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What changed in D-Wave Quantum Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of D-Wave Quantum Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+444 added−631 removedSource: 10-K (2024-03-29) vs 10-K (2023-04-18)

Top changes in D-Wave Quantum Inc.'s 2023 10-K

444 paragraphs added · 631 removed · 296 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThis 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. • 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: • Increasing the number of qubits from 2,000 to 5,000 (2.5 times) • Increasing connectivity between qubits from 6 to 15 (2.5 times) • Increasing problem precision (the precision to which a problem can be posed) by two times • Reducing problem latency by 60 percent 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.
Biggest changeNotable improvements we have made while transitioning from the D-Wave 2000Q to the Advantage quantum system (released in October 2020) include: • Increasing the number of qubits from 2,000 to 5,000 (2.5 times); • Increasing connectivity between qubits from 6 to 15 (2.5 times); • Increasing problem precision (the precision to which a problem can be posed) by two times; and • Reducing problem latency by 60 percent.
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.
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.
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.
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 their use cases. We believe we are poised to disrupt and revolutionize the notion of computational power.
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.
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 annealing quantum computing to deliver practical business value with quantum computing.
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.
In 2018, we removed barriers to access our annealing quantum computing systems by launching our Leap service, 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.
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.
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 annealing quantum computer, a 5,000-qubit system, along with new quantum hybrid solvers in the Leap quantum cloud service.
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.
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. Annealing quantum computing is uniquely effective at solving optimization problems, and this problem class makes up a significant proportion of the enterprise problem universe.
The key elements of this strategy are: • 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.
The key elements of this strategy are: • Win the fast-growing optimization market: Annealing quantum computing 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.
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. • 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.
Quantum 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. • 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.
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.
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 annealing quantum computing, we built a Manhattan Project-style organization.
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.
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 and real-time access of D-Wave’s real-time Leap quantum cloud service or quantum hybrid offerings.
Our Technology Approach Quantum computing technology landscape 15 There are two primary approaches to building quantum computers: • 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. • 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.
Our Technology Approach Quantum computing technology landscape There are two primary approaches to building quantum computers: • Annealing quantum computation: Heavily inspired by physics and uniquely effective at solving challenging, ubiquitous optimization problems, annealing quantum computation is the first and only approach to date that delivers large-scale quantum computing and is a core of our product platform. • 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.
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: • An updated processor design that increased problem precision • Improvements in system control enabled faster anneal times • An increased yield of qubits and couplers that allows more complex problems to be solved Expansion into gate-model : Our early focus on quantum annealing directly lends itself to our gate-model efforts.
In addition, the Advantage annealing quantum system performance update released in October 2021 included several key changes that boosted performance over the original Advantage system release: • An updated processor design that increased problem precision; • Improvements in system control enabled faster anneal times; and • An increased yield of qubits and couplers that allows more complex problems to be solved, Expansion into gate-model : Our early focus on annealing quantum computing directly lends itself to our gate-model efforts.
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.
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. 8 We have already demonstrated important results.
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 11 broad use cases for businesses and developers.
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.
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. Available Information Our 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.
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. 24 Available Information Our 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.
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.
For example, in the pharmaceutical sector, annealing quantum computing 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. Both systems will likely play a role in quantum machine learning for toxicity mitigation.
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.
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 the Leap quantum cloud service today, our focus on growing an ecosystem of quantum developers is paving the way for increasingly diverse quantum computing applications.
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.
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 computing systems has enabled organizations to achieve dramatic improvements in performance.
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.
As a result, we can work with existing third-party foundries without the need to invest capital in a new fabrication facility. 18 At the same time, some critical elements of the technology are fabricated and tested with our own equipment, in our own facilities.
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.
As the only quantum computing company in the world both 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.
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.
Launched in 2018, and now 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.
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.
Many of the lessons learned in building a superconducting annealing quantum computing 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.
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.
By 2011, we 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.
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 our business.
Such new or revised laws could impact our current and planned practices or business activities; they may also impact the computing services and software industry platforms and data providers we utilize, and thereby indirectly impact our business.
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.
Improve the technology : We improve the technology through continuous innovation in annealing and gate-model quantum computing development, hybrid algorithm advancement, and leveraging customer and market feedback to inform our product innovations and lifecycle.
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. • 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.
We are 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. • Extend our track record of continuous innovation, execution, and operational excellence : We have a strong track record of innovation in building and delivering annealing quantum computing systems to the market.
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. 8 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.
All 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.
Privacy and Data Protection Regulations 24 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.
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.
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.
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 journeys and to continue to capture a significant portion of the growing market.
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.
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 are well positioned to compete, grow, and capture a significant share of the quantum computing market.
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.
Our offerings include: Leap TM quantum cloud service: We are also at the forefront of providing real-time quantum cloud service offerings for production quantum use cases.
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.
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 is ready for release, and external users can contribute to the codebase.
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.
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 supremacy (i.e., a computational quantum outcome that cannot be achieved by any existing classical computation system) in a growing portfolio of problems.
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.
In turn, this will enable business and society to harness the value of quantum computing 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.
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.
Such reports and other information filed by us with the SEC and are available free of charge on our website at www.dwavequantum.com as soon as reasonably practicable after we electronically file that material with or furnish it to the SEC.
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.
BCG estimates that combinatorial optimization problems, which are best suited for annealing quantum computing 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.
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 founding mentors of the Creative Destruction Lab’s quantum work stream, we have 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.
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.
We plan to continue this trajectory and focus on driving additional improvements in coherence and connectivity in our annealing quantum computing systems to further expand the universe of solvable problems, while utilizing this expertise to build our gate-model system.
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.
The relationship includes reselling our Leap quantum cloud service and professional services 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.
What’s more, our commercial-first approach focuses on building products delivered via the cloud that help enterprises solve complex business problems 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.
Moreover, our commercial-first approach focuses on building products delivered via the cloud that help enterprises solve complex business problems 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.
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.
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.
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 December 31, 2022, we owned four registered U.S. trademarks and seven registered foreign trademarks.
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 elements of our core patent portfolio. As of December 31, 2023, we owned four registered U.S. trademarks and seven registered foreign trademarks.
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.
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 September 2020.
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.
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 Advantage2 system, we have demonstrated a relentless pursuit of increased qubit count, coherence (qubit quality), qubit connectivity, and computational performance. This has resulted in a rapid increase in the complexity of problems our customers are able to solve.
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.
Other companies, including Rigetti Computing, IBM, Google, IonQ, Quantinuum, QuEra, Atom, Pasqal, 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.
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.
Throughout our history, we have demonstrated a successful track record of providing technology and innovation to customers. And we have 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.
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.
We have an active research program that focuses on quantifying the increases in performance we achieve with increasingly coherent quantum systems. Furthermore, we have seen promising new results on interesting physics problems, currently in peer-review, because of even greater coherence in our systems.
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.
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. 22 Currently, we own all our core intellectual property and do not license in or out any of our material intellectual property.
“Scalable” in this context means that many tens of thousands of devices can be controlled and read with only 16 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.
“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 over 5,000 qubits in the current Advantage system.
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.
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 then 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.
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.
We believe that most commercial quantum computation and successful application development will be hybrid, meaning that problems will be solved using powerful combinations of quantum and classical resources. Much like the value of a graphical processing unit in classical computation, quantum computers are accelerators.
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 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 production levels.
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.
This dual-system approach is crucial to serving the full quantum total addressable market (“TAM”), as different types of quantum systems benefit different types of quantum applications: annealing quantum computing 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.
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.
We currently deliver commercial annealing quantum computing systems via our Leap quantum cloud service, open-source application development tools, and professional services that bring demonstrable business value to our customers. We are also expanding into gate-model systems to provide coverage for a wider variety of customer use cases.
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. • 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.
This is the only physical implementation of a quantum computing technology that can be utilized for both annealing and gate-model quantum computers. • While there is 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. • Power consumption and refrigeration: Our annealing 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.
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.
For over ten 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.
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).
Leap hybrid solver service : Launched in 2020, the hybrid solver service (“HSS”) within our Leap service 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).
With the application, truck drivers are directed 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.
With the application, truck drivers were directed to the right container based on a crane’s current location, reducing crane movement while increasing crane productivity. The result of this system was the reduction of wait-time for truckers, and increased movement of containers out of the port.
Build the business: We continue to build the business through a combination of QCaaS cloud services, professional services, and developer ecosystem growth.
Build the business: We continue to build the business through a combination of QCaaS services, professional services, and partner / developer ecosystem growth.
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.
On May 12, 2022, we announced the deployment at the QCC of the first Advantage quantum system physically located in the United States. The Advantage system 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 as well as more than 5,000 qubits.
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 ”).
Operation Agreements 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”).
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.
This quantum system is the first Leap service 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.
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.
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, vehicle routing, logistics, drug discovery, industrial construction design, portfolio optimization and manufacturing processes, plus many more under development, demonstrating increased recognition of the benefits of quantum computing across industries.
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. 9 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.
As annealing quantum computing becomes more powerful and gate-model systems begin to come online over the next seven to ten years, other pre-production and production use cases are expected to emerge. As of 2024, hundreds of user-built early applications have been developed to run on our annealing quantum computing systems and in our hybrid solver service.
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 14 service, and the end of 2022, cloud revenue has grown at a compound annual growth rate of 37 percent.
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 2023, cloud revenue has grown at a compound annual growth rate of 21 percent.
Our Business Model 12 • Three-pronged go-to-market model: Our go-to-market model—across direct sales, re-sellers and developers— extends our ability to scale sales. • Our direct sales strateg y 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.
Our Business Model • Three-pronged go-to-market model: Our go-to-market model—across direct sales, partner channels, and developers— extends our ability to scale sales. • Our direct sales strateg y 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 a customer engagement model, D-Wave Launch, which is a services-enabled journey to the adoption of quantum technology.
The key elements of this strategy are: • 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.
The key elements of this strategy are: 17 • Continue to invest in our differentiated annealing quantum computing technology : As discussed above, while our technology approach encompasses both annealing and gate-model technologies, we are the only company that builds and commercially delivers production-scale annealing quantum computers.
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.
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, University of Southern California (“USC”) Information Sciences Institute, and the NASA Quantum Artificial Intelligence Laboratory and University Space Research Organization.
See “—Our Quantum Computers, Developer Tools and Quantum Hybrid Solvers Delivered via QCaaS—D-Wave Launch™ on-board to quantum computing program”. • 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.
See “Our Quantum Computers, Developer Tools and Quantum Hybrid Solvers Delivered via QCaaS—D-Wave Launch™ on-board to quantum computing program” for additional information. • 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 (3) building an ecosystem of global resellers such as NEC and regional resellers such as Strangeworks and Sigma-i.
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 13 speed of the QPU, one minute of QPU time is equal to running between 400 and 4000 different problems.
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, depending on the nature, size, and complexity of the problems.
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.
Advantage systems are 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 partners such as NEC.
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.
Since then, we have collaborated with Lockheed through the 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.
As of December 31, 2022, 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.
As of December 31, 2023, we had more than 200 employees across our systems, software, sales, marketing, and corporate teams. Approximately 64 percent of D-Wave’s employees are based near our research and development headquarters in Burnaby, British Columbia, Canada.
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.
On March 1, 2023, and January 24, 2024, we entered into amendments 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.
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.
Control electronics are an integral part of all quantum computing architectures, and we have designed and built more than seven generations of semiconductor-based electronic systems 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 in British Columbia, Canada hosts system development and manufacturing.
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.
We are 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 then begin running those use cases in production environments, thus fueling daily operations. But we believe that this is just the beginning.
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.
To date, more than 34,000 developers have joined our ecosystem. 14 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, and the remaining 80 percent of the TAM being the value captured by quantum computing end-users.
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.
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 difficult or out of reach for classical computers, which creates a demand for quantum computing.
Our extensive intellectual property portfolio around our annealing systems and 10-year head start in superconducting expertise give us a first-mover advantage, making it difficult for others to enter this space.
Our extensive intellectual property portfolio around our annealing quantum computing systems and ten-year head start in superconducting quantum technology development give us a first-mover advantage, making it difficult for others to enter this space.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe 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, with PSPIB as the lender (the " Term Loan ").
Biggest changeHowever, 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 . We are aware 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.
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.
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.
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.
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.
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.
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.
Factors affecting the trading price of our securities may include: • actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to it; • changes in the market’s expectations about our operating results; • success of competitors; • our operating results failing to meet the expectation of securities analysts or investors in a particular period; • changes in financial estimates and recommendations by securities analysts concerning D-Wave Quantum or the industries in which D-Wave Quantum operates; • operating and share price performance of other companies that investors deem comparable to D-Wave Quantum; • D-Wave Quantum’s ability to market new and enhanced products and technologies on a timely basis; • changes in laws and regulations affecting our business; • our ability to meet compliance requirements; • commencement of, or involvement in, litigation involving D-Wave Quantum; • changes in D-Wave Quantum’s capital structure, such as future issuances of securities or the incurrence of additional debt; • the volume of Common Shares available for public sale; • any changes in our board of directors or management; • sales of substantial amounts of Common Shares by our directors, executive officers or significant stockholders or the perception that such sales could occur; and • general economic and political conditions such as recessions, interest rates, international currency fluctuations and acts of war or terrorism.
Factors affecting the trading price of our securities may include: • actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to it; • changes in the market’s expectations about our operating results; • success of competitors; • our operating results failing to meet the expectation of securities analysts or investors in a particular period; • changes in financial estimates and recommendations by securities analysts concerning D-Wave Quantum or the industries in which D-Wave Quantum operates; • operating and share price performance of other companies that investors deem comparable to D-Wave Quantum; • D-Wave Quantum’s ability to market new and enhanced products and technologies on a timely basis; 53 • changes in laws and regulations affecting our business; • our ability to meet compliance requirements; • commencement of, or involvement in, litigation involving D-Wave Quantum; • changes in D-Wave Quantum’s capital structure, such as future issuances of securities or the incurrence of additional debt; • the volume of Common Shares available for public sale; • any changes in our board of directors or management; • sales of substantial amounts of Common Shares by our directors, executive officers or significant stockholders or the perception that such sales could occur; and • general economic and political conditions such as recessions, interest rates, international currency fluctuations and acts of war or terrorism.
Acquisitions and investments involve a number of risks, such as: • use of resources that are needed in other areas of our business; • in the case of an acquisition, implementation or remediation of controls, procedures and policies of the acquired company; • in the case of an acquisition, difficulty integrating the accounting systems and operations of the acquired company, including potential risks to our corporate culture; • 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; • in the case of an acquisition, retention and integration of employees from the acquired company; • in the case of an acquisition, past intellectual property infringement or data security issues arising from the acquired company; • unforeseen costs or liabilities; • adverse effects on our existing business relationships with customers as a result of the acquisition or investment; • the possibility of adverse tax consequences; • litigation or other claims arising in connection with the acquired company or investment; and • 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.
Acquisitions and investments involve a number of risks, such as: • use of resources that are needed in other areas of our business; 37 • in the case of an acquisition, implementation or remediation of controls, procedures and policies of the acquired company; • in the case of an acquisition, difficulty integrating the accounting systems and operations of the acquired company, including potential risks to our corporate culture; • 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; • in the case of an acquisition, retention and integration of employees from the acquired company; • in the case of an acquisition, past intellectual property infringement or data security issues arising from the acquired company; • unforeseen costs or liabilities; • adverse effects on our existing business relationships with customers as a result of the acquisition or investment; • the possibility of adverse tax consequences; • litigation or other claims arising in connection with the acquired company or investment; and • 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.
Any claims of intellectual property infringement or other intellectual property violations, even those without merit, could: • be expensive and time consuming to defend; • cause us to cease making, licensing or using our platform or products that incorporate the challenged intellectual property; • require us to modify, redesign, reengineer or rebrand our platform or products, if feasible; • cause significant delays in introducing new or enhanced services or technology; • divert management’s attention and resources; or • require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property.
Any claims of intellectual property infringement or other intellectual property violations, even those without merit, could: 45 • be expensive and time consuming to defend; • cause us to cease making, licensing or using our platform or products that incorporate the challenged intellectual property; • require us to modify, redesign, reengineer or rebrand our platform or products, if feasible; • cause significant delays in introducing new or enhanced services or technology; • divert management’s attention and resources; or • require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property.
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: • actual or anticipated fluctuations in its revenue or other operating metrics; • changes in the financial guidance provided to the public or D-Wave Quantum’s failure to meet this guidance; • 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; • changes in accounting standards, policies, guidelines, interpretations, or principles; • the economy as a whole and market conditions in its industry; • rumors and market speculation involving D-Wave Quantum or other companies in its industry; • announcements by D-Wave Quantum or its competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • new laws or regulations or new interpretations of existing laws or regulations applicable to its business; 47 • lawsuits threatened or filed against us; • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; • the expiration of contractual lock-up or market standoff agreements; and • sales of additional Common Shares by D-Wave Quantum or its stockholders.
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: • actual or anticipated fluctuations in its revenue or other operating metrics; • changes in the financial guidance provided to the public or D-Wave Quantum’s failure to meet this guidance; • 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; • changes in accounting standards, policies, guidelines, interpretations, or principles; • the economy as a whole and market conditions in its industry; 50 • rumors and market speculation involving D-Wave Quantum or other companies in its industry; • announcements by D-Wave Quantum or its competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • new laws or regulations or new interpretations of existing laws or regulations applicable to its business; • lawsuits threatened or filed against us; • other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; • the expiration of contractual lock-up or market standoff agreements; and • sales of additional Common Shares by D-Wave Quantum or its stockholders.
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.
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. 29 Our platform and products depend on the ability to access and integrate with third-party cloud providers.
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.
This is also true for our quantum-hybrid solvers in that they must also continue to deliver value compared to classical approaches. 34 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.
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. 45 We have identified a material weakness in our internal control over financial reporting.
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.
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. 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.
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. 33 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.
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.
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. 42 Governmental decisions with respect to perceived national security risks associated with quantum computing technology could impede the selling of our products and services.
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- 48 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.
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.
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.
Our success depends, in significant part, on our ability to engage our customers through all 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.
Other companies, including some of our customers, are working on 34 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.
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.
Acquisitions and investments may 37 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.
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.
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.
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. 54 In the future, we may become a “controlled company” within the meaning of the rules of the NYSE.
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 30 need to occur quickly to avoid interruptions in service for our customers.
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.
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 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.
The D-Wave Quantum Charter requires, to the fullest extent permitted by law, that, unless D-Wave Quantum consents 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 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.
Risks Related to D-Wave Quantum’s Financial Condition and Status as an Early-Stage Company 26 We are in our growth stage which makes it difficult to forecast our future results of operations and our funding requirements.
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.
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 our customers do not perceive the benefits of our technology, or if our technology does not drive continued progression of customers through the phases, then our market may not develop as we anticipate, or at all, or it may develop slower than we expect.
We face the risk of claims that we have infringed upon or otherwise violated third parties’ intellectual 43 property rights. Our future success depends in part on not infringing upon or otherwise violating the intellectual property rights of others.
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.
These could be affected by infrastructure downtime either within our own 31 service or because of third-party service providers on which we are dependent.
These could be affected by infrastructure downtime either within our own service or because of third-party service providers on which we are dependent.
Our current competitors include: • large, well-established tech companies that generally compete in all of our markets, including Google, Quantinuum, IBM, Microsoft and AWS; • 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 Form 10-K and we believe additional countries in the future; • less-established public and private companies with competing technology, including companies located outside the United States; • existing or new entrants seeking to enter the quantum annealing space; and • new or emerging entrants seeking to develop competing technologies.
Our current competitors include: 31 • large, well-established tech companies that generally compete in all of our markets, including Google, Quantinuum, IBM, Microsoft, Intel and AWS; • companies based in 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 Form 10-K and we believe additional countries in the future; • less-established public and private companies with competing technology, including companies located outside the United States; • existing or new entrants seeking to enter the quantum annealing space; and • new or emerging entrants seeking to develop competing technologies.
These agreements may not be effective in securing ownership of our intellectual property or controlling access to our proprietary 42 information and trade secrets.
These agreements may not be effective in securing ownership of our intellectual property or controlling access to our proprietary information and trade secrets.
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.
Neither DPCM’s independent registered public accounting firm nor D-Wave Quantum's independent registered public accounting firm 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.
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.
Inflation has accelerated in the U.S., Canada and globally due in part to global supply chain issues, the Ukraine-Russia war, the Israel-Hamas war, a rise in energy prices, and strong consumer demand as economies continue to reopen from restrictions related to the COVID-19 pandemic.
Any problems with the transmission of increased data and requests could result in harm to our brand or reputation. 29 Our growth has placed, and will likely continue to place, a significant strain on our managerial, administrative, operational, financial and other resources.
Any problems with the transmission of increased data and requests could result in harm to our brand or reputation. 28 Our growth has placed, and will likely continue to place, a significant strain on our managerial, administrative, operational, financial and other resources.
If we do not meet the expectations of investors or securities analysts, the market price of our securities may decline. 49 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. If we do not meet the expectations of investors or securities analysts, the market price of our securities may decline.
You should carefully review and consider the following risk factors in addition to the other information included in this Form 10-K, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” , the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and the consolidated financial statements and notes to the consolidated financial statements included herein.
You should carefully review and consider the following risk factors in addition to the other information included in this Form 10-K, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” , the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements and notes to the consolidated financial statements included herein.
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.
Competition in these markets may increase further if economic conditions or other circumstances cause customer bases and client spending to decrease and service providers to compete for fewer client resources.
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.
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 Ukraine, and the Israel-Hamas war.
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.
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.
D-Wave Quantum’s principal stockholder, PSP beneficially owned approximately 52 percent of the issued and outstanding shares of D-Wave Quantum (including Exchangeable Shares) as of December 31, 2022, 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.
D-Wave Quantum’s principal stockholder, PSP beneficially owned approximately 37 percent of the issued and outstanding shares of D-Wave Quantum (including Exchangeable Shares) as of December 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.
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 business model includes a relatively new phased 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.
On March 16, 2023, we were notified by the NYSE that we are not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our Common Shares was less than $1.00 over a consecutive 30 trading-day period.
On October 20, 2023, we were notified by the NYSE that we are not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of our Common Shares was less than $1.00 over a consecutive 30 trading-day period.
As a result, we may qualify for exemptions from certain corporate governance requirements that would otherwise be applicable to NYSE-listed companies. 50 D-Wave Quantum’s principal stockholder, PSP, beneficially owned approximately 52 percent of the issued and outstanding shares of D-Wave Quantum (including Exchangeable Shares) as of December 31, 2022.
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 37 percent of the issued and outstanding shares of D-Wave Quantum (including Exchangeable Shares) as of December 31, 2023.
If we cannot meet each such conditions, we may not receive the associated advancement of funds under the Term Loan. For example, conditions include receiving certain Canadian governmental consents, producing an intellectual property valuation report satisfactory to PSPIB, and raising at least $25 million from non-dilutive financing sources on terms reasonably acceptable to PSPIB.
If we cannot meet such conditions, we may not receive the associated advancement of funds under the third tranche. For example, conditions include receiving certain Canadian governmental consents, producing an intellectual property valuation report satisfactory to PSPIB, and raising at least $25 million in financing from non-dilutive sources on terms reasonably acceptable to PSPIB.
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.
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.
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.
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. 55 There is substantial doubt about our ability to continue as a going concern.
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.
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.
Item 1A. Risk Factors 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.
Item 1A. Risk Factors 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.
As of December 31, 2022, there were 17,916,560 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.
As of December 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. Such Warrants, if exercised, would increase the number of issued and outstanding Common Shares and be dilutive to the Common Shares then outstanding.
Evolving and scaling our business and operations places increased demands on our management as well as our financial and operational resources to: • effectively manage organizational change; • design scalable processes; • accelerate and/or refocus research and development activities; • expand supply chain and distribution capacity, and ultimately expand manufacturing capacity; • increase sales and marketing efforts; • scale and manage our professional services; • broaden customer-support and services capabilities; • maintain or increase operational efficiencies; • scale support operations in a cost-effective manner; • implement appropriate operational and financial systems; and • maintain effective financial disclosure controls and procedures.
Evolving and scaling our business and operations places increased demands on our management as well as our financial and operational resources to: • effectively manage organizational change; • design scalable processes; • accelerate and/or refocus research and development activities; • expand supply chain and distribution capacity, and ultimately expand manufacturing capacity; • increase sales and marketing efforts; • scale and manage our professional services; • broaden customer-support and services capabilities; • maintain or increase operational efficiencies; • scale support operations in a cost-effective manner; • implement appropriate operational and financial systems; and • maintain effective financial disclosure controls and procedures. 30 We may not be able to scale our products and services as necessary to meet market demand.
On March 20, 2023, we notified the NYSE that we intend to cure the stock price deficiency and to return to compliance with the NYSE continued listing standard.
On October 24, 2023, we notified the NYSE that we intend to cure the stock price deficiency and to return to compliance with the NYSE continued listing standard.
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, material weaknesses were identified in our internal control over financial reporting.
In connection with the preparation and audit of D-Wave's financial statements as of and for the fiscal year ended December 31, 2023 and 2022, material weaknesses were identified in our internal control over financial reporting.
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 Transaction, and has since declined, and reached a low of $0.50 Common Share on March 17, 2023. In the past, stockholders have instituted securities class action litigation following periods of market volatility.
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 Transaction, and has since declined significantly. In the past, stockholders have instituted securities class action litigation following periods of market volatility.
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.
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.
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. 36 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.
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.
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.
The CCPA also provides for a private right of action for data breaches that may increase data breach litigation. 41 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.
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.
During the year ended December 31, 2023 and 2022 we incurred net losses of $82.8 million and $53.7 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.
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.
In addition, any changes in service levels from our hosting provider may adversely affect our ability to meet our customers’ requirements. 32 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.
Any failure to achieve objectives in a timely manner could adversely affect our business, operating results and financial condition. 32 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.
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.
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.
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.
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.
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. 44 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.
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 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.
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 to perform sufficient review over certain areas including non-routine revenue transactions, equity, government assistance, taxes, deferred revenue, accounts receivable, stock-based compensation, prepaid expenses, lease accounting, financial statement disclosures, and classification within the consolidated statements of cash flow.
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.
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.
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.
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.
See [“ Liquidity and going concern ”] in the notes to the audited consolidated financial statements of D-Wave Systems as of the years ended December 31, 2022 and 2021, and in the audited consolidated financial statements of D-Wave for the year ended December 31, 2022 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” 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. 28 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.
See [“ Liquidity and going concern ”] in the notes to the audited consolidated financial statements of the Company as of the years ended December 31, 2023 and 2022 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” 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.
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.
As a public company, we are and will continue to be 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.
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.
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. 38 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.
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.
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. 43 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.
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.
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.
We will require a significant amount of cash for expenditures as we invest in ongoing research and development and business operations.
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 our growth strategy and ongoing research and development and business operations.
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. 38 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.
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.
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. 40 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.
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.
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.
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. 36 Many governments have enacted laws requiring companies to provide notice of data security incidents involving certain types of personal data.
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.
Our management and other personnel have and will need to continue 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.
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.
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. 48 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.
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 Transaction 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.
With respect to certain key metrics, including revenue, we do not anticipate meeting the Transaction Forecasts due primarily to delays in our fund raising activities such as the significant redemptions of DPCM stockholders and inability to raise funds due to the Floor Price Limitation under the Purchase Agreement described below, which have 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.
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.
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.
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.
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.
Prior to the Transaction, 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.
Prior to the Transaction, 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. 47 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.
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.
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. 49 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.
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.
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.
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.
Failure to satisfy these or any other conditions in the Term Loan could prevent us from receiving the available funds under the third tranche, which would negatively impact our financial condition. 27 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.
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.
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.
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.
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. 46 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.
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.
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. 25 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAnd 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.
Biggest changeOur 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, 2025. We believe our current and planned facilities are adequate for the foreseeable future.
Removed
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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosures Not applicable. 52 Part II
Biggest changeMine Safety Disclosures Not applicable. 57 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe performance graph above will not be deemed incorporated by reference into any filing of our company under the Exchange Act or the Securities Act. 53 Unregistered Sales of Equity Securities There were no unregistered sales of equity securities which have not been previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K during the fiscal year ended December 31, 2022.
Biggest changeUnregistered Sales of Equity Securities There were no unregistered sales of equity securities which have not been previously disclosed in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K during the fiscal year ended December 31, 2023.
Any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Issuer Purchases of Equity Securities None.
Any future determination to pay dividends will be made at the discretion of our board of directors, subject to applicable laws and will depend upon, among other factors, our results of operations, financial condition, contractual restrictions and capital requirements. Issuer Purchases of Equity Securities None. Performance Graph Not applicable.
As of December 31, 2022, we sold an aggregate number of 1,878,806 Common Shares to Lincoln Park pursuant to the Purchase Agreement (excluding the Common Shares paid in respect of the Commitment Fee) for aggregate consideration of $4.25 million. Item 6. [Reserved]
As of December 31, 2023, we have sold an aggregate number of 44,026,644 Common Shares to Lincoln Park pursuant to the Purchase Agreement (excluding the Common Shares paid in respect of the Commitment Fee) for aggregate consideration of $67.9 million. Item 6. [Reserved]
Holders of Record On March 17, 2023, the last reported sales prices of the Common Shares and Warrants were $0.52 and $0.09, respectively. As of March 17, 2023, there were approximately 150 holders of record of our Common Shares, approximately 45 holders of record of our Exchangeable Shares and 2 holders of record of our Warrants.
Holders of Record On March 28, 2024, the last reported sales prices of the Common Shares and Warrants were $2.10 and $0.22, respectively. As of March 28, 2024, there were approximately 111 holders of record of our Common Shares, approximately 32 holders of record of our Exchangeable Shares and 1 holders of record of our Warrants.
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Performance Graph The following graph compares the cumulative total return to stockholders on our common stock relative to the cumulative total returns of the S&P 500 Index and the S&P 500 Information Technology Index.
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The graph assumes an initial investment of $100 in (i) our common stock, (ii) the S&P 500 Index and (iii) the S&P 500 Information Technology Index at their respective closing prices on August 8, 2022, the date our common stock began trading on the NYSE, through December 30, 2022 (the last trading day of 2022).
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Data for the S&P 500 Index and the S&P 500 Information Technology Index assume reinvestment of dividends. The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance.
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The performance graph above shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOther 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 consolidated financial statements for the year ended December 31, 2022 included elsewhere in this Form 10-K), 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. 58 Results of Operations The following table sets forth our results of operations for the periods indicated (in thousands): Year Ended December 31, 2022 2021 2020 Revenue $ 7,173 $ 6,279 $ 5,160 Cost of revenue 2,923 1,750 915 Total gross profit 4,250 4,529 4,245 Operating expenses: Research and development 32,101 25,401 20,411 General and administrative 21,539 11,897 11,587 Sales and marketing 10,068 6,179 3,714 Total operating expenses 63,708 43,477 35,712 Loss from operations (59,458) (38,948) (31,467) Other income (expense), net: Interest expense (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 6,173 — — Lincoln Park Purchase Agreement issuance costs (629) — — Other income, net 1,345 801 2,969 Total other income, net $ 7,929 $ 7,403 $ 21,448 Net loss $ (51,529) $ (31,545) $ (10,019) Foreign currency translation adjustment, net of tax 41 15 (82) Net comprehensive loss $ (51,488) $ (31,530) $ (10,101) 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.
Biggest changeResults of Operations The following table sets forth our results of operations for the periods indicated (in thousands): Year ended December 31, (In thousands, except share and per share data) 2023 2022 Revenue $ 8,758 $ 7,173 Cost of revenue 4,136 2,923 Total gross profit 4,622 4,250 Operating expenses: Research and development 37,878 32,101 General and administrative 37,014 21,539 Sales and marketing 10,276 10,068 Total operating expenses 85,168 63,708 Loss from operations (80,546) (59,458) Other income (expense), net: Interest expense (37) (2,335) Change in fair value of Term Loan 640 — Term Loan debt issuance costs (2,118) — Change in fair value of warrant liabilities 262 6,173 Lincoln Park Purchase Agreement issuance costs — (629) Other income, net (916) 2,547 Total other income, net (2,169) 5,756 Net loss $ (82,715) $ (53,702) Foreign currency translation adjustment, net of tax (115) 41 Net comprehensive loss $ (82,830) $ (53,661) Comparison of the Year Ended December 31, 2023 and 2022 Revenue Revenue increased by $1.6 million, or 22%, to $8.8 million for the year ended December 31, 2023 as compared to $7.2 million for the year ended December 31, 2022, with the increase due primarily to an increase of $2.3 million in professional services revenue, primarily driven by an increase in projects that enable our customers to identify and implement applications that leverage our QCaaS cloud platform, offset by a decrease in QCaaS revenue of $0.7 million, due to non-renewal for several customer contracts that were partially replaced with new customer contracts.
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.
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, and to broaden the functionality, improve the reliability, availability and scalability of our QCaaS cloud platform.
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.
However, there can be no assurance that D-Wave will be able to raise additional capital when needed or under acceptable terms. The issuance of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to the currently outstanding common stock.
Recently Issued and Adopted Accounting Standards A discussion of recent accounting pronouncements is included in Note 2 to our audited consolidated financial statements included elsewhere in this Form 10-K. JOBS Act Accounting Election 72 In April 2012, the JOBS Act was enacted.
Recently Issued and Adopted Accounting Standards A discussion of recent accounting pronouncements is included in Note 2 to our audited consolidated financial statements included elsewhere in this Form 10-K. JOBS Act Accounting Election In April 2012, the JOBS Act was enacted.
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.
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 $1.235 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.
We expect D-Wave will incur additional annual 55 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.
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.
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.
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, Leap TM .
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.
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, 2022, we initiated the development of a gate-model quantum computing system.
Cash Flows Used in Investing Activities 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, 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 of our quantum computing systems.
In addition, PSP, a beneficial owner of approximately 52% of our outstanding Common Shares (including Common Shares underlying Exchangeable Shares) as of December 31, 2022, 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.
In addition, PSP, a beneficial owner of approximately 37% of our outstanding Common Shares (including Common Shares underlying Exchangeable Shares) as of December 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.
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.
When we determine that our contracts with customers contain multiple performance obligations, for these arrangements, 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.
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 December 31, 2022.
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 December 31, 2023.
Historically, we have developed our own annealing superconducting quantum computer and associated software, and our current generation quantum system is the D-Wave AdvantageTM.
Historically, we have developed our own annealing superconducting quantum computer and associated software, and our current generation quantum system is the D-Wave Advantage TM .
In subsequent periods, we expect that the general trend will be for QCaaS revenue, as a percentage of total revenue, to 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.
We expect that QCaaS revenue, as a percentage of total revenue, will 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.
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.
Macroeconomic and Business Environment Unfavorable conditions in the economy in the United States, Canada and abroad, including conditions resulting from changes in gross domestic product growth, 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, Israel 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.
As of December 31, 2022, we had an accumulated deficit of $376.8 million. The Transaction Agreement and PIPE Financing As noted above, the Merger pursuant to the Transaction Agreement was consummated on August 5, 2022.
As of December 31, 2023, we had an accumulated deficit of $483.1 million. The Transaction Agreement and PIPE Financing As noted above, the Merger pursuant to the Transaction Agreement was consummated on August 5, 2022.
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.
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.
These facilities are located in Burnaby, British Columbia, Richmond, British Columbia, and Palo Alto, California. 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.
These facilities are located in Burnaby, British Columbia, Richmond, British Columbia, and Palo Alto, California. During the years ended December 31, 2023 and 2022, we generated revenue totaling $8.8 million and $7.2 million, respectively. We have incurred significant operating losses since inception.
Cost of Revenue Our cost of revenue consists of all direct and indirect expenses related to providing our QCaaS offering and delivering our professional services, personnel-related expenses, including stock-based compensation, and costs associated 56 with maintaining the cloud platform on which we provide the QCaaS product.
Cost of Revenue Our cost of revenue consists of all direct and indirect expenses related to providing our QCaaS offering and delivering our professional services, such as personnel-related expenses, including stock-based compensation, costs associated with maintaining the cloud platform on which we provide the QCaaS product and depreciation and amortization related to our quantum computing systems and related software.
We use a range of amounts to estimate SSP for products and services sold together in a contract to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.
We use the SSP for products and services sold together in a contract to determine whether there is variable consideration (e.g. discount) to be allocated based on the relative SSP of the various products and services.
Overview On February 7, 2022, D-Wave Systems entered into the Transaction Agreement with DPCM, D-Wave, Merger Sub, CallCo, and ExchangeCo, pursuant to which, among other things: (a) Merger Sub merged with and into DPCM, with DPCM surviving as a direct, wholly-owned subsidiary of D-Wave, (b) D-Wave indirectly acquired all of the outstanding share capital of D-Wave Systems and D-Wave Systems became an indirect subsidiary of D-Wave, with D-Wave becoming a public company and an SEC registrant as successor to DPCM (the "Merger").
All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated. 58 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, 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 (the "Merger").
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.
If in the future we receive government grants and research incentives, which have historically offset a portion of research and development costs, these costs could decrease in absolute dollars.
Sales and Marketing Expenses Year Ended December 31, Change (In thousands, except percentages) 2022 2021 Amount % 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.
Sales and Marketing Expenses Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % Sales and marketing $ 10,276 $ 10,068 $ 208 2 % Sales and marketing expenses increased by $0.2 million, or 2%, to $10.3 million for the year ended December 31, 2023 as compared to $10.1 million for the year ended December 31, 2022.
Change in fair value of warrant liabilities 61 Year Ended December 31, Change (In thousands, except percentages) 2022 2021 Amount % 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.
Change in fair value of warrant liabilities Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % Change in fair value of warrant liabilities $ 262 $ 6,173 $ (5,911) 100 % Change in fair value of warrant liabilities decreased by $5.9 million for the year ended December 31, 2023 as compared to $6.2 million for the year ended December 31, 2022.
Cash Flows The following table sets forth our cash flows for the periods indicated (in thousands): Year Ended December 31, 2022 2021 2020 Net cash (used in) provided by: Operating Activities $ (45,226) $ (34,800) $ (29,287) Investing Activities (498) (1,999) (789) Financing Activities 43,265 24,913 43,144 Effect of exchange rate changes on cash and cash equivalents 41 34 (13) Net (decrease) increase in cash and cash equivalents $ (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.
Cash Flows The following table sets forth our cash flows for the periods indicated (in thousands): Year Ended December 31, 2023 2022 Net cash (used in) provided by: Operating Activities $ (60,649) $ (45,226) Investing Activities (630) (498) Financing Activities 95,636 43,265 Effect of exchange rate changes on cash and cash equivalents (115) 41 Net (decrease) increase in cash and cash equivalents $ 34,242 $ (2,418) 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.
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 54 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.
For the years ended December 31, 2023 and 2022, our net losses were $82.7 million and $53.7 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.
General and Administrative Expenses Year Ended December 31, Change (In thousands, except percentages) 2022 2021 Amount % 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.
General and Administrative Expenses Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % General and administrative $ 37,014 $ 21,539 $ 15,475 72 % General and administrative expenses increased by $15.5 million, or 72%, to $37.0 million for the year ended December 31, 2023 as compared to $21.5 million for the year ended December 31, 2022.
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.
However, we may not sell any Common Shares to Lincoln Park unless and until the price of our Common Shares subsequently exceeds the Floor Price of $1.00. 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 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.
We expect our total cost of revenue to increase in absolute dollars in future periods, corresponding to our anticipated growth in revenue and necessary to support our customers and to maintain the QCaaS cloud offering, operate our quantum computing systems, and to deliver our professional services.
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 LPC Purchase Agreement, management will be required to obtain additional capital through the issuance of additional debt and/or equity, or other arrangements.
There is no assurance that the floor price will not fall below $1.00 preventing the Company from being able to make sales to Lincoln Park in the future. 65 To the extent that sufficient capital is not obtained through the cash received in connection with the proceeds of the Term Loan or the issuance of Common Shares under the Purchase Agreement with Lincoln Park, management will be required to obtain additional capital through the issuance of debt and/or equity, or other arrangements.
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.
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. 59 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.
Other income (expense), net Year Ended December 31, Change (In thousands, except percentages) 2022 2021 Amount % Other income, net $ 1,345 $ 801 $ 544 68 % Other income (expense), net increas ed 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.
Other income (expense), net Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % Other income (expense), net $ (916) $ 2,547 $ (3,463) (136) % Other income (expense), net increased by $3.5 million or 136%, to $0.9 million for the year ended December 31, 2023 as compared to $2.5 million for the year ended December 31, 2022.
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.
Any future debt may contain covenants and limit D-Wave’s ability to pay dividends or make other distributions to stockholders. If D-Wave is unable to obtain additional financing, operations will be scaled back or discontinued. As of December 31, 2023, the Company was not in compliance with certain continued listing standards of the New York Stock Exchange ("NYSE").
Other Income (Expense), net Interest Expense Year Ended December 31, Change (In thousands, except percentages) 2021 2020 Amount % 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.
Other Income (Expense), net Interest Expense Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % Interest expense $ (37) $ (2,335) $ 2,298 (98) % Interest expense decreased by $2.3 million, or 98%, to $37 thousand for the year ended December 31, 2023 as compared to $2.3 million for the year ended December 31, 2022.
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.
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 over time on a percentage of completion basis using the costs incurred input measure of progress.
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.
Cash Flows Used in Investing Activities Net cash used in investing activities during the year ended December 31, 2023 was $0.6 million, representing additions of $0.6 million in property and equipment.
Term Loan and Security Agreement On April 13, 2023, we entered into the Term Loan and Security Agreement, by and between us and PSIPB Unitas Investment II Inc., ("PSPIB" or the "Lender"), as the lender (the "Term Loan").
On April 13, 2023 (the "Closing Date"), the Company entered into a Term Loan and Security Agreement (the "Term Loan"), by and between the Company and PSPIB Unitas Investments II Inc., ("PSPIB" or the "Lender"), a related party to the Company's largest shareholder.
Based on our assessment of standalone selling prices, we determined that there were no significant material rights provided to our customers requiring separate recognition. 69 The timing of revenue recognition may not align with the right to invoice the customer.
Our contracts with customers may include renewals or other options at fixed prices, which typically do not represent a significant discount. Based on our assessment of standalone selling prices, we determined that there were no significant material rights provided to our customers requiring separate recognition.
All other capitalized terms have the meanings ascribed thereto elsewhere in this Form 10-K. All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.
All other capitalized terms have the meanings ascribed thereto elsewhere in this Form 10-K.
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.
Cost of Revenue Cost of revenue increased by $1.2 million, or 41%, to $4.1 million for the year ended December 31, 2023 as compared to $2.9 million for the year ended December 31, 2022. The increase in cost of revenue was primarily driven by investments made to support a higher volume of services.
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.
The availability of the third tranche of $20.0 million was subject to the satisfaction of certain conditions, including the closing of a $25.0 million non-dilutive financing on terms reasonably acceptable to the Lender, the intellectual property valuation report submitted as a condition precedent to the second tranche remaining satisfactory to the Lender and the board-approved operating budget for 2023 through 2027 to be submitted by December 31, 2023, being satisfactory to the Lender.
Lincoln Park Purchase Agreement issuance costs Year Ended December 31, Change (In thousands, except percentages) 2022 2021 Amount % 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.
Lincoln Park Purchase Agreement issuance costs Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % Lincoln Park Purchase Agreement issuance costs $ — $ (629) $ 629 -100 % There were no issuance costs incurred in connection with the Lincoln Park Purchase Agreement during the year ended December 31, 2023.
Government assistance Year Ended December 31, Change (In thousands, except percentages) 2022 2021 Amount % 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.
Term Loan debt issuance costs Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % Term Loan debt issuance costs $ (2,118) $ — $ (2,118) n/a Change in Term Loan debt issuance costs increased by $2.1 million for the year ended December 31, 2023 as compared to zero for the year ended December 31, 2022.
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 Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States.
See Note 9 - Leases to the accompanying consolidated financial statements for further discussion of the nature and timing of cash obligations due under these leases. Critical Accounting Estimates Our consolidated financial statements included in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States.
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 instances where SSP is not directly observable, such as when we don't sell the product or service separately, we determine the SSP by considering its overall pricing objectives and market conditions, including cost plus a reasonable margin.
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.
However, in future periods we expect general and administrative expenses to increase in absolute dollars as we continue to invest in more comprehensive compliance and governance functions, increased IT security and compliance, and expanded internal controls over financial reporting in accordance with the Sarbanes-Oxley Act. 61 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 expect our general and administrative expenses to increase in absolute dollars for the foreseeable future as a result of operating as a public company.
We expect our general and administrative expenses to decrease in absolute dollars in the near term due to significant investments in scaling up our ability to operate as a public company made in prior years.
The increase was also due to an increase 62 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.
The increase was primarily due to increased personnel costs and professional fees of $2.1 million and $0.2 million, respectively, offset by decreased stock-based compensation expenses of $2.0 million.
Lincoln Park Purchase Agreement As of December 31, 2022, the Company received $4.2 million in proceeds through the issuance of 1,878,806 Common Shares to Lincoln Park under the Purchase Agreement, excluding the commitment shares.
During the year ended December 31, 2023, the Company has received $63.7 million in proceeds through the issuance of 42.1 million Common Shares to Lincoln Park under the Purchase Agreement. In order for the Company to issue Common Shares under the Purchase Agreement, the Company's share price must be above the floor price of $1.00.
Operating Expenses Research and Development Expenses 59 Year Ended December 31, Change (In thousands, except percentages) 2022 2021 Amount % 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 cost of revenue increases were primarily comprised of increases in stock-based compensation expenses and personnel costs of $0.9 million and $0.5 million, respectively, offset by decreases in quantum computing infrastructure costs of $0.1 million. 62 Operating Expenses Research and Development Expenses Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % Research and development $ 37,878 $ 32,101 $ 5,777 18 % Research and development expenses increased by $5.8 million, or 18%, to $37.9 million for the year ended December 31, 2023 compared to $32.1 million for the year ended December 31, 2022.
See Note 2 to the audited consolidated financial statements included elsewhere in this Form 10-K 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.
See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies to the audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to critical accounting estimates and significant accounting policies. Revenue recognition We recognize revenue from the sale of our services and products. Our contracts with customers often include multiple performance obligations.
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.
The increase was largely driven by the net impact of foreign exchange gains and losses. 64 Liquidity and Capital Resources Since its inception, the Company has incurred net losses and negative cash flows from operations. As of December 31, 2023, the Company had an accumulated deficit of $483.1 million.
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.
Our performance obligations are as follows: • Subscription sales to access our QCaaS cloud platform; • Professional services related to the development and implementation of quantum computing applications; • Quantum computing application training; • Application support and maintenance; and • Printed circuit boards.
Under the Term Loan, loans in aggregate principal amount of $50.0 million are to be made available to us in three tranches, subject certain terms and conditions. 65 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.
On April 13, 2023, the Company entered into a Term Loan with PSPIB, providing $50.0 million in aggregate principal amount over three tranches, with the first two tranches, each $15.0 million, disbursed on April 14, 2023, and July 13, 2023, respectively.
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.
The increase was driven by investments made to scale up our ability to operate as a public company and was primarily comprised of increases in stock-based compensation expense, other personnel costs, professional fees, insurance costs, and facilities expenses of $8.7 million, $0.8 million, $4.0 million, $1.3 million, and $0.4 million, respectively.
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.
Cash Flows Provided by Financing Activities 66 Net cash provided by financing activities during the year ended December 31, 2023 was $95.6 million, an increase of $52.4 million from cash provided by financing activities of $43.3 million for the year ended December 31, 2022.
Removed
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.
Added
The recent trends towards rising inflation may materially adversely affect our business and corresponding financial position and cash flows. Inflationary factors, interest rates and overhead costs may adversely affect our operating results.
Removed
However, we may not sell any Common Shares to Lincoln Park unless and until the price of our Common Shares subsequently exceeds the Floor Price of $1.00. Since February 14, 2023, our stock price has closed each day below the $1.00 Floor Price.
Added
High interest and inflation rates also present a recent challenge impacting the U.S. and Canadian economies and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future.
Removed
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 the Second LP Registration Statement to register the sale of additional shares related to the Purchase Agreement. Such registration statement is not yet effective.
Added
Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates remain high or continue to rise) on our operating costs, including our labor, due to supply chain constraints and employee availability and wage increases, which may result in additional stress on our working capital resources. 60 Key Components of Results of Operations Revenue We currently generate our revenue primarily through subscription sales to access our QCaaS cloud platform and professional services related to the development and implementation of quantum computing applications.
Removed
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.
Added
We expect our cost of revenue as a percentage of total revenue to decrease over time due to a higher mix of QCaaS revenue that has a lower cost to deliver compared to professional service revenue. Operating Expenses Our operating expenses consist of research and development, general and administrative, and sales and marketing expenses.
Removed
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 year ended December 31, 2022 as a result of the situation.
Added
The increase in research and development expenses was primarily driven by our continuous efforts to broaden the functionality of our QCaaS cloud platform and improve the reliability, availability and scalability of our cloud platform.
Removed
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 Item 1A, “Risk Factors” disclosed herein for our assessment of risk factors surrounding inflationary, supply chain and cybersecurity risks.
Added
In particular, the increases were comprised of stock-based compensation expenses, other personnel costs, and fabrication expenses of $5.1 million, $0.5 million, and $0.9 million respectively, and were partly offset by decreases in facilities costs and consulting expenses of $0.6 million and $0.2 million, respectively.
Removed
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.
Added
The decrease is due to an increase in the benefit from the catch-up method adjustment (see Note 8 to the accompanying consolidated financial statements) on the Company's SIF Loan to $2.9 million from $0.6 million in the comparable period. 63 Change in fair value of Term Loan Year Ended December 31, Change (In thousands, except percentages) 2023 2022 Amount % Change in fair value of Term Loan $ 640 $ — $ 640 n/a Change in Change in fair value of Term Loan increased by $0.6 million for the year ended December 31, 2023 as compared to zero for the year ended December 31, 2022.
Removed
Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry and workforce.
Added
The Company opted for the fair value option for accounting the Term Loan (See Note 2 to the accompanying consolidated financial statements). Changes in the fair value of the Term Loan, excluding changes due to the Company's own credit risk, are recorded as gains or losses in the Company’s consolidated statements of operations and comprehensive loss in each reporting period.
Removed
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 year ended December 31, 2022 as a result of the COVID-19 outbreak.
Added
The fair value of the Term Loan varies primarily based on the market yield rate, market yield volatility, probability for an event of default and the probability of the issuance of Common Shares under the Purchase Agreement.
Removed
Refer to Item 1A, "Risk Factors" disclosed herein for our assessment of risk factors surrounding the pandemic.
Added
As mentioned previously, the Company elected the fair value option for accounting the Term Loan. Under this option, debt issuance costs are recorded in other expenses in the Company’s consolidated statements of operations and comprehensive loss.
Removed
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.
Added
The fair value of the warrant liabilities varies primarily with the trading price of the Public Warrants listed on the New York Stock Exchange.
Removed
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.
Added
For the years ended December 31, 2023 and 2022, the Company incurred a net loss of $82.7 million and $53.7 million, respectively, and the Company had net cash outflows from operating activities of $60.6 million and $45.2 million, respectively.

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