8-K: D-Wave Quantum Inc. to Restate Prior Financial Statements Due to Accounting Error

D-Wave Quantum Inc. will restate financial statements from 2020 to 2023 due to an accounting error related to government assistance arrangements.

Summary

• D-Wave Quantum Inc. has determined that its previously issued financial statements for the years 2020, 2021, 2022, and the first three quarters of 2023 should no longer be relied upon.
• The company will restate these financial statements due to an error in accounting for certain government assistance arrangements.
• The restatement primarily affects non-cash and non-operating components of other income (expense) and net loss, as well as research incentives receivable and loans payable on the balance sheets.
• The error stems from the initial accounting treatment of conditionally repayable loans with below-market interest rates, which were incorrectly analogized to IAS 20 and IFRS 9.
• The company now recognizes that these arrangements should be treated as debt under U.S. GAAP, which precludes the imputation of interest in this case.
• The estimated impact of the restatement includes a decrease in non-operating, non-cash items within other income (expense) and net loss by approximately $0.4 million, $2.1 million, $10.8 million, and $12.0 million for the nine months ended September 30, 2023, and the years ended December 31, 2022, 2021, and 2020, respectively.
• Loans payable are estimated to increase by $23.7 million, $23.3 million, $19.4 million, and $0.3 million, respectively, for the same periods.
• Research incentives receivable are estimated to decrease by zero, zero, $3.2 million, and $11.7 million, respectively, for the same periods.
• The restatement does not affect key business metrics, compliance with financial covenants, reported loss from operations, or total reported cash flows.
• The company's management and Audit Committee have determined the misstatements were unintentional and not the result of fraud.

Sentiment

Score: 3

Explanation: The document indicates a significant accounting error requiring a restatement of multiple years of financial statements, which is a negative development. However, the company has stated that the error was unintentional and does not affect key business metrics, which mitigates some of the negative sentiment.

Positives

• The restatement does not affect the company's key business metrics, such as bookings, average deal size, or non-GAAP financial measures.
• The restatement does not impact the company's compliance with any financial covenants.
• The restatement does not affect reported loss from operations or total reported cash flows.
• Management and the Audit Committee have determined the misstatements were unintentional and not the result of fraud.
• The terms and conditions of the government assistance arrangements were fully and accurately disclosed in previous filings.

Negatives

• The company's previously issued financial statements for 2020-2023 should no longer be relied upon.
• The company needs to restate its financial statements due to an accounting error.
• The restatement will decrease non-operating, non-cash items within other income (expense) and net loss for the affected periods.
• The restatement will increase loans payable for the affected periods.
• The restatement will decrease research incentives receivable for the affected periods.

Risks

• The discovery of additional information relevant to the affected periods could further impact the restatement.
• Changes in the effects of the restatement on the company's financial statements or financial results could occur.
• The restatement process could result in larger than expected adjustments.
• There could be a delay in the amended filing due to the company's efforts to complete the restatement.
• The company's actual results may differ materially from those projected in forward-looking statements.

Future Outlook

The company plans to restate the financial statements for the affected periods as soon as practicable, but the actual results may differ materially from the current estimates. The company undertakes no obligation to update or revise any forward-looking statements.

Management Comments

• The company's management and Audit Committee have determined the misstatements were unintentional and were not the result of fraud or any other attempt to deceive.
• The company's management and Audit Committee have discussed the matters disclosed in this Item 4.02 with the company's current and former independent registered public accounting firms.

Industry Context

The accounting issue arose due to the limited U.S. GAAP guidance pertaining to government assistance programs, particularly those with debt-like characteristics. The company initially used IAS 20 and IFRS 9 as a reference, but later determined that U.S. GAAP guidance was more appropriate. This situation highlights the challenges companies face when dealing with novel government assistance programs and the evolving nature of accounting standards.

Comparison to Industry Standards

• The restatement is due to the company's initial accounting treatment of government assistance arrangements, which is not uncommon in the technology sector where companies often receive government funding for research and development.
• The company's initial approach of analogizing to IAS 20 and IFRS 9 is not unusual when specific U.S. GAAP guidance is lacking, however, the company's subsequent determination to align with U.S. GAAP is consistent with best practices.
• Other companies in the technology sector, such as those involved in renewable energy or advanced materials, have also faced similar challenges in accounting for government assistance programs, particularly those with complex terms and conditions.
• The impact of the restatement on D-Wave's financials is not expected to be material to its overall business operations, which is similar to other companies that have had to restate financials due to accounting errors.

Stakeholder Impact

• Shareholders will be impacted by the restatement of financial statements and the potential for a negative market reaction.
• Employees may be concerned about the implications of the restatement, although the company has stated that it does not affect compensation.
• Customers and suppliers are unlikely to be directly impacted by the restatement, as it does not affect the company's operations or key business metrics.
• Creditors may be impacted by the changes to loans payable on the balance sheet.

Next Steps

• The company plans to restate the financial statements for the affected periods as soon as practicable.
• The company will file amendments to its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Key Dates

Keywords

restatement, financial statements, accounting error, government assistance, loans payable, research incentives, non-cash items, net loss, U.S. GAAP, Audit Committee