IonQ, Inc. 10-Q

Item 1. Financial Statements. IONQ, INC. (FORMERLY KNOWN AS DMY TECHNOLOGY GROUP, INC. III) Condensed Consolidated Balance Sheets (in thousands, except share and per share data) (unaudited ) September 30, December 31, 2021 2020 Assets: Current assets: Cash and cash equivalents $ 587,294 $ 36,120 Accounts receivable ($ 4,000 and $ 0 attributable to related parties) 4,082 390 Prepaid expenses and other current assets ($ 520 and $ 1,013 attributable to related parties) 6,478 2,069 Total current assets 597,854 38,579 Property and equipment, net 16,729 11,988 Operating lease right-of-use assets ($ 4,098 and $ 4,296 attributable to related parties) 4,098 4,296 Intangible assets, net 5,521 2,687 Other noncurrent assets ($ 1,975 and $ 2,365 attributable to related parties) 2,357 2,928 Total Assets $ 626,559 $ 60,478 Liabilities, Convertible Redeemable Preferred Stock and Warrants, and Stockholders’ Equity Current liabilities: Accounts payable ($ 15 and $ 5 attributable to related parties) $ 1,967 $ 538 Accrued expenses 3,483 608 Current portion of operating lease liabilities ($ 564 and $ 495 attributable to related parties) 564 495 Unearned revenue ($ 3,836 and $ 0 attributable to related parties) 3,909 240 Current portion of stock option early exercise liabilities 1,153 — Total current liabilities 11,076 1,881 Operating lease liabilities, net of current portion ($ 3,681 and $ 3,776 attributable to related parties) 3,681 3,776 Unearned revenue, net of current portion 1,533 1,118 Stock option early exercise liabilities, net of current portion 2,252 — Warrant liabilities 50,350 — Total liabilities $ 68,892 $ 6,775 Commitments and Contingencies Convertible Redeemable Preferred Stock and Warrants: Series A convertible redeemable preferred stock , $ 0.0001 par value per share; 2,000,000 shares authorized; after giving effect to the recapitalization there is no convertible redeemable preferred stock issued or outstanding at September 30, 2021 and December 31, 2020 — — Series B convertible redeemable preferred stock , $ 0.0001 par value per share; 9,753,798 shares authorized; after giving effect to the recapitalization there is no convertible redeemable preferred stock issued or outstanding at September 30, 2021 and December 31, 2020 — — Series B-1 convertible redeemable preferred stock , $ 0.0001 par value per share; 13,217,404 shares authorized; after giving effect to the recapitalization there is no convertible redeemable preferred stock issued or outstanding at September 30, 2021 and December 31, 2020 — — Warrants for Series B-1 convertible redeemable preferred stock; after giving effect to the recapitalization there are no warrants for convertible redeemable preferred stock issued or outstanding at September 30, 2021 and December 31, 2020 — — Stockholders’ Equity: Common stock $ 0.0001 par value per share ; 1,000,000,000 shares authorized; 190,197,253 and 118,146,795 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 10 3 Additional paid-in capital 629,364 93,305 Accumulated deficit ( 71,707 ) ( 39,605 ) Total stockholders’ equity 557,667 53,703 Total Liabilities, Convertible Redeemable Preferred Stock, Warrants and Stockholders’ Equity $ 626,559 $ 60,478 See accompanying notes to the condensed consolidated financial statements. 3 Table of Contents IONQ, INC. (FORMERLY KNOWN AS DMY TECHNOLOGY GROUP, INC. III) Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) (in thousands, except share and per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue $ 233 $ — $ 451 $ — Costs and expenses: Cost of revenue (excluding depreciation and amortization) 234 57 742 57 Research and development 6,180 2,339 15,311 7,643 Sales and marketing 1,286 81 2,384 263 General and administrative 2,461 727 8,321 1,840 Depreciation and amortization 596 372 1,543 995 Total operating costs and expenses 10,757 3,576 28,301 10,798 Loss from operations ( 10,524 ) ( 3,576 ) ( 27,850 ) ( 10,798 ) Offering costs associated with warrants ( 4,259 ) — ( 4,259 ) — Other income 2 11 7 305 Loss before benefit for income taxes ( 14,781 ) ( 3,565 ) ( 32,102 ) ( 10,493 ) Benefit for income taxes — — — — Net loss and comprehensive loss $ ( 14,781 ) $ ( 3,565 ) $ ( 32,102 ) $ ( 10,493 ) Net loss per share attributable to common stockholders - basic and diluted $ ( 0.12 ) $ ( 0.03 ) $ ( 0.27 ) $ ( 0.09 ) Weighted average shares used in computing net loss per share attributable to common stockholders – basic and diluted 120,605,457 115,369,517 119,535,167 114,597,135 See accompanying notes to the condensed consolidated financial statements. 4 Table of Contents IONQ, INC. (FORMERLY KNOWN AS DMY TECHNOLOGY GROUP, INC. III) Condensed Consolidated Statements of Changes in Convertible Redeemable Preferred Stock, Warrants and Stockholders’ Equity (unaudited) (in thousands, except share and per share data) Convertible Redeemable Preferred Stock Stockholder s ’ Equity Series A Series B Series B-1 Warrants Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholder s’ Equity Shares Amount Shares Amount Shares Amount Amount Shares Amount Balance, June 30, 2020 2,000,000 $ 1,925 9,753,798 $ 21,111 11,166,941 $ 61,867 $ — 5,527,749 1 3,821 ( 31,109 ) ( 27,287 ) Retroactive application of recapitalization ( 2,000,000 ) ( 1,925 ) ( 9,753,798 ) ( 21,111 ) ( 11,166,941 ) ( 61,867 ) — 109,644,604 2 84,901 — 84,903 Adjusted balance, beginning of period — — — — — — — 115,172,353 3 88,722 ( 31,109 ) 57,616 Net loss — — — — — — — — — — ( 3,565 ) ( 3,565 ) Vesting of warrant issued to a customer — — — — — — — — — 566 — 566 Stock options exercised — — — — — — — 16,513 — 3 — 3 Vesting of restricted common stock — — — — — — — 253,028 — 24 — 24 Stock- based compensation — — — — — — — — — 227 — 227 Balance, September 30, 2020 — $ — — $ — — $ — $ — 115,441,894 3 89,542 ( 34,674 ) 54,871 Convertible Redeemable Preferred Stock Stockholder s’ Equity Series A Series B Series B-1 Warrants Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholder s’ Equity Shares Amount Shares Amount Shares Amount Amount Shares Amount Balance, June 30, 2021 2,000,000 $ 1,925 9,753,798 $ 21,111 11,166,941 $ 61,867 $ 566 6,635,988 $ 1 $ 14,865 $ ( 56,926 ) $ ( 42,060 ) Retroactive application of recapitalization ( 2,000,000 ) ( 1,925 ) ( 9,753,798 ) ( 21,111 ) ( 11,166,941 ) ( 61,867 ) ( 566 ) 113,023,018 2 85,467 85,469 Adjusted balance, beginning of period — — — — — — — 119,659,006 3 100,332 ( 56,926 ) 43,409 Net loss — — — — — — — — — — ( 14,781 ) ( 14,781 ) Stock options exercised — — — — — — — 69,458 — 33 — 33 Vesting of restricted common stock — — — — — — — 166,112 — 380 — 380 Merger and PIPE transaction, net of transaction costs — — — — — — — 70,302,677 7 526,498 — 526,505 Stock-based compensation — — — — — — — — — 2,121 — 2,121 Balance, September 30, 2021 — $ — — $ — — $ — $ — 190,197,253 $ 10 $ 629,364 $ ( 71,707 ) $ 557,667 See accompanying notes to the condensed consolidated financial statements. 5 Table of Contents IONQ, INC. (FORMERLY KNOWN AS DMY TECHNOLOGY GROUP, INC. III) Condensed Consolidated Statements of Changes in Convertible Redeemable Preferred Stock, Warrants and Stockholders’ Equity (unaudited) (in thousands, except share and per share data) Convertible Redeemable Preferred Stock Stockholder s ’ Equity Series A Series B Series B-1 Warrants Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholder s’ Equity Shares Amount Shares Amount Shares Amount Amount Shares Amount Balance, December 31, 2019 2,000,000 $ 1,925 9,753,798 $ 21,111 11,166,941 $ 61,867 $ — 5,098,562 1 3,263 ( 24,181 ) ( 20,917 ) Retroactive application of recapitalization ( 2,000,000 ) ( 1,925 ) ( 9,753,798 ) ( 21,111 ) ( 11,166,941 ) ( 61,867 ) — 108,336,247 2 84,901 — 84,903 Adjusted balance, beginning of period — — — — — — — 113,434,809 3 88,164 ( 24,181 ) 63,986 Net loss — — — — — — — — — — ( 10,493 ) ( 10,493 ) Vesting of warrant issued to a customer — — — — — — — — — 566 — 566 Stock options exercised — — — — — — — 235,887 — 30 — 30 Vesting of restricted common stock — — — — — — — 1,771,198 — 170 — 170 Stock-based compensation — — — — — — — — — 612 — 612 Balance, September 30, 2020 — $ — — $ — — $ — $ — 115,441,894 3 89,542 ( 34,674 ) 54,871 Convertible Redeemable Preferred Stock Stockholder s’ Equity Series A Series B Series B-1 Warrants Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholder s’ Equity Shares Amount Shares Amount Shares Amount Amount Shares Amount Balance, December 3 1 , 2020 2,000,000 $ 1,925 9,753,798 $ 21,111 11,166,941 $ 61,867 $ 566 6,262,460 $ 1 $ 7,838 $ ( 39,605 ) $ ( 31,766 ) Retroactive application of recapitalization ( 2,000,000 ) ( 1,925 ) ( 9,753,798 ) ( 21,111 ) ( 11,166,941 ) ( 61,867 ) ( 566 ) 111,884,335 2 85,467 85,469 Adjusted balance, beginning of period — — — — — — — 118,146,795 3 93,305 ( 39,605 ) 53,703 Net loss — — — — — — — — — — ( 32,102 ) ( 32,102 ) Equity instruments issued in consideration for intellectual property and research and development arrangements — — — — — — — 385,797 — 2,381 — 2,381 Stock options exercised — — — — — — — 974,013 — 256 — 256 Vesting of restricted common stock — — — — — — — 387,971 — 796 — 796 Merger and PIPE transaction, net of transaction costs — — — — — — — 70,302,677 7 526,498 — 526,505 Stock-based compensation — — — — — — — — — 6,128 — 6,128 Balance, September 30, 2021 — $ — — $ — — $ — $ — 190,197,253 $ 10 $ 629,364 $ ( 71,707 ) $ 557,667 See accompanying notes to the condensed consolidated financial statements. 6 Table of Contents IONQ, INC. (FORMERLY KNOWN AS DMY TECHNOLOGY GROUP, INC. III) Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities: Net loss $ ( 32,102 ) $ ( 10,493 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,543 995 Non-cash research and development arrangements 1,205 — Amortization of customer warrant 219 18 Offering costs associated with warrants 4,259 — Stock-based compensation 5,929 681 Non-cash operating lease expense 184 46 Changes in operating assets and liabilities: Accounts receivable ( 3,691 ) ( 293 ) Prepaid expenses and other current assets ( 3,950 ) ( 428 ) Other noncurrent assets ( 39 ) 3 Accounts payable ( 1,191 ) 178 Accrued expenses 1,714 214 Operating lease liabilities ( 15 ) 14 Unearned revenue 4,084 743 Net cash used in operating activities ( 21,851 ) ( 8,322 ) Cash flows from investing activities: Purchases of property and equipment ( 5,300 ) ( 8,031 ) Capitalized software development costs ( 1,205 ) ( 775 ) Intangible asset acquisition costs ( 414 ) ( 286 ) Proceeds from disposal of assets 5 1 Net cash used in investing activities ( 6,914 ) ( 9,091 ) Cash flows from financing activities: Proceeds from stock options exercised 5,424 29 Repurchase of early exercised stock options ( 968 ) — Proceeds from merger and PIPE transaction, net of transaction costs 575,483 — Net cash provided by financing activities 579,939 29 Net change in cash and cash equivalents 551,174 ( 17,384 ) Cash and cash equivalents at the beginning of the period 36,120 59,527 Cash and cash equivalents at the end of the period $ 587,294 $ 42,143 Supplemental disclosures of non-cash investing and financing transactions: Issuance of common stock for intellectual property $ 1,567 $ — Issuance of common stock for research and development arrangement $ 814 $ — Property and equipment purchases in accounts payable and accrued expenses $ 309 $ 320 Intangible asset purchases in accounts payable and accrued expenses $ 129 $ 75 Transaction costs in accounts payable and accrued expenses $ 2,620 — Vesting of warrants $ — $ 566 See accompanying notes to the condensed consolidated financial statements. 7 Table of Contents IONQ, INC. (FORMERLY KNOWN AS DMY TECHNOLOGY GROUP, INC. III) Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Description of Business IonQ, Inc. (“IonQ” or “the Company”), formerly known as dMY Technology Group, Inc. III (“dMY”), was incorporated in the state of Delaware in September 2020 and formed as a special purpose acquisition company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. IonQ Quantum, Inc. (formerly known as IonQ, Inc., and referred to as “Legacy IonQ” herein), was incorporated in the state of Delaware in September 2015 and is headquartered in College Park, Maryland. On March 7, 2021, Legacy IonQ entered into an Agreement and Plan of Merger (the “Merger Agreement”) with dMY and Ion Trap Acquisition Inc. (“Merger Sub”), a direct, wholly owned subsidiary of dMY. Pursuant to the Merger Agreement, on September 30, 2021 (“the Closing Date”), the Merger Sub was merged with and into Legacy IonQ with Legacy IonQ continuing as the surviving corporation following the Merger, becoming a wholly owned subsidiary of dMY and the separate corporate existence of the Merger Sub ceased (the “Business Combination”). Commensurate with the Business Combination, dMY changed its name to IonQ, Inc. and Legacy IonQ changed its name to IonQ Quantum, Inc. After the Business Combination, IonQ’s common stock and public warrants are traded on the New York Stock Exchange (“NYSE”) under the symbols “IONQ” and “IONQ WS,” respectively. Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to the “Company” and “IonQ” refer to the consolidated operations of IonQ, Inc. and IonQ Quantum, Inc.. References to “dMY” refer to the company prior to the consummation of the Business Combination and references to “Legacy IonQ” refer to IonQ, Inc. prior to the consummation of the Business Combination. IonQ is engaged in quantum computing and develops general-purpose quantum computing systems designed to solve the world’s most complex problems, and transform business, society, and the planet for the better. Prior to 2019, the Company built certain quantum computing systems solely for research & development purposes. To operate the quantum computing systems, the Company has developed custom hardware, custom firmware, and an operating system to orchestrate the quantum computers. During 2019, the Company began to commercialize its quantum computing systems and entered into its first significant customer agreements. Currently, the Company permits customers to use the quantum computing systems through a quantum-computing-as-a-service (“QCaaS”) platform. Business Combination While the legal acquirer in the Merger Agreement is dMY, for financial accounting and reporting purposes under accounting principles generally accepted in the United States of America (“U.S. GAAP”), Legacy IonQ is the accounting acquirer and the merger is accounted for as a “reverse recapitalization” (i.e., a capital transaction involving the issuance of stock by dMY for the stock of Legacy IonQ). For accounting purposes, the Business Combination was treated as the equivalent of Legacy IonQ issuing stock for the net assets of dMY, accompanied by a recapitalization. The net assets of dMY are stated at historical cost, and no goodwill or other intangible assets were recorded. Because Legacy IonQ was deemed the accounting acquirer in the Business Combination, the historical financial statements of Legacy IonQ are the historical financial statements of the Company upon the consummation of the Business Combination. As a result, the financial statements included in this report reflect (i) the historical operating results of Legacy IonQ prior to the Business Combination; (ii) the combined results of dMY and Legacy IonQ following the close of the Business Combination on September 30, 2021; and (iii) the assets and liabilities of Legacy IonQ stated at their historical cost. In accordance with guidance applicable to these circumstances, the equity structure has been retroactively restated in all comparative periods up to the Closing Date to reflect the number of shares of the Company’s common stock, $ 0.0001 par value per share, issued to Legacy IonQ’s stockholders in connection with the Business Combination. As such, the shares and corresponding capital amounts and earnings per share related to Legacy IonQ convertible redeemable preferred stock and warrants and Legacy IonQ common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination. Legacy IonQ’s convertible redeemable preferred stock and warrants previously classified as mezzanine equity were retroactively adjusted, converted into common stock , and reclassified to permanent equity because of the reverse recapitalization. 8 Table of Contents At the Closing Date, the consummation of the Merger provided approximately $ 636.0 million of gross proceeds, including $ 345.0 million from the PIPE investment in common stock at $ 10.00 per share. In connection with the Business Combination , Legacy IonQ and dMY incurred direct and incremental costs of approximately $ 52 million related to the equity issuance, consisting primarily of banking, legal, accounting, and other professional fees, which were recorded to additional paid- i n capital as a reduction of proceeds. Additionally, approximately $ 4.3 million in offering costs were allocated to liability-classified warrants assumed in the Merger and expensed upon the close of the Business Combination. Sponsor Support Agreement Concurrently with the execution of the Merger Agreement, certain former dMY sto ckholders entered into a sponsor support agreement. Under the sponsor support agreement, and effective upon the consummation of the Business Combination, 10 % of the dMY Class B common stock (or 750,000 shares), which were converted into shares of common stock at the consummation of the Business Combination, were unvested and subject to certain vesting and forfeiture provisions (the “Vesting Shares”). These provisions provide that (i) one-third of the Vesting Shares shall vest at such time as (x) the closing price of common stock equals or exceeds $12.50 for any 20 trading days during any period of 30 consecutive trading days or (y) IonQ consummates a subsequent transaction (as defined) on or before the date that is five years after the consummation of the Business Combination, (ii) one-third of the Vesting Shares shall vest at such time as (x) the closing price of common stock equals or exceeds $15.00 for any 20 trading days during any period of 30 consecutive trading days or (y) IonQ consummates a subsequent transaction (as defined), on or before the date that is five years after the consummation of the Business Combination and (iii) one-third of the Vesting Shares shall vest at such time as (x) the closing price of common stock equals or exceeds $17.50 for any 20 trading days during any period of 30 consecutive trading days or (y) IonQ consummates a subsequent transaction (as defined), on or before the date that is five years after the consummation of the Business Combination. Vesting Shares that remain unvested on the first business day after five years from the closing of the Business Combination will be surrendered to IonQ without any consideration for such transfer. The Vesting Shares are accounted for as equity classified instruments and were included as merger consideration as part of the reverse recapitalization, and recorded in additional paid-in capital. Segment Reporting The Company operates as one operating segment as its chief executive officer, who is the chief operating decision maker, reviews financial information on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP as determined by the Financial Accounting Standards Board (“FASB”). Unaudited Interim Financial Information The interim condensed consolidated financial statements included in this quarterly report have been prepared by the Company and are unaudited, pursuant to the rules and regulations of the US Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures contained in this quarterly report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for a quarterly report and are adequate to make the information presented not misleading. The interim condensed consolidated financial statements included herein reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2020 included in our final proxy statement /prospectus filed with the SEC on August 12 , 2021. The Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2021 or thereafter. All references to September 30, 2021 and 2020 in the notes to the condensed consolidated financial statements are unaudited. 9 Table of Contents Emerging Growth Company The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the Company’s financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company remains an emerging growth company until the earliest of (i) December 31 , 2025 , (ii) the last day of the fiscal year in which the Company has total annual gross revenue of at least $ 1.07 billion, (iii) the last day of the fiscal year in which the Company is deemed to be a large accelerated filer, which means the market value of the Company’s common stock that is held by non-affiliates exceeds $ 700.0 million as of the prior June 30th or (iv) the date on which the Company has issued more than $ 1.0 billion in non-convertible debt securities during the prior three-year period. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Significant estimates and judgments are inherent in the analysis and measurement of items including, but not limited to revenue recognition, capitalization of internally developed software and quantum computing costs, useful lives of long-lived assets, commitments and contingencies, forecasts and assumptions used in determining the fair value of historically granted common stock and warrants prior to the Business Combination and forecasts and assumptions used in determining the fair value of warrant liabilities. Management bases its estimates and assumptions on historical experience, expectations, forecasts, and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ and be affected by changes in those estimates. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are non-interest bearing and stated at the gross invoiced amount. A receivable is recorded when the Company has an unconditional right to receive payment based on the satisfaction of performance obligations. Accounts Receivable are composed of the following (in thousands): September 30, 2021 December 31, 2020 Billed accounts receivable $ 4,080 $ 390 Unbilled accounts receivable 2 0 Total accounts receivable $ 4,082 $ 390 On a periodic basis, management evaluates its accounts receivable and determines whether to provide an allowance or if any accounts should be written off. This assessment is based on management’s evaluation of past due receivables, collectability of specific accounts, historical loss experience and overall economic conditions. The Company did no t have any allowance for doubtful accounts as of September 30, 2021 and December 31, 2020. 10 Table of Contents Revenue Recognition The Company derives revenue from providing access to its QCaaS and professional services related to co-developing algorithms on the Quantum Computing Systems. In arrangements with the cloud service providers, the cloud service provider is considered the customer and IonQ does not have any contractual relationships with the cloud service providers’ end users. For these arrangements, revenue is recognized at the amount charged to the cloud service provider. For contracts with a fixed transaction price to provide stand-ready QCaaS access, the fixed fee is recognized as QCaaS subscription-based revenues on a straight-line basis over the access period. Any variable fees for usage over the contractual minimums are estimated at contract inception and recognized ratably over the access period unless such variable usage fees are probable of reversal in future periods. In those instances, variable usage fees are included in the determination of the transaction consideration once known. For contracts without fixed fees, variable usage fees are billed and recognized during the period of such usage. As of September 30, 2021, approximately $ 15.9 million of revenue is expected to be recognized from remaining performance obligations that are unsatisfied (or partially unsatisfied) for non-cancelable contracts. The Company expects to recognize revenue of $ 1.1 million related to those remaining performance obligations during the remainder of 2021. The Company expects to recognize revenue of $ 4.5 million related to these remaining performance obligations in the year ending December 31, 2022 with the remainder recognized thereafter. The Company has not estimated the timing of revenue recognition for the remaining unsatisfied performance obligations related to usage-based contracts as the timing of customer usage cannot be predicted given the limited historical data. Early Exercise of Stock Options Stock options granted under the 2015 Equity Incentive Plan provide employee option holders, if approved by the Board, the right to exercise unvested options in exchange for restricted common stock, which is subject to a repurchase right held by the Company at the lower of (i) the fair market value of its common stock on the date of repurchase or (ii) the original purchase price. Early exercises of options are not deemed to be substantive exercises for accounting purposes and accordingly, amounts received for early exercises are recorded as a liability. In September 2021, we exercised our right to repurchase 100,000 shares related to the early exercise of stock options. The unvested shares were repurchased from an employee in connection with the termination of their service in exchange for $ 1.0 million. As of September 30, 2021, and December 31, 2020, there were 1,541,764 shares and no shares, respectively, subject to repurchase related to stock options early exercised and unvested. These amounts are reclassified to common stock and additional paid-in capital as the underlying shares vest. As of September 30, 2021, the Company recorded a liability related to these shares subject to repurchase in the amount of $ 3.4 million in its condensed consolidated balance sheet. The Company did not have any early exercises of stock options prior to 2021, and as a result , there was no such balance as of December 31, 2020. Property and Equipment, Net Property and equipment, net is stated at cost less accumulated depreciation. Historical cost of fixed assets is the cost as of the date acquired. Prior to 2019, we built certain quantum computing systems solely for research and development purposes and these quantum computing systems were deemed to have no alternative future use. In 2019, we began to commercialize our quantum computing systems via the offering of QCaaS and quantum computing systems built thereafter were determined to provide a probable future economic benefit. As a result, hardware and labor costs associated with the building of such quantum computing systems were capitalized. Costs to maintain quantum computing systems are expensed as incurred. Depreciation and amortization are calculated using the straight-line method over the estimated useful life of two years for the quantum computing systems. Intangible Assets, Net The Company’s intangible assets include website domain costs, patents, intellectual property, and trademarks. Intangible assets with identifiable useful lives such as patents and intellectual property are initially valued at acquisition cost and are amortized over their estimated useful lives, which is generally 20 years, using the straight-line method. With respect to patents, acquisition costs include external legal and patent application costs. Intangible assets with indefinite useful lives are assessed for impairment at least annually. During the three months ended September 30, 2021 and 2020, the Company capitalized $ 0.2 million and $ 0.1 million, respectively, of intangible assets primarily related to intellectual property, and during the nine months ended September 30, 2021 and 2020, the Company capitalized $ 2.1 million and $ 0.3 million, respectively. 11 Table of Contents Capitalized Internally Developed Software Capitalized internally developed software, which is included in intangible assets, net, consists of costs to purchase and develop internal-use software, which the Company uses to provide services to its customers. The costs to purchase and develop internal-use software are capitalized from the time that the preliminary project stage is completed, and it is considered probable that the software will be used to perform the function intended, until the time the software is placed in service for its intended use. Any costs incurred during subsequent efforts to upgrade and enhance the functionality of the software are also capitalized. Once this software is ready for use as part of the Company’s service offerings, these costs are amortized on a straight-line basis over the estimated useful life of the software, which is typically assessed to be 3 years. During the three months ended September 30, 2021 and 2020, the Company capitalized $ 0.5 million and $ 0.3 million , respectively , in internal-use software costs, and during the nine months ended September 30, 2021 and 2020, the Company capitalized $ 1.3 million and $ 0.8 million, respectively , in internal-use software costs. The Company amortized $ 0.2 million and $ 0.1 million of capitalized internally developed software costs during the three months ended September 30, 2021 and 2020, respectively , and $ 0.5 million and $ 0.2 million of capitalized internally developed software costs during the nine months ended September 30, 2021 and 2020, respectively. Fair Value of Financial Instruments Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: • Level 1 — Observable inputs, which include unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2 — Observable inputs other than Level 1 inputs, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are based on management’s assumptions, including fair value measurements determined by using pricing models, discounted cash flow methodologies or similar techniques. Due to their short-term nature, the carrying amounts reported in the Company’s financial statements approximates the fair value for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and other current liabilities. Cash and cash equivalents include cash in banks, checking deposits and money market funds. The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. Warrant Liabilities The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging.” For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statement of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. The warrants of dMY assumed in the Business Combination are classified as liabilities and remeasured at each reporting period (as more fully described in Note 10 ). The determination of the fair value of the warrant liabilities may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. Cash balances are primarily invested in money market funds or on deposit at high credit quality financial institutions in the United States . These deposits are typically in excess of insured limits. 12 Table of Contents The Company’s accounts receivable are derived from revenue earned from customers primarily located in the United States . The Company performs periodic evaluations of its customers’ financial condition and generally does not require its customers to provide collateral or other security to support accounts receivable and maintains an allowance for doubtful accounts. Credit losses historically have not been material. Significant customers are those which represent more than 10 % of the Company’s total revenue. The Company’s revenue was from 2 significant customers for the three months ended September 30, 2021 and from 3 significant customers for the nine months ended September 30, 2021. The Company did not have any revenue for the three and nine month periods ended September 30, 2020. Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income ( loss ) by the weighted average number of shares of common stock during the period, plus common stock equivalents, outstanding during the period. If the Company reports a net loss, the computation of diluted loss per share excludes the effect of dilutive common stock equivalents, as their effect would be antidilutive. Earnings (loss) per share calculations for all periods prior to the Business Combination have been retroactively restated to reflect the conversion of the Company’s convertible redeemable preferred stock and the equivalent number of shares reflecting the exchange ratio established in the reverse capitalization. The following table sets forth the computation of basic and diluted loss per share attributable to common stockholders (in thousands, except share and per share data): Three Months Ended September 30, Nine Months Ended September 30, Numerator: 2021 2020 2021 2020 Net loss available to common stockholders $ ( 14,781 ) $ ( 3,565 ) $ ( 32,102 ) $ ( 10,493 ) Denominator: Weighted average shares used in computing net loss per share attributable to common stockholders – basic and diluted 120,605,457 115,369,517 119,535,167 114,597,135 Net loss per share attributable to common stockholders – basic and diluted $ ( 0.12 ) $ ( 0.03 ) $ ( 0.27 ) $ ( 0.09 ) In periods with a reported ne t loss, the effects of anti-dilutive stock options, unvested common stock (including unvested restricted common stock) and warrants are excluded and diluted loss per share is equal to basic loss per share. The following is a summary of the weighted average common stock equivalents for the securities outstanding during the respective periods that have been excluded from the computation of diluted net loss per common share, as their effect would be anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Common stock options outstanding 24,844,683 16,775,118 24,765,944 16,149,250 Warrants to purchase common stock 8,301,202 8,301,202 8,301,202 8,301,202 Public and private warrants 125,000 — 42,125 — Unvested founders’ shares 8,152 — 2,747 — Unvested common stock 1,627,627 68,018 1,329,755 996,441 Total 34,906,664 25,144,338 34,441,773 25,446,893 13 Table of Contents Recently Issued Accounting Standards Not Yet Adopted In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses , along with various updates and improvements. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2022, with early adoption permitted. Based on the composition of the Company’s trade receivables and other financial assets, current market conditions and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Company’s financial statements and related disclosures. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract . ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to defer and recognize as an asset. The guidance is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period. The Company is currently evaluating the potential impact of this standard on its financial statements and related disclosures. In August 2020, the FASB issued ASU 2020-06, Debt, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the financial statements. 3. PROPERTY AND EQUIPMENT, NET Property and equipment, net is composed of the following (in thousands): September 30, 2021 December 31, 2020 Computer equipment and acquired computer software $ 662 $ 364 Machinery, equipment, furniture, and fixtures 3,963 2,974 Leasehold improvements 818 736 Quantum computing systems 13,998 9,617 Gross p roperty and e quipment 19,441 13,691 Less: accumulated depreciation ( 2,712 ) ( 1,703 ) Property and e quipment , net $ 16,729 $ 11,988 Depreciation expense for the three months ended September 30, 2021 and 2020 was $ 0.4 million and $ 0.3 million, respective. Depreciation expense for the nine months ended September 30, 2021 and 2020 was $ 1.0 million and $ 0.8 million, respectively. 4. FAIR VALUE MEASUREMENT The Company follows the guidance in ASC Topic 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows (in thousands): Fair Value Measured as of September 30, 2021: Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 587,294 $ — $ — $ 587,294 Liabilities : Public w arrants 25,938 — — 25,938 Private p lacement w arrants — — 24,412 24,412 Total liabilities $ 25,938 $ — $ 24,412 $ 50,350 14 Table of Contents Fair Value Measured as of December 31, 2020: Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 36,120 $ — $ — $ 36,120 The Company’s warrant liabilities include both the p ublic w arrants and p rivate p lacement w arrants (see Note 10). Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period. As the warrants were assumed on September 30, 2021, there were no transfers between levels during the period. As of September 30, 2021, the p ublic w arrants were publicly traded at $ 3.46 per warrant. The estimated fair value of the p rivate p lacement w arrants is determined using Level 3 inputs. As of September 30, 2021, management determined the fair value of the p rivate p lacement w arrants using observable inputs in the Black-Scholes valuation model. Inherent in the valuation are assumptions related to expected stock-price volatility, expected term , risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s common stock that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. The following table provides quantitative information regarding Level 3 fair value measurement inputs for the p rivate p lacement w arrants as of September 30, 2021. September 30, 2021 Exercise Price $ 11.50 Stock Price $ 10.40 Volatility 74.8 % Term 5.00 Risk-free rate 0.98 % Dividend yield — % The Company did not have any Level 3 assets or liabilities as of December 31, 2020. 5. AGREEMENTS WITH UMD AND DUKE Exclusive License Agreement The Company entered into an exclusive license agreement (“License Agreement”) in July 2016 with the University of Maryland (“UMD”) and Duke University (“Duke”). The License Agreement grants to the Company an exclusive, perpetual license (“Initial Patents”) to certain patents, know-how and other intellectual property utilized in trapped-ion quantum computing systems. The license granted to the Company is exclusive for all patents (and non-exclusive for other types of intellectual property), subject to certain governmental rights and retained rights by UMD and Duke and other non-profit institutions to use and practice the Licensed Patents (as defined below) and technology for internal research and other non-profit purposes. On February 1, 2021, the Company and UMD executed two amendments to the License Agreement granting exclusive rights to license additional intellectual property in exchange for a total of 257,198 common shares after giving effect to the recapitalization. The shares had not been issued at the time the amendments were executed. Management evaluated the amendments and concluded that the arrangements qualify as equity-classified instruments and recorded an intangible asset and additional paid in capital based on the fair value of the shares at the date the amendments were executed of $ 1.6 million. The shares for each executed amendment were issued during the nine months ended September 30, 2021. Exclusive Option Agreements The Company also entered into an exclusive option agreement (“Option Agreement”) with each of UMD and Duke in 2016 whereby on the anniversary of the effective date of the License Agreement for a period of 5 years, the Company has the right to exclusively license additional intellectual property developed by UMD and Duke (the “Additional Patents” and together with the Initial Patents, the “Licensed Patents”) by exercising an annual option and issuing common shares each to Duke and UMD in consideration for the Additional Patents. The amount to be issued to UMD and Duke pursuant to the option over the 5 -year term is equal to an aggregate of 642,995 common shares to each university after giving effect to the recapitalization. The Company may elect not to exercise the option if there was not a minimum number of intellectual property developed in a given year and then the Option Agreement would extend another year . As of December 31, 2020, the Company and Duke amended the Duke Option Agreement providing the remaining shares of common stock in consideration for research and development services through July 15, 2026. 15 Table of Contents The Company recognized $ 0.1 million and $ 0.4 million of research and development expense related to the agreement with Duke during the three and nine months ended September 30, 2021, respectively. The agreements were not executed as of September 30, 2020 and therefore no research and development expense was recognized for the three and nine months ended September 30, 2020. On February 4, 2021, the Company and UMD amended the UMD Option Agreement to provide for the issuance of the remaining 128,599 shares of common stock after giving effect to the recapitalization to UMD as a nonrefundable upfront payment in exchange for research and development services by UMD and rights to any potential future intellectual property developed through July 2021. The fair value of the shares to be issued to UMD at the date the amendment was executed was $ 0.8 million. The shares were issued to UMD during the nine months ended September 30, 2021. The Company recognized $ 0.1 million and $ 0.8 million of research and development expense associated with the UMD Option Agreement amendment for the three and nine months ended September 30, 2021, respectively. The UMD Option Agreement was not executed as of September 30, 2020 and therefore no research and development expense was recognized for the three and nine months ended September 30, 2020. Additionally, under the terms of the License Agreement and Option Agreement, UMD was provided an exit guarantee if a sale or liquidation of the Company would occur that provides for the following: • acceleration of the issuance of common stock as if exercised through the License Agreement, • additional consideration equal to the consideration which a holder of one-half of one percent ( 0.5 %) of the common stock of the Company, on a fully diluted basis, would have received in the sale to the extent it exceeds the amount UMD shall be entitled to as a result of ownership at the time of sale. The exit guarantee was not modified as a result of the amendment to the Option Agreement. The Business Combination did not trigger this provision as the UMD Option Agreement terminated in July 2021. 6. COMMITMENTS AND CONTINGENCIES Warranties and Indemnification The Company’s commercial services are typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and materially in accordance with the Company’s documentation under normal use and circumstances. The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe third-party intellectual property rights. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements. Litigation On January 12, 2021, dMY Technology Group, Inc. II, dMY Sponsor II, LLC, dMY, and dMY Sponsor III, LLC (“Sponsor”) accepted service of a lawsuit where they were named as counterclaim defendants in an underlying action by and between GTY Technology Holdings, Inc. (“GTY”), dMY Technology Holdings Inc., dMY Sponsor, LLC, dMY Sponsor II, LLC, dMY Technology Group Inc. II, dMY and Sponsor (collectively “dMY Defendants”) and Carter Glatt (“Glatt”) and Captains Neck Holdings LLC (“Captains Neck”), an entity of which Mr. Glatt is a member. The underlying lawsuit, filed by dMY Technology Group, Inc. and dMY Sponsor, LLC, seeks a declaratory judgment that Glatt and Captains Neck are not entitled to membership units of dMY Sponsor LLC, which was formed by Harry L. You, the co-founder and former President and Chief Financial Officer of GTY when Glatt was still working at GTY. The underlying lawsuit contains claims arising from Glatt’s termination of employment from GTY, including theft and misappropriation of confidential GTY information, breach of contract, breach of the duties of loyalty and fiduciary duty and conversion. Glatt responded to the underlying lawsuit by adding members of the Sponsor and officers of dMY as additional counterclaim defendants (collectively with the dMY Defendants Glatt and Captains neck, the “Counterclaim Defendants”) and adding Dune Acquisition Holdings LLC, a newly formed special purpose acquisition company, as a counterclaimant and asserting claims for breach of contract, fraudulent misrepresentation, negligent misrepresentation, tortious interference with business relations, quantum meruit and unjust enrichment. dMY, and now the Company, has never employed Glatt and has no business agreements with him. The Counterclaim Defendants have denied the claims against them and have filed a motion to dismiss the suit. 7. INCOME TAX The Company had no provision for income taxes in any period presented. The effective tax rate for each period differs from the statutory rate primarily as a result of not recognizing a deferred tax asset for losses due to having a full valuation allowance against deferred tax assets. The realization of tax benefits of deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available objective evidence, the Company does not believe it is more likely than not that the net deferred tax assets will be realizable. Accordingly, the Company has provided a full valuation allowance against the net deferred tax assets as of September 30, 2021 and December 31, 2020. The Company intends to maintain the remaining valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance. 16 Table of Contents 8. WARRANT TRANSACTION AGREEMENT In November 2019, contemporaneously with a revenue arrangement, the Company entered into a contract, pursuant to which the Company agreed to issue to a customer, warrants to acquire shares of Legacy IonQ Series B-1 preferred stock (the “Warrant Shares”), subject to certain vesting events. Upon closing of the Business Combination, these warrants exercisable for Legacy IonQ Series B-1 preferred stock were assumed by the Company and converted into a warrant to purchase a number of shares of common stock equal to the product (rounded down to the nearest whole number) of (a) the number of shares of Legacy IonQ common stock issuable upon conversion of a share of Legacy IonQ Series B-1 preferred stock and (b) the Exchange Ratio (as defined in the Super 8-K filed with the SEC on October 4, 2021), at an exercise price per share (rounded up to the nearest whole cent) equal to (i) the exercise price per share of such Legacy IonQ Warrant Shares divided by (ii) the Exchange Ratio. Except as specifically provided in the merger agreement, the Warrant Shares will have the same terms and be subject to the same conditions (including applicable vesting conditions) as set forth in the Legacy IonQ warrant agreement. As of September 30, 2021, the contract allows for the customer to acquire up to 8,301,202 shares of common stock in the Company. As the Warrant Shares were issued in connection with an existing commercial agreement with a customer, the value of the Warrant Shares were determined to be consideration payable to the customer and consequently are treated as a reduction to revenue recognized under the corresponding revenue arrangement. As a result, $ 0.1 million and $ 0.02 million of warrant amortization was recognized against revenue in the three months ended September 30, 2021 and September 30, 2020, respectively, and $ 0.2 million and $ 0.02 million of warrant amortization was recognized against revenue in the nine months ended September 30, 2021 and September 30, 2020, respectively. Under the terms of the warrant agreement, 6.5 % of the Warrant Shares will vest and be immediately exercisable on the date of the public announcement of the availability of the Company’s hardware on the cloud provider’s platform. The Warrant Shares have an exercise price of $ 1.38 per share and are exercisable through November 2029. The fair value of the Warrant Shares at the date of issuance was determined to be $ 8.7 million. As of September 30, 2021, Warrant Shares with a fair value of $ 0.6 million were vested. The fair value of the unamortized warrants as of September 30, 2021 is $ 0.3 million and is recorded within other noncurrent assets and will be amortized over time as the related customer revenue is earned. 9. STOCKHOLDERS’ EQUITY Our amended and restated certificate of incorporation authorizes us to issue up to 1,000,000,000 shares of common stock, $ 0.0001 par value per share, and 20,000,000 shares of preferred stock, par value $ 0.0001 per share. No preferred stock has been issued as of September 30, 2021. Common Stock The terms, rights, preference, and privileges of the common stock are as follows: Voting Rights Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, each holder of common stock possess all voting power for the election of our directors and all other matters requiring stockholder action. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders. The Company’s certificate of incorporation and bylaws do not provide for cumulative voting rights. Dividends Subject to preferences that may be applicable to any then outstanding preferred stock, the holders of common stock may be entitled to receive dividends out of legally available funds if the board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that the board of directors may determine. We do not anticipate paying any cash dividends in the foreseeable future. 17 Table of Contents Liquidation In the event of our voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of common stock will be entitled to receive an equal amount per share of all of our assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock, if any, have been satisfied. Rights and Preference Holders of the Company’s common stock have no preemptive or other subscription rights, and there are no sinking fund or redemption provisions applicable to the common stock. The rights, preferences, and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of the Company’s preferred stock that are or may be issued. Currently no preferred stock has been issued as of September 30, 2021. Preferred Stock Under our amended and restated certificate of incorporation, our board of directors may, without further action by our stockholders, fix the rights, preferences, privileges and restrictions of up to an aggregate of 20,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. Any issuance of preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders would receive dividend payments and payments on liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deterring or preventing a change of control or other corporate action. No shares of preferred stock have been issued as of September 30, 2021. 10. WARRANT LIABILITIES As of September 30, 2021, there were 11,500,000 w arrants to purchase common stock outstanding, consisting of 7,500,000 p ublic w arrants and 4,000,000 p rivate p lacement w arrants. Each warrant entitles the registered holder to purchase one share of common stock at a price of $ 11.50 per share. Public w arrants The p ublic w arrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public Offering of dMY; provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the p ublic w arrants and a current prospectus relating to them is available (or the Company permits holders to exercise their p ublic w arrants on a cashless basis and such cashless exercise is exempt from registration under the Securities Act). Redemption of warrants when the price per share of common stock equals or exceeds $ 18.00 : Once the warrants become exercisable, the Company may redeem the outstanding warrants for cash: • in whole and not in part; • at a price of $ 0.01 per warrant ; • upon a minimum of 30 days’ prior written notice of redemption ; and • if, and only if, the closing price of common stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30 -trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. Redemption of warrants for when the price per share of common stock equals or exceeds $ 10.00 : Once the warrants become exercisable, the Company may redeem the outstanding warrants: • in whole and not in part; • at $ 0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed table based on the redemption date and the fair market value (as defined within the warrant agreement) of the common stock except as otherwise described within the warrant agreement ; and upon a minimum of 30 days’ prior written notice of redemption; and • if, and only if, the closing price of common stock equals or exceeds $10.00 per public share (as adjusted) for any 20 trading days within the 30 -trading day period ending three trading days before the Company sends notice of redemption to the warrant holders. Private p lacement w arrants The private placement warrants are identical to the public warrants, except that the private placement warrants and the shares of common stock issuable upon exercise of the private placement warrants will not be transferable, assignable, or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the private placement warrants will be non-redeemable so long as they are held by dMY Sponsor III, LLC or its permitted transferees. Otherwise, the private placement warrants have terms and provisions that are identical to those of the public warrants, including as to exercise price, exercisability and exercise period. If the private placement warrants are held by holders other than the Sponsor or its permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by the holders on the same basis as the public warrants. 1 1 . SHARE BASED COMPENSATION The Company has a 2015 Equity Incentive Plan (the “2015 Plan”) which provides for the grant of share-based compensation in the form of awards of options, stock appreciation rights, restricted stock awards and restricted stock units, to certain officers, directors, employees, consultants, and advisors to purchase shares of the Company’s common stock. Upon the Closing of the Business Combination, outstanding Legacy IonQ stock options under the 2015 Plan were assumed by the Company. Each Legacy IonQ stock option issued and outstanding immediately prior to the Business Combination was converted into an option to purchase shares of common stock of the Company equal to the product of (a) the number of shares of Legacy IonQ common stock subject to such Legacy IonQ stock option agreement immediately prior to the Business Combination and (b) the exchange ratio at an exercise price equal to the (i) the exercise price per share of such Legacy IonQ stock option divided by (ii) the exchange ratio. Such stock options will continue to be governed by the terms of the 2015 Plan and the stock option agreements thereunder, until such outstanding options are exercised or until they terminate or expire by their terms. No further awards will be made pursuant to the 2015 Plan. For awards granted under the 2015 Plan, vesting generally occurs over four to five years from the date of grant and all options granted have a contractual term of 10 years. Vested options held at the date of an employee’s termination may be exercised within three months. The Company records forfeitures as they occur. In August 2021, the Company’s board of directors adopted the 2021 Equity Incentive Plan (the “2021 Plan”) and the stockholders approved the 2021 Plan in September 2021. The 2021 Plan became effective immediately upon the closing of the Business Combination. The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, directors, and consultants. Initially, a maximum of 26,235,000 shares of common stock may be issued under the 2021. The number of shares of the Company’s common stock reserved for issuance under the 2021 Plan automatically increases on January 1 of each year, beginning on January 1, 2022 and continuing through and including January 1, 2031, by 5 % of the Fully Diluted Common Stock (as defined in the 2021 Plan) outstanding on December 31 of the preceding year, or a lesser number of shares determined by the Company’s board of directors prior to such increase. No shares or awards were granted under the 2021 Plan as of September 30, 2021. 18 Table of Contents The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option. Expected Volatility —As the Company was privately held at the date of grant and there was no public market for its common stock prior to closing of the Business Combination, the expected volatility is based on the average historical stock price volatility of comparable publicly-traded companies in its industry peer group, financial, and market capitalization data. Expected Term — The expected term of the Company’s options represents the period that the stock-based awards are expected to be outstanding. The Company has estimated the expected term of its employee awards using the SAB Topic 14 Simplified Method allowed by the FASB and SEC, for calculating expected term as it has limited historical exercise data to provide a reasonable basis upon which to otherwise estimate expected term. Certain of the Company’s options began vesting prior to the grant date, in which case the Company uses the remaining vesting term at the grant date in the expected term calculation. Risk-Free Interest Rate — The Company estimates its risk-free interest rate by using the yield on actively traded non-inflation-indexed U.S. treasury securities with contract maturities equal to the expected term. Dividend Yield — The Company has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero. Fair Value of Underlying Common Stock — Because the Company’s common stock was not yet publicly traded on the date of grant, the Company estimated the fair value of common stock prior to the closing of the Business Combination. The b oard of d irectors considered numerous objective and subjective factors to determine the fair value of the Company’s common stock at each meeting in which awards are approved. The factors considered include, but were not limited to: (i) the results of contemporaneous independent third-party valuations of the Company’s common stock; (ii) the prices, rights, preferences, and privileges of Legacy IonQ’s previously c onvertible r edeemable p referred s tock relative to those of its common stock; (iii) the lack of marketability of the Company’s common stock; (iv) actual operating and financial results; (v) current business conditions and projections; (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of the Company, given prevailing market conditions; and (vii) precedent transactions involving the Company’s shares. The assumptions used to estimate the fair value of stock options granted during the three and nine months ended September 30, 2021 and 2020 are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Risk- Free Interest Rate — % 0.36 % 0.96 % 1.18 % Expected Term (in years) — 6.37 6.26 6.20 Expected Volatility — % 73.07 % 77.04 % 71.11 % Dividend Yield — % — % — % — % 19 Table of Contents A summary of the stock option activity is as follows: Number of Option Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) Outstanding as of December 31, 2019 13,933,956 $ 0.13 8.80 5.00 Granted 3,620,559 $ 0.46 Exercised ( 235,887 ) $ 0.13 Cancelled/ Forfeited ( 219,410 ) $ 0.13 Outstanding as of September 30, 2020 17,099,218 $ 0.20 8.36 7.85 Number of Option Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) Outstanding as of December 31, 2020 21,863,368 $ 0.34 8.67 44.80 Granted 6,492,540 $ 2.39 Exercised ( 3,308,594 ) $ 1.64 Cancelled/ Forfeited ( 1,212,609 ) $ 1.91 Outstanding as of September 30, 2021 23,834,705 $ 0.64 8.15 227.89 Exercisable as of September 30, 2021 7,476,990 $ 0.25 7.43 74.37 Exercisable and expected to vest at September 30, 2021 23,834,705 $ 0.64 8.15 227.89 The total intrinsic value of options exercised was $ 28.3 million and $ 0.1 million for the nine months ended September 30, 2021 and 2020, respectively. The weighted-average grant date fair value per share for the stock options granted during the nine months ended September 30, 2021 and 2020 was $ 5.83 and $ 0.35 , respectively. The aggregate grant-date fair value of options vested during the nine months ended September 30, 2021 and 2020 was $ 5.04 million and $ 0.51 million, respectively. As of September 30, 2021, the total unrecognized compensation cost related to unvested stock option awards was $ 33.79 million, which the Company expects to recognize over a weighted-average period of approximately 2.11 years. Total stock-based compensation expense for both stock option awards and unvested restricted shares which is included in the condensed consolidated financial statements as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Cost of revenue $ 15 $ — $ 46 $ — Research and development 1,181 76 2,351 349 Sales and marketing 22 — 47 — General and administrative 837 105 3,485 332 Stock-based compensation, net of amounts capitalized 2,055 181 5,929 681 Capitalized stock-based compensation – Intangibles and fixed assets 66 70 199 101 Total stock-based compensation $ 2,121 $ 251 $ 6,128 $ 782 20 Table of Contents 1 2 . RELATED PARTY TRANSACTIONS Transactions with UMD and Duke As described in Note 5 – Agreements with UMD and Duke , the Company entered into a License Agreement and Option Agreement with UMD and Duke whereby the Company, in the normal course of business, has licensed certain intellectual property and, in the case of the Amendments to the Duke and UMD Option Agreements, has purchased research and development services. The Company considers these agreements to be related party transactions because during 2021 and 2020, the Company’s Co- F ounder and Chief Technology Officer served as a professor at Duke and the Company’s Co- F ounder and Chief Scientist served as a professor at UMD. During the nine months ended September 30, 2021, the Company’s Chief Scientist moved to Duke and each, in their role as professors at Duke, are leading the research subject to the License Agreement and Option Agreement with Duke as of September 30, 2021. In addition, the Company entered into an amendment to its operating lease for office space with UMD. The lease was amended with UMD in March 2020 to extend the terms of the agreement for the existing premise and lease additional expansion premise and was amended in December 2020 to provide additional rent adjustments. Refer to Note 12 of the audited financial statements for the year ended December 31, 2020 for additional information regarding the Company’s leases. In September 2021, the Company entered into a multiyear deal with UMD to provide certain quantum computing services and facility access related to the National Quantum Lab at UMD in exchange for payments totaling $ 14 million. The Company’s results from transactions with UMD and Duke, as reflected in the Condensed Consolidated Statements of Operations and Comprehensive Loss are detailed below (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue 164 — 164 — Cost of revenue 34 — 34 — Research and development 313 7 1,649 117 Sales and marketing 8 — 8 — General and administrative 59 55 189 71 The Company has the following balances related to transactions with UMD and Duke, as reflected in the Consolidated Balance Sheets (in thousands): September 30, 2021 December 31, 2020 Assets Accounts receivable 4,000 — Prepaid expenses and other current assets 520 1,013 Operating lease right-of-use asset 4,098 4,296 Other noncurrent assets 1,975 2,365 Liabilities Accounts payable 15 5 Current operating lease liabilities 564 495 Unearned r evenue 3,836 — Non-current operating lease liabilities 3,681 3,776 21 Table of Contents