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Loans payable
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
Loans payable Loans payable
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):
Interest RateSeptember 30,December 31,
Loans payable, current:20232022
Term Loan 1
11.00%$29,800 16$— 
TPC Loan, due 2024Interest free206 206 
Financing of directors and officers insurance, due 20234.24%— 1,449 
Other loans payable, current, due 2023Interest free— 16 
Total loans payable, current$30,006 $1,671 
Loans payable, noncurrent:
SIF Loan 1
Interest free$8,834 $7,293 
TPC Loan, due 2025Interest free274 518 
Total loans payable, noncurrent$9,108 $7,811 
1 Refer below for additional information on the repayment period.
SIF Loan
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.
The initial fair value of the SIF Loan is determined by using a discounted cash flow analysis for the loan, which requires a number of assumptions. The significant assumptions used in determining the discounted cash flows include estimating the amount and timing of future revenue for the Company and the appropriate discount rate. In determining the appropriate discount rates, the Company considered the weighted average cost of capital for the Company, risk adjusted based on the development risks of the Company’s product. Management used a discount rate of 26% to discount the SIF Loan. Should projected revenue not be achieved as predicted, the adjustment to the fair value of the SIF Loan could be material. On September 19, 2023, the Company received an additional SIF tranche in the amount of $1.5 million (C$2.0 million) and recognized a $1.1 million discount on the tranche as government assistance on the condensed consolidated statement of operations and comprehensive loss. At September 30, 2023, the carrying value of the loan approximates its fair value. The nominal amount of the SIF Loan is $28.0 million (C$38.0 million) as of September 30, 2023. For the three months ended September 30, 2023, the Company recognized $0.4 million in interest expense and $0.2 million in foreign currency gains related to the SIF Loan. For the nine months ended September 30, 2023, the Company recognized $1.1 million in interest expense and $0.1 million in foreign currency gains related to the SIF Loan.
Repayments of the SIF contributions could also be triggered upon default of the agreement, or termination of the agreement, or upon a change of control that has not been approved by the Canadian government. The Canadian government approved the transaction with DPCM conditionally on May 9, 2022, with all conditions being satisfied on the closing date of the Merger.
Term Loan
On April 13, 2023, the Company entered into the Term Loan with PSPIB. 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 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 10.0% 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 and nine months ended September 30, 2023 the Company recognized $0.8 million and $1.2 million in PIK interest expense related to the Term Loan, respectively.
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, with the third tranche of $20.0 million to be made automatically available to the Company subject to the satisfaction of certain conditions. For the three and nine months ended September 30, 2023, the Company has recorded debt issuance cost of $2.1 million as other expense in its condensed consolidated statements of operations and comprehensive loss. PSPIB has agreed to waive 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, 2023 and September 30, 2023. As a result of not meeting the minimum revenue covenant, as of September 30, 2023 the Company assessed its ability to meet such covenant over the next 12 months in accordance with ASC Topic 470, "Debt" and determined that the Term Loan may be callable over this period. Therefore the Term Loan was classified as a current liability on the Company's consolidated balance sheets as of September 30, 2023. There can be no assurance that PSPIB will agree to waive the minimum revenue or other covenants under the Term Loan in the future.
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. There can be no assurance that the Company will be able to meet the conditions necessary to draw on the third tranche.
The Term Loan was amended such that the Company may issue up to $50.0 million under the Lincoln Park Purchase Agreement without the requirement to pay down the Term Loan to the extent that the proceeds under the Purchase Agreement are received prior to December 31 , 2023. As amended, the Term Loan requires that any proceeds from the issuance of Common Shares under the Purchase Agreement in excess of $50.0 million shall be applied towards the repayment of advances under the Term Loan in addition to a premium payment equal to 10% of the amount then prepaid to the Lender.