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 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 merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or
other similar business combination with one or more businesses (the "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 "Sponsor"). The registration statement for our
initial public offering (the "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 (the "Units" and, with respect to the Class A
ordinary shares included in the Units being offered, the "Public Shares"),
including 3,900,000 additional Units to cover the underwriters' over-allotment
(the "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 ("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
Units (each, a "Private Placement Unit" and collectively, the "Private Placement
Units"), at a price of $10.00 per Private Placement Unit with the Sponsor,
generating total gross proceeds of $13,220,000 (the "Private Placement").
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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 a trust account (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 of 1940, as amended (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 intend to concentrate 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.
We will have until 18 months from the closing of the Initial Public Offering to
complete a Business Combination (the "Combination Period"). If we are unable to
complete a Business Combination within the 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.
Proposed Business Combination
As more fully described in Note 11 to the unaudited condensed financial
statements in Item 1 of this Quarterly Report on Form 10-Q, on November 10,
2022, we entered into a Business Combination Agreement (as it may be amended,
supplemented or otherwise modified from time to time, the "Business Combination
Agreement"), with BCSA Merger Sub, Inc., a Delaware corporation ("Merger Sub"),
and Qenta Inc., a Delaware corporation ("Qenta"). The Business Combination
Agreement provides for, among other things, the following transactions: (i) we
will become a Delaware corporation (the "Domestication") and, in connection with
the Domestication, (A) our name will be changed to "Qenta Inc." ("New Qenta")
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 (the "New Qenta Common Stock"); 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 (the
"Merger").
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. 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 (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 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 $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.
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 are included with a Current Report on Form 8-K filed
with the SEC by us on November 10, 2022.
Results of Operations
Our entire activity since June 11, 2021 (inception) up to September 30, 2022 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 September 30, 2022 we had net income of approximately
$431,000 which consisted of approximately $117,000 in a non-operating gain from
change in fair value of derivative liabilities, and approximately $1.5 million
of income from investments held in the Trust Account, offset by approximately
$1,174,000 of general and administrative expenses, and $45,000 of general and
administrative expenses to related party.
For the three months ended September 30, 2021, we had a net loss of $5,000,
which was comprised of formation costs of $5,000.
For the nine months ended September 30, 2022 we had a net income of
approximately $8.3 million, which consisted of approximately $9.8 million in
non-operating gain from change in fair value of derivative liabilities, and
approximately $1.7 million of income from investments held in the Trust Account,
offset by approximately $3.1 million of general and administrative expenses, and
$135,000 of general and administrative expenses to related party.
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For the period from June 11, 2021 (inception) through September 30, 2021, we had
a net loss of $5,000, which was comprised of formation costs of $5,000.
Liquidity and Going Concern
As of September 30, 2022, we had approximately $85,000 of cash in our operating
bank account and a working capital deficit of approximately $2.8 million. 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 issuance of Founder Shares, and
loan proceeds of $131,517 under a promissory note. We repaid the 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. As of December 31,
2021, there were no amounts outstanding under any 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 will 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 September 30, 2022, $170,000 was drawn and remains outstanding under the
June 2022 Note.
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 May 9, 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 May 9,
2023, there will be a mandatory liquidation and subsequent dissolution of our
Company. Management has determined that 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 May 9, 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
May 9, 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 search for a target company, the specific impact
is not readily determinable as of the date of these condensed financial
statements. The condensed 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 are not determinable as of the date of these
condensed 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 financial statements.
Commitments and Contractual Obligations
As of September 30, 2022, we did not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities.
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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 received a cash underwriting discount 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 have 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.
Related Party Convertible Promissory Note
On June 15, 2022, the Company issued the June 2022 Note to the Sponsor, pursuant
to which the Sponsor will loan up to $1,500,000 to the Company for working
capital purposes. As of September 30, 2022, $170,000 was drawn and remains
outstanding under the June 2022 Note.
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 financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. Excluding the valuation of derivative warrant liabilities, we have
not identified any critical accounting estimates.
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 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 financial statements.
JOBS Act
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.
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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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