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 (which has been waived in connection with the Business Combination with
Ensysce), our capital stock, debt or a combination of cash, stock and 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.
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Recent Developments
On January 31, 2021, the underwriters agreed to waive $4,750,000 of the deferred
fee which had been held in the Trust Account and was to be paid upon
consummation of the Business Combination, resulting in an aggregate of
$2,000,000 deferred underwriting fee payable as of March 31, 2021.
On January 31, 2021, the Company and GTWY Holdings entered into an amendment to
the Gateway Promissory Note to permit conversion of all or a portion of the
promissory note into warrants at a price of $1.00 per warrant. In connection
with such amendment, GTWY Holdings elected to convert the full principal balance
of the Gateway Promissory Note into 566,288 warrants.
On February 23, 2021, we entered into a fourth amendment to our Expense
Advancement Agreement with the sponsors and strategic investor to increase the
total amount of advances available to us under the agreement by $160,000. The
promissory notes covering the prior loan balance in the aggregate amount of
$300,000 was amended and restated on February 24, 2021 in order to reflect the
incremental increase of the total amount of advances available to us thereunder
to $460,000 and all of which increase was drawn on February 24, 2021.
NASDAQ Notices
On November 30, 2020, we received a notice from the Listing Qualifications
Department of The Nasdaq Stock Market LLC stating that we were not in compliance
with Listing Rule IM-5101-2 (the "Rule"), which requires that a special purpose
acquisition company complete one or more business combinations within 36 months
of the effectiveness of the registration statement filed in connection with its
initial public offering, and that we were also not in compliance with Nasdaq's
minimum publicly held shares requirement under Listing Rule 5550(a)(4), which
requires a listed company's primary equity security to maintain a minimum of
500,000 publicly held shares. The Listing Qualifications Department advised the
Company that its securities would be subject to delisting unless the Company
timely requested a hearing before an independent Hearings Panel (the "Panel").
Following a hearing before the Panel, the Panel granted our request for
continued listing of our equity securities on the Nasdaq Capital Market pursuant
to an extension, subject to certain milestones, including completion of the
Company's merger with Ensysce, through June 1, 2021.
On June 1, 2021, Nasdaq notified the Company that trading in the Company's
securities on Nasdaq would be suspended effective with the open of the market on
June 3, 2021 (the "Suspension Notice"). The Company's securities became eligible
to trade on the OTC Markets system beginning on June 3, 2021. Although trading,
if any, will occur in the over-the-counter market beginning June 3, 2021, the
Company will remain technically listed on Nasdaq pending the expiration of all
Nasdaq review and appeal processes. The Company believes completion of the
merger will enable it to evidence Nasdaq listing compliance by June 30, 2021.
In addition, and prior to the issuance of Suspension Notice, on May 25, 2021,
the Company received formal notice from the Staff indicating that the Company's
failure to timely file this Form 10-Q with the SEC, as required by Nasdaq
Listing Rule 5250(c)(1), could serve as a separate basis for suspension and
delisting of the Company's securities from Nasdaq. The Company was granted the
opportunity to submit a plan to regain compliance with such filing requirement
for the Panel's review and, notwithstanding the Suspension Notice, submitted
that plan and filed this Form 10-Q in accordance with that plan.
See "Item 1A. Risk Factors - The Nasdaq may not continue to list our securities,
which could limit investors' ability to make transactions in our securities and
subject us to additional trading restrictions".
Merger Agreement
On January 31, 2021, we entered into a Merger Agreement with Ensysce and Merger
Sub, relating to a proposed business combination transaction between us and
Ensysce.
Pursuant to the Merger Agreement, Merger Sub will merge with and into Ensysce,
with Ensysce surviving such merger as our wholly owned subsidiary and the
stockholders of Ensysce becoming our stockholders (the "Merger").
Ensysce's issued and outstanding share of common stock as of immediately prior
to the closing of the Merger (including shares issuable on conversion of
convertible notes of Ensysce) will, at the closing (the "Closing") of the
transactions contemplated by the Merger Agreement (collectively, the
"Transaction"), be canceled and converted into the right to receive our common
stock, calculated based on an exchange ratio of 0.06585 (the "Exchange Ratio").
The Transaction will be consummated subject to the deliverables and provisions
as further described in the Merger Agreement.
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.
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Results of Operations
Our only activities from inception through March 31, 2021 were organizational
activities and those necessary to prepare for the Initial Public Offering,
identifying a target for our Business Combination and seeking to complete an
initial business combination, including activities in connection with the
proposed acquisition of Ensysce and 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 March 31, 2021, we had a net loss of $1,711,607,
which consists of a change in the fair value of the warrant liability of
$1,481,087 and operating costs of $292,027, offset by interest income on
marketable securities held in the Trust Account of $229 and a benefit for income
taxes of $61,278.
For the three months ended March 31, 2020, we had a net income of $1,792,718,
which consists of a change in the fair value of the warrant liability of
$2,184,000 and interest income on marketable securities held in the Trust
Account of $639,954, offset by operating costs of $915,813, a provision for
income taxes of $74,625, amortization of the debt discount on convertible
promissory note of $31,428 and a change in the fair value of conversion option
liability of $10,000.
Liquidity and Capital Resources
As of March 31, 2021, we had marketable securities held in the Trust Account of
$12,690,899 consisting of money market funds which invest solely in U.S.
Treasuries 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 March 31,
2021, we withdrew $2,001,144 of interest earned on the Trust Account to pay
franchise and income taxes. There were no amounts withdrawn during the three
months ended March 31, 2021.
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 March 31, 2021, we had cash of $18,034 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.
For the three months ended March 31, 2021, cash used in operating activities was
$266,168. Net loss of $1,711,607 was offset by a non-cash charge for the change
in the fair value of the warrant liability of $1,481,087 and impacted by a
deferred tax benefit of $61,278 and interest earned on marketable securities
held in the Trust Account of $229. Changes in operating assets and liabilities
provided $25,859 of cash from operating activities.
For the three months ended March 31, 2020, cash used in operating activities was
$234,388. Net income of $1,792,718 was offset by a non-cash charge for the gain
on warrant liability of $2,184,000 and interest earned on marketable securities
held in the Trust Account of $639,954 and impacted by amortization of debt
discount on convertible promissory note of $31,428 and a change in value of
conversion option liability of $10,000. Changes in operating assets and
liabilities provided $755,420 of cash from operating activities.
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On December 5, 2019, the Company entered into the Expense Advancement Agreement
with GTWY Holdings pursuant to which GTWY Holdings committed to provide $566,288
to fund Contributions to the Trust Account, representing the amount needed to
fund the first monthly Contribution during the 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
"GTWY Promissory Note"). The GTWY Promissory Note did not bear interest. Amounts
borrowed pursuant to the Expense Advancement Agreement were deposited to the
Trust Account on December 6, 2019. On January 31, 2021, we entered into an
amendment to the GTWY Promissory Note to permit conversion of all or a portion
of the GTWY Promissory Note into warrants at a price of $1.00 per warrant. In
connection with such amendment, GTWY Holdings elected to convert the full
principal balance of the GTWY Promissory Note into 566,288 warrants.
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 on June 25, 2020. The expense advancement agreement was
amended to increase the total amount of advances available to the Company under
the agreement by an additional $300,000 pursuant to amendments effected through
November 30, 2020, of which the Company drew down an aggregate of $300,000
through March 31, 2021. The agreement was further amended on February 23, 2021
to increase the total amount of advances available to the Company by an
additional $160,000 which was drawn down, on February 24, 2021, resulting in
aggregate loans outstanding of $460,000 at March 31, 2021. 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 March 31, 2021, we had $18,034 in our operating bank accounts, $12,960,899
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 deficit of $163,896.
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 June 30, 2021,
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.
Off-Balance Sheet Financing Arrangements
As of March 31, 2021, 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 March 31, 2021, we do not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities.
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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. On November 23, 2020, the underwriters agreed
to waive $250,000 of the deferred fee and on January 31, 2021, the underwriters
agreed to waive an additional $4,750,000 of the deferred fee that is to be paid
upon consummation of the Business Combination, as a result of which $2,000,000
remained payable.
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:
Derivative Instruments
We account for debt and equity issuances as either equity-classified or
liability-classified instruments based on an assessment of the instruments
specific terms and applicable authoritative guidance in Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 480,
Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and
Hedging ("ASC 815"). The assessment considers whether the instruments are
freestanding financial instruments pursuant to ASC 480, meet the definition of a
liability pursuant to ASC 480, and whether the instruments meet all of the
requirements for equity classification under ASC 815, including whether the
instruments are indexed to the Company's own common shares and whether the
holders could potentially require "net cash settlement" in a circumstance
outside of the Company's control, among other conditions for equity
classification. This assessment, which requires the use of professional
judgment, is conducted at the time of issuance of the instruments and as of each
subsequent quarterly period end date while the instruments are outstanding.
For issued or modified instruments that meet all of the criteria for equity
classification, the instruments are required to be recorded as a component of
additional paid-in capital at the time of issuance. For issued or modified
instruments that do not meet all the criteria for equity classification, the
instruments are required to be recorded at their initial fair value on the date
of issuance, and each balance sheet date thereafter. Changes in the estimated
fair value of the instruments are recognized as a non-cash gain or loss on the
statements of operations.
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. Net income
(loss) per common share, basic and diluted for common stock subject to possible
redemption is calculated by dividing the interest income earned on the Trust
Account, net of applicable taxes, if any, by the weighted average number of
shares of common stock subject to possible redemption outstanding for the
period. Net income (loss) per common share, basic and diluted for and
non-redeemable common stock is calculated by dividing net loss less income
attributable to common stock subject to possible redemption, by the weighted
average number of shares of non-redeemable common stock outstanding for the
period presented.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. We adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU
2020-06 did not have an impact on our financial statements.
Management does not believe that any other 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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