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Restatement of Previously Issued Financial Statements
 9 Months Ended
Sep. 30, 2022
Restatement of Previously Issued Financial Statements [Abstract]  
Restatement of Previously Issued Financial Statements
3.
Restatement of Previously Issued Financial Statements
 

In connection with the preparation of the Company’s financial statements as of and for the year ended December 31, 2022, the Company’s management identified errors in its previously issued unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2022. The identified errors are described below.
 

Error in Accounting for Lincoln Park Purchase Agreement
 

The Company initially determined that its Lincoln Park Purchase Agreement, met all of the criteria to be considered indexed to the Company’s own stock and that it met all of the additional criteria for equity classification. Therefore, the Common Shares issued to Lincoln Park on August 5, 2022 and August 25, 2022 (the “Commitment Shares”), which represent issuance costs of obtaining the Purchase Agreement, were not required to be expensed and were recorded within prepaid expenses and other current assets in the condensed consolidated balance sheet as of September 30, 2022. In addition, the Company initially determined that the fair value of the equity-classified Purchase Agreement itself was $nil.
 

Subsequent to the filing of the original Form 10-Q on November 10, 2022 (the “Original Filing”), the Company determined that the Purchase Agreement did not meet all of the criteria to be considered indexed to the Company’s own stock and therefore it should have been considered a financial instrument recorded at fair value, with changes in fair value recorded in the statement of operations. As the Purchase Agreement should have been considered a derivative, any issuance costs required to obtain the ability to issue shares under the Purchase Agreement, including the Commitment Shares, should have been expensed.
 

 The Company concluded that the appropriate expense to be recorded was $2.7 million, which is the amount that the contractual liability could have been settled for with cash. As this liability was recorded on August 2, 2022, concurrent with the approval of the Merger by DPCM shareholders, there was no impact to the financial statements of the Company for the period ended June 30, 2022. This liability was settled on August 5, 2022 and August 25, 2022 through the issuance of the Commitment Shares to Lincoln Park. The aggregate fair value of the Commitment Shares was $3.3 million. The incremental amount of $1.9 million represented an expense of the Company in the post-Merger period ending September 30, 2022.
 

The Company had initially recorded the amount as a prepaid asset with a corresponding credit to equity and disclosed the value of $3.3 million in the table of prepaid expenses and other current assets in the footnote disclosures in its  Form 10-Q for the three and nine months ended September 30, 2022. Upon determining that the Purchase Agreement instrument itself should be classified as a derivative, it was also determined that the derivative liability-classified Purchase Agreement instrument had a fair value of nil. As such, it was unnecessary to record a derivative as of September 30, 2022.
 

Error in Accounting for Scientific Research and Experimental Development (“SR&ED”) Receivable
 

Since inception, D-Wave Systems qualified as a Canadian Controlled Private Corporation, and as such, it was eligible to recognize SR&ED receivables and reductions in research and development expenses as a result of qualifying SR&ED expenditures. The Company initially determined that it was eligible to receive SR&ED credits until the closing date of the Merger on August 5, 2022, however, subsequent to the filing of the Original Filing, it was determined that the ability to receive SR&ED credits ended on February 7, 2022 when the Transaction Agreement involving D-Wave Systems and DPCM was signed. As such, research and development expense was understated and the receivable research incentives receivable was overstated by $0.1 million and $0.9 million for the three and nine months ended September 30, 2022, respectively.
 

Error in Accounting for Deferred Revenue
 

Subsequent to the filing of the Original Filing, the Company identified certain errors in accounting for deferred revenue. These errors related to how the Company recognized deferred revenue for services when the services had not been rendered yet and no cash had been received. These services related to certain analyses performed to resolve customer access issues to their Leap quantum cloud service and professional services provided to customers for training on how to use the Leap software and how the software can resolve specific customer problems. This resulted in trade accounts receivable, net and deferred revenue, current being overstated by $0.4 million, respectively, as of September 30, 2022. This entry has no impact on the Company’s consolidated statement of operations and comprehensive loss and only impacts the consolidated balance sheet.
 

Error in Accounting for Stock-Based Compensation
 

Subsequent to the filing of the Original Filing, the Company identified certain errors in accounting for its stock-based compensation for the three and nine months ended September 30, 2022. These errors related to how the Company accounted for forfeitures, certain inputs used to calculate the fair value of the Company’s August 18, 2022 stock option awards, and the Company’s allocation of its stock-based compensation expense within the appropriate line items (Cost of revenue, Research and development, General and administrative, and Sales and marketing) in its condensed consolidated statements of operations and comprehensive loss.
 

The Company has historically elected to account for the forfeiture of stock-based awards using an expected forfeiture rate and then subsequently, due to a manual calculation of its stock-based compensation expense, began accounting for forfeitures as they occur. After a thorough review of the expense calculation schedule, the Company determined that it was not appropriately following its accounting policy of estimating a forfeiture rate, and so the Company corrected its calculation schedule according to the accounting policy. The Company’s forfeiture policy is to reduce its stock-based compensation for the estimated forfeitures at the grant date and revise, if necessary, in subsequent periods if actual forfeitures differ from estimates.
 

In its year-end review, the Company also identified an error in its calculation of stock-based compensation that resulted from the use of incorrect inputs to its Black-Scholes calculation, the method used to determine the fair value of its options. One of the inputs needed for the Black-Scholes calculation is the underlying value of the Company’s common stock. The Company incorrectly used a value of $5.72 price per share, which was based on a linear interpolation calculation used prior to the Company’s stock being traded on a public exchange. Instead, the Company should have used a $10.07 per share price, which was the closing price of its common stock on the New York Stock Exchange, on August 18, 2022, the grant date. In addition to the share price issue, the Company also used a volatility rate that did not appropriately weigh the volatilities of its peer companies.
 

The impact of the above errors was an overstatement of stock-based compensation expense within operating expenses (research and development, general and administrative and sales and marketing) of $0.2 million and $0.3 million for the three and nine months ended September 30, 2022, respectively and an understatement to additional-paid-in-capital of $0.3 million as of September 30, 2022. This correcting entry of this impact was allocated between research and development, general and administrative, sales and marketing, and cost of revenues on the condensed consolidated statements of operations and comprehensive loss. Refer below for further discussion of the allocation to cost of revenue. The allocation to operating expenses (research and development, general and administrative, sales and marketing) of this correcting entry for the three months ended September 30, 2022 is as follows: a $31 thousand increase to research and development, a $1.0 million decrease to general and administrative, and a $0.7 million increase to sales and marketing. The allocation of this correcting entry for the nine months ended September 30, 2022 is as follows: a $3 thousand decrease to research and development, a $1.0 million decrease to general and administrative, and a $0.5 million increase to sales and marketing.
 

Finally, the Company had historically included all of its stock-based compensation expense within operating expenses (research and development, general and administrative and sales and marketing) since the stock-based compensation amount was deemed not material. During the year ended December 31, 2022, the Company now allocates its stock-based compensation expense to its cost of revenue, resulting in a reclassification adjustment of $45 thousand and $80 thousand to increase cost of revenue for the three and nine months ended September 30, 2022, respectively.
 

Error in Accounting for SIF Interest
 

Subsequent to the filing of the Original Filing, the Company identified certain errors in the calculation model for the repayment of the SIF Loan. The SIF contract requires repayment of the SIF loan to begin two years following the period in which the Company meets its revenue benchmark. Within the calculation model, the Company was incorrectly showing repayment of the SIF Loan one year following the period in which their revenue benchmark was met, rather than two years per the SIF contract. This resulted in errors to the estimation of the net present value and the related discount on the SIF Loan of $0.3 million as of December 31, 2021. In order to correct these out of period errors the Company decreased its interest expense and decreased its loans payable, noncurrent by $0.3 million as of September 30, 2022.  Additionally, as a result, calculation of the amortization of the interest expense on the SIF Loan was impacted for the three and nine months ended September 30, 2022, resulting in interest expense being overstated by $9 thousand and $28 thousand for the three and nine months ended September 30, 2022, respectively, and loans payable, noncurrent being overstated by $28 thousand as of September 30, 2022.
 

Error in Accounting for Prepaid Expenses
 

Subsequent to the filing of the Original Filing, the Company identified certain errors in accounting for prepaid expenses where amounts were included in prepaid expenses for invoices that had not been paid for as of the balance sheet date, resulting in a balance sheet error of an overstatement in both prepaid expenses and accounts payable accounts. This entry has no impact on the Company’s consolidated statement of operations and comprehensive loss and only impacts the consolidated balance sheet. This resulted in prepaid expenses and other current assets and trade accounts payable being overstated by $0.5 million, respectively, as of September 30, 2022.



Error in Accounting for Transaction Costs


Subsequent to the filing of the Original Filing, the Company identified errors in accounting for certain invoices related to transaction costs associated with the Merger. These invoices had been incorrectly booked in both D-Wave Systems and DPCM underlying accounting records causing the amounts to be double booked in the consolidated financial statements within trade accounts payable and additional paid in capital. The resulting impact was an overstatement of trade accounts payable of $0.3 million and an understatement of additional paid in capital of $0.3 million as of September 30, 2022.
 

In connection with these errors, the Company is restating the previously issued unaudited condensed consolidated financial statements, and related notes thereto, as of and for the three and nine months ended September 30, 2022, as filed in the Original Filing.
 

The Company’s condensed consolidation financial statements as of and for the three and nine months ended September 30, 2022, included in this Form 10-Q/A have been restated to correct the errors as follows (in thousands):
 
   
As of September 30, 2022 (Unaudited)
  
   
As
Previously
Reported
    
Adjustment
    
As Restated
  
                   
Condensed Consolidated Balance Sheet
                  
Receivable research incentives
  
$
1,052
    
$
(869
)
  
$
183
  
Prepaid expenses and other current assets
    
8,190
      
(3,645
)
    
4,545
  
Trade accounts receivable
    
740
      
(321
)
    
419
  
Total current assets
    
26,279
      
(4,835
)
    
21,444
  
Total assets
    
38,489
      
(4,835
)
    
33,654
  
Trade accounts payable
    
3,158
      
(671
)
    
2,487
  
Deferred revenue, current
    
1,989
      
(321
)
    
1,668
  
Total current liabilities
    
14,578
      
(992
)
    
13,586
  
Loans payable, noncurrent
    
12,912
      
(286
)
    
12,626
  
Total liabilities
    
39,199
      
(1,278
)
    
37,921
  
Additional paid-in capital
    
372,840
      
(2,685
)
    
370,155
  
Accumulated deficit
    
(363,136
)
    
(872
)
    
(364,008
)
Total stockholders’ (deficit) equity
    
(710
)
    
(3,557
)
    
(4,267
)
Total liabilities and stockholders’ (deficit) equity
    
38,489
      
(4,835
)
    
33,654
  
 
   
For the three months ended September 30, 2022 (Unaudited)
  
   
As
Previously
Reported
    
Adjustment
    
As Restated
  
Condensed Consolidated Statement of Operations and Comprehensive Loss
        
Cost of revenue
  
$
609
    
$
45
    
$
654
  
Total gross profit
    
1,086
      
(45
)
    
1,041
  
Research and development
    
7,334
      
173
      
7,507
  
General and administrative
    
6,921
      
(996
)
    
5,925
  
Sales and marketing
    
2,099
      
674
      
2,773
  
Total operating expenses
    
16,354
      
(149
)
    
16,205
  
Loss from operations
    
(15,268
)
    
104
      
(15,164
)
Interest expense
    
(1,336
)
    
267
      
(1,069
)
Lincoln Park Purchase Agreement issuance costs
    
—
      
(629
)
    
(629
)
Total other income (expense), net
    
2,215
      
(362
)
    
1,853
  
Net loss
    
(13,053
)
    
(258
)
    
(13,311
)
Net loss per share, basic and diluted    
(0.11
)
     (0.00 )    
(0.11
)
 
   
For the nine months ended September 30, 2022 (Unaudited)
  
   
As
Previously
Reported
    
Adjustment
    
As Restated
  
Condensed Consolidated Statement of Operations and Comprehensive Loss
  
Cost of revenue
  
$
1,778
    
$
80
    
$
1,858
  
Total gross profit
    
3,000
      
(80
)
    
2,920
  
Research and development
    
20,933
      
866
      
21,799
  
General and administrative
    
14,527
      
(961
)
    
13,566
  
Sales and marketing
    
5,438
      
544
      
5,982
  
Total operating expenses
    
40,898
      
449
      
41,347
  
Loss from operations
    
(37,898
)
    
(529
)
    
(38,427
)
Interest expense
    
(3,874
)
    
286
      
(3,588
)
Lincoln Park Purchase Agreement issuance costs
    
—
      
(629
)
    
(629
)
Total other income (expense), net
    
30
      
(343
)
    
(313
)
Net loss
    
(37,868
)
    
(872
)
    
(38,740
)
Net loss per share, basic and diluted
    
(0.31
)
    
(0.01
)
    
(0.32
)
 
   
For the three months ended September 30, 2022 (Unaudited)
  
   
As Previously Reported
  
Adjustment
  
As Restated
  
Condensed Consolidated Statement of Stockholders’ (Deficit) Equity
          
Balances at June 30, 2022
    
(20,093
)
    
(639
)
    
(20,732
)
Additional paid-in capital
    
372,840
      
(2,660
)
    
370,180
  
Accumulated deficit
    
(363,136
)
    
(258
)
    
(363,394
)
Total stockholders’ (deficit) equity
    
(710
)
    
(3,557
)
    
(4,267
)

   
For the nine months ended September 30, 2022 (Unaudited)
  
   
As Previously Reported
  
Adjustment
  
As Restated
  
Condensed Consolidated Statement of Stockholders’ (Deficit) Equity
          
Additional paid-in capital
    
372,840
      
(2,685
)
    
370,155
  
Accumulated deficit
    
(363,136
)
    
(872
)
    
(364,008
)
Total stockholders’ (deficit) equity
    
(710
)
    
(3,557
)
    
(4,267
)
 
   
For the nine months ended September 30, 2022 (Unaudited)
  
   
As
Previously
Reported
    
Adjustment
    
As Restated
  
Condensed Consolidated Statement of Cash Flows
                  
Net loss
  
$
(37,868
)
  
$
(872
)
  
$
(38,740
)
Stock-based compensation
    
3,695
      
(340
)
    
3,355
  
Non-cash interest expense on government payable
    
1,902
      
(286
)
    
1,616
  
Non-cash Lincoln Park Purchase Agreement issuance costs
    
—
      
629
      
629
  
Trade accounts receivable
    
(320
)
    
321
      
1
  
Deferred revenue, current
    
(730
)
    
(321
)
    
(1,051
)
Prepaid expenses and other current assets
    
(7,074
)
    
366
      
(6,708
)
Trade accounts payable
    
1,049
      
(435
)
    
614
  
Research incentives receivable
    
579
      
869
      
1,448
  
Supplemental disclosure of noncash investing and financing activities:
                  
Noncash Merger financing
    
3,299
      
2,414
      
5,713