UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
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As of May 18, 2023,
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
Form 10-Q
For the Quarter Ended March 31, 2023
Table of Contents
i
PART I. FINANCIAL INFORMATION
Item 1. Condensed consolidated financial Statements
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Assets: | ||||||||
Current assets: | ||||||||
Cash | $ | $ | ||||||
Prepaid expenses | ||||||||
Total current assets | ||||||||
Investments held in Trust Account | ||||||||
Total Assets | $ | $ | ||||||
Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit: | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Note payable - related party | ||||||||
Accrued expenses | ||||||||
Total current liabilities | ||||||||
Derivative liabilities | ||||||||
Deferred underwriting commissions in connection with the initial public offering | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies | ||||||||
Class A ordinary shares subject to possible redemption; $ | ||||||||
Shareholders’ Deficit: | ||||||||
Class A ordinary shares, $ | ||||||||
Class B ordinary shares, $ | ||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total shareholders’ deficit | ( | ) | ( | ) | ||||
Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | |||||||
General and administrative expenses | $ | $ | ||||||
General and administrative expenses - related party | ||||||||
Loss from operations | ( | ) | ( | ) | ||||
Other income (expense): | ||||||||
Change in fair value of derivative liabilities | ( | ) | ||||||
Change in fair value of forward purchase agreement | ( | ) | ||||||
Income earned on investments held in Trust Account | ||||||||
Net (loss) income | $ | ( | ) | $ | ||||
$ | ( | ) | $ | |||||
$ | ( | ) | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2023
Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Shareholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance - December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Shareholder non-redemption agreements | — | — | ||||||||||||||||||||||||||
Shareholder non-redemption agreements | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Increase in redemption value of Class A ordinary shares subject to possible redemption | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
Balance - March 31, 2023 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) |
FOR THE THREE MONTHS ENDED MARCH 31, 2022
Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Shareholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Net income | — | — | ||||||||||||||||||||||||||
Balance - March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net (loss) income | $ | ( | ) | $ | ||||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
Change in fair value of derivative warrant liabilities | ( | ) | ||||||
Change in fair value of forward purchase agreement | ||||||||
Income earned on investments held in Trust Account | ( | ) | ( | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | ||||||||
Accounts payable | ||||||||
Accrued expenses | ||||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Cash withdrawn from trust account for redemptions | ||||||||
Net cash provided by investing activities | ||||||||
Cash Flows from Financing Activities: | ||||||||
Redemption of Class A Ordinary Shares | ( | ) | ||||||
Net cash used in financing activities | ( | ) | ||||||
Net change in cash | ( | ) | ( | ) | ||||
Cash - beginning of the period | ||||||||
Cash - end of the period | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Business Operations
Blockchain Coinvestors Acquisition Corp. I (the “Company”) was incorporated as a Cayman Islands exempted company on June 11, 2021. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of March 31, 2023, the Company had not commenced any operations. All activity for the period from June 11, 2021 (inception) through March 31, 2023 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”) described below, and, subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering.
The Company’s sponsor is Blockchain
Coinvestors Acquisition Sponsors I LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for
the Company’s Initial Public Offering was declared effective on November 9, 2021 (the “Effective Date”). On November 15,
2021, the Company commenced the Initial Public Offering of
Simultaneously with the consummation of the
Initial Public Offering and partial exercise of the over-allotment option by the underwriters, the Company consummated the private placement
of
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
The Company must complete one or more initial
Business Combinations having an aggregate fair market value of at least
Following the closing of the Initial Public Offering and partial exercise
of the over-allotment by the underwriters on November 15, 2021, $
5
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company will provide holders of its Class A ordinary shares,
par value $
Notwithstanding the foregoing, the Memorandum
and Articles of Association provide that a Public Shareholder, together with any affiliate of such shareholder or any other person with
whom such shareholder is acting in concert or as a “group” (as defined in Section 13 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate
of
The Company’s Sponsor, officers and
directors (the “initial shareholders”) have agreed not to propose an amendment to the Memorandum and Articles of Association
(A) that would modify the substance or timing of the Company’s obligation to allow redemption in connection with its initial
Business Combination or to redeem
The Company had 18 months from the closing
of the Initial Public Offering to consummate the initial Business Combination, which has been subsequently extended to November 15,
2023 (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period,
the Company will (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but
not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount
then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to
the Company to pay its tax obligations, if any (less up to $
The Sponsor and each member of the Company’s
management team have entered into an agreement with the Company, pursuant to which they have agreed to (i) waive their redemption
rights with respect to their Class B ordinary shares, par value $
6
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Proposed Business Combination
On November 10, 2022, the Company entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among the Company, BCSA Merger Sub, Inc., a Delaware corporation (“Merger Sub”), and Qenta Inc., a Delaware corporation (“Qenta”).
The Business Combination Agreement and the
transactions contemplated thereby were approved by the boards of directors of each of the Company and Qenta. The Business Combination
Agreement provides for, among other things, the following transactions: (i) the Company will become a Delaware corporation (the “Domestication”)
and, in connection with the Domestication, (A) the Company’s name will be changed to “Qenta Inc.” (“New Qenta”)
and (B) each outstanding Class A ordinary share of the Company and each outstanding Class B ordinary share of the Company
will become
The Domestication, the Merger and the other transactions contemplated by the Business Combination Agreement are referred to as the “Qenta Business Combination.” The Qenta Business Combination is expected to close following the receipt of the required approval by the Company’s shareholders and the fulfillment of regulatory requirements and other customary closing conditions.
In accordance with the terms and subject
to the conditions of the Business Combination Agreement, (i) outstanding shares of Qenta (other than treasury shares and any Company
Dissenting Shares (as defined in the Business Combination Agreement) will be exchanged for shares of New Qenta Common Stock and (ii) each
outstanding Exchangeable Company RSU (as defined in the Business Combination Agreement) will be exchanged for comparable restricted stock
units of New Qenta, based on an agreed upon equity value. Under the current terms of the Business Combination Agreement, the Company anticipates
issuing
The obligation of the
Company and Qenta to consummate the Business Combination is subject to certain closing conditions, including, but not limited to,
(i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, (ii) the absence of any order, law or other legal restraint or prohibition issued by any court of competent
jurisdiction or other governmental entity of competent jurisdiction enjoining or prohibiting the consummation of the Domestication
or the Merger, (iii) the effectiveness of the Registration Statement on Form S-4 (the “Registration
Statement”) in accordance with the provisions of the Securities Act of 1933, as amended registering the New Qenta Common Stock
to be issued in the Merger and the Domestication, (iv) the required approvals of the Company’s shareholders, (v) the
approval of Qenta’s shareholders, (iv) the approval by Nasdaq of the Company’s listing application in connection
with the Qenta Business Combination, (v) the consummation of the Domestication, (vi) the Company having at
least $
In connection with the execution of the Business
Combination Agreement, the Company entered into a Confirmation (the “Forward Purchase Agreement”), with Vellar Opportunity
Fund SPV LLC—Series 5 (the “FPA Seller”), a client of Cohen & Company Financial Management, LLC (“Cohen”).
Entities and funds managed by Cohen own equity interests in the Sponsor. The primary purpose of entering into the Forward Purchase
Agreement is to help ensure the aggregate cash proceeds condition in the Business Combination Agreement will be met, increasing the likelihood
that the transaction will close. Pursuant to the Forward Purchase Agreement, the FPA Seller intends, but is not obligated, to purchase
after the date of the Company’s redemption deadline through a broker in the open market the Company’s Class A ordinary
shares, including such shares that holders had elected to redeem pursuant to the Company’s organizational documents in connection
with the Qenta Business Combination, other than from the Company or affiliates of the Company, and (b) the FPA Seller has agreed
to waive any redemption rights in connection with the Qenta Business Combination with respect to such Class A ordinary shares of
the Company it purchases in accordance with the Forward Purchase Agreement (the “Subject Shares”). The Number of Shares shall
equal the Subject Shares but shall be no more than
The full Business Combination Agreement, Forward Purchase Agreement and other agreements entered into or contemplated to be executed prior to closing the Qenta Business Combination were included with the Company’s Current Report on Form 8-K filed with the SEC on November 10, 2022.
7
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make the comparison of the Company’s condensed consolidated financial statements with those of another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Going Concern, Liquidity and Capital Resources
As of March 31, 2023, the Company had approximately $
The Company’s liquidity needs up to March 31, 2023 had been satisfied
through a payment from the Sponsor of $
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until November 15, 2023 to consummate a Business Combination. The Company does not have adequate liquidity to sustain operations; however, the Company has access to a Working Capital Loan from the Sponsor that management believes will enable the Company to sustain operations until it completes its initial Business Combination. If a Business Combination is not consummated by November 15, 2023, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the Company’s liquidity issue, mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution, raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after November 15, 2023. The Company intends to complete a Business Combination before the mandatory liquidation date. However, there can be no assurance that the Company will be able to consummate any Business Combination by November 15, 2023.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on its unaudited condensed consolidated financial statements and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of operations, cash flows and/or the closing of its initial Business Combination, the specific impact is not readily determinable as of the date of these unaudited condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
8
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy is not determinable as of the date of these condensed consolidated financial statements, and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these condensed consolidated financial statements.
Note 2 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected through December 31, 2023, or any future period.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K filed by the Company with the SEC on April 17, 2023.
Principles of Consolidation
The unaudited condensed consolidated financial statements of the Company include its wholly owned subsidiary in connection with the planned merger. All inter-company accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in the accompanying condensed consolidated financial statements is the determination of the fair value of derivative warrant liabilities. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of March 31, 2023 and December 31, 2022.
Investments Held in Trust Account
The Company’s portfolio of investments is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised of U.S. government securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the condensed consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities are included in income earned on investments held in Trust Account in the accompanying condensed consolidated statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
9
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal
Deposit Insurance Corporation coverage limit of $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the FASB ASC Topic 820, “Fair Value Measurements,” equals or approximates the carrying amounts represented in the condensed consolidated balance sheets.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Working Capital Loan—Related Party
The Company has elected the fair value option to account for its June 2022 Note with its Sponsor as defined and more fully described in Note 5. The primary reason for electing the fair value option is to provide better information on the financial liability amount given current market and economic conditions of the Company. As a result of applying the fair value option, the Company records each draw at fair value with a gain or loss recognized at issuance, and subsequent changes in fair value recorded as change in the fair value of convertible note—related party on the accompanying condensed consolidated statements of operations. The fair value is based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s and, if applicable, an independent third-party valuation firm’s own assumption about the assumptions a market participant would use in pricing the asset or liability.
Derivative Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity” (“ASC 815-40”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The Public Warrants and the Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statements of operations. The initial fair value of the Public Warrants issued in connection with the Initial Public Offering and Private Placement Warrants was estimated using a stochastic trinomial tree model. The determination of the fair value of the warrants may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
10
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company determined the Forward Purchase Agreement (defined in Note 1) is a derivative instrument. Accordingly, the Company recognizes the instrument as an asset or liability at fair value and adjusts the instrument to fair value at each reporting period. Any changes in fair value are recognized on the Company’s unaudited condensed consolidated statements of operations. The estimated fair value of the Forward Purchase Agreement is measured at fair value utilizing a Monte Carlo simulation model.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities were expensed as incurred and presented as non-operating expenses in the condensed consolidated statements of operations. Offering costs associated with the Class A ordinary shares were charged against the carrying value of the Class A ordinary shares upon the completion of the Initial Public Offering. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Class A Ordinary Shares Subject to Possible Redemption
The Company accounts for its Class A
ordinary shares subject to possible redemption in accordance with the guidance in ASC 480. Class A ordinary shares subject to mandatory
redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary
shares (including Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject
to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity.
At all other times, Class A ordinary shares are classified as shareholders’ equity. As part of the Private Placement, the Company
issued
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the Class A ordinary shares subject to possible redemption to equal the redemption value at the end of each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security. Effective with the closing of the Initial Public Offering (including exercise of the over-allotment option), the Company recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit. Subsequently, the Company recognized changes in the redemption value as an increase in redemption value of Class A ordinary shares subject to possible redemption as reflected on the accompanying condensed consolidated statements of changes in shareholders’ deficit.
Income Taxes
The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, “Income Taxes,” which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
There is currently no taxation imposed on income by the government of the Cayman Islands. In accordance with Cayman Islands federal income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s condensed consolidated financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
11
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Net Income (Loss) per Ordinary Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per ordinary share is calculated by dividing the net income (loss) by the weighted average shares of ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss)
per ordinary share does not consider the effect of the warrants issued in connection with the Initial Public Offering (including exercise
of the over-allotment option) and the Private Placement to purchase an aggregate of
The following tables present a reconciliation of the numerator and denominator used to compute basic and diluted net income (loss) per ordinary share for each period presented:
For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | |||||||||||||||
Class A | Class B | Class A | Class B | |||||||||||||
Basic and diluted net (loss) income per ordinary share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Allocation of net (loss) income | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
Denominator: | ||||||||||||||||
$ | ( | ) | $ | ( | ) | $ | $ |
Recent Accounting Standards
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” The ASU amends ASC 820 to clarify that a contractual sales restriction is not considered in measuring an equity security at fair value and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. The ASU applies to both holders and issuers of equity and equity-linked securities measured at fair value. The amendments in this ASU are effective for the Company in fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is still evaluating the impact of this pronouncement on the condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies. The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on its condensed consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
12
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — Initial Public Offering
On November 15, 2021, the Company consummated its Initial Public
Offering of
Following the closing of the Initial Public
Offering and the partial exercise of the over-allotment by the underwriters on November 15, 2021, $
Note 4 — Private Placement
Simultaneously with the closing of the Initial
Public Offering and partial exercise of the over-allotment option by the underwriters, the Company’s Sponsor purchased an aggregate
of
Each Private Placement Unit consists of one
share of Class A ordinary share and one-half of one warrant (the “Private Placement Warrant”). Each whole Private Placement
Warrant is exercisable for one whole Class A ordinary share at a price of $
The Sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the initial Business Combination or 12 months from the closing of the Initial Public Offering.
Note 5 — Related Party Transactions
Founder Shares
On July 2, 2021, the Sponsor paid $
The initial
shareholders agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earliest
of (A)
13
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Promissory Note—Related Party
On July 2, 2021, the Sponsor agreed
to loan the Company up to $
Working Capital Loans
In order to finance transaction costs in
connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors,
may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). In the event that a Business
Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans,
but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be
repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $
On June 15, 2022, the Company issued a promissory note for a Working
Capital Loan, as described above, of $
Administrative Services Agreement
Commencing on the date the securities are first listed on Nasdaq, the
Company has agreed to pay the Sponsor a total of $
In addition, the Sponsor, executive officers and directors, or their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The audit committee will review on a quarterly basis all payments that were made by the Company to the Sponsor, executive officers or directors, or their affiliates. Any such payments prior to an initial Business Combination will be made using funds held outside the Trust Account.
Note 6 — Commitments and Contingencies
Registration and Shareholder Rights
The holders of Founder Shares, Private Placement Warrants and securities included in private placement units that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) will be entitled to registration rights pursuant to a registration rights agreement entered into in connection with the Initial Public Offering. These holders are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, these holders have certain “piggyback” registration rights with respect to registration statements filed after the completion of the initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
14
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Underwriting Agreements and Amendments
The underwriters had a
The Company entered
into an amended agreement with one of its underwriters (Cantor Fitzgerald) to reduce the amount of deferred underwriting fees
associated with the Qenta Business Combination. Upon the successful completion of the Qenta Business Combination, the $
Forward Share Purchase Agreement
In connection with the execution of the Business
Combination Agreement, the Company entered into the Forward Purchase Agreement. Pursuant to the Forward Purchase Agreement, the FPA Seller
intends, but is not obligated, to purchase after the date of the Company’s redemption deadline through a broker in the open market
the Company’s Class A ordinary shares, including such shares that holders had elected to redeem pursuant to the Company’s
organizational documents in connection with the Qenta Business Combination, other than from the Company or affiliates of the Company,
and (b) the FPA Seller has agreed to waive any redemption rights in connection with the Qenta Business Combination with respect to
such Class A ordinary shares of the Company it purchases in accordance with the Forward Purchase Agreement (the “Subject Shares”).
The Number of Shares shall equal the Subject Shares but shall be no more than
The Forward Purchase Agreement provides that
(a) one business day following the closing of the Qenta Business Combination, New Qenta will pay to the FPA Seller, out of the Trust
Account, an amount (the “Prepayment Amount”) equal to the Redemption Price per share (the “Initial Price”) multiplied
by the aggregate number of Subject Shares, if any (together, the “Number of Shares”), less
From time to time and on any scheduled trading day after the closing
of the Qenta Business Combination, the FPA Seller may sell Subject Shares or Additional Shares (as defined in the Forward Purchase Agreement)
at its absolute discretion in one or more transactions, publicly or privately, and, in connection with such sales, terminate the Forward
Purchase Transaction in whole or in part in an amount corresponding to the number of Subject Shares and Additional Shares. At the end
of each calendar month during which any such early termination occurs, the FPA Seller will pay to the Company an amount equal to the product
of (x) the Terminated Shares and (y) the Reset Price, where “Reset Price” refers to, initially, the Redemption Price.
The Reset Price will be adjusted on the first scheduled trading day (as defined in the Forward Purchase Agreement) of each month commencing
on the first calendar month following the closing of the Qenta Business Combination to be the lowest of (a) the then-current Reset
Price, (b) $
The Forward Purchase Agreement has a tenure
of
The Company and Qenta
have agreed to pay to the FPA Seller a break-up fee equal to the sum of (i) all fees (in an amount not to exceed $
The primary purpose of entering into the Forward Purchase Agreement is to help ensure the aggregate cash proceeds condition in the Business Combination Agreement will be met, increasing the likelihood that the transaction will close.
15
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Shareholder Meeting, Extension, and Redemptions
On February 3, 2023, the Company held an extraordinary general meeting (the “Shareholder Meeting”) at which the Company’s shareholders approved a proposal to amend the Company’s amended and restated memorandum and articles of association (the “Memorandum and Articles of Association”) to extend the date by which it has to consummate a business combination from May 15, 2023 to November 15, 2023 (the “Extension Amendment Proposal”). The Extension Amendment Proposal is described in more detail in the Company’s definitive proxy statement filed with the U.S. Securities and Exchange Commission on December 29, 2022.
In connection with the vote to approve the
Vendor Agreements Contingent on the Business Combination
The Company entered into an agreement with
a vendor for merger advisory services and the total fee will be $
Non-redemption Agreements
The Sponsor entered into Non-Redemption Agreements with various shareholders
of the Company (the “Non-Redeeming Shareholders”), pursuant to which these shareholders agreed not to redeem a portion of
their shares of Company common stock (the “Non-Redeemed Shares”) in connection with the Special Meeting held on February 3,
2023, but such shareholders retained their right to require the Company to redeem such Non-Redeemed Shares in connection with the closing
of the Business Combination. The Sponsor has agreed to transfer to such Non-Redeeming shareholders an aggregate of
Note 7 — Class A Ordinary Shares Subject to Possible Redemption
The Company’s Class A ordinary
shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence
of future events. The Company is authorized to issue
The Class A ordinary shares subject to possible redemption reflected on the condensed consolidated balance sheets is reconciled on the following table:
Gross proceeds from Initial Public Offering | $ | |||
Less: | ||||
Fair value of Public Warrants at issuance | ( | ) | ||
Offering Costs allocated to Class A ordinary shares subject to possible redemption | ( | ) | ||
Plus: | ||||
Increase in redemption value of Class A ordinary shares subject to possible redemption | ||||
Class A ordinary shares subject to possible redemption as of December 31, 2022 | ||||
Less: | ||||
Redemption | ( | ) | ||
Increase in redemption value of Class A ordinary shares subject to possible redemption | ||||
Class A common stock subject to possible redemption as of March 31, 2023 | $ |
Note 8 — Shareholders’ Deficit
Preference shares—The Company
is authorized to issue
16
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Class A ordinary shares—The
Company is authorized to issue
Class B ordinary
shares—The Company is authorized to issue
Prior to the initial Business Combination, only holders of Class B ordinary shares will have the right to vote on the appointment of directors. In addition, in a vote to continue the company in a jurisdiction outside the Cayman Islands (which requires the approval of at least two thirds of the votes of all ordinary shares voted at a general meeting), holders of the Class B ordinary shares will have ten votes for every Class B ordinary share and holders of Class A ordinary shares will have one vote for every Class A ordinary share and, as a result, the initial shareholders will be able to approve any such proposal without the vote of any other shareholder. Holders of the Class A ordinary shares will not be entitled to vote on the appointment of directors during such time. In addition, prior to the completion of an initial Business Combination, holders of a majority of Class B ordinary shares may remove a member of the board of directors for any reason. With respect to any other matter submitted to a vote of the shareholders, including any vote in connection with the initial Business Combination, except as required by law, holders of Class B and Class A ordinary shares will vote together as a single class, with each share entitling the holder to one vote.
Note 9 — Warrants
As of March 31, 2023, and December 31, 2022,
the Company had
The Public Warrants will become exercisable at $
17
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The exercise price and number of shares issuable
upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend or recapitalization,
reorganization, merger or consolidation.
The warrants underlying the Private Placement Units (the “Private Placement Warrants”) are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the ordinary shares issuable upon exercise of the Private Placement Warrants, so long as they are held by the Sponsor or its permitted transferees, (i) will not be redeemable by the Company, (ii) may not (including the Class A ordinary shares issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of the initial Business Combination, (iii) may be exercised by the holders on a cashless basis and (iv) will be entitled to registration rights. If the Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the Public Warrants.
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
● | in whole and not in part; |
● | at a price of $0.01 per warrant; |
● | upon a minimum of 30 days’ prior written notice of redemption; and |
● | if, and only if, the Redemption Reference Price equals or exceeds $18.00 per share (as adjusted). |
The Company will not redeem the warrants as described above unless an effective registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the warrants is effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period. If and when the warrants become redeemable by the Company, it may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
18
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Fair Value Measurements
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
March 31, 2023
Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Investments held in Trust Account – Money market fund | $ | $ | $ | |||||||||
Liabilities: | ||||||||||||
Derivative warrant liabilities—Public Warrants | $ | $ | $ | |||||||||
Derivative warrant liabilities—Private Warrants | $ | $ | $ | |||||||||
Forward Purchase Agreement | $ | $ | $ | |||||||||
Convertible note – related party | $ | $ | $ |
December 31, 2022
Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
Assets: | ||||||||||||
Investments held in Trust Account – Money market fund | $ | $ | $ | |||||||||
Liabilities: | ||||||||||||
Derivative warrant liabilities—Public Warrants | $ | $ | $ | — | ||||||||
Derivative warrant liabilities—Private Warrants | $ | $ | $ | |||||||||
Forward Purchase Agreement | $ | $ | $ | |||||||||
Convertible note – related party | $ | $ | $ |
Transfers to/from Levels 1, 2, and 3 are recognized at the beginning
of the reporting period. The estimated fair value of Public Warrants for $
Level 1 instruments include investments in money market funds invested in U.S. government securities. The Company uses inputs such as actual trade data, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
The initial fair value of the Public Warrants and Private Placement Warrants was measured at fair value using a stochastic trinomial tree model. The estimated fair value of the note payable—related party was estimated utilizing an intrinsic value model. Since January 2022 when the Public Warrants began being traded in an active market, the fair value of the Public Warrants began being measured using the publicly observable trading price, a Level 2 measurement as of December 31, 2022 due to the limited trading volume.
The estimated fair value of the Private Placement
Warrants is determined using Level 3 inputs. Inherent in a stochastic trinomial tree model are assumptions related to expected stock-price
volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its warrants based on implied
volatility from the Company’s traded warrants, once the Public Warrants were traded in an active market, and from historical volatility
of select peer company’s shares that matches the expected remaining life of the warrants. The risk-free interest rate is based on
the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The
expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical
rate, which the Company anticipates remaining at
19
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair value of the Forward Purchase Agreement was measured at fair value using a Monte Carlo simulation model, which was determined using Level 3 inputs. Inherent in the Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate, expected Business Combination close date and probability of a successful transaction. The Company estimates the volatility based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s shares that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. Any changes in these assumptions can change the valuation significantly.
For the three months ended March 31, 2023
and 2022, the Company recognized a loss/gain of approximately $
March 31, 2022 | March 31, 2023 | |||||||
Exercise price | $ | $ | ||||||
Stock price | $ | $ | ||||||
Volatility | % | % | ||||||
Term (years) | ||||||||
Risk-free rate | % | % | ||||||
Dividend yield | % | % |
The change in the fair value of derivative liabilities, measured using Level 3 inputs, for the three months ended March 31, 2023 and 2022 is summarized as follows:
Derivative warrant liabilities at December 31, 2022 | $ | |||
Change in fair value of derivative warrant liabilities | ||||
Derivative warrant liabilities at March 31, 2023 | $ |
Derivative warrant liabilities at December 31, 2021 | $ | |||
Transfer of Public Warrants to Level 1 | ( | ) | ||
Change in fair value of derivative warrant liabilities | ( | ) | ||
Derivative warrant liabilities at March 31, 2022 | $ |
The change in the fair value of the convertible note—related party, measured utilizing Level 3 measurements for the three months ended March 31, 2023, is summarized as follows:
Working capital loan – related party at December 31, 2022—Level 3 measurement | $ | |||
Proceeds from the convertible note—related party | ||||
Change in fair value of convertible note—related party—Level 3 measurement | ||||
Working capital loan – related party at March 31, 2023—Level 3 measurement | $ |
Note 11 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date that the condensed consolidated financial statements were issued. Based on this review, other than below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
On May 1, 2023, First Republic Bank became insolvent. Federal regulators seized the assets of the bank and negotiated a sale of its assets to JP Morgan Chase. The Company held deposits with this bank. As a result of the sale of the assets to JP Morgan Chase, the Company’s insured and uninsured deposits are held at JP Morgan Chase. The Company also moved the funds held in trust for the shareholders and invested in federal government securities through Morgan Stanley.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “our,” “us” or “we” refer to Blockchain Coinvestors Acquisition Corp. I. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”), as well as the Risk Factors section in Part II of this filing. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company on June 11, 2021. We were formed for the purpose of effectuating a Business Combination. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
Our Sponsor is Blockchain Coinvestors Acquisition Sponsors I LLC, a Delaware limited liability company. The registration statement for our Initial Public Offering was declared effective on November 9, 2021. On November 15, 2021, we consummated our Initial Public Offering of 30,000,000 Units, including 3,900,000 additional Over-Allotment Units, at $10.00 per Unit, generating gross proceeds of $300,000,000, and incurring offering costs and expenses of approximately $17.8 million of which approximately $11.3 million was for deferred underwriting commissions.
Each Unit consists of one Class A ordinary share of the Company, par value $0.0001 per share, and one-half of one redeemable warrant (each whole warrant, a “Public Warrant”). Each Public Warrant entitles the holder to purchase one Class A ordinary share for $11.50 per whole share.
Simultaneously with the consummation of the closing of the Initial Public Offering, we consummated the Private Placement of an aggregate of 1,322,000 Private Placement Units at a price of $10.00 per Private Placement Unit with the Sponsor, generating total gross proceeds of $13,220,000.
Following the closing of the Initial Public Offering and partial exercise of the over-allotment by the underwriters on November 15, 2021, an amount of $306,000,000 ($10.20 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Units was placed in the Trust Account in the United States maintained by Continental Stock Transfer & Trust Company, as trustee, and was invested, in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund meeting the conditions under Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.
Although we are not limited to a particular industry or sector for purposes of consummating a Business Combination, we have concentrated on sourcing business combination opportunities in the financial services, technology and other sectors of the economy that are being enabled by emerging applications of blockchain.
Our management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that we will be able to complete a Business Combination successfully. The Nasdaq rules provide that the initial Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the value of the Trust Account (excluding deferred underwriting costs and taxes payable on the income earned on the Trust Account) at the time of the Company’s signing a definitive agreement to enter a Business Combination. We will only complete a Business Combination if the post-business combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
21
We had until 18 months from the closing of the Initial Public Offering to complete a Business Combination, which has been extended to November 15, 2023 as described below. If we are unable to complete a Business Combination within this Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and our board of directors, liquidate and dissolve, subject in the case of clauses (ii) and (iii) to the Company’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless if we fail to complete a Business Combination within the Combination Period.
Shareholder Meeting, Extension, and Redemptions
On February 3, 2023, we held an extraordinary general meeting at which our shareholders approved a proposal to amend our Company’s amended and restated memorandum and articles of association to extend the date by which we have to consummate a business combination from May 15, 2023 to November 15, 2023 (the “Extension Amendment Proposal”). The Extension Amendment Proposal is described in more detail in our definitive proxy statement filed with the U.S. Securities and Exchange Commission on December 29, 2022.
In connection with the vote to approve the Extension Amendment Proposal, holders of 26,406,729 Class A ordinary shares of our Company exercised their right to redeem their shares for cash at a redemption price of approximately $10.38 per share, for an aggregate redemption amount of approximately $274.2 million. As a result, approximately $274.2 million has been removed from the Trust Account to redeem such shares and 4,915,271 Class A ordinary shares remain outstanding after the redemption, including 1,322,000 shares underlying the Private Placement Units. Upon payment of the redemption, approximately $37.3 million remained in the Trust Account.
Proposed Business Combination
As more fully described in Note 1 to the condensed consolidated financial statements in Part II Item 8 of this Annual Report on Form 10-K, on November 10, 2022, we entered into a Business Combination Agreement, with Merger Sub and Qenta Inc. The Business Combination Agreement provides for, among other things, the following transactions: (i) we will become a Delaware corporation and, in connection with the Domestication, (A) our name will be changed to “Qenta Inc.” and (B) each of our outstanding Class A ordinary shares and each of our outstanding Class B ordinary shares will become one share of common stock of New Qenta; and (ii) following the Domestication, Merger Sub will merge with and into Qenta, with Qenta as the surviving company in the merger and continuing as a wholly owned subsidiary of New Qenta.
In accordance with the terms and subject to the conditions of the Business Combination Agreement, (i) outstanding shares of Qenta (other than treasury shares and any Company Dissenting Shares (as defined in the Business Combination Agreement) will be exchanged for shares of New Qenta Common Stock and (ii) each outstanding Exchangeable Company RSU (as defined in the Business Combination Agreement) will be exchanged for comparable restricted stock units of New Qenta, based on an agreed upon equity value. Under the current terms of the Business Combination Agreement, we anticipate issuing 49,100,000 shares of New Qenta Common Stock to the equityholders of Qenta in the Qenta Business Combination.
22
The obligation of the Company and Qenta to consummate the Business Combination is subject to certain closing conditions, including, but not limited to, (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of any order, law or other legal restraint or prohibition issued by any court of competent jurisdiction or other governmental entity of competent jurisdiction enjoining or prohibiting the consummation of the Domestication or the Merger, (iii) the effectiveness of the Registration Statement on Form S-4 in accordance with the provisions of the Securities Act registering the New Qenta Common Stock to be issued in the Merger and the Domestication, (iv) the required approvals of our shareholders, (v) the approval of Qenta’s shareholders, (iv) the approval by Nasdaq of our listing application in connection with the Qenta Business Combination, (v) the consummation of the Domestication, (vi) the Company having at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended) remaining after the closing of the Qenta Business Combination, and (vii) the aggregate cash proceeds available to us after redemptions at least equaling our aggregate closing expenses. In addition to certain other customary closing conditions, our obligation to consummate the Qenta Business Combination is also conditioned upon our receipt of an executed executive employment agreement with Brent de Jong, Qenta’s Chief Executive Officer.
Results of Operations
Our entire activity since June 11, 2021 (inception) up to March 31, 2023 was in preparation for our formation and the Initial Public Offering and since the Initial Public Offering, our search for prospective Business Combination. We will not generate any operating revenues until the closing and completion of our initial Business Combination. We generate non-operating income in the form of investment income from our investments held in the Trust Account.
For the three months ended March 31, 2023 we had net loss of approximately $479,000 which consisted of approximately $818,000 in a non-operating loss from change in fair value of derivative liabilities, approximately $491,000 from change in fair value of forward purchase agreement, approximately $1.1 million of general and administrative expenses, and approximately $50,000 of general and administrative expenses to related party, offset by approximately $2 million of income from investments held in the Trust Account.
For the three months ended March 31, 2022 we had a net income of approximately $4.3 million, which consisted of approximately $4.7 million in non-operating gain from change in fair value of derivative liabilities, and approximately $8,000 of income from investments held in the Trust Account, offset by approximately $347,000 of general and administrative expenses, and $45,000 of general and administrative expenses to related party.
We will not be generating any operating revenues until the closing and completion of our initial Business Combination.
Going Concern, Liquidity and Capital Resources
As of March 31, 2023, we had approximately $73,000 of cash in our operating bank account and approximately $5.1 million of working capital deficit.
Our liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of $25,000 from our Sponsor to cover for certain offering costs on our behalf in exchange for the issuance of Founder Shares, and loan proceeds of $131,517 under a promissory note with the Sponsor. We repaid this promissory note in full on November 15, 2021. Our liquidity needs have otherwise been satisfied through the net proceeds from the consummation of the Initial Public Offering and the Private Placement. In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors, may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1.5 million of such Working Capital Loans may be convertible into private placement units at a price of $10.00 per unit.
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On June 15, 2022, the Company issued a promissory note for a Working Capital Loan, as described above, of $1,500,000 to the Sponsor for the Sponsor to provide additional working capital to the Company on an as-needed basis toward the consummation of a Business Combination. Only upon the closing of a Business Combination, outstanding working capital loans under this promissory note may, in the sole discretion of the Company, be paid off by applying the proceeds from the Trust Account upon the closing of the Business Combination. The June 2022 Note bears no interest and is due and payable upon the earlier to occur of (i) the date on which the Company consummates its initial Business Combination and (ii) the date that the winding up of the Company is effective. At the election of the Sponsor, all or any portion of the June 2022 Note may be converted into units of the Company upon the consummation of an initial Business Combination (the “Conversion Units”), equal to (x) the portion of the principal amount of the June 2022 Note being converted, divided by (y)$10.00. The Conversion Units are identical to the Private Placement Units issued by the Company to the Sponsor in connection with the Company’s Initial Public Offering. As of March 31, 2023, principal in the amount of $512,000 was outstanding, leaving $988,000 of borrowing capacity under the June 2022 Note. The June 2022 Note is carried at fair value and is presented as convertible note – related party on the accompanying condensed consolidated balance sheets at March 31, 2023 and December 31, 2022 with a balance of $525,824.
In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we have until November 15, 2023 to consummate a Business Combination. We do not have adequate liquidity to sustain operations, however, we have access to a Working Capital Loan from our Sponsor that management believes will enable us to sustain operations until we complete our initial Business Combination. If a Business Combination is not consummated by November 15, 2023, there will be a mandatory liquidation and subsequent dissolution of our Company. Management has determined that the liquidity issue and the mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution, raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after November 15, 2023. We intend to complete a Business Combination before the mandatory liquidation date. However, there can be no assurance that we will be able to consummate any Business Combination by November 15, 2023.
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, cash flows, and/or the closing of its initial Business Combination, the specific impact is not readily determinable as of the date of these condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy is not determinable as of the date of these condensed consolidated financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these condensed consolidated financial statements.
Off-Balance Sheet Arrangements
As of March 31, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Commitments and Contractual Obligations
As of March 31, 2023, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.
Administrative Services Agreement
Commencing on the date of the Initial Public Offering, we entered into an agreement to pay our Sponsor a total of $15,000 per month for secretarial and administrative services and office space provided to members of our management team. Upon completion of the Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees. Our Sponsor, executive officers and directors, or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.
Underwriting Agreement
On November 9, 2021, we granted the underwriters a 45-day option to purchase up to 3,915,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions. In connection with the Initial Public Offering, the underwriters exercised the over-allotment option for 3,900,000 Units and forfeited the remaining 15,000 Units.
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The underwriters earned an underwriting commission of $0.55 per Unit and $0.55 per Over-Allotment Unit, or $16,500,000 in the aggregate, of which $5,220,000 was paid upon the closing of the Initial Public Offering. The representatives of the underwriters agreed to defer underwriting commissions of 3.5% of the gross proceeds of the Initial Public Offering and 5.5% of the gross proceeds from the partial exercise of the over-allotment option. Upon and concurrently with the completion of our initial business combination, $11,280,000, which constitutes the underwriters’ deferred commissions will be paid to the underwriters from the funds held in the Trust Account.
The Company entered into an amended agreement with one of its underwriters (Cantor Fitzgerald) to reduce the amount of deferred underwriting fees associated with the Qenta Business Combination. Upon the successful completion of the Qenta Business Combination, the $6,800,000 deferred underwriting owed to Cantor Fitzgerald will be reduced by $3,400,000.
Forward Purchase Agreement
In connection with the Business Combination Agreement, we entered into the Forward Purchase Agreement as more fully described in the Proposed Business Combination section and Note 5 to the condensed consolidated financial statements.
Critical Accounting Estimates
The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. Excluding the valuation of derivative liabilities and convertible note -related party, we have not identified any critical accounting estimates.
Recent Accounting Standards
In June 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2022-03, Accounting Standards Codification (“ASC”) Subtopic 820, “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” The ASU amends ASC 820 to clarify that a contractual sales restriction is not considered in measuring an equity security at fair value and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. The ASU applies to both holders and issuers of equity and equity-linked securities measured at fair value. The amendments in this ASU are effective for the Company in fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is still evaluating the impact of this pronouncement.
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount. Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies. The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on its condensed consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed consolidated financial statements.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our chief executive officer and chief financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based upon their evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As of the date of this Quarterly Report on Form 10-Q, we believe that there have been no material changes to the risk factors disclosed in our Form 10-K filed with the SEC on April 17, 2023. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits.
* | Filed herewith. |
** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BLOCKCHAIN COINVESTORS ACQUISITION CORP. I | ||
Date: May 18, 2023 | By: |
/s/ Lou Kerner |
Lou Kerner | ||
Chief Executive Officer and Director (Principal Executive Officer) | ||
By: |
/s/ Mitchell Mechigian | |
Mitchell Mechigian | ||
Chief Financial Officer (Principal Accounting Officer) |
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