Business Context and Reporting Period
Social Capital Hedosophia Holdings Corp. II, the predecessor SPAC associated with Opendoor Technologies, filed this unaudited Form 10-Q for the quarter ended March 31, 2020. The company was incorporated on October 18, 2019 to pursue a business combination, primarily with a U.S. technology company, and had not commenced operations or generated operating revenue by the reporting date.
The filing is a pre-initial-public-offering report. The IPO closed after quarter-end on April 30, 2020; the filing does not present Opendoor operating results.
Financial Results and Position
| Metric | March 31, 2020 / Three Months Ended | Prior Comparable Information |
|---|---|---|
| Revenue | $0 | No operating revenue since inception |
| Formation and operating costs | $0 | Not clearly comparable; no operating activity |
| Net loss | $0 | Net loss per share reported as $0.00 |
| Cash | $155,901 | $0 at December 31, 2019 |
| Total assets | $484,400 | $52,673 at December 31, 2019 |
| Total current liabilities | $481,031 | $74,304 at December 31, 2019 |
| Shareholders’ equity | $3,369 | $(21,631) at December 31, 2019 |
| Net cash provided by financing activities | $155,901 | No beginning cash balance |
The company had no operating margins, operating cash flow, or investment cash flow to report. Financing cash flows included $25,000 from issuance of founder shares, $300,000 from a related-party promissory note, repayment of $21,631 of related-party advances, and $147,468 of offering-cost payments.
The $300,000 non-interest-bearing related-party promissory note was outstanding at March 31, 2020 and was repaid when the IPO closed. The company reported no long-term debt, capital leases, or off-balance-sheet financing arrangements at quarter-end.
Material Changes Versus the Prior Comparable Period
- Cash increased from $0 to $155,901, while total assets increased from $52,673 to $484,400, primarily reflecting IPO preparation and related financing.
- Current liabilities increased to $481,031, including $181,031 of accrued offering costs and the $300,000 related-party promissory note.
- Shareholders’ equity improved from a deficit of $21,631 to positive equity of $3,369 following the issuance of 10,350,000 Class B founder shares for $25,000.
- There was no operating activity or revenue in either the reported quarter or the company’s period since inception.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expected to incur ongoing public-company expenses and due-diligence costs while seeking a business combination. The company had until April 30, 2022 to complete a transaction. If it failed to do so, it was required to redeem the public shares and liquidate, subject to applicable law.
Subsequent to quarter-end, the company completed an IPO of 41,400,000 units at $10.00 per unit, generating gross proceeds of $414.0 million, and sold 6,133,333 private-placement warrants for $9.2 million. It placed $414.0 million into a trust account and retained $1.452 million outside the trust account for working capital. Total IPO transaction costs were $22.197 million, including $14.490 million of deferred underwriting fees payable only if a business combination were completed.
Material risks included failure to complete a business combination, redemption of public shares, dilution from additional equity or equity-linked securities, possible issuance of senior preferred shares, reliance on sponsor financing, and the potential expiration of public and private warrants without value. The sponsor agreed to protect the trust account against certain third-party claims, subject to stated exceptions.
The company entered into an administrative support arrangement requiring payment of up to $10,000 per month to a sponsor affiliate beginning after the IPO and continuing until a business combination or liquidation. Management stated that the CARES Act was not expected to have a significant effect on the company’s financial position or results.
Management concluded that disclosure controls and procedures were effective as of March 31, 2020, and reported no material changes in internal control over financial reporting. No legal proceedings were reported.
Important Facts for Investors to Verify
- Verify that this filing belongs to the SPAC predecessor, not an operating-period filing for Opendoor Technologies.
- Confirm the April 30, 2020 IPO, trust-account balance, cash outside the trust, transaction costs, and deferred underwriting fees in subsequent filings.
- Review the terms and completion status of the eventual business combination with Opendoor, including shareholder redemptions and dilution.
- Assess the conversion, lock-up, anti-dilution, and voting terms of the 10,350,000 founder shares.
- Review the $11.50 warrant exercise price, redemption provisions, registration requirements, and potential warrant dilution.
- Confirm the company’s deadline for completing a business combination and the liquidation and redemption consequences if the deadline was missed.