Filing summary
Important identity and period note: The supplied filing is Social Capital Hedosophia Holdings Corp.’s Form 10-K for the fiscal year ended December 31, 2018, filed March 18, 2019. It is not a Virgin Galactic Holdings, Inc. filing. It describes a blank-check company searching for a business combination; it does not identify Virgin Galactic as a target or report Virgin Galactic’s operating results.
Business context and reporting period
The company was a Cayman Islands-incorporated special purpose acquisition company (SPAC), formed to combine with an operating business. It had no operations or operating revenue through year-end. Its stated focus was technology and related opportunities, but it could pursue other industries. The 2018 comparison is against the period from inception on May 5, 2017 through December 31, 2017, not a full prior fiscal year.
Financial performance and position
| Metric | FY 2018 | Prior comparable period |
|---|---|---|
| Operating revenue | None | None |
| Operating costs / operating loss | $1.344 million | $0.611 million |
| Interest income | $12.580 million | $2.083 million |
| Unrealized loss on trust investments | $0.271 million | $0.141 million |
| Net income | $10.965 million | $1.331 million |
| Net cash used in operating activities | $1.147 million | $0.653 million |
Net income largely reflected interest earned on trust assets, rather than business operations. The filing reports basic and diluted loss per share of $0.04 for both periods, after allocating trust income attributable to redeemable shares; the selected financial data labels this as loss per share.
At December 31, 2018, assets totaled $704.758 million, including $704.250 million in marketable securities held in trust and $462,162 in cash outside the trust. Liabilities were $24.732 million, including $24.150 million of deferred underwriting fees payable upon a business combination. Redeemable Class A shares were classified as temporary equity at $675.026 million; reported shareholders’ equity was $5.000 million. The company reported a $74,703 working-capital deficit and no long-term debt.
The trust balance was about $10.21 per public share at year-end. Management estimated approximately $680.1 million would be available for a business combination after the deferred underwriting discount, assuming no redemptions.
Changes, outlook, risks, and unusual items
- Compared with the inception-to-year-end 2017 period, 2018 net income and trust interest were higher, while operating costs and operating cash use also increased. Period lengths differ, so the comparison is not like-for-like.
- The company had to complete a business combination by September 18, 2019, 24 months after its public offering, or redeem public shares and liquidate. Warrants would expire worthless if no combination were completed.
- Management said available outside-trust cash, together with Sponsor loan commitments of up to $200,000, was expected to fund operations through the deadline. The filing cautioned that this estimate could be inaccurate; outside-trust cash was limited.
- No target, transaction, or operating forecast was disclosed. Additional financing might be needed, and its availability and terms were uncertain. Redemptions could reduce cash available to close a transaction.
- Material risks include competition for targets, conflicts of interest and competing duties among management and Sponsor affiliates, potential dilution from founder shares and warrants, and creditor or bankruptcy claims against trust assets. The Sponsor’s trust-protection indemnity may be difficult to collect because its ability to pay was not independently verified.
- The company paid a Sponsor affiliate $10,000 monthly for office, administrative, and support services. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control audit opinion.
- The financial statements received an unqualified audit opinion. The filing reported no material pending or threatened litigation.
Most important facts to verify
- Confirm the intended issuer: this filing is for Social Capital Hedosophia Holdings Corp., not Virgin Galactic Holdings, Inc.
- Check subsequent filings for whether and when the SPAC completed a business combination, and the definitive transaction terms, redemptions, financing, and resulting ownership and dilution.
- Verify actual liquidity and Sponsor funding, including the status of the $200,000 loan commitment and any deferred underwriting fees.
- Review trust-account balances, redemption outcomes, and any creditor claims or Sponsor-indemnity recovery affecting public shareholders.
- For Virgin Galactic financial performance, obtain Virgin Galactic’s own filings; this 10-K provides no company-specific revenue, profit, cash flow, debt, or guidance for Virgin Galactic.