References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Leisure Acquisition Corp. References to our "management" or
our "management team" refer to our officers and directors, references to the
"sponsors" refer, collectively, to Hydra Management, LLC (the "Hydra Sponsor")
and Matthews Lane Capital Partners LLC (the "Matthews Lane Sponsor"), and
references to the "strategic investor" or "HG Vora" refer to HG Vora Capital
Management LLC on behalf of one or more funds or accounts managed by it. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the financial
statements and the notes thereto contained elsewhere in this Quarterly Report.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
that are not historical facts, and involve risks and uncertainties that could
cause actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC"). The Company's securities filings
can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except
as expressly required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated on September 11, 2017 in Delaware and
formed for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, recapitalization, reorganization or similar
business combination with one or more target businesses. We intend to effectuate
our Business Combination using cash from the proceeds of our Initial Public
Offering, the sale of the Private Placement Warrants that occurred
simultaneously with the completion of our Initial Public Offering, the sale of
the Private Placement Units under the Contingent Forward Purchase Contract, if
any, our capital stock, debt or a combination of cash, stock and debt.
The issuance of additional shares of our stock in a Business Combination:
? may significantly dilute the equity interest of investors;
? may subordinate the rights of holders of our common stock if preferred
stock is issued with rights senior to those afforded our common stock;
? could cause a change in control if a substantial number of shares of our
common stock is issued, which may affect, among other things, our ability
to use our net operating loss carry forwards, if any, and could result in
the resignation or removal of our present officers and directors;
? may have the effect of delaying or preventing a change of control of us by
diluting the stock ownership or voting rights of a person seeking to obtain
control of us; and
? may adversely affect prevailing market prices for our common stock and/or
warrants.
Similarly, if we issue debt securities, it could result in:
? default and foreclosure on our assets if our operating revenues after an
initial Business Combination are insufficient to repay our debt
obligations;
? acceleration of our obligations to repay the indebtedness even if we make
all principal and interest payments when due if we breach certain covenants
that require the maintenance of certain financial ratios or reserves
without a waiver or renegotiation of that covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt security is payable on demand;
? our inability to obtain necessary additional financing if the debt security
contains covenants restricting our ability to obtain such financing while
the debt security is outstanding;
? our inability to pay dividends on our common stock;
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? using a substantial portion of our cash flow to pay principal and interest
on our debt, which will reduce the funds available for dividends on our
common stock if declared, our ability to pay expenses, make capital
expenditures and acquisitions, and fund other general corporate purposes;
? limitations on our flexibility in planning for and reacting to changes in
our business and in the industry in which we operate;
? increased vulnerability to adverse changes in general economic, industry
and competitive conditions and adverse changes in government regulation;
? limitations on our ability to borrow additional amounts for expenses,
capital expenditures, acquisitions, debt service requirements, and
execution of our strategy; and
? other purposes and other disadvantages compared to our competitors who have
less debt.
We are incurring significant costs in the pursuit of our acquisition plans. We
cannot assure you that our plans to complete a Business Combination will be
successful.
Recent Developments
On November 26, 2019, the Company held a special meeting of stockholders at
which our stockholders approved extending our Combination Period deadline from
December 5, 2019 to April 5, 2020 (the "First Extension"). Our public
stockholders were able to elect to redeem their shares in connection with the
First Extension for a pro rata portion of the amount then on deposit in the
Trust Account ($10.00 per share, plus any pro rata interest earned on the funds
held in the Trust Account and not previously released to us to pay franchise and
income taxes). With respect to public shares not redeemed in connection with the
Special Meeting, we agreed to make Contributions of $0.03 for each public share
that was not redeemed by stockholders for each monthly period or portion thereof
that is needed to complete a business combination (commencing on December 6,
2019 and on the 6th day of each subsequent month through the end of the First
Extension), subject to certain conditions. The number of shares of redeemed by
public stockholders in connection with the First Extension was 1,123,749 for an
aggregate cash redemption amount of $11,583,473.
On December 5, 2019, the Company entered into the Expense Advancement Agreement
with GTWY Holding pursuant to which GTWY Holding committed to provide $566,288
to fund Contributions to the Trust Account. representing the amount needed to
fund the first monthly Contribution during Extension. The Company drew down the
full amount under the Expense Advancement Agreement to fund the required
Contribution to the Trust Account for the period December 6, 2019 to January 5,
2020 by issuing an unsecured promissory note to GTWY Holdings. The note does not
bear interest. If we complete our initial business combination, the amount
borrowed under the Expense Advancement Agreement would be repaid out of the
proceeds of the Trust Account released to it. Otherwise, amounts borrowed under
the Expense Advancement Agreement would be repaid only out of funds held outside
the Trust Account. Amounts borrowed pursuant to the Expense Advancement
Agreement were deposited to the Trust Account on December 6, 2019.
On January 6, 2020, the Company deposited $566,288 to the Trust Account to fund
the required Contribution to the Trust Account for the period January 6, 2020 to
February 5, 2020.
On January 15, 2020, we drew down $1,000,000 under the Expense Advancement
Agreement with our sponsors and strategic investor dated December 1, 2017 to
fund general corporate purposes in exchange for issuing unsecured promissory
notes. The notes do not bear interest. If we complete an initial business
combination, we would repay amounts borrowed under the Expense Advancement
Agreement out of the proceeds of the Trust Account released to it; provided,
however, that the sponsors and strategic investor have the option to convert the
promissory notes into warrants at a price of $1.00 per warrant subject to the
same terms and conditions as our private placement warrants. Otherwise, amounts
borrowed under the Expense Advancement Agreement would be repaid only out of
funds held outside the Trust Account. On June 29, 2020, we amended the expense
advance agreement to increase the total amount of advances available to us under
the agreement to $1,125,000 from $1,000,000 and subsequently converted
$1,000,000 outstanding under the Promissory Notes into warrants in accordance
with the terms thereunder.
On each of February 4, 2020 and March 4, 2020, we deposited $566,288 into the
Trust Account to fund the required Contribution to the Trust Account for the
remaining monthly periods covered by the Extension.
On March 26, 2020, we held a special meeting pursuant to which our stockholders
approved extending the Combination Period from April 5, 2020 to June 30, 2020
(the "Second Extension Date"). In connection with the approval of the extension,
stockholders elected to redeem an aggregate of 16,837,678 shares of our common
stock. As a result, an aggregate of $176,283,492 (or approximately $10.47 per
share) was released from our Trust Account to pay such stockholders. Of the
amount paid to redeeming stockholders, $136,283,492 was paid as of March 31,
2020 and the balance of $40,000,000 was paid in April 2020.
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On June 26, 2020, we held a special meeting pursuant to which our stockholders
approved extending the Combination Period from June 30, 2020 to December 1, 2020
(the "Third Extension Date"). In connection with the approval of the extension,
stockholders elected to redeem an aggregate of 776,290 shares of our common
stock. As a result, an aggregate of $8,099,292 (or approximately $10.43 per
share) was released from our Trust Account to pay such stockholders and
6,262,283 shares of common stock are now issued and outstanding.
On July 16, 2020, we elected to terminate the Agreement and Plan of Merger,
dated December 27, 2019 (the "Merger Agreement"), with GTWY Holdings, and a
related subsidiary, GTWY Merger Sub Corp. Pursuant to its terms, we had the
ability to terminate the Merger Agreement to the extent the business combination
had not been completed by July 15, 2020.
We are incurring significant costs in the pursuit of its acquisition plans. We
may be required to seek additional resources in the future to fund general
corporate purposes and cannot assure you that our plans to complete the
Transactions will be successful.
Results of Operations
Our only activities from inception through June 30, 2020 were organizational
activities and those necessary to prepare for the Initial Public Offering,
identifying a target for our Business Combination and activities in connection
with the announced and subsequently terminated acquisition of GTWY Holdings. We
do not expect to generate any operating revenues until after the completion of
our Business Combination. We generate non-operating income in the form of
interest income on marketable securities. We are incurring expenses as a result
of being a public company (for legal, financial reporting, accounting and
auditing compliance), as well as for due diligence and transaction expenses in
connection with completing a Business Combination.
For the three months ended June 30, 2020, we had a net income of $2,610,234,
which consists of the forgiveness of previously recorded professional fees of
$3,298,207 and interest income on marketable securities held in the Trust
Account of $77,559, offset by operating costs of $71,672 and a provision for
income taxes of $693,860.
For the six months ended June 30, 2020, we had a net income of $2,260,380, which
consists of the forgiveness of previously recorded professional fees of
$3,298,207 and interest income on marketable securities held in the Trust
Account of $717,513, offset by operating costs of $986,855 and a provision for
income taxes of $768,485.
For the three months ended June 30, 2019, we had net income of $418,902, which
consists of interest income on marketable securities held in the Trust Account
of $1,209,556 and an unrealized gain on marketable securities held in our Trust
Account of $62,498, offset by operating costs of $625,938 and a provision for
income taxes of $227,214.
For the six months ended June 30, 2019, we had net income of $1,194,815, which
consists of interest income on marketable securities held in the Trust Account
of $2,389,526 and an unrealized gain on marketable securities held in our Trust
Account of $61,971, offset by operating costs of $815,112 and a provision for
income taxes of $441,570.
Liquidity and Capital Resources
As of June 30, 2020, we had marketable securities held in the Trust Account of
$13,225,718 (including $451,414 of interest income) consisting of U.S. treasury
bills with a maturity of 180 days or less. Interest income on the Trust Account
will be used by us to pay franchise and income taxes. Through June 30, 2020, we
withdrew $1,794,842 of interest earned on the Trust Account to pay franchise and
income taxes, of which $120,050 was withdrawn during the six months ended June
30, 2020.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
deferred underwriting commissions and interest income that is used to pay
franchise and income taxes) to complete our Business Combination. To the extent
that our capital stock or debt is used, in whole or in part, as consideration to
complete our Business Combination, the remaining proceeds held in the Trust
Account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
As of June 30, 2020, we had cash of $123,883 held outside the Trust Account. We
intend to use the funds held outside the Trust Account primarily to identify and
evaluate target businesses, perform business due diligence on prospective target
businesses, travel to and from the offices, plants or similar locations of
prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete a Business Combination, and we have also
used such funds to make Contributions to the Trust Account in connection with
the First Extension (see "Recent Developments" above).
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For the six months ended June 30, 2020, cash used in operating activities was
$358,456. Net income of $2,260,380 includes interest earned on marketable
securities held in the Trust Account of $717,513 and the forgiveness of
previously recorded professional fees in the amount of $3,298,207. Changes in
operating assets and liabilities provided $1,396,884 of cash from operating
activities.
For the six months ended June 30, 2019, cash used in operating activities was
$726,805. Net income of $1,194,815 was impacted by interest earned on marketable
securities held in the Trust Account of $2,389,526, an unrealized gain on
marketable securities held in our Trust Account of $61,971 and a deferred tax
provision of $11,250. Changes in operating assets and liabilities provided
$518,627 of cash from operating activities.
On December 5, 2019, the Company entered into the Expense Advancement Agreement
with GTWY pursuant to which GTWY Holding committed to provide $566,288 to fund
Contributions to the Trust Account. representing the amount needed to fund the
first monthly Contribution during First Extension. The Company drew down the
full amount under the Expense Advancement Agreement to fund the required
Contribution to the Trust Account for the period December 6, 2019 to January 5,
2020 by issuing an unsecured promissory note to GTWY Holdings. The note does not
bear interest. If we complete our initial Business Combination, the amount
borrowed under the Expense Advancement Agreement would be repaid out of the
proceeds of the Trust Account released to it. Otherwise, amounts borrowed under
the Expense Advancement Agreement would be repaid only out of funds held outside
the Trust Account. Amounts borrowed pursuant to the Expense Advancement
Agreement were deposited to the Trust Account on December 6, 2019.
On December 1, 2017, HG Vora entered into a Contingent Forward Purchase Contract
with us to purchase, in a private placement for gross proceeds of $62,500,000 to
occur concurrently with the consummation of our Business Combination, 6,250,000
Units on the same terms as the sale of Units in the Initial Public Offering at
$10.00 per unit. The funds from the sale of the Private Placement Units may be
used as part of the consideration to the sellers in the Business Combination;
any excess funds from the Private Placement Units may be used for working
capital in the post-transaction company. This commitment is independent of the
percentage of stockholders electing to redeem their shares and provides us with
an increased minimum funding level for the Business Combination. HG Vora's
obligation to purchase our Units under the Contingent Forward Purchase contract
is contingent upon, among other things, HG Vora approving the Business
Combination, which approval can be withheld for any reason. In connection with
previously proposed business combination transaction with GTWY Holdings, an
amendment to the Contingent Forward Purchase Contract was effected on December
27, 2019 to provide that the Contingent Forward Purchase Contract would
terminate as of, and contingent upon, the closing of the transaction with GTWY
Holdings such that the strategic investor would instead purchase 3,000,000 units
of GTWY Holdings' equity securities (with each unit consisting of one GTWY
Holdings Share and one-half of one GTWY Holdings Warrant) for a purchase price
of $10.00 per unit. The original terms of the Contingent Forward Purchase
Contract remain operative for a business combination with a target other than
GTWY Holdings.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Hydra Sponsor, an affiliate of the
Matthews Lane Sponsor and HG Vora (the "Funding Parties") loaned an aggregate of
$1,000,000 to the Company, in accordance with unsecured promissory notes issued
on January 15, 2020 to the Funding Parties, pursuant to an expense advance
agreement dated December 1, 2017 which were subsequently converted by the
holders into warrants. An additional $125,000 remains available for drawdown by
the Company pursuant to the expense advancement agreement, as amended on June
29, 2020. The Funding Parties may, but are not obligated to, loan the Company
additional funds from time to time or at any time, as may be required ("Working
Capital Loans"). Under the expense advancement agreement, Working Capital Loans
would either be paid upon completion of a Business Combination, without
interest, or, at the holder's discretion, could be converted into warrants at a
price of $1.00 per warrant. The warrants would be identical to the Private
Placement Warrants. In the event that a Business Combination does not close, the
Company may use a portion of the proceeds held outside the Trust Account to
repay the Working Capital Loans, but no proceeds held in the Trust Account would
be used to repay the Working Capital Loans. As of June 30, 2020, there were no
amounts outstanding under the Working Capital Loans (the $1,000,000 previously
loaned by the Funding Parties having been converted into warrants on June 25,
2020).
As of June 30, 2020, we had $123,883 in our operating bank accounts, $13,225,718
in securities held in the Trust Account to be used for a Business Combination or
to repurchase or redeem its common stock in connection therewith and working
capital of $22,646, which excludes $629,914 of income taxes payable that will be
paid from interest earned on the Trust Account.
We will need to raise additional capital through loans or additional investments
from our sponsors, HG Vora, stockholders, officers, directors, or third parties.
Our sponsors and HG Vora may, but are not obligated to, loan us funds, from time
to time or at any time, in whatever amount they deem reasonable in their sole
discretion, to meet our working capital needs. Accordingly, we may not be able
to obtain additional financing. If we are unable to raise additional capital, we
may be required to take additional measures to conserve liquidity, which could
include, but not necessarily be limited to, curtailing operations, suspending
the pursuit of a potential transaction, and reducing overhead expenses. We
cannot provide any assurance that new financing will be available to us on
commercially acceptable terms, if at all. These conditions raise substantial
doubt about our ability to continue as a going concern through December 1, 2020,
the date that we will be required to cease all operations, except for the
purpose of winding up, if a Business Combination is not consummated. These
financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be
necessary should we be unable to continue as a going concern.
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Off-Balance Sheet Financing Arrangements
As of June 30, 2020, we have no obligations, assets or liabilities which would
be considered off-balance sheet arrangements. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual Obligations
As of June 30, 2020, we do not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities, other than an
agreement dated December 1, 2017 to pay our Hydra sponsor a monthly fee of up to
$10,000 for office space, utilities and secretarial and administrative support
provided to us until the earlier of the completion of the Business Combination
and our liquidation. We began incurring these fees on December 1, 2017.
Effective June 30, 2020, Hydra Sponsor agreed to stop charging the Company the
monthly administrative fee and forgave the $71,000 outstanding balance due under
the agreement.
The underwriters are entitled to underwriting discounts and commissions of 5.5%,
of which 2.0% ($4,000,000) was paid at the closing of the Initial Public
Offering, and 3.5% ($7,000,000) was deferred. The deferred discount will become
payable to the underwriters from the amounts held in the Trust Account solely in
the event that we complete a Business Combination, subject to the terms of the
underwriting agreement. The underwriters are not entitled to any interest
accrued on the deferred discount.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption is classified as a liability instrument and is measured at fair
value. Conditionally redeemable common stock (including common stock that
features redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control) is classified as temporary equity. At all other times, common stock
is classified as stockholders' equity. Our common stock features certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' equity section of our condensed balance sheets.
Net Loss Per Common Share
We apply the two-class method in calculating earnings per share. Common stock
subject to possible redemption which is not currently redeemable and is not
redeemable at fair value, has been excluded from the calculation of basic net
loss per common share since such shares, if redeemed, only participate in their
pro rata share of the Trust Account earnings. Our net income is adjusted for the
portion of income that is attributable to common stock subject to possible
redemption, as these shares only participate in the earnings of the Trust
Account and not our income or losses.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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