UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                   to                  

 

Commission File No. 001-38202

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.
(Exact name of registrant as specified in its charter)

 

Cayman Islands   98-1366046

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

120 Hawthorne Avenue

Palo Alto, CA

  94301
(Address of Principal Executive Offices)   (Zip Code)

 

(650) 521-9007
(Registrant’s telephone number, including area code)

 

N/A
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨ Smaller reporting company x
    Emerging growth company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes x No ¨

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Units, each consisting of one Class A ordinary share, $0.0001 par value, and one-third of one Warrant to purchase one Class A ordinary share   IPOA.U   New York Stock Exchange
Class A ordinary shares, $0.0001 par value per share   IPOA   New York Stock Exchange
Warrants to purchase Class A ordinary shares   IPOA.WS   New York Stock Exchange

 

As of May 10, 2019, there were 69,000,000 shares of the Company’s Class A ordinary shares, par value $0.0001, and 17,250,000 shares of the Company’s Class B ordinary shares, par value $0.0001, issued and outstanding.

 

 

 

 

 

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

 

Quarterly Report on Form 10-Q

 

TABLE OF CONTENTS

 

    Page
     
PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
     
  Condensed Balance Sheets 3
     
  Condensed Statements of Operations 4
     
  Condensed Statements of Changes in Shareholders’ Equity 5
     
  Condensed Statements of Cash Flows 6
     
  Notes to Condensed Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
     
Item 4. Controls and Procedures 13
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 13
     
Item 1A. Risk Factors 13
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
     
Item 3. Defaults Upon Senior Securities 1 3
     
Item 4. Mine Safety Disclosures 13
     
Item 5. Other Information 13
     
Item 6. Exhibits 14
     
SIGNATURES 15

 

  2  

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

CONDENSED BALANCE SHEETS

 

   

March 31,

2019

    December 31,
2018 		 
    (Unaudited)        
ASSETS                
Current Assets                
Cash   $ 326,346     $ 462,162  
Prepaid expenses     145,837       45,339  
Total Current Assets     472,183       507,501  
                 
Marketable securities held in Trust Account     708,426,313       704,250,272  
Total Assets   $ 708,898,496     $ 704,757,773  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current Liabilities                
Accounts payable and accrued expenses   $ 274,808     $ 200,529  
Advances from related party     405,124       381,675  
Total Current Liabilities     679,932       582,204  
                 
Deferred underwriting fees     24,150,000       24,150,000  
Total Liabilities     24,829,932       24,732,204  
                 
Commitments                
                 
Class A ordinary shares subject to possible redemption, 66,140,585 and 66,136,664 shares at redemption value at March 31, 2019 and December 31, 2018, respectively     679,068,563       675,025,568  
                 
Shareholders’ Equity                
Preferred shares, $0.0001 par value; 5,000,000 authorized; none issued and outstanding     —       —  
Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 2,859,415 and 2,863,336 shares issued and outstanding (excluding 66,140,585 and 66,136,664 shares subject to possible redemption) at March 31, 2019 and December 31, 2018, respectively     286       286  
Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 17,250,000 shares issued and outstanding     1,725       1,725  
Retained earnings     4,997,990       4,997,990  
Total Shareholders’ Equity     5,000,001       5,000,001  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 708,898,496     $ 704,757,773  

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

  3  

 

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

   

Three Months Ended

March 31,

 
    2019     2018  
             
Operating costs   $ 133,046     $ 466,305  
Loss from operations     (133,046 )     (466,305 )
                 
Other income:                
Interest income on marketable securities held in Trust Account     4,193,961       2,321,396  
Unrealized loss on marketable securities held in Trust Account     (17,920 )     (97,067 )
Other income, net     4,176,041       2,224,329  
                 
Net income   $ 4,042,995     $ 1,758,024  
                 
Weighted average shares outstanding, basic and diluted (1)     20,113,336       20,030,258  
                 
Basic and diluted net income (loss) per ordinary share (2)   $ 0.00     $ (0.02 )

 

(1) Excludes an aggregate of up to 66,140,585 and 66,182,301 shares subject to redemption at March 31, 2019 and 2018, respectively.
(2) Net loss per ordinary share – basic and diluted excludes income attributable to ordinary shares subject to redemption of $4,003,153 and $2,133,576 for the three months ended March 31, 2019 and 2018, respectively.

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

  4  

 

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

    Class A Ordinary Shares     Class B Ordinary Shares     Additional
Paid 		    Retained     Total
Shareholders' 		 
    Shares     Amount     Shares     Amount     in Capital     Earnings     Equity  
Balance – January 1, 2018     2,780,258     $ 278       17,250,000     $ 1,725     $ 3,667,278     $ 1,330,720     $ 5,000,001  
                                                         
Change in value of ordinary shares subject to possible redemption     37,441       4       —       —       (1,758,028 )     —       (1,758,024 )
                                                         
Net income     —       —       —       —       —       1,758,024       1,758,024  
                                                         
Balance – March 31, 2018     2,817,699     $ 282       17,250,000     $ 1,725     $ 1,909,250     $ 3,088,744     $ 5,000,001  

 

    Class A Ordinary Shares     Class B Ordinary Shares     Additional
Paid 		    Retained     Total
Shareholders' 		 
    Shares     Amount     Shares     Amount     in Capital     Earnings     Equity  
Balance – January 1, 2019     2,863,336     $ 286       17,250,000     $ 1,725     $ —     $ 4,997,990     $ 5,000,001  
                                                         
Change in value of ordinary shares subject to possible redemption     (3,921 )     —       —       —       —       (4,042,995 )     (4,042,995 )
                                                         
Net income     —       —       —       —       —       4,042,995       4,042,995  
                                                         
Balance – March 31, 2019     2,859,415     $ 286       17,250,000     $ 1,725     $ —     $ 4,997,990     $ 5,000,001  

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

  5  

 

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Three Months Ended March 31,  
    2019     2018  
             
Cash flows from operating activities:                
Net income   $ 4,042,995     $ 1,758,024  
Adjustments to reconcile net income to net cash provided by operating activities:                
Interest earned on marketable securities held in Trust Account     (4,193,961 )     (2,321,396 )
Unrealized loss on marketable securities held in Trust Account     17,920       97,067  
Changes in operating assets and liabilities:                
Prepaid expenses     (100,498 )     32,850  
Accounts payable and accrued expenses     74,279       213,089  
Net cash used in operating activities     (159,265 )     (220,366 )
                 
Cash flows from financing activities:                
Receipt of amounts due from underwriter     —       657,138  
Advances from related parties     23,449       —  
Repayment of advances from related parties     —       (126,378 )
Net cash provided by financing activities     23,449       530,760  
                 
Net change in cash     (135,816 )     310,394  
Cash at beginning of period     462,162       696,382  
Cash at ending of period   $ 326,346     $ 1,006,776  
                 
Non-cash investing and financing activities:                
Change in value of ordinary shares subject to possible redemption   $ 4,042,995     $ 1,758,024  

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

  6  

 

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

 

NOTE 1. ORGANIZATION AND PLAN OF BUSINESS OPERATIONS

 

Social Capital Hedosophia Holdings Corp. (the “Company”) is a recently incorporated blank check company incorporated as a Cayman Islands exempted company and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (a “Business Combination”).

 

All activity from May 5, 2017 (inception) through March 31, 2019 related to the Company’s formation, the Company’s initial public offering of 69,000,000 units (the “Public Offering”), the simultaneous sale of 8,000,000 warrants (“Private Placement Warrants”) in a private placement (the “Private Placement”) at a price of $1.50 per warrant to SCH Sponsor Corp. (the “Sponsor”) and identifying a target company for a Business Combination.

 

NOTE 2. LIQUIDITY

 

The Company has principally financed its operations from inception using proceeds from the sale of its equity securities to its shareholders prior to the Public Offering and such amount of proceeds from the Public Offering that were placed in an account outside of the Trust Account (as defined below) for working capital purposes. In connection with the closing of the Offering and the Private Placement on September 18, 2017, an amount of $690,000,000 (or $10.00 per Class A ordinary share sold to the public in the Offering included in the Units) from the sale of the Units and Private Placement Warrants was placed in a trust account (the “Trust Account”). As of March 31, 2019, the Company had $326,346 in its operating bank accounts, $708,426,313 in securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its ordinary shares in connection therewith and a working capital deficit of $207,749, which includes the deferral of approximately $405,000 of payments until the consummation of a Business Combination. The Sponsor has committed to provide up to an aggregate of $200,000 in loans to the Company. Based on the foregoing, the Company believes it will have sufficient cash to meet its needs through September 18, 2019, the scheduled liquidation date.

  

NOTE 3. 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 Securities and Exchange Commission (“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 comprehensive 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 Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on March 18, 2019, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2018 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The interim results for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other future periods.

  

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires 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 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 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 from those estimates.

 

Net Income (Loss) per Ordinary 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. The Company applies the two-class method in calculating earnings per share. Ordinary shares subject to possible redemption at March 31, 2019 and December 31, 2018, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic income (loss) per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of warrants sold in the Public Offering and Private Placement to purchase 31,000,000 Class A ordinary shares in the calculation of diluted income (loss) per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted income (loss) per ordinary share is the same as basic income (loss) per ordinary share for the periods presented.

 

  7  

 

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

 

Reconciliation of Net Income (Loss) per Ordinary Share

 

The Company’s net income (loss) is adjusted for the portion of income that is attributable to ordinary shares subject to redemption, as these shares only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted income (loss) per ordinary share is calculated as follows:

 

   

Three Months Ended

March 31,

 
    2019     2018  
Net income   $ 4,042,995     $ 1,758,024  
Less: Income attributable to ordinary shares subject to redemption     (4,003,153 )     (2,133,576 )
Adjusted net income (loss)   $ 39,842     $ (375,552 )
                 
Weighted average shares outstanding, basic and diluted     20,113,336       20,030,258  
                 
Basic and diluted net income (loss) per ordinary share   $ 0.00     $ (0.02 )

 

NOTE 4. RELATED PARTY TRANSACTIONS

 

Advance from Related Party

 

During the three months ended March 31, 2019 and the year ended December 31, 2018, a related party advanced an aggregate of $23,449 and $381,675, respectively, for working capital purposes. The advances are non-interest bearing, unsecured and due on demand. As of March 31, 2019 and December 31, 2018, outstanding advances amounted to $405,124 and $381,675, respectively.

 

Administrative Services Agreement

 

The Company entered into an agreement whereby, commencing on September 18, 2017 through the earlier of the consummation of a Business Combination or the Company’s liquidation, the Company will pay an affiliate of the Sponsor a monthly fee of $10,000 for office space and administrative and support services. For each of the three months March 31, 2019 and 2018, the Company incurred $30,000 in fees for these services. At March 31, 2019 and December 31, 2018, $185,000 and $155,000, respectively, is included in accounts payable and accrued expenses in the accompanying condensed balance sheets.

 

Related Party Loans

 

In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial Business Combination, the Company’s 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 (other than the Sponsor's commitment to provide the Company an aggregate of $200,000 in loans in order to finance transaction costs in connection with a Business Combination). In the event that the initial Business Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants of the post business combination entity at a price of $1.50 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants.

 

NOTE 5. COMMITMENTS

 

The underwriters of the Company’s Public Offering are entitled to a deferred fee of three and one-half percent (3.5%) of the gross proceeds of the Public Offering, or $24,150,000, payable upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement entered into in connection with the Public Offering. The underwriters have agreed to waive their right to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination.

 

  8  

 

 

SOCIAL CAPITAL HEDOSOPHIA HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2019

(Unaudited)

 

The underwriters agreed to reimburse the Company for an amount equal to 10% of the discount paid to the underwriters for financial advisory services provided by Connaught (UK) Limited in connection with the Public Offering, of which $1,000,000 was paid at the closing of the Public Offering and up to $2,415,000 will be payable at the time of the closing of the initial Business Combination.

 

 The Sponsor, the holders of the Private Placement Warrants (or underlying Class A ordinary shares) and the holders of any warrants (or underlying Class A ordinary shares) issued upon conversion of working capital loans made by the Company’s Sponsor, officers, directors or their affiliates, if any such loans are issued, will be entitled to registration rights with respect to their securities pursuant to an agreement dated as of September 13, 2017. The holders of 30% of the registrable securities are entitled to demand that the Company register these securities. In addition, the holders have certain “piggy-back” registration rights on registration statements filed after the Company’s consummation of a Business Combination. However, the registration rights agreement will provide that the Company will not permit any registration statement to become effective until termination of applicable lock-up periods with respect to such securities.

 

NOTE 6. SHAREHOLDERS’ EQUITY

 

Preferred Shares

  

The Company is authorized to issue 5,000,000 preferred shares with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s board of directors. As of March 31, 2019 and December 31, 2018, there were no preferred shares issued or outstanding.

   

Ordinary Shares

 

The Company is authorized to issue 500,000,000 Class A ordinary shares and 50,000,000 Class B ordinary shares, both with a par value of $0.0001 per share. At March 31, 2019 and December 31, 2018, there were 2,859,415 and 2,863,336 Class A ordinary shares issued and outstanding, excluding 66,140,585 and 66,136,664 Class A ordinary shares subject to possible redemption, respectively. At March 31, 2019 and December 31, 2018, 17,250,000 Class B ordinary shares were issued and outstanding.

 

The Class B ordinary shares will automatically convert into Class A ordinary shares at the time of the initial Business Combination, on a one-for-one basis, subject to adjustment for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that additional Class A ordinary shares, or equity-linked securities, are issued or deemed issued in excess of the amounts sold in the Public Offering and related to the closing of the initial Business Combination, the ratio at which the Class B ordinary shares shall convert into Class A ordinary shares will be adjusted (unless the holders of a majority of the outstanding Class B ordinary shares agree to waive such anti-dilution adjustment with respect to any such issuance or deemed issuance) so that the number of Class A ordinary shares issuable upon conversion of all Class B ordinary shares will equal, in the aggregate, 20% of the sum of all ordinary shares outstanding upon completion of the Public Offering plus all Class A ordinary shares and equity-linked securities issued or deemed issued in connection with the initial Business Combination, excluding any Class A ordinary shares or equity-linked securities issued, or to be issued, to any seller in the initial Business Combination. Holders of Founder Shares may also elect to convert their Class B ordinary shares into an equal number of Class A ordinary shares.

 

NOTE 7. FAIR VALUE MEASUREMENTS 

 

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. 

 

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

 

Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
   
Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

 

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

Description   Level    

March 31,

2019

   

December 31,

2018

 
Assets:                        
Marketable securities held in Trust Account     1     $ 708,426,313     $ 704,250,272  

 

NOTE 8. SUBSEQUENT EVENTS

 

The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

 

  9  

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Social Capital Hedosophia Holdings Corp. References to our “management” or our “management team” refer to our officers and directors, and references to our “Sponsor” refer to SCH Sponsor Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

 

Special Note Regarding Forward-Looking Statements  

 

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “seek” and variations thereof and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

   

Overview

 

We are a blank check company incorporated on May 5, 2017 as a Cayman Islands exempted company and formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination with one or more businesses. We intend to effectuate our Business Combination using cash from the proceeds of the Public Offering, the sale of warrants in a private placement that occurred simultaneously with the consummation of the Public Offering, our shares, debt or a combination of cash, shares and debt as the consideration to be paid in our initial Business Combination.

 

The issuance of additional shares in a Business Combination:

 

  ● may significantly dilute the equity interest of investors, which dilution would increase if the anti-dilution provisions in the Class B ordinary shares resulted in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares;
  ● may subordinate the rights of holders of ordinary shares if preferred shares are issued with rights senior to those afforded our ordinary shares;
  ● could cause a change of control if a substantial number of our ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
  ● may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; and
  ● may adversely affect prevailing market prices for our Class A ordinary shares and/or warrants.

 

Similarly, if we issue debt securities or otherwise incur significant indebtedness, it could result in:

 

  ● default and foreclosure on our assets if our operating revenues after an initial Business Combination are insufficient to repay our debt obligations;
  ● acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
  ● our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand;
  ● our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
  ● our inability to pay dividends on our ordinary shares;
  ● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;

 

  10  

 

 

  ● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
  ● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
  ● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.

 

We have incurred, and expect to incur, significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete a Business Combination will be successful.

 

Results of Operations

 

We have neither engaged in any operations nor generated any revenues to date. Our only activities from May 5, 2017 (inception) to March 31, 2019 were organizational activities and those necessary to consummate the Public Offering, described below, 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 have generated and expected to generate non-operating income in the form of interest income on marketable securities held after the Public Offering. We have incurred and expect to incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

 

For the three months ended March 31, 2019, we had net income of $4,042,995, which consists of interest income on marketable securities held in the Trust Account of $4,193,961, offset by operating costs of $133,046 and an unrealized loss on marketable securities held in the Trust Account of $17,920.

 

For the three months ended March 31, 2018, we had net income of $1,758,024, which consists of interest income on marketable securities held in the Trust Account of $2,321,396, offset by operating costs of $466,305 and an unrealized loss on marketable securities held in the Trust Account of $97,067.

 

Liquidity and Capital Resources

 

For the three months ended March 31, 2019, net cash used in operating activities was $159,265. Net income of $4,042,995 was affected by interest earned on marketable securities held in the Trust Account of $4,193,961, an unrealized loss on marketable securities held in the Trust Account of $17,920 and changes in our operating assets and liabilities, which used $26,219 of cash from operating activities.  

  

For the three months ended March 31, 2018, cash used in operating activities was $220,366. Net income of $1,758,024 was impacted by interest earned on marketable securities held in the Trust Account of $2,321,396, an unrealized loss on marketable securities held in the Trust Account of $97,067 and changes in our operating assets and liabilities which provided $245,939 of cash from operating activities.  

 

As of March 31, 2019, we had marketable securities held in the Trust Account of $708,426,313 (including approximately $18,426,000 of interest income, net of unrealized losses) consisting of U.S. treasury bills with a maturity of 180 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through March 31, 2019, we did not withdraw any funds from the interest earned on the Trust Account.

 

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (which interest shall be net of taxes payable and excluding deferred underwriting commissions) to complete our initial Business Combination. To the extent that our ordinary shares or debt is used, in whole or in part, as consideration to complete our initial Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

 

As of March 31, 2019, we had cash of $326,346 held outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.

 

We may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon completion of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.

 

In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to (other than as described below), loan us funds as may be required. In the event that our initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the 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 $1.50 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants issued to our Sponsor. We do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in the Trust Account.

 

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We have principally financed our operations from inception using proceeds from the sale of our equity securities to our shareholders prior to the Public Offering and such amount of proceeds from the Public Offering that were placed in an account outside of the Trust Account for working capital purposes. As of March 31, 2019, we had $326,346 in our operating bank accounts, $708,426,313 in securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem our ordinary shares in connection therewith and a working capital deficit of $207,749. In November 2018 and February 2019, the Sponsor committed to provide us up to an aggregate of $200,000 in loans in order to finance transaction costs in connection with a Business Combination. The loans will be evidenced by a promissory note and will only be repaid upon the completion of a Business Combination. Based on the foregoing, we believe we will have sufficient cash to meet our needs through September 18, 2019, the scheduled liquidation date.

 

If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

  

Off-balance sheet financing arrangements

 

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of March 31, 2019. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

 

Contractual obligations

 

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, and administrative and support services provided to the Company. We began incurring these fees on September 18, 2017 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and the Company’s liquidation.

 

Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, the ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of our balance sheets.

 

Net loss per ordinary share

 

We apply the two-class method in calculating earnings per share. Ordinary shares subject to possible redemption which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net income (loss) per ordinary share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of income that is attributable to ordinary shares subject to redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.

 

Recent 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 our financial statements.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting company.

  

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.

 

Changes in Internal Control Over Financial Reporting

 

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K for the period ended December 31, 2018 filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the period ended December 31, 2018 filed with the SEC, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

  

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ITEM 6. EXHIBITS.

 

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

 

No.   Description of Exhibit
10.1 (1)   Indemnity Agreement, dated March 8, 2019, between the Company and Steven Trieu
10.2 (1)   Letter Agreement, dated March 8, 2019, between the Company and Steven Trieu
31.1*   Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*   XBRL Instance Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*   XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

(1) Incorporated by reference to our Current Report on Form 8-K filed on March 11, 2019.

* Filed herewith.
** Furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Social Capital Hedosophia Holdings Corp.
     
Date: May 10, 2019   /s/ Chamath Palihapitiya
  Name: Chamath Palihapitiya
  Title: Chief Executive Officer
    (Principal Executive Officer)

 

Date: May 10, 2019   /s/ Steven Trieu
  Name: Steven Trieu
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

  15  

 

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