Business Context and Reporting Period
Social Capital Hedosophia Holdings Corp. II, later associated with Opendoor Technologies Inc., filed this unaudited Form 10-Q for the quarter ended June 30, 2020. At the reporting date, it was a Cayman Islands blank-check company formed to pursue a merger or similar business combination, had not commenced operations, and had not generated operating revenue.
The company completed its initial public offering on April 30, 2020, issuing 41.4 million units at $10.00 per unit, including the underwriters’ full over-allotment exercise. It intended to focus primarily on U.S. technology businesses and had until April 30, 2022 to complete a business combination.
Financial Results and Position
| Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 |
|---|---|---|
| Operating revenue | $0 | $0 |
| Formation and operating costs | $303,819 | $303,819 |
| Interest income | $25,917 | $25,917 |
| Net loss | $(277,902) | $(277,902) |
| Basic and diluted loss per share | $(0.03) | $(0.03) |
| Net cash used in operating activities | Not separately presented | $(527,138) |
- June 30, 2020 cash outside the Trust Account was $987,699.
- Trust Account assets totaled $414.0 million in principal, or $414,025,917 including accrued interest.
- Total assets were $415,355,733; total liabilities were $14,626,824; and shareholders’ equity was $5,000,007.
- Class A ordinary shares subject to possible redemption were recorded as temporary equity at $395,728,902, representing 39,570,413 shares.
- The company had no long-term debt, capital lease obligations, or off-balance-sheet financing arrangements.
- The underwriters held a deferred underwriting fee of $14,490,000, payable from the Trust Account only if a business combination is completed.
Material Changes Versus Prior Comparable Period
No meaningful year-over-year operating comparison is available because the company was formed on October 18, 2019 and had no operations or operating revenue. Compared with December 31, 2019, the company completed its IPO and private placement, funded the Trust Account, increased cash and equity, and recorded redemption-classified public shares and deferred underwriting obligations.
- Cash increased from none reported at December 31, 2019 to $987,699 outside the Trust Account at June 30, 2020.
- Trust Account assets increased from none reported to $414,025,917.
- Accumulated deficit increased from $(21,631) to $(299,533).
- The company issued 41.4 million public units and 6,133,333 private placement warrants.
Guidance, Outlook, Risks, and Unusual Items
Management expected to continue incurring public-company, due diligence, and transaction costs and did not expect operating revenue until after completion of an initial business combination. Management stated that existing funds were expected to be sufficient for anticipated expenditures, but additional financing could be required if transaction costs exceeded estimates or if substantial public-share redemptions occurred.
- Public shareholders could redeem shares in connection with a business combination. If no transaction was completed by April 30, 2022, the company generally would liquidate and redeem public shares using the Trust Account, while founder shares and private placement warrants would expire worthless.
- The Sponsor agreed to protect the Trust Account against certain third-party claims, subject to specified exceptions and limitations.
- The Sponsor or affiliates could provide up to $1.5 million of working-capital loans, potentially convertible into warrants.
- The company paid an affiliate of the Sponsor up to $10,000 per month for office, administrative, and support services; $20,000 was incurred during the three and six months ended June 30, 2020.
- In July 2020, Trust Account cash was invested in U.S. Treasury securities and money market funds.
- The filing identified a risk that negative interest rates could reduce the per-share redemption amount below $10.00.
- Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting. No legal proceedings were reported.
Investor Verification Points
- Verify that this filing predates the operating combination with Opendoor and represents a SPAC rather than an operating real estate technology company.
- Confirm the terms, timing, and completion status of the eventual business combination and related public-share redemptions.
- Review the $14.49 million deferred underwriting fee and other transaction obligations payable upon a business combination.
- Assess dilution from 10.35 million founder shares, public warrants, private placement warrants, and any potential working-capital loan conversions.
- Confirm the amount ultimately remaining in the Trust Account and the restrictions governing its use.
- Review the April 30, 2022 liquidation deadline and the consequences for public shareholders, founder shares, and warrants.