Part I. Financial Information This section presents the company's unaudited interim financial statements and management's discussion and analysis Item 1. Interim Financial Statements This section presents DHAC's unaudited condensed consolidated financial statements and comprehensive explanatory notes Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and stockholders' deficit Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2024 (Unaudited) | December 31, 2023 | | :-------------------------------- | :-------------------------- | :------------------ | | Total Assets | $1,387,214 | $1,370,500 | | Investments held in Trust Account | $1,386,490 | $1,368,637 | | Total Liabilities | $13,338,931 | $12,354,400 | | Stockholders' Deficit | $(13,233,674) | $(12,265,857) | - Total assets increased slightly, primarily due to growth in investments held in the Trust Account. Total liabilities saw a notable increase, driven by accounts payable, advances from related parties, and various notes (Exchange Note, Additional Bridge Notes). The stockholders' deficit worsened over the quarter due to ongoing losses12 Unaudited Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations Highlights | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | General and administrative costs | $674,262 | $707,592 | | Loss from operations | $(674,262) | $(707,592) | | Total other expense | $(293,555) | $(1,187,050) | | Net loss | $(967,817) | $(1,894,642) | | Basic and diluted net loss per share | $(0.27) | $(0.45) | - The net loss significantly decreased from $(1,894,642) in Q1 2023 to $(967,817) in Q1 2024, primarily due to a substantial reduction in 'Total other expense.' This reduction was largely driven by the absence of a large negative change in the fair value of the PIPE Forward Contract Derivative, which was $(1,163,950) in Q1 2023 and $0 in Q1 202413 Unaudited Condensed Consolidated Statements of Changes in Stockholders' Deficit This section outlines changes in the company's equity, primarily reflecting net loss, over the reporting period Condensed Consolidated Statements of Changes in Stockholders' Deficit Highlights | Metric | December 31, 2023 (Audited) | March 31, 2024 (Unaudited) | | :-------------------------- | :-------------------------- | :------------------------- | | Total Stockholders' Deficit | $(12,265,857) | $(13,233,674) | | Net loss for the period | $(967,817) | N/A | - The total stockholders' deficit increased by $967,817 from December 31, 2023, to March 31, 2024, directly reflecting the net loss incurred during the three-month period16 Unaudited Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(335,318) | $(340,667) | | Net cash provided by financing activities | $334,179 | $250,000 | | Net Change in Cash | $(1,139) | $(90,667) | | Cash – End of period | $724 | $16,331 | - Net cash used in operating activities remained relatively stable year-over-year. Cash provided by financing activities increased in Q1 2024, primarily due to advances from related parties and proceeds from Additional Bridge Notes, partially offset by the repayment of the M2B Note. The company ended the period with a minimal cash balance of $72420 Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS This note describes the company's formation, IPO, business combination focus, and Nasdaq listing status - Digital Health Acquisition Corp. (DHAC) is a blank check company incorporated in March 2021, formed to effect a business combination. Its Initial Public Offering (IPO) closed on November 8, 2021, raising $115 million, with $116.725 million placed in a Trust Account222528 - The company has extended its deadline to consummate a business combination multiple times, most recently to August 8, 2024. In connection with these extensions, significant shares were redeemed: 10,805,877 shares in October 2022 and 579,157 shares in November 2023293133 - DHAC is pursuing a business combination with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc. The company's securities were transferred from Nasdaq Global to Nasdaq Capital Market on October 30, 2023, due to non-compliance with listing standards (MVLS, MVPHS, and total shareholders)43444546484950 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines key accounting principles, going concern assessment, critical estimates, and financial instrument classifications - The financial statements are prepared in accordance with U.S. GAAP for interim financial information. Management has identified substantial doubt about the company's ability to continue as a going concern due to its liquidity condition and mandatory liquidation date of November 8, 20245155 - DHAC is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised financial accounting standards5657 - Key accounting estimates involve the fair valuation of complex financial instruments, including the PIPE Forward Contract, Extension Note Bifurcated Derivative, Bridge Note Bifurcated Derivative, Additional Bridge Note, and Exchange Note. Common stock subject to possible redemption is classified as temporary equity606365 - The company's effective tax rate was 0.0% for the three months ended March 31, 2024 and 2023, due to a full valuation allowance on deferred tax assets. A liability of $72,396 was booked for the 1% excise tax under the Inflation Reduction Act of 2022 on shares redeemed6992 - Warrants (Public, Private, Bridge, Extension) are classified as equity. The Exchange Note and Additional Bridge Note are accounted for as share-settled debt liabilities under ASC 480, re-measured at fair value each period. The PIPE financing agreement and early redemption provisions of Bridge and Extension Notes are treated as bifurcated derivatives818384 NOTE 3. INITIAL PUBLIC OFFERING This note details the company's Initial Public Offering, including gross proceeds and unit composition - On November 8, 2021, DHAC consummated its IPO, selling 11,500,000 units at $10.00 per unit, generating gross proceeds of $115,000,00094 - Each unit consisted of one common share and one warrant, with each warrant exercisable for one common share at $11.50, becoming exercisable 30 days after the business combination or 12 months from IPO, and expiring five years after the business combination94 NOTE 4. PRIVATE PLACEMENT This note describes the private placement of units to the Sponsor and related agreements - Simultaneously with the IPO, the Sponsor purchased 557,000 private placement units at $10.00 per unit, totaling $5,570,000 in gross proceeds95 - These private placement units are identical to the IPO units but are not redeemable. The proceeds were added to the Trust Account95 - The Sponsor and related parties have agreed to waive their redemption rights and vote in favor of the initial Business Combination96 NOTE 5. RELATED PARTY TRANSACTIONS This note details financial transactions and agreements with the Sponsor and its affiliates - The Sponsor and certain directors initially purchased 4,312,500 founder shares, which were reduced to 2,875,000 after forfeitures97 - DHAC owed the Sponsor and Sponsor affiliates $592,800 as of March 31, 2024, an increase from $117,871 at December 31, 2023, for advances98 - Various promissory notes exist with related parties: a $350,000 note to the Sponsor and a $565,000 interest-free loan from SCS Capital Partners LLC (a Sponsor affiliate), both convertible into Series A Preferred Shares at closing. A $200,000 loan from SCS Capital Partners LLC (10% interest) was used for a term extension fee100101 - The M2B Note ($165,000 principal, 10% interest) from an affiliate of the Sponsor, which defaulted, was paid in full for $190,750 on January 31, 2024102103 - Other financing arrangements, including Bridge Financing, Loan Conversions, Quantum Financing, and Equity Financing, involve the Sponsor or its affiliates. DHAC also pays a monthly administrative fee of $10,000 to an affiliate of the Sponsor104111120121122 NOTE 6. COMMITMENTS This note outlines the company's contractual obligations, business combination agreement, and financing arrangements - The deferred underwriting commission of $4,370,000 to A.G.P. will be paid by conversion into 4,370 shares of Series A Preferred Stock upon the closing of the Business Combination129130 - The Third Amended and Restated Business Combination Agreement with VSee and iDoc, amended on April 17, 2024, extends the termination date to June 30, 2024. The combined equity value of VSee and iDoc is $110 million, with consideration paid in DHAC common stock133136137 - The PIPE financing was terminated on July 11, 2023, as closing conditions were not met153 - The Bridge Notes defaulted on October 4, 2023, leading to $1,579,927 in default interest. The amounts due were exchanged for a $2,523,744 senior secured convertible promissory note (Exchange Note), bearing 8% interest and convertible at $10.00/share (subject to reset). The Exchange Note is classified as a liability under ASC 480 and its fair value was $2,814,359 as of March 31, 2024164165166169170 - Additional Bridge Notes totaling $166,667 principal ($150,000 subscription) were purchased by the Bridge Investor, bearing 8% interest and convertible at $10.00/share (subject to reset). These are also classified as liabilities under ASC 480, with a fair value of $156,564 as of March 31, 2024108171172175 - The Extension Note, a $300,000 promissory note with 10% interest, had its maturity date extended to June 30, 2024. Its contingent early repayment option is bifurcated as a derivative176178180 - The Quantum Financing involves a $3,000,000 convertible promissory note from the Quantum Investor (a related party), bearing 12% interest and convertible at $10.00/share or 85% of lowest VWAP (subject to reset). This note is not yet funded but will be accounted for as a liability under ASC 480 upon funding185186 - An Equity Purchase Agreement (ELOC) with an affiliate of the Bridge Investor allows DHAC to sell up to $50,000,000 of common stock over 36 months. This contract is classified as a liability under ASC 815, with a fair value of $189,764 as of March 31, 2024187189190 NOTE 7. STOCKHOLDERS' DEFICIT This note details the authorized and outstanding common shares, along with redemption rights - DHAC is authorized to issue 50,000,000 common shares. As of March 31, 2024, 3,489,000 shares were issued and outstanding, excluding 114,966 shares subject to redemption191 - Public stockholders have redemption rights in connection with a business combination or charter amendments. Insiders have waived their rights to liquidating distributions from the Trust Account with respect to their founder shares192193194 NOTE 8. WARRANTS This note describes various warrants, their exercise terms, and potential redemption conditions - As of March 31, 2024, there are 12,057,000 IPO warrants 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 the business combination196197 - 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, provided a current registration statement is in effect198201 - Bridge Warrants (173,913 issued) and Extension Warrants (26,086 issued) have an exercise price of $11.50 per share and a five-year term. Their exercise price and number of shares are subject to adjustment for certain corporate events or equity issuances below $9.20207213204214219 NOTE 9. FAIR VALUE MEASUREMENTS This note explains the classification and valuation methodologies for the company's financial instruments - Assets held in the Trust Account, totaling $1,386,490 as of March 31, 2024, are classified as Level 1 fair value measurements (money market funds primarily invested in U.S. Treasury securities)221 Level 3 Financial Liabilities at Fair Value (March 31, 2024) | Liability | Fair Value (March 31, 2024) | | :-------------------------------- | :-------------------------- | | Extension Note – Bifurcated Derivative | $22,868 | | ELOC | $189,764 | | Additional Bridge Note | $156,564 | | Exchange Note | $2,814,359 | - These Level 3 liabilities are valued using models like Discounted Cash Flow (for Extension Note Bifurcated Derivative) and Monte Carlo (for Additional Bridge Note, Exchange Note, and ELOC), incorporating unobservable inputs such as bond rates, expected term, volatility, stock price, debt discount rate, and probabilities of business combination completion225227229232 Change in Fair Value of Level 3 Derivatives (Q1 2024) | Derivative | Fair Value (Dec 31, 2023) | Initial Value (Jan 25, 2024) | Change in Valuation Inputs/Assumptions | Fair Value (Mar 31, 2024) | | :-------------------------------- | :-------------------------- | :--------------------------- | :------------------------------------- | :-------------------------- | | Extension Note – Bifurcated Derivative | $22,872 | — | $(4) | $22,868 | | Exchange Note | $2,621,558 | — | $192,801 | $2,814,359 | | Additional Bridge Note | $102,726 | $51,705 | $2,133 | $156,564 | | ELOC | $203,720 | — | $(13,956) | $189,764 | NOTE 10. SUBSEQUENT EVENTS This note discloses significant events that occurred after the reporting period - On April 17, 2024, the Bridge Letter Agreement and the Third Amended and Restated Business Combination Agreement were amended to extend the termination/closing date to June 30, 2024237238 - The maturity date of the Extension Note was also extended to June 30, 2024, on April 17, 2024238 - On May 1, 2024, the term of DHAC was further extended from May 8, 2024, to August 8, 2024238 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses DHAC's financial condition, operational results, and liquidity, focusing on the business combination - DHAC is a blank check company with no operating revenues, primarily focused on completing a business combination with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc241256275 - The company's securities were transferred to the Nasdaq Capital Market on October 30, 2023, following non-compliance with Nasdaq Global listing rules254 Net Loss Comparison (Q1 2024 vs. Q1 2023) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------- | :-------------------------------- | :-------------------------------- | | Net Loss | $(967,817) | $(1,894,642) | - As of March 31, 2024, DHAC had a cash balance of $724 and a working capital deficit of $8,968,207, leading management to conclude there is substantial doubt about the company's ability to continue as a going concern279305 - The business combination deadline has been extended to August 8, 2024245 Overview This section summarizes DHAC's formation, IPO, and business combination objectives - DHAC, a Delaware blank check company formed on March 30, 2021, aims to complete a business combination in technology and healthcare241 - The IPO on November 8, 2021, generated $115,000,000 gross proceeds, and a private placement added $5,570,000 gross proceeds, with $116,725,000 deposited into the Trust Account242243244 - The SPAC term has been extended to August 8, 2024, with 11,385,034 shares redeemed in October 2022 and November 2023 during prior extension votes245 NASDAQ Listing Rules Compliance This section details the company's Nasdaq listing compliance and transfer to the Nasdaq Capital Market - DHAC received multiple non-compliance letters from Nasdaq Global in 2023 for failing to meet minimum Market Value of Listed Securities ($50M), Market Value of Publicly Held Shares ($15M), and 400 total shareholders requirements249250252 - Following an appeal, DHAC's application to transfer its securities to the Nasdaq Capital Market was approved, effective October 30, 2023253254 The Business Combination Agreement This section outlines the key terms and amendments of the business combination agreement with VSee and iDoc - DHAC entered into the Third Amended and Restated Business Combination Agreement with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc., which was further amended on February 13, 2024, and April 17, 2024, extending the termination date to June 30, 2024256 - The Business Combination involves the merger of VSee and iDoc into DHAC subsidiaries, with DHAC to be renamed VSee Health, Inc. The combined equity value of VSee and iDoc is $110 million256257 - Merger consideration for VSee and iDoc stockholders will be 100% DHAC common stock, subject to deductions for transaction expenses and indemnity escrow258260 Business Combination Related Financing Transactions This section describes financing arrangements supporting the business combination, including notes and equity agreements - The original Bridge Notes ($2,222,222 aggregate principal) defaulted in October 2023, leading to $1,579,927 in default interest. The amounts due were exchanged for a $2,523,744 Exchange Note (8% interest, convertible at $10.00/share, subject to reset)261263283291 - Additional Bridge Notes ($166,667 aggregate principal, $150,000 subscription) were purchased by the Bridge Investor, bearing 8% interest and convertible at $10.00/share (subject to reset). $150,000 has been funded as of March 31, 2024262290 - Quantum Financing involves a $3,000,000 convertible promissory note from the Quantum Investor (a related party), bearing 12% interest and convertible at $10.00/share or 85% of lowest VWAP (subject to reset). This note is not yet funded267268292 - A.G.P. Financing converts $4,370,000 of deferred underwriting fees into 4,370 Series A Preferred Shares of the Combined Company269295 - Various Loan Conversions will convert indebtedness owed by DHAC, VSee, and iDoc to related parties into Series A Preferred Stock or common stock of the Combined Company272296 - Equity Financing (ELOC) provides for the sale of up to $50,000,000 of common stock to an affiliate of the Bridge Investor over a 36-month period post-closing273297 - Extension Financing includes a $300,000 promissory note (Extension Note) with 10% guaranteed interest, due June 30, 2024, along with warrants and commitment shares274288 Results of Operations This section analyzes the company's financial performance, focusing on net loss and key expense drivers - For the three months ended March 31, 2024, DHAC reported a net loss of $967,817, a significant improvement from the $1,894,642 net loss in the same period of 2023276278 - The reduction in net loss was primarily due to lower general and administrative expenses ($674,262 in Q1 2024 vs. $707,592 in Q1 2023) and the absence of a large negative change in the fair value of the PIPE forward contract derivative (which was $(1,163,950) in Q1 2023)276277278 - Interest earned on investments held in the Trust Account decreased from $75,280 in Q1 2023 to $17,853 in Q1 2024277278 Liquidity and Capital Resources This section discusses the company's cash position, working capital, and ability to meet financial obligations - As of March 31, 2024, DHAC had a cash balance of $724 and a working capital deficit of $8,968,207279305 - Management has determined that the company's liquidity condition and mandatory liquidation date of August 8, 2024, raise substantial doubt about its ability to continue as a going concern305 - Liquidity has been supported by Sponsor contributions, IPO proceeds, and various financing agreements, including Bridge Notes, Additional Bridge Notes, Exchange Note, Extension Note, and related party advances280283284285287288289290291292295296297 Cash Flow Summary (Q1 2024) | Metric | Amount | | :-------------------------------- | :------- | | Net cash used in operating activities | $(335,318) | | Net cash provided by financing activities | $334,179 | Critical Accounting Estimates This section highlights management's significant judgments and estimates in preparing the financial statements - Management's financial reporting relies on significant judgments and estimates, particularly for fair valuing complex financial instruments306 - The most significant estimates involve the fair value of the PIPE Forward Contract, Extension Note Bifurcated Derivative, Bridge Note Bifurcated Derivative, Additional Bridge Note, and Exchange Note, which are inherently uncertain306 Warrant Instruments This section explains the accounting classification of various warrant instruments - Warrants are classified as either equity or liability based on ASC 480 and ASC 815 guidance307 - Public, Private, Bridge, and Extension Warrants are considered freestanding instruments and meet the criteria for equity classification under ASC 815, thus recorded in equity308 Financial Instruments This section details the accounting treatment for complex financial instruments and derivatives - The company evaluates financial instruments for liability classification under ASC 480 or derivative treatment under ASC 815309 - Derivative instruments, such as the PIPE financing agreement and early redemption provisions of the Bridge Note and Extension Note, are recorded at fair value with changes reported in the statements of operations310 - The Exchange Note and Additional Bridge Note are classified as share-settled debt liabilities under ASC 480 and are re-measured at fair value each reporting period313 Recent Accounting Standards This section addresses the anticipated impact of recently issued accounting pronouncements - Management does not anticipate any material impact on the condensed consolidated financial statements from recently issued, but not yet effective, accounting pronouncements314 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Digital Health Acquisition Corp. is not required to provide quantitative and qualitative disclosures about market risk - Disclosure under this item is not required for smaller reporting companies316 Item 4. Controls and Procedures The company's Certifying Officers concluded that disclosure controls and procedures were effective as of March 31, 2024 - The Certifying Officers concluded that disclosure controls and procedures were effective as of March 31, 2024317 - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter319 - Disclosure controls and procedures provide reasonable, not absolute, assurance that objectives are met318 Part II. Other Information This section provides other material information not included in the financial statements Item 1. Legal Proceedings This section reports on any legal actions or disputes involving the company - No legal proceedings to report322 Item 1A. Risk Factors As a smaller reporting company, DHAC is not required to make disclosures under this item, with no material changes to previously reported risks - Disclosure under this item is not required for smaller reporting companies323 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K filed April 12, 2024323 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Offerings This section details unregistered equity sales and the application of proceeds from registered offerings - No unregistered sales of equity securities to report for this fiscal quarter that have not been previously included in a report324 - The Initial Public Offering on November 8, 2021, generated $115,000,000 gross proceeds325 - A private placement with the Sponsor generated $5,570,000 gross proceeds326 - After deducting offering costs of $6,877,164, an aggregate of $116,725,000 from the IPO and private placement was placed in the Trust Account328329 Item 3. Defaults Upon Senior Securities This section reports on any defaults related to the company's senior debt or preferred stock - No defaults upon senior securities330 Item 4. Mine Safety Disclosures This section provides disclosures related to mine safety, if applicable to the company's operations - No mine safety disclosures331 Item 5. Other Information This section includes any other material information not covered elsewhere in the report - No other information to report332 Item 6. Exhibits This section lists all documents filed as exhibits to the quarterly report - Exhibits include amendments to the Business Combination Agreement (February 13, 2024, and April 17, 2024), side letters to registration rights agreements, amended and restated conversion securities purchase agreements, and certifications (31.1, 31.2, 32.1, 32.2)335 Part III. Signatures This section contains the required certifications and signatures from the company's executive officers - The report was signed by Scott Wolf (Chairman and Chief Executive Officer) and Daniel Sullivan (Chief Financial Officer) on May 14, 2024340
Digital Health Acquisition (DHAC) - 2024 Q1 - Quarterly Report