10-Q/A: D-Wave Quantum Restates Q1 2023 Financials Due to Accounting Errors

D-Wave Quantum Inc. has filed an amended quarterly report restating its financial statements for the first quarter of 2023 due to errors in accounting for government assistance arrangements.

Summary

• D-Wave Quantum Inc. has restated its financial results for the quarter ended March 31, 2023, due to misstatements related to the accounting of certain government assistance arrangements.
• The restatement primarily impacts the treatment of conditionally repayable loans with below-market interest rates, which were initially accounted for incorrectly.
• The company had previously analogized to IAS 20 and IFRS 9, but determined that U.S. GAAP guidance precluded the imputation of interest in this case.
• This resulted in adjustments to other income from government assistance, 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 restated financials show a net loss of $24.4 million for the quarter, compared to a previously reported loss of $24.6 million.
• Revenue for the quarter was $1.6 million, a decrease from $1.7 million in the same period of the previous year.
• The company's cash balance at the end of the quarter was $9.0 million, with a working capital deficit of $3.4 million.
• D-Wave has secured a $50 million term loan, with $15 million already received, to address liquidity concerns.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including a restatement due to accounting errors, increased losses, decreased revenue, and a working capital deficit. While the company has secured a term loan, there are substantial risks and uncertainties regarding its ability to continue as a going concern. The sentiment is negative due to these factors.

Positives

• The company secured a $50 million term loan, providing a potential cash runway.
• The net loss for Q1 2023 was slightly better than previously reported after the restatement.
• The company is actively working to remediate the identified material weakness in internal controls.

Negatives

• The company restated its financials due to accounting errors, indicating a weakness in internal controls.
• The company experienced a decrease in revenue compared to the same period last year.
• The company has a working capital deficit of $3.4 million.
• The company has incurred significant operating losses and expects to continue to do so.
• The company is not currently in compliance with certain continued listing standards of the New York Stock Exchange.
• The company's share price has been below the $1.00 floor price, preventing sales to Lincoln Park under the Purchase Agreement.

Risks

• The company's ability to continue as a going concern is dependent on obtaining additional capital and financing.
• There is no assurance that the company will be able to meet the conditions necessary to draw on the second and third tranches of the term loan.
• The company may be unable to raise sufficient funds or enter into other arrangements on favorable terms.
• The company is not currently in compliance with certain continued listing standards of the New York Stock Exchange, which could lead to delisting.
• The company's share price has been below the $1.00 floor price, preventing sales to Lincoln Park under the Purchase Agreement.
• The company faces risks related to the macroeconomic environment, including inflation, rising interest rates, and geopolitical events.

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 upon 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.
• 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 results reflect the challenges of commercializing this technology, including high operating costs and the need for significant capital investment. The restatement highlights the complexities of accounting for government funding and the importance of robust internal controls in this emerging sector.

Comparison to Industry Standards

• D-Wave's revenue of $1.6 million for the quarter is relatively low compared to established tech companies, but is typical for a company in the early stages of commercializing quantum computing technology.
• The company's significant operating losses are also common in the quantum computing sector, where research and development costs are high and revenue generation is still developing.
• Compared to other quantum computing companies, D-Wave is unique in its focus on annealing quantum computers, while others are pursuing gate-model approaches. This difference in technology may lead to different financial trajectories.
• The company's reliance on government funding and the complexities of accounting for these arrangements are also common in the industry, where government support is often crucial for research and development.
• The company's need for additional capital is consistent with the capital-intensive nature of the quantum computing industry, where significant investments are required to develop and scale the technology.

Related Party Transactions

• The company entered into a term loan agreement with PSPIB Unitas Investments II Inc., a related party.
• The company assumed promissory notes from DPCM that were payable to the Sponsor, a related party.

Stakeholder Impact

• Shareholders face the risk of dilution from potential equity raises and the risk of delisting from the NYSE.
• Employees may be impacted by potential cost-cutting measures if the company is unable to secure additional funding.
• Customers may be concerned about the company's long-term viability and its ability to continue providing services.
• Creditors face the risk of non-payment if the company is unable to secure additional financing.

Next Steps

• The company needs to meet the conditions to draw on the second and third tranches of the term loan.
• The company needs to remediate the material weakness in internal controls.
• The company needs to regain compliance with the NYSE listing standards.
• The company needs to secure additional financing to fund its operations.

Key Dates

Keywords

quantum computing, financial restatement, government assistance, term loan, liquidity, accounting errors, internal controls, NYSE listing, revenue, net loss