References in this report (the "Quarterly Report") to "we," "us," "Isleworth,"
or the "Company" refer to
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 Form10-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 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 incorporated on
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
As of
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.
Proposed Business Combination
On
The Merger Agreement and the transactions contemplated thereby were approved by the boards of directors or board of managers, as applicable, of each of Isleworth, Cytovia and the Sponsor.
The Business Combination
The Merger Agreement provides for, among other things, the following
transactions at the closing: (i) First Merger Sub will merge with and into
Cytovia (the "First Merger"), with Cytovia as the surviving company in the First
Merger as a wholly-owned subsidiary of Isleworth (the "Surviving Corporation"),
and immediately following the First Merger and as part of the same overall
transaction as the First Merger, the
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The Business Combination is expected to close in the third quarter of 2022, following the receipt of the required approval by Isleworth's stockholders and the fulfillment (or waiver) of other customary closing conditions.
Business Combination Consideration
In accordance with the terms and subject to the conditions of the Merger
Agreement, each share of Cytovia Class A common stock, par value
Additionally, at the Closing and as set forth in the Merger Agreement, (i) each warrant to purchase Cytovia Common Stock ("Cytovia Warrants") will be converted into a warrant to purchase shares of combined company common stock, (ii) each option to purchase Cytovia Common Stock ("Cytovia Options"), whether vested or unvested, will be assumed and converted into an option to purchase a number of shares of combined company common stock, (iii) each restricted share award of Cytovia Common Stock will be exchanged for restricted share awards of Cytovia Common Stock subject to the same terms and conditions as were applicable to such restricted shares and (iv) each restricted stock unit award of Cytovia ("Cytovia RSU") will be converted into the right to receive restricted stock units based on shares of combined company common stock.
The Exchange Ratio will be determined by dividing (i) the Cytovia Reference Share Value by (ii)$10 and further dividing by the number of outstanding shares of Cytovia Common Stock on a fully-diluted basis, which excludes shares of Cytovia Common Stock (x) issuable upon conversion of Cytovia's convertible instruments, including the Convertible Note (as defined below), Cytovia Warrants and any financing that Cytovia is permitted to undertake under the Merger Agreement, (y) issuable in connection with a certain license agreement by and between Cytovia and Cellectis (as defined below) and (z) issuable upon any Cytovia RSUs or Cytovia Options that, in each case, are not vested as of the Closing. The Cytovia Reference Share Value shall be equal to$300,000,000 , plus the aggregate exercise price of outstanding warrants and options to purchase Cytovia Common Stock, minus one-half the value of up to 4,000,000 shares of Isleworth Common Stock (valued at$10 per share) ("Inducement Shares") that Isleworth may issue in connection with obtaining financing for the Business Combination. The Sponsor has agreed to forfeit a number of promote shares equal to one-half the aggregate number of Inducement Shares that are issued.
One-half
of the aggregate number of Earnout Shares will be issued if, during the period
beginning on the first anniversary and ending on the second anniversary of the
closing, the combined company's common stock achieves a market price of
Governance
Isleworth has agreed to take actions such that, effective immediately after the closing of the Business Combination, Isleworth's board of directors shall consist of seven directors, which directors shall be nominated pursuant to the Merger Agreement, which nominees include two Isleworth designees. Additionally, certain current Cytovia management personnel will join Isleworth as officers of the company and current members of the Cytovia board of directors will join the board of directors of combined company following consummation of the Mergers.
Representations and Warranties; Covenants
The Merger Agreement contains representations, warranties and covenants of each of the parties thereto that are customary for transactions of this type, including, among others, covenants providing for (i) certain limitations on the operation of the parties' respective businesses prior to consummation of the Business Combination, (ii) the parties' efforts to satisfy conditions to consummation of the Business Combination, including by obtaining necessary approvals from governmental agencies (includingU.S. federal antitrust authorities and under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")), (iii) prohibitions on the parties soliciting alternative transactions, (iv) Isleworth preparing and filing a registration statement on Form S-4 with theSecurities and Exchange Commission (the "SEC") and taking certain other actions to obtain the requisite approval of Isleworth's stockholders to vote in favor of certain matters, including the adoption of the Merger Agreement and approval of the Business Combination, at a special meeting to be called for the approval of such matters, and (v) the protection of, and access to, confidential information of the parties.
In addition, Isleworth has agreed to adopt an equity incentive plan and an employee stock purchase plan, each as described in the Merger Agreement.
Conditions to
The obligations of Isleworth and Cytovia to consummate the Business Combination are subject to certain closing conditions, including, but not limited to, (i) the expiration or termination of the applicable waiting period under the HSR Act, (ii) the approval of Isleworth's stockholders, (iii) the approval of Cytovia's stockholders and (iv) the Registration Statement (as defined below) becoming effective.
In addition, the obligation of Isleworth, First Merger Sub, and Second Merger Sub to consummate the Business Combination is subject to the fulfillment (or waiver) of other closing conditions, including, but not limited to, (i) the representations and warranties of Cytovia being true and correct to the standards applicable to such representations and warranties and each of the covenants of Cytovia having been performed or complied with in all material respects, (ii) delivery of certain ancillary agreements required to be executed and delivered in connection with the Business Combination; and (iii) no Material Adverse Effect (as defined in the Merger Agreement) having occurred.
The obligation of Cytovia to consummate the Business Combination is also subject to the fulfillment (or waiver) of other closing conditions, including, but not limited to, (i) the representations and warranties of Isleworth, First Merger Sub and Second Merger Sub being true and correct to the standards applicable to such representations and warranties and each of the covenants of Isleworth, First Merger Sub and Second Merger Sub having been performed
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or complied with in all material respects, (ii) the aggregate cash proceeds from
Isleworth's trust account, together with the proceeds from the PIPE Financing
(as defined below), equaling no less than
Termination
The Merger Agreement may be terminated under certain customary and limited
circumstances prior to the closing of the Business Combination, including, but
not limited to, (i) by mutual written consent of Isleworth and Cytovia, (ii) by
Isleworth, on the one hand, or Cytovia, on the other hand, if there is any
breach of the representations, warranties, covenant or agreement of the other
party as set forth in the Merger Agreement, in each case, such that certain
conditions to closing cannot be satisfied and the breach or breaches of such
representations or warranties or the failure to perform such covenant or
agreement, as applicable, are not cured or cannot be cured within certain
specified time periods, (iii) by either Isleworth or Cytovia if the Business
Combination is not consummated by
If the Merger Agreement is validly terminated, none of the parties to the Merger Agreement will have any liability or any further obligation under the Merger Agreement other than customary confidentiality obligations, except in the case of Willful Breach (as defined in the Merger Agreement).
Isleworth Sponsor Support Agreement
Concurrently with the execution of the Merger Agreement, Isleworth, the Sponsor and certain directors of the Sponsor entered into a Sponsor Support Agreement (the "Sponsor Support Agreement") pursuant to which the Sponsor and each such director agreed to, among other things, (i) vote at any meeting of the stockholders of Isleworth all of its shares of Isleworth Common Stock held of record or thereafter acquired in favor of the Parent Proposals (as defined in the Merger Agreement), (ii) be bound by certain other covenants and agreements related to the Business Combination and (iii) be bound by certain transfer restrictions with respect to such securities, prior to the closing of the Business Combination, in each case, on the terms and subject to the conditions set forth in the Sponsor Support Agreement.
Cytovia Support Agreement
In accordance with the Merger Agreement, certain stockholders of Cytovia representing the requisite votes necessary to approve the Merger Agreement are expected to enter into support agreements (the "Stockholder Support Agreement") with Isleworth and Cytovia, pursuant to which each such holder will agree to (i) vote at any meeting of the stockholders of Cytovia all of its Cytovia Common Stock and Cytovia preferred stock held of record or thereafter acquired in favor of the approving and adopting the Merger Agreement, (ii) be bound by certain other covenants and agreements related to the Business Combination and (iii) be bound by certain transfer restrictions with respect to such securities (i.e., a "lock-up") to be provided in the amended and restated bylaws of Isleworth, in each case, on the terms and subject to the conditions set forth in the form of Stockholder Support Agreement.
PIPE Financing (Private Placement)
Concurrently with the execution of the Merger Agreement, Isleworth entered into
a subscription agreement (the "Subscription Agreement") with certain investors
(the "
The closing of the PIPE Financing is contingent upon, among other things, the substantially concurrent consummation of the Business Combination.
Other
Prior to execution of the Merger Agreement,Cytovia Therapeutics, LLC , a wholly-owned subsidiary of Cytovia, entered into an amendment to a certain research collaboration and non-exclusive license agreement (the "License Amendment") by and betweenCytovia Therapeutics, LLC andCellectis S.A. , a French corporation organized under the laws ofFrance and registered in the Trade andCompanies Register ofParis under number 428 859 052 ("Cellectis"). In connection with the License Amendment, Cytovia and Cellectis entered into a securities purchase agreement (the "Cellectis SPA") pursuant to which Cytovia issued Cellectis a convertible note in the principal amount of$20,000,000 (the "Convertible Note"). Immediately prior to the closing of the Business Combination, the outstanding principal amount of the Convertible Note plus any accrued and unpaid interest or other amounts payable thereunder (the "Outstanding Amount") will automatically convert into shares of Cytovia Common Stock at a per share price that will result in Cellectis receiving a number of shares of Isleworth Common Stock equal to the Outstanding Amount divided by the lowest price per share paid by any subscriber in the PIPE Financing (such number of shares of Isleworth Common Stock, the "Note Conversion Shares"). Also pursuant to the Cellectis SPA, Cytovia issued Cellectis a warrant (the "Warrant") to acquire a number of shares of Isleworth Common Stock equal to 0.35 multiplied by the number of Note Conversion Shares (the "Warrant Exercise Shares"), at an exercise price of$11.50 per share (the "Warrant Exercise Price"), with each of the Warrant Exercise Shares and the Warrant Exercise Price subject to adjustment pursuant to the terms of the Cellectis SPA and the Convertible Note and Warrant issued thereunder. 24
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through
For the three months ended
For the three months ended
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Liquidity, Capital Resources and Going Concern
As of
For the three months ended
Pursuant to the IPO onMarch 2, 2021 the Company sold 18,000,000 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 (see Note 7). An aggregate of$10.00 per Unit sold in the Initial Public Offering was held in the Trust Account and invested inU.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 Rule2a-7of the Investment Company Act, as determined by the Company. As ofMarch 31, 2022 , we had cash and investment held in the Trust Account of$207,055,113 . Interest income on the balance in the Trust Account may be used by us to pay taxes. As ofMarch 31, 2022 , there was$133,114 interest income earned from the Trust account. OnMarch 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
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. OnMarch 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. AtMarch 31, 2022 , there was$300,000 of borrowings under the Convertible 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 untilSeptember 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. Although the Company intends to consummate a Business Combination on or beforeSeptember 1, 2022 , and may seek an extension, it is uncertain that the Company will be able to consummate a Business Combination, or obtain an extension, by this time. 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 afterSeptember 1, 2022 . Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as ofMarch 31, 2022 , as defined in Item 303(a)(4)(ii) of Regulation S-K. 26
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Contractual obligations
As of
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
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
The preparation of unaudited condensed financial statements and related
disclosures in conformity with accounting principles generally accepted in
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 (to the extend available) and accumulated deficit.
Derivative Warrant Liabilities and Convertible Promissory Note -
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.
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 usingMonte-Carlo simulations at each measurement date. The fair value of Public Warrants issued with the Public Offering was initially measured usingMonte-Carlo simulations and then measured based trading price once they commenced trading onMarch 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
ASC340-10-S99-1and
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 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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