10-Q/A: D-Wave Quantum Restates Financials After Accounting Errors, Faces NYSE Delisting Risk

D-Wave Quantum Inc. has restated its financial statements for multiple periods due to accounting errors related to government assistance arrangements, and is also facing potential delisting from the NYSE.

Summary

• D-Wave Quantum Inc. has filed an amended quarterly report (Form 10-Q/A) to restate its previously issued financial statements for the three and nine-month periods ended September 30, 2023, and 2022.
• The restatement was necessary due to errors in accounting for certain government assistance arrangements, specifically conditionally repayable loans with below-market interest rates.
• The company initially used IAS 20 and IFRS 9, but later determined that U.S. GAAP guidance precluded imputing interest in these cases.
• This resulted in adjustments to other income from government assistance, interest expense, research incentives receivable, and loans payable.
• An error related to the compound annual growth rate input in the estimation of debt repayment cash flows was also corrected.
• For the nine months ended September 30, 2023, the company reported a net loss of $66.7 million, compared to a net loss of $35.9 million for the same period in 2022.
• The company's revenue for the nine months ended September 30, 2023, was $5.85 million, up from $4.78 million in the same period of 2022.
• D-Wave is facing potential delisting from the NYSE because its average closing share price was below $1.00 for a consecutive 30-day trading period.
• The company has until April 2024 to regain compliance with the NYSE listing standards.
• D-Wave has a term loan agreement with PSPIB for $50 million, with $30 million already drawn, and the remaining $20 million is subject to certain conditions.
• The company also has a purchase agreement with Lincoln Park Capital for up to $150 million in common stock sales, but the share price must be above $1.00 to utilize this agreement.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including a large net loss, an accumulated deficit, and the risk of delisting. While there are some positives, such as increased revenue and a term loan, the overall tone is negative due to the company's financial instability and going concern issues.

Positives

• Revenue increased by 22% for the nine months ended September 30, 2023, compared to the same period in 2022, driven by professional services.
• The company has secured a $50 million term loan, providing some financial stability.
• D-Wave has a purchase agreement with Lincoln Park Capital for up to $150 million in common stock sales, which could provide additional liquidity.

Negatives

• The company has incurred significant net losses, with a $66.7 million loss for the nine months ended September 30, 2023.
• D-Wave is facing potential delisting from the NYSE due to its low share price.
• The company has an accumulated deficit of $467 million as of September 30, 2023.
• The company has identified a material weakness in its internal control over financial reporting.
• The company's ability to draw the remaining $20 million of the term loan is subject to certain conditions, including securing a $25 million non-dilutive financing.

Risks

• D-Wave faces the risk of delisting from the NYSE if it cannot raise its share price above $1.00.
• The company's ability to continue as a going concern is dependent on obtaining additional capital and financing.
• There is no guarantee that the company will be able to draw the remaining $20 million of the term loan.
• The company's ability to sell shares to Lincoln Park Capital is contingent on its share price being above $1.00.
• The company has a material weakness in its internal control over financial reporting, which could lead to further issues.
• The company is subject to macroeconomic risks, including inflation, rising interest rates, and geopolitical instability.

Future Outlook

The company expects to continue to incur significant losses for the foreseeable future as it continues to invest in research and development and go-to-market initiatives. The company's ability to continue as a going concern is dependent on obtaining additional capital and financing.

Management Comments

• Management has determined that the company's liquidity condition raises substantial doubt about the company's ability to continue as a going concern.
• Management is implementing measures designed to improve internal controls over financial reporting to remediate a material weakness.

Industry Context

The quantum computing industry is still in its early stages, with companies like D-Wave facing significant challenges in commercializing their technology. The company's financial struggles and potential delisting highlight the risks and uncertainties associated with investing in this emerging sector.

Comparison to Industry Standards

• D-Wave's financial performance is not directly comparable to established tech companies due to the nascent nature of the quantum computing industry.
• Compared to other quantum computing startups, D-Wave has a unique approach with its annealing quantum computers, which may lead to different financial trajectories.
• The company's revenue is relatively low compared to other tech companies, reflecting the early stage of commercialization of quantum computing.
• The company's high operating losses are typical for companies in the research and development phase of a new technology.
• The company's reliance on debt and equity financing is common for startups in the quantum computing space, as they require significant capital investment.

Management Changes

Related Party Transactions

• The company has a term loan agreement with PSPIB Unitas Investments II Inc., a related party to the company's largest shareholder.
• The company has a promissory note with the Sponsor, a related party.

Stakeholder Impact

• Shareholders are at risk of losing their investment due to the company's financial instability and potential delisting.
• Employees may be concerned about the company's future and job security.
• Customers may be concerned about the company's ability to continue providing services.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company needs to regain compliance with NYSE listing standards by raising its share price above $1.00.
• The company needs to secure additional financing to fund its operations.
• The company needs to implement measures to remediate the material weakness in its internal control over financial reporting.
• The company needs to meet the conditions to draw the remaining $20 million of the term loan.

Key Dates

Keywords

quantum computing, financial restatement, NYSE delisting, term loan, Lincoln Park Capital, government assistance, accounting errors, material weakness, Q3 2023, Q2 2023, Q1 2023, PSPIB, QCaaS