ISLEWORTH HEALTHCARE ACQUISITION CORP. References in this report (the "Quarterly Report") to "we," "us" or the "Company" refer toIsleworth Healthcare Acquisition Corp. References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer toIsleworth 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 theU.S. Securities and Exchange Commission (the "SEC"). The Company's securities filings can be accessed on the EDGAR section of theSEC'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 theState of Delaware onDecember 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 June 30, 2021 , we had
$575,581 in cash and working capital of $1,172,743 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 June 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 June 30, 2021 , there was $21,242 interest earned from
the Trust account.
For the three months ended June 30, 2021 , we had loss from operations of
$235,522 which consisted of general and administrative costs, and net loss of
$4,227,573 , which primarily consisted of a net loss from the change in the fair
value of warrants.
For the six months ended June 30, 2021 , we had loss from operations of $392,836
which consisted of general and administrative costs, and net income of
$1,504,979 , 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 $2,227,616 for the six months
ended June 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.
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 June 30, 2021 , we had cash and investment held in the Trust Account of
$207,021,242 . Interest income on the balance in the Trust Account may be used by
us to pay taxes. As of June 30, 2021 , there was $21,242 interest income earned
from the Trust account.
For the six months ended June 30, 2021 , cash used in operating activities was
$811,573 .
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Table of Contents 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 ofJune 30, 2021 we had cash of$575,581 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 ofJune 30, 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 onFebruary 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 inthe 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: 20
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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 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 stockholders' equity upon the completion of the IPO.
Net income (loss) per share of common stock
We apply the
two-class
method in calculating earnings (loss) per share. Net income (loss) per common
stock, basic and diluted, for redeemable Common Stock is calculated by dividing
the interest income earned on the Trust Account reduced by franchise tax, by the
weighted average number of redeemable Common Stock outstanding since original
issuance. Net income (loss) per common stock, basic and diluted, for
non-redeemable
and Common Stock is calculated by dividing the net income (loss) 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 shares do not have any
redemption features and do not participate in the income earned on the Trust
Account.
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.
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