Digital Health Acquisition (DHAC) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements Presents DHAC's unaudited condensed consolidated financial statements and related notes for interim periods Condensed Consolidated Balance Sheets | Metric | September 30, 2023 (unaudited) | December 31, 2022 | | :-------------------------------- | :----------------------------- | :------------------ | | Cash | $507 | $106,998 | | Investments held in Trust Account | $8,119,642 | $7,527,369 | | Total Assets | $8,137,649 | $7,634,367 | | Accounts payable and accrued expenses | $2,630,100 | $1,886,312 | | Total Liabilities | $9,392,029 | $7,665,614 | | Total Stockholders' Deficit | $(9,148,594) | $(7,426,596) | - Cash significantly decreased from $106,998 at December 31, 2022, to $507 at September 30, 2023[11] - Investments held in the Trust Account increased from $7,527,369 to $8,119,642[11] - Total Stockholders' Deficit worsened from $(7,426,596) to $(9,148,594)[11] Unaudited Condensed Consolidated Statements of Operations | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $78,287 | $(820,759) | $(1,552,805) | $(2,007,578) | | Basic and diluted net income (loss) per share | $0.02 | $(0.05) | $(0.37) | $(0.13) | - The company reported a net income of $78,287 for the three months ended September 30, 2023, a significant improvement from a net loss of $(820,759) in the same period of 2022[12] - For the nine months ended September 30, 2023, the net loss decreased to $(1,552,805) from $(2,007,578) in the prior year[12] - Basic and diluted EPS improved to $0.02 for the three months ended September 30, 2023, from $(0.05) in the prior year, but worsened to $(0.37) for the nine months ended September 30, 2023, from $(0.13) in the prior year, primarily due to changes in weighted average shares outstanding[12] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Deficit | Metric | Balance – December 31, 2022 | Balance – September 30, 2023 | | :-------------------------- | :-------------------------- | :--------------------------- | | Common Stock Shares | 3,462,000 | 3,489,000 | | Common Stock Amount | $347 | $350 | | Additional Paid-in Capital | $292,973 | $622,642 | | Accumulated Deficit | $(7,719,916) | $(9,771,586) | | Total Stockholders' Deficit | $(7,426,596) | $(9,148,594) | - The accumulated deficit increased from $(7,719,916) at December 31, 2022, to $(9,771,586) at September 30, 2023[14] - Additional paid-in capital increased from $292,973 to $622,642, partly due to the issuance of shares to settle legal claims and in connection with the Investor Note[14] Unaudited Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(640,577) | $(715,042) | | Net cash used in investing activities | $(290,414) | $0 | | Net cash provided by financing activities | $824,500 | $0 | | Net Change in Cash | $(106,491) | $(715,042) | | Cash – End of period | $507 | $44,970 | - Net cash used in operating activities decreased by 10.4% from $(715,042) in 2022 to $(640,577) in 2023[17] - The company had significant financing activities in 2023, providing $824,500 in cash, compared to none in 2022[17] - Cash at the end of the period dramatically decreased from $44,970 in 2022 to $507 in 2023[17] Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS - Digital Health Acquisition Corp. (DHAC) is a blank check company formed on March 30, 2021, for the purpose of effecting a Business Combination[18] - The company has not commenced significant operations as of September 30, 2023, and generates non-operating income from interest on Trust Account proceeds[20] - DHAC completed its Initial Public Offering (IPO) on November 8, 2021, raising $115,000,000, and a private placement to its Sponsor for $5,570,000[21][22] - On October 20, 2022, 10,805,877 shares were redeemed, leaving 694,123 shares subject to redemption[21] - The Business Combination period has been extended multiple times, with the latest approval on November 6, 2023, allowing extensions up to November 8, 2024[28][48] - DHAC entered into a Business Combination Agreement with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc. on June 15, 2022, aiming to merge and operate as VSee Health, Inc.[32][34] - The company faced Nasdaq listing deficiencies (MVLS, MVPHS, 400 total shareholders) and was approved to transfer its listing from Nasdaq Global to Nasdaq Capital Market (NasdaqCM) effective October 30, 2023[35][37][39][42][43][44] - The PIPE Financing, intended to raise $8,000,000 (later increased to $15,000,000 with a Backstop Agreement), was terminated on July 11, 2023, as closing conditions were not met[33][122][147] - Stockholders approved an amendment to the Charter on September 8, 2023, to allow the Business Combination even if the combined company does not have net tangible assets of at least $5,000,001[47] - In connection with the 2023 Annual Meeting, 579,157 shares were redeemed for approximately $6.8 million at $11.73 per share[50][206] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and should be read in conjunction with the Annual Report on Form 10-K for December 31, 2022[51][52] - The company has a cash balance of $507 and a working capital deficiency of $8,154,992 as of September 30, 2023, raising substantial doubt about its ability to continue as a going concern[55] - As an 'emerging growth company' under the JOBS Act, DHAC has elected to use the extended transition period for complying with new or revised financial accounting standards[56][57] - Significant accounting estimates include the fair value of the PIPE Forward Contract, Investor Note Derivative, and Bridge Note Bifurcated Derivative[60] - Common stock subject to possible redemption is classified as temporary equity and measured at redemption value[63][64] Effective Tax Rate | Period | Effective Tax Rate | | :-------------------------------- | :----------------- | | Three months ended Sep 30, 2023 | 0.0% | | Three months ended Sep 30, 2022 | 11.25% | | Nine months ended Sep 30, 2023 | 0.0% | | Nine months ended Sep 30, 2022 | 4.31% | - The effective tax rate differs from the statutory rate of 21% due to a full valuation allowance on deferred tax assets[69] - Warrants (Public, Private, Bridge, Investor) are classified as equity, while the PIPE financing agreement and early redemption provisions of the Bridge and Investor Notes are treated as bifurcated derivatives[79][80] - The Inflation Reduction Act of 2022 introduces a 1% excise tax on stock repurchases after December 31, 2022, which could impact the company's cash available for a Business Combination[86][87] NOTE 3. INITIAL PUBLIC OFFERING - The company sold 11,500,000 units in its IPO at $10.00 per unit, each consisting of one common share and one warrant[88] - Each warrant entitles the holder to purchase one common stock at $11.50 per share, exercisable 30 days after the Business Combination or 12 months from IPO closing, expiring five years after the Business Combination[88] NOTE 4. PRIVATE PLACEMENT - The Sponsor purchased 557,000 private placement units at $10.00 per unit, generating $5,570,000 in gross proceeds[90] - Private placement units are identical to IPO units but are not redeemable[90] - The Sponsor and affiliates have waived redemption rights and agreed to vote in favor of the initial Business Combination[91] NOTE 5. RELATED PARTY TRANSACTIONS - The Sponsor and affiliates initially purchased 4,312,500 founder shares for $25,000, later forfeiting 1,437,500 shares, resulting in 2,875,000 founder shares outstanding[92] - The company owed the Sponsor $138,937 as of September 30, 2023, for advances, up from $43,900 at December 31, 2022[94] - Promissory notes include a $350,000 note from the Sponsor (non-interest bearing, for extension), an amended $565,000 note from SCS Capital Partners LLC (non-interest bearing, for operating expenses), and a $200,000 note from SCS Capital Partners LLC (10% interest)[96][97][98] - An affiliate of the Sponsor receives $10,000 per month for administrative services, totaling $90,000 for the nine months ended September 30, 2023 and 2022[99] NOTE 6. COMMITMENTS - Holders of founder shares and private placement units have registration rights for their securities[104] - A deferred underwriting commission of $4,370,000 (3.8% of gross IPO proceeds) is payable to A.G.P. upon completion of the Business Combination, convertible into Series B Preferred Stock[105][106] - The Business Combination Agreement with VSee and iDoc values their combined equity at $110 million, to be paid in DHAC common stock[107][108] - The PIPE Securities Purchase Agreement, initially for $8,000,000 and later increased to $15,000,000 with a Backstop Agreement, was terminated on July 11, 2023, due to unmet closing conditions[116][122][145][147] - The Bridge Purchase Agreement (October 6, 2022) involved $2,222,222 in senior secured promissory notes (DHAC allocated $888,889), 173,913 warrants, and 30,000 common shares. The contingent early repayment option was bifurcated as a derivative[128][130] - The May 2023 Securities Purchase Agreement (May 5, 2023) involved a $300,000 promissory note, 26,086 warrants, and 7,000 common shares. The contingent early repayment option was bifurcated as a derivative[133][136][138] NOTE 7. STOCKHOLDERS' DEFICIT - The company is authorized to issue 50,000,000 common shares with a par value of $0.0001 per share[148] - As of September 30, 2023, there were 3,489,000 common shares issued and outstanding, excluding 694,123 shares subject to redemption[148] - Public stockholders have redemption rights if the initial Business Combination is not consummated within the extended period or if certain certificate of incorporation amendments are approved[150][152] NOTE 8. WARRANTS - 12,057,000 IPO warrants are outstanding, each exercisable for one common share at $11.50, becoming exercisable 30 days after Business Combination or 12 months from IPO, and expiring five years after Business Combination[153][154] - The company may call warrants for redemption at $0.01 per warrant if the common stock price equals or exceeds $18.00 for 20 trading days within a 30-day period[155][163] - 173,913 Bridge Warrants were issued on October 6, 2022, with an exercise price of $11.50 and a five-year term[167] - 26,086 Investor Note Warrants were issued on May 5, 2023, with an exercise price of $11.50 and a five-year term[176] - Both Bridge and Investor Note Warrants include cashless exercise options and are subject to adjustments for capital events[167][168][176][179] NOTE 9. FAIR VALUE MEASUREMENTS - The company uses a three-tier fair value hierarchy (Level 1, 2, 3) for financial assets and liabilities[188] Fair Value of Financial Instruments | Instrument | September 30, 2023 | December 31, 2022 | Fair Value Hierarchy Level | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------------------- | | Money Market Funds (Trust Account) | $8,119,642 | $7,527,369 | Level 1 | | Investor Note – Bifurcated Derivative | $22,805 | $0 | Level 3 | | Bridge Note – Bifurcated Derivative | $241,447 | $364,711 | Level 3 | | PIPE Forward Contract | $0 | $170,666 | Level 3 | - The PIPE Forward Contract was derecognized as of July 11, 2023, due to the termination of the PIPE Financing[198] - Fair values for the Bridge Note Bifurcated Derivative and Investor Note Bifurcated Derivative are determined using Level 3 unobservable inputs, with models like Probability Weighted Expected Return Method (PWERM) and Discounted Cash Flow (DCF)[194][195][196][197] NOTE 10. SUBSEQUENT EVENTS - The company's application to transfer its securities listing to the Nasdaq Capital Market (NasdaqCM) was approved on October 26, 2023, effective October 30, 2023, leading to the cancellation of a delisting hearing[201][203] - At the 2023 Annual Meeting on November 6, 2023, stockholders approved amendments to extend the Business Combination period up to November 8, 2024[204][205] - In connection with the 2023 Annual Meeting, 579,157 shares of common stock were redeemed for approximately $6.8 million[206] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on DHAC's financial condition, operational results, liquidity, and merger agreements Overview - Digital Health Acquisition Corp. (DHAC) is a blank check company seeking a business combination, primarily in technology and healthcare[209] - The company completed its IPO on November 8, 2021, raising $115 million, and a private placement of $5.57 million to its Sponsor[210][211] - Approximately $116.725 million from the IPO and private placement was placed in a Trust Account[212] - On October 20, 2022, 10,805,877 shares were redeemed, resulting in a withdrawal of $110,472,254 from the Trust Account[210] - The company will liquidate if an initial business combination is not completed within the specified timeframe (currently extended to November 8, 2024)[213] - DHAC entered into a Business Combination Agreement with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc. on June 15, 2022, with a combined equity value of $110 million[214][215] Results of Operations - The company does not generate operating revenues and its activities are focused on preparing for and identifying a business combination candidate[219] | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $78,287 | $(820,759) | $(1,552,805) | $(2,007,578) | | General and administrative expenses | $518,084 | $1,129,361 | $1,668,105 | $2,394,702 | | Interest earned on investment in Trust Account | $104,413 | $391,628 | $301,860 | $470,150 | - Net income for the three months ended September 30, 2023, was $78,287, a positive shift from a net loss of $(820,759) in the prior year, driven by a significant change in the fair value of the PIPE forward contract derivative[220][221] - For the nine months ended September 30, 2023, the net loss decreased to $(1,552,805) from $(2,007,578) in the prior year, despite lower interest income from the Trust Account[222][223] Liquidity and Capital Resources - As of September 30, 2023, the company had a cash balance of $507 and a working capital deficiency of $8,154,992[224][242] - Liquidity needs have been met through Sponsor contributions, IPO proceeds, private placement, and various promissory notes[225][226][228][231][232][233][234] - Cash used in operating activities for the nine months ended September 30, 2023, was $(640,577), an improvement from $(715,042) in the prior year[235][236] - The company received $824,500 in cash from financing activities during the nine months ended September 30, 2023, primarily from promissory notes[17][230][232][233][234] - Management believes it will have sufficient working capital and borrowing capacity from the Sponsor or affiliates to meet its needs through the earlier of a Business Combination or one year from the financial statements' issuance date[241] - The company's liquidity and mandatory liquidation date of February 8, 2024, raise substantial doubt about its ability to continue as a going concern[242] Contractual Obligations - The company has no long-term debt, capital lease, or operating lease obligations[243] - Holders of founder shares and private placement units are entitled to customary registration rights[244] - A deferred underwriting commission of $4,370,000 is payable to A.G.P. upon completion of a business combination, convertible into Series B Preferred Stock[245] - The company pays an affiliate of its Sponsor $10,000 per month for administrative services[246] - The Business Combination Agreement with VSee and iDoc outlines the merger consideration, with a combined equity value of $110 million to be paid in DHAC common stock[247][249][250] - The VSee Health, Inc. 2022 Equity Incentive Plan will provide an initial aggregate share reserve equal to 15% of post-closing DHAC Common Stock[254] Conditions to Closing - Closing conditions for the Business Combination include expiration of HSR Act waiting periods, approval by DHAC's, VSee's, and iDoc's stockholders, and Nasdaq Capital Market approval of DHAC's listing application[255][256] PIPE Securities Purchase Agreement - The PIPE Securities Purchase Agreement, initially for $8,000,000, was amended to increase the aggregate PIPE financing to $15,000,000 with a Backstop Agreement from the Sponsor[256][258] - The PIPE Financing involved the issuance of Series A Preferred Stock (convertible into DHAC common stock at $10.00/share) and warrants (exercisable at $12.50/share)[256][259] - On July 11, 2023, PIPE Investors provided notice that they were not obligated to close the PIPE Financing due to an unmet closing condition (Outside Date Closing Condition)[261][263][268] - Related PIPE Registration Rights Agreement and PIPE Lock-Up Agreement were also terminated due to the non-closing of the PIPE Financing[263][268] Bridge Securities Purchase Agreement - On October 6, 2022, DHAC, VSee, and iDoc entered into a Bridge Purchase Agreement for $2,222,222 in 10% OID senior secured promissory notes, bearing 10% interest[269] - In connection with the Bridge Notes, DHAC issued 173,913 warrants and 30,000 common shares[269] - If the PIPE Financing closes, 110% of unpaid principal and 10% guaranteed interest on Bridge Notes are due[269] May 2023 Securities Purchase Agreement - On May 5, 2023, the company entered into a Securities Purchase Agreement for a $300,000 promissory note with a 16.67% original issue discount and 10% guaranteed interest, due May 5, 2024[270] - The agreement included the issuance of 26,086 warrants and 7,000 common shares as commitment shares[272] - VSee and iDoc guaranteed the company's obligations under this agreement, which are subordinated to existing bridge lender obligations[271] Critical Accounting Estimates - The preparation of financial statements requires management to make significant estimates and assumptions, particularly for the fair value of the PIPE Forward Contract and the Bridge Note Bifurcated derivative[274][275] - Common stock subject to possible redemption is classified as temporary equity and measured at fair value[276] - Derivative financial instruments, such as the PIPE financing agreement and early redemption provisions of the Bridge Note, are recorded at fair value and re-valued at each reporting date[277] - Net income (loss) per common stock is computed by dividing net income (loss) by the weighted average number of common stocks outstanding, with redeemable shares excluded[278] Recent Accounting Standards - Management does not believe that any recently issued, but not yet effective, accounting pronouncements would have a material impact on the condensed consolidated financial statements[279] Risks and Uncertainties - Management continues to evaluate the impact of the COVID-19 pandemic and current global conflicts, concluding that while a negative effect on financial position or business combination efforts is possible, the specific impact is not readily determinable[279] Inflation Reduction Act of 2022 - The Inflation Reduction Act of 2022 introduces a new 1% U.S. federal excise tax on certain stock repurchases by publicly traded U.S. domestic corporations occurring on or after January 1, 2023[280] - Any redemptions or repurchases after December 31, 2022, in connection with a Business Combination or extension vote, may be subject to this excise tax, potentially reducing cash available for a Business Combination[281] Off-Balance Sheet Arrangements - As of September 30, 2023, the company did not have any off-balance sheet arrangements[283] Emerging Growth Company Status - As an 'emerging growth company' under the JOBS Act, DHAC benefits from relaxed reporting requirements, including exemptions from auditor attestation, reduced executive compensation disclosures, and delayed adoption of new accounting standards[284][285] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, DHAC is not required to provide market risk disclosures - The company is not required to make disclosures under this item as it is a smaller reporting company[286] Item 4. Controls and Procedures Management evaluated and confirmed effective disclosure controls and procedures, with no material changes in internal control Evaluation of Disclosure Controls and Procedures - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[287] - Disclosure controls are designed to provide reasonable, not absolute, assurance that objectives are met, acknowledging inherent limitations[288] Changes in Internal Control over Financial Reporting - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[289] PART II. OTHER INFORMATION Item 1. Legal Proceedings Digital Health Acquisition Corp. reported no legal proceedings as of the date of this report - There are no legal proceedings to report[292] Item 1A. Risk Factors As a smaller reporting company, DHAC refers to risk factors from its Annual Report on Form 10-K, with no material changes reported - As a smaller reporting company, the company is not required to make disclosures under this item[293] - No material changes to the risk factors disclosed in the Annual Report on Form 10-K filed on April 12, 2023, have occurred as of the date of this report[293] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Offerings Details unregistered equity sales and the use of IPO and private placement proceeds placed in the Trust Account Unregistered Sales - On May 5, 2023, in connection with a promissory note, the company issued 26,086 warrants and 7,000 common shares to an institutional investor in an unregistered sale[295] Use of Proceeds from Registered Offerings - The Initial Public Offering on November 8, 2021, generated gross proceeds of $115,000,000 from the sale of 11,500,000 units[296] - A private placement simultaneously with the IPO generated $5,570,000 from the sale of 557,000 Private Placement Units to the Sponsor[297] - After deducting offering costs, $116,725,000 of the net proceeds from the IPO and private placement was placed in the Trust Account[299][300] Item 3. Defaults Upon Senior Securities Digital Health Acquisition Corp. reported no defaults upon senior securities - There are no defaults upon senior securities to report[302] Item 4. Mine Safety Disclosures Digital Health Acquisition Corp. reported no mine safety disclosures - There are no mine safety disclosures to report[303] Item 5. Other Information Digital Health Acquisition Corp. reported no other information requiring disclosure under this item - There is no other information to report[304] Item 6. Exhibits Lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - The exhibits include amendments to the Certificate of Incorporation, various securities purchase agreements, promissory notes, warrants, registration rights agreements, and certifications[307] PART III. SIGNATURES - The report is signed by Scott Wolf, Chairman and Chief Executive Officer, and Daniel Sullivan, Chief Financial Officer, on November 20, 2023[313]