10-Q/A: D-Wave Quantum Restates Financials for Q2 2023, Citing Accounting Errors

D-Wave Quantum Inc. has amended its Q2 2023 financial report to correct accounting errors related to government assistance arrangements and other items.

Summary

• D-Wave Quantum Inc. has filed an amended 10-Q/A report for the quarter ended June 30, 2023, restating its previously issued financial statements.
• The restatement was 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 this case.
• This resulted in adjustments to other income, interest expense, research incentives receivable, and loans payable.
• An error in the compound annual growth rate used to estimate debt repayment cash flows was also corrected.
• The restatement impacted the consolidated balance sheets, statements of operations, and statements of cash flows for the three and six month periods ended June 30, 2023 and 2022.
• The company's net loss for the six months ended June 30, 2023 was $50.6 million, and the company had a working capital deficit of $21.0 million as of June 30, 2023.
• D-Wave has a term loan agreement with PSPIB for $50 million, with $30 million drawn as of the report date, and is subject to certain financial covenants.
• The company also has a purchase agreement with Lincoln Park Capital for up to $150 million in common stock sales, with $15.7 million in proceeds received in the first six months of 2023.
• Management has expressed substantial doubt about the company's ability to continue as a going concern due to its liquidity condition.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including a restatement of financials, a substantial net loss, a working capital deficit, and a going concern warning. While there are some positive aspects like revenue growth and access to financing, the overall tone is negative due to the company's precarious financial situation.

Positives

• Revenue increased by 25% for the three months ended June 30, 2023 compared to the same period in 2022, driven by professional services.
• The company secured a $50 million term loan with PSPIB, providing a source of capital.
• D-Wave has access to additional capital through the Lincoln Park purchase agreement.

Negatives

• The company incurred a net loss of $50.6 million for the six months ended June 30, 2023.
• Operating expenses, particularly general and administrative costs, have increased significantly.
• The company has a working capital deficit of $21.0 million.
• Management has expressed substantial doubt about the company's ability to continue as a going concern.
• The company is reliant on external financing and may not be able to secure it on favorable terms.
• The company has identified a material weakness in its internal control over financial reporting.

Risks

• The company's ability to continue as a going concern is in doubt due to its liquidity condition.
• D-Wave is dependent on securing additional financing, which may not be available on acceptable terms.
• The company may not meet the conditions to draw on the third tranche of the term loan.
• The company's share price must remain above $1.00 to utilize the Lincoln Park purchase agreement.
• The company has a material weakness in its internal control over financial reporting.
• The company may face adverse action from the SEC and/or the NYSE if it cannot retain a replacement auditor in time for the Q3 report.
• Unfavorable macroeconomic conditions could negatively impact the company's business and results of operations.

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 to improve internal controls over financial reporting.
• Management expects that there will be a decrease in cloud based recurring QCaaS revenue as a percentage of total revenue in 2023 when compared to 2022 due to increased demand for professional services engagements.

Industry Context

The quantum computing industry is still in its early stages, with companies like D-Wave investing heavily in research and development. The company's financial challenges highlight the capital-intensive nature of this emerging technology and the risks associated with commercializing quantum computing solutions.

Comparison to Industry Standards

• D-Wave's financial results are not directly comparable to established tech companies due to the nascent nature of the quantum computing industry.
• Companies like IBM and Google are also investing in quantum computing, but their financial structures and revenue models are different.
• D-Wave's reliance on government assistance and debt financing is common among early-stage tech companies in capital-intensive sectors.
• The company's high operating expenses and net losses are typical for companies in the research and development phase of a new technology.
• The company's revenue is primarily driven by professional services, which is a common approach for early-stage quantum computing companies.

Management Changes

Corporate Governance

Related Party Transactions

• The company has a term loan agreement with PSPIB, a related party to the company's largest shareholder.
• The company has promissory notes payable to affiliates of the company.

Stakeholder Impact

• Shareholders face the risk of dilution and potential loss of investment due to the company's financial challenges.
• Employees may be affected by potential cost-cutting measures or restructuring.
• Customers may be concerned about the company's ability to continue providing services.
• Creditors face the risk of non-payment if the company's financial situation does not improve.

Next Steps

• The company needs to secure additional financing to continue operations.
• The company must address the material weakness in its internal control over financial reporting.
• The company needs to meet the conditions to draw on the third tranche of the term loan.
• The company needs to retain a replacement independent registered public accounting firm in time for the Q3 report.

Key Dates

Keywords

quantum computing, financial restatement, going concern, term loan, Lincoln Park Capital, government assistance, accounting errors, Q2 2023, financial results, QCaas