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LOANS PAYABLE, NET | 9 Months Ended
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Sep. 30, 2024
Debt Disclosure [Abstract] |
LOANS PAYABLE, NET | 6. LOANS PAYABLE, NET As of September 30, 2024 and December 31, 2023, loans payable, net, consisted of the SIF Loan, the TPC loan (as defined below) and the Term Loan. The following tables show the component of loans payable (in thousands):
| Effective Interest Rate |  | As of September 30, 2024 |  | As of December 31, 2023
Loans payable, net, current: |  |  |  |  |
TPC Loan, current | Interest free |  | $ | 370 |  |  | $ | 399 |
Term Loan, due 2027 | 11.00% |  | 13,700 |  |  | — |
Total loans payable, net, current |  |  | $ | 14,070 |  |  | $ | 399 |
Loans payable, net, non-current: |  |  |  |  |
SIF Loan | Variable 1 |  | $ | 32,013 |  |  | $ | 32,072 |
Term Loan, due 2027 | 11.00% |  | — |  |  | 31,400 |
TPC Loan, non-current | Interest free |  | — |  |  | 378
Total loans payable, net, non-current |  |  | $ | 32,013 |  |  | $ | 63,850 |
1 Refer below for additional information on the SIF Loan repayment period and effective interest rate. The following table shows the component of the Company's indebtedness carried at fair value and amortized cost (in thousands):
| As of September 30, 2024 |  | As of December 31, 2023
TPC Loan, current | $ | 370 |  |  | $ | 399 |
Total loans payable, net, current, at amortized cost | 370 |  |  | 399 |
Fair value option - Term Loan | 13,700 |  |  | — |
Total loans payable, net, current | $ | 14,070 |  |  | $ | 399 |
| As of September 30, 2024 |  | As of December 31, 2023
SIF Loan | $ | 32,013 |  |  | $ | 32,072 |
TPC Loan, non-current | — |  |  | 378 |
Total loans payable, net, non-current, at amortized cost | 32,013 |  |  | 32,450 |
Fair value option - Term Loan | — |  |  | 31,400 |
Total loans payable, net, non-current | $ | 32,013 |  |  | $ | 63,850 |
TPC loan During the period spanning 2010 through 2021, the Company received funding totaling C$12.5 million from Technology Partnerships Canada (the "TPC Loan"). On November 23, 2020, an amendment forgave C$5.0 million of unpaid accrued debt principal and interest from prior years. Additionally, the amendment waived the interest charge on the remaining C$2.5 million of principal and revised the repayment schedule to C$0.5 million due annually on each April 30 through 2025. The estimated fair value of the TPC Loan (Level 2) at September 30, 2024 was $0.3 million. The fair value of the TPC Loan was valued using a discounted cash flow model, with key inputs relating to terms, discount rate and expectations for defaults and prepayments. As the TPC Loan is originated through a government program, a market rate of interest is not imputed in accordance with the scope limitations of ASC 835. SIF Loan On November 20, 2020, the Company entered into the SIF Loan. As of December 31, 2023, the Company had received the full C$40.0 million in eight tranches between November 2020 and December 2023. Funds from the SIF Loan were used for projects involving the adaptation 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. Principal and interest amounts to be repaid under the SIF Loan are determined using a revenue-based formula, and are capped at 150% of the principal amount (the "Repayment Cap"). Repayments are due in up to 15 annual installments, commencing on April 30 of the second fiscal year following the fiscal year in which the Company first reports annual revenue of at least $70.0 million (the "Benchmark Year"). If the Company fails to reach $70.0 million in annual revenue after 14 years from origination, or if the total of the 15 revenue-based annual installments is less than the principal amount, any remaining repayment obligation will be forgiven. Repayments of the SIF Loan can also be triggered upon default of the agreement, termination of the agreement, or upon a change of control that has not been approved by the Canadian government. As of September 30, 2024, the Company is not aware of any events that would trigger default or termination of the agreement. The gross proceeds of the SIF Loan were recorded as a liability related to the sale of future revenues (see Note 2 - Basis of Presentation and Summary of Significant Accounting Policies). As of September 30, 2024 and December 31, 2023, the Company calculated a weighted average effective interest rate for all tranches of 2.46% and 2.46%, respectively based on the most recent revenue projections at each reporting date. The estimated fair value of the SIF Loan (Level 3) at September 30, 2024 was $6.7 million. The fair value of SIF Loan was valued using a discounted cash flow model, with significant assumptions relating to the amount and timing of future revenues and the appropriate discount rate. Term Loan On April 13, 2023, the Company entered into the Term Loan with PSPIB, a related party to the Company's largest shareholder. Under the Term Loan, term loans in aggregate principal amount of $50.0 million are to be made available to the Company in three tranches, subject to certain terms and conditions. The Term Loan was subsequently repaid in full on October 22, 2024. The Term Loan matures on March 31, 2027, is secured by a first-priority security interest in substantially all of the Company's assets and contains certain operational and financial covenants, including a financial covenant that measures the Company's revenue against certain minimum percentages of budgeted revenue per quarter. The Term Loan is subject to a 2% drawdown fee and requires that any proceeds from the issuance of Common Shares under the Purchase Agreement be applied towards the repayment of advances under the Term Loan. Such repayments are subject to a premium payment equal to 10% of the amount then prepaid to the Lender, in addition to the regular prepayment premium applicable on that date, except as modified by the amendment to the Term Loan as discussed below. The Term Loan is subject to a prepayment premium due to the Lender equal to 3% of the amount prepaid/repaid within the first year of the Closing Date, 2% in the second year, 1% in the third year and no prepayment premium thereafter. At the Company's discretion, the Term Loan bears interest on a monthly basis at either (i) 10.0% payable in cash, or (ii) 11.0% payable in kind ('PIK'), with the latter added to the principal value of the Term Loan. For the three months ended September 30, 2024 and 2023, t he Company recognized $0.4 million and $0.8 million, respectively, in PIK interest expense related to the Term Loan. For the nine months ended September 30, 2024 and 2023, t he Company recognized $2.2 million and $1.2 million, respectively, in PIK interest expense related to the Term Loan. The PIK interest expense is included in interest expense on the condensed consolidated statements of operations and comprehensive loss. Prior to PSPIB's advance of the first tranche, the Company satisfied several closing conditions including the provision of a cash flow forecast and the board of directors' retention of an advisor. The first and second tranche of the Term Loan, each in an aggregate principal amount of $15.0 million, were advanced to D-Wave on April 14, 2023 and July 13, 2023, respectively, with the third tranche of $20.0 million to be made automatically available to the Company subject to the satisfaction of certain conditions. PSPIB has waived certain covenants under the Term Loan that the Company did not meet, including the minimum revenue financial covenant for the fiscal quarters ended June 30, 2024, June 30, 2023 and September 30, 2023. The availability of the third tranche is subject to the Company closing 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 providing a board-approved operating budget for 2023 through 2027 by August 31, 2023 that is 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, and the budget was provided prior to the extended deadline. The Term Loan was amended to allow the Company to issue up to $50.0 million under the Purchase Agreement without needing to pay down the Term Loan if the proceeds were received before December 31, 2023. On February 7, 2024, a fifth amendment was made to include the investment in Zapata via a senior secured promissory note as a "Permitted Investment." Any proceeds from issuing Common Shares under the Purchase Agreement exceeding $50.0 million must be used to repay the Term Loan, plus a 10% premium on the prepaid amount. On April 16, 2024, the Company entered into the sixth amendment to the Term Loan with PSPIB. The amendment provides an additional period during which no prepayment of the advances under the Term Loan is required for up to $30.0 million in gross proceeds received by the Company from share issuances under the Purchase Agreement or the Company’s $175 million shelf registration statement on Form S-3, which became effective on May 24, 2024, between April 16, 2024, and September 30, 2024 (the "Second Prepayment Exemption"). Additionally, the amendment allows for a prepayment premium exemption for up to $20.0 million in gross proceeds received after the $30.0 million Second Prepayment Exemption. Under this exemption, the additional 10% prepayment premium will not apply for any mandatory prepayment from proceeds from the issuance of Common Shares under the ELOC. As of September 30, 2024, the Company had prepaid $21.1 million of the Term Loan, including $16.4 million in principal and $4.2 million in accrued PIK interest. The remaining balance as of September 30, 2024 was $13.7 million measured at amortized cost. Any unrealized gain or loss on the Term Loan is included in change in fair value of Term Loan on the condensed consolidated statements of operations and comprehensive loss. The Term Loan was classified as a Level 3 fair value measurement and measured using the binomial lattice model and the Monte Carlo simulation model. Key inputs for the simulations are summarized below.
| As of September 30, 2024
Weighted-average risk-free rate | 4.83% Range: 4.72% to 4.93%
Default Trigger Event probability | 5.00% on April 1, 2025
ELOC financing trigger event probability | 10.00% from November 1, 2025 through January 1, 2025
ATM financing trigger event probability | 40.00% from November 1, 2025 through January 1, 2025
Weighted-average market yield rate (Default Trigger Event) | 12.11%
Weighted-average market yield rate (Call Option) | 11.76% Range: 11.38% to 12.46%
Weighted-average market yield volatility | 5.00%
The following table summarizes the difference between the fair value and the amortized cost of the Term Loan as of September 30, 2024 (in thousands):
| Amortized Cost |  | Unrealized Gains |  | Fair Value
Term Loan, due 2027 | $ | 13,710 |  |  | $ | 10 |  |  | $ | 13,700 |
The following table summarizes the changes in the carrying value of the Term Loan (in thousands):
| Nine months ended September 30, 2024
Beginning balance | $ | 31,400 |
PIK interest expenses | 2,231 |
Change in fair value | 635 |
Payments | (20,566) |
Ending balance | $ | 13,700 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 470 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481544/470-10-50-6 Reference 2: 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