Business Context and Reporting Period
This Form 10-Q covers the three months ended March 31, 2020. The filing entity is Leisure Acquisition Corp., a Delaware blank-check company, although the request identifies Ensysce Biosciences, Inc.; investors should verify the applicable issuer.
The company had not commenced operating activities and was pursuing a business combination. It had entered into a proposed merger agreement with GTWY Holdings Limited. The company’s combination deadline was extended to June 30, 2020.
Financial Condition and Results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Operating costs | $915,183 | $189,174 |
| Interest income | $639,954 | $1,179,970 |
| Net income (loss) | $(349,854) | $775,913 |
| Basic and diluted loss per share | $(0.07) | $(0.04) |
| Net cash used in operating activities | $(234,388) | $(294,366) |
- Cash outside the Trust Account was $167,951 at March 31, 2020, compared with $1.06 million at December 31, 2019.
- Trust Account securities were $61.33 million, down from $195.31 million at December 31, 2019, primarily following redemptions.
- Total assets were $61.60 million, while total liabilities were $52.06 million. Stockholders’ equity was $5.00 million.
- Current liabilities were $3.49 million, and the company reported a working-capital deficit of $3.23 million, excluding certain tax amounts payable from Trust Account interest.
- Debt included a $566,268 unsecured promissory note to GTWY Holdings and $1.00 million of non-interest-bearing convertible promissory notes payable to sponsors and HG Vora. A $7.00 million deferred underwriting fee remained payable upon a business combination.
- The company had no operating revenue and expects to generate no operating revenue before completing a business combination. Interest income on Trust Account investments was its principal source of income.
Material Changes Versus the Prior Comparable Period
- The company moved from $775,913 of net income in Q1 2019 to a $349,854 net loss in Q1 2020.
- Operating costs increased approximately fivefold to $915,183, while Trust Account interest income declined to $639,954 from $1.18 million.
- Cash used in operating activities improved to $234,388 from $294,366, but operating liquidity declined substantially.
- On March 26, 2020, stockholders approved an extension of the combination deadline to June 30, 2020 and redeemed 16,837,678 shares for an aggregate of $176.28 million. $136.28 million was paid by March 31, with the remaining $40.00 million paid on April 1, 2020.
- Shares subject to possible redemption decreased to 433,788 from 17.50 million at December 31, 2019. Public shares outstanding after the extension were reported as 7,038,573 as of May 7, 2020.
- The company received $1.00 million in sponsor and strategic-investor loans during January 2020 and made monthly Trust Account contributions in connection with the deadline extensions.
Guidance, Outlook, Risks and Unusual Items
- Management stated that it must raise additional capital through loans or investments because cash outside the Trust Account and available working capital are insufficient to fund operations through the deadline. Sponsors and HG Vora may provide additional funding but are not obligated to do so.
- These liquidity conditions raised substantial doubt about the company’s ability to continue as a going concern through June 30, 2020 if a business combination was not completed.
- If no business combination was completed by the deadline, the company would cease operations other than winding up and redeem public shares from the Trust Account. Warrants could expire worthless, and the redemption value could be less than the original $10.00 per unit.
- The proposed GTWY transaction remained subject to stockholder approval, regulatory and other third-party approvals, and other closing conditions. The filing provided no assurance that the transaction would close.
- The company identified COVID-19 as a material risk to its target search and transaction timetable, including potential disruption to travel, meetings, financing, vendors and target operations.
- The company had no long-term operating debt, capital leases or operating leases, but was obligated to pay Hydra Management up to $10,000 per month for administrative services and owed deferred underwriting fees if a business combination closed.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No legal proceedings were reported.
Key Facts Investors Should Verify
- Confirm the issuer identity, because the provided filing is for Leisure Acquisition Corp., not Ensysce Biosciences, Inc.
- Verify whether the proposed GTWY Holdings transaction closed, was amended or terminated after March 31, 2020.
- Verify whether the June 30, 2020 combination deadline was further extended or whether the company liquidated.
- Reconcile the $61.33 million Trust Account balance with redemption payments, extension contributions, deferred underwriting fees and tax withdrawals.
- Assess the repayment or conversion terms of the $566,268 GTWY note and $1.00 million of sponsor-related convertible notes.
- Review subsequent filings for the resolution of the disclosed going-concern uncertainty and the impact of COVID-19 on the transaction.