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, 2019
(Unaudited)
NOTE 1. ORGANIZATION AND PLAN OF BUSINESS OPERATIONS
As of September 30,
2019, Social Capital Hedosophia Holdings Corp. (the “Company”) was a 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 September 30, 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”), identifying a target company for a Business Combination and activities in connection with the Virgin
Galactic Business Combination (as defined below), as more fully described in Note 5.
On September 9, 2019,
in connection with its Extraordinary General Meeting held on September 9, 2019, the Company’s shareholders approved to extend
the period of time for which the Company is required to consummate a Business Combination from September 18, 2019 to December 18,
2019. In connection therewith, the shareholders elected to redeem an aggregate of 3,771,178 shares of the Company’s Class A
ordinary shares. As a result, an aggregate of approximately $39,100,000 (or approximately $10.367 per share) was removed from the
Company’s Trust Account to pay such shareholders, leaving approximately $677,200,000 in the Trust Account.
On October
25, 2019, the Company filed a notice of deregistration with the Cayman Islands Registrar of Companies and concurrently filed
a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State
of Delaware, under which the Company was domesticated and continues as a Delaware corporation, changing its name to
“Virgin Galactic Holdings, Inc.” (the “Domestication”). In connection with the Domestication, each
issued and outstanding Class A ordinary share, par value $0.0001 per share, of the Company was converted, on a one-for-one
basis, into a share of common stock, par value $0.0001 per share. Each of issued and outstanding Class B ordinary share, par
value $0.0001 per share, of the Company was converted, on a one-for-one basis, into a share of common stock; provided,
however, that with respect to the Class B ordinary shares of the Company held by the Sponsor, the Sponsor instead received
upon the conversion of the Class B ordinary shares held by it 15,750,000 shares of common stock. In connection with the
mergers of the Merger Subs (as defined below) with the VG Companies (as defined below), all outstanding shares of common
stock or limited liability company interests, as applicable, of the VG Companies were cancelled in exchange for the right to
receive 130,000,000 shares of the Company’s common stock for an aggregate merger consideration of $1.3 billion. Vieco
US elected for the Company to repurchase 5,209,562 shares of the Company’s common stock from Vieco US at a purchase
price of $10.00 per share.
NOTE 2. LIQUIDITY
As of September 30,
2019, the Company had 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 September 30, 2019, the Company had $48,489 in its operating bank accounts, $677,167,505
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 $7,083,017, which includes the deferral of approximately $1,726,000 of payments
until the consummation of a Business Combination.
Until
the consummation of the Virgin Galactic Business Combination, the Company used 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.
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
10 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.
VIRGIN GALACTIC HOLDINGS, INC.
(f/k/a SOCIAL CAPITAL HEDOSOPHIA HOLDINGS
CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
(Unaudited)
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,
as well as the Company’s Current Report on Form 8-K and Current Report on Form 8-K/A, each filed on October 29, 2019, relating
to the consummation of the Virgin Galactic Business Combination. 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.
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 Loss per Ordinary Share
Net loss per ordinary
share is computed by dividing net 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 September 30,
2019 and 2018, which were not then redeemable and not redeemable at fair value, have been excluded from the calculation of basic
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 loss per share, since the exercise of the warrants is contingent upon the occurrence of future
events. As a result, diluted loss per ordinary share is the same as basic loss per ordinary share for the periods presented.
Reconciliation of Net Loss per Ordinary
Share
The Company’s
net income is adjusted for the portion of income that is attributable to ordinary shares subject to possible 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 loss per ordinary share is calculated as follows:
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Net (loss) income
|
|
$
|
(482,184
|
)
|
|
$
|
3,036,916
|
|
|
$
|
5,005,004
|
|
|
$
|
7,236,056
|
|
|
Less: Income attributable to ordinary shares subject to possible redemption
|
|
|
(3,529,428
|
)
|
|
|
(3,126,381
|
)
|
|
|
(11,370,605
|
)
|
|
|
(8,101,434
|
)
|
|
Adjusted net loss
|
|
$
|
(4,011,612
|
)
|
|
$
|
(89,465
|
)
|
|
$
|
(6,365,601
|
)
|
|
$
|
(865,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
20,350,919
|
|
|
|
20,107,675
|
|
|
|
20,192,094
|
|
|
|
20,068,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per ordinary share
|
|
$
|
(0.20
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.04
|
)
|
VIRGIN GALACTIC HOLDINGS, INC.
(f/k/a SOCIAL CAPITAL HEDOSOPHIA HOLDINGS
CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
(Unaudited)
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.
NOTE 4. RELATED PARTY TRANSACTIONS
Advance from Related Party
During the nine
months ended September 30, 2019 and the year ended December 31, 2018, a related party advanced an aggregate of $1,344,138 and
$381,675, respectively, for working capital purposes. The advances are non-interest bearing, unsecured and due on demand. As
of September 30, 2019 and December 31, 2018, outstanding advances amounted to $1,725,813 and $381,675, respectively. The
advances from related party were repaid in connection with the consummation of the Virgin Galactic Business Combination.
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 and nine months ended September 30, 2019 and 2018, the Company incurred
$30,000 and $90,000 in fees for these services. At September 30, 2019 and December 31, 2018, fees amounting to $245,000 and $155,000,
respectively, are included in accounts payable and accrued expenses in the accompanying condensed balance sheets. The administrative services agreement terminated upon the completion of the Virgin Galactic Business Combination.
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. All outstanding loans
were repaid in connection with the consummation of the Virgin Galactic Business Combination.
NOTE 5. COMMITMENTS
The underwriters of
the Company’s Public Offering were 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. At completion of the Virgin
Galactic Business Combination, the Company paid the deferred underwriting commission.
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 $2,415,000 was paid at the closing of the Virgin Galactic Business Combination.
As of September 30,
2019, 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, were 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 were entitled
to demand that the Company register these securities. In addition, the holders had certain “piggy-back” registration
rights on registration statements filed after the Company’s consummation of a Business Combination. No working capital loans were converted to warrants in connection with the consummation of the Virgin Galactic Business Combination.
Merger Agreement
On July 9, 2019,
as amended on October 2, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”)
with Vieco USA, Inc., a Delaware corporation (“Vieco US”), Vieco 10 Limited, a company limited by shares under
the laws of the British Virgin Islands (“V10”), Foundation Sub 1, Inc., a Delaware corporation and a direct
wholly owned subsidiary of the Company (“Merger Sub A”), Foundation Sub 2, Inc., a Delaware corporation and a
direct wholly owned subsidiary of the Company (“Merger Sub B”), Foundation Sub LLC, a Delaware limited liability
company and a direct wholly owned subsidiary of the Company (“Merger Sub LLC” and, collectively with Merger Sub A
and Merger Sub B, the “Merger Subs”), TSC Vehicle Holdings, Inc., a Delaware corporation and an indirect wholly
owned subsidiary of Vieco US (“Company A”), Virgin Galactic Vehicle Holdings, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of Vieco US (“Company B”), and VGH, LLC, a Delaware limited liability company
and a direct wholly owned subsidiary of Vieco US (“Company LLC” and, collectively with Company A and Company B,
the “VG Companies”).
VIRGIN GALACTIC HOLDINGS, INC.
(f/k/a SOCIAL CAPITAL HEDOSOPHIA HOLDINGS
CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
(Unaudited)
On October 25, 2019,
as contemplated by the Merger Agreement and following approval by the Company’s shareholders at an extraordinary general
meeting held October 23, 2019:
|
|
·
|
the Company effected the
Domestication by filing a notice of deregistration with the Cayman Islands Registrar of Companies, together with the
necessary accompanying documents, and filed a certificate of incorporation and a certificate of corporate domestication with
the Secretary of State of the State of Delaware, under which the Company was domesticated and continues as a Delaware
corporation, changing its name to “Virgin Galactic Holdings, Inc.”;
|
|
|
·
|
all outstanding shares of common stock
or limited liability company interests, as applicable, of each of the VG Companies were cancelled in exchange for the right to
receive 130,000,000 shares of the Company’s common stock (at a deemed value of $10.00 per share) for an aggregate merger
consideration of $1.3 billion (the “Aggregate Merger Consideration”) and (x) Merger Sub A merged with and into Company
A, the separate corporate existence of Merger Sub A ceasing and Company A being the surviving corporation and a wholly owned subsidiary
of the Company, (y) Merger Sub B, merged with and into Company B, the separate corporate existence of Merger Sub B ceasing and
Company B being the surviving corporation and a wholly owned subsidiary of the Company and (z) Merger Sub LLC merged with and into
Company LLC, the separate company existence of Merger Sub LLC ceasing and Company LLC being the surviving company and a wholly
owned subsidiary of the Company (collectively referred to as the “Mergers” and together with the Domestication, the
“Virgin Galactic Business Combination”); and
|
|
|
·
|
Vieco US elected for the Company to repurchase
5,209,562 shares of the Company’s common stock from Vieco US at a purchase price of $10.00 per share (the “Repurchase”).
|
In connection with
the consummation of the Virgin Galactic Business Combination, each issued and outstanding Class A ordinary share, par value $0.0001
per share, of the Company was converted, on a one-for-one basis, into a share of common stock, par value $0.0001 per share. Each
of issued and outstanding Class B ordinary share, par value $0.0001 per share, of the Company was converted, on a one-for-one basis,
into a share of common stock; provided, however, that with respect to the Class B ordinary shares of the Company held by the Sponsor,
the Sponsor instead received upon the conversion of the Class B ordinary shares held by it 15,750,000 shares of common stock.
Purchase Agreement
Pursuant to the Purchase
Agreement entered into on July 9, 2019, as supplemented by the Assignment, Consent and Waiver Agreement, dated as of October 2,
2019, by and among Chamath Palihapitiya, Vieco US, the Company and V10 (the “Purchase Agreement”), Chamath Palihapitiya,
the chief executive officer of the Company prior to the consummation of the Virgin Galactic Business Combination, purchased (concurrently
with the consummation of the Mergers) 10,000,000 shares of common stock of the Company from Vieco US at a price of $10.00 per share
in cash.
NOTE 6. SHAREHOLDERS’ EQUITY
Preferred Shares
As of September 30,
2019 the Company was 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 September 30, 2019
and December 31, 2018, there were no preferred shares issued or outstanding. The certificate of incorporation filed in connection
with the consummation of the Virgin Galactic Business Combination authorizes 10,000,000 shares of preferred stock, par value $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.
Ordinary Shares
As of September 30,
2019, the Company was 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 September 30, 2019 and December 31, 2018, there were 3,490,181 and 2,863,336 Class A ordinary
shares issued and outstanding, excluding 61,738,641 and 66,136,664 Class A ordinary shares subject to possible redemption, respectively.
At September 30, 2019 and December 31, 2018, 17,250,000 Class B ordinary shares were issued and outstanding. The certificate of
incorporation filed in connection with the consummation of the Virgin Galactic Business Combination authorizes 700,000,000 shares
of common stock, par value $0.0001 per share.
VIRGIN GALACTIC HOLDINGS, INC.
(f/k/a SOCIAL CAPITAL HEDOSOPHIA HOLDINGS
CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019
(Unaudited)
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 September 30, 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
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities held in Trust Account
|
|
1
|
|
|
$
|
677,167,505
|
|
|
$
|
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 condensed financial statements
were issued. Other than as described in Note 1, the Company did not identify any subsequent events that would have required adjustment
or disclosure in the condensed financial statements.
