapitalization. Pursuant to his employment agreement, if Dr. Baratz’s employment is terminated by D-Wave Systems without cause, he is entitled to receive 12 months’ base salary as a severance payment. In addition, pursuant to Dr. Baratz’s
option award agreements, (i) in the event of a change in control (as defined in the 2020 Plan), the portion of the option that is scheduled to vest in the immediately succeeding 24 months shall immediately vest, and the vesting date for the
remaining unvested tranches of each outstanding option shall accelerate by 24 months, and (ii) in the event of his termination by D-Wave Systems without cause within the 12 month period following a change in control, the remaining unvested
portion of
119
his outstanding options shall fully vest. The completion of the Merger constituted
a change in control for purposes of the 2020 Plan. The restrictive covenants in Dr. Baratz’s employment agreement include confidentiality, invention assignment and a one-year non-solicitation of employees.
On October 27, 2022, D-Wave Commercial and Dr. Baratz entered into
an amendment (the “Amendment”) to the amended and restated employment agreement discussed above, to reflect updates to Dr. Baratz’s compensation arrangements as approved by the Board of Directors upon
the recommendation of the Compensation Committee of the Board of Directors. Pursuant to the Amendment, D-Wave increased Dr. Baratz’s annual base salary to $575,000 per annum, effective as of September 1, 2022, and granted Dr. Baratz’s
eligibility to participate in the D-Wave 2022 Bonus Plan and any future performance-based bonus plans that apply to D-Wave’s Chief Executive Officer. Effective as of September 1, 2022, Dr. Baratz’s on-target bonus under the D-Wave 2022 Bonus
Plan is 100% of Dr. Baratz’s base salary, based on achievement of the corporate objectives under the plan, and personal objectives set by the Board of Directors. Certain changes were also made to the termination provisions of the amended and
restated employment agreement to provide that, upon a termination without cause, D-Wave will provide twelve months’ base salary as a lump sum payment, twelve months base salary continuance, or a combination of the two, plus a lump sum target
bonus payment, which will be equal to 100% of base salary, subject to certain conditions. In addition, subsequent to the close of the Merger, Dr. Baratz was awarded a Long-Term Retention Award of 1,500,000 restricted stock units (“RSUs”), which vest over a three-year period (50% on the first anniversary; the remainder vesting ratably over the remaining two years of the three-year vesting period). Dr. Baratz was also awarded a Special
Recognition Award of 1,000,000 RSUs, which vest over a two-year period (50% on each of the first and second anniversaries of the grant). Pursuant to these RSU award agreements, in the event of Dr. Baratz’s termination without cause, the portion
of the award that would have vested in the next 12 months will vest immediately.
John M. Markovich. In August 2021, D-Wave Systems entered into an employment agreement with Mr. Markovich which governs the current terms of his employment as D-Wave’s Chief Financial Officer. Mr. Markovich’s
current annual base salary for 2022 is $400,000. Mr. Markovich is eligible to participate in any bonus plan that may be established for executive officers, with a target bonus percentage of 70% (effective September 1, 2022) of base salary,
based on achievement of corporate objectives under our corporate bonus plan and personal objectives set by our Chief Executive Officer. For 2022, D-Wave’s bonus plan achievement was based on objectives directed at providing stockholder value,
with elements including product and technology development, financial metrics and customer sales, and taking into account both individual and company-wide performance. Mr. Markovich’s employment agreement provides for a grant of 1,687,602
options (pursuant to the 2020 Plan), with vesting terms as described above in the Outstanding Equity Awards Table. In addition, subsequent to the close of the Merger, Mr. Markovich was awarded an equity award of 875,000 RSUs, which vest over
a three-year period (50% on the first anniversary; the remainder vesting ratably over the remaining two years of the three-year vesting period). Mr. Markovich is eligible to participate in D-Wave’s standard employee benefit plans and programs
for D-Wave’s U.S.-based employees. Pursuant to his employment agreement, if Mr. Markovich’s employment is terminated by D-Wave without cause (as defined in his employment agreement), he is entitled to receive 12 months’ base salary as a
severance payment. In addition, pursuant to Mr. Markovich’s equity award agreements, in the event of his termination by D-Wave without cause within the 12-month period following a change in control, the portion of his outstanding equity that
would have vested in the next 24 months shall fully vest. The restrictive covenants in Mr. Markovich’s employment agreement include confidentiality, invention assignment and a one-year non-solicitation of employees.
Victoria Brydon. In February 2015, D-Wave Systems entered into an employment agreement with Ms. Brydon (which has been subsequently amended most recently as of February 2022 in connection with her promotion
to Senior Vice President, People & Operational Excellence). Ms. Brydon’s current annual base salary for 2022 is $212,993. Ms. Brydon is eligible to participate in any bonus plan that may be established for executive officers, with a
target bonus percentage of 40% of base salary, based on achievement of corporate objectives under our corporate bonus plan and personal objectives set by our Chief Executive Officer. For 2022, D-Wave’s bonus plan achievement was based on
objectives directed at providing stockholder value, with elements including product and technology development, financial metrics and customer sales, and taking into account both individual and company-wide performance. Ms. Brydon’s
employment agreement provided for a grant of options, which are no longer outstanding as a result of the D-Wave Systems 2020 recapitalization, plus an additional 120,000 options in connection with her promotion to Senior Vice President, with
vesting terms as described above in the Outstanding Equity Awards Table. In addition, subsequent to the close of the Merger, Ms. Brydon was awarded an equity award of 203,590 RSUs, which vest over a three-year period (50% on the first
anniversary; the remainder vesting ratably over the remaining two years of the
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three-year vesting period). Ms. Brydon is eligible to participate in D-Wave’s
standard employee benefit plans and programs for D-Wave’s Canadian-based employees. Pursuant to her employment agreement, if Ms. Brydon’s employment is terminated by D-Wave without cause (as defined in her employment agreement), she is entitled
to receive 6 months’ base salary as a severance payment. In addition, pursuant to Ms. Brydon’s equity award agreements, in the event of her termination by D-Wave without cause within the 12-month period following a change in control, the
portion of her outstanding equity that would have vested in the next 12 months shall fully vest. The restrictive covenants in Ms. Brydon’s employment agreement include confidentiality, invention assignment and a one-year noncompete.
Health and Welfare and Retirement Benefits; Perquisites
Each of the executive officers is eligible to participate in
D-Wave’s employee benefit plans offered in their respective country of employment, including medical, dental, vision, disability and life insurance plans, in each case on the same basis as all of D-Wave’s other full-time employees. D-Wave
generally does not provide perquisites or personal benefits to its NEOs, except in limited circumstances, and except for annual tax preparation assistance provided to Dr. Baratz (described above), it did not provide any perquisites or personal
benefits to its NEOs in 2022.
Eligible US-based employees, including D-Wave’s U.S.-based
executive officers, are eligible to participate in a defined contribution retirement plan that provides such employees with an opportunity to save for retirement on a tax advantaged basis. Eligible US-based employees may defer eligible
compensation on a pre-tax or after-tax (Roth) basis, up to the statutorily prescribed annual limits on contributions under the Internal Revenue Code (the “Code”). Contributions are allocated to each
participant’s individual account and are then invested in selected investment alternatives according to the participants’ directions. D-Wave currently does not make any matching contributions into the 401(k) plan on behalf of participants.
Participants are always vested in their contributions to the plan. The 401(k) plan is intended to be qualified under Section 401(a) of the Code with the 401(k) plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As
a tax-qualified retirement plan, contributions to the 401(k) plan (except for Roth contributions) and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan. D-Wave currently does not offer a
retirement savings plan structure to any of its Canada-based employees.
Equity Incentive Plans
Equity-based compensation has been and will continue to be an
important foundation in executive compensation packages as D-Wave believes it is important to maintain a strong link between executive incentives and the creation of stockholder value. D-Wave believes that performance and equity-based
compensation can be an important component of the total executive compensation package for maximizing stockholder value while, at the same time, attracting, motivating and retaining high-quality executives. Following the Merger, the 2022 Plan,
which is described below, became an important element of our compensation arrangements for our executives and directors. Our executives (including our NEOs) are also eligible to participate in the ESPP described below. Prior to the Merger,
D-Wave Systems granted equity-based compensation pursuant to its 2020 Plan, described below.
2022 Plan
The following summary describes the material terms of the 2022
Plan, which was adopted by the Company in connection with the Merger.
Administration. The Compensation Committee of our Board of Directors (or subcommittee thereof) administers the 2022 Plan. The Compensation Committee has the authority to determine the terms and conditions of
any agreements evidencing any awards granted under the 2022 Plan and to adopt, alter and repeal rules, guidelines and practices relating to the 2022 Plan. The Compensation Committee has full discretion to administer and interpret the 2022
Plan and to adopt such rules, regulations and procedures as it deems necessary or advisable and to determine, among other things, the time or times at which the awards may be exercised and whether and under what circumstances an award may be
exercised.
Eligibility. Any current or prospective employees, directors, officers, consultants or advisors of the Company who are selected by the compensation committee are eligible for awards under the 2022 Plan.
The Compensation Committee has the sole and complete authority to determine who will be granted an award under the 2022 Plan.
Number of Shares Authorized. Pursuant to the 2022 Plan, we have reserved 16,965,849 Common Shares for issuance of awards to be granted thereunder, subject to an annual increase on January 1st of each year for a period
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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 Common 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)) and (b) such smaller number of shares as is determined by our Board of Directors (the “Share Pool”). The number of shares that may be issued with respect to
incentive stock options under the 2022 Plan is equal to three times the number of shares initially reserved in the Share Pool. The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the
2022 Plan during any one fiscal year, taken together with any cash fees paid to such non-employee director during such fiscal year, in respect of service as a member of the Board of Directors during such year will be $750,000 (or, $1,000,000 in
the event such non-employee director is first appointed or elected to the Board of Directors during such fiscal year); provided that the foregoing limitation shall not apply to compensation approved by the other non-employee members of the
Board of Directors to be provided to a non-employee member of the Board of Directors in respect of their service as an employee or consultant (including as an interim officer). Shares may be issued in connection with a merger or acquisition as
permitted by, as applicable, the NYSE and its applicable rules and guidance, and such issuance will not reduce the number of shares available for issuance under the 2022 Plan. The following actions do not reduce the number of shares available
for issuance under the 2022 Plan: (1) the expiration or termination of any portion of an award without the shares covered by such portion of the award having been issued, (2) the settlement of any portion of an award in cash, (3) the
withholding of shares that would otherwise be issued by the Company to satisfy the exercise, strike or purchase price of an award; or (4) the withholding of shares that would otherwise be issued by the Company to satisfy a tax withholding
obligation in connection with an award. The following shares will be added back and again become available for issuance under the 2022 Plan: (1) any shares that are forfeited back to or repurchased by the Company because of a failure to meet a
contingency or condition required for the vesting of such shares; (2) any shares that are reacquired by the Company to satisfy the exercise, strike or purchase price of an award; and (3) any shares that are reacquired by the Company to satisfy
a tax withholding obligation in connection with an award.
Change in Capitalization. If there is a change in our capitalization in the event of a stock or extraordinary cash dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation,
split-up, split-off, spin-off, combination, repurchase or exchange of Common Shares or other relevant change in capitalization (including a change in control, as defined in 2022 Plan) or applicable law or circumstances, such that the
Compensation Committee determines that an adjustment to the terms of the 2022 Plan (or awards thereunder) is necessary or appropriate, then the Compensation Committee shall make adjustments in a manner that it deems equitable, including by:
(i) adjusting the number of shares reserved for issuance under the 2022 Plan, the number of shares covered by awards then outstanding under the 2022 Plan, the limitations on awards under the 2022 Plan, the exercise price of outstanding
options, the strike price of outstanding stock appreciation rights or any applicable performance measures or criteria; (ii) providing for a substitution or assumption of awards under the 2022 Plan; (iii) accelerating the delivery, vesting
and/or exercisability of, lapse of restrictions and/or other conditions on, or termination of, awards under the 2022 Plan; (iv) providing for a period of time not exceeding ten (10) days for the exercise of awards under the 2022 Plan prior to
the occurrence of such event; (v) cancelling any awards under the 2022 Plan in exchange for consideration equal to value of the underlying award; or (vi) such other equitable substitution or adjustments as the compensation committee may
determine appropriate.
Awards Available for Grant. The Compensation Committee may grant awards of nonqualified stock options, incentive (qualified) stock options, stock appreciation rights (“SARs”), restricted stock awards, RSUs, other stock-based awards, other cash-based awards, deferred awards or any combination of the foregoing. Awards may be granted under the 2022 Plan in
assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines, which are referred to herein as “Substitute Awards.”
Stock Options. The Compensation Committee is authorized to grant options to purchase Common Shares that are either “qualified,” meaning they are intended to satisfy the requirements of Section 422 of the
Code for incentive stock options, or “nonqualified,” meaning they are not intended to satisfy the requirements of Section 422 of the Code. All options granted under the 2022 Plan shall be nonqualified unless the applicable award agreement
expressly states that the option is intended to be an incentive stock option. Options granted under the 2022 Plan will be subject to the terms and conditions established by the Compensation Committee. Under the terms of the 2022 Plan, the
exercise price of the options will not be less than the fair market value (or 110% of the fair market value in the case of a qualified option granted to a 10% shareholder) of our Common Shares at the time of grant (except with respect
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to Substitute Awards). Options granted under the 2022 Plan will be subject to such
terms, including the exercise price and the conditions and timing of exercise, as may be determined by the Compensation Committee and specified in the applicable award agreement. The maximum term of an option granted under the 2022 Plan will be
10 years from the date of grant (or five years in the case of a qualified option granted to a 10% shareholder), provided that if the term of a nonqualified option would expire at a time when trading in Common Shares is prohibited by the
Company’s insider trading policy, the option’s term may be extended automatically until the 30th day following the expiration of such prohibition (as long as such extension shall not violate Section 409A of the Code). Payment in respect of the
exercise of an option may be made in cash, by check, by cash equivalent, or by such other method as the compensation committee may permit in its sole discretion, including: (i) by delivery of other property (including previously owned shares
that are not subject to any pledge or other security interest) having a fair market value equal to the exercise price and all applicable required withholding taxes; (ii) if there is a public market for Common Shares at such time, by means of a
broker-assisted cashless exercise mechanism; or (iii) by means of a “net exercise” procedure effected by withholding the minimum number of shares otherwise deliverable in respect of an option that are needed to pay the exercise price and all
applicable required withholding taxes, based upon the fair market value of the withheld shares on the date of exercise. In all events of cashless or net exercise, any fractional Common Shares will be settled in cash.
Stock Appreciation Rights. The Compensation Committee is authorized to award SARs under the 2022 Plan. SARs will be subject to the terms and conditions established by the Compensation Committee. A SAR is a contractual
right that allows a participant to receive, in the form of either cash, shares or any combination of cash and shares, the appreciation, if any, in the value of a share over a certain period of time. An option granted under the 2022 Plan may
include SARs, and SARs may also be awarded to a participant independent of the grant of an option. SARs granted in connection with an option shall be subject to terms similar to the option corresponding to such SARs, including with respect to
vesting and expiration. Except as otherwise provided by the Compensation Committee (in the case of Substitute Awards or SARs granted in tandem with previously granted options), the strike price per Common Share underlying each SAR shall not
be less than 100% of the fair market value of such share, determined as of the date of grant and the maximum term of a SAR granted under the 2022 Plan will be 10 years from the date of grant; provided that if the term of a SAR would expire at
a time when trading in Common Shares is prohibited by the Company’s insider trading policy, the SAR’s term may be extended automatically until the 30th day following the expiration of such prohibition (as long as such extension shall not
violate Section 409A of the Code).
Restricted Stock. The Compensation Committee is authorized to grant restricted stock under the 2022 Plan, which will be subject to the terms and conditions established by the Compensation Committee. Restricted
stock is Common Shares that are generally non-transferable and are subject to other restrictions determined by the Compensation Committee for a specified period. Any accumulated dividends will be payable at the same time that the underlying
restricted stock vests.
Restricted Stock Unit
Awards. The Compensation Committee is authorized to grant RSU awards, which will be subject to the terms and conditions established by the Compensation Committee. An RSU award, once vested,
may be settled in a number of our Common Shares equal to the number of units earned, in cash equal to the fair market value of the number of Common Shares earned in respect of such RSU award or in a combination of the foregoing, at the
election of the Compensation Committee. RSUs may be settled at the expiration of the period over which the units are to be earned or at a later date selected by the Compensation Committee. To the extent provided in an award agreement, the
holder of outstanding RSUs shall be entitled to be credited with dividend equivalent payments upon the payment by us of dividends on Common Shares, which accumulated dividend equivalents shall be payable at the same time that the underlying
RSUs are settled.
Other Stock-Based Awards
and Other Cash-Based Awards. The Compensation Committee is authorized to grant awards of unrestricted shares of Common Shares, rights to receive grants of awards at a future date, other
awards denominated in Common Shares, or awards that provide for cash payments based in whole or in part on the value of Common Shares under such terms and conditions as the Compensation Committee may determine and as set forth in the
applicable award agreement.
Deferred Awards. The Compensation Committee is authorized, subject to limitations under applicable law, to grant to participants deferred awards, which may be a right to receive shares or cash under the 2022
Plan (either independently or as an element of or supplement to any other award under the 2022 Plan), including, as may be
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required by any applicable law or regulations or determined by the Compensation
Committee, in lieu of any annual bonus, commission or retainer that may be payable to a participant under any applicable, bonus, commission or retainer plan or arrangement, under such terms and conditions as the Compensation Committee may
determine and as set forth in the applicable award agreement.
Effect of a Change in
Control. The following provisions shall apply only in the case an award agreement specifically provided that they will apply. Unless otherwise provided in an award agreement, or any
applicable employment, consulting, change in control, severance or other agreement between us and a participant, in the event of a change in control (as defined in the 2022 Plan): (i) if the acquirer or successor company in such change in
control has agreed to provide for the substitution, assumption, exchange or other continuation of awards, then, if the participant’s employment with or service to the Company is terminated by the Company without cause (and other than due to
death or disability) on or within 12 months following a change in control, then unless otherwise provided by the Committee, all options and SARs held by such participant shall become immediately exercisable with respect to 100% of the shares
subject to such options and SARs, and the restricted period (and any other conditions) shall expire immediately with respect to 100% of the shares of restricted stock and RSUs and any other awards (other than another cash-based award) held by
such participant (including a waiver of any applicable performance conditions); provided that if the vesting or exercisability of any award would otherwise be subject to the achievement of performance conditions, the portion of such award
that shall become fully vested and immediately exercisable shall be based on the assumed achievement of actual or target performance as determined by the Compensation Committee; (ii) if the acquirer or successor company in such change in
control has not agreed to provide for the substitution, assumption, exchange or other continuation of awards, then unless otherwise provided by the Compensation Committee, all options and SARs held by such participant shall become immediately
exercisable with respect to 100% of the shares subject to such options and SARs, and the restricted period (and any other conditions) shall expire immediately with respect to 100% of the shares of restricted stock and RSUs and any other
awards (other than another cash-based award) held by such participant (including a waiver of any applicable performance conditions); provided that if the vesting or exercisability of any award would otherwise be subject to the achievement of
performance conditions, the portion of such award that shall become fully vested and immediately exercisable shall be based on the assumed achievement of actual or target performance as determined by the compensation committee; and (iii) in
addition, the Compensation Committee may upon at least ten (10) days’ advance notice to the affected participants, cancel any outstanding award and pay to the holders thereof, in cash, securities or other property (including of the acquiring
or successor company), or any combination thereof, the value of such awards based upon the price per share received or to be received by other stockholders of the Company in the event (it being understood that any option or SAR having a
per-share exercise or hurdle price equal to, or in excess of, the fair market value (as of the date specified by the compensation committee) of a share subject thereto may be canceled and terminated without any payment or consideration
therefor).
Nontransferability. Each award may be exercised during the participant’s lifetime by the participant or, if permissible under applicable law, by the participant’s guardian or legal representative. No award may
be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a participant other than by will or by the laws of descent and distribution unless the Compensation Committee permits the award to be transferred to a
permitted transferee (as defined in the 2022 Plan).
Amendment. The 2022 Plan will have a term of 10 years. The Board of Directors may amend, suspend or terminate the 2022 Plan at any time, subject to shareholder approval if necessary to comply with any
tax, exchange rules, or other applicable regulatory requirement. No amendment, suspension or termination will materially and adversely affect the rights of any participant or recipient of any award without the consent of the participant or
recipient. The Compensation Committee may, to the extent consistent with the terms of any applicable award agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any award
theretofore granted or the associated award agreement, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect
the rights of any participant with respect to any award theretofore granted will not to that extent be effective without the consent of the affected participant. Unless otherwise required by applicable law, no shareholder approval will be
required for any of the following amendments: (i) reducing the exercise price of any option or the strike price of any SAR; (ii) cancelling any outstanding option and replacing it with a new option (with a lower exercise price) or cancelling
any SAR and replacing with a new SAR (with a lower strike price) or, in each case, with another award or cash in a manner that would be treated as a repricing (for compensation disclosure or accounting purposes); (iii) taking any other action
considered a repricing for purposes of the shareholder approval
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rules of the applicable securities exchange on which our Common Shares are listed;
and (iv) cancelling any outstanding option or SAR that has a per-share exercise price or strike price (as applicable) at or above the fair market value of a Common Share on the date of cancellation and paying any consideration to the holder
thereof.
Clawback/Forfeiture. Awards may be subject to clawback or forfeiture to the extent (i) the participant engaged in or engages in activity that is in conflict with or adverse to the interests of the Company,
including fraud or conduct contributing to any financial restatements or irregularities; (ii) the participant violates a non-competition, non-solicitation, non-disparagement or non-disclosure covenant or agreement with the Company; (iii) the
participant is terminated for Cause (as defined in the 2022 Plan); (iv) required by applicable law (including, without limitation, Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act) and/or the rules and regulations of NYSE or other applicable securities exchange; or (v) if so required pursuant to a written policy adopted by the Company or the provisions of an award agreement. In addition, the Compensation
Committee will have full authority to implement any policies and procedures necessary to comply with Section 10D of the Exchange Act and any rules promulgated thereunder and any other regulatory regimes.
2022 Employee Stock Purchase Plan (“ESPP”)
The following summary describes the material terms of the ESPP,
which was adopted by the Company in connection with the Merger.
Administration. The Compensation Committee of our Board of Directors (or any person or institution selected by the Compensation Committee) will administer the ESPP. The ESPP is implemented through a series
of offerings under which eligible employees are granted purchase rights to purchase Common Shares on specified dates during such offerings. Under the ESPP, the plan administrator has full discretion to administer and interpret the ESPP and to
adopt such rules, regulations and procedures as it deems necessary or advisable and to determine, among other things, the duration, frequency, start date and end dates of offering periods. The ESPP includes two components: a 423 Component and
a Non-423 Component. The Company intends that the 423 Component will qualify as options issued under an “employee stock purchase plan” as that term is defined in Section 423(b) of the Code. Except as otherwise provided in the ESPP or
determined by our Board of Directors, the Non-423 Component will operate and be administered in the same manner as the 423 Component.
Eligibility. Generally, all regular employees, including executive officers, employed by the Company or one of the Company’s designated subsidiaries, will be eligible to participate in the ESPP and may
contribute, normally through payroll deductions, an aggregate amount equal to their contribution for the purchase Common Shares under the ESPP. Unless otherwise determined by the plan administrator, Common Shares will be purchased for the
accounts of employees participating in the ESPP at a price per share equal to not less than the lesser of (i) 85% of the fair market value of a Common Share on the first trading date of an offering or (ii) 85% of the fair market value of a
Common Share on the date of purchase. The administrator may impose different eligibility requirements with respect to the Non-423 Component.
Number of Shares Authorized. Pursuant to the ESPP, we have reserved 8,036,455 Common Shares, subject to an annual 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 Common 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 our board of directors. For the avoidance of doubt, up to the maximum number of shares reserve
under the ESPP may be used to satisfy purchases of shares under the 423 Component of the ESPP and any remaining portion may be used to satisfy purchases of shares under the Non-423 Component.
Limitations. Employees may have to satisfy one or more of the following service requirements before participating in the 423 Component of the ESPP, as determined by the plan administrator, including:
(i) being customarily employed for more than 20 hours per week; (ii) being customarily employed for more than five months per calendar year; or (iii) classified as an employee for tax purposes. No employee will be eligible for the grant of
any purchase rights under the 423 Component of the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our capital stock measured by vote or value pursuant to Section 424(d) of the Code.
Changes to Capital
Structure. In the event that there occurs a change in the Company’s capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend,
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dividend in property other than cash, large nonrecurring cash dividend,
liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other similar equity restructuring transactions, the plan administrator will make appropriate adjustments to (i) the class(es) and maximum number
of shares reserved under the ESPP, (ii) the class(es) and maximum number of shares by which the share reserve may increase automatically each year, (iii) the class(es) and maximum number of shares and purchase price applicable to all
outstanding offerings and purchase rights and (iv) the class(es) and number of shares that are subject to purchase limits under ongoing offerings.
Corporate Transactions. In the event of a corporate transaction, as defined in the ESPP, any then-outstanding rights to purchase shares under the ESPP may be assumed, continued or substituted by any surviving or
acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute such purchase rights, then each offering period in progress will be shortened and a new
purchase date will be set by the Compensation Committee, and such purchase rights will terminate immediately.
ESPP Amendment or
Termination. Our Board of Directors has the authority to amend or terminate the ESPP, provided that, except in certain circumstances, such amendment or termination may not materially and
adversely affect any outstanding purchase rights without the holder’s consent. The Company must obtain shareholder approval of any amendment to the ESPP to the extent required by applicable law or listing rules.
2020 Plan
The following summary describes the material terms of the 2020
Plan, which was adopted by the D-Wave Systems board of directors in 2020.
Purpose. The purpose of the 2020 Plan was to provide eligible participants an opportunity from time to time to acquire a proprietary interest in D-Wave Systems and to develop the interest of eligible
participants in the growth and development of D-Wave Systems, providing an incentive to eligible participants to further the success of D-Wave Systems, attracting and retaining eligible participants, and rewarding eligible participants with
the benefits associated with having a proprietary interest in D-Wave Systems. Employees, officers, directors and consultants of D-Wave Systems or its affiliates were eligible to participate in the 2020 Plan to the extent approved by the
Compensation Committee of D-Wave or the Board of Directors of D-Wave.
Administration. The 2020 Plan is administered by the Board of Directors or the Compensation Committee. The Board of Directors or the Compensation Committee may issue rules and regulations for administration
of the 2020 Plan. The Board of Directors or Compensation Committee, as applicable, has the authority to implement and carry out the 2020 Plan, including without limitation, the authority to determine the participants to whom awards will be
granted; determine the type or types of awards to be granted under the 2020 Plan; determine the number of shares to be issuable pursuant to (or with respect to which payments, rights or other matters are to be calculated in connection with)
awards; determine the terms and conditions of any award, determine whether, to what extent and under what circumstances awards may be settled or exercised in cash, shares, other awards, other property, net settlement, cashless exercise,
broker-assisted cashless exercise or any combination thereof, or cancelled, forfeited or suspended, and the method or methods by which awards may be settled, exercised, cancelled, forfeited or suspended; determine whether, to what extent and
under what circumstances cash, shares, other awards, other property and other amounts payable with respect to an award under the 2020 Plan shall be deferred either automatically or at the election of the holder thereof or of the Compensation
Committee; interpret and administer the 2020 Plan; establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the 2020 Plan; grant waivers, amend or
modify an award, and correct any defect or reconcile any inconsistency with the 2020 Plan or an award; and make any other determination and take any other action that the Compensation Committee deems necessary or desirable for the
administration of the 2020 Plan.
Grants of Awards. The Board of Directors may, at any time, subject to the terms of the 2020 Plan, grant to a participant an award or awards in respect of the number of shares the Board of Directors determines
and the Board may specify the grant date, exercise price, vesting timing and conditions, expiration date and such other terms and conditions of the award. The exercise price per share purchasable under an award is determined by the Board of
Directors at the time of grant, provided, that, except in the case of substitute awards, such exercise price shall not be less than the fair market value of a share on the date of grant of such award.
Share Reserve. Subject to adjustments for changes in capitalization, the maximum number of shares available for grant under the 2020 Plan and all other plans of a similar nature will not exceed 15% of the
aggregate D-Wave
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Systems shares, on a fully diluted basis. If an award expires, terminates, is
surrendered, is cancelled or otherwise becomes unexercisable without having been exercised in full (a “Surrendering Event”), such shares will be available for future grant, the maximum number of shares
that may be issued upon the exercise of awards as well as the maximum number of shares that may be issued upon the exercise of incentive stock options will not exceed 15% of the aggregate D-Wave Systems shares, on a fully diluted basis on the
date of adoption of the plan, plus, to the extent allowable under Section 422 of the Code and the Treasury Regulations promulgated thereunder, any shares that become available for issuance under the 2020 Plan as a result of a Surrendering
Event. Any shares delivered pursuant to an award may consist, in whole or in part, of authorized and unissued shares or shares acquired by D-Wave Systems.
Options. The term of an option may be determined by the Board of Directors, but in any event, subject to accelerated termination of an option and other early termination as provided for in the 2020
Plan or an award agreement, each option will expire on the earlier of the expiration date; and the tenth anniversary of the date that the shares become publicly listed for trading on a securities exchange, provided that the Board of Directors
may (but shall not be required to) provide in an award agreement for an extension of the expiration date of the award in the event the exercise of the option would be prohibited by law at the time of expiration pursuant to the terms of the
award agreement or this
Vesting and Exercise. Each option will vest in accordance with the vesting schedule as determined by the Board of Directors. The Board of Directors has the discretion to accelerate the date upon which any portion
of any option may vest. The consideration to be paid for the shares to be issued upon exercise of an option, including the method of payment, shall be determined by the Compensation Committee. Such consideration may be paid by: (i) cash or
certified check or combination thereof; (ii) net settlement or broker-assisted cashless exercise; or (iii) to the extent expressly permitted by the Compensation Committee, (A) except for an award holder that is resident in Canada, other
shares which have a fair market value on the date of surrender equal to the aggregate exercise price of the shares as to which said option shall be exercised; or (B) such other consideration and method of payment for the issuance of shares to
the extent permitted by applicable laws. Following the Merger, each option previously granted under the 2020 plan became exercisable for 0.8896570 Common Shares.
Share Appreciation Rights
(“SARs”). The exercise price or hurdle price per share under a SAR shall be determined by the Compensation Committee; provided, however, that, except in the case of substitute awards, such
exercise price or hurdle price shall not be less than the fair market value of a share on the date of grant of such SAR. The term of each SAR shall be fixed by the Compensation Committee but shall not exceed 10 years from the date of grant of
such SAR. The Compensation Committee shall determine the time or times at which a SAR may vest and/or be exercised or settled in whole or in part. The Compensation Committee may specify in an award agreement that an “in- the-money” SAR shall
be automatically exercised on its expiration date.
Restricted Shares. D-Wave may grant restricted shares in such number and at such times as the Committee may, in its sole discretion, determine, as a bonus or similar payment in respect of services rendered by
the participant for a fiscal year of D-Wave or otherwise as compensation, including as an incentive for future performance by the participant. The award agreement for awards of restricted shares shall specify the vesting schedule; the
exercise price, which, to the extent required by applicable law, will not be less than the par value of a share; the consideration permissible for the payment of the purchase price of the restricted shares, which shall be satisfied in one of
the following ways: (i) in cash at the time of purchase; (ii) by services rendered or to be rendered to D-Wave; or (iii) in any other form of legal consideration that may be acceptable to the Board of Directors; and transferability.
Restricted shares shall be subject to such restrictions as the Compensation Committee may impose (including any limitation on the right to vote a share of restricted shares or the right to receive any dividend, dividend equivalent or other
right), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Compensation Committee may deem appropriate.
Restricted Share Units. The Compensation Committee may grant RSUs in such number and at such times as the Compensation Committee may, in its sole discretion, determine, as a bonus or similar payment in respect of
services rendered by a participant for a fiscal year of D-Wave or otherwise as compensation, including as an incentive for future performance by a participant. The award agreement shall specify the vesting schedule and the delivery schedule
(which may include deferred delivery later than the vesting date). RSUs shall be subject to such restrictions as the Compensation Committee may impose, which restrictions may lapse separately or in combination at such time or times, in such
installments or otherwise, as the Compensation Committee may deem appropriate. Dividend equivalents may be credited in respect of RSUs, as the Compensation Committee deems appropriate. Such dividend
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equivalents may be converted into additional RSUs by dividing (1) the aggregate
amount or value of the dividends paid with respect to that number of shares equal to the number of RSUs then credited by (2) the fair market value per share on the payment date for such dividend. The additional RSUs credited by reason of such
dividend equivalents will be subject to all the terms and conditions of the underlying RSUs to which they relate. A director that is not an employee and is subject to Canadian taxation shall not be entitled to receive RSUs.
Performance Awards. The Compensation Committee is authorized to grant performance awards in such number and at such times as the Compensation Committee may, in its sole discretion, determine, as a bonus or
similar payment in respect of services rendered by the participant for a fiscal year of D-Wave or otherwise as compensation, including as an incentive for future performance by the participant. Performance awards may be denominated as a cash
amount, number of shares or a combination thereof and are awards which may be earned upon achievement or satisfaction of performance conditions specified by the Compensation Committee. In addition, the Compensation Committee may specify that
any other award shall constitute a performance award by conditioning the right of an award holder to exercise the award or have it settled or vest, and the timing thereof, upon achievement or satisfaction of such performance conditions as may
be specified by the Compensation Committee. The Compensation Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions. Subject to the terms of the 2020
Plan, the performance goals to be achieved during any performance period, the length of any performance period, the termination provisions, the amount of any performance award granted and the amount of any payment or transfer to be made
pursuant to any performance award shall be determined by the Compensation Committee. Performance awards will be settled only after the end of the relevant performance period. The Compensation Committee shall specify the circumstances in
which, and the extent to which, performance awards shall be paid or forfeited in the event of an award holder’s termination.
Other Share-Based Awards. The Compensation Committee is authorized, subject to limitations under applicable law, to grant to participants such other awards that may be denominated or payable in, valued in whole or in
part by reference to, or otherwise based on, or related to, shares or factors that may influence the value of shares, including convertible or exchangeable debt securities, other rights convertible or exchangeable into shares, purchase rights
for shares, awards with value and payment contingent upon performance of D-Wave or business units thereof or any other factors designated by the Compensation Committee. The Compensation Committee shall determine the terms and conditions of
such awards. shares delivered pursuant to an award in the nature of a purchase right granted shall be purchased for such consideration, paid for at such times, by such methods and in such forms, including cash, shares, other awards, other
property, or any combination thereof, as the Compensation Committee shall determine. Cash awards, as an element of or supplement to any other award under the 2020 Plan, may also be granted.
Treatment on Termination. If an award holder’s employment or service as a director or a consultant terminates for any reason, voluntarily or involuntarily, any part of an award that has not vested will immediately
cease vesting on the termination date and the award holder will not be entitled to any compensation in respect of any part of an award that has not vested. In the case of employees: upon termination of their employment for cause, the award
will expire immediately; upon termination of their employment generally for any other reason other than death, any vested but unexercised part of the award may be exercised until the earlier of ninety (90) days following the termination date
and the date its term expires, as applicable; upon termination of employment due to death, any vested but unexercised part of an award may be exercised until the earlier of one hundred eighty (180) days following the termination date and the
date its term expires. In the case of directors: if the director ceases to hold office due to removal in accordance with section 129 of the Business Corporations Act (British Columbia) (“BCBCA”) or due to becoming otherwise disqualified to
hold office as a director, the award will expire immediately upon the termination date; otherwise if the director ceases to hold office as a director for any other, all non-vested awards will expire upon the termination date and any vested
but unexercised part of the award may be exercised until the earlier of 90 days (180 days in the case of death or disability) following the date the award holder ceases to be a director and the date its term expires, as applicable. If a
participant’s services as a consultant are terminated for any reason, all non-vested awards will expire upon the termination date and any vested but unexercised part of the award may be exercised until the earlier of 90 days following the
termination date and the date its term expires.
Transferability. In general, awards are not transferable or assignable, and may not be made subject to any other alienation, sale, pledge, hypothecation, disposal, encumbrance, execution, attachment or
similar process, otherwise than by will or by the operation of laws. During the lifetime of the award holder, an award is exercisable only by the award holder, and any elections with respect to an award, may be made only by the award holder.
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Adjustments Upon Changes
in Capitalization, Amalgamation, Dissolution, etc. The number of shares subject to an outstanding award, and the number of shares which have been authorized and reserved for issuance under
the 2020 Plan but as to which no awards have yet been granted or which have been returned to the 2020 Plan upon cancellation or expiration of an award, as well as the exercise price for each such outstanding award, will be proportionately
adjusted for any increase or decrease in the number of issued shares resulting from a share split, reverse share split, share dividend, recapitalization, reorganization, subdivision, consolidation, combination or reclassification of the
shares, or any other increase or decrease in the number of issued shares effected without receipt of consideration by D-Wave, and if the adjustment would result in fractional number of shares, the number of shares will be rounded down to the
nearest whole number. In the event of an amalgamation or merger of D-Wave Systems with or into any other company or companies (other than an amalgamation or merger with a wholly-owned subsidiary or a transaction in which there is no
substantial change in shareholders of D-Wave Systems) or the sale of all or substantially all of the assets of D-Wave Systems (and the right to do so is hereby expressly reserved), whether by way of statutory amalgamation, plan of
arrangement, sale of assets and undertaking, or otherwise howsoever, then the successor corporation may assume, convert, replace or substitute any or all outstanding awards, which assumption, conversion, replacement or substitution will be
binding on the holder of the award, with (i) equivalent awards or (ii) substantially similar consideration to the holder of the award as was provided to shareholders of D-Wave Systems (after taking into account the existing provisions,
restrictions and terms of the award). In the event that the successor corporation refuses to assume, convert, replace or substitute an award, the award will fully vest and D-Wave Systems will notify the holder of the award in writing in
advance of the amalgamation, merger or sale that the award will be fully exercisable for a period of fifteen (15) days from the date of such notice, and the award will terminate upon the expiration of such period. To the extent it has not
been previously exercised, an award will terminate immediately prior to the consummation of the dissolution or liquidation of D-Wave Systems. In the event of the proposed dissolution or liquidation of D-Wave Systems, D-Wave Systems will
notify each award holder as soon as practicable prior to the effective date of such proposed transaction. The D-Wave Systems board of directors, in its sole discretion, may provide for an award holder to have the right to exercise his or her
award until fifteen (15) days prior to such transaction as to all of the shares covered by the award, including shares as to which the award would not otherwise be exercisable.
Amendment and Termination. The Board of Directors shall have the power to, at any time and from time to time, either prospectively or retrospectively, and without shareholder approval, amend, suspend or terminate the
2020 Plan or any award granted under the 2020 Plan; provided however that: (i) such amendment, suspension or termination is in accordance with applicable laws and the rules of any securities exchange on which the shares are listed; (ii) no
such amendment, suspension or termination shall be made at any time to the extent such action would adversely affect the existing rights of an award holder with respect to any then outstanding award held by such award holder, as determined by
the Board of Directors acting in good faith, without the award holder’s consent; and (iii) the Board of Directors shall obtain shareholder approval of the following: (x) such approval as may be required pursuant to D-Wave Systems’
organizational documents and applicable law, including securities laws and the rules and policies of a securities exchange upon which the shares of D-Wave are listed; and (y) any amendment that would reduce the exercise price or hurdle price
of an outstanding award (other than as provided above). If the 2020 Plan is terminated, the provisions of the 2020 Plan and any administrative guidelines and other rules and regulations adopted by the Board of Directors and in force on the
date of termination will continue in effect as long as any award or any rights pursuant thereto remain outstanding and, notwithstanding the termination of the 2020 Plan, the Board of Directors shall remain able to make such amendments to the
2020 Plan or the award as they would have been entitled to make if the 2020 Plan were still in effect. The 2020 Plan is scheduled to terminate on April 14, 2030. The termination of the 2020 Plan will have no effect on outstanding awards,
which will continue in effect in accordance with their terms and conditions and the terms and conditions of the 2020 Plan and award agreements.
Non-Employee Director Compensation
During 2022, D-Wave granted equity to its non-employee directors
as described below, such grants vesting on the date of the Annual Meeting. Our director compensation policy provides that each of our non-employee directors receives an annual cash retainer of $35,000, with our Chair of the Board of Directors,
and the chairs of our Audit Committee and Compensation Committee each also receiving an additional annual cash retainer of $30,000, $20,000, and $15,000 respectively. In addition, each member of the Audit Committee, Compensation Committee and
Nominating & Governance Committee, other than the chair of each such committee, receives an additional annual cash retainer of $8,000. We do not pay any meeting attendance fees. Each of our non-employee directors also receives an annual
equity-based grant of RSUs valued at $140,000, which generally vests annually; however, the initial annual
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grants were prorated to reflect service from August 2022 through May 2023 (and
will vest as of the date of the Annual Meeting). New non-employee directors also receive an initial grant of 7,500 RSUs, which will vest as of the date of our Annual Meeting. Vesting is subject to continued service on the Board of Directors
through the relevant vesting date. Commencing with compensation earned in respect of service following our Annual Meeting, our non-employee directors will be permitted to elect to receive RSUs in lieu of cash compensation.
The following table sets forth information concerning the
compensation of D-Wave’s non-employee directors for the year ended December 31, 2022.
|
Name
|
| |
Fees
Earned or
Paid in
Cash
($)(1)
|
| |
Stock Awards
($)(2)
|
| |
All Other
Compensation
($)
|
| |
Total
($)
|
|
Amy Cappellanti-Wolf
|
| |
48,333
|
| |
146,814
|
| |
—
|
| |
195,147
|
|
Emil Michael
|
| |
35,833
|
| |
116,664
|
| |
—
|
| |
152,497
|
|
Michael Rogers
|
| |
42,500
|
| |
146,814
|
| |
—
|
| |
189,314
|
|
Steven M. West
|
| |
60,833
|
| |
116,664
|
| |
—
|
| |
177,497
|
|
Roger Biscay
|
| |
45,833
|
| |
146,814
|
| |
—
|
| |
192,647
|
|
Eduard van Gelderen(3)
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
|
(1)
|
Cash retainers were prorated from August 2022 through May 2023.
|
|
(2)
|
RSUs awarded and vest 100% at the Annual Meeting.
|
|
(3)
|
Mr. van Gelderen was not eligible to be compensated for his board position.
|
The table below shows for each non-employee director who was
serving, and held outstanding equity awards, as of December 31, 2022, the aggregate number of equity awards held by each such non-employee director as of such date.
|
Name
|
| |
Shares Underlying
Options
Outstanding
at Fiscal
Year End
(#)
|
| |
Stock Awards
Outstanding
at Fiscal
Year End
(#)(1)
|
|
Amy Cappellanti-Wolf
|
| |
—
|
| |
36,521
|
|
Emil Michael
|
| |
—
|
| |
29,021
|
|
Michael Rogers
|
| |
—
|
| |
36,521
|
|
Steven M. West
|
| |
311,973
|
| |
29,021
|
|
Roger Biscay
|
| |
—
|
| |
36,521
|
|
Eduard van Gelderen(2)
|
| |
—
|
| |
—
|
|
(1)
|
RSUs awarded and vest 100% at the Annual Meeting.
|
|
(2)
|
Mr. van Gelderen was not eligible to be compensated for his board position.
|
The Board of Directors and Nominating and Governance Committee
expect to review director compensation periodically to ensure that director compensation remains competitive such that D-Wave is able to recruit and retain qualified directors.
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Executive Officers and Directors
The following table sets forth, as of the date of this prospectus,
certain information regarding D-Wave Quantum’s executive officers and directors who are responsible for overseeing the management of our business.
|
Name
|
| |
Age
|
| |
Position
|
|
Executive Officers
|
| |
|
| |
|
|
Alan Baratz
|
| |
68
|
| |
President, Chief Executive Officer and Director
|
|
John M. Markovich
|
| |
67
|
| |
Chief Financial Officer
|
|
Victoria Brydon
|
| |
49
|
| |
Chief People Officer
|
|
Diane Nguyen
|
| |
38
|
| |
General Counsel and Corporate Secretary
|
|
Non-Employee Directors
|
| |
|
| |
|
|
Steven M. West
|
| |
67
|
| |
Chair
|
|
Emil Michael
|
| |
50
|
| |
Director
|
|
Roger Biscay
|
| |
55
|
| |
Director
|
|
Amy Cappellanti-Wolf
|
| |
58
|
| |
Director
|
|
Michael Rogers
|
| |
59
|
| |
Director
|
|
Ziv Ehrenfeld
|
| |
48
|
| |
Director
|
|
Phillip Adam Smalley III
|
| |
51
|
| |
Director
|
Executive Officers
Alan Baratz.
Dr. Baratz became the CEO of D-Wave Systems in January 2020 and the Company in August 2022. Previously, as Executive Vice President of R&D and Chief Product Officer of D-Wave Systems from August 2018 to December 2019, he drove the
development, delivery, and support of all of the company’s products, technologies, and applications. Dr. Baratz also acted as Senior Vice President of Software & Applications of D-Wave Systems from August 2017 to August 2018. He has over
25 years of experience in product development and bringing new products to market at leading technology companies and software startups. As the first president of JavaSoft at Sun Microsystems, Dr. Baratz oversaw the growth and adoption of the
Java platform from its infancy to a robust platform supporting mission-critical applications in nearly 80 percent of Fortune 1000 companies. He has also held executive positions at Symphony, Avaya, Cisco, and IBM. He served as CEO and
president of Versata, Zaplet, and NeoPath Networks, and as a managing director at Warburg Pincus LLC. Dr. Baratz also served on the board of Versata from 2003 to 2005 and the board of TRW Inc. in 2002. Dr. Baratz holds a doctorate in computer
science from the Massachusetts Institute of Technology.
John M. Markovich. Mr. Markovich is a strategic financial leader with nearly thirty years of executive financial management experience working with rapidly growing private and public technology companies across all stages of development. He has
directed the finance, accounting, tax, treasury, M&A, legal, operations, customer service, IR, HR, and IT functions for companies ranging from privately held pre-revenue startups to a NYSE-listed Fortune 500 multi-national company with
over $1.2 billion in annual revenue. During his career, he has negotiated and closed over 150 debt, equity, M&A, and joint venture transactions exceeding $2.5 billion in value; over a dozen private placements; nearly a dozen M&A
transactions; and several international joint ventures. Mr. Markovich has served as D-Wave’s Chief Financial Officer since August 2021. From August 2020 to July 2021.
Mr. Markovich had his own consulting firm where he advised
early-stage technology companies on various financial and strategic matters. From June 2019 to July 2020, Mr. Markovich served as Chief Financial Officer of XANT, Inc., a privately held SaaS company with an AI-powered sales enablement platform.
From August 2016 to May 2019, he served as Chief Financial Officer of OmniGuide Holdings, Inc. a private equity-backed multinational medical device manufacturer. Previously, Mr. Markovich held Chief Financial positions at three public companies
including Optical Coating Laboratories, Inc., Tickets.com Inc., and Emcore Corp., and several private technology companies including Auto-By-Tel.com, Inc., Energy Innovations, Inc., Veritone, Inc. and XANT, Inc. Mr. Markovich holds a BS in
Business from Miami University and an MBA from the Michigan State Graduate School of Business.
Victoria Brydon. Ms. Brydon is a seasoned business executive with 20 years of progressive and broad experience. Currently the Chief People Officer, she leads the development and execution of talent strategy for
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D-Wave, and works cross functionally to provide executive oversight to ensure
business operational excellence. Previously, Ms. Brydon acted as Vice President, People & Operational Excellence from July 2021 to February 2022 and Vice President, Human Resources from September 2016 to July 2021. Prior experience includes
Kasian Architecture, Sierra Systems, and PMC-Sierra. Victoria holds a Masters of Business Administration from Royal Roads University, and a Bachelor of Commerce from Queen’s University. Ms. Brydon is a Certified Executive Coach, and Chair of
the Board of the BC SPCA where she also serves as President and Chair of the Executive and Human Resources Committee.
Diane Nguyen.
Ms. Nguyen holds over 10 years of broad-based legal experience, including negotiating commercial agreements, corporate governance, business financing, intellectual property, and risk assessment. She joined D-Wave in 2018. Currently the
General Counsel and Corporate Secretary, and previously Vice-President, Legal from July 2021 through April 2023, she oversees all legal aspects of D-Wave’s day-to-day operations and the proper governance of the company, and leads the
Intellectual Property team in the development and protection of D-Wave’s world-class patent portfolio. Prior to D-Wave, she practiced corporate, commercial and intellectual property law at Morency, Société d’avocats, LLP. She also served on
the Board of the BC SPCA. Ms. Nguyen is a member of the bars of British Columbia and Quebec, an Authorized House Counsel with the Florida Bar and is a registered trademark agent. She holds a Master’s degree in Business Law from the University
of Montreal.
Non-Employee Directors
Steven M. West. Mr. West is a 30-year veteran of the information technology and media marketplace. He is the founder and has been a managing partner of Emerging Company Partners LLC, a technology-consulting firm located in Incline Village, Nevada,
since February 2004. Mr. West has held executive leadership positions in both large and early-stage information technology companies located in North America, Asia and Europe. His leadership positions have included CEO of Entera, an Internet
content delivery firm (acquired by Blue Coat Systems, Inc.), President and CEO of Hitachi Data Systems in Santa Clara California and Group Executive of EDS in Plano Texas. As a partner in Emerging Company Partners LLC, Mr. West has completed
consulting engagements with numerous companies specializing in early-stage firms. Mr. West’s public board experience includes Cisco Systems from 1996 to 2019. As a board director of Cisco, he was Audit Committee chair and a member of the
Finance Committee. He also served as a board member of Autodesk from 2008 to 2018 and was member of the Audit Committee and chair of their Compensation Committee. He has also served on the boards of Delta-Q Technologies and Bycast Inc.
Currently, Mr. West is a licensed Broadcast Engineer by the Federal Communications Commission. He also is an active member in the Society of Broadcast Engineers (SBE) and the Institute of Electrical and Electronics Engineers (IEEE).
Roger Biscay.
Mr. Biscay holds over 20 years of diverse leadership experience driving strategy, organizational planning, financial management, and compliance across high-tech public and private companies and non-profit organizations. He has served as
Senior Vice President and Treasurer of Cisco Systems since April 2017 where his responsibilities include corporate finance, investments, cash management, foreign exchange, risk transfer, safety, security and business resiliency. Mr. Biscay
has also served on the board of directors of Wasabi Technologies since August 2021, including as a member of the audit committee and governance committee. Mr. Biscay has also held senior financial markets positions in the areas of fixed
income, equity capital markets and foreign exchange with major global financial institutions including the Royal Bank of Canada, Banque Paribas and Lehman Brothers in New York, London, Paris and San Francisco. Mr. Biscay is a graduate of the
University of San Francisco where he received both his MBA and BS in Finance.
Amy Cappellanti-Wolf. Ms. Cappellanti-Wolf is an accomplished senior human resources professional, business transformer and executive coach with expertise in working with startups to Fortune 500 enterprises. Her management roles span high-tech
(Symantec, Silver Spring Networks, Cisco, Sun Microsystems), entertainment (The Walt Disney Company), and consumer goods (Frito-Lay). Since May 2022 she has served as Chief Human Resources Officer and Real Estate Leader of Cohesity. From
January 2014 to February 2020, Ms. Cappellanti-Wolf was the Chief Human Resources Officer and Real Estate Leader for Symantec. She also serves on the board of directors of Softchoice, a North American provider of technology solutions and
managed services where she also serves as the chair of the compensation committee and is a member of the nomination and governance committee, Betterworks, a continuous performance management platform company, and Pivotal, a non-profit that
focuses on foster youth education and employment. Ms. Cappellanti-Wolf holds an M.S. in Industrial and Labor Relations and a B.S. in Journalism and Public Relations from West Virginia University.
Michael Rogers. Mr. Rogers is a leader and adviser on emerging technologies, geopolitics, and cybersecurity. He currently serves on the board of trustees of MITRE Corporation, which he joined in August 2016, and served as
132
vice chairman from November 2018 until he was elected as its Chairman in November
2021. In April 2021, Mr. Rogers joined the Board of Directors of D-Wave Government Inc., a subsidiary providing D-Wave quantum computing systems, software, services and expertise to the U.S. government. Mr. Rogers also currently serves on the
board of directors of IronNet Cybersecurity, Elite Detection K9, Contstella Intelligence, IAP Worldwide Services and IP3 Corporation. Mr. Rogers represented Michigan’s 8th Congressional District in the U.S. House of Representatives from 2001 to
2015. He also sat on the Energy and Commerce Committee and chaired the House Permanent Select Committee on Intelligence. Mr. Rogers holds a bachelor’s degree in criminal justice and sociology from Adrian College.
Emil Michael.
Mr. Michael is one of Silicon Valley’s most highly regarded business executives having built three successful companies including Tellme Networks (sold to Microsoft in 2007), Klout (sold to Lithium Technologies in 2014) and Uber. Mr. Michael
has extensive experience identifying high-growth, tech-enabled businesses with his investments spanning a broad range of companies including Brex, GoPuff, Revolut, SpaceX, and Stripe. Mr. Michael has been the Chairman and CEO of M8
Enterprises LLC since January 2018. During his tenure as Chief Business Officer of Uber from July 2013 to June 2017, Mr. Michael led Uber’s efforts in China and Russia, which resulted in substantial market value creation. Mr. Michael played a
pivotal role in raising nearly $15 billion dollars in capital from investors globally and led the merger of Uber’s China operations with key competitor in China, Didi Chiuxing.
Additionally, he led the efforts to strike partnerships globally
with companies such as American Express, AT&T, Daimler, Softbank, Tata Motors, and Toyota. Mr. Michael also led the Ottomotto acquisition that became the core of Uber’s Advanced Technology Group, responsible for autonomous vehicle
development. He is also responsible for creating UberMilitary, a program at Uber for military veterans and their families. Prior to Uber, Mr. Michael served as Chief Operating Officer of Klout, where he played a pivotal role in growing the
social media analytics company. Klout ultimately sold to Lithium Technologies for $200 million in 2014. Before joining Klout, Mr. Michael served as a White House Fellow working for the Secretary of Defense as a Special Assistant. During his
tenure at the Pentagon, he ran projects in Afghanistan, Iraq and Pakistan as well as a department-wide budget cutting effort aimed at reducing overhead and bureaucracy. Mr. Michael was also part of the founding team of Tellme Networks, a
pioneer in speech recognition technology and systems, that is highly regarded for weathering the technology bust of 2000 and for building a sustainable and profitable business. Mr. Michael helped Tellme Networks raise over $250 million in
venture capital from investors such as Benchmark Capital and Kleiner Perkins. He also led Tellme Networks through its $800 million sale to Microsoft in 2007. Additionally, Mr. Michael has been a leadership coach and mentor to dozens of young
CEOs over the years, giving him extensive exposure to early stage companies, technologies, and trends. He also serves as an advisor or investor in over 20 start-ups around the world, furthering his commitment to helping the next generation of
entrepreneurs build and scale. He started his career at Goldman Sachs, where he was an Associate in the Investment Banking Division for a short period. Mr. Michael received his B.A. from Harvard University and his J.D. from Stanford Law School.
Ziv Ehrenfeld.
Mr. Ehrenfeld has been a member of our Board of Directors since April 2023. Since 2020, he has served as a Managing Director on the private equity team for PSP Investments. In this role, he heads Strategy and Active Management globally in
addition to overseeing various sponsor relationships. He also serves on the boards of several privately held companies with significant operations and scale. Prior to this role, from 2015 to 2020, Mr. Ehrenfeld was a member of PSP
Investments’ private debt investment arm, where he developed a new asset class culminating in ~C$22 billion in net AUM as of March 31, 2022.
Prior to joining PSP Investments, Mr. Ehrenfeld was a Director in
Leveraged Finance at Barclays from 2008 to 2015, where he arranged leveraged loan and high-yield bond financings for sponsor and corporate clients. Mr. Ehrenfeld started his career practicing law at the law firm of Fischer Behar Chen Well Orion
& Co. and holds an LL.B. Bachelor of Laws and a BA in Economics from Tel Aviv University and an MBA from Wharton School of the University of Pennsylvania.
Phillip Adam Smalley III. Mr. Smalley is a Managing Director at PSP. He joined PSP Investments in May 2016 in the Credit Investments group and was responsible for originating and executing non-investment grade credit investment
transactions for financial sponsor-backed companies, primarily in North America. Since 2020, Mr. Smalley has led the Complementary Portfolio within the Chief Investment Officer Group. The Complementary Portfolio focuses on investments that
are outside of the mandate of existing PSP asset classes but are beneficial to the total fund. The Complementary Portfolio includes knowledge-driven, alternative risk premium and cross-asset class strategies. Prior to joining PSP, Mr. Smalley
held various portfolio management and research roles at
133
organizations that managed institutional and retail capital focused on the high
yield and leveraged loan asset classes. Mr. Smalley began his career in finance at Lehman Brothers in New York in 1999. Mr. Smalley holds a BS in Accounting from Bucknell University and an MBA in Finance and Economics from Columbia Business
School.
Family Relationships
There are no family relationships among any of D-Wave Quantum’s
directors or executive officers.
Board Composition
D-Wave Quantum’s business and affairs are organized under the
direction of its board of directors. The board of directors of D-Wave Quantum meets on a regular basis and additionally as required.
In accordance with the terms of the D-Wave Quantum Bylaws, D-Wave
Quantum’s board of directors may establish the authorized number of directors from time to time by resolution. D-Wave Quantum’s board of directors consists of seven members, and such directors have been divided among the three classes as
follows:
|
•
|
the Class I directors are Alan Baratz and Ziv Ehrenfeld and their terms will expire at the annual meeting of stockholders to
be held in 2023;
|
|
•
|
the Class II directors are Emil Michael, Amy Cappellanti-Wolf and Adam Smalley and their terms will expire at the annual
meeting of stockholders to be held in 2024; and
|
|
•
|
the Class III directors are Steven M. West, Michael Rogers and Roger Biscay and their terms will expire at the annual meeting
of stockholders to be held in 2025.
|
As nearly as possible, each class will consist of one-third of the
directors.
The division of D-Wave Quantum’s board of directors into three
classes with staggered three-year terms may delay or prevent a change of its management or a change in control.
The D-Wave Quantum board of directors has undertaken a review of
the independence of each director. Based on information provided by each director concerning their background, employment and affiliations, the D-Wave Quantum board of directors has determined that Ziv Ehrenfeld, Emil Michael, Amy
Cappellanti-Wolf, Steven M. West, Michael Rogers, Roger Biscay, and Adam Smalley do not have any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of
the directors is “independent” as that term is defined under the NYSE listing standards. In making these determinations, the D-Wave Quantum board of directors has considered the current and prior relationships that each non-employee director
has with D-Wave Quantum and all other facts and circumstances the D-Wave Quantum board of directors deemed relevant in determining their independence, including the beneficial ownership of securities of D-Wave Quantum by each non-employee
director and the transactions described in the section titled “Certain Relationships and Related Person Transactions.”
Role of the Board of Directors in Risk Oversight/Risk Committee
One of the key functions of our board of directors is informed
oversight of D-Wave's risk management process, including for cybersecurity threats. Our board of directors does not have, and does not anticipate having, a standing risk management committee, but rather administers this oversight function
directly through the board of directors as a whole, as well as through various standing committees of the board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is
responsible for monitoring and assessing strategic risk exposure, as well as cybersecurity risks, and the board of directors’ Audit Committee has the responsibility to consider and discuss D-Wave's major financial risk exposures and the steps
its management will take to monitor and control such exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The Audit Committee also monitors compliance with legal and
regulatory requirements. Our board of directors’ Compensation Committee also assesses and monitors whether the Company’s compensation plans, policies and programs comply with applicable legal and regulatory requirements.
Committees of the Board of Directors
Upon the consummation of the Merger, D-Wave Quantum’s board of
directors reconstituted its audit committee, compensation committee and nominating and corporate governance committee. The board of directors adopted a new charter for each of these committees, which comply with the applicable requirements of
current SEC and NYSE rules.
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D-Wave Quantum intends to comply with future requirements to the extent
applicable. Copies of the charters for each committee are available on the investor relations portion of D-Wave Quantum’s website, at www.ir.dwavesys.com. The reference to D-Wave Quantum website address does not constitute incorporation by
reference of the information contained at or available through D-Wave Quantum’s website, and you should not consider it to be a part of this prospectus.
Audit Committee
The audit committee consists of Roger Biscay, Steven M. West, Ziv
Ehrenfeld and Adam Smalley each of whom D-Wave Quantum’s board of directors has determined satisfies the independence requirements under NYSE listing standards and Rule 10A-3(b)(1) of the Exchange Act. The chair of the audit committee is Roger
Biscay. D-Wave Quantum’s board of directors has determined that Roger Biscay is an “audit committee financial expert” within the meaning of SEC regulations. Each member of the audit committee can read and understand fundamental financial
statements in accordance with applicable requirements. In arriving at these determinations, D-Wave Quantum’s board of directors has examined each audit committee member’s scope of experience and the nature of their employment.
The primary purpose of the audit committee is to discharge the
responsibilities of the board of directors with respect to the corporate accounting and financial reporting processes, systems of internal control and financial statement audits, and to oversee the independent registered public accounting firm.
Specific responsibilities of the audit committee include:
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helping the board of directors oversee corporate accounting and financial reporting processes;
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managing the selection, engagement, qualifications, independence and performance of a qualified firm to serve as the
independent registered public accounting firm to audit the financial statements;
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discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with
management and the independent accountants, the interim and year-end operating results;
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developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
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reviewing related person transactions;
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obtaining and reviewing a report by the independent registered public accounting firm at least annually that describes
internal quality control procedures, any material issues with such procedures and any steps taken to deal with such issues when required by applicable law; and
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approving or, as permitted, pre-approving, audit and permissible non-audit services to be performed by the independent
registered public accounting firm.
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Compensation Committee
The compensation committee consists of Amy Cappellanti-Wolf,
Michael Rogers and Ziv Ehrenfeld. The chair of the compensation committee is Amy Cappellanti-Wolf. D-Wave Quantum’s board of directors has determined that each member of the compensation committee is independent under the NYSE listing standards
and a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act.
The primary purpose of the compensation committee is to discharge
the responsibilities of the board of directors in overseeing the compensation policies, plans and programs and to review and determine the compensation to be paid to executive officers, directors and other senior management, as appropriate.
Specific responsibilities of the compensation committee include:
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reviewing and approving the compensation of the chief executive officer, other executive officers and senior management;
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administering the equity incentive plans and other benefit programs;
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reviewing, adopting, amending and terminating incentive compensation and equity plans, severance agreements, profit sharing
plans, bonus plans, change-of-control protections and any other compensatory arrangements for the executive officers and other senior management; and
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reviewing and establishing general policies relating to compensation and benefits of the employees, including the overall
compensation philosophy.
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Nominating and Corporate Governance Committee
The nominating and corporate governance committee consists of
Steven M. West, Emil Michael and Adam Smalley. The chair of the nominating and corporate governance committee is Steven M. West. D-Wave Quantum’s board of directors has determined that each member of the nominating and corporate governance
committee is independent under the NYSE listing standards.
Specific responsibilities of the nominating and corporate governance
committee include:
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identifying and evaluating candidates, including the nomination of incumbent directors for reelection and nominees
recommended by stockholders, to serve on the board of directors;
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considering and making recommendations to the board of directors regarding the composition and chairmanship of the committees
of the board of directors;
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developing and making recommendations to the board of directors regarding corporate governance guidelines and matters,
including in relation to corporate social responsibility; and
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overseeing periodic evaluations of the performance of the board of directors, including its individual directors and
committees.
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Compensation Committee Interlocks and Insider Participation
None of the members of D-Wave Quantum’s compensation committee has
ever been an executive officer or employee of D-Wave Quantum. None of D-Wave Quantum’s executive officers currently serve, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other
entity that has one or more executive officers that serves as a member of D-Wave Quantum’s board of directors or compensation committee.
Code of Ethics
The board of directors has adopted a Code of Business Conduct and
Ethics, or the Code of Conduct, applicable to all of D-Wave Quantum’s employees, executive officers and directors. The Code of Conduct is available at the investors section of D-Wave Quantum’s website at www.
ir.dwavesys.com. Any amendments to the Code of Conduct, or any waivers of its requirements, are expected to be disclosed on its website to the extent required by applicable rules and exchange requirements. The reference to D-Wave
Quantum website address does not constitute incorporation by reference of the information contained at or available through D-Wave Quantum’s website, and you should not consider it to be a part of this prospectus.
Limitation on Liability and Indemnification of Directors and Officers
The D-Wave Quantum Charter limits a directors’ liability to the
fullest extent permitted under the DGCL. The DGCL provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability:
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for any transaction from which the director derives an improper personal benefit;
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for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
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for any unlawful payment of dividends or redemption of shares; or
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for any breach of a director’s duty of loyalty to the corporation or its stockholders.
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If the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Delaware law and the D-Wave Quantum Bylaws provide that D-Wave
Quantum will, in certain situations, indemnify its directors and officers and may indemnify other employees and other agents, to the fullest extent permitted by law. Any indemnified person is also entitled, subject to certain limitations, to
advancement, direct payment, or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final disposition of the proceeding.
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In addition, D-Wave Quantum has entered into separate
indemnification agreements with its directors and officers. These agreements, among other things, require D-Wave Quantum to indemnify its directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement
amounts incurred by a director or officer in any action or proceeding arising out of their services as one of its directors or officers or any other company or enterprise to which the person provides services at its request. The above
description of certain material provisions of the indemnification agreements, is not comprehensive and is qualified in its entirety by reference to the complete text of the form of indemnification agreement, which has been filed as an exhibit
to the registration statement of which this prospectus forms a part.
D-Wave Quantum maintains a directors’ and officers’ insurance
policy pursuant to which its directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe these provisions in the D-Wave Quantum Charter and the D-Wave Quantum Bylaws and these
indemnification agreements are necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, or control persons, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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The following description summarizes the terms of D-Wave Quantum’s
capital stock. This description summarizes the provisions included in the D-Wave Quantum Charter and the D-Wave Quantum Bylaws. Because it is only a summary, it does not contain all of the information that may be important to you. For a
complete description of the matters set forth in this section titled “Description of D-Wave Quantum Securities,” you should refer to the D-Wave Quantum Charter and the D-Wave Bylaws, which are included as exhibits to this prospectus, and to the
applicable provisions of Delaware law.
Authorized and Outstanding Shares
The D-Wave Quantum Charter authorizes the issuance of 695,000,000
shares of capital stock, consisting of:
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675,000,000 shares of common stock, par value $0.0001 per share, and
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20,000,000 preferred stock, par value $0.0001 per share.
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As of June 30, 2023, there were 81,478,201 Common Shares issued
and outstanding, excluding outstanding Exchangeable Shares.
Common Stock
Voting Power
Except as otherwise required by law or as otherwise provided in
any certificate of designation for any series of preferred stock, the holders of Common Shares possess all voting power for the election of our directors and all other matters requiring stockholder action. Holders of Common Shares are entitled
to one vote per share on matters to be voted on by stockholders.
Dividends
Holders of Common Shares will be entitled to receive dividends as
and when declared by D-Wave Quantum’s board of directors at its discretion out of funds properly applicable to the payment of dividends, subject to the rights, if any, of shareholders holding shares with special rights to dividends. The timing,
declaration, amount and payment of future dividends will depend on D-Wave Quantum’s financial condition, earnings, capital requirements and debt service obligations, as well as legal requirements, regulatory constraints, industry practice and
other factors that D-Wave Quantum’s board of directors deems relevant.
Liquidation, Dissolution and Winding Up
In the event of our voluntary or involuntary liquidation,
dissolution, distribution of assets or winding-up, the holders of Common Shares will be entitled to receive an equal amount per share of all of our assets of whatever kind available for distribution to stockholders, after the rights of the
holders of the preferred stock, if any, have been satisfied.
Preemptive or Other Rights
There are no preemptive rights relating to the Common Shares.
Fully Paid and Non-Assessable
The outstanding Common Shares are duly authorized, validly issued,
fully paid and non-assessable.
Election of Directors
There is no cumulative voting with respect to the election of
directors, with the result that the holders of more than 50% of the shares voted for the election of directors will be in a position to elect all of the directors.
Anti-Takeover Provisions of Delaware Law
Special Meetings of Stockholders
The D-Wave Quantum Charter and the D-Wave Quantum Bylaws provide
that special meetings of stockholders may be called only by a majority vote of D-Wave Quantum’s board of directors, by the Chairman of the board of directors, or by the chief executive officer.
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Advance Notice Requirements for Stockholder
Proposals and Director Nominations
The D-Wave Quantum Bylaws provide that stockholders seeking to
bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice of their intent in writing. To be considered timely, a stockholder’s
notice will need to be received by the company secretary at the principal executive offices not earlier than 120 days prior to such special meeting and not later than the close of business on the later of the 90th day prior to such meeting or
the tenth day following the day on which D-Wave Quantum first makes a public announcement of the date of the special meeting and of the nominees proposed by D-Wave Quantum’s board of directors to be elected at such meeting. Pursuant to Rule
14a-8 of the Exchange Act, proposals seeking inclusion in D-Wave Quantum’s annual proxy statement must comply with the notice periods contained therein. The D-Wave Quantum Bylaws specify certain requirements as to the form and content of a
stockholders’ meeting. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.
Authorized but Unissued Shares
D-Wave Quantum’s authorized but unissued shares of common stock
and preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The
existence of authorized but unissued and unreserved shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of D-Wave Quantum by means of a proxy contest, tender offer, merger or
otherwise.
Choice of Forum
The D-Wave Quantum Charter provides that, unless D-Wave Quantum
consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within
the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) and any appellate court therefrom shall be the sole and exclusive forum for the following
claims or causes of action under Delaware statutory or common law: (a) any derivative claim or cause of action brought on behalf of D-Wave Quantum; (b) any claim or cause of action for breach of a fiduciary duty owed by any current or former
director, officer, employee, agent or stockholder of D-Wave Quantum to D-Wave Quantum or D-Wave Quantum’s stockholders; (c) any claim or cause of action against D-Wave Quantum or any current or former director, officer or other employee of
D-Wave Quantum Bylaws, arising out of or pursuant to any provision of the DGCL, the D-Wave Quantum Charter or the D-Wave Quantum (as each may be amended from time to time); (d) any claim or cause of action seeking to interpret, apply, enforce
or determine the validity of the D-Wave Quantum Charter or the D-Wave Quantum Bylaws (as each may be amended from time to time, including any right, obligation or remedy thereunder); (e) any claim or cause of action as to which the DGCL confers
jurisdiction on the Court of Chancery of the State of Delaware; and (f) any claim or cause of action against D-Wave Quantum or any current or former director, officer or other employee of D-Wave Quantum, governed by the internal-affairs
doctrine or otherwise related to D-Wave Quantum’s internal affairs, in all cases to the fullest extent permitted by law and subject to the court having personal jurisdiction over the indispensable parties named as defendants. However, such
choice of forum provisions shall not apply to claims or causes of action brought to enforce a duty or liability created by the Securities Act or the Exchange Act, or other federal securities laws for which there is exclusive federal or
concurrent federal and state jurisdiction.
Unless D-Wave Quantum consents in writing to the selection of an
alternative forum, to the fullest extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities
Act.
While the Delaware courts have determined that such choice of
forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, D-Wave Quantum would expect to vigorously assert the validity
and enforceability of the exclusive forum provisions of the D-Wave Quantum Charter. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions
will be enforced by a court in those other jurisdictions.
These exclusive forum provisions may limit a stockholder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with D-Wave Quantum or its directors, officers, or other employees, which may discourage lawsuits against D-Wave Quantum or its directors, officers and other employees.
If a court were to find
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either exclusive-forum provision in the D-Wave Quantum Charter to be inapplicable
or unenforceable in an action, D-Wave Quantum may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm D-Wave Quantum’s business.
Section 203 of the Delaware General Corporation
Law
D-Wave Quantum is subject to Section 203 of the DGCL, which
prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
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before such date, the board of directors of the corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder;
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upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the
interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or
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on or after such date, the business combination is approved by the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder.
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In general, Section 203 of the DGCL defines a “business combination”
to include the following:
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any merger or consolidation involving the corporation and the interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested
stockholder;
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subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of
the corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class
or series of the corporation beneficially owned by the interested stockholder; and
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the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial
benefits by or through the corporation.
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In general, Section 203 of the DGCL defines an “interested
stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding
voting stock of the corporation.
The statute could prohibit or delay mergers or other takeover or
change in control attempts and, accordingly, may discourage attempts to acquire D-Wave Quantum even though such a transaction may offer its stockholders the opportunity to sell their stock at a price above the prevailing market price.
A Delaware corporation may “opt out” of these provisions with an
express provision in its certificate of incorporation. D-Wave Quantum will not opt out of these provisions, which may as a result, discourage or prevent mergers or other takeover or change of control attempts of it.
Limitation of Liability and Indemnification
The D-Wave Quantum Charter contains provisions that limit the
liability of D-Wave Quantum’s current and former directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any
breach of fiduciary duties as directors, except liability for:
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any breach of the director’s duty of loyalty to the corporation or its stockholders;
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any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
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unlawful payments of dividends or unlawful stock repurchases or redemptions; and
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any transaction from which the director derived an improper personal benefit.
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Such limitation of liability does not apply to liabilities
arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.
D-Wave Quantum has also entered into agreements with its officers
and directors to provide contractual indemnification. D-Wave Quantum will purchase a policy of directors’ and officers’ liability insurance that insures its directors and officers against the cost of defense, settlement or payment of a judgment
in some circumstances and insures D-Wave Quantum against its obligations to indemnify the directors and officers.
These provisions may discourage stockholders from bringing a
lawsuit against D-Wave Quantum’s directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if
successful, might otherwise benefit D-Wave Quantum or its stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent D-Wave Quantum pays the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions. D-Wave Quantum believes that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced directors and officers.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to D-Wave Quantum’s directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, D-Wave Quantum has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable.
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Description of Exchangeable Shares
The Exchangeable Shares were issued by ExchangeCo and carry, as
nearly as reasonably practicable, equivalent economic entitlements to those of the Common Shares, for which they are exchangeable. There are possible disadvantages or risks of holding Exchangeable Shares.
As of June 30, 2023, there were 46,550,462 Exchangeable Shares
issued and outstanding and held by approximately 37 holders of record.
Ranking
The Exchangeable Shares are entitled to a preference over the
common shares of ExchangeCo and any other shares ranking junior to the Exchangeable Shares with respect to (i) the payment of dividends or other distributions, and (ii) the distribution of assets in the event of the liquidation, dissolution or
winding-up of ExchangeCo, whether voluntary or involuntary, or any other distribution of the assets of ExchangeCo among its shareholders for the purpose of winding up its affairs, in each case, as and to the extent provided therefor in the
terms attaching to the Exchangeable Shares.
Dividends and Other Distributions
A holder of an Exchangeable Share shall be entitled to receive and
the board of directors of ExchangeCo shall, subject to applicable law, on each date (a “D-Wave Quantum Dividend Declaration Date”) on which the D-Wave Quantum Board declares any dividend or other distribution on the Common Shares, declare a
dividend or other distribution on each Exchangeable Share:
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in case of a cash dividend or other distribution declared on the Common Shares, in an amount in cash, payable in United
States dollars, for each Exchangeable Share equal to the cash dividend or other distribution declared on each Common Share multiplied by the relevant Exchangeable Share Exchange Ratio on the D-Wave Quantum Dividend Declaration Date;
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in the case of a stock or share dividend or other distribution declared on the Common Shares to be paid in Common Shares, by
the issue or transfer by ExchangeCo of such number of Exchangeable Shares for each Exchangeable Share as is equal to the number of Common Shares to be paid on each Common Share multiplied by the relevant Exchangeable Share Exchange
Ratio on the D-Wave Quantum Dividend Declaration Date; or
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in the case of a dividend or other distribution declared on the Common Shares in property other than cash or Common Shares,
in such type and amount of property for each Exchangeable Share as is the same as or economically equivalent (as determined by the board of directors of ExchangeCo) and adjusted for the relevant Exchangeable Share Exchange Ratio to the
type and amount of property declared as a dividend or other distribution on each Common Share.
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Such dividends or other distributions shall be paid out of money,
assets or property of ExchangeCo properly applicable to the payment of dividends or other distributions, or out of authorized but unissued shares of ExchangeCo; provided that ExchangeCo may, in lieu of paying such dividend or other
distributions, elect to adjust the ratio at which Exchangeable Shares may be exchanged for Common Shares, which ratio (the “Exchangeable Share Exchange Ratio”) shall be equal to 1.00000 at the Effective Time and shall be cumulatively adjusted
from time to time thereafter in the event ExchangeCo, in its sole discretion, determines that ExchangeCo would be liable for any unrecoverable tax as a result of paying any such dividend or distribution. The holders of Exchangeable Shares shall
not be entitled to any dividends or other distributions other than or in excess of the foregoing.
The record date for the determination of the holders of
Exchangeable Shares entitled to receive payment of, and the payment date for, any dividend or other distribution declared on the Exchangeable Shares will be the same dates as the record date and payment date, respectively, for the corresponding
dividend or other distribution declared on the Common Shares.
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If on any payment date for any dividends or other distributions
declared on the Exchangeable Shares, the dividends or other distributions are not paid in full on all of the Exchangeable Shares then outstanding, any such dividends or other distributions that remain unpaid will be paid on a subsequent date or
dates determined by the board of directors of ExchangeCo on which ExchangeCo shall have sufficient monies, assets or property properly applicable to the payment of such dividends or other distributions.
The board of directors of ExchangeCo is required to determine, in
good faith and in its sole discretion (with the assistance of such financial or other advisors as the board of directors of ExchangeCo may determine), “economic equivalence” for the purposes of the Exchangeable Shares and each such
determination will be conclusive and binding on ExchangeCo and its shareholders. In making each such determination, a number of factors set out in the Exchangeable Share Provisions shall, without excluding other factors determined by the board
of directors of ExchangeCo to be relevant, be considered by the board of directors of ExchangeCo.
Certain Restrictions
So long as any of the Exchangeable Shares are outstanding,
ExchangeCo shall not at any time without, but may at any time with, the approval of the holders of the Exchangeable Shares:
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pay any dividends or other distributions to any shares ranking junior to the Exchangeable Shares with respect to the payment
of dividends or other distributions (other than to common shares of ExchangeCo), provided that ExchangeCo may pay stock or share dividends payable in common shares of ExchangeCo or any such other shares ranking junior to the
Exchangeable Shares, as the case may be;
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redeem or purchase or make any capital distribution in respect of common shares of ExchangeCo or any other shares ranking
equally or junior to the Exchangeable Shares with respect to the payment of dividends or the distribution of assets in the event of the liquidation, dissolution or winding-up of ExchangeCo, whether voluntary or involuntary, or any other
distribution of the assets of ExchangeCo among its shareholders for the purpose of winding up its affairs; or
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issue any Exchangeable Shares or any other shares of ExchangeCo ranking equally with, or superior to, the Exchangeable
Shares, other than, in each case, by way of stock or share dividend to the holders of such Exchangeable Shares.
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The restrictions listed in (a), (b), and (c) above shall not apply
if all dividends or other distributions on the outstanding Exchangeable Shares corresponding to dividends or other distributions declared and paid on the Common Shares shall have been declared and paid in full on the Exchangeable Shares and the
Exchangeable Share Exchange Ratio shall have been adjusted in accordance with the Exchangeable Share Provisions, prior to or as at the date of any such event referred to in (a), (b), and (c) above.
Distribution on Liquidation and Associated Call Right
Subject to applicable law and the due exercise by D-Wave Quantum
or CallCo of the Liquidation Call Right (as defined below) (which shall itself be subject to the sale and purchase contemplated by the automatic exchange of Exchangeable Shares for D-Wave Quantum Shares provided for in the agreement made among
D-Wave Quantum, ExchangeCo, CallCo and the Trustee (as defined below) in connection with the Plan of Arrangement (the “Voting and Exchange Trust Agreement”) (the “Automatic Exchange Right”)), in the event of the liquidation, dissolution or
winding-up of ExchangeCo or any other distribution of the assets of ExchangeCo among its shareholders for the purpose of winding up its affairs, that does not trigger a redemption by ExchangeCo (as described below), a holder of Exchangeable
Shares shall be entitled to receive from the assets of ExchangeCo in respect of each Exchangeable Share held by such holder on the effective date of the liquidation, dissolution or winding-up of ExchangeCo or any other distribution of the
assets of ExchangeCo among its shareholders for the purpose of winding up its affairs (the “Liquidation Date”), before any distribution of any part of the assets of ExchangeCo among the holders of the common shares of ExchangeCo or any other
shares ranking junior to the Exchangeable Share with respect to dividends or other distributions, an amount per share (the “Liquidation Amount”) equal to (i) the fair market value at such time, of that number of Common Shares multiplied by the
Exchangeable Share Exchange Ratio (subject to adjustment) plus (ii) the declared and unpaid dividends on such Exchangeable Share (the “Exchangeable Share Price”) on the last business day prior to the Liquidation Date, which price shall be
satisfied in full by ExchangeCo delivering or causing to be delivered to such holder the Exchangeable Share Consideration (as defined below) representing the Liquidation Amount.
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D-Wave Quantum and CallCo will each have the overriding right
(the “Liquidation Call Right”), in the event of and notwithstanding the proposed liquidation, dissolution or winding-up of ExchangeCo or any other distribution of the assets of ExchangeCo among its shareholders for the purpose of winding up its
affairs and subject to the sale and purchase contemplated by the Automatic Exchange Right, to purchase from all but not less than all of the holders of Exchangeable Shares (other than D-Wave Quantum or an affiliate of D-Wave Quantum) on the
Liquidation Date all but not less than all of the Exchangeable Shares held by each such holder on payment by D-Wave Quantum or CallCo, as the case may be, to each such holder of an amount per share (the “Liquidation Call Purchase Price”) equal
to the Exchangeable Share Price (payable in the form of (a) one Common Share multiplied by the Exchangeable Share Exchange Ratio on the business day immediately preceding the date on which the Exchangeable Share Price being delivered is
calculated; plus (b) a cheque or cheques payable at par at any branch of the bankers of the payor in the amount of all declared, payable and unpaid, and all undeclared but payable, cash dividends deliverable in connection with such action; plus
(c) such stock or other property constituting any declared, payable and unpaid non-cash dividends deliverable in connection with such action; provided that: (i) the part of the consideration which represents (c) above shall be fully paid and
satisfied by delivery of such non-cash items; (ii) in each case, any such consideration shall be delivered free and clear of any lien, claim, encumbrance, security interest or adverse claim or interest; and (iii) in each case, any such
consideration shall be paid without interest and less any tax required to be deducted and withheld therefrom (the “Exchangeable Share Consideration”)) on the last business day prior to the Liquidation Date. The Liquidation Call Purchase Price
shall be satisfied in full by D-Wave Quantum or CallCo depositing or causing to be deposited with the registrar and transfer agent for the Exchangeable Shares as appointed by ExchangeCo from time to time (the “Exchangeable Shares Transfer
Agent”), on or before the Liquidation Date, the Exchangeable Share Consideration representing the aggregate Liquidation Call Purchase Price. In the event of the exercise of the Liquidation Call Right by D-Wave Quantum or CallCo, as the case may
be, each such holder (other than D-Wave Quantum or an affiliate of D-Wave Quantum) shall be obligated to sell all of the Exchangeable Shares held by the holder to D-Wave Quantum or CallCo, as the case may be, on the Liquidation Date on payment
by D-Wave Quantum or CallCo, as the case may be, to the holder of the Liquidation Call Purchase Price for each such share, and ExchangeCo shall have no obligation to pay any Liquidation Amount to the holders of such shares so purchased.
CallCo shall only be entitled to exercise the Liquidation Call
Right with respect to those Exchangeable Shares, if any, in respect of which D-Wave Quantum has not exercised the Liquidation Call Right. To exercise the Liquidation Call Right, D-Wave Quantum or CallCo must notify the Exchangeable Shares
Transfer Agent, as agent for the holders of Exchangeable Shares, and ExchangeCo of its intention to exercise such right (i) in the case of a voluntary liquidation, dissolution or winding-up of ExchangeCo or any other voluntary distribution of
the assets of ExchangeCo among its shareholders for the purpose of winding up its affairs, at least 15 business days before the Liquidation Date, or (ii) in the case of an involuntary liquidation, dissolution or winding-up of ExchangeCo or any
other involuntary distribution of the assets of ExchangeCo among its shareholders for the purpose of winding up its affairs, at least five business days before the Liquidation Date. The Exchangeable Shares Transfer Agent will notify the holders
of Exchangeable Shares as to whether or not D-Wave Quantum and/or CallCo has exercised the Liquidation Call Right forthwith after the expiry of the period during which the same may be exercised by D-Wave Quantum or CallCo. If D-Wave Quantum
and/or CallCo exercises the Liquidation Call Right, then on the Liquidation Date, D-Wave Quantum and/or CallCo, as the case may be, will purchase and the holders of the Exchangeable Shares (other than D-Wave Quantum or an affiliate of D-Wave
Quantum) will sell, all of the Exchangeable Shares held by such holders on such date for a price per share equal to the Liquidation Call Purchase Price (payable in the form of the Exchangeable Share Consideration).
Retraction of Exchangeable Shares and Associated Call Right
Subject to applicable law and the due exercise by D-Wave Quantum
or CallCo of the Retraction Call Right (as defined below), a holder of Exchangeable Shares shall be entitled at any time to require ExchangeCo to redeem, or D-Wave Quantum to purchase (at the holder’s discretion) any or all Exchangeable Shares
registered in the name of such holder and for an amount per share equal to the Exchangeable Share Price on the last business day prior to the Retraction Date (as defined below) (the “Retraction Price”), which price shall be satisfied in full by
ExchangeCo or D-Wave Quantum delivering or causing to be delivered to such holder the Exchangeable Share Consideration representing the Retraction Price. A holder of Exchangeable Shares must give notice of a request to redeem or purchase, as
applicable, by presenting and surrendering to ExchangeCo or D-Wave Quantum, as applicable, at the registered office of ExchangeCo or D-Wave Quantum, as applicable, or at any office of the Exchangeable Shares Transfer Agent as may be specified
by ExchangeCo or D-Wave Quantum, as applicable, by notice to the holders of
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the Exchangeable Shares, the certificate(s) representing the Exchangeable Shares
(if any) that the holder desires to have ExchangeCo or D-Wave Quantum redeem or purchase, as applicable, together with (i) such other documents and instruments as may be required to effect a transfer of the Exchangeable Shares under the BCBCA
and the articles of ExchangeCo, as applicable, together with such additional documents, instruments and payments as the Exchangeable Shares Transfer Agent and ExchangeCo or D-Wave Quantum, as applicable, may reasonably require and (ii) a duly
executed request (“Retraction Request”) in the form of Appendix I to the Exchangeable Share Provisions or in such other form as may be acceptable to ExchangeCo or D-Wave Quantum, as applicable: (A) specifying that the holder desires to have all
or any number specified therein of the Exchangeable Shares represented by such certificate(s) (if any) or by any non-transferable acknowledgement (the “Retracted Shares”) redeemed by ExchangeCo or purchased by D-Wave Quantum, as applicable; (B)
stating the business day on which the holder desires to have ExchangeCo redeem or D-Wave Quantum purchase, as applicable, the Retracted Shares (the “Retraction Date”), provided that the Retraction Date shall not be less than 10 business days
nor more than 15 business days after the date on which the Retraction Request is received by ExchangeCo or D-Wave Quantum, as applicable, and further provided that, in the event that no such business day is specified by the holder in the
Retraction Request, the Retraction Date shall be deemed to be the 15th business day after the date on which the Retraction Request is received by ExchangeCo or D-Wave Quantum, as applicable; and (C) acknowledging the overriding Retraction Call
Right (as defined below) of D-Wave Quantum and CallCo to purchase all but not less than all the Retracted Shares directly from the holder and that the Retraction Request shall be deemed to be a revocable offer by the holder to sell the
Retracted Shares to D-Wave Quantum or CallCo in accordance with the Retraction Call Right (as defined below) on the Retraction Date for the Retraction Call Right Purchase Price (as defined below) and on the other terms and conditions set out in
the Exchangeable Share Provisions.
In the event that a holder of Exchangeable Shares delivers a
Retraction Request, D-Wave Quantum and CallCo shall have the overriding right (the “Retraction Call Right”), notwithstanding the proposed redemption of the Exchangeable Shares by ExchangeCo or purchase of the Exchangeable Shares by D-Wave
Quantum, as applicable, to purchase from such holder on the Retraction Date all but not less than all of the Retracted Shares held by such holder on payment by D-Wave Quantum or CallCo, as the case may be, of an amount per share equal to the
Exchangeable Share Price applicable on the last business day prior to the Retraction Date (the “Retraction Call Right Purchase Price”), which price shall be satisfied in full by D-Wave Quantum or CallCo, as the case may be, delivering or
causing to be delivered to such holder the Exchangeable Share Consideration representing the Retraction Call Right Purchase Price. Upon the exercise of the Retraction Call Right by D-Wave Quantum (provided that the applicable Retraction Request
has not been revoked in the manner described below), the holder of such Retracted Shares shall be obligated to sell all of such Retracted Shares to D-Wave Quantum or CallCo, as the case may be, on the Retraction Date on payment by D-Wave
Quantum or CallCo, as the case may be, of the aggregate Retraction Call Right Purchase Price in respect of such shares
Upon receipt by ExchangeCo or D-Wave Quantum, as applicable, of a
Retraction Request, ExchangeCo or D-Wave Quantum, as applicable, shall immediately notify D-Wave Quantum and CallCo thereof and shall provide D-Wave Quantum or CallCo with a copy of the Retraction Request. CallCo shall only be entitled to
exercise the Retraction Call Right with respect to those Exchangeable Shares, if any, in respect of which D-Wave Quantum has not exercised the Retraction Call Right or in respect of which D-Wave Quantum has received the relevant Retraction
Request and in respect of which D-Wave Quantum has not exercised its Retraction Call Right. To exercise its Retraction Call Right, D-Wave Quantum or CallCo, as the case may be, must notify ExchangeCo or D-Wave Quantum, as applicable, and the
Exchangeable Shares Transfer Agent, as agent for the holders of the Exchangeable Shares, in writing of its determination to do so within five business days after ExchangeCo or D-Wave Quantum, as applicable, notifies D-Wave Quantum and CallCo of
the Retraction Request. If neither D-Wave Quantum nor CallCo so notifies ExchangeCo or D-Wave Quantum, as applicable, within such five business day period, ExchangeCo or D-Wave Quantum, as applicable, shall notify the holder as soon as possible
thereafter that neither D-Wave Quantum nor CallCo will exercise the Retraction Call Right. Provided that the aggregate Retraction Call Right Purchase Price has been so deposited with the Exchangeable Shares Transfer Agent, the closing of the
purchase and sale of the Retracted Shares pursuant to the Retraction Call Right shall be deemed to have occurred as at the close of business on the Retraction Date and, for greater certainty, no redemption by ExchangeCo or purchase by D-Wave
Quantum, as applicable, of such Retracted Shares shall take place on the Retraction Date.
A holder of Exchangeable Shares who has made a Retraction Request
may, by notice in writing given by the holder to ExchangeCo or D-Wave Quantum, as applicable, before the close of business on the second business day
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immediately preceding the Retraction Date, withdraw such Retraction Request, in
which event such Retraction Request will be null and void and the revocable offer constituted by the Retraction Request to sell such Exchangeable Shares to D-Wave Quantum or CallCo pursuant to the exercise of the Retraction Call Right will be
deemed to have been revoked.
If neither D-Wave Quantum nor CallCo notifies the Exchangeable
Shares Transfer Agent and ExchangeCo or D-Wave Quantum, as applicable, of its intention to exercise the Retraction Call Right in the manner and timing described above, each holder of Exchangeable Shares will, at the holder’s discretion, be
entitled to demand (by way of notice given to ExchangeCo or D-Wave Quantum) that D-Wave Quantum exercise (provided that D-Wave Quantum may, in its sole discretion, cause CallCo to exercise in its stead) the Retraction Call Right in respect of
the shares covered by the notice.
Redemption of Exchangeable Shares and Associated Call Right
Subject to applicable law and the due exercise by D-Wave Quantum
or CallCo of the Redemption Call Right (as defined below), ExchangeCo shall on the Redemption Date (as defined below) redeem all but not less than all of the then outstanding Exchangeable Shares (other than Exchangeable Shares held by D-Wave
Quantum and its affiliates) for an amount per share (the “Redemption Price”) equal to the Exchangeable Share Price on the last business day prior to the Redemption Date, which price shall be satisfied in full by ExchangeCo delivering or causing
to be delivered to each holder of Exchangeable Shares the Exchangeable Share Consideration for each Exchangeable Share held by such holder.
The “Redemption Date” is the date, if any, established by the
board of directors of ExchangeCo for the redemption by ExchangeCo of all but not less than all of the outstanding Exchangeable Shares, which date shall be the later of (A) the fifth anniversary of the effective date of the Arrangement (the
“Effective Date”) and (B) the date that the redemption of the Exchangeable Shares would not result in any holder of Exchangeable Shares being in violation of Canadian pension regulations that restrict it from owning more than 30% of the
securities that vote for the election of directors of D-Wave Quantum (including, for greater certainty, the rule precluding Public Sector Pension Investment Board from investing in, directly or indirectly, securities to which are attached more
than thirty percent (30%) of the right to vote for the election of directors of a corporation (or members of any similar governing body of a company or entity) (the “30% Rule”)) (the “Sunset Date”) unless, prior to that time:
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(a)
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the aggregate number of Exchangeable Shares issued and outstanding (other than Exchangeable Shares held by D-Wave Quantum and
its affiliates) is less than 5% of the number of Exchangeable Shares issued on the Effective Date (as such number of shares may be adjusted as deemed appropriate by the board of directors of ExchangeCo in certain circumstances set forth
in the Exchangeable Share Provisions) and provided that the exercise of such redemption right does not result in any shareholder being in violation of Canadian pension regulations that restrict it from owning more than 30% of the
securities that vote for the election of directors of D-Wave Quantum (including, for greater certainty, the 30% Rule), in which case the board of directors of ExchangeCo may accelerate such Redemption Date to such date as it may
determine, upon at least 30 days’ prior written notice to the holders of the Exchangeable Shares and the Trustee;
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(b)
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(i) any person acquires, directly or indirectly, any voting security of D-Wave Quantum, immediately after such acquisition,
directly or indirectly owns, or exercises control and direction over, voting securities representing more than 50% of the total voting power of all of the then outstanding voting securities of D-Wave Quantum; (ii) the shareholders of
D-Wave Quantum approve a merger, consolidation, recapitalization or reorganization of D-Wave Quantum, other than any such transaction which would result in the holders of outstanding voting securities of D-Wave Quantum immediately prior
to such transaction directly or indirectly owning, or exercising control and direction over, voting securities representing more than 50% of the total voting power of all of the voting securities of the surviving entity outstanding
immediately after such transaction; (iii) the shareholders of D-Wave Quantum approve a liquidation of D-Wave Quantum; (iv) D-Wave Quantum sells or disposes of all or substantially all of its assets; (v) D-Wave Quantum distributes
securities or other property, by way of dividend, distribution, reorganization, spin-off, split-off or other similar event, to all holders of Common Shares that constitutes, prior to the date of distribution, business securities or
assets (including equity interests of affiliates or investees of D-Wave Quantum) with a fair market value (as determined by the board of directors of D-Wave Quantum in its good faith judgment) equal to 10% or more of the fair market
value of, or that constitutes
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10% or more of the revenue or assets of, D-Wave Quantum and its affiliates,
taken as a whole; or (vi) any other transaction or series of related transactions having a substantially similar effect as those described above (each a “D-Wave Quantum Extraordinary Transaction”) is proposed, in which case, provided that the
board of directors of ExchangeCo determines in good faith, that it is not practicable to substantially replicate the terms and conditions of the Exchangeable Shares in connection with such D-Wave Quantum Extraordinary Transaction or that the
redemption of all but not less than all of the outstanding Exchangeable Shares (other than Exchangeable Shares held by D-Wave Quantum and its affiliates) is necessary to enable the completion of such D-Wave Quantum Extraordinary Transaction in
accordance with its terms, the board of directors of ExchangeCo may accelerate such Redemption Date to such date as it may determine, upon such number of days’ prior written notice to the holders of the Exchangeable Shares and the Trustee as
the board of directors of ExchangeCo may determine to be reasonably practicable in such circumstances, unless so accelerating such redemption date and exercising such redemption right on such accelerated redemption date would result in any
holder of Exchangeable Shares being in violation of Canadian pension regulations that restrict it from owning more than 30% of the securities that vote for the election of directors of D-Wave Quantum (including, for greater certainty, the 30%
Rule);
D-Wave Quantum and CallCo shall each have the overriding right
(the “Redemption Call Right”), notwithstanding the proposed redemption of the Exchangeable Shares by ExchangeCo, to purchase from all but not less than all of the holders of Exchangeable Shares (other than D-Wave Quantum or an affiliate of
D-Wave Quantum) on the Redemption Date all but not less than all of the Exchangeable Shares held by each such holder on payment by D-Wave Quantum or CallCo, as the case may be, of an amount per share (the “Redemption Call Purchase Price”) equal
to the Exchangeable Share Price on the last business day prior to the Redemption Date.
The Redemption Call Purchase Price shall be satisfied in full by
D-Wave Quantum or CallCo depositing or causing to be deposited with the Exchangeable Shares Transfer Agent, on or before the Redemption Date, the Exchangeable Share Consideration representing the aggregate Redemption Call Purchase Price. In the
event of the exercise of the Redemption Call Right by D-Wave Quantum or CallCo, as the case may be, each holder of Exchangeable Shares (other than D-Wave Quantum and its affiliates) shall be obligated to sell all of the Exchangeable Shares held
by the holder to D-Wave Quantum or CallCo, as the case may be, on the Redemption Date on payment by D-Wave Quantum or CallCo, as the case may be, to the holder of the Redemption Call Purchase Price for each such share, and ExchangeCo shall have
no obligation to redeem, or pay the Redemption Price, in respect of the shares so purchased.
CallCo shall only be entitled to exercise the Redemption Call
Right with respect to those Exchangeable Shares, if any, in respect of which D-Wave Quantum has not exercised the Redemption Call Right, other than in the case where the Redemption Date is the Sunset Date (such redemption, the “Sunset
Redemption”) with respect to which CallCo shall always be entitled to exercise the Redemption Call Right. To exercise the Redemption Call Right, D-Wave Quantum or CallCo must notify the Exchangeable Shares Transfer Agent, as agent for the
holders of Exchangeable Shares, and ExchangeCo of its intention to exercise such right (i) in the case of a redemption occurring as a result of a D-Wave Quantum Extraordinary Transaction, on or before the Redemption Date, and (ii) in any other
case, at least 15 business days before the Redemption Date. The Exchangeable Shares Transfer Agent will notify the holders of Exchangeable Shares as to whether or not D-Wave Quantum and/or CallCo has exercised the Redemption Call Right
forthwith after the expiry of the period during which the same may be exercised by D-Wave Quantum or CallCo. If D-Wave Quantum and/or CallCo exercises the Redemption Call Right, then on the Redemption Date, D-Wave Quantum and/or CallCo, as the
case may be, will purchase and the holders of the Exchangeable Shares (other than any holder of Exchangeable Shares which is D-Wave Quantum or any of its affiliates) will sell all of the Exchangeable Shares held by such holders on such date for
a price per share equal to the Redemption Call Purchase Price (payable in the form of the Exchangeable Share Consideration).
If neither D-Wave Quantum nor CallCo notifies the Exchangeable
Shares Transfer Agent and ExchangeCo of its intention to exercise the Redemption Call Right in the manner and timing described above, each holder of Exchangeable Shares will, at the holder’s discretion, be entitled to demand (by way of notice
given to ExchangeCo or D-Wave Quantum) that D-Wave Quantum exercise (provided that D-Wave Quantum may, in its sole discretion, cause CallCo to exercise in its stead) the Redemption Call Right in respect of the shares covered by the notice.
Change of Law Call Right
D-Wave Quantum and CallCo shall each have the overriding right
(the “Change of Law Call Right”), in the event of any amendment to the Tax Act and other applicable provincial income tax laws that permits Canadian
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resident holders of the Exchangeable Shares, who hold the Exchangeable Shares as
capital property and deal at arm’s length with D-Wave Quantum and ExchangeCo (all for the purposes of the Tax Act and other applicable provincial income tax laws), to exchange their Exchangeable Shares for Common Shares on a basis that will not
require such holders to recognize any income, gain or loss or any actual or deemed dividend in respect of such exchange for the purposes of the Tax Act or applicable provincial income tax laws, or any change to the Public Sector Pension
Investment Board Act, S.C. 1999, c.34, as amended from time to time (including the regulations adopted thereunder) that impacts the 30% Rule (a “Change of Law”), to purchase from all but not less than all of the holders of Exchangeable Shares
(other than any holder of Exchangeable Shares which is D-Wave Quantum or any of its affiliates) on the Change of Law Call Date (as defined below) all but not less than all of the Exchangeable Shares held by each such holder on payment by D-Wave
Quantum or CallCo, as the case may be, to each such holder an amount per share (the “Change of Law Call Purchase Price”) equal to the Exchangeable Share Price applicable on the last business day prior to the date on which D-Wave Quantum or
ExchangeCo acquires the Exchangeable Shares pursuant to the exercise of the Change of Law Call Right (the “Change of Law Call Date”), which shall be satisfied in full by D-Wave Quantum or CallCo depositing or causing to be deposited with the
Exchangeable Shares Transfer Agent, on or before the Change of Law Call Date, the Exchangeable Share Consideration representing the total Change of Law Call Purchase Price. In the event of the exercise of the Change of Law Call Right by D-Wave
Quantum or CallCo, as the case may be, each such holder of Exchangeable Shares (other than D-Wave Quantum and its affiliates) shall be obligated to sell all of the Exchangeable Shares held by the holder to D-Wave Quantum or CallCo, as the case
may be, on the Change of Law Call Date upon payment by D-Wave Quantum or CallCo, as the case may be, to such holder of the Change of Law Call Purchase Price (payable in the form of Exchangeable Share Consideration) for each such share.
CallCo shall only be entitled to exercise the Change of Law Call
Right with respect to those Exchangeable Shares, if any, in respect of which D-Wave Quantum has not exercised the Change of Law Call Right. To exercise the Change of Law Call Right, D-Wave Quantum or CallCo, as the case may be, must notify the
Exchangeable Shares Transfer Agent, as agent for the holders of Exchangeable Shares, and ExchangeCo of its intention to exercise such right at least 15 business days before the Change of Law Call Date. The Exchangeable Shares Transfer Agent
will notify the holders of Exchangeable Shares as to D-Wave Quantum or CallCo exercising the Change of Law Call Right forthwith after receiving notice of such exercise from D-Wave Quantum and/or CallCo. If D-Wave Quantum and/or CallCo exercises
the Change of Law Call Right, then on the Change of Law Call Date,
D-Wave Quantum and/or CallCo, as the case may be, will purchase
and the holders of the Exchangeable Shares (other than any holder of Exchangeable Shares which is D-Wave Quantum or any of its affiliates) will sell, all of the Exchangeable Shares then outstanding for a price per share equal to the Change of
Law Call Purchase Price (payable in the form of Exchangeable Share Consideration).
If neither D-Wave Quantum nor CallCo notifies the Exchangeable
Shares Transfer Agent and ExchangeCo of its intention to exercise the Change of Law Call Right in the manner and timing described above, each holder of Exchangeable Shares will, at the holder’s discretion, be entitled to demand (by way of
notice given to ExchangeCo or D-Wave Quantum) that D-Wave Quantum exercise (provided that D-Wave Quantum may, in its sole discretion, cause CallCo to exercise in its stead) the Change of Law Call Right in respect of the shares covered by the
notice.
Notwithstanding anything else in the articles of ExchangeCo, if a
Change of Law takes place and, following that Change of Law, if exercised, the rights set out above would result in Public Sector Pension Investment Board being in breach of the 30% Rule in the reasonable opinion of its counsel, then
ExchangeCo, the holders of Exchangeable Shares, D-Wave Quantum and CallCo shall all work in good faith to take all reasonable steps to ensure that PSP remains in compliance with the 30% Rule, as it exists at such time.
Voting Rights
Except as required by applicable law and in respect of certain
matters as further described in the Exchangeable Share Provisions, the holders of the Exchangeable Shares shall not be entitled as such to receive notice of or to attend any meeting of the shareholders of ExchangeCo or to vote at any such
meeting. Without limiting the generality of the foregoing, the holders of the Exchangeable Shares shall not be entitled to class votes except as required by applicable law. Each holder of Exchangeable Shares shall have the right to instruct the
Trustee to cast and exercise, in the manner instructed, the number of votes to which a holder of one Common Share is entitled with respect to any matter, proposition or question for each Exchangeable Share multiplied by the Exchangeable Share
Exchange Ratio owned of record by such holder. See “—Voting and Exchange Trust Agreement.”
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Amendment and Approval
Any approval required to be given by the holders of the
Exchangeable Shares to add to, change or remove any right, privilege, restriction or condition attaching to the Exchangeable Shares or any other matter requiring the approval or consent of the holders of the Exchangeable Shares in accordance
with applicable law shall be deemed to have been sufficiently given if it has been given in accordance with applicable law, subject to, in respect of any approval required by Sections 1.4, 1.5(d), 1.11 or 1.12 of the Exchangeable Share
Provisions, a minimum requirement that such approval be evidenced by a resolution passed by not less than two-thirds of the votes cast on such resolution at a meeting of holders of Exchangeable Shares duly called and held at which the holders
of at least 10% of the outstanding Exchangeable Shares at that time are present in person or represented by proxy.
Voting and Exchange Trust Agreement
The following is a summary description of certain material
provisions of the Voting and Exchange Trust Agreement, is not comprehensive and is qualified in its entirety by reference to the complete text of the Voting and Exchange Trust Agreement which has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
The purpose of the Voting and Exchange Trust Agreement is to
create a trust for the benefit of the registered holders from time to time of Exchangeable Shares, other than D-Wave Quantum, CallCo and their affiliates (the “Beneficiaries”). The Trustee will hold the special voting share in the capital of
D-Wave Quantum which entitles the holder to that number of votes at meetings of holders of Common Shares equal to the number of Exchangeable Shares outstanding at such time (excluding Exchangeable Shares held by D-Wave Quantum and its
affiliates) multiplied by the Exchangeable Share Exchange Ratio (the “Special Voting Share”) in order to enable the Trustee to exercise the voting rights attached thereto and will hold the Exchange Right (as defined below) and the Automatic
Exchange Right in order to enable the Trustee to exercise or enforce such rights, in each case as trustee for and on behalf of the Beneficiaries.
Voting Rights
Pursuant to the Voting and Exchange Trust Agreement, D-Wave
Quantum has issued to and deposited with the Trustee the Special Voting Share to be held of record by the Trustee as trustee for and on behalf of, and for the use and benefit of, the Beneficiaries and in accordance with the provisions of the
Voting and Exchange Trust Agreement.
Under the Voting and Exchange Trust Agreement, the Trustee shall
be entitled to exercise all of the voting rights, including the right to vote in person or by proxy, attaching to the Special Voting Share on any matters, question, proposal or proposition that may properly come before the D-Wave Quantum
Shareholders at a meeting of D-Wave Quantum Shareholders.
With respect to all meetings of shareholders of D-Wave Quantum at
which D-Wave Quantum Shareholders are entitled to vote, each Beneficiary shall be entitled to instruct the Trustee to cast and exercise, in the manner instructed, the number of votes to which a holder of one Common Share is entitled with
respect to such matter, proposition or question for each Exchangeable Share owned of record by such Beneficiary at the close of business on the record date established by D-Wave Quantum or by applicable law, multiplied by the Exchangeable Share
Exchange Ratio, and in respect of each Beneficiary, rounded down to the nearest whole vote.
The aggregate voting rights attached to the Special Voting Share
at a meeting of shareholders of D-Wave Quantum at which shareholders of D-Wave Quantum are entitled to vote shall consist of a number of votes equal to one vote per outstanding Exchangeable Share from time to time not owned by D-Wave Quantum
and its affiliates on the record date established by D-Wave Quantum, multiplied by the Exchangeable Share Exchange Ratio and for which the Trustee shall have received voting instructions from the holder of the Exchangeable Share.
The Trustee will exercise each vote attached to the Special Voting
Share only as directed by the relevant holder and, in the absence of instructions from a holder as to voting, the Trustee will not exercise voting rights with respect to such Exchangeable Share. A holder may, upon instructing the Trustee,
obtain a proxy from the Trustee entitling the holder to vote directly at the relevant meeting the votes attached to the Special Voting Share to which the holder is entitled.
The Trustee will send to the Beneficiaries the notice of each
meeting at which the D-Wave Quantum Shareholders are entitled to vote, together with the related meeting materials and a statement as to the manner in
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which the holder may instruct the Trustee to exercise the votes attaching to the
Special Voting Share, at the same time as D-Wave Quantum sends such notice and materials to the D-Wave Quantum Shareholders. The Trustee will also send to the holders of Exchangeable Shares copies of all information statements, interim and
annual financial statements, reports and other materials sent by D-Wave Quantum to the D-Wave Quantum Shareholders at the same time as such materials are sent to the D-Wave Quantum Shareholders. To the extent such materials are provided to the
Trustee by D-Wave Quantum, the Trustee will also send to the holders all materials sent by third parties to D-Wave Quantum Shareholders generally, including dissident proxy circulars and tender and exchange offer circulars, as soon as possible
after such materials are first sent to D-Wave Quantum Shareholders.
All rights of a holder of Exchangeable Shares to exercise votes
attached to the Special Voting Share will cease upon the exchange of such holder’s Exchangeable Shares for Common Shares.
ExchangeCo Insolvency Event—Exchange Right
Upon the occurrence and during the continuance of (i) the
institution by ExchangeCo of any proceeding to be adjudicated a bankrupt or insolvent or to be dissolved or wound up, or the consent of ExchangeCo to the institution of bankruptcy, insolvency, dissolution or winding-up proceedings against it,
(ii) the filing by ExchangeCo of a petition, answer or consent seeking dissolution or winding-up under any bankruptcy, insolvency or analogous laws, including the Companies Creditors’ Arrangement Act (Canada) and the Bankruptcy and Insolvency
Act (Canada), or the failure by ExchangeCo to contest in good faith any such proceedings commenced in respect of ExchangeCo within 30 days of becoming aware thereof, or the consent by ExchangeCo to the filing of any such petition or to the
appointment of a receiver, (iii) the making by ExchangeCo of a general assignment for the benefit of creditors, or the admission in writing by ExchangeCo of its inability to pay its debts generally as they become due, or (iv) ExchangeCo not
being permitted, pursuant to solvency requirements of applicable law, to redeem any Exchangeable Shares pursuant to the terms of the Exchangeable Share Provisions specified in a Retraction Request delivered to ExchangeCo in accordance with the
terms of the Exchangeable Share Provisions (each an “ExchangeCo Insolvency Event”), the Trustee shall have the right (the “Exchange Right”) to require CallCo or D-Wave Quantum (provided that D-Wave Quantum may, in its sole discretion, cause
CallCo to purchase in its stead to the extent permitted by applicable law) to purchase from each Beneficiary all or any part of the Exchangeable Shares from each or any Beneficiary, provided that the Trustee may exercise such right only on the
basis of instructions received from each such holder. The purchase price payable by D-Wave Quantum or CallCo, as the case may be, for each Exchangeable Share purchased pursuant to the exercise of the Exchange Right will be the Exchangeable
Share Price on the last business day prior to the closing of the purchase and sale of such Exchangeable Share, which price will be satisfied in full by D-Wave Quantum or CallCo, as the case may be, delivering the Exchangeable Share
Consideration representing such Exchangeable Share Price to the Trustee.
As soon as practicable following the occurrence of an ExchangeCo
Insolvency Event or any event that with the passage of time or the giving of notice or both would be an ExchangeCo Insolvency Event, D-Wave Quantum and ExchangeCo will give written notice thereof to the Trustee. As soon as practicable after
receiving such notice, or upon the Trustee otherwise becoming aware of an ExchangeCo Insolvency Event, the Trustee will give notice to each holder of Exchangeable Shares of such event and will advise the holder of its rights with respect to the
Exchange Right.
D-Wave Quantum Liquidation Event—Automatic Exchange Right
Immediately prior to the effective date of (a) any determination
by the D-Wave Quantum Board to institute voluntary liquidation, dissolution or winding-up proceedings with respect to D-Wave Quantum or to effect any other distribution of assets of D-Wave Quantum among shareholders for the purpose of winding
up its affairs; or (b) the commencement of any instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of D-Wave Quantum or to effect any other distribution of assets of
D-Wave Quantum among its shareholders for the purpose of winding up its affairs, in each case where D-Wave Quantum has failed to contest in good faith any such proceeding commenced in respect of D-Wave Quantum within 30 days of becoming aware
thereof (a “D-Wave Quantum Liquidation Event”), each of the then outstanding Exchangeable Shares (other than Exchangeable Shares held by D-Wave Quantum, CallCo and their affiliates) shall be automatically exchanged for one Common Share
multiplied by the Exchangeable Share Exchange Ratio. To effect such automatic exchange, D-Wave Quantum (or, if D-Wave Quantum so decides, in its sole discretion and to the extent permitted by applicable law, CallCo) shall purchase all of the
Exchangeable Shares outstanding immediately prior to the effective date of the D-Wave Quantum Liquidation Event. The purchase price payable by D-Wave Quantum for each Exchangeable Share
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purchased pursuant to such exchange will be the Exchangeable Share Price
immediately prior to the effective date of the D-Wave Quantum Liquidation Event, which price will be satisfied in full by D-Wave Quantum or CallCo, as applicable, delivering the Exchangeable Share Consideration representing such Exchangeable
Share Price to the holder thereof.
Exchangeable Share Support Agreement
The following is a summary description of certain material
provisions of the Exchangeable Share Support Agreement, is not comprehensive and is qualified in its entirety by reference to the complete text of the Exchangeable Share Support Agreement, which has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
Pursuant to the Exchangeable Share Support Agreement, D-Wave
Quantum has agreed that, so long as any Exchangeable Shares not owned by D-Wave Quantum or its affiliates are outstanding, D-Wave Quantum shall, among other things:
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(a)
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not take any action that will result in the declaration or payment of any dividend or make any other distribution on the
Common Shares unless (i) ExchangeCo shall simultaneously, declare or pay, as the case may be, an equivalent dividend or other distribution economically equivalent thereto (as determined in accordance with the Exchangeable Share
Provisions) on the Exchangeable Shares (an “Equivalent Dividend”), (ii) if the dividend is a cash dividend or other distribution, receive sufficient money or other assets from D-Wave Quantum (through any intermediary entities) to enable
the due declaration and the due and punctual payment, in accordance with applicable law and the Exchangeable Share Provisions, of any such Equivalent Dividend, and (iii) if the dividend or other distribution is a stock or share dividend
or distribution of stock or shares, have sufficient but unissued securities available to enable the due declaration and the due and punctual payment, in accordance with applicable law and the Exchangeable Share Provisions, of any such
Equivalent Dividend; or, if the board of directors of ExchangeCo so chooses, in its sole discretion, as an alternative to taking any of the actions described above, ExchangeCo shall adjust the Exchangeable Share Exchange Ratio in
accordance with the Exchangeable Share Provisions, provided however that the Exchangeable Share Exchange Ratio shall only be so adjusted to the extent that the board of directors of ExchangeCo determines in good faith and in its sole
discretion that ExchangeCo would be liable for any unrecoverable tax as a result of taking any of the actions described in this paragraph and determines to adjust the Exchangeable Share Exchange Ratio in lieu of taking any such action;
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(b)
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advise ExchangeCo sufficiently in advance of the declaration of any dividend or other distribution on the Common Shares and
take all such other actions as are reasonably necessary or desirable, in cooperation with ExchangeCo, to ensure that the respective declaration date, record date and payment date for equivalent dividends on the Exchangeable Shares are
the same as those for any corresponding dividends or other distributions on the Common Shares;
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(c)
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ensure that the record date for any dividend or other distribution declared on the Common Shares is not less than 10 business
days after the declaration date of such dividend or declaration;
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(d)
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take all such actions and do all things as are reasonably necessary or desirable to enable and permit ExchangeCo, in
accordance with applicable law, to pay the Liquidation Amount, the Retraction Price or the Redemption Price to the holders of the Exchangeable Shares in the event of a liquidation, dissolution or winding-up of ExchangeCo, whether
voluntary or involuntary, the delivery of a Retraction Request by a holder of Exchangeable Shares or a redemption of Exchangeable Shares by ExchangeCo;
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(e)
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take all such actions and do all such things as are reasonably necessary or desirable to enable and permit the Trustee, in
accordance with applicable law, to perform its obligations under the Voting and Exchange Trust Agreement, including, without limitation, all such actions and all such things as are reasonably necessary or desirable to enable and permit
the Trustee in its capacity as trustee under the Voting and Exchange Trust Agreement to exercise such number of votes in respect of a meeting of D-Wave Quantum Shareholders as is equal to the aggregate number of Exchangeable Shares
outstanding on an as-converted to D-Wave Quantum Shares basis at the relevant time (other than those held by D-Wave Quantum and its affiliates) multiplied by the Exchangeable Share Exchange Ratio;
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151
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(f)
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take all such actions and do all things as are reasonably necessary or desirable to enable and permit D-Wave Quantum or
CallCo, as the case may be, in accordance with applicable law, to perform its obligations arising upon the exercise by it of the Liquidation Call Right, the Retraction Call Right, the Change of Law Call Right or the Redemption Call
Right;
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(g)
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take all such actions and do all such things as are reasonably necessary or desirable to enable and permit D-Wave Quantum, in
accordance with applicable law, to perform its obligations in connection with a Retraction Request and redemption by ExchangeCo pursuant to the Exchangeable Share Provisions; and
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(h)
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not exercise its vote as a shareholder of ExchangeCo to initiate the voluntary liquidation, dissolution or winding up of
ExchangeCo or any other distribution of the assets of ExchangeCo for the purpose of winding up its affairs, nor take any action or omit to take any action that is designed to result in the liquidation, dissolution or winding up of
ExchangeCo or any other distribution of the assets of ExchangeCo among its shareholders for purpose of winding up its affairs, without the prior approval of the holders of the Exchangeable Shares in accordance with the Exchangeable
Share Provisions as long as any Exchangeable Shares are outstanding.
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In order to protect the economic equivalence of the Exchangeable
Shares, the Exchangeable Share Support Agreement provides that, so long as any Exchangeable Shares not owned by D-Wave Quantum or its affiliates are outstanding:
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(a)
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D-Wave Quantum will not without the prior approval of ExchangeCo and the prior approval of the holders of the Exchangeable
Shares given in accordance with the Exchangeable Share Provisions:
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(i)
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issue or distribute Common Shares (or securities exchangeable for or convertible into or carrying rights to acquire Common
Shares) to the holders of all or substantially all of the then outstanding Common Shares by way of stock dividend or other distribution, other than an issue of Common Shares (or securities exchangeable for or convertible into or
carrying rights to acquire Common Shares) to holders of Common Shares (A) who exercise an option to receive dividends in Common Shares (or securities exchangeable for or convertible into or carrying rights to acquire Common Shares) in
lieu of receiving cash dividends, or (B) pursuant to any dividend reinvestment plan or scrip dividend or similar arrangement; or issue or distribute rights, options or warrants to the holders of all or substantially all of the then
outstanding Common Shares entitling them to subscribe for or to purchase Common Shares (or securities exchangeable for or convertible into or carrying rights to acquire Common Shares); or
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(ii)
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issue or distribute to the holders of all or substantially all of the then outstanding Common Shares (A) shares or securities
of D-Wave Quantum of any class (other than Common Shares or securities convertible into or exchangeable for or carrying rights to acquire Common Shares), (B) rights, options, warrants or other assets other than those referred to in
clause (a)(ii) above, (C) evidence of indebtedness of D-Wave Quantum or (D) assets of D-Wave Quantum, unless, in each case, the economic equivalent on a per share basis of such rights, options, warrants, securities, shares, evidences of
indebtedness or other assets is issued or distributed by ExchangeCo simultaneously to holders of the Exchangeable Shares including, without limitation, an adjustment to the Exchangeable Share Exchange Ratio in accordance with the terms
of the Exchangeable Share Provisions.
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(b)
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D-Wave Quantum shall not without the prior approval of ExchangeCo and the prior approval of the holders of the Exchangeable
Shares given in accordance with the Exchangeable Share Provisions:
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(i)
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subdivide, redivide or change the then outstanding Common Shares into a greater number of Common Shares; or
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(ii)
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reduce, combine, consolidate or change the then outstanding Common Shares into a lesser number of Common Shares; or
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(iii)
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reclassify or otherwise change Common Shares or effect an amalgamation, merger, reorganization or other transaction affecting
Common Shares; unless, in each case, the same or an economically equivalent change is simultaneously made to, or in the rights of the holders of, the Exchangeable Shares.
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(c)
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D-Wave Quantum shall ensure that the record date for any event referred to in (a) and (b) above, or (if no record date is
applicable for such event) the effective date for any such event, is not less than five business days after the date on which such event is declared or announced by D-Wave Quantum (with contemporaneous notification thereof by D-Wave
Quantum to ExchangeCo).
|
The board of directors of ExchangeCo will determine, in good faith
and in its sole discretion (with the assistance of such financial or other advisors as the board of directors of ExchangeCo may determine), “economic equivalence” for the purposes of any event referred to in paragraphs (a) or (b) above and each
such determination will be conclusive and binding on D-Wave Quantum. ExchangeCo agrees that, to the extent required, upon due notice from D-Wave Quantum, ExchangeCo shall use its best efforts to take or cause to be taken such steps as may be
necessary for the purposes of ensuring that appropriate dividends are paid or other distributions are made by ExchangeCo, or subdivisions, redivisions or changes are made to the Exchangeable Shares, in order to implement the required economic
equivalence with respect to the Common Shares and Exchangeable Shares as provided for above.
The Exchangeable Share Support Agreement provides that in the
event that a tender offer, share exchange offer, issuer bid, takeover bid or similar transaction with respect to Common Shares is proposed to D-Wave Quantum or its shareholders and is recommended by the D-Wave Quantum Board, or is otherwise
effected or to be effected with the consent or approval of the D-Wave Quantum Board, and the Exchangeable Shares are not redeemed by ExchangeCo or purchased by D-Wave Quantum or CallCo pursuant to the Redemption Call Right, D-Wave Quantum and
ExchangeCo will use reasonable efforts to take all such actions and do all such things as are necessary or desirable to enable and permit holders of Exchangeable Shares (other than D-Wave Quantum and its affiliates) to participate in such offer
to the same extent and on an economically equivalent basis as the holders of Common Shares, without discrimination.
Without limiting the generality of the foregoing, D-Wave Quantum
and ExchangeCo will use reasonable efforts in good faith to ensure that all holders of Exchangeable Shares may participate in such offer without being required to retract Exchangeable Shares as against ExchangeCo (or, if so required, to ensure
that any such retraction, shall be effective only upon, and shall be conditional upon, the closing of such offer and only to the extent necessary to tender or deposit to the offer).
The Exchangeable Share Support Agreement also provides that, as
long as any outstanding Exchangeable Shares are owned by any person or entity other than D-Wave Quantum or any of its affiliates, D-Wave Quantum will, unless approval to do otherwise is obtained from the holders of the Exchangeable Shares in
accordance with the Exchangeable Share Provisions, remain the direct or indirect beneficial owner of all issued and outstanding common shares of ExchangeCo and CallCo.
With the exception of changes for the purpose of (i) adding to the
covenants of any or all of the parties, (ii) evidencing the succession of successors to D-Wave Quantum and the covenants and obligations assumed by such successors; (iii) making such amendments or modifications not inconsistent with the
Exchangeable Share Support Agreement as may be necessary or desirable with respect to matters or questions arising thereunder or (iv) curing or correcting any ambiguities or defect or inconsistent provision or clerical omission or mistake or
manifest errors (provided, in the case of (i), (iii) and (iv), that the board of directors of each of D-Wave Quantum, ExchangeCo and CallCo are of the good faith opinion that such amendments are not prejudicial to the rights or interests of the
holders of the Exchangeable Shares), the Exchangeable Share Support Agreement may not be amended except by agreement in writing executed by D-Wave Quantum, CallCo and ExchangeCo and approved by the holders of the Exchangeable Shares.
Under the Exchangeable Share Support Agreement, each of D-Wave
Quantum and CallCo will not, and will cause its affiliates not to, exercise any voting rights which may be exercisable by holders of Exchangeable Shares from time to time with respect to any Exchangeable Shares owned by D-Wave Quantum or its
affiliates on any matter considered at meetings of holders of Exchangeable Shares (including any approval sought from such holders in respect of matters arising under the Exchangeable Share Support Agreement).
Registration of Common Shares issued upon exchange of the
Exchangeable Shares
The Common Shares to be issued upon exchange of the Exchangeable
Shares are subject to the registration requirements of the Securities Act. Pursuant to the Exchangeable Share Support Agreement, D-Wave Quantum has agreed to use its commercially reasonable efforts to file one or more registration statements,
in order to register under the Securities Act the Common Shares issued upon exchange of the Exchangeable Shares from time to time after the Effective Time. The Resale Registration Statement registered 7,352,389 of 48,409,641 Common Shares
issuable upon the exchange of Exchangeable Shares.
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D-Wave Quantum is authorized to issue 675,000,000 Common Shares
and 20,000,000 D-Wave Quantum Preferred Shares. As of June 30, 2023, approximately 128,028,663 million Common Shares are issued and outstanding (including approximately 46,550,462 million Exchangeable Shares). In addition, D-Wave Quantum had
approximately 18 million Warrants outstanding as of June 30, 2023, each exercisable at an exercise price of $11.50 for a number of Common Shares equal to the Exchange Ratio. All of the Common Shares and Warrants that were issued in connection
with the Merger are either currently freely transferable without further registration under the Securities Act (other than by the deemed parties to the Registration Rights and Lock-Up Agreement described below with respect to the securities
restricted thereunder) or have been registered for resale under the Securities Act. Sales of substantial amounts of Common Shares in the public market could adversely affect prevailing market prices of Common Shares. See “Risk Factors.” The
Common Shares and Warrants are listed on the NYSE under the symbols “QBTS” and “QBTS.WT”, respectively. D-Wave Quantum cannot assure you that a regular trading market will be maintained in the Common Shares and Warrants.
Lock-Up Provisions
Registration Rights and Lock-Up Agreement. At the Closing, the
Registration Rights Holders, pursuant to the Plan of Arrangement, became parties to the Registration Rights and Lock-Up Agreement, pursuant to which, among other things, D-Wave Quantum is obligated to file a registration statement to register
the resale of certain equity securities of D-Wave Quantum held by the Registration Rights Holders. The Registration Rights and Lock-Up Agreement also provides the Registration Rights Holders with demand registration rights and “piggy-back”
registration rights, in each case, subject to certain requirements and customary conditions. Subject to certain exceptions, the Registration Rights and Lock-Up Agreement further provides for the securities of D-Wave Quantum held by the
Registration Rights Holders to be locked-up for a period of time as set forth below.
D-Wave Lock-up Period. The D-Wave Lock-Up Period, which applied to the former shareholders of D-Wave Systems who received Common Shares or Exchangeable Shares pursuant to the Transaction Agreement, refers to the period ended on February 5, 2023.
Founder Lock-up Period. The Founder Lock-Up Period applies to the former holders of shares of DPCM Class B Common Stock who received Common Shares pursuant to the Transaction Agreement and refers to (i) with respect to the Founder Shares, the period
ending on the earlier of (A) August 5, 2023, the date that is one (1) year following the Closing and (B) the date on which (x) the last reported sale price of the Common Shares equals or exceeds $12.00 per share (as adjusted for stock splits,
stock dividends, reorganizations, recapitalizations and the like) for any twenty (20) trading days within any thirty (30) consecutive trading day period commencing after the one hundred and fiftieth (150th) day following the Closing, or (y)
the completion by D-Wave Quantum of a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of D-Wave Quantum’s public shareholders having the right to exchange their Common Shares for cash,
securities or other property, and (ii) with respect to the Private Warrants, thirty (30) days after the Closing.
Rule 144.
Generally, pursuant to Rule 144, a person who has beneficially owned restricted shares or warrants for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our
affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all required reports
under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale. However, see “—Restrictions on the Use of Rule 144 by Shell Companies or Former Shell
Companies” below.
Persons who have beneficially owned restricted shares or warrants
for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three- month
period only a number of securities that does not exceed the greater of:
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•
|
1% of the total number of Common Shares then outstanding; or
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|
•
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the average weekly reported trading volume of the Common Shares during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
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Sales by our affiliates under Rule 144 are also limited by manner
of sale provisions and notice requirements and to the availability of current public information about us.
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Restrictions on the Use of Rule 144 by Shell Companies or Former
Shell Companies
Rule 144 is not available for the resale of securities initially
issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company (including successors to a shell company, such as D-Wave Quantum). However, Rule 144 also
includes an important exception to this prohibition if the following conditions are met:
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•
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the issuer of the securities that was formerly a shell company has ceased to be a shell company;
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|
•
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the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
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|
•
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the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the
preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
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|
•
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at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC, which was
filed by D-Wave Quantum on August 10, 2022, reflecting its status as an entity that is not a shell company.
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Following the consummation of the Merger, D-Wave Quantum is not a
shell company (having been the successor to a shell company), and so, once the conditions set forth in the exceptions listed above are satisfied, Rule 144 will become available for the resale of the above noted restricted securities.
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D-Wave Quantum Related Party Transactions
DPCM Founder Shares
As of immediately prior to the Merger, there were 7,500,000
Founder Shares issued and outstanding, 7,252,500 of which were held by Sponsor and the remaining 247,500 Founder Shares were held by other Initial Stockholders. Immediately prior to Closing, Sponsor forfeited 4,484,425 of its 7,252,500 Founder
Shares, as a result of which, upon Closing and as a result of the Merger, the remaining 3,015,575 Founder Shares were converted into 3,015,575 Common Shares on a one for one basis. The Initial Stockholders have agreed, subject to limited
exceptions, not to transfer, assign or sell any of the Common Shares received in exchange for their Founder Shares until August 5, 2023, the date that is one year after the completion of the Merger, See “Registration Rights and Lock-Up
Agreement” below.
Private Warrants
On November 30, 2020, simultaneously with the closing of the DPCM
IPO, DPCM completed the private sale of an aggregate of 8,000,000 warrants, or the Private Warrants, to the Sponsor at a purchase price of $1.00 per Private Warrant, generating gross proceeds to DPCM of $8,000,000.
Following the Merger, each former Private Warrant is exercisable
for 1.4541326 Common Shares. Such Warrants are non-redeemable for cash and exercisable on a cashless basis so long as they are held by the Sponsor or its permitted transferees.
Registration Rights and Lock-Up Agreement
At the Closing, the Registration Rights Holders, pursuant to the
Plan of Arrangement, became parties to the Registration Rights and Lock-Up Agreement, pursuant to which, among other things, D-Wave Quantum is obligated to file a registration statement to register the resale of certain equity securities of
D-Wave Quantum held by the Registration Rights Holders. The Registration Rights and Lock-Up Agreement also provides the Registration Rights Holders with demand registration rights and “piggy-back” registration rights, in each case, subject to
certain requirements and customary conditions. Subject to certain exceptions, the Registration Rights and Lock-Up Agreement further provides for the securities of D-Wave Quantum held by the Registration Rights Holders to be locked-up for a
period of time. See “Shares Eligible for Future Sale—Lock-Up Provisions.”
Below is a description of transactions since January 1, 2022 to
which D-Wave Quantum was a party, in which:
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•
|
the amounts involved exceeded or will exceed $120,000; and
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|
•
|
any of D-Wave Quantum’s current directors, executive officers or holders of more than 5% of D-Wave Quantum’s capital stock,
or any member of the immediate family of, or person sharing the household with, the foregoing persons, had or will have a direct or indirect material interest.
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Venture Loan and Security Agreement
On March 3, 2022, the Company entered into the Venture Loan
Agreement, by and between the Borrowers (as defined in the Venture Loan Agreement) and PSPIB Unitas Investments II Inc. (“PSPIB”), as the lender. PSPIB is an affiliate of PSP, a significant shareholder of the Company and a beneficial owner of
greater than 5% of the Company’s capital stock. Under the Venture Loan Agreement, term loans in an aggregate principal amount of $25.0 million were available to the Borrowers in three tranches, subject to certain terms and conditions.
The first tranche was advanced in an aggregate principal amount of
$15.0 million on March 3, 2022. The second tranche was advanced in an aggregate principal amount of $5.0 million on June 30, 2022.
The term loans under the Venture Loan Agreement bore 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 was payable monthly, on the first business day of each calendar month through the
earliest of December 31, 2022 and the Closing (the “Maturity Date”).
The Company was to pay a final payment fee of 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 the Company prepays all of
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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, the Company was to pay PSPIB an amount equal
to five percent of the principal balance of the loans being prepaid.
The Venture Loan Agreement was secured by a first-priority
security interest in substantially all of the Borrowers’ assets and contained certain operational covenants. The debt under the Venture Loan Agreement was fully repaid upon consummation of the Business Combination and the Venture Loan Agreement
was discharged on such date.
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.
Promissory Notes
On February 28, 2022, an affiliate of DPCM entered into an
unsecured promissory note of up to $1.0 million with the Sponsor (the “Affiliate Note”). The purpose of the Affiliate Note was to provide DPCM with additional working capital. All amounts drawn on the Affiliate Note were provided directly to
DPCM. The Affiliate Note is not convertible and bears no interest. The principal balance of the Affiliate Note was originally due and payable upon the earlier of the date on which DPCM consummates its initial business combination, or the date
that the winding up of DPCM is effective.
In connection with the Merger, the Affiliate Note was assumed by
the Company. Pursuant to the Affiliate Note’s most recent amendment, effective as of February 24, 2023, the principal balance is payable in four equal installments on April 30, 2023, June 30, 2023, August 31, 2023, and October 31, 2023.
As of March 31, 2023, a total of $0.20 million has been drawn
on the Affiliate Note. As of June 30, 2023, a total of $0.10 million remains outstanding.
On April 13, 2022, DPCM entered into an unsecured promissory note
of up to $1.0 million with the Sponsor (the “DPCM Note”). The purpose of the DPCM Note was to provide DPCM with additional working capital. All amounts drawn on the DPCM Note were provided directly to DPCM. In connection with the Merger, the
DPCM Note was assumed by the Company. The DPCM Note is not convertible and bears no interest. Pursuant to the DPCM Note’s most recent amendment, effective as of February 22, 2023, the principal balance is payable in four equal installments of
$55,000 each on April 30, 2023, June 30, 2023, August 31, 2023, and October 31, 2023.
As of March 31, 2023, a total of $0.22 million has been drawn
on the DPCM Note. As of June 30, 2023, a total of $0.11 million remains outstanding.
The execution of the amended and restated Affiliate Note and the
amended and restated DPCM Note are related party transactions as these notes are payable to affiliates of the Company.
PIPE Financing
Concurrently with the execution of the Transaction Agreement, the
PIPE Investors entered into 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 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
Common Shares issued under the PIPE Financing were registered on the Resale Registration Statement, which was declared effective by the SEC on October 26, 2022. The table below sets forth the number of Common Shares purchased by D-Wave
Quantum’s related parties in the PIPE Financing:
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Stockholder
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| |
Common Shares
|
| |
Total Purchase Price
|
|
PSP(1)
|
| |
4,362,397
|
| |
$30,000,000
|
|
Goldman Sachs & Co. LLC(2)
|
| |
727,066
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| |
$5,000,000
|
|
Emil Michael(3)
|
| |
36,353
|
| |
$250,000
|
|
(1)
|
PSP beneficially owns more than 5% of D-Wave Quantum’s capital stock.
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|
(2)
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Goldman Sachs & Co. LLC beneficially owns more than 5% of D-Wave Quantum’s capital stock.
|
|
(3)
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Emil Michael is a member of the D-Wave Quantum board of directors.
|
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See “Beneficial Ownership of Securities.”
Indemnification Agreements
The D-Wave Quantum Charter contains provisions limiting the
liability of executive officers and directors and the D-Wave Quantum Bylaws provide that D-Wave Quantum will indemnify each of its executive officers and directors to the fullest extent permitted under Delaware law. The D-Wave Quantum Charter
and the D-Wave Quantum Bylaws also provide the board of directors with discretion to indemnify certain key employees when determined appropriate by the board of directors of D-Wave Quantum.
DPCM entered into indemnification agreements with each of its
officers and directors to indemnify such individuals, to the fullest extent permitted by law and subject to certain limitations, against all liabilities, costs, charges and expenses reasonably incurred by such individuals in an action or
proceeding to which any such individual was made a party by reason of being an officer or director of DPCM or an organization of which DPCM is a shareholder or creditor if such individual serves such organization at DPCM’s request. Such
indemnification obligation will survive the Merger. Additionally, prior to the completion of the Merger, D-Wave Quantum entered into similar indemnification agreements with each of its directors and certain officers.
PSP Side Letter Agreement
On September 26, 2022, D-Wave Quantum and PSP entered into the PSP
Side Letter Agreement pursuant to which PSP agreed that for so long as PSP beneficially owns, directly or indirectly, Common Shares and Exchangeable Shares representing 50% or more of the rights to vote at a meeting of the stockholders of
D-Wave Quantum, whether directly or indirectly, including through any voting trust (i) PSP will not exercise the voting rights attached to any of such shares that would result in PSP voting, whether directly or indirectly, including through any
voting trust, more than 49.99% of the voting interests eligible to vote at any meeting of the stockholders of D-Wave Quantum and (ii) PSP will vote such shares in favor of the election of the directors that are nominated by the board of
directors of D-Wave Quantum or a duly authorized committee thereof. Given that, as of the date of this prospectus, PSP owns less than 50% of our Common Shares and Exchangeable Shares, the PSP Side Letter Agreement currently has no impact on
PSP's ability to vote its shares.
Loan and Security Agreement
On April 13, 2023 (the “Loan
Closing Date”), the Company, as borrower, and certain of the Company’s subsidiaries as Guarantors (as defined in the Loan Agreement) (collectively, the “Loan Parties”),
entered into the Term Loan. The Term Loan provides for an initial advance of $15.0 million, which was advanced on April 14, 2023, and two subsequent advances of $15.0 million and $20.0 million, respectively, with each subsequent advance being
subject to certain terms and conditions.
The Term Loan is secured by a first-priority security interest in
substantially all of the Loan Parties’ assets, contains certain operational and financial covenants, and matures on March 31, 2027.
Each advance under the Term Loan is subject to a 2.0% drawdown fee
and bears interest on a monthly basis, at the discretion of the Company, at either (i) 10% payable in cash, or (ii) 11% payable in kind.
Upon the repayment or prepayment of all or a portion of the Term
Loan, there is a premium payment due that is equal to 3% of the amount of the Term Loan repaid/prepaid prior to the first anniversary of the Loan Closing Date, 2% of the amount of the Term Loan repaid/prepaid after the first anniversary of the
Loan Closing Date and on or prior to the second anniversary of the Loan Closing Date, 1% of the amount of the Term Loan repaid/prepaid after the second anniversary of the Loan Closing Date but on or prior to the third anniversary of the Loan
Closing Date, with no premium payment due after the third anniversary of the Loan Closing Date.
As a condition to the initial advance under the Term Loan, the
Company was required to increase the size of its board of directors to nine members and nominate one additional director to the board of directors who is an employee of PSPIB or of one of its affiliates. A condition to a future advancement
under the Term Loan is the board of directors nominating one additional director who is either an employee of PSPIB or one of its affiliates or an independent director selected by the board of directors from a list of at least three potential
directors provided by PSPIB.
As of June 30, 2023, the entirety of the initial advance of
$15.0 million is outstanding and no principal or interest has yet been paid.
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Executive Officer and Director Compensation
Please see the section titled “Executive and Director
Compensation” for information regarding the compensation of our directors and executive officers.
Employment Agreements
The Company has entered into agreements with our executive
officers that, among other things, provide for certain compensatory and change of control benefits, as well as severance benefits. For a description of these agreements with our named executive officers, see the section titled “Executive and
Director Compensation—Employment Arrangements with Named Executive Officers.”
Policies and Procedures for Related Person Transactions
D-Wave Quantum’s board of directors maintains a written related
person transactions policy that sets forth D-Wave Quantum’s policies and procedures regarding the identification, review, consideration and oversight of “related person transactions.” For purposes of D-Wave Quantum’s policy only, a “related
person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which D-Wave Quantum or any of its subsidiaries was, is or will be a participant involving an amount
that exceeds $120,000, in which any “related person” has or will have a direct or director interest.
Under the policy, prior to entering into any related person
transaction, (i) the related person, (ii) the director, executive officer, nominee or beneficial owner who is an immediate family member of the related person or (iii) the business unit or function/department head responsible for the potential
related person transaction shall provide notice to the Legal Department of the facts and circumstances of the proposed related person transaction. The Legal Department will assess whether the proposed transaction is a related person transaction
for purposes of the policy. If the Legal Department determines that the proposed transaction is a related person transaction for purposes of the policy, the proposed related person transaction shall be submitted to D-Wave Quantum’s audit
committee for consideration at the next audit committee meeting. Any potential related person transaction involving D-Wave Quantum’s General Counsel (or, in the absence a General Counsel, the senior most member of the Legal Department) shall be
submitted directly to the D-Wave Quantum audit committee for its review. In considering related person transactions, D-Wave Quantum’s audit committee or where submitted to the Chair of the audit committee, the Chair, will take into account the
relevant available facts and circumstances, which may include, but are not limited to:
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the benefits to D-Wave Quantum;
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the impact on a director’s independence in the event the related person is a director, immediate family member of a director
or an entity in which a director is a partner, shareholder or executive officer;
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the availability of other sources for comparable products or services;
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the terms of the transaction; and
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the terms available to unrelated third parties or to employees generally.
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D-Wave Quantum’s audit committee (or the Chair of D-Wave Quantum’s
audit committee) will approve only those transactions that are in, or are not inconsistent with, the best interests of D-Wave Quantum, as D-Wave Quantum’s audit committee (or the Chair of the D-Wave Quantum audit committee) determines in good
faith. All of the transactions described above were entered into prior to the adoption of such policy.
159
The following sets forth the beneficial ownership of the
Company’s Common Shares as of June 30, 2023 by:
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each person who is known to be the beneficial owner of more than 5% of the outstanding Common Shares;
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each of the Company’s current named executive officers, directors and director nominees; and
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all current executive officers and directors of the Company as a group.
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Beneficial ownership is determined according to the rules of
the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or
exercisable within 60 days of June 30, 2023.
The beneficial ownership of the Company is based on 128,028,663
Common Shares issued and outstanding as of June 30, 2023. In computing the number of Common Shares beneficially owned by a person and the percentage ownership of such person, all Common Shares issuable pursuant to (i) Warrants, (ii) D-Wave
Options and (iii) D-Wave Warrants, in each case that are currently exercisable or exercisable within 60 days of June 30, 2023, are included. However, such shares are not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Other than Warrants, D-Wave Options and D-Wave Warrants exercisable within 60 days of June 30, 2023 by a particular holder, which are reflected as described above, the beneficial ownership information below
assumes no exercises of such securities.
Unless otherwise indicated, we believe that all persons named in
the table below have sole voting and investment power with respect to all Common Shares beneficially owned by them. To our knowledge, no Common Shares beneficially owned by any executive officer or director have been pledged as security.
The beneficial ownership information below excludes Common
Shares reserved for issuance under the 2022 Plan or the ESPP, any Common Shares that may be sold under the Purchase Agreement subsequent to June 30, 2023, assumes that all Exchangeable Shares in the capital of D-Wave Quantum Technologies have
been exchanged for Common Shares and assumes no exercise of the underwriters’ option to purchase additional Common Shares.
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Beneficial Owner
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Number of Common
Shares
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% of Total Voting
Power
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Directors and Executive Officers of
D-Wave Quantum(1)
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Alan Baratz(2)
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2,920,208
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2.2%
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John M. Markovich(2)
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750,692
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*
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Victoria Brydon
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270,701
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*
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Diane Nguyen
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75,706
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*
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Steven M. West(3)
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390,655
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*
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Emil Michael(4)
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14,437,489
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10.3%
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Roger Biscay
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36,521
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*
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Amy Cappellanti-Wolf
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36,521
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*
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Michael Rogers
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36,521
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*
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Ziv Ehrenfeld
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—
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—
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Phillip Adam Smalley III
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—
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—
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All Directors and Executive Officers
of D-Wave Quantum as a Group (11 individuals)(5)
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18,955,014
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13.2%
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Five Percent Holders of D-Wave
Quantum
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PSP(6)
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59,431,311
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46.4%
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CDPM Sponsor Group, LLC(7)
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14,401,136
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10.3%
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BDC Capital Inc. (8)
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9,424,713
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7.4%
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The Goldman Sachs Group, Inc. (9)
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7,939,146
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6.2%
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*
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Less than one percent.
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(1)
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Unless otherwise noted, the business address of each of the following entities or individuals is D-Wave Quantum Inc., 3033
Beta Avenue, Burnaby, British Columbia V5G 4M9, Canada.
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(2)
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Consists of Common Shares underlying D-Wave Options.
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(3)
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Includes Common Shares held by Emerging Company Partners LLC, an entity controlled by Steven M. West and Common Shares
underlying D-Wave Options.
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(4)
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Includes Common Shares of which each of the Sponsor and the Emil Michael Living Trust dated 7/28/2017 (the “Trust”) is the record holder and 11,633,061 Common Shares underlying Warrants issued to the Sponsor in the Merger in exchange for Private Warrants, which Warrants were exercisable as of September 4,
2022. Mr. Michael is the manager of the Sponsor and the trustee of the Trust, and, as such, has voting and dispositive power over the securities held by the Sponsor and the Trust and may be deemed to have beneficial ownership of such
securities. Mr. Michael disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
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(5)
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Includes Common Shares underlying D-Wave Options, Warrants and Exchangeable Shares.
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(6)
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Based on Schedule 13G filed on February 14, 2023 in which PSP reported that, as of December 31, 2022, it had sole voting power
and sole dispositive power over 59,431,311 Common Shares and Common Shares underlying Exchangeable Shares. PSP is a Canadian Crown corporation with a share capital created by a special act of Legislature in Canada on September 14, 1999.
All the shares of PSP are held by the President of Treasury Board on behalf of his Majesty in Right of Canada, in accordance with the Public Sector Pension Investment Board Act, S.C. 1999, c.34, as amended from time to time. Deborah K.
Orida, the CEO of PSP, has authority to vote and dispose of the shares held by PSP. The business address for PSP is 1250 René-Lévesque Boulevard West, Suite 1400, Montréal, Québec, Canada H3B 5E9. On September 26, 2022, D-Wave Quantum
and PSP entered into the PSP Side Letter Agreement (as described in the section entitled “Certain Relationships and Related Person Transactions).
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(7)
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Consists of Common Shares of which the Sponsor is the record holder and 11,633,061 Common Shares underlying Warrants issued to
the Sponsor in the Merger in exchange for Private Warrants, which Warrants were exercisable as of September 4, 2022. Mr. Michael is the manager of the Sponsor, and as such has voting and dispositive power over the securities held by the
Sponsor and may be deemed to have beneficial ownership of such securities. Mr. Michael disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
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(8)
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Consists of Common Shares held of record by BDC Capital Inc. (“BDC”). BDC is a
wholly-owned subsidiary of the Business Development Bank of Canada, which is itself wholly-owned by the federal government of Canada. Jerôme Nycz, Executive Vice-President, BDC, and Karl Reckziegel, Senior Vice-President, Direct
Investments, BDC, have authority to vote and dispose of the shares held by BDC. The business address of the foregoing persons is 5 Place Ville Marie, Suite 300, Montreal Quebec (Canada) H3B 5E7.
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(9)
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Based on the Form 3 filed on March 3, 2023 in which The Goldman Sachs Group, Inc. (“GSG”)
and its affiliates Broad Street Principal Investments, L.L.C., Bridge Street Opportunity Advisors, L.L.C., Bridge Street 2014, L.P., Stone Street 2014 Holdings, L.P., MBD Advisors, L.L.C., MBD 2014, L.P., 2014 Employee Offshore
Aggregator, L.P. (collectively, the “GS Entities”) and Goldman Sachs & Co. LLC (“GS”), a wholly owned subsidiary of GSG, reported their balance of
Common Shares as of August 5, 2022. Affiliates of GSG are the general partner, managing general partner or investment manager, as applicable, of the GS Entities. Each of GS and GSG disclaims beneficial ownership of the equity interests
and the shares described above held directly or indirectly by the GS Entities, except to the extent of their pecuniary interest therein, if any. The address of each of GS, GSG, and the GS Entities, except for 2014 Employee Offshore
Aggregator, L.P. and Stone Street 2014 Holdings, L.P. is 200 West Street, New York, NY 10282. The address of each of 2014 Employee Offshore Aggregator, L.P. and Stone Street 2014 Holdings, L.P. is P.O. Box 309 Ugland Hourse, George
Town, Cayman Islands.
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161
This prospectus relates to the possible resale by the Selling
Stockholder, Lincoln Park, of Common Shares that may be issued to Lincoln Park pursuant to the Purchase Agreement. We are filing the registration statement of which this prospectus forms a part pursuant to the provisions of the Registration
Rights Agreement, which we entered into with Lincoln Park on June 16, 2022, concurrently with our execution of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by Lincoln Park of the Common
Shares that may be issued to Lincoln Park under the Purchase Agreement.
Lincoln Park, as the Selling Stockholder, may from time to time
offer and sell pursuant to this prospectus any or all of the Common Shares that we may sell to Lincoln Park under the Purchase Agreement. The Selling Stockholder may sell some, all, or none of its Common Shares. We do not know how long the
Selling Stockholder will hold the Common Shares before selling them, and we currently have no agreements, arrangements, or understandings with the Selling Stockholder regarding the sale of any of the Common Shares.
The following table provides, as of July 7, 2023, information
regarding the Selling Stockholder and the Common Shares that it may offer and sell from time to time under this prospectus. The percentage of ownership in the table below is based on 128,028,663 Common Shares (including Exchangeable Shares)
outstanding on June 30, 2023, including 15,500,000 Common Shares we have already issued to Lincoln Park pursuant to the Purchase Agreement. The table is prepared based on information supplied to us by the Selling Stockholder, and reflects its
holdings as of July 7, 2023. Neither Lincoln Park nor any of its affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates. Beneficial ownership is determined in
accordance with Section 13(d) of the Exchange Act and Rule 13d-3 thereunder.
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Selling Stockholder
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Common Shares
Beneficially Owned Before
this Offering
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Percentage of Outstanding
Common Shares
Beneficially Owned Before
this Offering
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Common Shares to be Sold
in this Offering Assuming
the Company issues the
Maximum Number of
Common Shares Under the
Purchase Agreement
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Percentage of Outstanding
Common Shares
Beneficially Owned After
this Offering
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Lincoln Park Capital Fund, LLC(1)
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298,900(2)
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*
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35,000,000(3)
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*
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*
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Represents less than 1% of the outstanding Common Shares (including the Exchangeable Shares) and/or assumes all Common Shares
registered hereunder have been resold by Lincoln Park.
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(1)
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Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of
all of the Common Shares owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld have shared voting and investment power over the Common Shares being offered under the prospectus in connection with the transactions
contemplated under the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer.
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(2)
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Represents shares previously issued to Lincoln Park under the Purchase Agreement, all of which are covered by the First LP
Registration Statement. We have excluded from the number of shares beneficially owned by Lincoln Park prior to the offering all of the Common Shares that Lincoln Park may be required to purchase on or after the date of this prospectus
pursuant to the Purchase Agreement, because the issuance of such Common Shares is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Lincoln Park’s control, including the
registration statement of which this prospectus is a part becoming and remaining effective. Furthermore, under the terms of the Purchase Agreement, issuances and sales of Common Shares to Lincoln Park are subject to certain limitations
on the amounts we may sell to Lincoln Park at any time, including the Beneficial Ownership Limitation. See the description under the heading “Lincoln Park Transaction” for more information about the Purchase Agreement.
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(3)
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Represents an aggregate of 35,000,000 Common Shares that may be sold by us under this prospectus. Depending on the price per
Common Share at which we sell our shares to Lincoln Park pursuant to the Purchase Agreement, we may need to sell to Lincoln Park under the Purchase Agreement more or less Common Shares than are offered under this prospectus in order to
receive aggregate gross proceeds equal to the $150,000,000 total commitment available to us under the Purchase Agreement. If we choose to sell more Common Shares than are offered under this prospectus, we must first register for resale
under the Securities Act such additional Common Shares. The number of Common Shares ultimately offered for resale by Lincoln Park is dependent upon the number of Common Shares we sell to Lincoln Park under the Purchase Agreement.
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162
The following is a summary of certain material United States
federal income tax consequences to a non-U.S. holder (as defined below) relating to the ownership and disposition of our Common Shares, but does not purport to be a complete analysis of all the potential tax considerations relating thereto.
This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder (“Treasury Regulations”), administrative rulings and judicial decisions, all as in effect on
the date hereof. These authorities may be changed, possibly retroactively, so as to result in United States federal income consequences different from those set forth below. We have not sought any ruling from the IRS with respect to the
statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.
This summary also does not address the tax considerations arising
under the laws of any non-United States, state or local jurisdiction, or under United States federal gift and estate tax laws. In addition, this discussion does not address tax considerations applicable to a non-U.S. holder’s particular
circumstances or to non-U.S. holders that may be subject to special tax rules, including, without limitation:
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banks, insurance companies or other financial institutions;
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persons subject to the alternative minimum tax;
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tax-exempt organizations;
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controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid
United States federal income tax;
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partnerships or other entities treated as pass-through entities for United States federal income tax purposes;
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dealers in securities or currencies;
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traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
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persons that own, or are deemed to own, more than five percent of our common stock, except to the extent specifically set
forth below;
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real estate investment trusts or regulated investment companies;
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certain former citizens or long-term residents of the United States;
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persons who hold our Common Shares as part of a straddle, hedge, conversion, constructive sale, or other integrated security
transaction; or
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persons who do not hold our Common Shares as a capital asset (within the meaning of Section 1221 of the Code).
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If an entity or arrangement is or is treated as a partnership or
other pass-through entity for U.S. federal income tax purposes is the beneficial owner of shares of our Common Shares, the tax treatment of a person treated as a partner (or other owner) generally will depend on the status of the partner (or
other owner) and the activities of the entity. Persons that, for U.S. federal income tax purposes, are treated as partners (or other owners) in a partnership or other pass-through entity that is the beneficial owner of our Common Shares are
urged to consult their tax advisors regarding the tax consequences of acquiring, owning and disposing of our Common Shares.
Non-U.S. Holders
For purposes of this discussion, the term “non-U.S. holder” means
a beneficial owner of our Common Shares that is an individual, corporation, estate or trust, other than:
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an individual who is a citizen or resident of the U.S., as determined for U.S. federal income tax purposes;
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a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in the
U.S. or under the laws of the U.S., any state thereof or the District of Columbia;
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an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source;
or
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163
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a trust if: (i) a court within the U.S. is able to exercise primary supervision over the administration of the trust and one
or more U.S. persons have the authority to control all substantial decisions of the trust; or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a domestic trust.
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PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS
TO THE PARTICULAR CONSEQUENCES TO THEM UNDER U.S. FEDERAL, STATE AND LOCAL, AND APPLICABLE NON-U.S. TAX LAWS OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES.
Distributions on Common Shares
The gross amount of any distribution on Common Shares to a
non-U.S. holder will, to the extent paid out of D-Wave Quantum’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles), constitute a dividend and will be subject to a U.S. federal withholding tax
on the gross amount of the dividend at a rate of 30%, unless (i) such dividends are effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty,
are attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States), or (ii) such non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and
provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E, as applicable). To the extent that the amount of the distribution exceeds D-Wave Quantum’s current and accumulated earnings and
profits (as determined under U.S. federal income tax principles), such excess amount will be treated first as a non-taxable return of capital to the extent of the non-U.S. holder’s tax basis in its Common Shares, and thereafter as gain realized
from the sale of Common Shares, the tax consequences of which would be the same as the consequences of recognizing gain on a sale or other disposition of Common Shares as described below under the heading “— Sale, Exchange, Redemption or Other
Taxable Disposition of Common Shares.”
Dividends paid by D-Wave Quantum to a non-U.S. holder that are
effectively connected with such non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by the
non-U.S. holder in the United States) will generally not be subject to U.S. withholding tax, provided such non-U.S. holder complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, the
effectively connected income will be subject to regular U.S. income tax as if the non-U.S. holder were a U.S. resident, unless an applicable income tax treaty provides otherwise. A corporate non-U.S. holder receiving effectively connected
dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate).
Sale, Exchange, Redemption or Other Taxable Disposition of Common
Shares
Subject to the discussion below under “—Information Reporting and
Backup Withholding” and “—FATCA,” a non-U.S. holder generally will not be subject to U.S. federal income taxes on any gain recognized on any sale, exchange, redemption or other taxable disposition of the Common Shares, unless:
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such gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and,
if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States);
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you are an individual who is present in the U.S. for 183 or more days in the taxable year of the disposition and certain
other conditions are met; or
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D-Wave Quantum is or has been a “United States real property holding corporation” (“USRPHC”) for U.S. federal income tax
purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. holder held the Common Shares, and the non-U.S. holder has owned, directly or constructively, more than 5%
of the Common Shares at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. holder held the Common Shares.
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Gain described in the first bullet point above will be subject to
U.S. federal income tax as if the non-U.S. holder were a U.S. resident, unless an applicable income tax treaty provides otherwise. A corporate non-U.S. holder may also be subject to an additional “branch profits tax” at a rate of 30% (or a
lower treaty rate).
164
Gain described in the second bullet point above will be subject
to U.S. federal income tax at a rate of 30% (or a reduced rate under an applicable income tax treaty) on the amount by which certain capital gains allocable to U.S. sources exceed certain capital losses allocable to U.S. sources (provided that
you have timely filed U.S. federal income tax returns with respect to such losses)
With respect to the third bullet point above, D-Wave Quantum
believes that it currently is not, and does not anticipate becoming, a USPRHC. Because the determination of whether D-Wave Quantum is a USRPHC depends, however, on the fair market value of its “United States real property interests,” relative
to the fair market value of its non-U.S. real property interests and other business assets, there can be no assurance D-Wave Quantum will not become a USPRHC in the future. If, contrary to expectations, the third bullet point above applies to a
non-U.S. holder, gain recognized by such holder will be subject to U.S. federal income tax as if the non-U.S. holder were a U.S. resident.
Information Reporting and Backup Withholding
We must annually report to the IRS and to each non-U.S. holder any
distribution that is subject to U.S. federal withholding tax or that is exempt from such withholding pursuant to an income tax treaty. Copies of these information returns may also be made available under the provisions of a specific treaty or
agreement to the tax authorities of the country in which a non-U.S. holder resides. Under certain circumstances, the Code imposes a backup withholding obligation on certain reportable payments. Dividends paid to you will generally be exempt
from backup withholding if you provide a properly executed IRS Form W-8BEN or Form W-8BEN-E (or, in each case, an appropriate successor form) or otherwise establish an exemption and the applicable withholding agent does not have actual
knowledge or reason to know that you are a U.S. person or that the conditions of such other exemption are not, in fact, satisfied.
The payment of the proceeds from the disposition of our Common
Shares to or through the U.S. office of any broker (U.S. or non-U.S.) will be subject to information reporting and possible backup withholding unless you certify as to your non-U.S. status under penalties of perjury or otherwise establish an
exemption and the broker does not have actual knowledge or reason to know that you are a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The payment of proceeds from the disposition of our Common Shares to
or through a non-U.S. office of a non-U.S. broker will not be subject to information reporting or backup withholding unless the non-U.S. broker has certain types of relationships with the U.S. (a “U.S. related financial intermediary”). In the
case of the payment of proceeds from the disposition of our Common Shares to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. related financial intermediary, the Treasury regulations require information reporting
(but not backup withholding) on the payment unless the broker has documentary evidence in its files that the beneficial owner is a non-U.S. holder and the broker has no knowledge to the contrary. You are urged to consult your tax advisor on the
application of information reporting and backup withholding in light of your particular circumstances.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules from a payment to you will be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.
FATCA
Sections 1471 to 1474 of the U.S. Tax Code (commonly referred to
as the Foreign Account Tax Compliance Act, or “FATCA”) impose a 30% withholding tax on payments of U.S.-source dividends (including amounts treated as dividends received pursuant to a redemption of stock or a constructive distribution), and
subject to the discussion of certain proposed Treasury Regulations below, on the gross proceeds from a sale, exchange or other taxable disposition of stock (including a redemption treated as a sale), in each case if paid to “foreign financial
institutions” (which is broadly defined for this purpose and generally includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership
by U.S. persons of interests in or accounts with those entities) have been satisfied, or an exemption applies (typically certified as to by the delivery of a properly completed IRS Form W-8BEN-E). If FATCA withholding is imposed, certain
non-U.S. holders may be able to obtain a refund of any amounts withheld by filing a U.S. federal income tax return (which may entail significant administrative burden). Non-U.S. holders located in jurisdictions that
165
have an intergovernmental agreement with the United States governing FATCA may be
subject to different rules. Non-U.S. holders should consult their tax advisers regarding the possible implications of FATCA upon the sale, exchange, or other taxable disposition of, or distribution (including constructive distribution) with
respect to the Common Shares.
The IRS released proposed Treasury Regulations that, if finalized
in their present form, would eliminate the U.S. federal withholding tax of 30% applicable to the gross proceeds from the sale, exchange or other taxable disposition of stock (including a redemption treated as a sale). In its preamble to such
proposed Treasury Regulations, the IRS stated that taxpayers may generally rely on the proposed Treasury Regulations until final Treasury Regulations are issued.
Prospective investors should consult their tax advisors regarding
the potential application of withholding under FATCA to an investment in our Common Shares.
166
An aggregate of up to 35,000,000 Common Shares may be offered by
this prospectus by Lincoln Park pursuant to the Purchase Agreement. The Common Shares may be sold or distributed from time to time by Lincoln Park directly to one or more purchasers or through brokers, dealers, or underwriters who may act
solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed.
The sale of the Common Shares offered by this prospectus could be
effected in one or more of the following methods:
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ordinary brokers’ transactions;
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transactions involving cross or block trades;
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through brokers, dealers, or underwriters who may act solely as agents;
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“at the market” into an existing market for the Common Shares;
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in other ways not involving market makers or established business markets, including direct sales to purchasers or sales
effected through agents;
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in privately negotiated transactions; or
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any combination of the foregoing.
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In order to comply with the securities laws of certain states, if
applicable, the Common Shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the Common Shares may not be sold unless they have been registered or qualified for sale in the state or an
exemption from the state’s registration or qualification requirement is available and complied with.
Lincoln Park is an “underwriter” within the meaning of Section
2(a)(11) of the Securities Act.
Lincoln Park has informed us that it intends to use an
unaffiliated broker-dealer to effectuate all sales, if any, of the Common Shares that it may purchase from us pursuant to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then
current market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. Lincoln Park has informed us that each such broker-dealer will receive commissions from Lincoln Park
that will not exceed customary brokerage commissions.
Brokers, dealers, underwriters or agents participating in the
distribution of the Common Shares as agents may receive compensation in the form of commissions, discounts, or concessions from Lincoln Park and/or purchasers of the Common Shares for whom the broker-dealers may act as agent. The compensation
paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor Lincoln Park can presently estimate the amount of compensation that any agent will receive. We know of no existing arrangements between
Lincoln Park or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the Common Shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if
required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from Lincoln Park, and any other required information.
We will pay the expenses incident to the registration, offering,
and sale of the Common Shares to Lincoln Park. We have agreed to indemnify Lincoln Park and certain other persons against certain liabilities in connection with the offering of Common Shares offered hereby, including liabilities arising under
the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Lincoln Park has agreed to indemnify us against liabilities under the Securities Act that may arise from certain
written information furnished to us by Lincoln Park specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Lincoln Park has represented to us that at no time prior to the
Purchase Agreement has it or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale
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(as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of
Common Shares or any hedging transaction, which establishes a net short position with respect to Common Shares. Lincoln Park has agreed that during the term of the Purchase Agreement, it, its agents, representatives or affiliates will not enter
into or effect, directly or indirectly, any of the foregoing transactions.
We have advised Lincoln Park that they are required to comply with
Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes Lincoln Park, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing,
or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of
a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.
This offering will terminate on the date that all shares offered
by this prospectus have been sold by Lincoln Park.
Our Common Shares are listed on the NYSE under the trading symbol
“QBTS.”
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General
On June 16, 2022, we entered into the Purchase Agreement with
Lincoln Park, pursuant to which Lincoln Park has agreed to purchase from us up to an aggregate of $150,000,000 of Common Shares (subject to certain limitations) from time to time over the term of the Purchase Agreement. Also on June 16, 2022,
we entered into the Registration Rights Agreement, pursuant to which we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act the Common Shares that have been or may be
issued to Lincoln Park under the Purchase Agreement.
This prospectus covers the resale by Lincoln Park of up to
35,000,000 Common Shares that we may sell to Lincoln Park under the Purchase Agreement from time to time. All sales are at our sole discretion.
We have the right, but not the obligation, from time to time to
direct Lincoln Park to purchase Common Shares having a value of up to $250,000 on any business day (the “Purchase Date”), which may be increased to up to $1,000,000 depending on certain conditions as set forth in the Purchase Agreement (and
subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement) (each, a “Regular Purchase”). The purchase price per Common
Share for a Regular Purchase will be the lower of: (i) the lowest trading price for Common Shares on the applicable Purchase Date and (ii) the average of the three lowest closing sale prices for Common Shares during the ten consecutive business
days ending on the business day immediately preceding such Purchase Date. The purchase price per Common Share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, forward or reverse stock split, or other
similar transaction occurring during the business days used to compute such price.
We also have the right, but not the obligation, to direct Lincoln
Park on each Purchase Date to make “accelerated purchases” on the following business day (the “Accelerated Purchase Date”) up to the lesser of (i) 300% of the number of Common Shares purchased pursuant to a Regular Purchase or (ii) 30% of the
total number (or volume) of Common Shares traded on the NYSE during the period on the applicable Accelerated Purchase Date beginning at the Accelerated Purchase Commencement Time (as defined below) for such Accelerated Purchase and ending at
the Accelerated Purchase Termination Time (as defined below) for such Accelerated Purchase, at a purchase price equal to the lesser of 95% of (x) the closing sale price of Common Shares on the Accelerated Purchase Date and (y) of the volume
weighted average price of Common Shares on the Accelerated Purchase Date (during a time period between the Accelerated Purchase Commencement Time and the Accelerated Purchase Termination Time) (each, an “Accelerated Purchase”). We have the
right in our sole discretion to set a minimum price threshold for each Accelerated Purchase in the notice provided with respect to such Accelerated Purchase and we may direct multiple Accelerated Purchases in a day provided that delivery of
Common Shares has been completed with respect to any prior Regular Purchases and Accelerated Purchases that Lincoln Park has purchased.
“Accelerated Purchase Commencement Time” means the period
beginning at 9:30:01 a.m., Eastern time, on the applicable Accelerated Purchase Date, or such other time publicly announced by the NYSE as the official open (or commencement) of trading on the NYSE on such applicable Accelerated Purchase Date.
“Accelerated Purchase Termination Time” means the earliest of (A)
4:00:00 p.m., Eastern time, on such applicable Accelerated Purchase Date, or such other time publicly announced by the NYSE as the official close of trading on the NYSE on such applicable Accelerated Purchase Date, (B) such time, from and after
the Accelerated Purchase Commencement Time for such Accelerated Purchase, that the total number (or volume) of Common Shares traded on the NYSE has exceeded the number of Common Shares equal to (i) the applicable Accelerated Purchase Share
Amount (as defined below) to be purchased by the Investor pursuant to the applicable purchase notice delivered for such Accelerated Purchase (the “Accelerated Purchase Notice”), divided by (ii) 30%, and (C) such time, from and after the
Accelerated Purchase Commencement Time for such Accelerated Purchase, that the trade price for the Common Shares on the NYSE as reported by the NYSE, has fallen below the applicable minimum per share price threshold set forth in the applicable
Accelerated Purchase Notice.
“Accelerated Purchase Share Amount” means, with respect to an
Accelerated Purchase, the number of Common Shares directed by the Company to be purchased by Lincoln Park in an Accelerated Purchase Notice, which number of Common Shares shall not exceed the lesser of (i) 300% of the number of Common Shares
directed by the Company to be purchased by Lincoln Park pursuant to the corresponding notice for the corresponding Regular
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Purchase and (ii) an amount equal to (A) 30% multiplied by (B) the total number
(or volume) of Common Shares traded on the NYSE during the period on the applicable Accelerated Purchase Date beginning at the Accelerated Purchase Commencement Time for such Accelerated Purchase and ending at the Accelerated Purchase
Termination Time for such Accelerated Purchase.
The Purchase Agreement may be terminated by us at any time, at our
sole discretion, without any cost or penalty, by giving one business day notice to Lincoln Park to terminate the Purchase Agreement.
Actual sales of Common Shares to Lincoln Park under the Purchase
Agreement will depend on a variety of factors to be determined by us from time to time, including (among others) market conditions, the trading price of Common Shares and determinations by us as to available and appropriate sources of funding
for our operations. The Purchase Agreement prohibits us from issuing or selling and Lincoln Park from acquiring any Common Shares if (i) the closing price of the Common Shares is less than the Floor Price of $1.00 or (ii) those Common Shares,
when aggregated with all other Common Shares then beneficially owned by Lincoln Park and its affiliates, would result in Lincoln Park and its affiliates having beneficial ownership of more than 9.9% of the then issued and outstanding Common
Shares, as calculated pursuant to Section 13(d) of the Exchange Act and Rule 13d-3 promulgated thereunder.
As of June 30, 2023, there were 128,028,663 Common Shares
outstanding, including the Exchangeable Shares and including 15,500,000 Common Shares that we have already issued to Lincoln Park under the First LP Registration Statement. Although the Purchase Agreement provides that we may sell up to an
aggregate of $150,000,000 of Common Shares to Lincoln Park, only 35,000,000 Common Shares are being offered under this prospectus to Lincoln Park. Depending on the market prices of Common Shares at the time we elect to issue and sell shares
to Lincoln Park under the Purchase Agreement, we may need to register for resale under the Securities Act additional Common Shares in order to receive aggregate gross proceeds equal to the $150,000,000 total commitment available to us under
the Purchase Agreement. At an assumed average purchase price equal to the Floor Price of $1.00, we would need to register an additional 99,881,540 Common Shares, to bring the total number of shares issued to Lincoln Park to 150,381,540 in
order to sell the entire $150 million of Common Shares to Lincoln Park under the Purchase Agreement. We are not required to register any additional Common Shares.
The purchase price for the Common Shares that we may sell to
Lincoln Park under the Purchase Agreement will fluctuate based on the trading price of the Common Shares. We generally have the right to control the timing and amount of any future sales of Common Shares to Lincoln Park, subject to (i) the
closing price of our Common Shares exceeding the Floor Price and (ii) the other terms and conditions of the Purchase Agreement, as described herein. Additional sales of Common Shares, if any, to Lincoln Park will depend upon market
conditions, as well as other factors to be determined by us. While the Purchase Agreement limits the rate at which we can sell Common Shares to Lincoln Park, due to the significant number of Common Shares that were redeemed in connection with
the Merger, the number of Common Shares that we can sell to Lincoln Park under the Purchase Agreement could constitute a considerable percentage of our public float at the time of such sales. As a result, the resale by Lincoln Park of
Purchased Shares pursuant to this registration statement could have a significant negative impact on the trading price of Common Shares. The 35,000,000 Common Shares that may be resold into the public markets pursuant to this registration
statement represent approximately 27.3% of the Common Shares (including Exchangeable Shares) outstanding as of June 30, 2023 (approximately 19.5% on a fully-diluted basis). We may ultimately decide to sell to Lincoln Park all or only some of
the Common Shares that may be available for us to sell pursuant to the Purchase Agreement and, as a result of certain conditions with respect to the use of the Purchase Agreement, including the Floor Price Limitation, we may be significantly
constrained from selling Common Shares under the Purchase Agreement. As of March 31, 2023, we have sold 15,118,460 Common Shares pursuant to the Purchase Agreement, not including the 381,540 Commitment Shares.
If all of the 35,000,000 Common Shares offered by Lincoln Park
under this prospectus were issued and outstanding as of June 30, 2023 such Common Shares would represent approximately 21.5% of the total number of Common Shares (including Exchangeable Shares) outstanding as of the date hereof (approximately
16.3% on a fully-diluted basis). If we elect to issue and sell more than the 35,000,000 Common Shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation, to do, we must first register for resale
under the Securities Act any such additional Common Shares, which could cause additional substantial dilution to our stockholders. The number of Common Shares ultimately offered for resale by Lincoln Park is dependent upon the number of
Common Shares we sell to Lincoln Park under the Purchase Agreement.
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At $1.02 per share, the closing price of our Common Shares
on May 22, 2023, the registration of a significant number of additional Common Shares would be required if we sought to sell the entire $150.0 million of Common Shares. At an assumed average purchase price equal to the Floor Price, we would
need to register an additional 99,881,540 Common Shares (or 150,381,540 Common Shares in aggregate) in order to sell the entire $150.0 million of Common Shares to Lincoln Park under the Purchase Agreement. Sales of any such additional Common
Shares to Lincoln Park could cause substantial dilution to our stockholders. The number of Common Shares ultimately offered for resale by Lincoln Park is dependent upon the number of Common Shares we sell to Lincoln Park under the Purchase
Agreement. On a combined basis with the 89,152,764 Common Shares previously registered on the Resale Registration Statement, the 15,500,000 Common Shares previously registered on the First LP Registration Statement, and the 35,000,000 Common
Shares being registered on this registration statement, we will have registered 139,652,764 Common Shares that may be sold and/or resold from time to time pursuant to the registration statements which represent approximately 109.1% of the
Common Shares (including Common Shares underlying Exchangeable Shares) outstanding as of June 30, 2023 (approximately 77.8% on a fully-diluted basis). Any sales of such Common Shares by Lincoln Park could similarly have a significant negative
impact on the trading price of Common Shares.
The number of Common Shares ultimately offered for resale by
Lincoln Park is dependent upon the number of Common Shares we sell to Lincoln Park under the Purchase Agreement.
The Purchase Agreement specifically provides that we may not issue
or sell any Common Shares under the Purchase Agreement if such issuance or sale would breach any applicable rules or regulations of the NYSE.
Issuances of Common Shares in this offering will not affect the
rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing stockholders will be diluted as a result of any such issuance. Although the number of Common Shares that our existing
stockholders own will not decrease, the Common Shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuance to Lincoln Park.
Other than as described above, there are no trading volume
requirements or restrictions under the Purchase Agreement, and we will control the timing and amount of any sales of Common Shares to Lincoln Park.
The Purchase Agreement contains customary representations,
warranties, covenants, closing conditions and indemnification provisions by, among and for the benefit of the parties. Lincoln Park has agreed that neither it nor any of its agents, representatives or affiliates will enter into or
effect,directly or indirectly any short selling or hedging that establishes a net short position with respect to the Common Shares. There are no limitations on the use of proceeds, financial or business covenants, restrictions on future
financings (other than restrictions on our ability to enter into a similar type of agreement or equity line of credit during the term of the Purchase Agreement, excluding an At-The-Market transaction with a registered broker-dealer), rights of
first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement.
Events of Default
Events of default under the Purchase Agreement include the following:
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the effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including,
without limitation, the issuance of a stop order), or any required prospectus supplement and accompanying prospectus are unavailable for the resale by Lincoln Park of Common Shares offered hereby, and such lapse or unavailability
continues for a period of ten consecutive business days or for more than an aggregate of 30 business days in any 365-day period;
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suspension by our principal market of Common Shares from trading for a period of one business day (other than in connection
with a general suspension of trading on such market);
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the delisting of the Common Shares from the NYSE (or nationally recognized successor thereto), provided, however, that the
Common Shares is not immediately thereafter trading on The Nasdaq Capital Market, The Nasdaq Global Market, The Nasdaq Global Select Market, the NYSE American, the NYSE Arca, the OTC Bulletin Board, the OTCQX operated by the OTC Markets
Group, Inc., the OTCQB operated by the OTC Markets Group, Inc. or such other nationally recognized trading market (or nationally recognized successor to any of the foregoing);
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the failure of our transfer agent to issue to Lincoln Park Common Shares within three business days after the applicable date
on which Lincoln Park is entitled to receive such shares;
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any breach of the representations or warranties or covenants contained in the Purchase Agreement or Registration Rights
Agreement that has or could have a material adverse effect on us and, in the case of a breach of a covenant that is reasonably curable, that is not cured within five business days;
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any voluntary or involuntary participation or threatened participation in insolvency or bankruptcy proceedings by or against
us;
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a court of competent jurisdiction enters an order or decree under any bankruptcy law that (i) is for relief against us in an
involuntary case, (ii) appoints a Custodian for us or for all or substantially all of our property, or (iii) orders the liquidation of us or our subsidiaries; or
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if at any time we are not eligible to transfer Common Shares electronically as DWAC shares.
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Lincoln Park does not have the right to terminate the Purchase
Agreement upon any of the events of default set forth above. During an event of default following any applicable grace or cure period, all of which are outside of Lincoln Park’s control, we may not direct Lincoln Park to purchase any Common
Shares under the Purchase Agreement.
No Short-Selling or Hedging by Lincoln Park
Lincoln Park has agreed that neither it nor any of its affiliates
shall engage in any direct or indirect short-selling or hedging of Common Shares during any time prior to the termination of the Purchase Agreement.
Prohibitions on Variable Rate Transactions
There are no restrictions on future financings, rights of first
refusal, participation rights, penalties or liquidated damages in the Purchase Agreement or Registration Rights Agreement other than a prohibition on entering into a “Variable Rate Transaction,” as defined in the Purchase Agreement.
Effect of Performance of the Purchase Agreement on Our Stockholders
All 35,000,000 Common Shares to be registered in this offering
which have been or may be sold by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable. It is anticipated that Common Shares registered in this offering will be sold over the period of up to 36-months that began on
the Commencement Date. The sale by Lincoln Park of a significant amount of Common Shares registered in this offering at any given time could cause the market price of Common Shares to decline and to be highly volatile. Sales of Common Shares to
Lincoln Park, if any, will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the additional Common Shares that may be available for us to sell pursuant
to the Purchase Agreement.
If and when we do sell shares to Lincoln Park, after Lincoln Park
has acquired the Common Shares, Lincoln Park may resell all, some or none of those Common Shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us under the Purchase Agreement may result in substantial
dilution to the interests of other holders of Common Shares. In addition, if we sell a substantial number of Common Shares to Lincoln Park under the Purchase Agreement, or if investors expect that we will do so, the actual sales of Common
Shares or the mere existence of our arrangement with Lincoln Park may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. However,
we have the right to control the timing and amount of any additional sales of Common Shares to Lincoln Park and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.
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The financial statements of D-Wave Quantum Inc. and its
subsidiaries as of December 31, 2022, 2021 and 2020, and for the years then ended, included in this prospectus have been so included in reliance of the report (which contains an explanatory paragraph relating to D-Wave Quantum Inc.’s ability to
continue as a going concern as described in Note 2 to the financial statements), of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on their authority of such firm as experts in accounting and auditing.
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We have filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the securities offered by this prospectus. This prospectus, which forms a part of such registration statement, does not contain all of the information included in the registration statement. For further
information pertaining to us and our securities, you should refer to the registration statement and to its exhibits. The registration statement has been filed electronically and may be obtained in any manner listed below. Whenever we make
reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement or a report we file under the
Exchange Act, you should refer to the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit to a registration statement or report is qualified in all
respects by the filed exhibit.
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov and on our website at www.dwavesys.com/investors. The information
found on, or that can be accessed from or that is hyperlinked to, our website is not part of this prospectus. You may inspect a copy of the registration statement through the SEC’s website, as provided herein.
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Unaudited condensed financial statements of D-Wave Quantum Inc. as
of and for the three months ended March 31, 2023
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Audited consolidated financial statements of D-Wave Quantum Inc.
as of and for the years ended December 31, 2022, 2021 and 2020
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Consolidated Financial Statements:
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F-1
