Business Context and Reporting Period
This Form 10-Q covers Leisure Acquisition Corp. for the quarter and six months ended June 30, 2020. The filing entity is a Delaware blank-check company, not Ensysce Biosciences, Inc.; investors should verify the issuer identity. The Company had not commenced operating activities and was seeking a business combination.
The Company’s proposed combination with GTWY Holdings Limited was terminated on July 16, 2020 after the transaction was not completed by the contractual deadline. Stockholders had extended the business-combination period to December 1, 2020.
Financial Metrics
- Revenue: None; the Company did not expect operating revenue before completing a business combination.
- Net income: $2.6 million for the three months ended June 30, 2020, compared with $0.4 million in the prior-year quarter; $2.3 million for the six months, compared with $1.2 million in the prior-year period.
- Operating costs: $71,672 for the quarter and $986,855 for the six months, compared with $625,938 and $815,112, respectively, in the comparable 2019 periods.
- Other income: $3.4 million for the quarter and $4.0 million for the six months. The six-month amount included $3.3 million of forgiven debt and $717,513 of Trust Account interest income.
- Taxes: Income-tax provision of $693,860 for the quarter and $768,485 for the six months.
- Earnings per share: Basic and diluted net income per share was $0.40 for the quarter and $0.35 for the six months, compared with losses of $0.09 and $0.10, respectively, in the comparable 2019 periods.
- Cash: $123,883 held outside the Trust Account at June 30, 2020, down from $1.1 million at December 31, 2019.
- Trust Account: $13.2 million at June 30, 2020, compared with $195.3 million at December 31, 2019. The reduction primarily reflected redemptions of public shares.
- Liquidity: Reported working capital was $22,646, excluding $629,914 of income taxes payable expected to be paid from Trust Account interest.
- Debt and obligations: $566,268 remained outstanding under a promissory note to GTWY Holdings. A separate $1.0 million of sponsor-related notes was converted into warrants. Deferred underwriting fees totaled $7.0 million and would become payable only upon completion of a business combination.
- Cash flow: Operating activities used $358,456 during the six months ended June 30, 2020, while investing activities provided $182.8 million and financing activities used $183.4 million, primarily reflecting Trust Account redemptions and related cash movements.
Material Changes Versus the Prior Comparable Period
- Net income increased because of the $3.3 million forgiveness of previously recorded professional fees. This was a nonrecurring item and was not operating revenue.
- Trust Account interest income declined to $717,513 from $2.4 million, and the prior-year unrealized gain on Trust Account securities did not recur.
- Operating costs increased for the six-month period but declined materially for the second quarter.
- Public stock redemptions reduced shares subject to possible redemption from 17.5 million at December 31, 2019 to 5,156 at June 30, 2020. Redemptions during the period totaled approximately $184.4 million, including $176.3 million related to the March extension and $8.1 million related to the June extension.
- The business-combination deadline was extended from June 30, 2020 to December 1, 2020. The Company subsequently terminated the GTWY merger agreement on July 16, 2020.
- The sponsors forgave a $71,000 administrative-services balance and agreed to stop charging the monthly administrative fee effective June 30, 2020.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that additional capital would be needed through loans or investments from sponsors, HG Vora, stockholders, officers, directors, or third parties. Such funding was not committed, and $125,000 remained available under the amended expense-advance agreement.
- The filing raises substantial doubt about the Company’s ability to continue as a going concern through December 1, 2020 if it did not complete a business combination.
- If no business combination was completed by the deadline, the Company would cease operations other than winding up, redeem public shares using the Trust Account, and potentially liquidate. Public shareholders could receive less than $10 per share.
- COVID-19 was identified as a risk to identifying targets, conducting due diligence, obtaining financing, and completing a business combination.
- The Company’s Trust Account was invested in short-term U.S. Treasury obligations or qualifying money-market funds. The filing noted that negative interest rates could reduce redemption proceeds.
- The Company had no material legal proceedings and reported no material changes to previously disclosed risk factors other than the COVID-19-related disclosure.
- The $3.3 million debt forgiveness and the termination of the GTWY transaction were unusual and material events.
Investor Verification Items
- Verify the issuer: the supplied filing is for Leisure Acquisition Corp. under ticker LACQ, not Ensysce Biosciences, Inc.
- Confirm the post-redemption Trust Account balance, public-share count, and per-share redemption amount.
- Review the July 16, 2020 termination of the GTWY merger agreement and any subsequent business-combination activity.
- Assess the going-concern warning, available sponsor financing, and the December 1, 2020 liquidation deadline.
- Separate recurring liquidity and operating results from nonrecurring debt forgiveness and Trust Account interest income.
- Evaluate the $566,268 GTWY promissory note, the $7.0 million deferred underwriting fee, and the potential impact of warrant issuances and future dilution.