Business Context and Reporting Period
The filing is a Form 10-Q for the quarterly period ended September 30, 2019, filed by Leisure Acquisition Corp., not Ensysce Biosciences, Inc. The registrant was a blank check company formed to identify and complete a business combination. It had not identified or completed a target business by the reporting date and generated no operating revenue.
The financial statements are unaudited and cover the three and nine months ended September 30, 2019, with comparable 2018 periods and a December 31, 2018 balance-sheet comparison.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Comparable Period |
|---|---|---|---|
| Operating costs | $584,418 | $1,399,530 | $848,192 and $1,329,864, respectively |
| Interest income | $1,107,955 | $3,497,481 | $969,387 and $2,515,625, respectively |
| Net income | $489,723 | $1,684,538 | $577,649 and $1,398,825, respectively |
| Adjusted net loss attributable to non-redeemable common shares | $476,042 loss | $1,082,288 loss | $293,159 and $866,854 loss, respectively |
| Basic and diluted loss per share | $0.08 loss | $0.18 loss | $0.05 and $0.14 loss, respectively |
| Net cash used in operating activities | Not separately provided | $999,036 | $779,622 |
At September 30, 2019, cash outside the Trust Account was $1,273,926, compared with $1,658,398 at December 31, 2018. Cash and marketable securities held in the Trust Account totaled $205,832,491, versus $202,915,739 at year-end 2018. Total assets were $207,210,734.
Total liabilities were $8,134,091, including a $7,000,000 deferred underwriting fee payable. Shares subject to possible redemption were recorded at $194,076,642. Stockholders’ equity was $5,000,001. The company reported no long-term debt, capital lease obligations, operating lease obligations, or off-balance-sheet financing arrangements.
The company withdrew $623,204 of Trust Account interest during the first nine months of 2019 to pay franchise and income taxes. The Trust Account was substantially invested in short-term U.S. Treasury bills.
Material Changes Versus Prior Comparable Period
- Third-quarter operating costs declined to $584,418 from $848,192, but the prior-year period included a $600,005 reimbursement of due diligence expenses. Excluding that reimbursement, the prior-year operating loss was $248,187 compared with a $584,418 loss in 2019.
- Nine-month operating costs increased to $1,399,530 from $1,329,864. The 2018 period also included the $600,005 reimbursement.
- Net income increased for the nine-month period to $1,684,538 from $1,398,825, primarily because of higher interest income. Third-quarter net income declined to $489,723 from $577,649.
- The company’s reported loss per share increased to $0.08 from $0.05 for the quarter and to $0.18 from $0.14 for the nine-month period, reflecting the allocation of Trust Account earnings to redeemable shares.
- Cash outside the Trust Account decreased by $384,472 during the first nine months, while Trust Account assets increased by approximately $2.9 million, largely from accumulated interest net of withdrawals and market-value changes.
- Accounts payable and accrued expenses increased to $1,125,171 from $429,246 at December 31, 2018.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The company was required to complete a business combination by December 5, 2019 unless stockholders approved an extension. A special meeting was scheduled for November 26, 2019 to seek approval to extend the deadline to April 5, 2020.
- If the extension was not approved, or if a business combination was not completed within the applicable period, the company would wind up and liquidate, with public shareholders generally entitled to redeem their shares for their pro rata Trust Account value.
- Public shareholders could elect redemption in connection with the special meeting. For shares not redeemed, the company proposed contributing $0.03 per share for each monthly extension period, subject to stated conditions.
- The company had access to up to $1,000,000 of potential working-capital or transaction-cost loans from sponsors and a strategic investor, although the funding parties were not obligated to provide additional amounts beyond their commitments.
- HG Vora had a contingent commitment to purchase $62,500,000 of private placement units at $10.00 per unit concurrent with a business combination. The commitment was contingent on, among other matters, HG Vora’s approval of the transaction and could be withheld for any reason.
- The underwriters’ deferred fee was $7,000,000, payable from the Trust Account only upon completion of a business combination.
- Management stated that it expected sufficient cash to meet needs through the earlier of a business combination or December 5, 2019, but acknowledged that insufficient funds or failure to complete a transaction could force liquidation.
- There were no reported legal proceedings, defaults, or material changes to previously disclosed risk factors. Management concluded that disclosure controls and procedures were effective as of September 30, 2019.
Important Facts for Investors to Verify
- Verify the issuer identity: the supplied filing is for Leisure Acquisition Corp. and does not appear to be an Ensysce Biosciences filing.
- Verify whether stockholders approved the proposed extension and whether the company ultimately completed a business combination or liquidated.
- Verify redemption activity and the amount remaining in the Trust Account after any redemptions, contributions, taxes, and transaction costs.
- Review the deferred $7,000,000 underwriting fee and the contingent $62,500,000 HG Vora forward-purchase commitment.
- Distinguish reported net income, which primarily reflected Trust Account interest, from the adjusted losses attributable to non-redeemable common shares.
- Confirm subsequent events after November 7, 2019, the filing date, because the filing’s extension and liquidation provisions depended on future stockholder and company actions.