UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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. ☑
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RIGETTI COMPUTING, INC. AND SUBSIDIARIES FORM 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37 | |
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1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. We have based these forward-looking statements on our current expectations and projections about future events. Any statements that refer to projections, forecasts or other characterizations of future events or circumstances are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “goal,” “objective,” “design,” “goal,” “seek,” “target,” “should,” “could,” “will,” “would” or the negative of such terms or other similar expressions.
These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward- looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.
We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:
| ● | the sufficiency of our cash resources, our expectation that we will need to raise additional capital by late 2024 or early 2025 and our ability to raise additional capital when needed and on attractive terms, |
| ● | our ability to achieve milestones, and/or technological advancements, including with respect to executing on our technology roadmap and developing practical applications, |
| ● | the potential of quantum computing and estimated market size and market growth including with respect to our long-term business strategy for quantum computing as a service (“Quantum Computing as a Service,” or “QCaaS”), |
| ● | the success of our partnerships and collaborations, |
| ● | our ability to accelerate our development of multiple generations of quantum processors, |
| ● | customer concentration and the risk that a significant portion of our revenue currently depends on contracts with the public sector, |
| ● | the outcome of any legal proceedings that may be instituted against us or others with respect to the Business Combination (as defined herein) or other matters, |
| ● | our ability to execute on our business strategy, including monetization of our products, |
| ● | our financial performance, growth rate and market opportunity, |
| ● | our ability to maintain compliance with standards relating to the listing of our common stock, par value $0.0001 per share (the “common stock”) and Public Warrants (as defined herein) on the Nasdaq Capital Market (“Nasdaq”), and the potential liquidity and trading of such securities, |
2
| ● | the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, our ability to grow and manage growth profitably, maintain relationships with customers and suppliers and retain our management and key employees, |
| ● | costs related to operating as a public company, |
| ● | our ability to remediate the material weaknesses in, and establish and maintain, effective internal controls over financial reporting; |
| ● | changes in applicable laws or regulations, |
| ● | the possibility that we may be adversely affected by other economic, business, or competitive factors, |
| ● | the evolution of the markets in which we compete, |
| ● | our ability to implement our strategic initiatives, expansion plans and continue to innovate our existing services, |
| ● | unfavorable conditions in our industry, the global economy or global supply chain (including any supply chain impacts from the ongoing military conflict involving Russia and Ukraine and sanctions related thereto), including inflation and financial and credit market fluctuations, |
| ● | changes in applicable laws or regulations, |
| ● | our success in retaining or recruiting, or changes required in, our officers, key employees or directors, |
| ● | our estimates regarding expenses, profitability, future revenue, capital requirements and needs for additional financing, |
| ● | our ability or decisions to expand or maintain our existing customer base; and |
| ● | the lingering effects of the COVID-19 pandemic and macroeconomic conditions, including worsening global economic conditions, disruptions to and volatility and uncertainty in the credit and financial markets, increases in inflation and interest rates, and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, on the foregoing. |
These statements reflect our current views with respect to future events, are based on assumptions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These known and unknown risks, uncertainties and other factors include, without limitation:
| ● | Based on our estimates and current business plan, we expect that we will need to raise additional capital by late 2024 or early 2025 in order to continue our research and development efforts and achieve our business objectives. We cannot be sure that additional financing will be available. If we are unable to raise additional funding when needed and on attractive terms, we may be required to delay, limit or substantially reduce our quantum computing development efforts. |
| ● | We are in our early stages and have a limited operating history, which makes it difficult to forecast our future results of operations. |
| ● | We have a history of operating losses and expect to incur significant expenses and continuing losses for the foreseeable future. |
3
| ● | Even if the market in which we compete achieves its anticipated growth levels, our business could fail to grow at similar rates, if at all. |
| ● | Our ability to use net operating loss carryforwards and other tax attributes may be limited. |
| ● | We have not produced quantum computers with high qubit counts and we face significant barriers in our attempts to produce quantum computers, including the need to invent and develop new technology. If we cannot successfully overcome those barriers, our business will be negatively impacted and could fail. |
| ● | Any future generations of hardware, including any future generations developed to demonstrate narrow quantum advantage and broad quantum advantage and the anticipated wider external release of an 84 qubit system, and anticipated release of a 336 qubit system, each of which is an important anticipated milestone for our technology roadmap and commercialization, may not occur on our anticipated timeline or at all. |
| ● | If our computers fail to achieve quantum advantage, our business, financial condition and future prospects may be harmed. Moreover, the standards by which we measure our progress may be based on assumptions and expectations that are not accurate or that may change as quantum computing evolves. |
| ● | The quantum computing industry is competitive on a global scale and we may not be successful in competing in this industry or establishing and maintaining confidence in our long-term business prospects among current and future partners and customers. |
| ● | We depend on a limited number of customers for a significant percentage of our revenue and the loss or temporary loss of a major customer for any reason could harm our financial condition. |
| ● | A significant portion of our revenue depends on contracts with the public sector, and our failure to receive and maintain government contracts or changes in the contracting or fiscal policies of the public sector could have a material adverse effect on our business. |
| ● | Our business is currently dependent upon our relationship with our cloud providers. There are no assurances that we will be able to commercialize quantum computers from our relationships with cloud providers. |
| ● | We rely on access to high performance third party classical computing through public clouds, high performance computing centers and on-premises computing infrastructure to deliver performant quantum solutions to customers. We may not be able to maintain high quality business relationships and connectivity with these resources which could make it harder for us to reach customers or deliver solutions in a cost-effective manner. |
| ● | We depend on certain suppliers to source products. Failure to maintain our relationship with any of these suppliers, or a failure to replace any of these suppliers, could have a material adverse effect on our business, financial position, results of operations and cash flows. |
| ● | Our system depends on the use of certain development tools, supplies, equipment and production methods. If we are unable to procure the necessary tools, supplies and equipment to build our quantum systems, or are unable to do so on a timely and cost-effective basis, and in sufficient quantities, we may incur significant costs or delays which could negatively affect our operations and business. |
| ● | Even if we are successful in developing quantum computing systems and executing our strategy, competitors in the industry may achieve technological breakthroughs which render our quantum computing systems obsolete or inferior to other products. |
| ● | We may be unable to reduce the cost of developing our quantum computers, which may prevent us from pricing our quantum systems competitively. |
4
| ● | The quantum computing industry is in its early stages and volatile, and if it does not develop, if it develops more slowly than we expect, if it develops in a manner that does not require use of our quantum computing solutions, if it encounters negative publicity or if our solution does not drive commercial engagement, the growth of our business will be harmed. |
| ● | We could suffer disruptions, outages, defects and other performance and quality problems with our quantum computing systems, our production technology partners or with the public cloud, data centers and internet infrastructure on which we rely. |
| ● | If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales; and other adverse consequences, which may adversely affect our business. |
| ● | We have identified material weaknesses in our internal control over financial reporting related to the lack of effective review controls over the accounting for complex financial instruments and to the design and operation of our overall closing and financial reporting processes, and we may identify additional material weaknesses in the future. The material weakness over accounting for complex financial instruments has resulted in errors in financial statements for prior periods. If we fail to remediate such material weaknesses, if we identify additional material weaknesses or if we otherwise fail to establish and maintain effective control over financial reporting, it may adversely affect our ability to accurately and timely report our financial results in the future, and may adversely affect investor confidence, our reputation, our ability to raise additional capital and our business operations and financial condition. |
| ● | Our failure to obtain, maintain and protect our intellectual property rights could impair our ability to protect and commercialize our proprietary products and technology and cause us to lose our competitive advantage. |
| ● | We have in the past been out of compliance with the continued listing standards of Nasdaq and we may be unable to maintain compliance with such standards. If we fail to maintain compliance with the listing requirements of the Nasdaq Capital Market or fail to cure any future deficiencies, we may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted. |
| ● | Sales of our securities, or perceptions of sales, by us or holders of our securities in the public markets or otherwise could cause the market price for our securities to decline and even in such case certain holders of our securities may still have an incentive to sell our securities. |
| ● | Delaware law and our Certificate of Incorporation and Bylaws contain certain provisions, including anti-takeover provisions, that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable. |
| ● | Unstable market and economic conditions, including recent bank failures, have had and may continue to have serious adverse consequences on our business, financial condition and share price. |
| ● | Our warrants, including our Public Warrants, Private warrants and other warrants we have issued, are accounted for as liabilities and the changes in value of our Warrants could have a material effect on our financial results. |
| ● | Our warrants are exercisable for Common Stock, the exercise of which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders. |
| ● | The Warrants may never be in the money, and they may expire worthless. |
5
Additional discussion of the risks, uncertainties and other factors described above, as well as other risks material to our business, can be found under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.
Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. In addition, our goals and objectives are aspirational and are not guarantees or promises that such goals and objectives will be met. Should one or more of the risks or uncertainties described in this Quarterly Report on Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 2022 materialize, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. Also, these forward-looking statements represent our plans, objectives, estimates, expectations, assumptions, and intentions only as of the date of this filing.
You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results, levels of activity and performance as well as other events and circumstances may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
6
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
RIGETTI COMPUTING, INC.
(Unaudited)
| June 30, |
| December 31, | |||
(In thousands, except share information) |
| 2023 |
| 2022 | ||
ASSETS |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Available-for-sale investments |
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Accounts receivable |
| |
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Prepaid expenses and other current assets |
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Forward contract—assets |
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Deferred offering costs |
| — |
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Total current assets |
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Property and equipment, net |
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Operating lease – right-of-use assets, net |
| |
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Other assets |
| |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Accounts payable | $ | | $ | | ||
Accrued expenses and other current liabilities |
| |
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Deferred revenue |
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Debt - current portion |
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Operating lease liabilities—current |
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Total current liabilities |
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Debt - net of current portion |
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Operating lease liabilities - noncurrent |
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Derivative warrant liabilities |
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Earn-out liabilities |
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Total liabilities |
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Commitments and contingencies - note 18 |
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Stockholders’ equity: |
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Preferred stock, par value $ |
| |
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Common stock, par value $ |
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Additional paid-in capital |
| |
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Accumulated other comprehensive gain (loss) |
| |
| ( | ||
Accumulated deficit |
| ( |
| ( | ||
Total stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RIGETTI COMPUTING, INC.
(Unaudited)
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||
(In thousands, except per share amounts) | 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||
Revenue | $ | | $ | | $ | | $ | | |||||
Cost of revenue |
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Total gross profit |
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Research and development |
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Selling, general and administrative |
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Restructuring | | | | | |||||||||
Total operating expenses |
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Loss from operations |
| ( |
| ( |
| ( |
| ( | |||||
Other income (expense), net |
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Interest expense |
| ( |
| ( |
| ( |
| ( | |||||
Interest income |
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Change in fair value of derivative warrant liabilities |
| ( |
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| ( |
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Change in fair value of earn-out liabilities |
| ( |
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| ( |
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Transaction costs |
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| |
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| ( | |||||
Total other income (expense), net |
| ( |
| |
| ( |
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Net loss before provision for income taxes |
| ( |
| ( |
| ( |
| ( | |||||
Provision for income taxes |
| |
| |
| |
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Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss per share attributable to common stockholders - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Weighted average shares used in computing net loss per share attributable to common stockholders – basic and diluted |
| |
| |
| |
| | |||||
SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
8
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
RIGETTI COMPUTING, INC.
(Unaudited)
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||
(In thousands) | 2023 |
| 2022 |
| 2023 |
| 2022 |
| |||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Other comprehensive income (loss): |
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Foreign currency translation adjustments |
| |
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| ( |
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Unrealized gains on available-for-sale debt securities |
| |
| — |
| |
| — | |||||
Total other comprehensive income (loss) before income taxes | | | | | |||||||||
Income taxes | | | | | |||||||||
Total other comprehensive income (loss) after income taxes | | | | | |||||||||
Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
9
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
RIGETTI COMPUTING INC.
(Unaudited)
| Six Months Ended June 30, | ||||||
(In thousands) |
| 2023 |
| 2022 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
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| ||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
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Depreciation and amortization |
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Stock-based compensation |
| |
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Change in fair value of earn-out liabilities |
| |
| ( | |||
Change in fair value of derivative warrant liabilities |
| |
| ( | |||
Change in fair value of forward contract |
| |
| ( | |||
Impairment of deferred offering costs | | | |||||
Amortization of debt issuance costs |
| |
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Accretion of available-for-sale securities |
| ( |
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Accretion of debt commitment fee | | | |||||
Accretion of debt end-of-term liabilities |
| |
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Non-cash lease expense |
| |
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Changes in operating assets and liabilities: |
|
|
|
| |||
Accounts receivable |
| ( |
| ( | |||
Prepaid expenses and other current assets |
| ( |
| ( | |||
Other assets |
| ( |
| | |||
Deferred revenue |
| ( |
| | |||
Accounts payable |
| ( |
| ( | |||
Accrued expenses and other current liabilities |
| ( |
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Other liabilities |
| |
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Net cash used in operating activities |
| ( |
| ( | |||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
| |||
Purchases of property and equipment |
| ( |
| ( | |||
Purchases of available-for-sale securities |
| ( |
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Maturities of available-for-sale securities | | | |||||
Net cash used in investing activities |
| ( |
| ( | |||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
| |||
Proceeds from Business Combination, net of transaction costs paid |
| — |
| | |||
Transaction costs paid directly by Rigetti |
| |
| ( | |||
Proceeds from issuance of notes payable |
| |
| | |||
Payment on principal of notes payable |
| ( |
| | |||
Payments on deferred offering costs | ( | | |||||
Payments on debt issuance costs |
| |
| ( | |||
Payment on loan and security agreement exit fees |
| |
| ( | |||
Proceeds from sale of common stock through Common Stock Purchase Agreement | | — | |||||
Proceeds from issuance of common stock upon exercise of stock options and warrants |
| |
| | |||
Net cash provided by financing activities |
| |
| | |||
Effects of exchange rate changes on cash and cash equivalents |
| ( |
| | |||
Net (decrease) increase in cash and cash equivalents |
| ( |
| | |||
Cash and cash equivalents – beginning of period |
| |
| | |||
Cash and cash equivalents – end of period | $ | | $ | | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
| |||
Cash paid for interest | $ | | $ | | |||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
| ||||
Initial fair value of earn-out liability acquired in merger | $ | | $ | | |||
Initial fair value of private placement and public warrant liability acquired in merger | $ | | $ | | |||
Exercise of loan and security agreement warrants | $ | — | $ | | |||
Settlement of the first tranche of forward contract | $ | — | $ | | |||
Unrealized gain on short-term investments | $ | | $ | | |||
Capitalization of deferred costs to equity upon share issuance | $ | | $ | | |||
Purchases of property and equipment recorded in accounts payable | $ | | $ | | |||
Purchases of property and equipment recorded in accrued expenses | $ | | $ | | |||
SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
10
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RIGETTI COMPUTING INC.
1. | DESCRIPTION OF BUSINESS |
Rigetti Computing, Inc. and its subsidiaries (collectively, the “Company” or “Rigetti”), builds quantum computers and the superconducting quantum processors that power them. Through the Company’s Quantum Computing as a Service (“QCaaS”) platform, the Company’s machines can be integrated into any public, private or hybrid cloud. The Company offers product types of Platform, Research and Software Tools usage in application areas of benchmarking, chemical simulation, education/entertainment, machine learning, and optimization.
The Company is located and headquartered in Berkeley, California. The Company also operates in Fremont, California; London, United Kingdom; Adelaide, Australia and British Columbia, Canada. The Company’s revenue is derived primarily from operations in the United States and the United Kingdom.
Basis of Presentation
On March 2, 2022 (the “Closing Date”), a merger transaction between Rigetti Holdings, Inc. (“Legacy Rigetti”) and Supernova Partners Acquisition Company II, Ltd. (“SNII”) was completed (the “Business Combination”, see Note 3). In connection with the closing of the Business Combination, the Company changed its name to Rigetti Computing, Inc. and all SNII Class A ordinary shares and SNII Class B ordinary shares automatically converted into shares of common stock, par value $
The Company determined that Legacy Rigetti was the accounting acquirer in the Business Combination based on an analysis of the criteria outlined in Accounting Standards Codification (ASC) 805, Business Combination.
The determination was primarily based on the following facts:
| ● | Former Legacy Rigetti stockholders have a controlling voting interest in the Company; |
| ● | The Company’s board of directors as of immediately after the closing was comprised of eight board members, six seats occupied by previous Legacy Rigetti board members and one seat being occupied by a previous SNII representative. The final eighth seat was filled by an individual who did not have ties to either Legacy Rigetti or SNII pre-Business Combination; and |
| ● | Legacy Rigetti management held executive management roles for the post-combination company and was responsible for day-to-day operations. |
Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy Rigetti issuing stock for the net assets of SNII, accompanied by a recapitalization. The primary asset acquired from SNII was related to the cash amounts that was assumed at historical costs. Separately, the Company also assumed warrants that were deemed to be derivatives and meet liability classification subject to fair value adjustment measurements upon closing of the Business Combination (the “Closing”). No goodwill or other intangible assets were recorded as a result of the Business Combination.
While SNII was the legal acquirer in the Business Combination, because Legacy Rigetti was deemed the accounting acquirer, the historical financial statements of Legacy Rigetti became the historical financial statements of the combined company, upon the consummation of the Business Combination. As a result, the financial statements included in this report reflect (i) the historical operating results of Legacy Rigetti prior to the Business Combination; (ii) the combined results of SNII and Legacy Rigetti following the closing of the Business Combination; (iii) the assets and liabilities of Legacy Rigetti at their historical cost; and (iv) the Company’s equity structure for all periods presented.
11
The equity structure has been retroactively restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company’s Common Stock, $
The accompanying unaudited condensed consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. All dollar amounts, except share and per share amounts, in the notes to the unaudited interim condensed consolidated financial statements are presented in thousands, unless otherwise specified.
The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited consolidated financial statements as of that date, but does not include all disclosures including certain notes required by U.S. GAAP on an annual reporting basis. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The unaudited interim condensed consolidated financial statements for this period are not necessarily indicative of the results for any future interim period or for the full fiscal year. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes included with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly the Company’s financial position as of June 30, 2023, and the results of its operations and cash flows for the three and six-month periods ended June 30, 2023 and June 30, 2022, respectively.
Reclassifications— Sales and marketing expenses became less significant following the reduction in workforce and strategic realignment we announced in February 2023. For this reason, sales and marketing and general administrative expenses have been combined and are now reported as selling, general and administrative. Related amounts for all prior periods have been reclassified to conform with this presentation.
Risks and Uncertainties — The Company is subject to a number of risks similar to those of other companies of similar size in its industry, including, but not limited to, the need for successful development of products, the need for additional capital (or financing) to fund operating losses, competition from substitute products and services from larger companies, protection of proprietary technology, patent litigation, dependence on key individuals, and risks associated with changes in information technology.
Based on the Company’s forecasts, the Company believes that its existing cash and cash equivalents and available-for-sale investments should be sufficient to meet its anticipated operating cash needs for at least the next 12 months from the issuance of these financial statements based on the Company’s current business plan and expectations and assumptions considering current macroeconomic conditions.
Macroeconomic Conditions —Economic conditions in some parts of the world have been worsening, with disruptions to, and volatility and uncertainty in, the credit and financial markets in the U.S. and worldwide resulting from the effects of inflation and interest rates. These conditions have been further exacerbated by recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, the war in Ukraine and the lingering effects of the COVID-19 pandemic. It is not possible at this time to estimate the long-term impact that these and related events could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. If these conditions persist and deepen, the Company could experience an inability to access additional capital, or its liquidity could otherwise be impacted. If the Company is unable to raise capital when needed and on attractive terms, it would be forced to delay, reduce or eliminate its research and development programs and other efforts.
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Use of Estimates — The preparation of the unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. Such management estimates include, but are not limited to, the fair value of share-based awards, fair value of the Forward Warrant Agreement (as defined below), the fair value of derivative warrant liabilities, the fair value of earnouts issued in connection with the Business Combination (See Note 3), accrued liabilities and contingencies, depreciation and amortization periods, revenue recognition and accounting for income taxes. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. These estimates are based on information available as of the date of the unaudited condensed consolidated financial statements; therefore, actual results could differ from those estimates.
2. | RECENT ACCOUNTING DEVELOPMENTS |
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases and related subsequently issued ASUs (collectively, “Topic 842”), which supersedes Topic 840. From a lessee perspective, the core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. The Company adopted Topic 842 on December 31, 2022, effective as of January 1, 2022, using the modified retrospective transition option of applying the new standard at the adoption date for all leases with an original term greater than 12 months. Adoption of the standard resulted in the recognition of operating lease ROU assets and operating lease liabilities of $
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU No. 2019-04 was issued as part of the FASB’s ongoing project to improve upon its Accounting Standards Codification (ASC), and to clarify and improve areas of guidance related to recently issued standards on credit losses, hedging, and recognition and measurement. For entities that have not yet adopted the guidance in Update 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in Update 2016-13. The amendments related to ASC 326 were effective for the Company as of January 1, 2023. The adoption of the ASU did not have a material impact on the consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The FASB issued this update (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The ASU is effective for the Company after December 15, 2024, and interim periods within those fiscal years, with early adoption permitted. The Company is still evaluating the impact of this pronouncement on the consolidated financial statements.
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In August 2020, the FASB issued ASU No. 2020-06, Debt—(Topic 815) (“ASU No. 2020-06”), which simplifies an issuer’s accounting for convertible instruments and its application of the derivatives scope exception for contracts in its own equity. The amendments in ASU No. 2020-06 are effective for public companies, other than smaller reporting companies, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is still evaluating the impact of this pronouncement on the consolidated financial statements.
3. | BUSINESS COMBINATION |
As discussed in Note 1, on March 2, 2022, the Business Combination was completed. Pursuant to the Company’s certificate of incorporation, as amended on March 2, 2022, the Company is authorized to issue
On March 1, 2022, prior to the Closing, as contemplated by that certain Agreement and Plan of Merger dated as of October 6, 2021, as amended on December 23, 2021 and January 10, 2022 (as amended, the “Merger Agreement”), by and among SNII, Supernova Merger Sub, Inc., Supernova Romeo Merger Sub, LLC and Legacy Rigetti and following approval by SNII’s shareholders at an extraordinary general meeting of shareholders held on February 28, 2022 (the “Extraordinary General Meeting”), SNII filed a notice of deregistration with the Cayman Islands Registrar of Companies, together with the necessary accompanying documents, and filed a certificate of incorporation (the “Certificate of Incorporation”) and a certificate of corporate domestication with the Secretary of State of the State of Delaware, under which SNII was domesticated and continues as a Delaware corporation, changing its name to “Rigetti Computing, Inc.”
As a result of and upon the effective time of the Domestication (which occurred on March 1, 2022), among other things (1) each then issued and outstanding Class A ordinary share, par value $
Immediately prior to the effective time of the Business Combination, each share of Legacy Rigetti’s Series C preferred stock and Series C-1 preferred stock (collectively, the “Legacy Rigetti Preferred Stock”) with Par Value of $
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As a result of the Business Combination, among other things (1) all outstanding shares of Legacy Rigetti Common Stock as of immediately prior to the Closing (including Legacy Rigetti Common Stock resulting from the Legacy Rigetti Preferred Stock Conversion), were exchanged at an exchange ratio of
In connection with the execution of the Merger Agreement, SNII entered into a sponsor support agreement (the “Sponsor Support Agreement”) with Supernova Partners II, LLC (the “Sponsor”), Legacy Rigetti and SNII’s directors and officers. Pursuant to the Sponsor Support Agreement, the Sponsor and SNII’s directors and officers (“Sponsor Holders”), among other things, agreed to vote all of their shares of SNII capital stock in favor of the approval of the Business Combination. In addition, pursuant to the Sponsor Support Agreement, (i)
Concurrently with the execution of the Merger Agreement, SNII entered into Subscription Agreements (the “Initial Subscription Agreements”) with certain investors (together, the “Initial PIPE Investors”), pursuant to which the Initial PIPE Investors agreed to subscribe for and purchase, and SNII agreed to issue and sell to the Initial PIPE Investors, an aggregate of
The Business Combination is accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, SNII was treated as the “acquired” company for financial reporting purposes.
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In accounting for the Business Combination and after redemptions, net proceeds received by the Company totaled $
| (in thousands) | ||
Cash - SNII trust and cash (net of redemption) | $ | | |
Cash - PIPE |
| | |
Cash - SNII operating account |
| | |
Net proceeds from Business Combination and PIPE | $ | | |
Transaction costs consist of direct legal, accounting and other fees relating to the consummation of the Business Combination. Legacy Rigetti transaction costs specific and directly attributable to the business combination totaled $
The amount recorded to additional paid-in-capital was $
The number of shares of Common Stock issued immediately following the consummation of the Business Combination was as follows:
Common Stock—SNII Class A, outstanding prior to Business Combination |
| |
Less: redemption of SNII Class A ordinary shares |
| ( |
Common Stock—SNII Class A ordinary shares |
| |
Common Stock—SNII Class B ordinary shares* |
| |
Shares issued in PIPE |
| |
Business Combination and PIPE shares |
| |
Common Stock—Legacy Rigetti** |
| |
Common Stock—exercise of Legacy Rigetti stock options immediately prior to the closing** |
| |
Common Stock—exercise of Legacy Rigetti warrants immediately prior to the closing** |
| |
Common Stock—upon conversion of Legacy Rigetti Series C preferred stock** |
| |
Common Stock—upon conversion of Legacy Rigetti Series C‑1 preferred stock** |
| |
Total shares of Common Stock immediately after Business Combination |
| |
* | Includes (i) |
** | All outstanding shares of Legacy Rigetti Common Stock as of immediately prior to the Closing (including Legacy Rigetti Common Stock resulting from the Legacy Rigetti Preferred Stock Conversion), were exchanged at an exchange ratio of |
4. | EARN-OUT LIABILITY |
At the closing of the Business Combination, the Sponsor subjected the Sponsor Vesting Shares to forfeiture as of the Closing Date for a five-year period following the Closing, with vesting occurring only if thresholds related to the weighted average price of Common Stock are met as described above in Note 3. Business Combination (the “Earn-Out
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Triggering Events”). Any such shares held by the Sponsor that have not vested by the fifth anniversary of the Closing will be forfeited.
The Sponsor Vesting Shares are accounted for as liability classified instruments because the Earn-Out Triggering Events that determine the number of Sponsor Vesting Shares to be earned back by the Sponsor include outcomes that are not solely indexed to the Common Stock of the Company. The aggregate fair value of the Sponsor Vesting Shares on the Closing Date was estimated using a Monte Carlo simulation model and was determined to be $
The calculated fair value of the Earn-out liability with respect to the Sponsor Vesting Shares at June 30, 2023 and December 31, 2022 was $
Significant inputs into the Monte Carlo simulation models at June 30, 2023, December 31, 2022 and March 2, 2022 (the date of initial recognition) are as follows:
Valuation Assumptions |
| June 30, 2023 |
| December 31, 2022 |
| March 2, 2022 | |||||
Stock price | $ | | $ | | $ | | |||||
Simulated trading days |
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Annual volatility |
| | % |
| | % |
| | % | ||
Risk-free rate |
| | % |
| | % |
| | % | ||
Estimated time to expiration (years) |
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5. | CHANGES IN STOCKHOLDERS’ EQUITY(DEFICIT) |
A reconciliation of the changes in stockholders’ equity (deficit) is as follows:
Three and Six Months Ended June 30, 2023:
|
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| Accumulated |
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| |||||||||||
Additional | Other | Total | |||||||||||||||
Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | |||||||||||||
(In thousands) | Shares |
| Amount | Capital | Gain (Loss) | Deficit | Equity (Deficit) | ||||||||||
Balance, March 31, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Issuance of common stock upon exercise of stock options | | — | | — | — | | |||||||||||
Issuance of common stock upon exercise of common stock warrants | |
| — |
| — |
| — |
| — |
| | ||||||
Issuance of common stock upon release of restricted stock units |
| |
| — |
| — |
| — |
| — |
| | |||||
Proceeds from sale of common stock through Purchase Agreement | | | | — | — | | |||||||||||
Stock-based compensation |
| — |
| — |
| |
| — |
| — |
| | |||||
Foreign currency translation gain |
| — |
| — |
| — |
| |
| — |
| | |||||
Change in unrealized loss on available-for-sale securities |
| — |
| — |
| — |
| |
| — |
| | |||||
Net loss |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance, June 30, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
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|
|
|
| Accumulated |
|
| |||||||||||
Additional | Other | Total | |||||||||||||||
Common Stock | Paid-In | Comprehensive | Accumulated | Stockholders’ | |||||||||||||
(In thousands) | Shares |
| Amount | Capital | Gain (Loss) | Deficit | Equity (Deficit) | ||||||||||
Balance, December 31, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Issuance of common stock upon exercise of stock options | | — | | — | — | | |||||||||||
Issuance of common stock upon exercise of common stock warrants | |
|
| |
|
|
| | |||||||||
Issuance of common stock upon release of restricted stock units |
| |
| — |
| — |
| — |
| — |
| — | |||||
Proceeds from sale of common stock through Purchase Agreement | | | | — | — | | |||||||||||
Capitalization of deferred costs to equity upon share issuance |
| — |
| — |
| ( |
| — |
| — |
| ( | |||||
Stock-based compensation |
| — |
| — |
| |
| — |
| — |
| | |||||
Foreign currency translation loss |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Change in unrealized loss on available-for-sale securities |
| — |
| — |
| — |
| |
| — |
| | |||||
Net loss |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance, June 30, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Three and Six Months Ended June 30, 2022:
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|
|
| Accumulated |
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Additional | Other | ||||||||||||||||