Forward-Looking Statements
All statements other than statements of historical fact included in this annual
report including, without limitation, statements under this "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding our financial position, business strategy and the plans
and objectives of management for future operations, are forward looking
statements. When used in this annual report, words such "may," "should,"
"could," "would," "expect," "plan," "anticipate," "believe," "estimate,"
"continue," or the negative of such terms or other similar expressions, as they
relate to us or our management, identify forward-looking statements. Factors
that might cause or contribute to such a discrepancy include, but are not
limited to, those described in our other SEC filings. Such forward-looking
statements are based on the beliefs of management, as well as assumptions made
by, and information currently available to, our management. No assurance can be
given that results in any forward-looking statement will be achieved and actual
results could be affected by one or more factors, which could cause them to
differ materially. The cautionary statements made in this annual report should
be read as being applicable to all forward-looking statements whenever they
appear in this annual report. For these statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act. Actual results could differ materially from
those contemplated by the forward-looking statements as a result of certain
factors detailed in our filings with the SEC. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are qualified in their entirety by this paragraph.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
and formed for the purpose of effecting a merger, amalgamation, share exchange,
asset acquisition, share purchase, reorganization or similar business
combination with one or more businesses, which we refer to throughout this
Annual Report as our initial business combination. Although we will not be
limited to a particular industry or geographic region in our identification and
acquisition of a target company, we intend to focus our search on Mexican target
businesses or target businesses with a significant presence in Mexico.
We must complete one or more initial business combination having an aggregate
fair market value of at least 80% of the net assets held in the trust account
(excluding the deferred underwriting commissions and taxes payable on the
interest earned on the trust account) at the time of the signing of the
agreement to enter into the initial Business Combination. However, we will only
complete a business combination if the post-transaction 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.
If we are unable to complete an initial business combination within the Business
Combination Period, we will (1) cease all operations except for the purpose of
winding up, (2) as promptly as reasonably possible but not more than 10 business
days thereafter, redeem 100% of 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 (less up to $100,000 of interest to pay dissolution expenses
and which interest shall be net of taxes payable), divided by the number of then
issued and outstanding public shares, which redemption will completely
extinguish public shareholders' rights as shareholders (including the right to
receive further liquidating distributions, if any) and (3) as promptly as
reasonably possible following such redemption, subject to the approval of our
remaining shareholders and our board of directors, liquidate and dissolve,
subject in the case of clauses (2) and (3), to our obligations under Cayman
Islands law to provide for claims of creditors and the requirements of other
applicable law.
On August 17, 2022, we, entered into a Business Combination Agreement with
Covalto and Covalto 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
us, with our company being the surviving entity in the Merger and continuing
(immediately following the Merger) as a direct wholly-owned subsidiary of New
Covalto, on the terms and subject to the conditions of Business Combination.
As a result of the proposed business combination, each of our issued and
outstanding Class A ordinary share, par value US$0.0001 per share, and Class B
ordinary share, par value US$0.0001 per share, will be automatically surrendered
and exchanged for the right to receive one New Covalto Class A Ordinary Share
and one New Covalto Class A Ordinary Shares, and each issued and outstanding
LIVB Warrant will be converted into and become a warrant to purchase a New
Covalto Warrant, and New Covalto shall assume each such LIVB Warrant in
accordance with its terms.
On April 10, 2023, the Company amended the Original Business Combination
Agreement, entering into the Second Business Combination Agreement, (the
"Business Combination Agreement") extending the extension date from May 10, 2023
to February 10, 2024.
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The transaction has been unanimously approved by our board of directors and the
board of directors of Covalto, and is expected to close in the second quarter of
2023, subject to, among other things, SEC review, approval by our shareholders,
regulatory approvals, and satisfaction of other customary closing conditions.
On August 16, 2022, the Company entered into that certain redemption agreement
(the "Redemption Agreement") with (i) the sponsor and (ii) certain limited
partners of the sponsor and the LIV Sponsor II GP, LLC (each, a "Rollover Party"
and collectively, the "Rollover Parties"). In connection with the Redemption
Agreement, the Rollover Parties, the sponsor and LIVB implemented the following
transactions in the order in which they are listed (collectively, the "Rollover
Redemption"):
i. The sponsor mandatorily withdrew each Rollover Party's Class S Units and Class
W Units in exchange for an aggregate of 1,929,083 LIVB Class B ordinary shares
and 3,293,333 Private Placement Warrants, respectively; and
ii. LIVB repurchased each Rollover Party's Class B ordinary shares and redeemed
each Rollover Party's Private Placement Warrants in exchange for a promissory
note (each such note, a "Promissory Note") in an aggregate amount of
$3,158,835, which is equal to the amount of equity contributed by each
Rollover Party indirectly or directly to LIVB.
As a result of the Redemption Agreement, the Company purchased 1,929,083 Class B
ordinary shares and redeemed 3,293,333 Private Placement Warrants in exchange
for the Promissory Notes. The Company evaluated the Promissory Notes and
Redemption Agreement pursuant to ASC 480 and ASC 815. The Company determined
that the Company should record the Promissory Notes at face value. The fair
value of the Class B ordinary shares purchased was $1.85 per share and the fair
value of the Private Placement Warrants redeemed was $0.10 per warrant, for a
total fair value of $3,898,137.
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 December 31, 2022
were organizational activities, those necessary to prepare for our initial
public offering, and identifying a target company for a business combination. 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 in
connection with completing a business combination.
For the year ended December 31, 2022, we had a net loss of $1,662,229, which
consists of operating and formation costs of $3,383,603, 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 $1,719,512.
For the period from February 11, 2021 (inception) through December 31, 2021, we
had a net loss of $11,080, which consists of operating and 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.
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For the year ended December 31, 2022, cash used in operating activities was
$577,879. Net loss of $1,662,229 was affected by interest earned on marketable
securities held in the Trust Account of $1,719,512 and change in fair value of
over-allotment option of $1,862. Changes in operating assets and liabilities
provided $2,805,724 of cash for operating activities.
For the period from February 11, 2021 (inception) through December 31, 2021,
cash used in operating activities was $0. Net loss of $11,080 was affected by
formation cost paid by Sponsor in exchange for issuance of founder shares of
$7,393. Changes in operating assets and liabilities provided $3,687 of cash for
operating activities.
As of December 31, 2022, we had marketable securities held in the Trust Account
of $118,509,513 (including approximately $1,719,513 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 December 31, 2022, we had cash of $1,264. 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.
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 Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 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.
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Commitments and 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 year
ended December 31, 2022, the Company incurred $110,000 for these services, of
which $110,000 is recorded as accrued expenses in the balance sheets as of
December 31, 2022. For the period from February 11, 2021 (inception) through
December 31, 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.
Critical Accounting Policies
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. 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' (deficit) 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' (deficit) equity section of our balance
sheets.
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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 December 31, 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 December 31, 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
financial statements.
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LIV CAPITAL ACQUISITION CORP. II 
