RIGETTI COMPUTING, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
This Management's Discussion and Analysis of Financial Condition and Results of Operations section should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this "Report"). 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," 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 we describe under "Risk Factors" and elsewhere in this Report 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.
For the purposes of this discussion, “Rigetti”, “the company”, “we”, “us” or “our” means
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, 2021and January 10, 2022(as amended, the "Merger Agreement"), by and among Supernova Partners Acquisition Company II, Ltd., a Cayman Islandsexempted company ("Supernova"), Supernova Merger Sub, Inc., a Delawarecorporation and a direct wholly owned subsidiary of Supernova (the "First Merger Sub"), Supernova Romeo Merger Sub, LLC, a Delawarelimited liability company and a direct wholly owned subsidiary of Supernova (the "Second Merger Sub"), and Rigetti Holdings, Inc., a Delawarecorporation ("Legacy Rigetti"). As contemplated by the Merger Agreement, on March 1, 2022Supernova was domesticated as a Delawarecorporation 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 Corporationmerged with and into the Second Merger Sub, the separate corporate existence of the Surviving Corporationceased 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. 31
Our long-term business model centers on revenue generated from 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 is derived from development contracts, and we anticipate this to persist over at least the next several years as we work to ramp up 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
$10.0 millionand $10.1 millionfor the three months ended June 30, 2022and June 30, 2021, respectively, and $20.4 millionand $17.9 millionfor the six months ended June 30, 2022and June 30, 2021respectively. As we expect to continue to invest in research and development infrastructure, we expect to continue to incur additional losses for the foreseeable future in line with our long-term business strategy. As of June 30, 2022, we had an accumulated deficit of $227.6 million.
Business Combination and PIPE Financing
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 Statesgenerally accepted accounting principles (" U.S.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 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 $0.0001per 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 $208.2 million(as compared to Rigetti's balance sheet at December 31, 2021), including $225.6 millionof proceeds from the Business Combination and PIPE Financing net against transaction costs incurred by us of $17.4 million. 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. 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 $20.65 million, of which $19.75 millionwas allocated to equity-classified instruments and recorded as a reduction to additional paid-in capital, and the remaining $0.9 millionwas allocated to liability-classified instruments that are subsequently measured at fair value through earnings and recognized as expense in the condensed consolidated statements of operations during the six months ended June 30, 2022. 32
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 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 consolidated results of operations and financial condition may not be comparable to historical results following the business combination.
COVID-19 Update and Other Events The COVID-19
The pandemic continues to evolve rapidly and we intend to continue to monitor it closely.
The evolution of the virus is unpredictable and any resurgence may slow down our ability to develop our quantum computing products and related services. The COVID-19 pandemic could limit the ability of suppliers and business partners to perform, including third-party suppliers' ability to provide components, services and materials. We may also experience an increase in the cost of raw materials. Following the recent invasion of
Ukraineby Russia, the U.S.and global financial markets experienced volatility, which has led to disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity globally. In response to the invasion, the United States, United Kingdomand European Union, along with others, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals and may implement additional sanctions or take further punitive actions in the future. The full economic and social impact of the sanctions imposed on Russiaand possible future punitive measures that may be implemented, as well as the counter measures imposed by Russia, in addition to the ongoing military conflict between Ukraineand Russia, remains uncertain; however, both the conflict and related sanctions have resulted and could continue to result in disruptions to trade, commerce, pricing stability, credit availability, supply chain continuity and reduced access to liquidity on acceptable terms, in both Europeand globally, and has introduced significant uncertainty into global markets. As a result, our business and results of operations may be adversely affected by the ongoing conflict between Ukraineand Russiaand related sanctions, particularly to the extent it escalates to involve additional countries, further economic sanctions or wider military conflict. During the three and six months ended June 30, 2022, we experienced supply chain challenges, which we largely attribute to the COVID-19 pandemic and the general disruptions resulting from the ongoing conflict between Ukraineand Russiaand related sanctions, as well as increases in costs of component parts, labor and raw materials, which we largely attribute to rising inflation and high demand as a result of restricted supply. We expect these increased costs to remain high as the COVID-19 pandemic, the Ukraine- Russiaconflict and their respective effects persist. As global economic conditions recover from the COVID-19 pandemic, the Ukraine- Russiaconflict and the related sanctions, business activity may not recover as quickly as anticipated, and 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. For instance, product demand may be reduced due to an economic recession, a decrease in corporate capital expenditures, prolonged unemployment, rising inflation rates, labor shortages, reduction in consumer confidence, adverse geopolitical and macroeconomic events, or any similar negative economic condition. In addition, there has been increasing volatility and uncertainty in the credit and financial markets which could limit our access to capital. Impacts of the COVID-19 pandemic, geopolitical and macroeconomic conditions, some of which we have already experienced, include those described throughout the "Risk Factors" included in this Report, including the risk factor titled " We have been, and may in the future be, adversely affected by the global COVID-19 pandemic, its various strains or future pandemics " and "Unfavorable conditions in our industry or the global economy, could limit our ability to grow our business and negatively affect our results of operations."
Change of exercise
October 2021, our board of directors approved a change to our fiscal year-end from January 31 to December 31, effective December 31, 2021. We believe the year-end change is important and useful to our financial statement users to allow for increased comparability with our industry peers. As a result of this change, our fiscal year now begins on January 1and ends on December 31of each year, starting on January 1, 2022. Year-over-year quarterly financial data has been and will continue to be recast to be comparative with the new fiscal quarter ends in the new fiscal year.
Key elements of operating results
We generate revenue through our development contracts, as well as from 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 the customer in areas of business interest. QCaaS revenue is recognized on a ratable basis over the contract term or on a usage basis, which generally ranges from three months to two years. Revenue related to development contracts and other services is recognized as the related milestones are completed or over time, as the work required to complete these milestones is completed. Revenue related to the sale of custom quantum computing components is recognized at a point in time upon acceptance by the customer. 33
Cost of revenue consists primarily of all direct and indirect cost associated with providing QCaaS offerings and development contracts and other services, including employee salaries and employee related costs, including compensation, bonuses, employee taxes and benefit costs of 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 providing the QCaaS offerings and development contracts and other services. We expect cost of revenue to increase as we continue to expand on our operations, enhance our service offerings and expand our customer base.
Our operating expenses include selling and marketing expenses, general and administrative expenses, and research and development expenses.
Research and development
Research and development costs are expensed as incurred. Research and development expenses include compensation, employee benefits, stock-based compensation, outside consultant fees, allocation of facility costs, depreciation and amortization, materials and components purchased for research and development. We expect research and development expenses to increase as we invest in the enhancement of our product offerings. We do not currently capitalize any research and development expenditures.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation including stock-based compensation, employee benefits of sales and marketing employees, outside consultants' fees, travel and marketing and promotion costs. We expect selling and marketing expenses to increase as we continue to expand on our operations, enhance our service offerings, expand our customer base, and implement new marketing strategies.
General and administrative
General and administrative expenses include compensation, employee benefits, stock-based compensation, legal, insurance, finance administration and human resources, an allocation of facility costs (including leases), bad debt costs, professional service fees, and an allocation of other general overhead costs including depreciation and amortization to support our operations, which consist of operations other than associated with providing QCaaS offerings and development contracts and other services. We expect our general and administrative expenses to increase as we continue to grow our business. We also expect to incur additional expenses as a result of operating as a public company.
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. 34
Three and six months ended
The following tables set forth our results of operations for the periods indicated: Three Months Ended Six Months Ended June 30, 2022 versus 2021 June 30, 2022 versus 2021 2022 2021 $ Change % Change 2022 2021 $ Change % Change ( In thousands) ( In thousands) Revenue:
$ 2,134 $ 1,540 $ 59439 % $ 4,238 $ 3,900 $ 3389 % Cost of revenue 873 365 508 139 % 1,287 637 650 102 % Total gross profit 1,261 1,175 86 7 % 2,951 3,263 (312 ) -10 % Operating expenses: Research and development 12,634 7,496 5,138 69 % 25,083 14,431 10,652 74 % Sales and marketing 1,487 644 843 131 % 2,963 957 2,006 210 % General and administrative 12,785 2,711 10,074 372 % 24,345 5,232 19,113 365 % Total operating expenses 26,906 10,851 16,055 148 % 52,391 20,620 31,771 154 % Loss from operations (25,645 ) (9,676 ) (15,969 ) 165 % (49,440 ) (17,357 ) (32,083 ) 185 % Other (expense) income, net: Interest expense (1,040 ) (405 ) (635 ) 157 % (2,244 ) (481 ) (1,763 ) 367 % Change in fair value of derivative warrant liabilities 8,687 - 8,687 nm 14,509 - 14,509 nm Change in fair value of earn-out liability 8,024 - 8,024 nm 17,658 - 17,658 nm Transaction cost - - - nm (927 ) - (927 ) nm Other income - 7 (7 ) -100 % - (23 ) 23 -100 % Total other income (expense), net 15,671 (398 ) 16,069 28,996 (504 ) 29,500 Net loss before provision for income taxes (9,974 ) (10,074 ) 100 (20,444 ) (17,861 ) (2,583 ) Provision for income taxes - - - - - - Net loss $ (9,974) $ (10,074) $ 100 $ (20,444) $ (17,861) $ (2,583)Revenue Revenue increased $0.6 million, or 39%, to $2.1 millionfor the three months ended June 30, 2022, up from $1.5 millionfor the three months ended June 30, 2021. The period over period change is attributable to revenue from a new contract signed in late 2021 with a government agency of $0.4 milliontogether with revenue from the start of the second phase of a large government agency project entered into in August 2021of $0.7 millionpartially offset by a decrease in revenue of $0.5 millionfrom a U.K.government agency project. Revenue increased $0.3 million, or 9%, to $4.2 millionfor the six months ended June 30, 2022, up from $3.9 millionfor the six months ended June 30, 2021. The period over period increase was primarily attributable to an increase in revenue of $1.7 milliondue to the start of a new contract and the second phase of a large government agency project along with the expansion in scope of other U.S.projects of $0.4 million, offset by a $0.5 milliondecrease in revenue related to a U.K.government agency project, and the completion of the first phase of a large government agency project of $1.3 millionin the six months ended June 30, 2021. These development contracts are fixed price milestone or cost share-based contracts and the timing and amounts of revenue recognized in each quarter will therefore vary based on the delivery of the associated milestones and/ or the work performed. We expect to continue to generate the majority of our revenue from development contracts over at least the next several years and that revenue will be variable in timing and size as we work to ramp up our QCaaS business for the longer term. In addition, we are negotiating contracts with a government entity that is also an existing customer and the contracting process has taken longer than anticipated. Accordingly, there is a risk that some or all of the $4.0 millionrevenue we anticipate from these contracts would be deferred to later fiscal periods after the 2022 fiscal year if the contract negotiations are not completed, the contracts are not executed and we are unable to invoice for the full amount in 2022. Moreover, if negotiations result in contract terms that are less favorable than we anticipated, the total expected value of these contracts could decrease. Additionally, a portion of such anticipated revenue relates to work that has already been performed and costs that have already been incurred. We cannot assure the execution of these contracts in a timely manner or at all. If the contracts are not ultimately executed, it would likely be very difficult to realize the expected revenue from this government entity and we may be unable to recoup all or a portion of costs already incurred.
Cost of revenue increased
$0.5 million, or 139%, to $0.9 millionfor the three months ended June 30, 2022, as compared to $0.4 millionfor the three months ended June 30, 2021. The increase was mainly attributable to an increase in employee-related costs of $0.1 millionand subcontract cost of $0.4 millionassociated with specific projects and collaborative development contract services work with government agencies. Cost of revenue increased $0.7 million, or 102%, to $1.3 millionfor the six months ended June 30, 2022, as compared to $0.6 millionfor the six months ended June 30, 2021. The increase was mainly attributable to an increase in employee-related costs of $0.3 millionand subcontract cost of $0.4 millionassociated with specific projects and collaborative development contract services work with government agencies. 35
We expect these costs to increase as we expand headcount and increase third party subcontractor costs related to our collaborative development contract services work with government agencies. In addition, we have incurred and may continue to incur increased costs associated with equipment, system components and labor due to current global economic conditions, including inflation, labor shortages and supply conditions.
Research and development costs
Research and development expenses increased by
$5.1 million, or 69%, to $12.6 millionfor the three months ended June 30, 2022, from $7.5 millionfor the three months ended June 30, 2021. The increase was primarily attributable to: • a $3.5 millionincrease in employee related costs in the three months ended June 30, 2022due to an increase in headcount and related wage
investment in research and development efforts, including
increased software and hardware subscription costs,
increased rent and utilities related to our Fremont manufacturing facility, and a
Research and development costs increased by
$7.1 millionincrease in employee related costs for the six months ended June 30, 2022due to an increase in headcount and resulting wage
expense, and a
recognition of a previously deferred stock-based compensation expense of
with respect to outstanding share units recognized following the closing of
the Business Combination; and
investment in research and development efforts, including a
increased software and hardware subscription costs,
increase in rent and charges, and a
We expect research and development expenses to increase as we continue to invest in the enhancement of our product offerings, including with respect to cost of building QPU fridges, quantum chip fabrication costs, expansion of facilities and general salaries and wages. In addition, we have incurred and expect to continue to incur increased research and development expenses due to increasing costs of labor, including expenses associated with stock compensation in order to attract and retain qualified personnel; equipment and component costs impacted by the current macroeconomic environment including supply chain constraints; and labor shortages.
Sales and marketing expenses
Sales and marketing increased by
$0.8 million, or 131%, to $1.5 millionfor the three months ended June 30, 2022, from $0.6 millionfor the three months ended June 30, 2021. The increase was primarily driven by a $0.2 millionincrease in employee related costs, $0.2 millionincrease in stock compensation, and $0.4 millionincrease in consultant and other spending on sales and development activities for the purpose of customer growth and acquisition. 36
Sales and marketing increased
$2.0 million, or 210%, to $3.0 millionfor the six months ended June 30, 2022, from $1.0 millionfor the six months ended June 30, 2021. The increase was primarily driven by a $0.9 millionincrease in employee related costs, a $0.7 millionincrease in stock compensation of which $0.4 millionwas related to the satisfaction of the liquidity condition with respect to outstanding stock units recognized as a result of the close of the Business Combination, and a $0.4 millionincrease in consultant and other spending on sales and development activities for the purpose of customer growth and acquisition. We expect selling and marketing expenses to increase as we seek to expand and enhance our service offering as well as expand our operations and customer base globally. In addition, we anticipate implementing new marketing strategies with respect to customer acquisition efforts and product marketing campaigns as our technology and product offerings expand.
General and administrative expenses
General and administrative expenses increased by
$8.4 millionincrease in stock compensation expense;
public reporting requirements, investor relations costs and other software
as a public company, including higher management salaries and an increase
staffing salary costs to build and upgrade resources
operate as a public company and strengthen our information security
insurance and other office expenses attributable to return to office work. These costs were partially offset by the gain in change in fair value of our forward contract agreement of
$2.1 millionwhich was entered into with Ampere as part of our strategic collaboration agreement.
General and administrative expenses increased by
$9.9 millionincrease in stock compensation expense; • a one-time
cumulative recognition of previously deferred stock-based compensation expense
with respect to outstanding stock units recognized as a result of the close of the Business Combination;
public reporting requirements, investor relation costs and other software acquisition costs; • one-time
transaction bonuses granted to employees in recognition of the closing
the Business Combination and associated taxes of
as a public company, including higher management salaries and an increase
staffing salary costs to build and upgrade resources
operate as a public company and strengthen our information security
insurance and other office expenses attributable to return to office work. 37
These costs were partially offset by the gain in change in fair value of our forward contract agreement of
$5.1 millionwhich was entered into with Ampere as part of our strategic collaboration agreement.
We expect general and administrative expenses to increase as we operate as a public company.
Other Income (Expense), net Interest Expense Interest expense, net of interest income, was
$1.0 millionand $0.4 millionfor the three months ended June 30, 2022and 2021, respectively. Interest expense was $2.2 millionand $0.5 millionfor the six months ended June 30, 2022and 2021, respectively. The increase in expense was a result of the Loan Agreement we entered into with Trinity Capital Inc. ("Trinity") in March 2021(as amended from time to time, the "Loan Agreement"). The period over period increase was primarily because for the three months and six months ended June 30, 2022, interest expense was based on the overall borrowings under the Loan Agreement of $32.0 millionfor a three-month and six-month interest period, while for the same period in 2021, interest expense was based on borrowings under the Loan Agreement within a range of $12.0to $19.0 millionfor a shorter interest period of only three months and 10 days.
Change in fair value of warrant liabilities
A discussion of change in fair value of warranty liabilities is included in Note 9 to our unaudited consolidated financial statements for the six-month period ended
June 30, 2022elsewhere in this Quarterly Report on Form 10-Q. Change in Fair Value of Earn-out Liability A discussion of change in fair value of earn-out liability is included in Note 2, Sponsor Earn-Out Liability, to our unaudited condensed consolidated financial statements for the six-month period ended June 30, 2022, included elsewhere to this Quarterly Report on Form 10-Q. Transaction Costs Transaction costs arose from the Business Combination allocated to liability-classified instruments that are subsequently measured at fair value through earnings must be expensed as incurred. We incurred a total transaction cost of $0.9 millionallocated to liability-classified instruments for the six-month period ended June 30, 2022. We did not incur any transaction costs for the comparable six months ended June 30, 2021. We did not incur any transaction costs as part of the results of operations for the three months ended June 30, 2022and June 30, 2021.
Cash and capital resources
We have incurred net losses since inception, and experienced 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 revenue. During the six months ended
June 30, 2022, we incurred net losses of $20.4 million. As of June 30, 2022, we had an accumulated deficit of $227.6 million, and we expect to incur additional losses and higher operating expenses for the foreseeable future in line with our long-term business and investment strategy. In connection with the closing of the Business Combination on March 2, 2022, we received a total of $225.6 millionfrom the Business Combination and PIPE Investment, net against SNII transaction costs. We believe that our existing cash and cash equivalents, including net proceeds from the Business Combination, 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. 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 titled "Risk Factors" in this Report. 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 the planned expansion of our quantum chip fabrication facility; planned development of multiple generations of quantum processors; and anticipated additional investments to scale our QCaaS offering. 38
We will require a significant amount of cash for expenditures as we invest in ongoing research and development and business operations. Until such time as we can generate significant revenue from sales of our development contracts and other services, including our QCaaS offering, we expect to finance our cash needs primarily through our Loan Agreement with Trinity, our arrangements with Ampere, our committed equity financing with
B. Rileyand other equity or debt financings or other capital sources, including 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 use of our committed equity financing 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, 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 set forth in the section titled "Risk Factors" included in this Report. In addition, actual sales, if any, of shares of Company common stock to B. Rileypursuant to the committed equity financing 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 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 committed equity financing.
Loan and guarantee agreement
March 10, 2021, we entered into the Loan Agreement with Trinity for term loans with a principal amount of $12.0 million, bearing an interest rate of the greater of 7.5% plus the prime rate published by the Wall Street Journalor 11.0%. In addition, we are required to pay a final payment fee equal to 2.75% of the aggregate amount of all term loan advances. The term loans under the Loan Agreement are secured by all of our assets. The Loan Agreement contains customary representations, warranties and covenants, but does not include any financial covenants. The negative covenants include restrictions on the ability to incur indebtedness, pay dividends, execute fundamental change transactions, and other specified actions. In connection with entry into the Loan Agreement, we issued a warrant to purchase our shares of common stock to Trinity. The Guarantor of the loan is Rigetti Holdings, Inc.and the loan is secured by substantially all of our assets. On May 18, 2021, we entered into a first amendment to the Loan Agreement, which modified certain financial covenants, including an additional good faith deposit of $20,000and adding a tranche B to the Loan Agreement in an aggregate amount of $15.0 million, consisting of two advances of $8.0 millionand $7.0 millioneach. In connection with such amendment, the maturity date was modified to be the date equal to 48 months from the first payment date of each specific cash advance. In connection with such amendment, we cancelled the initial warrants and issued a warrant to purchase 995,099 shares of our common stock. On October 21, 2021, we entered into a second amendment to the Loan Agreement, which modified the date requiring us to deliver evidence of completion of the PIPE transaction and execution of a definitive merger agreement with a special purpose acquisition company to October 31, 2021. Pursuant to the second amendment, the maturity date was modified to be the date equal to 48 months from the first payment date of each specific cash advance. Subject to an interest only period of 18 months following each specific cash advance date, the term loan incurs interest at the greater of a variable interest rate based on prime rate or 11% per annum, payable monthly. Interest-only payments are due monthly immediately following an advance for a period of 18 months and, beginning on the 19th month, principal and interest payments are due monthly. In January 2022, we entered into the third amendment to the Loan Agreement to increase the debt commitment by $5.0 millionto $32.0 million. The amendment allows us to draw an additional $5.0 millionimmediately with an additional $8.0 millionto be drawn at the sole discretion of the lender. We drew the additional $5.0 millionupon signing the amendment. Other modifications per the amendment included an extension of the requirement to raise an additional $75 millionof equity and a defined exit fee for the additional $5.0 millionto be at 20% of the advanced funds under the 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 June 30, 2022, the total principal amount outstanding under the Loan Agreement was approximately $32.0 million. We use borrowings under the Loan Agreement for working capital purposes. 39
The loan agreement is secured by a first ranking charge on substantially all of our assets. As of the date of this report, we are in compliance with all the covenants of the loan agreement.
Our cash commitments as of
June 30, 2022were primarily as follows (in thousands): Total Short-Term Long-Term (in thousands) Financing obligations $ 29,427 $ 4,226 $ 25,201Operating lease obligations 10,163 1,502 8,661 Total $ 39,590 $ 5,728 $ 33,862Financing obligations consist of principal and interest expense related to the Loan and Security Agreement. Operating lease obligations consist of obligations under non-cancelable operating leases for our offices and facilities. 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.
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