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 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 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;




     •    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;




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     •    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 March 31, 2021, we had $766,906 in cash and working capital of $1,244,871, 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 March 31, 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 March 31, 2021, there was not interest earned from the Trust account.

For the three months ended March 31, 2021, we had loss from operations of $157,314 which consisted of general and administrative costs, and net income of $5,732,552, 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 $6,240,903 in the first quarter of 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.

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 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 March 31, 2021, we had cash in the Trust Account of $207,000,000. Interest income on the balance in the Trust Account may be used by us to pay taxes. As of March 31, 2021, there was no interest income earned from the Trust account.

For the three months ended March 31, 2021, cash used in operating activities was $661,793.





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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 March 31, 2021 we had cash of $766,906 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.

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, 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 March 31, 2021.

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 Securities, Inc. ("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:





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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 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.

Derivative warrant liabilities

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluates all of its 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 accounts 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 recognizes 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 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 stockholders' equity upon the completion of the IPO.

Net income per share of common stock

We apply the two-class method in calculating earnings per share. Net income per common stock, basic and diluted, for redeemable Common Stock is calculated by dividing the interest income earned on the Trust Account, by the weighted average number of redeemable Common Stock outstanding since original issuance. Net income per common stock, basic and diluted, for non-redeemable and Common Stock is calculated by dividing the net income adjusted for income attributable to redeemable Common Stock, by the weighted average number of non-redeemable and Common Stock outstanding for the periods. Non-redeemable Common Stock include the Founder Shares as these common stocks do not have any redemption features and do not participate in the income earned on the Trust Account.

Recent accounting standards

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our condensed financial statements.

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