Business Context and Reporting Period
The filing is a Form 10-K for Leisure Acquisition Corp., not Ensysce Biosciences, Inc. It covers the fiscal year ended December 31, 2019 and was filed March 10, 2020. Leisure Acquisition was a shell company formed to complete a business combination and had not commenced operating activities or generated revenue.
On December 27, 2019, the company entered into a merger agreement with GTWY Holdings Limited, the parent of Gateway Casinos & Entertainment Limited, a Canadian gaming and entertainment company. The transaction remained subject to stockholder, court, regulatory and other closing conditions and had not closed as of the filing date.
Key Financial Metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Net income | $365,954 | $2,122,033 |
| Interest income | $4,249,828 | $3,626,792 |
| Operating costs | $3,328,674 | $1,559,245 |
| Income tax provision | $555,200 | $553,916 |
| Cash used in operating activities | $1,424,792 | $1,238,263 |
| Cash outside Trust Account | $1,061,151 | $1,658,398 |
| Trust Account securities | $195,312,177 | $202,915,739 |
| Total assets | $196,511,899 | $204,831,755 |
| Total liabilities | $10,337,313 | $7,439,650 |
| Stockholders’ equity | $5,000,001 | $5,000,001 |
The reported basic and diluted loss per common share attributable to non-redeemable shares was $(0.47) in 2019 versus $(0.22) in 2018, reflecting the allocation of Trust Account earnings to shares subject to possible redemption.
There were no operating margins to report because the company had no revenue or operating business. The filing states that the company had no long-term debt, capital lease obligations or operating lease obligations, although it had a $566,268 interest-free promissory note payable at December 31, 2019 and $7.0 million of deferred underwriting fees payable upon a completed business combination.
Material Changes Versus the Prior Comparable Period
- Net income declined by approximately 83%, primarily because operating costs more than doubled and 2018 included a $600,005 reimbursement of due diligence expenses and an $8,397 unrealized investment gain.
- Operating cash use increased from $1.24 million to $1.42 million.
- Cash outside the Trust Account declined by approximately $597,000, while Trust Account assets declined primarily because of the redemption of public shares.
- At the November 26, 2019 extension meeting, holders redeemed 1,123,749 shares for approximately $11.6 million, or approximately $10.31 per share.
- The combination deadline was extended from December 5, 2019 to April 5, 2020. The company scheduled a further vote to seek an extension to June 30, 2020.
- The company signed the GTWY Holdings merger agreement and obtained a $566,288 interest-free advance from GTWY Holdings to fund the first required Trust Account contribution.
Guidance, Outlook, Risks and Unusual Items
Management expected no operating revenue before completion of a business combination. The company intended to use the Trust Account, potential strategic-investor funding, equity and/or debt financing to complete the Gateway transaction and fund the post-combination business.
- If the company failed to complete a business combination by the applicable deadline, it would cease operations, redeem public shares and liquidate. Public warrants would expire worthless.
- A March 26, 2020 special meeting was scheduled to seek an extension to June 30, 2020. If the extension was not approved and the transaction was not completed by April 5, 2020, liquidation was contemplated.
- Public stockholders had redemption rights, subject to a minimum net tangible asset requirement of $5,000,001 and other transaction-specific cash requirements.
- Third-party creditor claims could reduce the Trust Account and the amount available for redemption below $10.00 per share. Sponsor indemnification was limited and the filing stated that sponsor resources had not been independently verified.
- The proposed transaction was subject to stockholder approval, approval of the applicable Canadian arrangement, competition-law waiting periods and other governmental or third-party consents.
- Management and sponsors had potential conflicts because they held founder shares and warrants, could receive reimbursement or future compensation, and had other fiduciary or contractual obligations.
- The company faced substantial dilution risk from founder shares, 16.825 million public and private placement warrants, possible warrant conversion of working-capital loans, and potential equity issued in the merger.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2019. No auditor attestation was required because the company was an emerging growth company.
Facts an Investor Should Verify
- Verify the requested issuer: the supplied filing is for Leisure Acquisition Corp. under ticker symbols LACQ, LACQW and LACQU, not Ensysce Biosciences, Inc.
- Verify whether the GTWY Holdings/Gateway Casinos transaction ultimately closed, was amended or terminated, and whether the company completed liquidation.
- Verify the final amount distributed from the Trust Account per redeemed share and any impact from creditor claims, deferred underwriting fees and extension contributions.
- Verify subsequent financing, including the $1.0 million of interest-free sponsor and strategic-investor loans issued in January 2020 and their potential conversion into warrants.
- Review the definitive proxy materials and merger agreement for transaction consideration, dilution, redemption limits, termination fees and closing conditions.
- Confirm the financial statements and auditor’s report, including the unusual presentation of net income alongside a reported loss per non-redeemable share.