References in this report (the "Quarterly Report") to "we," "us," "Isleworth," 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 unaudited condensed 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 December 15, 2020 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (a "Business Combination"). We consummated our Public Offering (as defined below) on March 2, 2021 and are currently in the process of locating suitable targets for our business combination. We intend to use the cash proceeds from our Public Offering and the Private Placement described below as well as additional issuances, if any, of our capital stock, debt or a combination of cash, stock and debt to complete the Business Combination.

We expect to incur significant costs in the pursuit of our initial Business Combination. We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.

We completed the sale of 20,700,000 units (the "Units" and, with respect to the shares of common stock included in the Units being offered, the "Public Shares") at $10.00 per Unit on March 2, 2021. Simultaneous with the closing of the Public Offering, we completed the sale of 5,600,000 Private Warrants (the "Private Warrants") at a price of $1.00 per Private Warrant in a private placement to the Sponsor and I-Bankers.

As of June 30, 2022, a total of $207,000,000 of the net proceeds from the IPO (including the full exercise of the over-allotment option) and the Private Placements were in a trust account established for the benefit of the Company's public stockholders. The trust fund account is invested in interest-bearing U.S. government securities and the income earned on those investments is also for the benefit of our public stockholders.

Our management has broad discretion with respect to the specific application of the net proceeds of IPO and the Private Placement, although substantially all of the net proceeds are intended to be applied generally towards consummating a business combination.


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Results of Operations

We have neither engaged in any operations nor generated any revenues to date. Our only activities through June 30, 2022 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 June 30, 2022, there was $432,994 interest earned from the Trust account.

For the three months ended June 30, 2022, we had a net income of $2,127,156 which consisted of interest income of $299,880 and change in fair value of warrants of $2,195,278, offset by general and administrative costs of $337,688, and the provision for income taxes of $30,314.

For the six months ended June 30, 2022, we had net income of $7,164,514 which consisted of interest income of $372,461 and change in fair value of warrants of $7,751,302, offset by general and administrative costs of $928,935, and the provision for income taxes of $30,314.

For the three months ended June 30, 2021, we had a net loss of $4,227,573 which consisted of general and administrative costs of $235,522 and change in fair value of warrants of 4,013,287, offset by interest income of $21,236.

For the six months ended June 30, 2021, we had net income of $1,504,979 which consisted of interest income of $21,242 and change in the fair value of warrants of $2,227,616, offset by general and administrative costs of $392,836 and warrant issuance cost of $351,043


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Liquidity, Capital Resources and Going Concern

As of June 30, 2022, we had cash outside our trust account of $107,774, available for working capital needs. All remaining cash was held in the trust account and is generally unavailable for our use, prior to an initial business combination.

For the six months ended June 30, 2022, cash used in operating activities was $886,045; we used $78,000 from our interest earned on Trust assets to pay Delaware Franchise Taxes, in accordance with the Trust agreement.



Pursuant to the IPO on March 2, 2021 the Company sold 20,700,000 Units
(including 2,700,000 Units of over-allotment options that was fully exercised)
at a price of $10.00 per Unit. Each Unit consists of one share of common stock
and
one-half
of one warrant ("Public Warrant"). Each whole Public Warrant entitles the holder
to purchase one share of common stock at a price of $11.50 per share, subject to
adjustment. An aggregate of $10.00 per Unit sold in the Initial Public Offering
was held in the Trust Account and invested in U.S. government securities, within
the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a
maturity of 180 days or less or in any open-ended investment company that holds
itself out as a money market fund meeting the conditions of Rule
2a-7
of the Investment Company Act, as determined by the Company. As of June 30,
2022, we had cash and investment held in the Trust Account of $207,354,994.
Interest income on the balance in the Trust Account may be used by us to pay
taxes. As of June 30, 2022, there was $432,994 interest income earned from the
Trust account. On March 1, 2022 we withdrew $78,000 from the Trust account to be
used towards payment of franchise taxes.

We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (excluding the business combination marketing fees payable to I-Bankers) to complete our initial Business Combination. We may withdraw interest to pay our taxes and liquidation expenses if we are unsuccessful in completing a Business Combination. We estimate our annual franchise tax obligations to be $200,000, which is the maximum amount of annual franchise taxes payable by us as a Delaware corporation per annum, which we may pay from funds from the Public Offering held outside of the trust account or from interest earned on the funds held in the trust account and released to us for this purpose. Our 2021 franchise tax was calculated using a partial year proration and amounted to $170,520. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account reduced by our operating expense and franchise taxes. We expect the interest earned on the amount in the trust account will be insufficient to pay our income taxes. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial 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.



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. On March 15, 2022, the Sponsor agreed to loan the Company an aggregate
of up to $300,000 pursuant to a promissory note (the "Convertible Note"). The
Convertible Note is
non-interest
bearing and payable upon consummation of the Company's initial Business
Combination. Similarly, on May 31, 2022, the Sponsor agreed to loan the Company
an aggregate of up to $150,000 pursuant to a promissory note (the "Promissory
Note"). The Promissory Note has no convertible features, is
non-interest
bearing, and payable upon consummation of the Company's initial Business
Combination. At June 30, 2022, there was $450,000 of borrowings under both the
Convertible Note and the Promissory Note.

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.



In connection with the Company's assessment of going concern considerations in
accordance with ASC Topic
205-40
Presentation of Financial Statements - Going Concern, pursuant to its Amended
and Restated Certificate of Incorporation, the Company has until September 1,
2022 to consummate a Business Combination. If a Business Combination is not
consummated by this date, or its stockholders have not approved an extension,
there will be a mandatory liquidation and subsequent dissolution of the Company.
The Company is holding a special meeting of stockholders on August 26, 2022 to
seek an extension to consummate a Business Combination from September 1, 2022 to
December 1, 2022, and thereafter for up to three additional months at the
election of the Company, ultimately until as late as March 1, 2023. There is no
assurance that the Company will be able to obtain the foregoing extension. This,
as well as its liquidity condition, raise substantial doubt about the Company's
ability to continue as a going concern. No adjustments have been made to the
carrying amounts of assets or liabilities should the Company be required to
liquidate after September 1, 2022 (See Note 6 regarding the Company's terminated
business combination).

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Off-Balance
Sheet Arrangements

We did not have any
off-balance
sheet arrangements as of June 30, 2022, as defined in Item 303(a)(4)(ii) of
Regulation
S-K.

Contractual obligations

As of June 30, 2022, we did not have any long-term debt, capital or operating lease obligations.

We entered into an administrative services agreement pursuant to which we will pay an affiliate of one of our directors for office space and secretarial and administrative services provided to members of our management team, in an amount not to exceed $5,000 per month.



We have engaged
I-Bankers
as an advisor in connection with our acquiring, engaging in a share exchange,
share reconstruction and amalgamation with, purchasing all or substantially all
of the assets of, entering into contractual arrangements with, or engaging in
any other similar Business Combination with one or more businesses or entities.
We will pay
I-Bankers
for such services a fee equal to 3.5% of the gross proceeds of the Public
Offering.

Critical Accounting Policies and Estimates

The preparation of unaudited 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 unaudited condensed 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 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 (to the extent available) and accumulated deficit.

Derivative Warrant Liabilities and Convertible Promissory Note - Related Party

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

ASC815-15.

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. The derivative instruments are subject to a number of critical estimates as the significant inputs that drive the changes in fair value are determined by the Monte Carlo Model and not based solely on the observable inputs such as quoted prices for identical instruments in active markets as is the case with Level 1 classified securities.



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
ASC815-40.
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 tore-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. The Company accounts for its Convertible
Note under ASC 815, Derivatives and Hedging ("ASC 815").
Under 815-15-25, the
election can be at the inception of a financial instrument to account for the
instrument under the fair value option under ASC 825. The Company has made such
election for its Convertible Note. Using fair value option, the Convertible Note
is required to be recorded at its initial fair value on the date of issuance,
and each balance sheet date thereafter. Changes in the estimated fair value of
the note are recognized
as non-cash
change in the fair value of the Convertible Note in the statements of
operations. The fair value of the option to convert into private warrants was
valued utilizing the closed-form model.

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.


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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.

Net Income per Share of Common Stock

Net income 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 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

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

JOBS Act



The JOBS Act contains provisions that, among other things, relax certain
reporting requirements for qualifying public companies. We qualify as an
"emerging growth company" under the JOBS Act and are allowed to comply with new
or revised accounting pronouncements based on the effective date for private
(not publicly traded) companies. We are electing to delay the adoption of new or
revised accounting standards, and as a result, we may not comply with new or
revised accounting standards on the relevant dates on which adoption of such
standards is required for
non-emerging growth
companies. As a result, our unaudited condensed financial statements may not be
comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.

Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an independent registered public accounting firm's
attestation report on our system of internal controls over financial reporting
pursuant to Section 404, (ii) provide all of the compensation disclosure that
may be required of
non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the independent
registered public accounting firm's report providing additional information
about the audit and the unaudited condensed financial statements (auditor
discussion and analysis), and (iv) disclose certain executive compensation
related items such as the correlation between executive compensation and
performance and comparisons of the CEO's compensation to median employee
compensation. These exemptions will apply for a period of five years following
the completion of our initial public offering or until we are no longer an
"emerging growth company," whichever is earlier.

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