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
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in conjunction with the audited financial statements and the notes related
thereto which are included in "Item 8. Financial Statements and Supplementary
Data" of this Annual Report on Form 10-K. Certain information contained in the
discussion and analysis set forth below includes forward-looking statements. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including those set forth under "Cautionary Note Regarding Forward-Looking
Statements and Risk Factor Summary," "Item 1A. Risk Factors" and elsewhere in
this Annual Report on Form 10-K.
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
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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.
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 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
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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.
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.
In addition, in connection with the execution of the Business Combination
Agreement, we 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. Pursuant to the Forward Purchase
Agreement, the FPA Seller intends, but is not obligated, to purchase after the
date of our redemption deadline through a broker in the open market our Class A
ordinary shares, including such shares that holders had elected to redeem
pursuant to our 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 12,000,000 Shares. The FPA Seller has agreed to not beneficially
own more than 9.9% of the New Qenta Common Stock on a post-combination pro forma
basis.
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 funds held in our 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 10% (the "Shortfall Amount") on the date of such prepayment. New Qenta will
also deliver the FPA Seller an amount equal to the product of 500,000 multiplied
by the Redemption Price to repay the FPA Seller for having purchased up to an
additional 500,000 Class A ordinary shares of the Company, which shall not be
included in the Number of Shares or the Terminated Shares (as defined in the
Forward Purchase Agreement).
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)
$10.00 and (c) the VWAP Price (as defined in the Forward Purchase Agreement) of
the last ten (10) scheduled trading days of the prior calendar month, but not
lower than
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$5.00; provided, however, that, subject to certain exceptions, if we offer and
sell shares of New Qenta Common Stock in a follow-on offering, or series of
related offerings, at a price lower than, or upon any conversion or exchange
price of currently outstanding or future issuances of any securities convertible
or exchangeable for shares of New Qenta Common Stock being equal to a price
lower than, the then-current Reset Price (the "Offering Price"), then the Reset
Price shall be further reduced to equal the Offering Price. The payment of the
Reset Price will not apply to sales of the Subject Shares or Additional Shares
that provide proceeds to cover the FPA Sellers for the Shortfall Amount.
The Forward Purchase Agreement has a tenure of 36 months ("Maturity Date"),
after which time New Qenta will be required to purchase from the FPA Seller such
number of shares equal to the Maximum Number of Shares (as defined in the
Forward Purchase Agreement) less the Terminated Shares (as such terms are
defined in the Forward Purchase Agreement) for consideration, settled in cash or
New Qenta Common Stock, equal to the Maturity Consideration, which is the amount
of (a) in the case of cash, the product of the Maximum Number of Shares less the
Terminated Shares and $1.75 and (b) in the case of New Qenta Common Stock, such
number of New Qenta Common Stock with a value equal to the product of the
Maximum Number of Shares less the Terminated Shares and $1.75 divided by the
VWAP Price of the Shares for the 30 trading days prior to the Maturity Date. In
certain circumstances, the Maturity Date may be accelerated, as described in the
Forward Purchase Agreement.
We 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 $75,000), plus (ii) $350,000, if
we or Qenta terminate the Forward Purchase Agreement prior to the FPA Sellers
purchasing shares under the agreement, other than because the Qenta Business
Combination did not close or Class A Ordinary Share redemptions were less than
80%.
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. In light of the reduction in Public Shares following the redemption in
connection with the Extension Amendment Proposal discussed above, we may
consider alternative financing restructures.
Results of Operations
Our entire activity since June 11, 2021 (inception) up to December 31, 2022
related to our formation, the Initial Public Offering, and following the closing
of the Initial Public Offering, the search for a prospective initial Business
Combination, including due diligence and negotiations undertaken with respect to
potential Business Combination targets.
For the year ended December 31, 2022, we had a net income of approximately
$9.3 million, which consisted of approximately $9.9 million in non-operating
gain from change in fair value of derivative liabilities, and approximately
$4.3 million of income earned on investments held in Trust Account, offset by
approximately $4.1 million of general and administrative expenses, $180,000 of
general and administrative expenses-related party, approximately $527,000 of
loss on issuance of the Forward Purchase Agreement, and approximately $14,000
from a change in fair value of convertible note - related party.
For the period from June 11, 2021 (inception) through December 31, 2021, we had
a net loss of approximately $359,000, which consisted of approximately $315,000
of general and administrative expenses, approximately $27,000 of general and
administrative expenses to related party, and approximately $659,000 in offering
costs associated with derivative liabilities, offset by approximately $641,000
in net operating gain from change in fair value of derivative liabilities, and
approximately $1,000 of income earned on investments held in the Trust Account.
We will not be generating any operating revenues until the closing and
completion of our initial Business Combination.
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Going Concern, Liquidity and Capital Resources
As of December 31, 2022, we had approximately $255,000 of cash in our operating
bank account and approximately $3.9 million of working capital deficit,
inclusive of a related party note payable to the Sponsor in an amount equal to
$512,000.
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 addition, 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, provide the Company with working
capital loans.
On June 15, 2022, the Company issued a promissory note (the "June 2022 Note") in
the principal amount of up to $1,500,000 to the Sponsor, pursuant to which the
Sponsor agreed to loan up to $1,500,000 to the Company for working capital
purposes. 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 December 31, 2022, a principal amount of $512,000 was drawn and
remains 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 consolidated balance sheets
with a balance of approximately $526,000.
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
consolidated financial statements. The 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
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 consolidated financial statements.
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Off-Balance Sheet Arrangements
As of December 31, 2022, 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 December 31, 2022, 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.
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.
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 consolidated financial statements included
in Item II Part 8 of the Annual Report on Form 10-K.
Critical Accounting Estimates
The preparation of 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 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
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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.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
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.
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.
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