Business Context and Reporting Period
This Form 10-Q covers the three months ended March 31, 2019, and was filed by Leisure Acquisition Corp., not Ensysce Biosciences, Inc. The filing identifies Leisure as a blank-check company seeking a business combination; it had not identified or completed a target as of the reporting date. The financial statements are unaudited and prepared under U.S. GAAP.
Financial Metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | No operating revenue | No operating revenue |
| Operating costs | $189,174 | $170,134 |
| Interest income | $1,179,970 | $691,167 |
| Net income | $775,913 | $406,066 |
| Adjusted net loss attributable to non-redeemable shares | $251,047 | $114,769 |
| Basic and diluted loss per share | $0.04 | $0.02 |
| Cash used in operating activities | $294,366 | $216,827 |
The company reported no operating margin because it had no operating revenue. Net income primarily reflected interest earned on Trust Account investments, partially offset by operating costs, taxes, and a small unrealized investment loss.
- Cash outside the Trust Account was $1,506,596 at March 31, 2019, compared with $1,658,398 at December 31, 2018.
- Trust Account assets were $203,943,978, primarily invested in U.S. Treasury bills, compared with $202,915,739 at year-end 2018.
- Total assets were $205,555,267; total liabilities were $7,387,249; and stockholders’ equity was $5,000,001.
- Common stock subject to possible redemption was recorded at $193,168,017 for 18,952,136 shares.
- The company had no long-term debt, capital leases, operating leases, or off-balance-sheet financing arrangements.
- A deferred underwriting fee payable of $7,000,000 remains outstanding and is payable from the Trust Account only if a business combination is completed.
Material Changes Versus the Prior Comparable Period
- Interest income increased by $488,803, or approximately 71%, primarily because of the larger Trust Account balance and accumulated interest.
- Operating costs increased by $19,040, or approximately 11%.
- Net income increased by $369,847, or approximately 91%, although the adjusted loss attributable to non-redeemable common shares also increased.
- Cash used in operating activities increased by $77,539, or approximately 36%.
- Trust Account assets increased by approximately $1.0 million from December 31, 2018, while operating cash declined by approximately $151,802.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected available resources to fund operations through the earlier of a business combination or December 5, 2019, when the company would be required to cease operations and liquidate if no transaction was completed.
- The company intended to use substantially all Trust Account funds, less permitted tax withdrawals and deferred underwriting commissions, to complete a business combination or redeem public shares.
- HG Vora had a contingent commitment to purchase $62.5 million of private placement units at the time of a business combination, but its obligation was subject to approval of the transaction and could be withheld for any reason.
- Sponsors and HG Vora had committed an aggregate of up to $1.0 million in expense advances for working capital and transaction costs. These advances could be repaid after a completed transaction and, in some circumstances, converted into warrants.
- The principal risks were failure to complete a business combination, potential liquidation, dilution from additional equity issuance, financing or debt requirements, redemption of public shares, and the possibility that transaction costs could exceed available working capital.
- The company withdrew $151,204 of Trust Account interest during the quarter and had withdrawn $989,791 cumulatively through March 31, 2019 to pay franchise and income taxes.
- No legal proceedings, material changes to previously disclosed risk factors, or subsequent events requiring adjustment or disclosure were reported.
- Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material change in internal control over financial reporting during the quarter.
Investor Verification Priorities
- Verify the filing entity and ticker: this document is for Leisure Acquisition Corp. and references LACQ, LACQW, and LACQU, not Ensysce Biosciences, Inc.
- Confirm whether a business combination was completed by the December 5, 2019 deadline and how the Trust Account and public shares were ultimately treated.
- Review the redemption status and terms for the 18,952,136 shares classified as subject to possible redemption.
- Assess the $7.0 million deferred underwriting fee and the conditions for its payment.
- Review the contingent $62.5 million HG Vora financing commitment, including its approval condition and whether it was exercised.
- Reconcile the reported net income with the $0.04 per-share adjusted loss caused by the two-class accounting treatment for redeemable shares.