References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Blue Ocean Acquisition Corp. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to Blue Ocean Sponsor LLC. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere in this Quarterly Report. Certain information contained in
the discussion and analysis set forth below includes forward-looking statements
that involve risks and uncertainties. Our actual results may differ
significantly from the results, expectations and plans discussed in these
forward-looking statements. See "Special Note Concerning Forward-Looking
Statements."
Special Note Regarding Forward-Looking Statements
This Quarterly Report, including, without limitation, statements under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations," includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of
1934. Our forward-looking statements include, but are not limited to, statements
regarding our or our management team's expectations, hopes, beliefs, intentions
or strategies regarding the future. In addition, any statements that refer to
projections, forecasts or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. The words "anticipate," "believe," "continue," "could," "estimate,"
"expect," "intends," "may," "might," "plan," "possible," "potential," "predict,"
"project," "should," "would" and similar expressions may identify
forward-looking statements, but the absence of these words does not mean that a
statement is not forward-looking. The forward-looking statements contained in
this Quarterly Report are based on our current expectations and beliefs
concerning future developments and their potential effects on us. There can be
no assurance that future developments affecting us will be those that we have
anticipated. These forward-looking statements involve a number of risks,
uncertainties (some of which are beyond our control) or other assumptions that
may cause actual results or performance to be materially different from those
expressed or implied by these forward-looking statements. These risks and
uncertainties include, but are not limited to, those factors described under the
heading "Risk Factors" of the Company's Annual Report on Form 10-K filed with
the U.S. Securities and Exchange Commission (the "SEC") on March 30, 2022 and
under the heading "Item 1A. Risk Factors" of this Quarterly Report. Should one
or more of these risks or uncertainties materialize, or should any of our
assumptions prove incorrect, actual results may vary in material respects from
those projected in these forward-looking statements. We undertake no obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required under
applicable securities laws.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
for the purpose of effecting a merger, share exchange, asset acquisition, share
purchase, reorganization or similar business combination with one or more
businesses or entities. We intend to effectuate our initial Business Combination
using cash from the proceeds of the Public Offering, the sale of the Private
Placement Warrants and the Additional Private Placement Warrants, our capital
shares, debt or a combination of cash, shares and debt. The Company is an
"emerging growth company", and as such, the Company is subject to all risks
associated with emerging growth companies.
As of March 31, 2022 and December 31, 2021, we had cash of approximately
$882,587 and $1,050,670, respectively, and working capital of approximately
$875,370 and $1,184,733, respectively. We expect to continue to incur
significant costs in the pursuit of our acquisition plans. We cannot assure you
that our plans to raise capital or to complete a business combination will be
successful.
Results of Operations
We did not commence operations until after the closing of our Public Offering in
December 2021, and as of March 31, 2022, we have not engaged in any significant
operations nor generated any operating revenues to date. We will not generate
any operating revenues until after completion of our initial Business
Combination. We will generate non-operating income in the form of interest
income on cash and cash equivalents. There has been no significant change in our
financial or trading position and no material adverse change has occurred since
the date of our audited financial statements. We have incurred and expect to
continue to incur increased expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses.
24
--------------------------------------------------------------------------------
Table of Contents
For the three months ended March 31, 2022, we incurred a net loss of $6,036,374,
which was impacted by interest earned on marketable securities held in the Trust
Account of $60,407, change in fair value of warrant liability of $6,456,397,
unrealized loss on marketable securities held in the Trust Account of $106,693,
and changes in operating assets and liabilities, which provided $216,759 of cash
from operating activities.
Liquidity and Capital Resources
On December 7, 2021, we consummated our Public Offering of 16,500,000 Units and
the Private Placement of an aggregate of 8,235,000 private placement warrants,
generating gross proceeds of $173,235,000. On December 9, 2021, the Underwriter
exercised in full the option granted to them by the Company to purchase up to
2,475,000 additional Units to cover over-allotments, and we issued an additional
990,000 Private Placement Warrants in the Additional Private Placement,
generating total gross proceeds of $25,245,000.
Following our Public Offering, the exercise of the over-allotment option and the
sale of the Private Placement Warrants, a total of $193,545,000 was placed in
the Trust Account. We incurred $12,517,335 in transaction costs, including
$3,795,000 in cash underwriting fees, $6,641,250 of deferred underwriting fees,
$1,248,100 of offering costs related to the fair value of the Founder Shares
sold to Anchor Investor, and $832,985 of other offering costs.
For the three months ended March 31, 2022, cash used in operating activities was
$156,978. Net loss of $6,036,374 was impacted by interest earned on marketable
securities held in the Trust Account of $60,407, change in fair value of warrant
liability of $6,456,397, unrealized loss on marketable securities held in the
Trust Account of $106,693, and changes in operating assets and liabilities,
which provided $216,759 of cash from operating activities.
As of March 31, 2022, and December 31, 2021, we had investments of $193,503,647
and $193,549,933 held in the Trust Account, respectively. We intend to use
substantially all of the funds held in the Trust Account, including any amounts
representing interest earned on the Trust Account (less taxes paid and deferred
underwriting commissions) to complete our initial Business Combination. We may
withdraw interest to pay taxes. During the three months ended March 31, 2022 and
the year ended December 31, 2021, we did not withdraw any interest earned on the
Trust Account. To the extent that our capital stock or debt is used, in whole or
in part, as consideration to complete our initial Business Combination, the
remaining proceeds held in the Trust Account will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
As of March 31, 2022 and December 31, 2021, we had cash of $882,587 and
$1,050,670 outside of the Trust Account, respectively. We intend to use the
funds held outside the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete our initial Business Combination.
In addition, in order to fund working capital deficiencies or finance
transaction costs in connection with an intended initial Business Combination,
our sponsor or an affiliate of our sponsor or certain of our officers and
directors may, but are not obligated to, loan us funds as may be required. If we
complete our initial Business Combination, we would repay such loaned amounts
out of the proceeds of the Trust Account released to us. Otherwise, such loans
may be repaid only out of funds held outside the Trust Account. In the event
that our initial Business Combination does not close, we may use a portion of
the working capital held outside the Trust Account to repay such loaned amounts
but no proceeds from our Trust Account would be used to repay such loaned
amounts. Up to $1,500,000 of such loans may be convertible into warrants of the
post-business combination company, at a price of $1.00 per warrant at the option
of the lender.
25
--------------------------------------------------------------------------------
Table of Contents
We do not currently believe we will need to raise additional funds in order to
meet the expenditures required for operating our business. However, if our
estimate of the costs of identifying a target business, undertaking in-depth due
diligence and negotiating our initial Business Combination are less than the
actual amount necessary to do so, we may have insufficient funds available to
operate our business prior to our initial Business Combination. Moreover, we may
need to obtain additional financing either to complete our initial Business
Combination or because we become obligated to redeem a significant number of our
public shares upon consummation of our initial Business Combination, in which
case we may issue additional securities or incur debt in connection with such
business combination. Subject to compliance with applicable securities laws, we
would only complete such financing simultaneously with the completion of our
initial Business Combination. If we are unable to complete our initial Business
Combination because we do not have sufficient funds available to us, we will be
forced to cease operations and liquidate the Trust Account. In addition,
following our initial Business Combination, if cash on hand is insufficient, we
may need to obtain additional financing in order to meet our obligations.
Off-Balance Sheet Financing Arrangements
On March 31, 2022, we did not have any obligations, assets or liabilities that
would be considered off-balance sheet arrangements as defined in Item
303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual
obligations.
Contractual Obligations
Administrative Support Agreement
On December 2, 2021, the Company entered into an Administrative Support
Agreement pursuant to which the Company may reimburse an affiliate of the
Sponsor up to an amount of $10,000 per month for office space and secretarial
and administrative support.
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and any warrants
that may be issued upon conversion of the Working Capital Loans (and in each
case holders of their component securities, as applicable) are entitled to
registration rights pursuant to a registration rights agreement effective
December 2, 2021, which requires the Company to register such securities for
resale (in the case of the Founder Shares, only after conversion to our Class A
ordinary shares). The holders of the majority of these securities are entitled
to make up to three demands, excluding short form demands, that the Company
register such securities. In addition, the holders have certain "piggy-back"
registration rights with respect to registration statements filed subsequent to
the consummation of a business combination and rights to require the Company to
register for resale such securities pursuant to Rule 415 under the Securities
Act. The Company will bear the expenses incurred in connection with the filing
of any such registration statements.
Underwriter's Agreement
The Company paid a cash underwriting discount of 2.00% of the gross proceeds of
the Public Offering, or $3,795,000 due to the exercise of the over-allotment
option in full. In addition, the underwriter will be entitled to a deferred fee
of three and a half percent (3.50%) of the gross proceeds of the Public
Offering, or $6,641,250. The deferred fee will become payable to the underwriter
from the amounts held in the Trust Account solely in the event that the Company
completes a business combination, subject to the terms of the underwriting
agreement. The underwriter has reimbursed the Company for $550,000 for offering
expenses. The reimbursement of these costs has been accounted for as a reduction
to offering costs of the Public Offering.
Critical Accounting Policies
This management's discussion and analysis of our financial condition and results
of operations is based on our unaudited financial statements, which have been
prepared in accordance with GAAP. The preparation of our unaudited financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities in our unaudited financial statements. On an
ongoing basis, we evaluate our estimates and judgments, including those related
to fair value of financial instruments and accrued expenses. We base our
estimates on historical experience, known trends and events and various other
factors that we believe to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
26
--------------------------------------------------------------------------------
Table of Contents
Warrant Liabilities
The Company accounts for the Warrants as either equity-classified or
liability-classified instruments based on an assessment of the specific terms of
the Warrants and the applicable authoritative guidance in ASC 480 and ASC 815.
The assessment considers whether they are freestanding financial instruments
pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and
meet all of the requirements for equity classification under ASC 815, including
whether the Warrants are indexed to the Company's own common shares and whether
the holders of the Warrants could potentially require "net cash settlement" in a
circumstance outside of the Company's control, among other conditions for equity
classification. This assessment, which requires the use of professional
judgment, is conducted at the time of issuance of the Warrants and as of each
subsequent quarterly period end date while the Warrants are outstanding. For
issued or modified warrants that meet all of the criteria for equity
classification, such warrants are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
warrants that do not meet all the criteria for equity classification, such
warrants are required to be recorded at their initial fair value on the date of
issuance, and each balance sheet date thereafter. Changes in the estimated fair
value of liability-classified warrants are recognized as a non-cash gain or loss
on the statement of operations.
Class A Ordinary Shares Subject to Possible Redemption
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. Our Class A
ordinary shares feature certain redemption rights that are considered to be
outside of our control and subject to the occurrence of uncertain future events.
Accordingly, at March 31, 2022 and December 31, 2021, 18,975,000 shares of Class
A ordinary shares subject to possible redemption are presented as temporary
equity, outside of the shareholders' deficit section of the Company's condensed
balance sheets.
Net Income Per Ordinary Share
Basic income per ordinary share is computed by dividing net income applicable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. Consistent with ASC 480, ordinary shares subject
to possible redemption, as well as their pro rata share of undistributed trust
earnings consistent with the two-class method, have been excluded from the
calculation of income per ordinary share for the three month period ended March
31, 2022 and the period from March 26, 2021 (inception) to December 31, 2021.
Such shares, if redeemed, only participate in their pro rata share of trust
earnings. Diluted income per share includes the incremental number of ordinary
shares to be issued to settle warrants, as calculated using the treasury method.
For the period from December 31, 2021 to March 31, 2022, the Company did not
have any dilutive warrants, securities or other contracts that could
potentially, be exercised or converted into ordinary shares. As a result,
diluted income per ordinary share is the same as basic income per ordinary share
for all periods presented.
Recently Issued Accounting Standards
In August 2020, the FASB issued Accounting Standards Update ("ASU") 2020-06,
Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06")
to simplify accounting for certain financial instruments. ASU 2020-06 eliminates
the current models that require separation of beneficial conversion and cash
conversion features from convertible instruments and simplifies the derivative
scope exception guidance pertaining to equity classification of contracts in an
entity's own equity. The new standard also introduces additional disclosures for
convertible debt and freestanding instruments that are indexed to and settled in
an entity's own equity. ASU 2020-06 amends the diluted earnings per share
guidance, including the requirement to use the if-converted method for all
convertible instruments. As a smaller reporting company, ASU 2020-06 is
effective January 1, 2024 and should be applied on a full or modified
retrospective basis, with early adoption permitted beginning on January 1, 2021.
The Company is currently assessing the impact, if any, that ASU 2020-06 would
have on its financial position, results of operations or cash flows.
27
--------------------------------------------------------------------------------
Table of Contents
Management does not believe that any recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
the Company's financial statements.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. 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 a
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. We have elected to irrevocably 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,
we will adopt the new or revised standard at the time public companies adopt the
new or revised standard. This may make comparison of our financial statements
with another emerging growth company that has not opted out of using the
extended transition period difficult or impossible because of the potential
differences in accountant standards used.
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 Public Company
Accounting Oversight Board 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 Chief
Executive Officer's compensation to median employee compensation. These
exemptions will apply for a period of five years following the completion of our
Public Offering or until we are no longer an "emerging growth company,"
whichever is earlier.
28
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source Glimpses