Filing Scope and Business Context
The provided Form 10-K is for Leisure Acquisition Corp., not Ensysce Biosciences, Inc. It covers the fiscal year ended December 31, 2017, and reports activity from September 11, 2017, the date of incorporation, through December 31, 2017. Leisure Acquisition was a newly formed blank-check company and shell company seeking a merger, acquisition, or similar business combination, with an intended focus on location-based leisure and leisure-related businesses.
The company had no operating business, had not identified a specific target, and generated no revenue during the reporting period. Its public units began trading on Nasdaq in December 2017; common stock and warrants began trading separately on December 28, 2017.
Financial Results and Position
| Metric | Period ended December 31, 2017 |
|---|---|
| Revenue | $0 |
| Operating costs | $146.7 million? The filing reports $146,695 |
| Loss from operations | $(146,695) |
| Interest income | $157,388 |
| Unrealized loss on trust securities | $(38,251) |
| Net loss | $(31,193) |
| Basic and diluted loss per share | $(0.01) |
| Cash and marketable securities in Trust Account | $200,119,137 |
| Cash outside Trust Account | $2,090,074 |
| Total assets | $202,426,311 |
| Total liabilities | $7,156,239 |
| Deferred underwriting fee payable | $7,000,000 |
| Common stock subject to possible redemption | $190,270,071 |
| Stockholders’ equity | $5,000,001 |
| Net cash used in operating activities | $(251,831) |
| Net cash used in investing activities | $(200,000,000) |
| Net cash provided by financing activities | $202,341,905 |
The filing does not provide a meaningful operating margin because the company had no revenue or operations. No long-term debt, capital lease obligations, or operating lease obligations were reported. The company had access to up to $1.0 million of potential working-capital loans from sponsors and its strategic investor, but those parties were not obligated to fund the loans.
Capitalization and Liquidity
- On December 5, 2017, the company completed an initial public offering of 20 million units at $10.00 per unit, generating gross proceeds of $200 million.
- Each unit included one common share and one-half of a warrant. Each whole warrant had an exercise price of $11.50 per share.
- The company sold 6.825 million private-placement warrants for $6.825 million.
- Approximately $200 million was deposited into the Trust Account and invested in short-term U.S. government securities or qualifying money-market funds.
- Net proceeds available for the business combination were described as approximately $193 million after deferred underwriting fees and before transaction-related fees and expenses.
- HG Vora committed, subject to conditions and its consent to the transaction, to purchase approximately $62.5 million of private-placement units concurrently with a business combination.
Material Changes and Unusual Items
- This was the company’s first reporting period following its formation; therefore, the filing does not provide a prior comparable operating period for meaningful year-over-year analysis.
- The primary financial change was the completion of the IPO and private placement, followed by the funding of the Trust Account.
- Operating costs were largely formation, offering, professional, and public-company expenses rather than costs of generating revenue.
- The $7 million deferred underwriting fee was payable only upon completion of a business combination, subject to the underwriting agreement.
- At December 31, 2017, up to 19,015,680 public shares were classified as subject to possible redemption and presented as temporary equity.
- The underwriters’ over-allotment option expired unexercised on January 15, 2018, resulting in the forfeiture of 750,000 founder shares and leaving 5 million founder shares outstanding.
Outlook, Conditions, and Key Risks
The company expected to incur continuing costs while identifying and evaluating acquisition targets and did not expect operating revenue until after completing a business combination. It had until December 5, 2019, 24 months after the IPO closing, to complete a business combination.
- If no business combination was completed by the deadline, the company would cease operations, redeem the public shares using the Trust Account, and liquidate. Warrants would expire worthless.
- Public stockholders generally had redemption rights for their pro rata share of the Trust Account, initially approximately $10.00 per share plus permitted interest, subject to conditions and applicable law.
- The redemption amount could be less than $10.00 per share because of creditor claims, bankruptcy proceedings, Trust Account losses, taxes, dissolution costs, or insufficient sponsor indemnification.
- The business combination had to involve a target or targets with an aggregate fair market value of at least 80% of the Trust Account assets, excluding specified amounts, and the post-transaction company had to acquire control of the target.
- Management and sponsors faced conflicts of interest because founder shares and warrants could become worthless if no transaction was completed, and because officers and directors had duties to other entities.
- Significant risks included failure to identify or complete a suitable transaction, excessive shareholder redemptions, inadequate working capital, inability to obtain additional financing, dilution from equity or warrants, potential debt burden, Nasdaq delisting, and risks associated with any acquired business.
- The filing identifies no material pending legal proceedings.
Investor Verification Checklist
- Verify the issuer identity: the supplied filing is for Leisure Acquisition Corp., not Ensysce Biosciences, Inc.
- Confirm that the reported period is an inception-to-December 31, 2017 period rather than a full year of operating activity.
- Reconcile the $200 million Trust Account, $2.09 million of unrestricted cash, $7 million deferred underwriting fee, and $190.27 million of redeemable stock.
- Review the conditions attached to HG Vora’s $62.5 million contingent forward-purchase commitment, including its ability to withhold consent to a proposed transaction.
- Assess redemption mechanics, the $5,000,001 net tangible asset requirement, and the possibility that creditor claims could reduce the redemption value below $10.00 per share.
- Evaluate sponsor, management, and related-party conflicts, including founder shares, private-placement warrants, administrative fees, potential working-capital loans, and post-combination compensation.
- Confirm the December 5, 2019 business-combination deadline and the consequences for public shares and warrants if no transaction occurred.