Business Context and Reporting Period
This Form 10-Q covers the quarter and six months ended June 30, 2020, filed August 13, 2020. The filing registrant is Social Capital Hedosophia Holdings Corp. III, a Cayman Islands blank-check company, not Clover Health Investments, Corp. The company had not commenced operations and was formed to pursue a business combination, primarily with a U.S. technology business.
The company completed its initial public offering on April 24, 2020, selling 82.8 million units at $10.00 per unit and placing $828.0 million in a trust account. It also sold 10.933 million private placement warrants for $16.4 million.
Financial Highlights
| Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 |
|---|---|---|
| Operating revenue | None | None |
| Formation and operating costs | $120,811 | $120,811 |
| Interest income | $64,246 | $64,246 |
| Net loss | $(56,565) | $(56,565) |
| Basic and diluted loss per share | $(0.01) | $(0.01) |
| Net cash used in operating activities | Not presented | $(508,806) |
- At June 30, 2020, cash and marketable securities held in the trust account totaled $828.064 million, including $64,246 of interest income.
- Cash held outside the trust account was $750,542, available primarily for working capital and business-combination expenses.
- Total assets were $829.245 million; total liabilities were $29.051 million, including a $28.980 million deferred underwriting fee payable.
- Class A ordinary shares subject to possible redemption were recorded as temporary equity at $795.194 million.
- Shareholders’ equity was $5.000 million.
- The company had no long-term debt, capital leases, operating leases, or off-balance-sheet financing arrangements.
- The company incurred a $10,000 monthly fee to an affiliate of the sponsor for office space and administrative services, beginning in April 2020.
Material Changes Versus the Prior Comparable Period
Comparative operating-period information was not provided because the company was newly formed and had no operations before the IPO. Compared with December 31, 2019, the company’s financial position changed primarily because of the April IPO and private placement:
- Assets increased from $100,346 to $829.245 million, principally due to the trust account.
- Cash increased from zero to $750,542 outside the trust account.
- The company issued 82.8 million public units and 10.933 million private placement warrants.
- Class B founder shares increased to 20.7 million, and 79.513 million Class A shares became subject to possible redemption.
- Accumulated deficit increased from $(17,631) to $(74,196), reflecting formation and operating costs net of interest income.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The company expects no operating revenue until after completion of an initial business combination and expects to continue incurring organizational, public-company, due diligence, and transaction costs.
- The company has until April 24, 2022 to complete a business combination. If it does not, it must redeem the public shares and liquidate, subject to applicable law.
- Public shareholders may redeem shares for their pro rata portion of the trust account in connection with a business combination or liquidation. Founder shares and private placement warrants have no redemption or liquidation rights and may expire worthless if no transaction is completed.
- The deferred underwriting fee of $28.980 million is payable from the trust account only if a business combination is completed. An additional financial advisory fee of up to $2.898 million may also become payable at closing.
- The sponsor has agreed to protect the trust account from certain third-party claims, subject to specified exceptions and limitations.
- Management stated that existing cash outside the trust account should be sufficient for expected expenditures, but additional financing may be required if transaction costs exceed estimates or significant shareholder redemptions occur.
- In July 2020, trust-account cash was invested in U.S. Treasury securities and money market funds.
- A newly disclosed risk is that negative interest rates could reduce the trust account’s value and cause the per-share redemption amount to be less than $10.00.
- Disclosure controls and procedures were deemed effective as of June 30, 2020, and no material legal proceedings were reported.
Important Facts for Investors to Verify
- Confirm the registrant’s identity: this filing is for Social Capital Hedosophia Holdings Corp. III, although the request identifies Clover Health Investments, Corp.
- Verify whether and when the company completed its initial business combination after June 30, 2020, and review subsequent filings for the target and transaction terms.
- Review the trust-account balance, redemption activity, deferred underwriting fee, and any additional financing or sponsor loans.
- Assess dilution from the 20.7 million founder shares, public and private warrants, and any securities issued in a business combination.
- Review the liquidation deadline, redemption mechanics, sponsor indemnification provisions, and the possibility that warrants may expire worthless.