Business Context and Reporting Period
This filing is the Form 10-K of Leisure Acquisition Corp. (LACQ), not an operating-company filing by Ensysce Biosciences, Inc. It covers the fiscal year ended December 31, 2020 and was filed March 15, 2021. LACQ was a blank check company with no operations or revenue, formed to complete a business combination.
On January 31, 2021, after year-end, LACQ entered into a merger agreement with Ensysce. Ensysce is a clinical-stage pharmaceutical company focused on abuse-deterrent opioid products and overdose protection programs. The proposed transaction remained subject to customary closing conditions and stockholder approval.
Financial Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | None | None | No operating revenue since inception |
| Net income | $2.4 million | $0.4 million | Increase primarily from accounts payable forgiveness |
| Operating costs | $1.4 million | $3.3 million | Decrease of approximately $2.0 million |
| Interest income | $0.7 million | $4.2 million | Decrease of approximately $3.5 million |
| Forgiveness of accounts payable | $3.3 million | None | Unusual, nonrecurring income item |
| Cash used in operating activities | $0.9 million | $1.4 million | Improvement of approximately $0.6 million |
| Cash outside Trust Account | $49,202 | $1.1 million | Substantial decline |
| Trust Account | $12.6 million | $195.3 million | Decline primarily from share redemptions |
| Total liabilities | $7.8 million | $10.3 million | Decrease of approximately $2.5 million |
2020 net income included $719,646 of Trust Account interest and $3.3 million of forgiven accounts payable, offset by $1.4 million of operating costs and $244,493 of income taxes. The reported profit therefore does not represent operating profitability.
At December 31, 2020, LACQ had $12.6 million in marketable securities held in the Trust Account, $49,202 of cash outside the Trust Account, a working capital deficit of $127,869, $225,000 of related-party working capital loans, and $6.75 million of deferred underwriting fees payable. The filing reports no long-term debt, capital lease obligations, or off-balance-sheet financing arrangements.
Material Changes Versus the Prior Comparable Period
- Trust Account assets fell from $195.3 million to $12.6 million following approximately $184.8 million of public-share redemptions during 2020.
- Operating costs declined from $3.3 million to $1.4 million.
- Interest income declined substantially as Trust Account balances were reduced and interest rates were lower.
- Net income increased to $2.4 million from $366,000, primarily because two service providers forgave $3.3 million of accounts payable.
- Shareholders approved an extension of the business-combination deadline to June 30, 2021 and redeemed an additional 38,015 shares in November 2020.
- The previously proposed GTWY Holdings transaction was terminated on July 16, 2020.
- The Hydra sponsor stopped charging the $10,000 monthly administrative fee and forgave a $71,000 outstanding balance during 2020.
Guidance, Outlook, Risks, and Unusual Items
LACQ did not provide operating guidance or revenue forecasts. Management expected to continue incurring transaction and public-company costs and stated that additional financing would likely be required to fund operations through the June 30, 2021 combination deadline.
- Going concern: The auditor and management identified substantial doubt about LACQ’s ability to continue as a going concern through June 30, 2021 because cash and working capital were insufficient to complete planned activities. Sponsors and HG Vora could provide additional loans, but were not obligated to do so.
- Merger execution: The Ensysce merger could fail to close if required approvals or other closing conditions were not satisfied. If it failed, LACQ would likely be unable to complete another transaction before the deadline and would be required to liquidate.
- Nasdaq listing: LACQ received a Nasdaq deficiency notice for missing the 36-month business-combination deadline and the minimum publicly held shares requirement. Nasdaq granted continued listing through June 1, 2021 subject to specified milestones, including completion of the merger and compliance with initial listing standards.
- Redemption and funding risk: The Ensysce transaction required LACQ to maintain at least $5.0 million of cash after redemptions and transaction expenses, and net tangible assets could not fall below $5,000,001. Excessive redemptions could prevent closing unless additional equity financing was obtained.
- Liquidation risk: If no business combination was completed by June 30, 2021, LACQ expected to redeem public shares using the Trust Account and liquidate. Public warrants would expire worthless, and the redemption value could be below $10 per share due to creditor claims, taxes, dissolution expenses, or other liabilities.
- Ensysce development risk: Ensysce was clinical-stage, had not demonstrated commercial revenue or regulatory approval, and expected to require substantial additional capital for clinical development. Product candidates could fail clinical trials, regulatory review, manufacturing scale-up, commercialization, or intellectual-property protection.
- Conflicts and dilution: Sponsors, directors, officers, and affiliates held founder shares, warrants, or related-party loans and had incentives to complete a transaction before the deadline. The proposed merger would also result in substantial issuance of LACQ shares and potential dilution from outstanding warrants and convertible instruments.
- COVID-19: Management stated that the pandemic could adversely affect the company’s financial position, operations, or ability to identify and complete a target transaction, although the specific impact was not determinable.
Subsequent events included the Ensysce merger agreement, conversion of the GTWY promissory note into 566,288 warrants, a reduction of deferred underwriting fees payable upon a business combination to $2.0 million, and additional sponsor-related borrowing capacity.
Most Important Facts to Verify
- Confirm that the relevant filing is LACQ’s 2020 Form 10-K and not a standalone Ensysce Biosciences filing.
- Verify whether the proposed merger with Ensysce closed, was amended, or failed after the filing date.
- Review the later proxy, registration statement, and closing filings for the final exchange ratio, capitalization, redemption activity, financing, and dilution.
- Confirm Nasdaq’s ultimate listing determination and whether the post-merger company satisfied initial listing requirements.
- Reconcile the Trust Account balance, deferred underwriting fee, working capital loans, and final cash available at closing or liquidation.
- Assess Ensysce’s clinical, regulatory, financing, intellectual-property, and commercialization risks using Ensysce’s subsequent SEC disclosures.
- Do not interpret LACQ’s 2020 net income as operating performance; it was driven principally by a $3.3 million accounts payable forgiveness and Trust Account interest.