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Registrant's telephone number, including area code

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

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

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

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

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

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

As of November 8, 2023, the registrant had 113,401,611 shares of common stock at par value $0.0001 outstanding. In addition, there were 46,526,886 exchangeable shares outstanding as of November 8, 2023, which are convertible into shares of common stock on a one for one basis at any time for no consideration.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

•D-Wave's future growth and innovations;

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

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

•D-Wave’s financial and business performance, including financial projections and business metrics relating to, among other things, QCaaS revenue, cost of revenue, operating losses and cash flows;

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

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

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

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

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

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

•D-Wave’s expectations about investments in general and administrative areas and research and development capabilities;

•whether warrant holders will exercise their warrants in certain conditions;

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

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

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

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

These forward-looking statements are not intended to serve as, and must not be relied on as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability regarding future performance, events or circumstances. Many of the factors affecting actual performance, events and circumstances are beyond the control of D-Wave.

As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements.

Some factors that could cause actual results to differ include:

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

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

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

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

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

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

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

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

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

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

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

•changes in applicable laws or regulations;

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

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

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

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

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

•risks stemming from inflation;

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

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

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

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

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

			Stockholders’ (Deficit) Equity
			Non-redeemable convertible preferred stock												Common stock												Additional paid-in capital						Accumulated deficit						Accumulated other comprehensive loss						Total stockholders' (deficit) equity
(In thousands, except share data)			Shares						Amount						Shares						Amount
Balances at December 31, 2021			137,765,828						$	189,881					3,166,949						$	2,610					$	146,240					$	(325,268)					$	(10,443)					$	3,020
Retroactive application of Merger			(15,201,495)						—						(349,451)						(2,610)						2,610						—						—						—
Adjusted Balances, beginning of period*			122,564,333						189,881						2,817,498						—						148,850						(325,268)						(10,443)						3,020
Issuance of common stock upon conversion of D-Wave Systems preferred stock in connection with the Business Combination (Note 3)			(122,564,333)						(189,881)						96,764,117						10						189,871						—						—						—
Issuance of common stock in connection with the ELOC (Note 3)			—						—						381,540						—						3,271						—						—						3,271
Business Combination, net of redemptions and transaction costs (Note 3)			—						—						4,327,512						—						(16,242)						—						—						(16,242)
Issuance of common stock in connection with the PIPE Investment (Note 3)			—						—						5,816,528						1						39,999						—						—						40,000
Old D-Wave exercise of stock options			—						—						155,137						—						141						—						—						141
Exercise of warrants			—						—						115,025						—						910						—						—						910
Old D-Wave stock-based compensation			—						—						—						—						3,355						—						—						3,355
Foreign currency translation adjustment, net of tax			—						—						—						—						—						—						18						18
Net loss			—						—						—						—						—						(38,740)						—						(38,740)
Balances at September 30, 2022			—						$	—					110,377,357						$	11					$	370,155					$	(364,008)					$	(10,425)					$	(4,267)

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

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

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

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

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

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

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

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

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

The Company has prepared its condensed consolidated financial statements assuming that it will continue as a going concern. Since its inception, the Company has incurred net losses and negative cash flows from operations. As of September 30, 2023, the Company had an accumulated deficit of $443.1 million. For the three and nine months ended September 30, 2023, the Company incurred a net loss of $15.8 million and $66.3 million, respectively. For the three and nine months ended September 30, 2022, the Company incurred a net loss of $13.3 million and $38.7 million, respectively. For the nine month period ended September 30, 2023 and 2022, the Company had net cash outflows from operating activities of $45.9 million and $34.3 million, respectively. As of September 30, 2023, the Company had $53.3 million of cash and working capital (current assets less current liabilities) of $14.9 million. The Company expects to incur additional operating losses and negative cash flows from operating activities as it continues to expand its commercial operations and research and development programs.

On April 13, 2023, (the "Closing Date") the Company entered into the Term Loan and Security Agreement (the "Term Loan"), by and between the Company and PSPIB Unitas Investments II Inc. ("PSPIB" or the "Lender"), a related party to the Company's largest shareholder. As further described in Note 7 - Loans payable, the Term Loan provides for an aggregate principal amount of $50.0 million to be made available to the Company in three tranches, subject to certain terms and conditions as defined in the Term Loan, including a financial covenant that measures the Company's revenue against certain minimum percentages of budgeted revenue per quarter. The first two tranches of the Term Loan, each amounting to $15.0 million in principal, were advanced to D-Wave on April 14, 2023 and July 13, 2023, respectively. The Lender agreed to modify certain conditions to the funding of the second tranche of the Term Loan, including delaying the delivery of a board-approved operating budget and plan for the Company’s fiscal years 2023 through 2027 to August 31, 2023 (later extended to December 31, 2023); modifying the condition that, prior to the funding of the second tranche,the Company shall have nominated an additional director that is either an employee of PSPIB or an independent director selected from PSPIB nominees to require such appointment at a later time at PSPIB’s option; and modifying notice deadline requirements for the registration or filings of intellectual property. PSPIB has also agreed to waive certain covenants under the Term Loan that the Company did not meet, including the minimum revenue financial covenant for the second and third fiscal quarters ended June 30, 2023 and September 30, 2023, respectively. The availability of the third tranche of $20.0 million is 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. The deadline to provide the operating budget was extended to December 31, 2023 from August 31, 2023 by the fourth amendment to the Term Loan dated October 6, 2023. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the third tranche or will be able to comply with the covenants of the Term Loan, or that PSPIB will agree to waive covenants under the Term Loan in the future.

In conjunction with the Merger, the Company and D-Wave Systems entered into a purchase agreement with Lincoln Park on June 16, 2022 (the "Purchase Agreement" or the "Purchase Agreement") which provides D-Wave the sole right, but not the obligation, to direct Lincoln Park to buy specified dollar amounts up to $150 million of D-Wave's common stock, par value $0.0001 per share (the "Common Shares") through November 1, 2025. The Purchase Agreement may provide the Company and D-Wave with additional liquidity to fund the business, subject to the conditions set forth in the agreement, including volume limitations tied to periodic market prices, ownership limitations restricting Lincoln Park from owning more than 9.9% of the then total outstanding Common Shares and a floor price of $1.00 at or below which the Company may not sell to Lincoln Park any Common Shares. When the Company sells shares to Lincoln Park, Lincoln Park may resell all, some, or none of those Common Shares at any time or from time to time in its discretion. For the nine months ended September 30, 2023, the Company has received $61.3 million in proceeds through the issuance of 39,487,104 Common Shares to Lincoln Park under the Purchase Agreement. In order for the Company to issue Common Shares under the Purchase Agreement, the Company's share price must be above the floor price of $1.00 per share. There is no assurance that the floor price will not fall below $1.00 preventing the Company from being able to make sales to Lincoln Park in the future.

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

The Company is not currently in compliance with, and may be unable to regain and/or maintain compliance with, certain continued listing standards of the New York Stock Exchange ("NYSE"). If the Company is unable to cure any event of noncompliance with any continued listing standard of the NYSE within the applicable timeframe and other parameters set forth by the NYSE, or if the Company fails to maintain compliance with certain continued listing standards that do not provide for a cure period, it will result in the delisting of the Company’s common stock from the NYSE, which could negatively impact the trading price, trading volume and liquidity of, and have other material adverse effects on, the Company’s common stock and its ability to raise capital.

In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Codification (“ASC”) Topic 205-40, “Basis of Presentation—Going Concern”, management has determined that the Company's liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern, which is considered to be for a period of one year from the issuance of these financial statements. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Such adjustments could be material.

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

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

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

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

The Term Loan is subject to certain repayment and prepayment provisions which the Company has considered in their valuation analysis. The valuation analysis performed as of the issuance date on April 13, 2023 and September 30, 2023 did not consider any amendments to the Term Loan that occurred subsequent to September 30, 2023 (See Note 7). A Monte Carlo simulation model was utilized to forecast the probability of the issuance of Common Shares under the Purchase Agreement to determine the estimated proceeds to be paid to the Lender along with a mandatory prepayment premium of 10%. Additionally, the Company estimated the probability for an event of default in the valuation analysis which would result in a mandatory prepayment of the outstanding principal and accrued and unpaid interest. A binomial lattice model was utilized to determine the impact on the valuation of optional prepayments, in the event a mandatory prepayment does not occur. The Company assessed the fair value of the Term Loan at issuance date and as of September 30, 2023 resulting in unrealized gains of $1.7 million and $1.4 million for the three and nine months ended September 30, 2023, respectively.

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

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

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

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

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

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

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

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

For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrants was used as the fair value of the Warrants as of each relevant date. The subsequent measurements of the Public Warrants after the detachment of the Public Warrants from the Units are classified as Level 1 fair value measurements due to the use of an observable market quote in an active market. The subsequent measurements of the Private Warrants after the detachment of the Public Warrants from the Units are classified as Level 2 fair value measurements due to the use of an observable market quote for the Public Warrants, which are considered to be a similar asset in an active market.

As of September 30, 2023, the liabilities for the Warrants were calculated by multiplying the quoted market price per DPCM Public Warrant of $0.11 by the 17,916,606 Warrants outstanding (see Note 8).

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

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

During the three and nine months ended September 30, 2022, the Company recorded Scientific Research and Experimental Development (“SR&ED") investment tax credits of nil and $0.1 million, respectively, as an offset to its research and development expenses in its condensed consolidated statements of operations and comprehensive loss. Upon entering into the Transaction Agreement on February 7, 2022, the Company is no longer a Canadian Controlled Private Corporation. As a result, beginning February 7, 2022, SR&ED investment tax credits can be applied to reduce income taxes payable to the Canadian government and any such investment tax credits that are not realized will be reflected as investment tax credit carryforwards. During the three and nine months ended September 30, 2023, the Company did not record any SR&ED investment tax credits.

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

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

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

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

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

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

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

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

In connection with the Merger and concurrently with the execution of the Transaction Agreement, on February 7, 2022, DPCM and the Company entered into separate subscription agreements with a number of investors (each a "PIPE Investor"), pursuant to which the PIPE Investors agreed to purchase, and the Company agreed to sell to the PIPE Investors, a number of Common Shares (the “PIPE Shares”) equal to the aggregate purchase price for all Common Shares subscribed for by each PIPE Investor, divided by $10.00 and multiplied by the Exchange Ratio for an aggregate purchase price of $40.0 million (the “PIPE Investment”), such that the PIPE Investors purchased 5,816,528 PIPE Shares in the aggregate. The PIPE Investment closed simultaneously with the consummation of the Merger.

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

The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, DPCM was treated as the "acquired" company for financial reporting purposes. Accordingly, for accounting purposes, the Merger was treated as the equivalent of the Company issuing shares for the net assets of DPCM, accompanied by a recapitalization.

The net assets of DPCM were stated at historical cost, with no goodwill or other intangible assets recorded.

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

Other revenue includes training and printed circuit board sales.

The following tables present a summary of revenue by geography, based on the addresses of our customers, for the three and nine months ended September 30, 2023 and 2022 (in thousands):

"Other" includes the rest of Europe, the Middle East, Africa, Asia, Canada and Australia where the revenue from a single country is not greater than 10% of total consolidated revenue. The Company has not had any sales in China, Russia or Ukraine.

The Company had significant customers during the three and nine months ended September 30, 2023 and 2022. A significant customer is defined as one that comprises up to ten percent or more of total revenues in a particular year or ten percent of outstanding accounts receivable balance as of the year end.

The tables below present the significant customers on a percentage of total revenue basis for the three and nine months ended September 30, 2023 and 2022.

As of September 30, 2023 and December 31, 2022, there were three and two significant customers that comprised ten percent or more of outstanding accounts receivable balances, respectively.

All revenues derived from major customers above are located in the United States, Germany and other European countries during the three and nine month period ended September 30, 2023 and the United States and Germany during the three and nine month period ended September 30, 2022.

The following table provides information about account receivable, contract assets and liabilities as of September 30, 2023 and December 31, 2022 (in thousands):

1 As of December 31, 2022, there was an immaterial amount of unbilled receivables classified as prepaid expenses and other current assets on the condensed consolidated balance sheets.

2Customer deposit is included in "Accrued expenses and other current liabilities" on the condensed consolidated balance sheets.

The allowance for doubtful accounts balance was nil as of September 30, 2023 and December 31, 2022, respectively.

Changes in deferred revenue from contracts with customers were as follows (in thousands):

Total deferred revenue as of December 31, 2022 was $$1.8 million, of which $1.7 million was recognized as revenues during the nine months ended September 30, 2023.

A significant number of the Company’s product and service sales are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

As of September 30, 2023, the aggregate amount of remaining performance obligations that were unsatisfied or partially unsatisfied related to customer contracts was $4.4 million. This amount included deferred revenue on the Company’s condensed consolidated balance sheets, of which approximately 84% is expected to be recognized to revenue in the next 12 months.

Accrued expenses and other current liabilities consisted of the following (in thousands):

Prepaid expenses and other current assets consisted of the following (in thousands):

Property and equipment, net consisted of the following (in thousands):

Depreciation expense for the three month period ended September 30, 2023 and 2022 was $0.2 million and $0.3 million, respectively. Depreciation expense for the nine month period ended September 30, 2023 and 2022 was $0.7 million and $1.0 million, respectively. The Company has not acquired any property and equipment under capital leases.

As of September 30, 2023 and December 31, 2022, substantially all of the Company’s long-lived assets, consisting of property and plant, net, and operating lease right-of-use assets, amounting to $10.4 million and $11.4 million, respectively, are located in North America, principally in Canada.

As of September 30, 2023 and December 31, 2022 loans payable consisted of the refundable government loans. The following table shows the component of loans payable (in thousands):

1 Refer below for additional information on the repayment period.

On November 20, 2020, the Company entered into an agreement (the "SIF Loan") with the Strategic Innovation Fund ("SIF"), whereby SIF agreed to make a repayable contribution to the Company of up to C$40.0 million (the "Contribution”). Funds from the SIF Loan are to be used for projects involving the adaption of research findings for commercial applications that have the potential for market disruption; development of current product and services through the implementation of new or incremental technology that will enhance the Company’s competitive capability; and development of process improvements which reduce the environmental footprint of current production through the use of new or improved technologies.

The annual repayment of the Contribution is calculated based upon a formula using the Company’s fiscal year revenue multiplied by a repayment rate. The contractual repayment period is 15 years and commences in the first year in which the Company reports annual revenue of $70.0 million (the “Benchmark Year”). In each of those years, an annual repayment amount is due. Each annual repayment must be paid by April 30 of the year following the year for which the annual repayment due will be calculated. If the Benchmark Year is not achieved within 14 years following the fiscal year in which the project is completed, the SIF Loan is forgiven. The SIF Loan is initially recorded at fair value, and subsequently at amortized cost. As the Contribution is interest free, the difference between the carrying value and initial fair value is recorded as government assistance on the consolidated statement of operations and comprehensive loss.

However, the warrants will not be adjusted for issuance of the Common Shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants.

In November 2020, contemporaneously with a revenue arrangement, D-Wave Systems entered into a contract pursuant to which D-Wave Systems agreed to cancel a previously issued warrant with a customer and replace it with a warrant to acquire up to 3,247,637 shares of its Class A Preferred Shares (the “Warrant Preferred Shares”), subject to certain vesting requirements. The warrant agreement was amended on August 5, 2022, contemporaneously with the closing of the Merger, to convert the Warrant Preferred Shares to a warrant to acquire up to 2,889,282 Common Shares of the Company in accordance with the Conversion Ratio (as defined below). The agreement was terminated November 28, 2022 and as a result, any unvested Warrant Preferred Shares will not vest and become exercisable. As of the termination date of November 28, 2022, approximately 40% of the warrants to acquire up to 2,889,282 Common Shares had vested, resulting in 1,155,713 Common Shares available to be issued after the termination date. The vested warrants will remain exercisable for up to 1,155,713 Common Shares at an exercise price of $2.16 per Common Share until November 29, 2026.

In 2022, DPCM and one of its affiliates entered into two unsecured promissory notes of up to $1.0 million each with the Sponsor (the "DPCM Notes"). The purpose of the DPCM Notes was to provide DPCM with additional working capital. All amounts drawn on the DPCM Notes were provided directly to DPCM. The DPCM Notes are not convertible and bear no interest. The principal balance of the DPCM Notes was originally due and payable upon the earlier of the date on which DPCM consummates its initial business combination, or the date that the winding up of DPCM is effective. A total of $0.4 million has been drawn on the DPCM Notes, of which $0.1 million remains outstanding as of September 30, 2023.

In connection with the Merger, the DPCM Notes were assumed by the Company and were amended and restated effective December 31, 2022. The amended and restated notes have identical terms as the DPCM Notes except that the Company must pay the principal balance in equal installments on December 31, 2022, March 31, 2023, and June 30, 2023.

In February 2023, these DPCM Notes were further amended and restated such that the Company must pay the principal balance in four equal installments on each of April 30, 2023, June 30, 2023, August 31, 2023, and October 31, 2023. Only the installment due on October 31, 2023 remains unpaid as of September 30, 2023.

The execution of the amended and restated DPCM Notes are related party transactions as these notes are payable to affiliates of the Company.

For the nine months ended September 30, 2023, the Company recorded approximately $0.2 million related to the short swing profit settlement remitted by a shareholder of the Company under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized the proceeds as an increase to additional paid-in-capital in the condensed consolidated balance sheets as of September 30, 2023, and in the condensed consolidated statements of stockholder's (deficit) equity, as well as in cash provided by financial activities in the condensed consolidated statement of cash flows, for the nine months ended September 30, 2023.

For the nine months ended September 30, 2023 and 2022, stock-based compensation is associated with stock options, restricted stock units ("RSUs"), and the Company's Employee Stock Purchase Plan ("ESPP").

The following table summarizes the Company’s stock option activity during the periods presented (in thousands except share and per share data):

As of September 30, 2023, out of the total 11,649,780 options that have been issued and are currently outstanding, 10,587,799 options were originally granted under the 2020 Equity Incentive Plan (the "2020 Plan"). These options will be converted applying the conversion ratio of 0.889657 (the "Conversion Ratio") into 9,419,509 Common Shares upon exercise.

The aggregate intrinsic value of stock options was calculated as the difference between the exercise price of the stock options and the estimated fair value of the Common Shares for those stock options that had exercise prices lower than the fair value of the Common Shares.

As of September 30, 2023, total unrecognized compensation cost related to unvested stock option grants was approximately $5.6 million. This amount is expected to be recognized over a weighted average period of approximately 0.81 years.

The total fair values of the stock options vested during the nine months ended September 30, 2023 and 2022 was $3.1 million and $3.1 million respectively.

RSUs granted to employees under D-Wave's 2022 Equity Incentive Plan (the "2022 Plan") generally vest 25% on the first anniversary of the grant date, and then 6.25% each quarter subsequent to the first anniversary for twelve quarters. RSUs granted to members of the Board of Directors are subject to a service condition, and generally will be fully vested on the date of the Company's 2024 annual shareholder meeting.

The following table summarizes the RSU activity and related information under the 2022 Plan:

As of September 30, 2023, the unrecognized stock-based compensation cost related to the RSUs was $24.3 million, which is expected to be recognized over a weighted-average period of 2.38 years.

In August 2022, the Company established the 2022 Employee Stock Purchase Plan (the "ESPP"). During the nine months ended September 30, 2023, 226,453 shares of common stock were issued under the ESPP.

The following table summarizes the stock-based compensation expense classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

The Company primarily enters into leases for office space that are classified as operating leases. During each of the nine months ended September 30, 2023,and 2022, total operating lease costs were $1.1 million.

From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business and may be subject to third-party infringement claims.

In the normal course of business, the Company may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim.

As of September 30, 2023 and 2022, the Company was not subject to any material litigation or pending litigation claims.

As a result of the Merger (see Note 3), for the three months ended September 30, 2022, the Company has retroactively adjusted the weighted average shares outstanding prior to August 5, 2022 to give effect to the Conversion Ratio used to determine the number of Common Shares into which they were converted.

The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders for the three and nine months ended September 30, 2023 and 2022 (in thousands, except share and per share data):

As of September 30, 2023 and 2022, the Company’s potentially dilutive securities were stock options, the Warrant Shares, and the Public Warrants and Private Warrants.

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

Potentially dilutive securities (upon conversion) that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

1 Stock options granted under the 2020 Plan will be converted applying the Conversion Ratio to the underlying common stock at the exercise date.

The Company has evaluated subsequent events through the filing of this Report, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the condensed consolidated financial statements, except for the following:

On October 20, 2023, the Company was notified by the New York Stock Exchange (the “NYSE”) that it is not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of the Company’s Common Stock was less than $1.00 over a consecutive 30 trading-day period. The notice does not result in the immediate delisting of the Company’s common stock from the NYSE.

On October 24, 2023, the Company notified the NYSE that it intends to cure the stock price deficiency and to return to compliance with the NYSE continued listing standard. The Company can regain compliance at any time within the six-month period following receipt of the NYSE notice if on the last trading day of any calendar month during the cure period the Company has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. Under the NYSE’s rules, if the Company determines that, if necessary, it will cure the stock price deficiency by taking an action that will require stockholder approval, it must so inform the NYSE in the above referenced notification and the price condition will be deemed cured if the price promptly exceeds $1.00 per share, and the price remains above that level for at least the following 30 trading days. The Company intends to consider available alternatives, including but not limited to a reverse stock split, that are subject to shareholder approval. The Company’s common stock will continue to be listed and trade on the NYSE during this period, subject to the Company’s compliance with other NYSE continued listing standards.

We are a commercial quantum computing company that provides customers with a full suite of professional services and web-based access to our superconducting quantum computer systems and integrated software environment through our cloud service, LeapTM. Historically, we have developed our own annealing superconducting quantum computer and associated software, and our current generation quantum system is the AdvantageTM 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. Our business model is focused primarily on generating revenue from providing customers access to our quantum computing systems via the cloud in the form of Quantum Computing as a Service ("QCaaS") products, and from providing professional services wherein we assist our customers in identifying and implementing quantum computing applications.

During the three months ended September 30, 2023 and 2022, we recognized revenue from our cloud and professional services of $2.6 million and $1.7 million, respectively. We have incurred significant operating losses since inception. For the nine months ended September 30, 2023 and 2022, our net loss was $66.3 million and $38.7 million, respectively. We expect to continue to incur significant losses for the foreseeable future as we continue to invest in various research and development programs and go-to-market initiatives. As of September 30, 2023, we had an accumulated deficit of $443.1 million.

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, Israel, Palestine 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.

We primarily generate our revenue through subscription sales to access our QCaaS cloud platform and professional services that assist our customers in identifying and implementing applications that leverage our QCaaS cloud platform. 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 primarily recognized based on a percentage of completion basis as services are being delivered.

We expect that there will be a decrease in our cloud based recurring QCaaS revenue as a percentage of total revenue in 2023 when compared to 2022 due to increased demand for professional services engagements. In subsequent periods, we expect that the general trend will be for QCaaS revenue as a percentage of total revenue to 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.

Our cost of revenue consists of expenses related to providing our QCaaS offering and delivering our professional services, specifically personnel-related expenses, including stock-based compensation, and costs associated with maintaining the cloud platform on which the QCaaS resides.

The cost of revenue also includes depreciation and amortization related to our quantum computing systems and related software.

We expect our total cost of revenue to increase in absolute dollars in future periods, corresponding to our anticipated growth in professional services revenue and related headcount as well to support our customers and to maintain the QCaaS cloud offering. Because the costs of delivering our QCaaS cloud offering are less than the costs for our professional services, we anticipate that an increase of QCaaS revenue will increase our gross margin in the longer term.

Our operating expenses consist of research and development, general and administrative, and sales and marketing expenses.

Research and development expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, fabrication costs, consulting and engineering services, lab supplies, and cloud computing resources and allocated facility costs for our research and development functions. Unlike a standard computer, design and development efforts continue throughout the useful life of our quantum computing systems to ensure proper calibration and optimal functionality. Research and development expenses also include purchased hardware components, fabrication and software costs related to quantum computing systems constructed for research purposes that do not have a high probability of providing near-term future economic benefits, and may have no alternate future use. We currently do not capitalize any research and development expenses. We expect to continue to make substantial investments in our research and development capabilities.

General and administrative expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel and outside professional services expenses including legal, audit and accounting services, insurance, other administrative expenses and allocated facility costs for our administrative functions. We expect to continue to invest in our general and administrative components, in particular in comprehensive compliance and governance functions, increased IT security and compliance, and enhanced internal controls over financial reporting.

Sales and marketing expenses consist primarily of personnel-related expenses, including salaries, benefits and stock-based compensation for personnel, direct advertising, marketing and promotional material costs, sales commission expense, consulting fees and allocated facility costs for our sales and marketing functions. We intend to continue to make significant investments in our sales and marketing organization to drive additional revenue, expand our global customer base, and broaden our brand awareness. We generally expect our sales and marketing expenses to continue to increase in absolute dollars for the foreseeable future as we invest in various go-to-market initiatives.

Other income (expense), net is primarily comprised of change in fair value of warrant liabilities and debt, debt issuance costs, interest expense and foreign currency gains or losses.

The following table sets forth our results of operations for the periods indicated:

Revenue increased $0.9 million, or 51%, to $2.6 million for the three months ended September 30, 2023 as compared to $1.7 million for the three months ended September 30, 2022. The increase in revenue was primarily driven by an increase in delivery of professional services that enable our customers to identify and implement applications that leverage our QCaaS cloud platform, partly offset by lower QCaaS revenue due to non-renewal for several customer contracts that were partially replaced with new customer contracts.

Cost of revenue increased $0.4 million, or 58%, to $1.0 million for the three months ended September 30, 2023 as compared to $0.7 million for the three months ended September 30, 2022. The increase in cost of revenue was driven primarily by an increase in personnel related costs, including $0.3 million related to stock-based compensation expense.

Research and development expenses increased by $2.0 million, or 26% to $9.5 million for the three months ended September 30, 2023 compared to $7.5 million for the three months ended September 30, 2022. The increase was primarily a result of our continuous efforts to broaden the functionality of our QCaaS cloud platform and improve the reliability, availability and scalability of our cloud platform. In particular, our personnel-related expenses increased $2.2 million (including $2.0 million related to stock-based compensation expense). These increases were offset by decreases in facilities costs of $0.1 million and a reduction in professional fees of $0.1 million.

General and administrative expenses increased $2.1 million, or 35%, to $8.0 million for the three months ended September 30, 2023 as compared to $5.9 million for the three months ended September 30, 2022. Our personnel-related expenses increased $2.5 million (including $2.3 million related to stock-based compensation expense), partly offset by a $1.0 million decrease in legal, audit, and other professional fees resulting from the Merger occurring in the comparable period.

Sales and marketing expenses decreased $0.3 million, or 11%, to $2.5 million for the three months ended September 30, 2023 as compared to $2.8 million for the three months ended September 30, 2022. The decrease was primarily a result of decreased promotional expenses of $0.3 million and professional fees of $0.1 million, offset by increased personnel costs of $0.1 million.

Other income, net increased by $0.7 million or 39%, to $2.6 million for the three months ended September 30, 2023 as compared to $1.9 million for the three months ended September 30, 2022, with the increases comprised of changes in fair value of warrant liabilities of $1.4 million, benefits from government assistance of $1.1 million and change in fair value of Term Loan of $1.7 million. The increases were partly offset by higher interest expense of $1.2 million due to a higher debt balance and debt issuance costs of $0.7 million.

Revenue increased $1.1 million, or 22%, to $5.9 million for the nine months ended September 30, 2023 as compared to $4.8 million for the nine months ended September 30, 2022. The increase in revenue was primarily driven by an increase in delivery of professional services that enable our customers to identify and implement applications that leverage our QCaaS cloud platform, partly offset by lower QCaaS revenue due to non-renewal for several customer contracts that were partially replaced with new customer contracts.

Cost of revenue increased $1.3 million, or 72%, to $3.2 million for the nine months ended September 30, 2023 as compared to $1.9 million for the nine months ended September 30, 2022. The increase in cost of revenue was primarily driven by an increase in personnel related costs, including $0.9 million in stock-based compensation costs.

Research and development expenses increased by $8.1 million, or 37%, to $29.9 million for the nine months ended September 30, 2023 compared to $21.8 million for the nine months ended September 30, 2022. The increase was primarily a result of our continuous efforts to broaden the functionality of our QCaaS cloud platform and improve the reliability, availability and scalability of our cloud platform. In particular, our personnel-related expenses increased $6.5 million (including $6.2 million related to stock-based compensation expense), and our wafer fabrication costs increased $0.9 million due to higher activity rates.

General and administrative expenses increased $15.3 million, or 113%, to $28.9 million for the nine months ended September 30, 2023 as compared to $13.6 million for the nine months ended September 30, 2022. The increase was primarily a result of operating as a public company. In particular, our legal, accounting, tax and consulting fees increased $4.4 million, our personnel-related expenses increased $8.6 million (including $6.9 million related to stock-based compensation expense), and insurance costs increased $1.4 million.

Sales and marketing expenses increased $1.9 million, or 31%, to $7.9 million for the nine months ended September 30, 2023 as compared to $6.0 million for the three months ended September 30, 2022. The increase was primarily a result of our efforts to expand our go-to-market initiatives. The increase was comprised of higher personnel-related expenses of $1.4 million, mainly attributed to salary and commission increases, promotional costs of $0.1 million and consulting of $0.2 million.

Other expense, net increased by $2.0 million or 645%, to $2.3 million for the nine months ended September 30, 2023 as compared to $0.3 million for the nine months ended September 30, 2022. The increases were driven by $1.5 million in increased debt and equity issuance costs, $2.6 million in unfavorable changes in the fair value of warrant liabilities, and a $1.4 million reduction in unrealized foreign exchange gains. These increases were partly offset by $1.1 million in government assistance related to the SIF loan, $1.4 million in favorable changes in fair value of the Term Loan, and a $1.1 million reduction in interest expense.

We have incurred net losses and experienced negative cash flows from operations since inception. To date, our primary sources of capital have been through private placements of convertible preferred shares, private placements of common stock, revenue from the sale of our products and services, government assistance and debt financing. During the nine month period ended September 30, 2023 and 2022, we incurred net losses of $66.3 million and $38.7 million, respectively. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development and go-to-market programs. We have determined that additional financing will be required to fund our operations for the next 12 months and our ability to continue as a going concern is dependent upon obtaining additional capital and financing.

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 expanding our commercial organization, as well as ongoing research and development and business operations. Until such time as we can generate significant revenue from sales of our QCaaS offering and our professional services, we expect to finance our cash needs through public and/or private equity (including sales pursuant to the Purchase Agreement) and/or debt financings or other capital sources. However, we may be unable to raise sufficient funds or enter into such other arrangements, when needed, on favorable terms, or at all. In particular, uncertain and unfavorable conditions in the United States and global macroeconomic environment, including inflationary pressures, rising interest rates, banking collapses, and financial and credit market fluctuations, could reduce our ability to access capital on favorable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce our quantum computing development and go-to-market efforts.

As of September 30, 2023, we have 17,916,606 Warrants outstanding, each Warrant being exercisable for 1.4541326 Common Shares of the Company at an exercise price of $11.50. Whether warrant holders will exercise their Warrants, and therefore the amount of cash proceeds we would receive upon exercise, is dependent upon the trading price of the Common Shares. Therefore, if and when the trading price of the Common Shares is less than approximately $7.91, the effective exercise price of the Warrants per one Common Share we expect that warrant holders will not exercise their Warrants. Our Common Shares have closed below $7.91 since October 11, 2022. Therefore, we do not expect warrant holders to exercise their Warrants in the short-term and as such we do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on other sources of cash discussed below to continue to fund our operations. If we are unable to raise additional funds through equity or debt financings when needed, we will be required to delay, limit, or substantially reduce our quantum computing development and go-to-market efforts.