References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Isleworth Healthcare Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Isleworth Healthcare Sponsor I, LLC. 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 Prospectus 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 formed under the laws of the State of Delaware on
December 15, 2020 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Placement Warrants, 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 in our Initial
          Public Offering;



     •    may subordinate the rights of holders of common stock if preferred stock
          is issued with rights senior to those afforded our common stock;



     •    could cause a change of control if a substantial number of shares of our
          common stock are 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; and



     •    may adversely affect prevailing market prices for our Units, 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;



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     •    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;



     •    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 disadvantages compared to our competitors who have less debt.


As indicated in the accompanying financial statements, at September 30, 2021, we
had $515,547 in cash and working capital of $1,024,283 which excludes franchise
and income taxes payable as the net amounts can be paid from the interest earned
in the Trust Account. We expect to continue to incur significant costs in the
pursuit of our acquisition plans. We cannot assure you that our plans to
complete our initial Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through September 30, 2021 were organizational activities,
those necessary to prepare for the Initial Public Offering, described below,
and, after our Initial Public Offering, identifying a target company for a
Business Combination. 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 held in the Trust
Account. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses. As of September 30, 2021, there was $34,075 interest earned
from the Trust account.
For the three months ended September 30, 2021, we had loss from operations of
$198,495 which consisted of general and administrative costs, and net income of
$2,476,535 , which primarily consisted of a net gain from the change in the fair
value of warrants.
For the nine months ended September 30, 2021, we had loss from operations of
$591,330 which consisted of general and administrative costs, and net income of
$ 3,981,514, which primarily consisted of a net gain from the change in the fair
value of warrants offset by warrant issuance costs and general and
administrative costs. We recorded a net gain of $4,889,776 for the nine months
ended September 30, 2021 for the change in fair value on valuation of our
warrant liability associated with our warrants issued in conjunction with our
IPO. We are required to revalue our liability-classified warrants at the end of
each reporting period and reflect in the statement of operations a gain or loss
from the change in fair value of the warrant in the period in which the change
occurred.

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Liquidity and Capital Resources
On March 1, 2021, we consummated an Initial Public Offering of 18,000,000 Units
at a price of $10.00 per Unit, generating gross proceeds of $180,000,000. In
connection with the Initial Public Offering, the underwriters were granted a
30-day
option from the date of the prospectus to purchase up to 2,700,000 additional
units to cover over-allotment, if any. On March 2, 2021, the underwriters fully
exercised the over-allotment option. Simultaneously with the initial closing and
over-allotment closing of the Initial Public Offering, we consummated the sale
of 6,140,000 Private Placement Warrants to the Sponsor and
I-Bankers
at a price of $1.00 per warrant, generating gross proceeds of $6,140,000.
Following the Initial Public Offering, the exercise of the over-allotment option
and the sale of the Private Placement Warrants, a total of $207,000,000 was
placed in the Trust Account.
As of September 30, 2021, we had cash and investment held in the Trust Account
of $207,034,075. Interest income on the balance in the Trust Account may be used
by us to pay taxes. As of September 30, 2021, there was $34,075 interest income
earned from the Trust account.
For the nine months ended September 30, 2021, cash used in operating activities
was $871,606.
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
income taxes payable), 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 September 30, 2021 we had cash of $515,547 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.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the initial stockholders or their
affiliates may, but are not obligated to, loan us funds as may be required. If
we complete a Business Combination, we would repay such loaned amounts. In the
event that a Business Combination does not close, we may use a portion of the
working capital held outside the Trust Account to repay such loaned amounts but
no proceeds from our Trust Account would be used for such repayment. Up to
$1,500,000 of such loans may be convertible into warrants identical to the
Private Placement Warrants, at a price of $1.00 per warrant at the option of the
lender.
The Company has incurred and expects to continue to incur significant costs in
pursuit of its acquisition plans. These conditions raise substantial doubt about
the Company's ability to continue as a going concern for a period of time within
one year after the date that the financial statements are issued. If our
estimate of the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating a Business Combination are less than the actual
amount necessary to do so, we may have insufficient funds available to operate
our business prior to our Business Combination. Moreover, we may need to obtain
additional financing either to complete our Business Combination or because we
become obligated to redeem a significant number of our public shares upon
consummation of our Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination. Subject
to compliance with applicable securities laws, we would only complete such
financing simultaneously with the completion of our Business Combination. If we
are unable to complete our Business Combination because we do not have
sufficient funds available to us, we will be forced to cease operations and
liquidate the Trust Account. In addition, following our Business Combination, if
cash on hand is insufficient, we may need to obtain additional financing in
order to meet our obligations.
Off-Balance
Sheet Arrangements
We did not have any
off-balance
sheet arrangements as of September 30, 2021.

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Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of the Sponsor a monthly fee of $5,000 for office space,
administrative and support services to the Company. We began incurring these
fees on February 24, 2021 and will continue to incur these fees monthly until
the earlier of the completion of the Business Combination and the Company's
liquidation.
I-Bankers,
the representative of the underwriters in the Initial Public Offering, is
entitled to a business combination marketing fee of $0.35 per unit, or
$7,245,000 in the aggregate. The business combination marketing fee will become
payable to
I-Bankers
from the amounts held in the Trust Account solely in the event that we complete
a Business Combination, subject to the terms of the business combination
marketing agreement.
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 common stock subject to possible redemption 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
the Company's control) is classified as temporary equity. At all other times,
common stock is classified as stockholders' equity. Our common stock issued in
the IPO contains 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' (deficit) equity section of our
condensed balance sheets.
We recognize changes in redemption value immediately as they occur and adjusts
the carrying value of redeemable common stock to equal the redemption value at
the end of each reporting period. Increases or decreases in the carrying amount
of redeemable common stock are affected by charges against additional paid in
capital and accumulated deficit.
Derivative warrant liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
and ASC
815-15.
The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is
re-assessed
at the end of each reporting period.
We account for our 16,490,000 common stock warrants issued in connection with
our Initial Public Offering (10,350,000) and Private Placement (6,140,000) as
derivative warrant liabilities in accordance with ASC
815-40.
Accordingly, we recognize the warrant instruments as liabilities at fair value
and adjust the instruments to fair value at each reporting period. The
liabilities are subject to
re-measurement
at each balance sheet date until exercised, and any change in fair value is
recognized in our statement of operations. The fair value of Private Placement
Warrants issued by the Company in connection with the Public Offering and
Private Placement has been estimated using Monte-Carlo simulations at each
measurement date. The fair value of Public Warrants issued with the Public
Offering was initially measured using Monte-Carlo simulations and then measured
based trading price once they commenced trading on March 29, 2021.
Offering Costs associated with the Initial Public Offering
We allocated offering costs in accordance with the requirements of the ASC
340-10-S99-1
and SEC Staff Accounting Bulletin ("SAB") Topic 5A-"Expenses of Offering".
Offering costs consist principally of professional and registration fees
incurred through the balance sheet date that are related to the Public Offering.
We allocated the offering costs between common stock and public warrants using
relative fair value method, the offering costs allocated to the public warrants
will be expensed immediately, and offering costs allocated to common stock were
charged to temporary equity upon the completion of the IPO.

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Net income (loss) per share of common stock
Net income (loss) per common stock is computed by dividing net income by the
weighted average number of common stock outstanding for each of the periods. The
calculation of diluted income (loss) per common stock does not consider the
effect of the warrants issued in connection with the (i) IPO, (ii) exercise of
over-allotment and (iii) Private Placement since the exercise price of the
warrants is in excess of the average common stock price for the period and
therefore the inclusion of such warrants would be anti-dilutive.
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, 2024 for the Company and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on
January 1, 2021. The Company is currently assessing the impact, if any,
that ASU 2020-06 would
have on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, would have a
material effect on the Company's financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule
12b-2
of the Exchange Act and are not required to provide the information otherwise
required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief
Executive Officer and Chief Financial Officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based upon their evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were not
effective as of September 30, 2021, due to the previous material weakness in our
internal control over financial reporting described in Item 4. Controls and
Procedures included in our Quarterly Report on Form 10-Q as filed with the SEC
on June 8, 2021, and due to the restatements of our March 1, 2021, March 31,
2021, and June 30, 2021 financial statements (the "restatements") regarding the
classification of redeemable common stock, as described below, which combined,
constitutes a material weakness in our internal control over financial
reporting. The material weakness was caused by the misapplication of accounting
guidance for complex financial instruments. In light of this material weakness,
we performed additional analysis as deemed necessary to ensure that our
unaudited interim financial statements were prepared in accordance with U.S.
generally accepted accounting principles. Accordingly, management believes that
the financial statements included in this Quarterly Report on Form 10-Q present
fairly in all material respects our financial position, results of operations
and cash flows for the period presented.
Regarding the restatements to the March 31, 2021 and June 30, 2021 quarterly
financial statements included in the Company's Form 10-Qs, as filed with the SEC
on June 8, 2021 and August 24, 2021, respectively, as well as the Company's
balance sheet included on the Company's Form 8-K, as filed with the SEC on
March 5, 2021, and restated on the Form 10-Q filed with the SEC on June 8, 2021,
certain redemption provisions not solely within the control of the Company
require common stock subject to redemption to be classified outside of permanent
equity. The Company had previously classified a portion of the common stock in
permanent equity. The Company restated its financial statements to classify all
common stock as temporary equity and any related impact, as the threshold in its
charter would not change the nature of the underlying shares as redeemable and
thus would be required to be disclosed outside of permanent equity.
It is noted that the non-cash adjustments to the financial statement do not
impact the amounts previously reported for our cash and cash equivalents or
total assets. In light of this material weakness, we performed additional
analysis as deemed necessary to ensure that our unaudited interim financial
statements were prepared in accordance with U.S. generally accepted accounting
principles.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. In
light of the restatement of our financial statements included in our Quarterly
Report for the period ended March 31, 2021 and in this Quarterly Report, we
continue to enhance our processes and procedures to identify and appropriately
apply applicable accounting requirements to better evaluate and understand the
nuances of the complex accounting standards that apply to our financial
statements. Our plans for enhancement continue to include providing enhanced
access to accounting literature, research materials and documents and increased
communication among our personnel and third-party professionals with whom we
consult regarding complex accounting applications. The elements of our
remediation plan can only be accomplished over time, and we can offer no
assurance that these initiatives will ultimately have the intended effects.

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