The accompanying notes are an integral part of
the unaudited condensed financial statements.
The accompanying notes are an integral part of
the unaudited condensed financial statements.
The accompanying notes are an integral part of
the unaudited condensed financial statements.
The accompanying notes are an integral part of
the unaudited condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
LIV Capital Acquisition Corp. II
(the “Company” or “LIVB”) is a blank check company incorporated in the Cayman Islands on February 11, 2021.
The Company was 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 (“Business Combination”).
Although the Company is not
limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus
on Mexican target businesses (or non-Mexican target businesses with a significant presence in Mexico). The Company is an early stage and
emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2022, the Company had not commenced any operations.
All activity for the period from February 11, 2021 (inception) through September 30, 2022, relates to the Company’s formation,
the initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering,
identifying a target company for a Business Combination. On August 17, 2022, the Company entered into a Business Combination Agreement
by and among the Company, Covalto Ltd., a Cayman Islands exempted company (“Covalto”) and Covalto Merger Sub. The Business
Combination Agreement and other parties thereto, are described in Note 6. The Company will not generate any operating revenues until after
the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from
the proceeds derived from the Initial Public Offering.
The registration statement
for the Company’s Initial Public Offering was declared effective on February 7, 2022. On February 10, 2022, the Company consummated
the Initial Public Offering of 10,000,000 units (the “Units” and, with respect to the Class A ordinary shares included in
the Units sold, the “Public Shares” or the “Class A Ordinary Shares”), generating gross proceeds of $100,000,000,
which is described in Note 3.
Simultaneously with the closing
of the Initial Public Offering, the Company consummated the sale of 5,500,000 warrants (each, a “Private Placement Warrant”
and, collectively, the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement
to LIV Capital Acquisition Sponsor II, L.P. (the “Sponsor”) and EarlyBirdCapital, Inc. (and/or their designees), generating
gross proceeds of $5,500,000, which is described in Note 4.
Following the closing of
the Initial Public Offering on February 10, 2022, an amount of $102,000,000 ($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 Warrants was placed in a trust account (the “Trust Account”),
will be held in cash items or 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 180 days or less, or in any open-ended
investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as
determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the funds
in the Trust Account to the Company’s shareholders, as described below.
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.
Transaction costs amounted
to $3,888,278, consisting of $2,290,000 of underwriting fees, and $1,598,278 of other offering costs.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
While the Company’s
management has broad discretion with respect to the specific application of the cash held outside of the Trust Account, substantially
all of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, which are placed in the Trust Account
are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to
complete a Business Combination successfully. The Company must complete a Business Combination with one or more target businesses that
together have an aggregate fair market value of at least 80% of the value of the Trust Account (as defined below) (excluding the deferred
underwriting commissions and taxes payable on income earned on the Trust Account) at the time of the agreement to enter into an initial
Business Combination. The Company 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.
The Company will provide
its shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination
either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender
offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender offer will
be made by the Company, solely in its discretion. The shareholders will be entitled to redeem their shares for a pro rata portion of the
amount held in the Trust Account (initially $10.20 per share) as of two business days prior to the completion of a Business Combination,
including any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax
obligations. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.
The Company will proceed
with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such completion of a Business Combination
and, if the Company seeks shareholder approval, it receives an ordinary resolution under Cayman Islands law approving a Business Combination,
which requires the affirmative vote of a majority of the shareholders who attend and vote and a general meeting of the Company. If a shareholder
vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will,
pursuant to its Amended and Restated Memorandum and Articles of Association, conduct the redemptions pursuant to the tender offer rules
of the Securities and Exchange Commission (“SEC”), and file tender offer documents containing substantially the same information
as would be included in a proxy statement with the SEC prior to completing a Business Combination. If the Company seeks shareholder approval
in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares and any Public Shares purchased in or after
the Initial Public Offering in favor of approving a Business Combination and to waive its redemption rights with respect to any such shares
in connection with a shareholder vote to approve a Business Combination or seek to sell any shares to the Company in a tender offer in
connection with a Business Combination. Additionally, subject to the immediately succeeding paragraph, each public shareholder may elect
to redeem their Public Shares, without voting, and if they do vote, irrespective of whether they vote for or against a proposed Business
Combination.
If the Company seeks shareholder
approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended
and Restated Memorandum and Articles of Association provides that a public shareholder, together with any affiliate of such shareholder
or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its
shares with respect to 15% or more of the Public Shares without the Company’s prior written consent.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
The Sponsor has agreed (a) to
waive its redemption rights with respect to any Founder Shares and Public Shares held by it in connection with the completion of a Business
Combination (and not seek to sell its shares to the Company in any tender offer the Company undertakes in connection with its initial
Business Combination) and (b) not to propose an amendment to the Amended and Restated Memorandum and Articles of Association (i) that
would affect the ability of holders of Public Shares to convert or sell their shares to the Company in connection with a Business Combination
or to modify the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if the Company does not complete
a Business Combination within 15 months from the closing of the Public Offering (extendable at the sponsor’s option to up to
18 months) or (ii) with respect to any other provision relating to shareholders’ rights or pre-initial Business Combination
activity, unless the Company provides the public shareholders with the opportunity to redeem their Public Shares in conjunction with any
such amendment and (c) that the Founder Shares shall not participate in any liquidating distributions upon winding up if a Business
Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect
to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
The Company will have until
May 10, 2023 (15 months (extendable at the sponsor’s option to up to August 10, 2023 (18 months)) from the closing of the Initial
Public Offering) (the “Combination Period”) to consummate a Business Combination. However, if the Company anticipates that
it may not be able to consummate the initial business combination within 15 months, the Company may, by resolution of the board of directors
at the option of the sponsor, extend the period of time to consummate an initial business combination by an additional three months, for
a total of up 18 months from the closing of the Initial public offering (such period as extended, the “Extension Period”),
subject to the sponsor contributing $0.10 to the trust account for each unit sold in the Initial public offering in the form of a non-interest
bearing loan which would be repaid upon consummation of an initial business combination. The Company intends to issue a press release
prior to the expiration of the initial 15-month period announcing whether the Company is extending the time period to consummate a business
combination. The shareholders will not be entitled to vote on, or redeem their shares in connection with, such an extension. Pursuant
to the terms of the amended and restated memorandum and articles of association, in order to extend the period of time to consummate an
initial business combination in such a manner, the sponsor must deposit $1,000,000, or up to $1,150,000 depending on the extent to which
the underwriters’ over-allotment option is exercised, into the trust account on or prior to the date of the deadline, for the
three-month extension. This feature is different than many other special purpose acquisition companies, in which any extension of the
company’s period to consummate an initial business combination would require a vote of the company’s shareholders and in connection
with such vote shareholders would have the right to redeem their public shares. If the Company is unable to complete a Business Combination
within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly
as reasonably possible but no more than 10 business days thereafter, redeem 100% of the outstanding 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 (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 outstanding Public
Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive
further liquidation distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the
approval of the remaining shareholders and the Company’s board of directors, dissolve and liquidate, subject in each case to its
obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
The Sponsor has agreed that
it will be liable to the Company, if and to the extent any claims by a third party (other than the Company’s independent auditors)
for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering
into a transaction agreement, reduce the amount of funds in the Trust Account to below (1) $10.20 per Public Share or (2) such
lesser amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the
value of trust assets, in each case net of the interest which may be withdrawn to pay taxes, except as to any claims by a third party
who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s
indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party,
the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility
that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers
(other than the Company’s independent auditors), prospective target businesses or other entities with which the Company does business,
execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Risks and Uncertainties
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, and/or search for a target company, the specific
impact is not readily determinable as of the date of the unaudited condensed financial statements. The unaudited condensed financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Going Concern
As of September 30, 2022,
the Company had $3,998 in its operating bank accounts, $117,493,883 in marketable securities held in the Trust Account to be used for
a Business Combination or to repurchase or redeem stock in connection therewith and a working capital deficit of $5,663,663.
Until the consummation of
a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to
acquire, and structuring, negotiating and consummating the Business Combination.
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, loan the Company Working Capital Loans (Note 5). Except for the foregoing, the terms
of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working
Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion,
up to $1.5 million of such Working Capital Loans may be convertible into warrants at a price of $1.00 per warrant. The warrants would
be identical to the Private Placement Warrants. As of September 30, 2022 and December 31, 2021, the Company has no borrowings under the
Working Capital Loans.
In connection with the Company’s
assessment of going concern considerations in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting
Standards Codification (“ASC”) 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 one year from the date these condensed 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.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited
condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of
America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation
S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP
have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do
not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash
flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of
a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for
the periods presented.
The accompanying unaudited
condensed financial statements should be read in conjunction with the Company’s prospectus for its Initial Public Offering as filed
with the SEC on February 9, 2022, as well as the Company’s Current Report on Form 8-K, as filed with the SEC on February 16, 2022.
The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected
for the year ending December 31, 2022 or for any future periods.
Emerging Growth Company
The Company is an “emerging
growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find
the Company’s securities less attractive as a result, there may be a less active trading market for the Company’s securities
and the prices of the Company’s securities may be more volatile.
Further, 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 an emerging growth 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 election to opt out is irrevocable. The Company has elected not to 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, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult
or impossible because of the potential differences in accounting standards used.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Use of Estimates
The preparation of the unaudited
condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited
condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires
management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the unaudited condensed financial statements, which management considered in formulating
its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ
significantly from those estimates.
Cash and Cash Equivalents
The Company considers all
short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not
have any cash equivalents as of September 30, 2022 and December 31, 2021.
Marketable Securities Held in Trust Account
At September 30, 2022, substantially
all of the assets held in the Trust Account were held U.S. Treasury securities. All of the Company’s investments held in the Trust
Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting
period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in interest earned
on marketable securities held in Trust Account in the accompanying unaudited condensed statements of operations. The estimated fair values
of investments held in Trust Account are determined using available market information. At December 31, 2021, no assets were held in the
Trust Account.
Offering Costs
The Company complies with
the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A – “Expenses of Offering”. Offering costs
consist of underwriting, legal, accounting and other expenses incurred through the Initial Public Offering that are directly related to
the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering
based on a relative fair value basis, compared to total proceeds received. Offering costs amounted to $3,888,278 which were charged to
shareholders’ equity upon the completion of the Initial Public Offering and the partial exercise of the over-allotment option.
Income Taxes
The Company accounts for
income taxes under ASC 740, Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax
assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities
and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires
a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold
and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities.
ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition.
The Company is considered
an exempted Cayman Islands Company and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands,
Mexico or the United States.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Net Loss per Ordinary Share
The Company complies with
accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net loss per ordinary share is computed
by dividing net 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 net loss per ordinary share as the redemption value approximates fair value.
The calculation of diluted
net loss per ordinary share does not consider the effect of the warrants underlying the units issued in connection with the (i) Initial
Public Offering, (ii) over-allotment option and (iii) 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 and 2021, the Company did not have any other dilutive securities or other contracts that could, potentially,
be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted net loss per ordinary
share is the same as basic net loss per ordinary share for the periods presented.
The following table reflects
the calculation of basic and diluted net loss per ordinary share (in dollars, except share amounts):
| |
Three
Months Ended September 30, | | |
Nine
Months Ended September 30, | | |
For
the period from February 11, 2021 (inception) through September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| |
Class
A
ordinary
shares
subject to
redemption | | |
Non-redeemable
Class A
and
Class B ordinary
shares | | |
Class
A
ordinary
shares
subject to
redemption | | |
Non-redeemable
Class A
and
Class B ordinary
shares | | |
Class
A
ordinary
shares
subject to
redemption | | |
Non-redeemable
Class A
and
Class B ordinary
shares | | |
Class
A
ordinary
shares
subject to
redemption | | |
Non-redeemable
Class A
and
Class B ordinary
shares | |
Basic and diluted net loss per ordinary share | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Numerator: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Allocation of net loss | |
$ | (935,333 | ) | |
$ | (169,824 | ) | |
$ | — | | |
$ | — | | |
$ | (1,545,197 | ) | |
$ | (419,844 | ) | |
$ | — | | |
$ | (7,393 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 11,450,000 | | |
| 2,078,927 | | |
| — | | |
| 2,875,000 | | |
| 9,703,846 | | |
| 2,636,626 | | |
| — | | |
| 1,903,664 | |
Basic and diluted net loss per ordinary share | |
$ | (0.08 | ) | |
$ | (0.08 | ) | |
$ | — | | |
$ | — | | |
$ | (0.16 | ) | |
$ | (0.16 | ) | |
$ | — | | |
$ | (0.01 | ) |
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times
may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on these accounts and management
believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s
assets and liabilities, which qualify as financial instruments under FASB ASC Topic 820, Fair Value Measurement (“ASC 820”),
approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
The Company applies ASC 820,
which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820
defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s
principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy
established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or
liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect
the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants
would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
Level 1 — Assets
and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable
inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs
to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as
well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs
to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market
data exists for the assets or liabilities.
The Company valued the EBC
Founder Shares (as defined in Note 7) and the over-allotment liability based on Level 3 inputs, see Note 8.
Derivative Financial Instruments
The Company evaluates its
financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance
with ASC Topic 815, Derivatives and Hedging. For derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes
in the fair value reported in the statement of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified
in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required
within 12 months of the balance sheet date.
The Company granted the underwriters
a 45-day option at the Initial Public Offering date to purchase up to 1,500,000 additional Units to cover over-allotments. The over-allotment
option was evaluated under ASC 480 “Distinguishing Liabilities from Equity.” The Company concluded that the underlying
transaction (Units which include redeemable shares and warrants) of the over-allotment option embodies an obligation to repurchase
the issuer’s equity shares. Accordingly, the option was fair valued and recorded as a liability at issuance date and applied to
the offering cost of the Class A redeemable shares. On February 15, 2022, the underwriters partially exercised their over-allotment option
resulting in the forfeiture of 12,500 Founder Shares subject to redemption and the de-recognition of the over-allotment option liability
on the balance sheets. See Note 8 for the fair value of the over-allotment option liability.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Class A Ordinary Shares Subject to Possible
Redemption
The Company accounts for
its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities
from Equity.” Class A ordinary shares subject to mandatory redemption are classified as a liability instrument and are 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 the Company’s control)
are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. The Company’s
Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject
to occurrence of uncertain future events. Accordingly, at September 30, 2022, Class A ordinary shares subject to possible redemption are
presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
The Company recognizes changes
in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value
at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges
against additional paid-in capital and accumulated deficit.
At September 30, 2022, the
Class A ordinary shares reflected in the balance sheet are reconciled in the following table:
Gross proceeds | |
$ | 114,500,000 | |
Less: | |
| | |
Proceeds allocated to Public Warrants | |
$ | (2,490,375 | ) |
Allocated value of transaction costs to Class A ordinary shares | |
$ | (3,732,130 | ) |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
$ | 9,216,388 | |
Class A ordinary shares subject to possible redemption | |
$ | 117,493,883 | |
New Accounting Pronouncements
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 statement.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public
Offering, the Company sold 10,000,000 Units at a purchase price of $10.00 per Unit. Each Unit consist of one Class A ordinary
share and three-quarters of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase
one Class A ordinary share at an exercise price of $11.50 per share (See Note 7). On February 15, 2022, the underwriters partially
exercised its over-allotment option, resulting in the sale of an additional 1,450,000 Units for an aggregate amount of $14,500,000.
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing
of the Initial Public Offering, the Sponsor and EarlyBirdCapital, Inc. purchased an aggregate of 5,500,000 Private Placement Warrants
(representing 5,000,000 private warrants by our sponsor and 500,000 private warrants by EarlyBirdCapital, Inc.) at a price of $1.00 per
Private Placement Warrant, from the Company in a private placement. Each Private Placement Warrant is exercisable for one Class A
ordinary share at a price of $11.50 per share, subject to adjustment (see Note 7). The proceeds from the sale of the Private Placement
Warrants were added to the net proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a
Business Combination within the Combination Period, the proceeds from the sale of the Private Placement Warrants held in the Trust Account
will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants
will expire worthless.
On August 16, 2022, the Company executed the Redemption Agreement (see
Note 6) which resulted in the Company purchase and cancellation of 1,929,083 Founder Shares and redemption of 3,293,333 Private Placement
Warrants in exchange for the Promissory Note (see Note 6).
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On June 28, 2021, the
Sponsor was issued 2,875,000 Class B ordinary shares (the “Founder Shares”) for an aggregate of $25,000 paid to cover
certain expenses on behalf of the Company. The Founder Shares will automatically convert into Class A ordinary shares on the first
business day following the completion of a Business Combination on a one-for-one basis, subject to certain adjustments, as described
in Note 7. The Founder Shares include an aggregate of up to 375,000 Founder Shares subject to forfeiture by the Sponsor to the extent
that the underwriters’ over-allotment option is not exercised in full or in part, so that the Sponsor will own, on an as-converted
basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor does not purchase
any Public Shares in the Initial Public Offering). On February 15, 2022, 12,500 Founder Shares were forfeited as a result of the underwriters’
election to partially exercise their remaining over-allotment option. As a result of the underwriters’ election to partially exercise
their over-allotment option, a total of 362,500 Founder Shares are no longer subject to forfeiture.
The Sponsor has agreed that,
subject to certain limited exceptions, the Founder Shares are not transferable, assignable or salable (except to the officers and directors
and other persons or entities affiliated with the Sponsor, each of whom will be subject to the same transfer restrictions) until the earlier
of (A) one year after the completion of the initial Business Combination or earlier if, subsequent to the initial Business Combination,
the closing price of the Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share divisions, share capitalizations,
reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least
150 days after the initial Business Combination, and (B) the date following the completion of the initial Business Combination
on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the shareholders
having the right to exchange their Class A ordinary shares for cash, securities or other property.
On July 1, 2022, the Company appointed three directors to the Company’s
Board of Directors. Each of the directors will receive equity interests in the Sponsor, equivalent to 20,000 Founder Shares, concurrently
with or following the closing of a business combination. The grant of equity interests in the Sponsor equivalent to 20,000 Founder Shares
to the Company’s directors is in the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”).
Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair
value of the 60,000 shares granted to the Company’s directors was approximately $1.85 per share or an aggregate total of approximately
$111,000. The equity interests were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation
expense related to the equity interests is recognized only when the performance condition is probable of occurrence under the applicable
accounting literature in this circumstance. As of September 30, 2022, the Company determined that a Business Combination is not considered
probable, and, therefore, no stock-based compensation expense has been recognized. Stock-based compensation would be recognized at the
date a Business Combination is considered probable (i.e., upon consummation of a Business Combination) in an amount equal to the number
of Founders Shares times the grant date fair value per share (unless subsequently modified).
On August 16, 2022, the Company
executed the Redemption Agreement which resulted in the Company purchase and cancellation of 1,929,083 Founder Shares in exchange for
the Promissory Note (see Note 6).
Promissory Note — Related Party
On March 22, 2021, the Sponsor
agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory
note (the “Sponsor Promissory Note”). The Sponsor Promissory Note is non-interest bearing, initially amended and restated
in its entirety on December 30, 2021, to extend the maturity date to the earlier of September 30, 2022 or the consummation of the Initial
Public Offering, and subsequently amended and restated in its entirety on January 31, 2022 to extend its maturity to December 30,
2023.
As of September 30, 2022
and December 31, 2021, $207,500 and $100,000, respectively, was outstanding under the Sponsor Promissory Note.
Promissory Notes, Purchase of Related Party
Interests
On August 16, 2022, the Company
entered into promissory notes (the “Promissory Notes”) with certain Rollover Parties (as defined in Note 6) in an aggregate
amount of $3,158,835. The Promissory Notes are non-interest bearing and due and payable on the earlier of the date on which the Company’s
corporate existence terminates, or the Company ceases all operations for purposes of winding up. As of September 30, 2022, there was $3,158,835
outstanding under the Promissory Notes (see Note 6).
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Administrative Services Agreement
The Company entered into
an agreement on February 7, 2022, pursuant to which it 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 $80,000
is 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.
Related Party Loans
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, loan the Company funds as may be required (“Working Capital Loans”). Such Working
Capital Loans would be evidenced by promissory notes. The notes may be repaid upon completion of a Business Combination, without interest,
or, at the lender’s discretion, up to $1,500,000 of notes may be converted upon completion of a Business Combination into warrants
at a price of $1.00 per warrant. Such warrants would be identical to the Private Placement Warrants. In the event that a Business Combination
does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds
held in the Trust Account would be used to repay the Working Capital Loans. As of September 30, 2022 and December 31, 2021, there were
no Working Capital Loan outstanding.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration and Shareholder Rights Agreement
Pursuant to a registration
and shareholder rights agreement entered into on February 7, 2022, the holders of the Founder Shares, EBC Founder Shares, private warrants
and any warrants that may be issued on conversion of Working Capital Loans (and any ordinary shares issuable upon the exercise of the
private warrants or warrants issued upon conversion of the Working Capital Loans and upon conversion of the Founder Shares) are entitled
to registration rights. The holders of these securities will be entitled to make up to three demands, excluding short form registration
demands, that the Company registers such securities. In addition, the holders have certain “piggy-back” registration rights
with respect to registration statements filed subsequent to the completion of the Company’s initial Business Combination and rights
to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration
rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective
until termination of the applicable lock-up period, which occurs (1) in the case of the Founder Shares, on the earlier of (A) one
year after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if
the last reported sale price of Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share splits, share dividends,
rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day
period commencing at least 150 days after the initial Business Combination, or (y) the date following the completion of the
initial Business Combination on which the Company completes a liquidation, merger, amalgamation, share exchange, reorganization or other
similar transaction that results in all of the public shareholders having the right to exchange their Class A ordinary shares for
cash, securities or other property, and (2) in the case of the EBC Founder Shares, Private Placement Warrants and the respective
Class A ordinary shares underlying such warrants, 30 days after the completion of the initial Business Combination. The Company
will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
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 exercise of over-allotment options.
Business Combination Marketing Agreement
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.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Finder’s Fee Agreement
On March 15, 2022, 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.
Business Combination
Agreement
On
August 17, 2022, the Company entered into a Business Combination Agreement (the “Business Combination Agreement”) with
Covalto and Covalto Merger Sub Ltd., a Cayman Islands exempted company and direct, wholly-owned subsidiary of 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 (as defined below), and Merger Sub will
subsequently be merged with and into LIVB, with LIVB being the surviving entity in the Merger (as defined below) and continuing (immediately
following the Merger) as a direct wholly-owned subsidiary of Covalto (following and after giving effect to the proposed business combination,
“New Covalto”), on the terms and subject to the conditions set forth therein (the “Merger”, and
together with the other transactions contemplated by the Business Combination Agreement, the “proposed business combination”).
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 (each a “New Covalto Class A Ordinary Share” and collectively, the “New Covalto
Class A Ordinary Shares”), and each issued and outstanding warrant to purchase Class A ordinary shares of LIVB (a “LIVB
Warrant”) will be converted into and become a warrant to purchase New Covalto Class A Ordinary Shares (a “New Covalto
Warrant”), and New Covalto shall assume each such LIVB Warrant in accordance with its terms.
Merger Consideration
Covalto Warrants
Subject
to the terms and conditions of the Business Combination Agreement, certain existing warrants to purchase ordinary shares of Covalto (each
an “Existing Covalto Warrant”) shall be converted into ordinary shares of Covalto (the “Existing Covalto Warrant
Conversion”), and any other Existing Covalto Warrants shall be exchanged for a warrant to purchase the corresponding number
of New Covalto Class A Ordinary Shares, in each case as adjusted to give effect to the proposed business combination.
Preferred Merger Consideration
Subject
to the terms and conditions of the Business Combination Agreement, effective immediately prior to the Pre-Closing Capital Restructuring,
and pursuant to a conversion direction notice to be executed by the applicable holders of preferred shares of Covalto, each preferred
share of Covalto shall convert into one ordinary share of Covalto in accordance with the terms of the Covalto Articles of Association
(as defined therein) (such conversion, the “Covalto Preferred Conversion”).
Pre-Closing Capital
Restructuring
Effective
immediately following the Covalto Preferred Conversion and immediately prior to the LIVB Effective Time (as defined therein) and in accordance
with the required shareholder approval of Covalto: (i) each ordinary share of Covalto shall be re-designated as a New Covalto Class A
Ordinary Share; (ii) each authorized and unissued preferred share of Covalto shall be cancelled; (iii) Class B ordinary shares, par value,
US$0.0001 per share, of New Covalto (the “New Covalto Class B Ordinary Shares”) shall be created and authorized; (iv)
an increase to the number of New Covalto Class A Ordinary Shares shall be authorized; and (v) the closing amended and restated Covalto
Articles of Association shall be adopted (collectively, the “Pre-Closing Capital Restructuring”).
Contribution Agreement
Concurrently with the execution
of the Business Combination Agreement, the Sponsor, LIV Sponsor II GP, LLC (“GP”), certain limited partners of the
Sponsor, LIVB and Covalto entered into a contribution agreement (the “Contribution Agreement”), pursuant to which,
certain limited partners of the Sponsor and GP have agreed to contribute promissory notes to Covalto in exchange for certain securities
of Covalto, subject to the terms and conditions therein. The Company evaluated the obligations contained within the Contribution Agreement
pursuant to ASC 480 and ASC 815. The Company determined that the Contribution Agreement did not require liability classification under
ASC 480 and further determined that the instrument met the indexation and equity classification under ASC 815-40. The Company will record
any exchange of the Promissory Notes pursuant to the Contribution Agreement as an equity transaction.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Redemption Agreement
On
August 16, 2022, the Company entered into a Redemption Agreement with (i) the Sponsor and (ii) certain limited partners of the Sponsor
and the GP (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:
| 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 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.
NOTE 7. SHAREHOLDERS’ EQUITY
Preference shares — The
Company is authorized to issue 5,000,000 preference shares with a par value of $0.0001. The Company’s board of directors will be
authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special
rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. The board of directors will
be able to, without shareholder approval, issue preferred shares with voting and other rights that could adversely affect the voting power
and other rights of the holders of the ordinary shares and could have anti-takeover effects. As of September 30, 2022 and December 31,
2021, there were no preference shares issued or outstanding.
Class A ordinary
shares — The Company is authorized to issue 500,000,000 Class A ordinary shares with a par value of $0.0001
per share. Holders of Class A ordinary shares are entitled to one vote for each share. On July 9, 2021, the Company issued to
EBC and its designees, 50,000 Class A ordinary shares, for a total consideration of $5. On October 14, 2021, the Company issued to
EBC and its designees, an additional 50,000 Class A ordinary shares, for a total consideration of $5. On January 31, 2022, the Company
issued an additional 60,000 EBC Founder Shares, for a total consideration of $6. As of September 30, 2022 and December 31, 2021, there
were 160,000 and 100,000 Class A ordinary shares issued and outstanding, excluding 11,450,000 and no Class A ordinary shares subject
to possible redemption, respectively.
Class B ordinary
shares — The Company is authorized to issue 50,000,000 Class B ordinary shares with a par value of $0.0001
per share. Holders of the Class B ordinary shares are entitled to one vote for each share. As of September 30, 2022, there were 933,417
Class B ordinary shares issued and outstanding. At December 31, 2021, there were 2,875,000 Class B ordinary shares issued and outstanding,
of which an aggregate of up to 375,000 shares were subject to forfeiture to the extent that the underwriter’s over-allotment option
was not exercised in full or in part so that the Sponsor would own 20% of the Company’s issued and outstanding ordinary shares after
the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering). Due to the underwriters’
option to partially exercise its over-allotment option on February 15, 2022, 12,500 shares were forfeited.
Only holders of the Class B
ordinary shares will have the right to vote on the election of directors prior to the Business Combination. Holders of Class A ordinary
shares and holders of Class B ordinary shares will vote together as a single class on all matters submitted to a vote of the Company’s
shareholders except as otherwise required by law.
The Class B Shares will
automatically convert into Class A ordinary shares on the first business day following the completion of the Business Combination,
on a one-for-one basis, subject to adjustment. In the case that additional Class A ordinary shares, or equity-linked securities,
are issued or deemed issued in excess of the amounts issued in the Initial Public Offering and related to the closing of a Business Combination,
the ratio at which Founder Shares will convert into Class A ordinary shares will be adjusted (subject to waiver by holders of a majority
of the Class B ordinary shares) so that the number of Class A ordinary shares issuable upon conversion of all Founder Shares
will equal, in the aggregate, on an as-converted basis, 20% of the sum of the ordinary shares issued and outstanding upon completion of
the Initial Public Offering plus the number of Class A ordinary shares and equity-linked securities issued or deemed issued in connection
with a Business Combination (net of redemptions), excluding any Class A ordinary shares or equity-linked securities issued, or to
be issued, to any seller in a Business Combination and any Private Warrants issued to the Sponsor.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Warrants — As
of September 30, 2022 and December 31, 2021, there were 10,794,167 and 0 warrants outstanding, respectively. Each whole Public Warrant
entitles the registered holder to purchase one Class A ordinary share at a price of $11.50 per share, subject to adjustment as discussed
below, at any time commencing 30 days after the completion of the initial Business Combination, provided that the Company has an
effective registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise
of the warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration
under the securities, or blue sky, laws of the state of residence of the holder (or the Company permits holders to exercise their warrants
on a cashless basis under the circumstances specified in the warrant agreement). Pursuant to the warrant agreement, a warrant holder may
exercise its warrants only for a whole number of Class A ordinary shares. This means only a whole warrant may be exercised at a given
time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade. Accordingly,
unless you purchase at least four units, you will not be able to receive or trade a whole warrant. The warrants will expire five years
after the completion of the initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
The Company will not be obligated
to deliver any Class A ordinary shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise
unless a registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise
of the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying the obligations described
below with respect to registration. No public warrant will be exercisable for cash or on a cashless basis, and the Company will not be
obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered
or qualified under the securities laws of the state of the exercising holder, or an exemption is available. In the event that the conditions
in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled
to exercise such warrant and such warrant may have no value and expire worthless. In the event that a registration statement is not effective
for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely
for the Class A ordinary share underlying such unit.
The Company has agreed that
as soon as practicable, but in no event later than fifteen (15) business days after the closing of the initial Business Combination,
it will use commercially reasonable efforts to file with the SEC a post-effective amendment to the registration statement of which the
Company’s prospectus forms a part or a new registration statement for the registration, under the Securities Act, of the Class A
ordinary shares issuable upon exercise of the warrants. The Company will use commercially reasonable efforts to cause the same to become
effective within 60 business days after the closing of the initial Business Combination and to maintain the effectiveness of such
registration statement, and a current prospectus relating thereto, until the expiration or redemption of the warrants in accordance with
the provisions of the warrant agreement.
Once the warrants become
exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
| ● | in
whole and not in part; |
| ● | at
a price of $0.01 per warrant; |
| ● | upon
not less than 30 days’ prior written notice of redemption to each warrant holder; and |
| ● | if,
and only if, the last reported sale price of the Class A ordinary shares for any 20 trading days within a 30-trading day
period ending three business days before the Company sends to the notice of redemption to the warrant holders equals or exceeds
$18.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations). |
If and when the warrants
become redeemable by the Company, the Company may exercise the Company’s redemption right even if it is unable to register or qualify
the underlying securities for sale under all applicable state securities laws. However, the Company will not redeem the warrants unless
an effective registration statement under the Securities Act covering the Class A ordinary shares issuable upon exercise of the warrants
is effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period.
No fractional Class A
ordinary shares will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share,
the Company will round down to the nearest whole number of the number of Class A ordinary shares to be issued to the holder. If,
at the time of redemption, the warrants are exercisable for a security other than the Class A ordinary shares pursuant to the warrant
agreement (for instance, if the Company is not the surviving company in the initial Business Combination), the warrants may be exercised
for such security. At such time as the warrants become exercisable for a security other than the Class A ordinary shares, the company
(or surviving company) will use its commercially reasonable efforts to register under the Securities Act the security issuable upon the
exercise of the warrants.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
In addition, if (x) the
Company issues additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the
closing of the initial Business Combination at an issue price or effective issue price of less than $9.20 per ordinary share (with such
issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any
such issuance to the sponsors or their affiliates, without taking into account any Founder Shares held by the Company’s sponsors
or such affiliates, as applicable, prior to such issuance (the “Newly Issued Price”), (y) the aggregate gross proceeds
from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial
Business Combination on the date of the completion of the initial Business Combination (net of redemptions), and (z) the volume-weighted
average trading price of the Class A ordinary shares during the 20 trading day period starting on the trading day prior
to the day on which the Company completes the initial Business Combination (such price, the “Market Value”) is below
$9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market
Value and the Newly Issued Price, and the $18.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal
to 180% of the higher of the Market Value and the Newly Issued Price.
The Private Placement Warrants
(including the warrants included in units that may be issued upon conversion of Working Capital Loans and the Class A ordinary shares
issuable upon exercise of such warrants) will not be transferable, assignable or salable to the Company’s officers, directors and
other persons or entities affiliated with or by the Company. Otherwise, the Private Placement Warrants have terms and provisions that
are identical to those of the warrants sold as part of the units in the Initial Public Offering, including as to exercise price, exercisability
and exercise period; however, they are not transferrable by the sponsor or the direct anchor investors except to permitted transferees.
Each of the warrants that may be issued upon conversion of Working Capital Loans shall be identical to the Private Placement Warrants.
The Company has accounted
for the 14,087,500 warrants issued in connection with the Initial Public Offering and proposed Business Combination (including 8,587,500
Public Warrants and 5,500,000 Private Placement Warrants) in accordance with the guidance contained in ASC 815-40. Such guidance
provides that the warrants described above are not precluded from equity classification. Equity-classified contracts are initially measured
at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified
in equity.
As a result of the Redemption
Agreement (as discussed in Note 6), there was a redemption of 3,293,333 Private Placement Warrants.
EBC Founder Shares
On July 9, 2021, the
Company issued to an underwriter an aggregate of 50,000 Class A ordinary shares (the “EBC Founder Shares”) for a
total of $5 of consideration. On October 14, 2021, the Company issued an additional 50,000 EBC Founder Shares, for a total consideration
of $5. On January 31, 2022, the Company issued an additional 60,000 EBC Founder Shares, for a total consideration of $6. The Company accounts
for the fair value of the EBC Founder Shares over consideration paid as a deferred offering cost of the Initial Public Offering. Accordingly,
the offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair
value basis, compared to total proceeds received. Offering costs allocated to the Warrants were charged to permanent shareholders’
equity upon the completion of the Initial Public Offering, while offering costs allocated to the redeemable Public Shares were charged
to temporary shareholders’ equity upon the completion of the Initial Public Offering. The Company estimated the total fair value
of the EBC Founder Shares to be $888,855. The Company established the initial fair value for the EBC Founder Shares on the date of the
issuances, using a probability weighted model for the EBC Founder Shares. The EBC Founder Shares are classified as Level 3 at the measurement
date due to the use of unobservable inputs including the probability of a business combination, the probability of the initial public
offering, and other risk factors (see Note 8).
The holders of the EBC Founder
Shares have agreed not to transfer, assign or sell any such shares until the completion of a Business Combination. In addition, the holders
of the EBC Founder Shares have agreed (i) to waive their conversion rights (or right to participate in any tender offer) with respect
to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions
from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
In addition, the EBC Founder
Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following
the date of the effectiveness of the registration statement of which the Company’s prospectus forms a part pursuant to Rule 5110(g)(1) of
the FINRA Manual. Pursuant to FINRA Rule 5110(g)(1), these securities will not be sold during the offering, or sold, transferred,
assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result
in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of
the registration statement of which the Company’s prospectus forms a part or commencement of sales of the public offering, except
to the underwriters and selected dealer participating in the offering and their bona fide officers or partners, provided that all
securities so transferred remain subject to the lockup restriction above for the remainder of the time period.
NOTE 8. FAIR VALUE MEASUREMENTS
The following table presents
information about the Company’s financial instruments that are measured at fair value on a recurring and non-recurring basis at
September 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine
such fair value:
Description | |
Frequency of Measurements | |
Level | | |
September 30, 2022 | | |
December 31, 2021 | |
Assets: | |
| |
| | |
| | |
| |
Marketable securities held in Trust Account | |
Recurring | |
| 1 | | |
$ | 117,493,883 | | |
$ | — | |
Fair value of EBC Founder Shares (included within deferred offering costs) | |
Non-recurring | |
| 3 | | |
$ | N/A | | |
$ | 538,234 | |
The EBC Founder Shares were
accounted at fair value in accordance with ASC 718-10. The EBC Founder Shares are measured at fair value at the time of issuance
only, therefore on a non-recurring basis.
The EBC Founder Shares were
valued using a probability weighted model, which is considered to be a Level 3 fair value measurement. The probability weighted model’s
primary unobservable inputs utilized in determining the fair value of the EBC Founder Shares is the probability of the Initial Public
Offering not occurring, the probability of the Business Combination not occurring, and estimated concession. The probability of the Initial
Public Offering and Business Combination not occurring were derived from observable public research vehicles utilized by the Company as
well as background and historical data.
The following table provides
quantitative information regarding Level 3 fair value measurements:
| |
Initial Measurements inputs on July 9, 2021, October 14, 2021 and January 31, 2022 | |
Value of Initial Public Offering share | |
$ | 9.25 | |
Probability of Initial Public Offering not happening | |
| 5.0 - 13.0 | % |
Probability of Business Combination not happening | |
| 5 | % |
Estimated concessions | |
| 12.5
- 13.0 | % |
Discount for lack of marketability | |
| 20.0 | % |
LIV CAPITAL ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
The following table presents the changes in the
fair value of Level 3 EBC Founder Shares included in offering costs:
| |
Total EBC Founder Shares | |
Fair value as of February 11, 2021 (inception) | |
$ | — | |
Initial measurement for shares issued on July 9, 2021 | |
| 269,117 | |
Initial measurement for shares issued on October 14, 2021 | |
| 269,117 | |
Fair value as of December 31, 2021 | |
| 538,234 | |
Initial measurement for shares issued on January 31, 2022 | |
| 350,621 | |
Fair value as of February 10, 2022 (Initial Public Offering date) | |
$ | 888,855 | |
The over-allotment liability
was accounted at fair value in accordance with ASC 480 and is presented as a currently liability in the accompanying balance sheet.
The over-allotment liability is measured at fair value at the time of issuance, remeasured at a reporting period, and remeasured at the
time of an exercise.
The over-allotment liability
was valued using a Black-Scholes model, which is considered to be a Level 3 fair value measurement. The Black-Scholes model’s primary
unobservable inputs utilized in determining the fair value of the over-allotment liability is the volatility probability. The volatility
probability was derived from observable public Companies historical data.
The following table provides
quantitative information regarding Level 3 fair value measurements:
| |
February 10, 2022 | | |
February 15, 2022 | |
Value of Initial Public Offering share | |
$ | 10.00 | | |
$ | 10.01 | |
Expected term | |
| 0.12 | | |
| 0.11 | |
Volatility | |
| 2.48 | % | |
| 2.48 | % |
Yield curve | |
| 0.223 | % | |
| 0.133 | % |
The following table presents the changes in the
fair value of over-allotment liability:
Fair value as of December 31, 2021 | |
$ | — | |
Initial measurement at February 10, 2022 (IPO date) | |
| 54,192 | |
Change in fair value on February 15, 2022 (over-allotment exercise date) | |
| (1,862 | ) |
Elimination of over-allotment liability on February 15, 2022 | |
| (52,330 | ) |
Fair value as of September 30, 2022 | |
$ | — | |
Transfers to/from Levels
1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. There were
no transfers in or out of Level 3 from other levels in the fair value hierarchy for the three and nine months ended September 30, 2022.
NOTE 9. SUBSEQUENT EVENTS
The Company evaluated subsequent
events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed financial statements were
issued. Based upon this review, other than noted below, the Company did not identify any subsequent events that would have required adjustment
or disclosure in the unaudited condensed financial statements.
As of the date of this filing,
the Sponsor loaned the Company an additional $5,000 for working capital purposes, resulting in an aggregate of $212,500 outstanding under
the Sponsor Promissory Note (see Note 5).