Business Context and Reporting Period
The supplied filing is Leisure Acquisition Corp.’s Form 10-K for the fiscal year ended December 31, 2018, not an Ensysce Biosciences, Inc. filing. Leisure Acquisition was a blank-check company formed in September 2017 to pursue a business combination, with a stated focus on location-based leisure and leisure-related businesses. It had no operating business or revenue through December 31, 2018 and remained a shell company.
The company’s securities traded on Nasdaq under LACQU (units), LACQ (common stock) and LACQW (warrants). The filing was signed March 11, 2019.
Financial Results and Key Metrics
| Metric | Fourth quarter 2018 | Fiscal 2018 | Comparable 2017 period |
|---|---|---|---|
| Operating costs | $229,381 | $1,559,245 | $146,695 for the period from inception through December 31, 2017 |
| Interest income | $1,111,167 | $3,626,792 | $157,388 |
| Unrealized gain/(loss) on trust securities | $22,312 | $8,397 | $(38,251) |
| Income tax provision | $180,890 | $553,916 | $3,635 |
| Net income/(loss) | $723,208 | $2,122,033 | $(31,193) |
| Basic and diluted net loss per share | $(0.08) | $(0.22) | $(0.01) |
The company reported no operating revenue. Fiscal 2018 net income was driven primarily by interest earned on funds held in the Trust Account and a $600,005 reimbursement of due diligence expenses related to a business combination that did not materialize. Because income attributable to redeemable shares is excluded from the earnings-per-share calculation, reported net income and reported per-share loss are not directly comparable.
- Cash and marketable securities in the Trust Account were $202.9 million at December 31, 2018, compared with $200.1 million at December 31, 2017.
- Cash held outside the Trust Account was $1.7 million, down from $2.1 million.
- Total assets were $204.8 million; total liabilities were $7.4 million, including a $7.0 million deferred underwriting fee payable.
- Stockholders’ equity was $5.0 million, while $192.4 million of common stock was classified as subject to possible redemption.
- Cash used in operating activities was $1.24 million in 2018, compared with $251,831 for the 2017 inception period.
- The company had no long-term debt, capital leases or off-balance-sheet financing arrangements. It had access to up to $1.0 million of potential working-capital loans from sponsors and its strategic investor, although the parties were not obligated to fund those loans.
Material Changes Versus the Prior Comparable Period
- Fiscal 2018 shifted from a $31,193 net loss to $2.12 million of net income, primarily because the Trust Account generated $3.63 million of interest income versus $157,388 in the 2017 inception period.
- Operating costs increased to $1.56 million from $146,695, reflecting a full year of public-company, acquisition-search and due-diligence expenses.
- The company received a $600,005 reimbursement in September 2018 for due-diligence costs related to an unsuccessful potential transaction.
- Trust Account securities increased by approximately $2.8 million, while cash outside the Trust Account declined by approximately $431,676.
- Redeemable common stock increased to $192.4 million from $190.3 million, and the number of redeemable shares declined modestly to 18,960,928 from 19,015,680.
Guidance, Outlook, Risks and Unusual Items
Management provided no operating or revenue guidance. It expected to continue incurring costs while searching for and evaluating a target and did not expect operating revenue until after a business combination.
- The company was required to complete a business combination by December 5, 2019. If unsuccessful, it would cease operations, redeem the public shares and liquidate; the warrants would expire worthless.
- HG Vora had a contingent commitment to purchase 6.25 million units for approximately $62.5 million at the time of a business combination. The commitment was subject to HG Vora’s approval of the transaction, which could be withheld for any reason.
- A target generally had to represent at least 80% of the Trust Account’s value, and the post-transaction company had to acquire control of the target.
- Public stockholders could redeem shares for their pro rata share of the Trust Account, subject to minimum net tangible asset requirements and other limitations. Excessive redemptions could prevent a transaction or reduce available funding.
- Third-party creditor claims, bankruptcy, unenforceable Trust Account waivers or insufficient sponsor indemnification could reduce the amount available to stockholders below $10 per share.
- Management and sponsors faced conflicts of interest, including fiduciary or contractual duties to other entities and the potential to receive reimbursement, fees or post-combination compensation.
- The company’s executive chairman and chief executive officer had non-competition obligations to Inspired Entertainment that limited the potential target universe and could create litigation or transaction risks.
- The company was an emerging growth company and used related reporting and auditor-attestation exemptions. Management reported effective disclosure controls and internal control over financial reporting; the independent auditor did not provide an internal-control attestation.
Most Important Facts to Verify
- Verify the issuer identity: the source text identifies Leisure Acquisition Corp., whereas the request metadata identifies Ensysce Biosciences, Inc.
- Verify whether a later filing disclosed completion of a business combination, liquidation, extension or change in corporate name.
- Confirm the actual Trust Account balance, deferred underwriting fee treatment and redemption value per public share.
- Review the terms and ultimate status of the $62.5 million contingent forward purchase commitment from HG Vora.
- Assess sponsor, management and strategic-investor conflicts, related-party payments and any working-capital loans or warrant conversions.
- Confirm whether the company completed a qualifying transaction before the December 5, 2019 deadline and determine the effect on public shares and warrants.