Business Context and Reporting Period
This Form 10-Q covers Leisure Acquisition Corp. for the quarter and nine months ended September 30, 2018. The provided filing is for Leisure Acquisition Corp., not Ensysce Biosciences, Inc. Leisure was a Delaware blank-check company formed on September 11, 2017 to identify and complete a business combination; it had not yet identified or completed a target transaction as of the reporting date.
The interim financial statements are unaudited and prepared under U.S. GAAP. The filing compares the 2018 periods with the period from inception through September 30, 2017 rather than a comparable prior-year quarter.
Financial Metrics
| Metric | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 |
|---|---|---|
| Operating costs | $848,192 | $1,329,864 |
| Due diligence reimbursement | $600,005 | $600,005 |
| Loss from operations | $248,187 | $729,859 |
| Interest income | $969,387 | $2,515,625 |
| Other income, net | $955,961 | $2,501,710 |
| Net income | $577,649 | $1,398,825 |
| Net loss per common share after redemption allocation | $(0.05) | $(0.14) |
| Net cash used in operating activities | Not separately reported | $779,622 |
The company had no operating revenue and expects to generate operating revenue only after completing a business combination. Reported net income was primarily driven by interest earned on Trust Account investments and included the $600,005 reimbursement of due diligence expenses. Under the two-class method, income attributable to redeemable shares was excluded from earnings available to other common shares, resulting in reported basic and diluted net loss per share despite consolidated net income.
| Balance Sheet Metric | September 30, 2018 | December 31, 2017 |
|---|---|---|
| Cash outside Trust Account | $1,754,266 | $2,090,074 |
| Marketable securities in Trust Account | $202,145,033 | $200,119,137 |
| Total assets | $204,028,049 | $202,426,311 |
| Current liabilities | $359,152 | $156,239 |
| Deferred underwriting fee payable | $7,000,000 | $7,000,000 |
| Common stock subject to possible redemption | $191,668,896 | $190,270,071 |
| Stockholders’ equity | $5,000,001 | $5,000,001 |
The Trust Account consisted substantially of short-term U.S. Treasury bills. The company withdrew $475,814 of Trust Account interest during the nine months to pay franchise and income taxes. It reported no long-term debt, capital lease obligations, operating lease obligations, or off-balance-sheet financing arrangements.
Material Changes and Unusual Items
- Cash outside the Trust Account declined by $335,808 from year-end 2017, while Trust Account securities increased by $2,025,896, principally from investment earnings net of withdrawals and valuation changes.
- Accounts payable and accrued expenses increased to $350,173 from $111,964.
- Retained earnings increased from an accumulated deficit of $31,193 to retained earnings of $1,367,632, while total stockholders’ equity remained $5,000,001.
- The company received a $600,005 reimbursement for due diligence expenses related to a potential business combination that did not materialize.
- The underwriters’ over-allotment option expired unexercised on January 15, 2018, resulting in the forfeiture of 750,000 Founder Shares.
Outlook, Liquidity, Risks, and Contingencies
Management expected to continue incurring significant costs while seeking a business combination and did not provide operating or earnings guidance. It stated that existing funds outside the Trust Account were expected to support current activities, but acknowledged that additional financing could be necessary if transaction and diligence costs exceed estimates or if substantial public-share redemptions occur.
- Approximately $202.1 million was held in the Trust Account for a business combination, subject to permitted withdrawals for taxes and payment of deferred underwriting fees upon a completed transaction.
- HG Vora had committed, subject to conditions including approval of the transaction, to purchase $62.5 million of Private Placement Units concurrently with a business combination.
- Sponsors and related parties had committed an aggregate of up to $1.0 million in working-capital financing through unsecured promissory notes. Such loans would be repaid upon a completed transaction; up to $1.0 million could be convertible into warrants at the lender’s option.
- The company was obligated to pay Hydra Management or its affiliates up to $10,000 per month for administrative services until the earlier of a business combination or liquidation.
- Deferred underwriting fees of $7.0 million were payable from the Trust Account only upon completion of a business combination.
- If the company could not complete a business combination or obtain sufficient funding, it could be required to cease operations and liquidate the Trust Account.
- Key risks included failure to identify or complete a transaction, investor redemptions, dilution from new equity or debt financing, and possible loss of the contingent forward-purchase commitment if HG Vora withheld approval.
Management concluded that disclosure controls and procedures were effective as of September 30, 2018, with no material change in internal control over financial reporting. No legal proceedings or material subsequent events requiring disclosure were reported.
Investor Verification Checklist
- Verify the issuer identity: the supplied filing is Leisure Acquisition Corp.’s 2018 Form 10-Q, not an Ensysce Biosciences filing.
- Confirm the status, deadline, and terms of any proposed business combination, none of which was completed or clearly identified in this filing.
- Reconcile the $202.1 million Trust Account balance with redemption terms, tax withdrawals, and the $7.0 million deferred underwriting fee.
- Assess the contingent nature of HG Vora’s $62.5 million forward purchase commitment and the availability of the $1.0 million working-capital facility.
- Distinguish consolidated net income from the $(0.05) quarterly and $(0.14) year-to-date loss per share caused by the redemption allocation methodology.
- Review the company’s later filings for any transaction, liquidation, financing, changes in redemption exposure, or updated risk factors.