References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to LIV Capital Acquisition Corp. II. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to LIV Capital Acquisition Sponsor II, L.P.
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.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
that are not historical facts and involve risks and uncertainties that could
cause actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
completion of the Proposed Business Combination (as defined below), the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements, including that the conditions of
the Proposed Business Combination are not satisfied. 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 final prospectus for its Initial Public
Offering filed with the U.S. Securities and Exchange Commission (the "SEC"). 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 in the Cayman Islands on February 11,
2021 formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, recapitalization, reorganization or similar
business combination with one or more businesses or entities. We intend to
effectuate our Business Combination using cash derived from the proceeds of the
Initial Public Offering and the sale of the Private Placement Warrants, our
shares, debt or a combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Recent Developments
On August 17, 2022, we entered into the Business Combination Agreement with
Covalto and Merger Sub, pursuant to which, among other things, Covalto will make
an election to be classified as an association taxable as a corporation for U.S.
federal income tax purposes and effect a Pre-Closing Capital Restructuring, and
Merger Sub will subsequently be merged with and into LIVB, with LIVB being the
surviving entity in the Merger and continuing (immediately following the Merger)
as a direct wholly-owned subsidiary of Covalto, on the terms and subject to the
conditions set forth therein.
As a result of the proposed business combination, each issued and outstanding
Class A ordinary share of LIVB and Class B ordinary share of LIVB will be
automatically surrendered and exchanged for the right to receive one
newly-issued Class A ordinary share, par value US$0.0001 per share, of New
Covalto, and each issued and outstanding LIVB Warrant will be converted into and
become a warrant to purchase New Covalto Class A Ordinary Shares, and New
Covalto shall assume each such LIVB Warrant in accordance with its terms.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from February 11, 2021 (inception) through September 30,
2022 were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, identifying a target company for a Business
Combination and activities in connection with the proposed acquisition of
Covalto. We do not expect to generate any operating revenues until after the
completion of our Business Combination. We generate non-operating income in the
form of interest income on marketable securities held in the Trust Account. We
incur expenses as a result of being a public company (for legal, financial
reporting, accounting and auditing compliance), as well as for due diligence
expenses.
For the three months ended September 30, 2022, we had a net loss of $1,105,157,
which consists of operating costs of $1,655,889, offset by interest income on
marketable securities held in the Trust Account of $550,732.
For the nine months ended September 30, 2022, we had a net loss of $1,965,041,
which consists of operating costs of $2,670,786, offset by change in fair value
of over-allotment option of $1,862 and interest income on marketable securities
held in the Trust Account of $703,883.
For the period ended September 30, 2021, we had a net loss of $7,393 which
consisted of formation costs.
Liquidity and Capital Resources
On February 10, 2022, we consummated the Initial Public Offering of 10,000,000
Units, generating gross proceeds of $100,000,000. Simultaneously with the
closing of the Initial Public Offering, we consummated the sale of 5,500,000
Private Placement Warrants at a price of $1.00 per Private Placement Warrant in
a private placement to the Sponsor, generating gross proceeds of $5,500,000.
On February 15, 2022, the underwriters partially exercised their over-allotment
option, resulting in an additional 1,450,000 Public Shares issued for an
aggregate amount of $14,500,000. A total of $14,790,000 was deposited into the
Trust Account, bringing the aggregate proceeds held in the Trust Account to
$116,790,000.
Following the Initial Public Offering, the partial exercise of the
over-allotment option, and the sale of the Private Units, a total of
$116,790,000 was placed in the Trust Account. We incurred $3,888,278 of
transaction costs in Initial Public Offering and partial exercise of the
over-allotment option, consisting of $2,290,000 of underwriting fees, and
$1,598,278 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $526,005. Net loss of $1,965,041 was affected by interest earned on
marketable securities held in the Trust Account of $703,883 and change in fair
value of over-allotment option of $1,862. Changes in operating assets and
liabilities provided $2,144,781 of cash for operating activities.
For the period from February 11, 2021 (inception) through September 30, 2021,
cash used in operating activities was $0.
As of September 30, 2022, we had marketable securities held in the Trust Account
of $117,493,883 (including approximately $703,883 of interest income and
unrealized gains) consisting of U.S. Treasury Bills with a maturity of 185 days
or less. We may withdraw interest from the Trust Account to pay taxes, if any.
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
income taxes payable), to complete our Business Combination. To the extent that
our share capital or debt is used, in whole or in part, as consideration to
complete our 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 September 30, 2022, we had cash of $3,998. 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, structure, negotiate and complete a
Business Combination.
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In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a 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 for
such repayment. Up to $1,500,000 of such loans may be convertible into warrants
at a price of $1.00 per warrant, at the option of the lender. The warrants would
be identical to the Private Placement Warrants.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's ("FASB") Accounting
Standards Codification Subtopic 205-40, "Presentation of Financial Statements -
Going Concern," management has determined that the liquidity condition and date
for mandatory liquidation and dissolution raise substantial doubt about the
Company's ability to continue as a going concern through approximately one year
from the date these financial statements were issued. No adjustments have been
made to the carrying amounts of assets or liabilities should the Company be
required to liquidate after May 10, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual obligations
The Company entered into an agreement on February 7, 2022, pursuant to which
will pay the Sponsor up to $10,000 per month for office space, administrative
and support services. Upon completion of a Business Combination or its
liquidation, the Company will cease paying these monthly fees. For the three
and nine months ended September 30, 2022, the Company incurred $30,000 and
$80,000 for these services, of which such amounts are recorded as accrued
expenses in the balance sheet as of September 30, 2022. For the three months
ended September 30, 2021 and for the period from February 11, 2021 (inception)
through September 30, 2021, the Company did not incur any fees for these
services.
The Company granted the underwriters a 45-day option from the date of the
Initial Public Offering to purchase up to 1,500,000 additional Units to cover
over-allotments, if any, at the Initial Public Offering price less the
underwriting discounts and commissions. On February 15, 2022, the underwriters
elected to partially exercise the over-allotment option to purchase an
additional 1,450,000 Public Shares at a price of $10.00 per Public Share.
The underwriters were entitled to a cash underwriting discount of $0.20 per
Unit, or $2,290,000 in the aggregate which was paid upon the closing of the
Initial Public Offering and partial exercise of the over-allotment options.
The Company engaged EarlyBirdCapital, Inc. ("EBC") as an advisor in connection
with the Business Combination to assist the Company in holding meetings with the
Company's shareholders to discuss the potential Business Combination and the
target business' attributes, introduce the Company to potential investors that
are interested in purchasing the Company's securities in connection with the
initial Business Combination, assist the Company in obtaining shareholder
approval for the Business Combination and assist the Company with press releases
and public filings in connection with the Business Combination. The Company will
pay EBC a cash fee for such services upon the consummation of the initial
Business Combination in an amount equal to 3.5% of the gross proceeds of the
Initial Public Offering (exclusive of any applicable finders' fees which might
become payable); provided that up to 25% of the fee may be allocated at the
Company's sole discretion to other FINRA members that assist the Company in
identifying and consummating an initial Business Combination.
The Company entered into a finder's fee agreement with a consultant to assist
the Company in facilitating a Business Combination with one or more targets,
subject to certain conditions. The finder will only be compensated in the event
that the Business Combination is consummated with a target sourced by the
finder. The Company shall pay the finder a fee of $300,000, plus applicable tax.
In connection with the Business Combination, the Company shall pay a financing
fee to the finder cash fee equal to 2% of all PIPE funds received and accepted
by the Company from investors sourced by the finder, subject to certain
conditions.
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Critical Accounting Policies
The preparation of condensed 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. We have identified the following critical accounting policies:
Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory
redemption are classified as a liability instrument and measured at fair value.
Conditionally redeemable ordinary shares (including 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 our
control) are classified as temporary equity. At all other times, ordinary shares
are classified as shareholders' equity. Our ordinary shares feature certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, ordinary shares subject
to possible redemption are presented at redemption value as temporary equity,
outside of the shareholders' equity section of our condensed balance sheets.
Net Loss per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share". Net income loss per ordinary share is computed by dividing
net income loss by the weighted average number of ordinary shares outstanding
for the period. Subsequent measurement of the redeemable shares of Class A
ordinary shares is excluded from income loss per ordinary share as the
redemption value approximates fair value.
The calculation of diluted income loss per ordinary share does not consider the
effect of the warrants underlying the units issued in connection with the (i)
Initial Public Offering, and (ii) the private placement, since the exercise of
the warrants is contingent upon the occurrence of future events. The outstanding
warrants are exercisable to purchase 10,794,167 Class A ordinary shares in the
aggregate. As of September 30, 2022, we did not have any dilutive securities or
other contracts that could, potentially, be exercised or converted into ordinary
shares and then share in the earnings of the Company, except for the 362,500
Founder Shares in September 30, 2022 which are no longer forfeitable and thus
included for dilutive purposes.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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