Business Context and Reporting Period
This Form 10-Q was filed by Social Capital Hedosophia Holdings Corp. III, a Cayman Islands blank-check company, for the quarter and nine months ended September 30, 2020. The filing is not an operating-company filing for Clover Health Investments, Corp.; it describes the SPAC’s proposed acquisition of Clover.
The company had not commenced operations and had generated no operating revenue as of September 30, 2020. Its activities consisted primarily of formation, its April 2020 initial public offering, and the search for a business combination.
Financial Condition and Results
| Metric | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 |
|---|---|---|
| Operating revenue | $0 | $0 |
| Formation and operating costs | $2.3 million | $2.4 million |
| Interest income | $32,361 | $96,607 |
| Net loss | $2.3 million | $2.3 million |
| Basic and diluted loss per share | $0.10 | $0.12 |
| Cash used in operating activities | Not separately reported | $1.1 million |
Margins are not meaningful because the company had no operating revenue. At September 30, 2020, cash outside the Trust Account was $126,745, cash and marketable securities in the Trust Account were $828.1 million, and total assets were $828.7 million. Working capital deficit was $1.2 million.
Liabilities totaled $30.8 million, including $28.98 million of deferred underwriting fees payable only if a business combination is completed. The company reported no long-term debt or capital lease obligations as of September 30, 2020. Class A shares subject to possible redemption were recorded as temporary equity at $792.9 million. Shareholders’ equity was $5.0 million.
Material Changes Versus Prior Comparable Period
- Compared with December 31, 2019, the company’s balance sheet changed materially following the April 2020 IPO: Trust Account assets increased from zero to $828.1 million, and redeemable Class A shares increased to $792.9 million.
- The company issued 82.8 million Units for gross proceeds of $828.0 million and sold 10.9 million private-placement warrants for $16.4 million.
- Operating expenses and the net loss reflect the company’s post-IPO activities; a meaningful prior-period income-statement comparison is not provided because the company was newly formed and had not commenced operations.
- On October 5, 2020, after the reporting date, the company entered into a merger agreement with Clover. The proposed transaction provides for aggregate merger consideration of $3.5 billion, including up to $500 million in cash, subject to adjustments and redemptions.
Guidance, Outlook, Risks and Unusual Items
Management expects no operating revenue until completion of an initial business combination and expects to continue incurring costs in pursuing the transaction. The company must complete a business combination by April 24, 2022 or redeem its public shares and liquidate, subject to applicable requirements.
The company disclosed substantial doubt about its ability to continue as a going concern because only $126,745 was available outside the Trust Account and additional financing may be required. On October 19, 2020, it issued a non-interest-bearing Sponsor promissory note permitting borrowings of up to $2.5 million and borrowed $806,208.
The Trust Account is generally restricted to funding a business combination or redeeming public shares. Public shareholders have redemption rights, while the Sponsor’s founder shares and private-placement warrants generally do not. The deferred underwriting fee and potential transaction costs reduce funds available for the transaction.
- The proposed Clover merger remained subject to closing conditions, shareholder approval or applicable tender-offer procedures, redemptions, and domestication from the Cayman Islands to Delaware.
- Failure to complete a business combination could cause founder shares and private-placement warrants to expire worthless.
- Additional equity or debt financing could dilute investors, subordinate ordinary shares, or increase financial risk.
- COVID-19 could adversely affect the company’s search for a target, although the specific impact was not determinable at filing.
- The company noted that negative interest rates could reduce the per-share amount available to public shareholders from the Trust Account.
- The company paid an affiliate of the Sponsor $30,000 during the quarter for office, administrative, and support services and had accrued $50,000 of such fees at quarter-end.
Important Facts for Investors to Verify
- Verify that the filing registrant is Social Capital Hedosophia Holdings Corp. III, not Clover Health Investments, Corp.
- Verify the final terms, timing, approvals, redemption levels, financing, and closing status of the proposed Clover business combination.
- Verify the amount of Trust Account funds remaining after redemptions, deferred underwriting fees, transaction expenses, and any taxes.
- Verify the company’s ability to fund operating expenses and transaction costs outside the Trust Account, including Sponsor financing availability.
- Assess dilution from founder shares, warrants, employee awards, proposed merger consideration, and any additional financing.
- Review the going-concern disclosure and the conditions under which the company would be required to liquidate if no business combination is completed by April 24, 2022.