# Rigetti Computing, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Rigetti Computing, Inc.](/companies/rgti.md) (CIK 1838359)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:05 ET
- Period: 2023-09-30
- Accession: 0001558370-23-018559
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1838359/000155837023018559/tmb-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1838359/000155837023018559/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $3.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $8.6m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $834.0k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $2.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $6.7m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $13.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $40.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$16.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$55.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $1.5m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $4.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$22.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$62.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.17 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.17 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 133,866,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 129,173,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$38.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $7.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $41.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $116.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $165.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $23.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $52.5m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $13.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $11.5m | us-gaap:DebtCurrent |
| Shareholders' equity | at 2023-09-30 | $112.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 65,336 characters.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” “will,” “continue,” “project,” “forecast,” “goal,” “should,” “could,” “would,” “potential,” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those described under Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, and elsewhere in this Quarterly Report on Form 10-Q that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. See “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this Quarterly Report on Form 10-Q.

### Overview

On March 2, 2022 (the “Closing Date”), we consummated the transactions 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 Supernova Partners Acquisition Company II, Ltd., a Cayman Islands exempted company (“Supernova”), Supernova Merger Sub, Inc., a Delaware corporation and a direct wholly owned subsidiary of Supernova (the “First Merger Sub”), Supernova Romeo Merger Sub, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Supernova (the “Second Merger Sub”), and Rigetti Holdings, Inc., a Delaware corporation (“Legacy Rigetti”). As contemplated by the Merger Agreement, on March 1, 2022 Supernova was domesticated as a Delaware corporation and changed its name to “Rigetti Computing, Inc.” (the “Domestication”). On the Closing Date, (i) First Merger Sub merged with and into Legacy Rigetti, the separate corporate existence of First Merger Sub ceased and Legacy Rigetti survived as a wholly owned subsidiary of Rigetti Computing, Inc. (the “Surviving Corporation” and, such merger, the “First Merger”), and (ii) immediately following the First Merger, the Surviving Corporation merged with and into the Second Merger Sub, the separate corporate existence of the Surviving Corporation ceased and Second Merger Sub survived as a wholly owned subsidiary of Rigetti Computing, Inc. and changed its name to “Rigetti Intermediate LLC” (such merger transaction, the “Second Merger” and, together with the First Merger, the “Merger”, and, collectively with the Domestication, the “PIPE Financing” (as defined below) and the other transactions contemplated by the Merger Agreement, the “Business Combination”). The closing of the Business Combination is herein referred to as “the Closing.”

We build quantum computers and the superconducting quantum processors that power them. We believe quantum computing represents one of the most transformative emerging capabilities in the world today. By leveraging quantum mechanics, we believe our quantum computers process information in fundamentally new, more powerful ways than classical computers. When scaled, it is anticipated that these systems will be poised to solve problems of staggering computational complexity at unprecedented speed.

With the goal of unlocking this opportunity, we have developed the world’s first multi-chip quantum processor for scalable quantum computing systems. We believe that this patented and patent pending, modular chip architecture is the building block for new generations of quantum processors that we expect to achieve a clear advantage over classical computers. Our long-term business model centers on revenue generated from sales of quantum processing units (QPUs) and quantum computing systems made accessible via the cloud in the form of Quantum Computing as a Service (“QCaaS’) products. However, the substantial majority of our revenues are derived from development contracts, and we anticipate this market opportunity will continue to represent an important source of revenue for at least the next several years as we work to ramp up sales of QPUs and our QCaaS business. Additionally, we are working to further develop a revenue stream and forging important customer relationships by entering into technology development contracts with various partners.

We are a vertically integrated company. We own and operate Fab-1, a dedicated and integrated laboratory and manufacturing facility, through which we own the means of producing our breakthrough multi-chip quantum processor technology. We leverage our chips through a full-stack product development approach, from quantum chip design and manufacturing through cloud delivery. We believe this full-stack development approach offers both the fastest and lowest risk path to building commercially valuable quantum computers.

We have been generating revenue since 2018 through partnerships with government agencies and commercial organizations; however, we have not yet generated profits. We have incurred significant operating losses since inception. Our net losses were $71.5 million and $38.2 million for the year ended December 31, 2022, and 11 months ended December 31, 2021, respectively. Our net losses were $22.2 million and $18.8 million for the three months ended September 30, 2023 and September 30, 2022, respectively, and $62.5 million and $48.6 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. We expect to continue to incur additional losses for the foreseeable future as we invest in research, development, and infrastructure consistent with our long-term business strategy. As of September 30, 2023, we had an accumulated deficit of $341.2 million.

Based on our estimates and current business plan, we expect that we will need to obtain additional capital by early 2025, including any additional sales of common stock through our Common Stock Purchase Agreement with B. Riley or from other sources, in order to fund our research and development efforts and business objectives as currently planned. There is no assurance 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.

In February 2023, we announced an updated business strategy, including revisions to our technology roadmap. In connection with this updated strategy, we implemented a workforce reduction beginning in February 2023 to focus the organization and our resources on nearer-term strategic priorities. In March 2023, we further refined our business strategy after internally deploying Ankaa-1, our 84-qubit system delivering denser qubit spacing and tunable couplers, within our company for testing. We have since concentrated on refining the performance of Ankaa-1 and have externally launched the Ankaa-1 84-qubit system, to one select customer who is conducting error correction research. We plan to continue efforts to improve the performance of the system with the goal of reaching at least 98% 2-qubit gate fidelity to support the anticipated Ankaa-2 84-qubit system. We then plan to launch the anticipated Ankaa-2 84 qubit system, continuing to work to improve performance with the goal of reaching at least 99% gate fidelity on Ankaa-2. If these targets are achieved, we plan to shift focus to scaling to develop Lyra, an anticipated 336-qubit system. We believe that this business plan should enable us to concentrate our software application development strategy on what we believe to be the highest likelihood applications for demonstrating nearer term narrow quantum advantage.

The reduction in the workforce impacted approximately 50 employees or 28% of our then workforce. We began implementing activities with respect to the revised business plan and reduction in workforce in February 2023. Affected employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance. We incurred a $1.0 million restructuring charge in the three months ended March 31, 2023, for severance payments and temporary healthcare coverage for effected employees. In addition to the restructuring charge, we also incurred $1.0 million of expenses for contractual severance benefits related to executive officers of the Company that were terminated in the three months ended March 31, 2023.

### The Business Combination and PIPE Financing

On October 6, 2021, SNII entered into the Merger Agreement by and among Supernova, First Merger Sub, Second Merger Sub, and Legacy Rigetti. On March 2, 2022, the Business Combination was consummated. While the legal acquirer in the Merger Agreement was Supernova, for financial accounting and reporting purposes under United States generally accepted accounting principles (“GAAP”), Rigetti was the accounting acquirer, and the Merger was accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the financial statements of Rigetti represent the continuation of the financial statements of Legacy Rigetti in many respects. Under this method of accounting, Supernova was treated as the “acquired” company for financial reporting purposes.

For accounting purposes, Rigetti was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of Rigetti (i.e., a capital transaction involving the issuance of stock by Supernova for the stock of Rigetti). As a result of the Business Combination, all of the shares of Legacy Rigetti Common Stock outstanding immediately prior to the Closing (including Legacy Rigetti Common Stock resulting from the Legacy Rigetti preferred stock conversion) were converted into the right to receive an aggregate of 78,959,579 shares of our Common Stock, par value $0.0001 per share (“Common Stock”). Additionally, each issued and outstanding share of Supernova Class A and Class B Common Stock held by Supernova automatically converted to 20,209,462 shares of Common Stock (of which 3,059,273 shares are subject to vesting under certain conditions). Upon consummation of the Business Combination, the most significant change in our reported financial position and results of operations was an increase in cash of $205.0 million, including $225.6 million of proceeds from the Business Combination and PIPE Financing, net of transaction costs incurred by us of $20.6 million.

Additional direct and incremental transaction costs were also incurred by Rigetti in connection with the Business Combination. Generally, costs (e.g., SPAC shares) are recorded as a reduction to additional paid-in capital. Costs allocated to liability-classified instruments that are subsequently measured at fair value through earnings (e.g., certain SPAC warrants) are expensed. Rigetti’s transaction costs totaled $20.6 million, of which $19.7 million was allocated to equity-classified instruments and recorded as a reduction to additional paid-in capital, and the remaining $0.9 million was allocated to liability-classified instruments that are subsequently measured at fair value through earnings and recognized as expense in the consolidated statements of operations.

As a result of the Business Combination, we became subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, and listing standards of the Nasdaq Capital Market, which has and will necessitate us to hire additional personnel and implement procedures and processes to address such public company requirements. We expect to incur additional ongoing expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal and administrative resources.

Our future results of consolidated operations and financial position may not be comparable to historical results for a variety of reasons, including as a result of the Business Combination.

### Macroeconomic Considerations

Unfavorable conditions in the economy in the United States and abroad may negatively affect the growth of our business and have affected our results of operations. For example, macroeconomic events, including rising inflation, the U.S. Federal Reserve raising interest rates, recent bank failures, the ongoing military conflict involving Russia and Ukraine and sanctions related thereto, the state of war between Israel and Hamas and the related risk of a larger regional conflict have led to economic uncertainty globally. The effect of macroeconomic conditions may not be fully reflected in the results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, including the risk factor titled “Unstable market and economic conditions have had and may continue to have serious adverse consequences on our business, financial condition and share price.”

We have experienced and may experience further increases in the cost of raw materials, component parts, and labor, which we largely attribute to inflation, the U.S. Federal Reserve raising interest rates, high demand, and supply chain restraints. Rising costs and supply chain constraints have been further exacerbated by the ongoing military conflict involving Russia and Ukraine and sanctions related thereto, the state of war between Israel and Hamas and the related risk of a larger regional conflict. We expect these increased costs will persist for the foreseeable future and may increase. Additionally, inflation and rising interest rates may result in an economic recession globally or in the U.S., which could lead to a reduction in product demand, a decrease in corporate capital expenditures, prolonged unemployment, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic events, or any similar negative economic condition. 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 increases in 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 ongoing military conflict involving Russia and Ukraine and sanctions related thereto, the state of war between Israel and Hamas and the related risk of a larger regional conflict. 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, we could experience an inability to access additional capital, or our liquidity could otherwise be impacted. If we are unable to raise capital when needed and on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and other efforts. However, like many other companies, we are taking actions to monitor our operations to account for the increases in the cost of capital. Specifically, this includes efforts to enhance our operational efficiency, maximize our R&D spend through strategic collaborations, and being highly selective in hiring top-tier talent.

### Key Components of Results of Operations

### Revenue

We generate revenue through our development contracts, as well as from our sales of QPUs, and our QCaaS offerings and other services including training and provision of quantum computing components. Development contracts are generally multi-year, non-recurring arrangements pursuant to which we provide professional services regarding collaborative research in practical applications of quantum computing to technology and business problems within the customer’s industry or organization and assists the customer in developing quantum algorithms and applications to assist customers in areas of business interest.

### Cost of Revenue

Cost of revenue consists primarily of all direct and indirect costs associated with sales of QPUs, QCaaS offerings and development contracts and other services, including employee costs for program management and personnel associated with the delivery of goods and services to customers and sub-contract costs for work performed by third parties. Cost of revenue also includes an allocation of facility costs, depreciation and amortization directly related to the development contracts and QCaaS offerings and other services.

### Operating Expenses

Our operating expenses primarily consist of research and development, and selling, general and administrative expenses. 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.

#### Research and Development

Research and development expenses include compensation, employee benefits, stock-based compensation, outside consultant fees, facility costs, depreciation and amortization, materials and components purchased for research and development. We expect research and development expenses to increase as we continue to invest in quantum computing and the superconducting quantum processors needed for quantum computers. We do not currently capitalize any research and development expenditures. Research and development costs are expensed as incurred.

#### Selling, General and Administrative

Selling, general and administrative expenses include compensation, employee benefits, stock-based compensation, insurance, facility costs, professional service fees, and other general overhead costs other than those associated with sales of QPUs and providing development contracts, QCaaS offerings and other services.

### Restructuring

In February 2023, we announced an updated business strategy, including revisions to our technology roadmap. In connection with this updated strategy, we implemented a workforce reduction in order to focus the organization and its resources on nearer-term strategic priorities. The reduction in the workforce impacted approximately 50 employees or approximately 28% of our then workforce. Affected employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance.

### Provision for Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. We have recorded a full valuation allowance against our deferred tax assets.

### Results of Operations

### Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

The following table sets forth our results of operations for the periods indicated (in thousands):

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ ​ 2023 versus 2022 $ Change | ​ ​ ​ | ​ ​ ​ ​ ​ % Change ​ | ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ ​ 2023 vs. 2022 $ Change | ​ ​ ​ | ​ ​ ​ ​ ​ % Change ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue |  | $3,105 |  | $2,804 |  | $301 |  | 11% |  | $8,632 |  | $7,042 |  | $1,590 |  | 23% |
| Cost of revenue | ​ | 834 | ​ | 776 | ​ | 58 |  | 7% | ​ | 1,940 | ​ | 2,063 | ​ | (123) |  | (6)% |
| Total gross profit | ​ | 2,271 | ​ | 2,028 | ​ | 243 |  | 12% | ​ | 6,692 | ​ | 4,979 | ​ | 1,713 |  | 34% |
| Research and development | ​ | 13,056 | ​ | 17,365 | ​ | (4,309) |  | (25)% | ​ | 39,981 | ​ | 44,040 | ​ | (4,059) |  | (9)% |
| Selling, general and administrative | ​ | 6,047 | ​ | 15,987 | ​ | (9,940) |  | (62)% | ​ | 20,808 | ​ | 43,293 | ​ | (22,485) |  | (52)% |
| Restructuring | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | nm \* | ​ | ​ 991 | ​ | ​ — | ​ | ​ 991 | ​ | 100% |
| Total operating expenses | ​ | 19,103 | ​ | 33,352 | ​ | (14,249) |  | (43)% | ​ | 61,780 | ​ | 87,333 | ​ | (25,553) |  | (29)% |
| Loss from operations | ​ | (16,832) | ​ | (31,324) | ​ | 14,492 |  | (46)% | ​ | (55,088) | ​ | (82,354) | ​ | 27,266 |  | (33)% |
| Other income (expense), net | ​ |  | ​ |  | ​ |  |  | ​ | ​ |  | ​ |  | ​ |  |  | ​ |
| Interest expense | ​ | $(1,473) | ​ | $(1,436) | ​ | $(37) |  | 3% | ​ | $(4,511) | ​ | $(3,811) | ​ | $(700) |  | 18% |
| Interest income | ​ | 1,263 | ​ | 1,042 | ​ | 221 |  | 21% | ​ | 3,746 | ​ | 1,172 | ​ | 2,574 |  | 220% |
| Change in fair value of derivative warrant liabilities | ​ | (3,442) | ​ | 8,103 | ​ | (11,545) |  | (142)% | ​ | (4,320) | ​ | 19,853 | ​ | (24,173) |  | (122)% |
| Change in fair value of earn-out liabilities | ​ | (1,731) | ​ | 4,860 | ​ | (6,591) |  | (136)% | ​ | (2,362) | ​ | 17,418 | ​ | (19,780) |  | (114)% |
| Transaction costs | ​ | — | ​ | — | ​ | — |  | nm \* | ​ | — | ​ | (927) | ​ | 927 |  | (100)% |
| Total other income (expense), net | ​ | (5,383) | ​ | 12,569 | ​ | (17,952) |  | (143)% | ​ | (7,447) | ​ | 33,705 | ​ | (41,152) |  | (122)% |
| Net loss before provision for income taxes | ​ | (22,215) | ​ | (18,755) | ​ | (3,460) |  | 18% | ​ | (62,535) | ​ | (48,649) | ​ | (13,886) |  | 29% |
| Provision for income taxes | ​ | — | ​ | — | ​ | — |  | ​ | ​ | — | ​ | — | ​ | — |  | ​ |
| Net loss | ​ | $(22,215) | ​ | $(18,755) | ​ | $(3,460) |  | ​ | ​ | $(62,535) | ​ | $(48,649) | ​ | $(13,886) |  | ​ |

### Revenue

Revenue increased by $0.3 million and $1.6 million for the three months and nine months ended September 30, 2023, respectively, compared to three and nine months ended September 30, 2022. Our development contracts are typically fixed price milestone or cost share-based contracts and the timing and amounts of revenue recognized in any given quarter will vary significantly based on the delivery of the associated milestones and/or the work performed. The increase in revenue during the three and nine months ended September 30, 2023 reflects typical variability in the timing of revenue recognition from development contracts. Revenue from these contracts is expected to vary in terms of timing and size, resulting in significant quarter-to-quarter fluctuations in revenue levels.

For the next few years, we expect much of our revenue to be generated from development contracts. There may be some near-term reduction in revenue as we align to our updated strategy announced in February 2023.

### Cost of Revenue

Cost of revenue increased by $0.1 million and decreased by $0.1 million for the three months and nine months ended September 30, 2023, respectively, compared to three and nine months ended September 30, 2022.The increase in cost of revenue and the improvement in total gross profit as a percentage of revenue in the three months ended September 30, 2023 and the decrease in cost of revenue and the improvement in total gross profit as a percentage of revenue in the nine months ended September 30, 2023 are primarily due to changes in the composition of our revenue and variability in the pricing and terms of our development contracts.

We expect that cost of revenue and total gross profit as a percentage of revenue will vary from quarter-to-quarter in future periods due to changes in the composition of our revenue and variability in the pricing and terms of our development contracts.

### Operating Expenses

### Research and development

Research and development expenses decreased by $4.3 million and $4.1 million for the three and nine months ended September 30, 2023, compared to three and nine months ended September 30, 2022, respectively.

Salaries and employee benefit expenses decreased by $1.6 million and $0.3 million, and stock-based compensation decreased by $2.9 million and $3.6 million, for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 30, 2022, respectively. The decreases in employee wages and benefit expenses and stock-based compensation resulted from our February 2023 reduction in workforce. A $1.3 million out-of-period adjustment for electrical utility fees during the nine months ended September 30, 2022 also contributed to the decrease in research and development expenses for the nine months ended September 30, 2023. A $1.6 million charge for deferred stock-based compensation expense related to the closing of the Business Combination during the nine months ended September 30, 2022 contributed to the decrease in stock-based compensation during the nine months ended September 30, 2023.

These decreases were partially offset by a $0.3 million and $1.5 million increase in depreciation expense during the three and nine months ended September 30, 2023, due to purchases of property and equipment, compared to the three and nine months ended September 30, 2022, respectively.

We anticipate that R&D expenditures will grow in the future as we continue to focus on our technology roadmap and long-term goal of achieving broad quantum advantage.

### Selling, General and Administrative

Selling, general and administrative expenses decreased by $9.9 million and $22.5 million for the three and nine months ended September 30, 2023, compared to three and nine months ended September 30, 2022, respectively.

The decreases for the three and nine months ended September 2023 are primarily due to a reduction in stock-based compensation of $8.5 million and $25.3 million, respectively, partially offset by unfavorable changes in the fair value of the Ampere Forward Agreement of $1.5 million and $7.7 million, respectively. The remaining differences are due to lower wage costs including lower bonus expenses, professional fees and insurance costs. Stock-based compensation and bonus expenses for the nine months ended September 30, 2022 include $6.9 million of deferred stock-based compensation and $1.8 million of transaction bonuses that were recognized in connection with the closing of the Business Combination.

We expect selling, general and administrative expenses to increase over the longer term, particularly after we potentially achieve quantum advantage, and plan to subsequently enhance our sales and service offerings, expand our customer base, and implement new marketing strategies.

### Restructuring

In February 2023, we announced an updated business strategy, including revisions to our technology roadmap. In connection with this updated strategy, we implemented a workforce reduction in order to focus the organization and our resources on nearer-term strategic priorities. The reduction in the workforce impacted approximately 50 employees or approximately 28% of our then workforce. Affected employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance.

We began implementing activities with respect to our revised business plan, updated technology roadmap and reduction in workforce in February 2023, resulting in a $1 million restructuring charge during the nine months ended September 30, 2023. No further restructuring charges related to this action are expected.

### Other income and (expense), net

### Interest expense

Our outstanding debt carries a variable rate of interest. Interest expenses increased by an inconsequential amount during the three months ended September 30, 2023 and by $0.7 million during the nine months ended September 30, 2023, when compared to three and nine months ended September 30, 2022, respectively. We paid a higher rate of interest on our debt in 2023 due to the increases in the prime interest rate that occurred throughout 2023 and 2022.

### Interest income

Interest income was $1.2 million and $3.7 million during the three and nine months ended September 30, 2023, up from $1.0 million and $1.2 million during the three and nine months ended September 30, 2022, respectively. The increase in interest income is due to higher rates of interest earned on our investments, including cash equivalents and available-for-sale securities. We also had more excess cash to invest throughout all of 2023, due to the closing of the Business Combination and PIPE Financing in March 2022. We anticipate that interest income will decline in future periods due to our expected use of cash, cash equivalents and available-for-sale securities to fund our operating expenses, including research and development initiatives and investment in our technology roadmap.

### Change in Fair Value of Warrant Liabilities

A discussion of the change in the fair value of warrant liabilities is included in Note 12 to our condensed consolidated financial statements for the three and nine months ended September 30, 2023, included elsewhere in this Quarterly Report on Form 10-Q.

The change in fair value of warrant liabilities during the three and nine months ended September 30, 2023, was an expense of $3.4 million and $4.3 million, compared to income of $8.1 million and $19.9 million during the three and nine months ended September 30, 2022, respectively. The expense increase during the three and nine months ended September 30, 2023 was primarily due to the change in stock price and volatility.

### Change in Fair Value of Earn-Out Liabilities

A discussion of the change in the fair value of the earn-out liabilities is included in Note 4 to our condensed consolidated financial statements for the three and nine months ended September 30, 2023, included elsewhere in this Quarterly Report on Form 10-Q. The change in fair value of our earn-out liabilities during the three and nine months ended September 30, 2023 was an expense of $1.7 million and $2.4 million, compared to income of $4.9 million and $17.4 million during the three and nine months ended September 30, 2022, respectively. The expense increase during the three and nine months ended September 30, 2023 was primarily due to the change in stock price and volatility.

### Transaction Costs

Transaction costs allocated to liability-classified instruments must be expensed as incurred. Changes in these instruments are subsequently measured at fair value through earnings. During the nine months ended September 30, 2022, transaction costs allocated to liability-classified instruments arising from the Business Combination totaled $0.9 million. No transaction costs were incurred during the three and nine months ended September 30, 2023, or the three months ended September 30, 2022.

### Provision for Income Taxes

We did not record income tax expense during the three and nine months ended September 30, 2023 or the three and nine months ended September 30, 2022 due to the Company’s loss position and full valuation allowance.

### Liquidity and Capital Resources

We have incurred net losses since inception and negative cash flows from operations. Prior to the Business Combination, we financed our operations primarily through the issuance of preferred stock, warrants, convertible notes, venture backed debt and revenues. During the year ended December 31, 2022, and the nine months ended September 30, 2023, we incurred net losses of $71.5 million and $62.5 million, respectively. As of September 30, 2023, we had an accumulated deficit of $341.2 million, and we expect to incur additional losses for the foreseeable future. In connection with the closing of the Business Combination on March 2, 2022, we received net proceeds of $225.6 million. We believe that our existing balances of cash, cash equivalents and available-for-sale investments should be sufficient to meet our anticipated operating cash needs for at least the next 12 months, based on our current business plan, and expectations and assumptions considering current macroeconomic conditions. Based on our estimates and current business plan, we expect that we will need to obtain additional capital by early 2025, including any additional sales of common stock through our Common Stock Purchase Agreement with B. Riley or from other sources, in order to fund our research and development efforts and business objectives as currently planned. 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 have based these estimates on assumptions that may prove to be wrong and we could use our available capital resources sooner than we currently expect, and future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section under Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and elsewhere in this Quarterly Report on Form 10-Q. Inflation and rising interest rates may result in an economic recession globally or in the U.S., which could lead to a reduction in product demand, a decrease in corporate capital expenditures, prolonged unemployment, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic events, or any similar negative economic condition. 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 rising 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 ongoing military conflict involving Russia and Ukraine and sanctions related thereto, the state of war between Israel and Hamas and the related risk of a larger regional conflict. 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, we could experience an inability to access additional capital, or our liquidity could otherwise be impacted. If we are unable to raise capital when needed and on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and/or other efforts. A recession or additional market corrections resulting from the impact of difficult macroeconomic conditions, disruptions in the banking system could materially affect our business and the value of our securities.

Our short-term cash requirements include capital expenditures for materials and components for research and development and quantum computing fridges; working capital requirements; and strategic collaborative arrangements and investments.

Our long-term requirements include expenditures for our quantum chip fabrication facility; planned development of multiple generations of quantum processors; and anticipated additional investments to scale our QCaaS offering.

We will require a significant amount of cash for expenditure as we invest in ongoing research and development and business operations. Until such time as we can generate significant revenue from sales of QPUs, our development contracts and other services, including our QCaaS offering, we expect to finance our cash needs primarily through our existing cash, cash equivalents and available-for-sale investments on hand, our Purchase Agreement with B. Riley (subject to the price of our Common Stock trading above $1.00 as described below in addition to other conditions and market considerations), and other potential securities financings or other capital sources, including the sale of QPUs, development contract revenue with government agencies and strategic partnerships. To the extent that we raise additional capital through the sale of equity or convertible debt securities, including through the use of our Purchase Agreement with B. Riley, 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 and on attractive terms, we may be required to delay, limit, or substantially reduce our quantum computing development efforts. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section under Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, and elsewhere in this Quarterly Report on Form 10-Q.

In addition, future sales, if any, of shares of our Common Stock to B. Riley pursuant to the Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of our Common Stock (including the condition that the price of our Common Stock is trading above $1.00) and determinations by us as to appropriate sources of funding for our business and operations. We cannot guarantee the extent to which we may utilize the Purchase Agreement.

### Loan and Security Agreement

In January 2022, we entered into the Third Amendment to the Loan Agreement with Trinity to increase the debt commitment by $5.0 million to $32.0 million thereunder. The amendment allowed us to draw an additional $5.0 million immediately with an additional $8.0 million to be drawn at the sole discretion of the lender. We drew the additional $5.0 million upon signing the amendment. The Third Amendment also included an extension of the requirement to raise an additional $75.0 million of equity which was satisfied through the Business Combination and a defined exit fee for the additional $5.0 million to be at 20% of the advanced funds under the Third Amendment. In conjunction with the amendment, we also guaranteed payment of all monetary amounts owed and performance of all covenants, obligations and liabilities. As of September 30, 2023, the total principal amount outstanding under the Loan Agreement was $25.3 million. The Loan Agreement is secured by a first-priority security interest in substantially all of our assets. As of the date of this Quarterly Report on Form 10-Q, we are in compliance with all covenants under the Loan Agreement.

Our cash commitments as of September 30, 2023 were primarily as follows (in thousands):

| ​ ​ | ​ | ​ ​ Total | ​ | ​ ​ Short-term | ​ | ​ ​ Long-term |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Financing obligations | ​ | $25,304 | ​ | $12,435 | ​ | $12,869 |
| Estimated cash interest on financing obligations | ​ | ​ 5,209 | ​ | ​ 3,150 | ​ | ​ 2,059 |
| Operating lease | ​ | ​ 8,917 | ​ | ​ 2,212 | ​ | ​ 6,705 |
| **​** | ​ | $39,430 | ​ | $17,797 | ​ | $21,633 |

Financing obligations consist of payments related to the Loan and Security Agreement. Operating lease obligations consist of obligations under non-cancelable operating leases for our offices, facilities and equipment. The cash requirements in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum, or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty.

### Cash Flows Used in Operating Activities

Our cash flows from operating activities are significantly affected by our ability to achieve significant growth to offset expenditures related to research and development, and selling, general and administrative activities. Our operating cash flows are also affected by our working capital needs to support growth in personnel-related expenditures and fluctuations in accounts payable and other current assets and liabilities.

Net cash used in operating activities during the nine months ended September 30, 2023 was $38.2 million, primarily resulting from our net loss of $62.5 million, partially offset by non-cash expenses totaling $24.9 million. Changes in operating assets and liabilities had a minimal impact on net cash used in operating activities during the nine months ended September 30, 2023.

Net cash used in operating activities during the nine months ended September 30, 2022 was $48.5 million, primarily resulting from our net loss of $48.6 million, partially offset by non-cash expenses totaling $0.4 million. Changes in operating assets and liabilities had a minimal impact on net cash used in operating activities during the nine months ended September 30, 2022.

Cash used in operating activities was reduced by $10.3 million to $38.2 million during the nine months ended September 30, 2023, from $48.5 million during the nine months ended September 30, 2022. Our net loss from operations increased by $13.9 million to $62.5 million during the nine months ended September 30, 2023. Non-cash charges impacting our net loss from operations increased by $24.5 million to $24.9 million during the nine months ended September 30, 2023, from $0.4 million during the nine months ended September 30, 2022. Changes in operating assets and liabilities had a $0.3 million unfavorable impact on the change in cash used in operating activities during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

### Cash Flows Provided by (Used in) Investing Activities

Cash provided by investing activities during the nine months ended September 30, 2023 totaled $11.5 million, resulting from $98.1 million of maturities of available-for -sale securities, partially offset by $7.5 million of purchases of property and equipment and $79.0 million of purchases of available-for-sale securities.

Cash used in investing activities during the nine months ended September 30, 2022 totaled $106.5 million, resulting from purchases of $19.3 million of property and equipment and $87.2 million of available-for-sale securities.

Investments in property and equipment relate primarily to process computing equipment, quantum computing fridges, and development tools for our chip fabrication facility.

Net cash provided by investing activities during the nine months ended September 30, 2023 improved by $118.7 million when compared to the nine months ended September 30, 2022, due to maturities of available-for-sale securities and decreased purchases of property and equipment and available-for-sale securities.

### Cash Flows Provided by Financing Activities

Cash provided by financing activities during the nine months ended September 30, 2023 totaled $10.5 million, reflecting $15.1 million of proceeds from the sale of 8.2 million shares of common stock to B. Riley through the Purchase Agreement, and $1.0 million of proceeds from the exercise of stock options and warrants, offset in part by principal payments of $5.4 million under the Loan Agreement and payments of $0.1 million for deferred financing costs.

Cash provided by financing activities during the nine months ended September 30, 2022 totaled $217.1 million, reflecting $225.6 million of proceeds from the Business Combination and PIPE Investment, net of transaction costs, and offset by Rigetti transaction costs of $18.4 million, additional proceeds from the issuance of debt and warrants of $5.0 million associated with the Third Amendment to the Loan Agreement, less debt issuance costs and exit fees totaling $1.1 million, and proceeds from the exercise of stock options and warrants of $6.0 million.

Net cash provided by financing activities during the nine months ended September 30, 2023 decreased by $206.5 million when compared to the nine months ended September 30, 2022, largely due to the close of the Business Combination and PIPE Investment, net of transaction costs, during the nine months ended September 30, 2022. We expect to continue to finance our cash needs primarily through cash, cash equivalents and available-for-sale investments on hand, the Purchase Agreement with B. Riley (subject to the price of our Common Stock trading above $1.00 in addition to other conditions and market considerations), and other potential securities financings or capital sources.

### Critical Accounting Policies and Significant Judgements and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP.

Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. We also make estimates and assumptions that affect revenue and expenses during the reporting periods. Our estimates are based on historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

While our significant accounting policies are described in the Notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, we believe the following critical accounting policies and estimates are most important to understanding and evaluating our reported financial results.

### Public and Private Warrants

Prior to the Business Combination, SNII issued 4,450,000 private placement warrants (“Private Warrants”) and 8,625,000 public warrants (“Public Warrants” and collectively, “Warrants”). As of September 30, 2023, there were 13,074,972 Warrants outstanding, consisting of 3,969,727 Private Warrants and 9,105,245 Public Warrants. Each whole warrant entitles the holder to purchase one share of our Common Stock at a price of $11.50 per share, subject to adjustments and will expire five years after the Merger or earlier upon redemption or liquidation.

The Private Warrants do not meet the derivative scope exception and are accounted for as derivative liabilities. Specifically, the Private Warrants contain provisions that cause the settlement amounts to be dependent upon the characteristics of the holder of the warrant which is not an input into the pricing of a fixed-for-fixed option on equity shares. Therefore, the Private Warrants are not considered indexed to our stock and should be classified as a liability. Since the Private Warrants meet the definition of a derivative, we recorded the Private Warrants as liabilities in the consolidated balance sheet at fair value upon the closing of the Business Combination, with subsequent changes in the fair value recognized in the consolidated statements of operations at each reporting date. The fair value of the Private Warrants was measured using the Black-Scholes option-pricing model at each measurement date. The Public Warrants also fail to meet the indexation guidance in ASC 815 and are accounted for as liabilities as the Public Warrants include a provision whereby in a scenario in which there is not an effective registration statement, the warrant holders have a cap, 0.361 shares of Common Stock per warrant (subject to adjustment), on the issuable number of shares in a cashless exercise.

Subsequent to the separate listing and trading of the Public Warrants, the fair value of the Public Warrants has been measured based on the observable listed prices for such warrants and the fair value of the Private Warrants are measured using a Monte Carlo Pricing Model.

On the consummation of the Business Combination, we recorded a liability related to the Private Warrants of $9.6 million, with an offsetting entry to additional paid-in capital. As of September 30, 2023, the fair value of the Private Warrants decreased to $3.8 million, with the change in fair value of the derivative warrant liabilities recorded in the consolidated statements of operations each reporting period.

Similarly, on the consummation of the Business Combination, we recorded a liability related to the Public Warrants of $16.3 million, with an offsetting entry to additional paid-in capital. As of September 30, 2023, the fair value of the Public Warrants decreased to $2.3 million with the change in fair value of derivative warrant liabilities recorded in the consolidated statements of operations each reporting period.

### Other Derivative Warrant Liabilities

We currently do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 815, “Derivatives and Hedging” (“ASC 815”) at the initial recognition date.

Other than the Public Warrants and Private Warrants noted above, we also issued a total of 783,129 Trinity Warrants in conjunction with the Loan Agreement in 2021. Such derivative warrant liabilities are classified as non-current as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities. We utilized the Black-Scholes model to determine the inception date fair value of the warrants of approximately $2.7 million which was recorded as part of Debt Issuance Cost. The outstanding Common Stock warrants were subsequently remeasured at each reporting period using the Black-Scholes model with the change in fair value recorded as a component of other income in the Company’s consolidated statements of operations.

On June 2, 2022, the 783,129 Trinity Warrants were exercised and the $6.4 million warrant liability was reclassified to equity. We recorded a loss of $2.0 million from the change in the fair value of the warrant liability for the year ended December 31, 2022.

### Earn-Out Liabilities

At Business Combination Closing, Supernova Sponsor subjected certain shares (“Sponsor Vesting Shares”) of Common Stock held by Supernova Sponsor and its permitted transferees (the “Sponsor Holders”) to forfeiture and vesting as of the Closing if thresholds related to the weighted average price of Common Stock are not met for the duration of various specified consecutive day trading periods during the five-year period following the Closing (the “Earn-out Triggering Events”). Any such shares held by the Sponsor Holders that remain unvested after 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 Holders include outcomes that are not solely indexed to our Common Stock. The aggregate fair value of the Sponsor Vesting Shares at the time of the Business Combination Closing was estimated using a Monte Carlo simulation model and was determined to be $20.4 million.

As of September 30, 2023, the Earn-Out Triggering Events were not achieved for any of the tranches, and as such, the Company adjusted the carrying amount of the liability to its estimated fair value of $3.6 million with the change in fair value of the earn-out liability recorded in the consolidated statements of operations each reporting period.

### Forward Warrant Agreement

In connection with the execution of the Merger Agreement in October 2021, we entered into the Forward Warrant Agreement with Ampere for the purchase of a warrant for an aggregate purchase price (including amounts from exercise) of $10.0 million. The Forward Warrant Agreement provides for the issuance of a warrant for the purchase of an aggregate of 1,000,000 shares of Common Stock at an exercise price of $0.0001. The purchase of the warrant was conditioned upon, among other things, the consummation of the Business Combination and the entry into a collaboration agreement between Ampere and us. The collaboration agreement was entered into in January 2022. Ampere was required to pay $5.0 million to us no later than the later of (i) the Closing and (ii) June 30, 2022.

On June 30, 2022, pursuant to the Forward Warrant Agreement, we issued the warrant to Ampere upon receipt of an aggregate of $5.0 million (including the exercise price), and upon such payment and issuance, 500,000 shares of our Common Stock vested under the warrant and were immediately exercised by Ampere pursuant to the terms of the warrant. Ampere was required to pay an additional $5.0 million to us no later than the closing date of the listing of Ampere’s capital stock on a stock exchange, provided that if the listing had not occurred by the second anniversary of the Forward Warrant Agreement (October 6, 2023), Ampere was not obligated to make the additional payment and we were not obligated to issue the remaining shares underlying the warrants The Forward Warrant Agreement has now expired, and Ampere no longer has an obligation to make the additional $5.0 million payment. The Forward Warrant Agreement further provides that we will use commercially reasonable efforts to file a registration statement to register the resale of the shares. We filed such registration statement, and it became effective in the year ended December 31, 2022.

We evaluated the Forward Warrant Agreement as a derivative in accordance with the guidance of ASC 480, “Distinguishing Liabilities from Equity”. We calculated the fair value of the Forward Warrant Agreement by using the Forward Contract Pricing methodology at inception. The fair value of the Forward Warrant Agreement was estimated based on the following key inputs and assumptions 1) Assumed holding period 2) Related risk-free rate and 3) Likelihood of the outcome of the various contingencies specified in the agreement. Based on these inputs and assumptions, we calculated the fair value of the Forward Warrant Agreement to be $2.2 million as of December 31, 2022. We have included the derivative as a forward contract asset in the accompanying condensed consolidated balance sheet as of December 31, 2022.

In the nine months ended September 30, 2023, we reduced the estimated probability of occurrence for the Forward Warrant Agreement from 50% to 0% because we determined that Ampere’s obligation to pay the additional $5.0 million pursuant to the Forward Warrant Agreement would expire.

The change in the fair value of the Forward Warrant Agreement is recorded as part of selling, general and administrative expenses in our consolidated statements of operations each reporting period.

### Revenue Recognition

Revenue consists primarily of our contracts that provide access to Rigetti quantum computing systems, collaborative research services, professional services, and the sale of QPUs and custom quantum computing components. Access to Rigetti quantum computing systems can be purchased as a quantum computing subscription, or on a usage basis for a specified quantity of hours. Revenue related to subscription-based access to Rigetti quantum computing systems (i.e., quantum computing subscriptions) is recognized on a ratable basis over the subscription term, which can range from six months to two years. Revenue related to usage-based access to Rigetti quantum computing systems is recognized over time as the systems are accessed using an output method based on compute credit hours expended. Revenue related to collaborative research services and professional services is recognized over time based on completed milestones or hours or costs incurred as appropriate. Revenue for partially completed milestones deemed probable of being met is recognized using an input measure based on actual labor hours incurred to date relative to total estimated labor hours needed to complete the milestone. Revenue related to cost share contracts is recognized as the reimbursable costs are incurred. For fixed price milestone-based contracts, revenue is recognized based on the input measure explained above as control is expected to transfer over the time period a milestone is completed. Revenue related to the sale of QPUs and custom quantum computing components is recognized at a point in time, and upon customer acceptance for custom quantum computing components.

Our fixed fee development contracts vary in term from one to five years, with the majority of such contracts having a term of 18 months to two years. When establishing the pricing for our fixed fee arrangements, we determine the pricing based on estimated costs to complete and expected margins taking into account the scope of work outlined within the contract being evaluated and our historical experience with similar services and contracts. Actual costs incurred over the period in which these contracts are fulfilled could vary from these estimates and therefore, these estimates are subject to uncertainty. On a quarterly basis, management reviews the progress with respect to each contract and its related milestones and evaluates whether any changes in estimates exist. As a result of the quarterly reviews, revisions in the estimated effort to complete the contract are reflected in the period in which the change is identified. These revisions may impact the overall progress related to transfer of control and therefore result in either increases or decreases in revenues as well as increases or decreases in fulfillment costs and contract margins. In accordance, with ASC No. 250, Accounting Changes and Error Corrections, any changes in estimates are reflected in our consolidated statements of operations in the period in which the circumstances that give rise to the revision become known to management. To date, we have not experienced any changes in estimates that have had a material impact on our results from operations or financial position.

When our contracts with customers contain multiple performance obligations, the transaction price is allocated on a relative standalone selling price basis to each performance obligation. We typically determine standalone selling price based on observable selling prices of our products and services. In instances where standalone selling price is not directly observable, standalone selling price is determined using information that may include market conditions and other observable inputs. Stand-alone selling price is typically established as a range. In situations in which the stated contract price for a performance obligation is outside of the applicable standalone selling price range and has a different pattern of transfer to the customer than the other performance obligations in the contract, we will reallocate the total transaction price to each performance obligation based on the relative standalone selling price of each.

The transaction price is the amount of consideration to which we expect to be entitled in exchange for transferring goods and services to the customer. Revenue is recorded based on the transaction price, which includes fixed consideration and estimates of variable consideration. The amount of variable consideration included in the transaction price is constrained and is included only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Our contracts with customers may include renewal or other options at fixed prices. Determining whether such options are considered distinct performance obligations that provide the customer with a material right and therefore should be accounted for separately requires significant judgment. Judgment is required to determine the standalone selling price for each renewal option to determine whether the renewal pricing is reflective of standalone selling price or is reflective of a discount that would provide the customer with a material right. Based on our assessment of standalone selling prices, we determined that there were no significant material rights provided to our customers requiring separate recognition.

### Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 of our condensed consolidated financial statements for the period ended September 30, 2023 included elsewhere in this Quarterly Report on Form 10-Q.

### Emerging Growth Company and Smaller Reporting Company Status

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Following the Business Combination, we still qualify as an emerging growth company and plan to take advantage of the extended transition period that emerging growth company status permits. During the extended transition period, it may be difficult or impossible to compare our financial results with the financial results of another public company that complies with public company effective dates for accounting standard updates because of the potential differences in accounting standards used.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2026, the last day of our first fiscal year following the fifth anniversary of the completion of SNII’s initial public offering, (b) the last day of our fiscal year in which we have total annual gross revenue of at least $1.24 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting Common Stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting Common Stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.

## Market risk

As filed, 152 characters.

We are a smaller reporting company as defined by Rule12b-2 of the Exchange Act and are not required to provide the information required under this item.

## Controls and procedures

As filed, 9,930 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d15(e) under the Exchange Act) as of September 30, 2023. Based on the evaluation of our disclosure controls and procedures, our management concluded that, as of September 30, 2023, our disclosure controls and procedures were not effective due to the material weaknesses described below.

We have implemented additional controls over review of complex financial instrument valuations as described in our remediation plan below. The material weakness related to review of complex financial instrument valuations will not be considered remediated until such time as the additional controls operate for a sufficient period of time and management has concluded, through testing, that the controls are effective.

We are adding additional controls over our year-end and quarter-end close processes, which are still being implemented. We also intend to hire additional accounting resources. The material weakness related to our year-end and quarter-end close processes will not be considered remediated until such time as management designs and implements effective controls that operate for a sufficient period of time and has concluded, through testing, that these controls are effective.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

After giving full consideration to the material weaknesses and the additional procedures that we performed, management has concluded that the interim condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with GAAP for interim financial statements; however, the material weaknesses could have resulted in a misstatement of account balances or disclosures that would be considered material to the annual or interim consolidated financial statements and certain of the material weaknesses did result in errors in the financial statements and related disclosures as described below for the quarters ended March 31, 2022 and June 30, 2022, which we restated in 2022.

### Material Weaknesses

As previously disclosed, in connection with our unaudited condensed consolidated financial statements for the nine months ended October 31, 2021, we identified a material weakness in our internal control over financial reporting related to the lack of effective review controls over the accounting for complex financial instruments. Specifically, the controls failed to identify an error in the accounting for complex warrant instruments. The error related to the Company not properly accounting for the liability associated with the warrants to purchase common stock issued to Trinity Capital Inc. that were subsequently cancelled and reissued as new warrants in connection with an amendment to the Loan Agreement.

In addition, in connection with the preparation of the financial statements for the second quarter of 2022, we identified and corrected an immaterial error related to the revaluation of the liability associated with the same warrants issued to Trinity Capital.

In connection with the preparation of the financial statements for the third quarter of 2022, we discovered that the previously identified material weakness led to additional material errors related to the valuation of the Earn-out liabilities and the Private Warrant liability that affected the previously issued unaudited condensed consolidated financial statements as of and for the periods ended March 31, 2022 and June 30, 2022. These errors were corrected in the unaudited condensed consolidated financial statements as of and for the periods ended March 31, 2022 and June 30, 2022 through a restatement of previously filed financial statements for such periods.

Our management concluded that the previously identified material weakness in our internal control over financial reporting related to complex financial instruments was due to the fact that at the time we initially identified the material weakness, we did not have sufficient accounting resources and did not have the necessary business processes and related internal controls formally designed and implemented to address the accounting and financial reporting requirements related to complex financial instruments. This material weakness continued to exist as of September 30, 2023 because the controls that were implemented as part of our plan to remediate this material weakness have not been operating for a sufficient period of time to allow management to conclude through testing that the controls are effective.

Additionally, as previously disclosed, in connection with the preparation of the financial statements for the year ended December 31, 2022, we identified a material weakness in our internal control over financial reporting related to the design and operation of our overall closing and financial reporting processes, including the timely preparation of account reconciliations, effective segregation of duties, and a lack of timely review over the financial statement close process. We have concluded that this material weakness is due to the fact that, between the date the Company went public pursuant to the Business Combination and December 31, 2022, the Company had limited resources and did not have the necessary business processes and related internal controls formally designed and implemented coupled with the appropriate resources with the appropriate level of experience and technical expertise to oversee our closing and financial reporting processes. This material weakness continued to exist as of September 30, 2023 due to the reasons described above, the relatively short period of time since the material weakness was first identified, and because the necessary controls to remediate the material weakness have only been partially implemented and have not yet been sufficiently tested.

### Remediation Plan

Our remediation plan related to the material weakness over the accounting for complex financial instruments includes:

- incorporating additional controls and procedures over the review of complex financial instrument valuations as well as technical accounting resources to identify the inventory of complex accounting and financial instruments that require accounting analysis and evaluation.
- enhancing the precision of review controls over complex financial instruments; and
- augmenting the review process relating to the valuation analyses performed by the third-party valuation experts and accounting firms that are utilized by the Company.

Our remediation plan related to the material weakness over our overall closing and financial reporting processes includes:

- hiring sufficient personnel with technical accounting and financial reporting experience to augment our current staff, to achieve appropriate segregation of duties and to improve the effectiveness of our closing and financial reporting processes; and
- implementing improved accounting and financial reporting procedures and systems to improve the completeness, timeliness and accuracy of our financial reporting and disclosures, including the assessment of more judgmental areas of accounting.

The elements of our remediation plans can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. As management continues to evaluate and work to improve our internal control over financial reporting, management may determine it is necessary to take additional measures to address the material weaknesses. These material weaknesses will not be considered remediated unless and until such time as management designs and implements effective controls that operate for a sufficient period of time and concludes, through testing, that these controls are effective. Until the controls have been operating for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively, the material weaknesses described above will continue to exist.

Management is monitoring the progress of the remediation plan and reporting regularly to the audit committee of the board of directors on the progress and results of the remediation plan, including the identification, status and resolution of internal control deficiencies. We can provide no assurance that the measures we have taken and plan to take in the future will remediate the material weaknesses identified or that any additional material weakness or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future these controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.

### Changes in Internal Control over Financial Reporting

For the three months ended September 30, 2023, other than the remediation efforts described above, there have been no other changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 330 characters.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of material factors that make an investment in our ordinary shares speculative or risky.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-018559. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.