The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited
consolidated financial statements and the notes related thereto which are
included in "Item 8. Consolidated Financial Statements and Supplementary Data"
of this Annual Report on Form 10-K. Certain information contained in the
discussion and analysis set forth below includes forward-looking statements. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including those set
forth under "Special Note Regarding Forward-Looking Statements," "Item 1A. Risk
Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
We are a blank check company incorporated as a Delaware corporation and formed
for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with
one or more businesses (the "initial business combination"). Our Sponsor is
Digital Health Sponsor LLC, a Delaware limited liability company ("Sponsor").
While we may pursue an initial business combination target in any industry or
geographic region, we intend to focus on established, technology and healthcare
focused businesses that would benefit from access to public markets and the
operational and strategic expertise of our management team and board of
directors. We will seek to capitalize on the significant experience of our
management team in consummating an initial business combination with the
ultimate goal of pursuing attractive returns for our stockholders.
The Registration Statement for our initial public offering was declared
effective on November 3, 2021 (the "Initial Public Offering," or "IPO"). On
November 8, 2021, we consummated the Initial Public Offering of 11,500,000 units
(the "Units") at $10.00 per Unit including the full exercise of the
underwriters' over-allotment option, generating gross proceeds of $115,000,000,
and incurring transaction costs of $6,877,164, consisting of $1,955,000 of
underwriting fees, $4,370,000 of deferred underwriting fees and $552,164 of
other offering costs. On October 20, 2022 in connection with our stockholders
meeting to approve the extension, 10,805,877 shares of our common stock were
redeemed leaving 694,123 shares subject to redemption. In connection with the
redemption we withdrew $110,472,254 from the Trust Account.
Simultaneously with the closing of the Initial Public Offering, we completed the
private sale of 557,000 Units (the "Private Placement Units") at a purchase
price of $10.00 per Private Placement Unit (the "Private Placement"), to the
Sponsor, generating gross proceeds of approximately $5,570,000.
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Approximately $116,725,000 ($10.00 per Unit) of the net proceeds of the Initial
Public Offering and certain of the proceeds of the Private Placement was placed
in a trust account (the "Trust Account") located in the United States with
Continental Stock Transfer & Trust Company, and invested only in U.S.
"government securities," within the meaning set forth in Section 2(a)(16) of the
Investment Company Act, with a maturity of one hundred eighty-five (185) days or
less, or in money market funds meeting the conditions of paragraphs (d)(1),
(d)(2), (d)(3) and (d)(4) of Rule 2a-7 under the Investment Company Act, which
invest only in direct U.S. government treasury obligations, as determined by the
Company, until the earlier of: (i) the completion of our initial business
combination and (ii) the distribution of the Trust Account as otherwise
permitted under our amended and restated certificate of incorporation.
If we are unable to complete an initial business combination within the approved
extension time (currently through May 8, 2023, as it may be extended in
accordance with our organizational documents) we will (i) cease all operations
except for the purpose of winding up, (ii) as promptly as reasonably possible
but not more than ten (10) business days thereafter, redeem the Public Shares,
at a per-share price, payable in cash, equal to the aggregate amount then on
deposit in the Trust Account, including interest earned on the funds held in the
Trust Account and not previously released to us to pay our franchise and income
taxes (less up to $100,000 of interest to pay dissolution expenses and net of
taxes payable), divided by the number of then-outstanding Public Shares, which
redemption will completely extinguish public stockholders' rights as
stockholders (including the right to receive further liquidating distributions,
if any), subject to applicable law, and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of our remaining stockholders
and our board of directors, dissolve and liquidate, subject in each case to our
obligations under Delaware law to provide for claims of creditors and the
requirements of other applicable law.
The Business Combination Agreement
On June 15, 2022, Digital Health Acquisition Corp ("DHAC") entered into a
Business Combination Agreement with Merger Sub I, Merger Sub II, VSee and iDoc.
On August 9, 2022, DHAC, Merger Sub I, Merger Sub II, VSee and iDoc entered into
the First Amended and Restated Business Combination Agreement to provide for the
concurrent execution of financing documents for a PIPE consisting of convertible
notes and warrants and delivery of the Cassel Salpeter's opinion to the Board.
On October 6, 2022, DHAC, Merger Sub I, Merger Sub II, VSee and iDoc entered
into the Second Amended and Restated Business Combination Agreement (the
"Business Combination Agreement") to make the consideration payable to VSee and
iDoc stockholders as100% in DHAC common stock and to provide for the concurrent
execution of amended PIPE Financing documents providing for the issuance of the
PIPE Shares and the PIPE Warrants. Pursuant to the terms of the Business
Combination Agreement, a business combination by and among DHAC, VSee and iDoc
will be effected through the merger of Merger Sub I with and into VSee, with
VSee surviving the Merger as a wholly owned subsidiary of DHAC and the merger of
Merger Sub II with and into iDoc, with iDoc surviving the Merger as a wholly
owned subsidiary of DHAC. The Board of Directors of DHAC (the "Board") has
(i) approved and declared advisable the Business Combination Agreement, the
Business Combination and the other transactions contemplated thereby and
(ii) resolved to recommend approval of the Business Combination Agreement and
related matters by the stockholders of DHAC.
The Merger Consideration
The Business Combination combined equity value of VSee and iDoc is $110 million.
At the Closing, each of VSee and iDoc will convert each share of VSee and iDoc
capital stock (excluding shares of the holders who perfect rights of appraisal
under Delaware or Texas law, as the case may be) into the right to receive the
applicable merger consideration as further described below.
VSee Merger Consideration
The aggregate merger consideration that the holders of VSee Stock as of the
Effective Time are entitled to receive in the Business Combination, referred to
as the "VSee Closing Consideration," is an amount equal to (1) $60,500,000,
minus (2) an amount equal to the Effective Time Option Grants by $10, minus
(3) the aggregate amount of VSee's transaction expenses. "Effective Time Option
Grants" refers to the stock options with an exercise price of $10 per share
pursuant to the Incentive Plan to the individuals, in the amounts, and on the
terms set forth on Exhibit E to the Business Combination Agreement. 100% of the
VSee Closing Consideration will be paid in shares of Company Common Stock in
accordance with the terms of the Business Combination Agreement and subject to
deductions for the VSee Indemnity Escrow Amount as described below. The "VSee
Per Share Consideration" refers to a number of shares of Common Stock equal to
(a) (1) the VSee Closing Consideration, divided by (2) the total number of VSee
Outstanding Shares, divided by (b) 10. "VSee Outstanding Shares" refers to the
total number of shares of VSee Common Stock outstanding immediately prior to the
Effective Time, expressed on a fully-diluted and as-converted to VSee Common
Stock basis, and including, without limitation or duplication, the number of
shares of VSee Common Stock issuable upon conversion of the VSee Preferred
Stock.
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"Aggregate Transaction Proceeds" refers to an amount equal to the sum of (i) the
aggregate cash proceeds available for release from the Trust Account in
connection with the transactions contemplated hereby (after, for the avoidance
of doubt, giving effect to all of the redemptions of the Public Shares) and
(ii)the Aggregate Closing PIPE Proceeds
iDoc Merger Consideration
The aggregate merger consideration that the holders of iDoc Stock as of the
Effective Time are entitled to receive in the Business Combination, referred to
as the "iDoc Closing Consideration," is an amount equal to (1) $49,500,000,
minus (2) the aggregate amount of iDoc's transaction expenses. 100% of the iDoc
Closing Consideration will be paid in shares of Company Common Stock in
accordance with the terms of the Business Combination Agreement and subject to
deductions for the iDoc Indemnity Escrow Amount as described below. The "iDoc
Per Share Consideration" refers to a number of shares of Common Stock equal to
(a) (1) the iDoc Closing Consideration, divided by (2) the total number of iDoc
Outstanding Shares, divided by (b) 10. "iDoc Outstanding Shares" refers to the
total number of shares of iDoc Common Stock outstanding immediately prior to the
Effective Time, expressed on a fully-diluted and as-converted to iDoc Common
Stock basis.
Results of Operations
Our entire activity from inception to December 31, 2022 was in preparation for
our formation, our initial public offering, and since the closing of our initial
public offering, a search for business combination candidates. We will not
generate any operating revenues until the closing and completion of our initial
business combination. We generate non-operating income in the form of interest
income on investments held in trust account. We expect to incur increased
expenses as a result of being a public company (for legal, financial reporting,
accounting and auditing compliance), as well as for due diligence expenses.
For the year ended December 31, 2022, we had a net loss of $3,242,501 which
consisted of $3,594,967 in formation and operational costs and provision for
incomes taxes of $187,225, a change in fair value of Bridge Note - Bifurcated
Derivative of $86,307, a change in fair value of the PIPE Forward Contract
Derivative of $170,666 and interest expenses on bridge note of $125,980,
partially offset by income from our investments held in the Trust Account of
$922,644.
For the period from March 30, 2021 (inception) through December 31, 2021, we had
a net loss of approximately $280,701 which consisted of approximately $282,671
in formation and operational costs, partially offset by income from our
investments held in the Trust Account of approximately $1,970.
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Liquidity and Capital Resources
As of December 31, 2022, we had $106,998 in cash and no cash equivalents.
Our liquidity needs up to the Initial Public Offering were satisfied through
receipt of a $25,000 capital contribution from our Sponsor and certain of our
executive officers, directors, and advisors in exchange for the issuance of the
founder shares, and loans from our Sponsor for an aggregate amount of $602,720
to cover organizational expenses and expenses related to the Initial Public
Offering pursuant to promissory notes (the "Notes").
On November 8, 2021, we consummated the Initial Public Offering of 11,500,000
Units, including the full exercise of the underwriters' over-allotment option,
at a price of $10.00 per Unit, generating gross proceeds of $115 million.
Simultaneously with the closing of the Initial Public Offering, we completed the
private sale of 557,000 Units (the "Private Placement Units") at a purchase
price of $10.00 per Private Placement Unit (the "Private Placement"), to the
Sponsor, generating gross proceeds of $5,570,000. As of November 8, 2021, we
received $3,680,000 from the proceeds of the Private Placement and recorded
$1,890,000 in subscription receivable. The Sponsor paid the subscription in full
on November 12, 2021.
Following the Initial Public Offering and the Private Placement, a total of
$116,725,000 was placed in the Trust Account and we had $9,478 of cash held
outside of the Trust Account, after payment of costs related to the Initial
Public Offering, and available for working capital purposes. We incurred
$6,877,164 in transaction costs, consisting of $1,955,000 of underwriting fees,
$4,370,000 of deferred underwriting fees and $552,164 of other offering costs.
During the year ended December 31, 2022, we withdrew $110,472,254 as a result of
an aggregate of 10,805,877 shares of common stock redeemed on October 20, 2022.
On October 6, 2022, in connection with the execution of the Business Combination
Agreement, DHAC, VSee and iDoc entered into a Securities Purchase Agreement (the
"Purchase Agreement") with an accredited investor, who is also an investor in
our Sponsor, pursuant to which DHAC, VSee and iDoc each issued and sold to such
investor 10% original issue discount senior secured promissory notes due
October 5, 2023 in the aggregate principal amount of $2,222,222 (the "Bridge
Notes"). $888,889 of the Bridge Note was allocated to DHAC. The Bridge
Notes will be assumed by DHAC in connection with the closing of the Business
Combination. The Bridge Notes bear guaranteed interest at a rate of 10.00% per
annum. In connection with the purchase of the Bridge Notes, DHAC issued the
investor (i) 173,913 warrants, each representing the right to purchase one share
of DHAC common stock at an initial exercise price of $11.50, subject to certain
adjustments (the "Bridge Warrants") and (ii) 30,000 shares of DHAC common stock
as additional consideration for the purchase of the Bridge Notes and Bridge
Warrants. If the PIPE Financing closes in connection with the closing of the
Business Combination, 110% of all unpaid principal under the Bridge Notes and
guaranteed interest of 10% are due and payable at the closing of the PIPE
Financing. DHAC as a result received $738,200 in proceeds for working capital
purposes.
On October 26, 2022, the Company issued an unsecured promissory note in the
aggregate principal amount of $350,000 to Digital Health Sponsor LLC, the
Company's "sponsor." The Company deposited to the trust account all of the loan
amount and extended the amount of time it has available to complete a business
combination from November 8, 2022 to February 8, 2023. The promissory note does
not bear interest and will be repaid only upon closing of a business combination
by the Company.
In January 2023, SCS Capital LLC issued an unsecured promissory note to the
Company, pursuant to which the Company may borrow up to an aggregate principal
amount of $250,000. The Promissory Note was non-interest bearing and shall be
used to pay for general operating expenses.
For the year ended December 31, 2022, cash used in operating activities was
$1,391,213. Net loss of $3,242,501 was primarily comprised of change in fair
value of bride note bifurcated derivative of $86,307, change in fair value of
PIPE forward contract derivative of $170,666, and interest earned on investments
held in Trust Account of $922,644. Changes in operating assets and liabilities
provided $2,516,959 of cash for operating activities.
For the period from March 30, 2021 (inception) through December 31, 2021, cash
used in operating activities was $605,113. Net loss of $280,701 was primarily
comprised of operating costs paid through promissory note of $5,000 and interest
earned on investments held in Trust Account of $1,970. Further, the change in
prepaid insurance and accounts payable and accrued expenses used net cash of
$317,442.
We intend to use substantially all of the net proceeds of the Initial Public
Offering, including the funds held in the Trust Account, to acquire a target
business or businesses and to pay our expenses relating thereto. To the extent
that our share capital is used in whole or in part as consideration to affect
our initial business combination, the remaining proceeds held in the Trust
Account as well as any
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other net proceeds not expended will be used as working capital to finance the
operations of the target business. Such working capital funds could be used in a
variety of ways including continuing or expanding the target business'
operations, for strategic acquisitions and for marketing, research, and
development of existing or new products. Such funds could also be used to repay
any operating expenses or finders' fees which we had incurred prior to the
completion of our initial business combination if the funds available to us
outside of the Trust Account were insufficient to cover such expenses.
In addition, in the short term and long term, in connection with a business
combination, our Sponsor or an affiliate of our Sponsor, or certain of our
officers and directors may, but are not obligated to, loan us funds as may be
required.
Liquidity and Going Concern
We may raise additional capital through loans or additional investments from the
Sponsor or its stockholders, officers, directors, or third parties. Our officers
and directors and the Sponsor may but are not obligated to (except as described
above), loan us funds, from time to time, in whatever amount they deem
reasonable in their sole discretion, to meet our working capital needs. Based on
the foregoing, we believes we will have sufficient working capital and borrowing
capacity from the Sponsor or an affiliate of the Sponsor, or certain of the our
directors to meet its needs through the earlier of the consummation of a
Business Combination or at least one year from the date that the consolidated
financial statements were issued.
As of December 31, 2022, we had a cash balance of $106,998 and a working capital
deficiency of $3,056,596 net of $132,020 of allowable interest withdraws from
trust to cover income and franchise taxes. In addition, in connection with our
assessment of going concern considerations in accordance with Financial
Accounting Standards Board ("FASB") Accounting Standards Update 2014-15,
"Disclosures of Uncertainties about an Entity's Ability to Continue as a Going
Concern", our management has determined that the liquidity, mandatory
liquidation and subsequent dissolution raises 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 of the Company as of
December 31, 2022.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than as described below.
IPO Registration Rights
The holders of our founder shares which were issued in a private placement prior
to the closing of the Initial Public Offering, as well as the holders of the
private placement units (and underlying securities), will be entitled to
customary registration rights pursuant to an agreement to registration rights
agreement. The holders of a majority of these securities are entitled to make up
to two demands that we register such securities. The holders of the majority of
these securities can elect to exercise these registration rights at any time on
or after the date we consummate a business combination. In addition, the holders
have certain "piggy-back" registration rights with respect to registration
statements filed subsequent to our consummation of a business combination. We
will bear the expenses incurred in connection with the filing of any such
registration statements.
Underwriting Agreement and Deferred Underwriting Commission
We paid an underwriting discount of $0.17 per Unit, or $1,955,000 in the
aggregate, at the closing of the Initial Public Offering. An additional fee
equal to 3.8% of the gross proceeds of the Initial Public Offering, or
$4,370,000, will be payable to A.G.P./Alliance Global Partners (the
"Representative") as a deferred underwriting commission in connection with the
business combination. This deferred underwriting commission will become payable
to the Representative from the amounts held in the Trust Account solely in the
event that we complete an initial business combination, subject to the terms of
the underwriting agreement dated November 3, 2021. The Company executed a
Securities Purchase Agreement (the "Series B Securities Purchase Agreement")
dated November 3, 2022 with A.G.P. whereby A.G.P. subscribed for and will
purchase, and we will issue and sell, at the closing of the Business
Combination, 4,370 shares of Series B Preferred Stock ("Series B Shares")
convertible into shares of common stock. The purchase price for the Series B
Shares will be paid by conversion of A.G.P.'s $4,370,000 deferred underwriting
fee into such Series B Shares. The Certificate of Designation of the Series B
Preferred Stock establishes the terms and conditions of the Series B Preferred
Stock.
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Administrative Services Agreement
Commencing on the date that our securities were first listed on The Nasdaq
Global Market and continuing until the earlier of our consummation of an initial
business combination or our liquidation, we have agreed to pay an affiliate of
our Sponsor a total of $10,000 per month for office space, utilities,
secretarial support and administrative services, subject to deferral until
consummation of our initial business combination. We recorded administrative
services expenses of $120,000 and $20,000 for the year ended December 31, 2022
and for the period from March 5, 2021 (inception) through December 31, 2021,
respectively.
The Business Combination Agreement
On June 15, 2022, Digital Health Acquisition Corp ("DHAC") entered into a
Business Combination Agreement, with Merger Sub I, Merger Sub II, VSee and iDoc.
On August 9, 2022, DHAC, Merger Sub I, Merger Sub II, VSee and iDoc entered into
the First Amended and Restated Business Combination Agreement to provide for the
concurrent execution of financing documents for a PIPE consisting of convertible
notes and warrants and delivery of the Cassel Salpeter's opinion to the Board.
On October 6, 2022, DHAC, Merger Sub I, Merger Sub II, VSee and iDoc entered
into the Business Combination Agreement to make the consideration payable to
VSee and iDoc stockholders 100% DHAC common stock and to provide for the
concurrent execution of amended PIPE Financing documents providing for the
issuance of the PIPE Shares and the PIPE Warrants. Pursuant to the terms of the
Second Amended and Restated Business Combination Agreement (the "Business
Combination Agreement"), a business combination by and among DHAC, VSee and iDoc
will be effected through the merger of Merger Sub I with and into VSee, with
VSee surviving the Merger as a wholly owned subsidiary of DHAC and the merger of
Merger Sub II with and into iDoc, with iDoc surviving the Merger as a wholly
owned subsidiary of DHAC. The Board of Directors of DHAC (the "Board") has
(i) approved and declared advisable the Business Combination Agreement, the
Business Combination and the other transactions contemplated thereby and
(ii) resolved to recommend approval of the Business Combination Agreement and
related matters by the stockholders of DHAC.
The Merger Consideration
The Business Combination combined equity value of VSee and iDoc is $110 million.
At the Closing, each of VSee and iDoc will convert each share of VSee and iDoc
capital stock (excluding shares of the holders who perfect rights of appraisal
under Delaware or Texas law, as the case may be) into the right to receive the
applicable merger consideration as further described below.
VSee Merger Consideration
The aggregate merger consideration that the holders of VSee Stock as of the
Effective Time are entitled to receive in the Business Combination, referred to
as the "VSee Closing Consideration," is an amount equal to (1) $60,500,000,
minus (2) an amount equal to the Effective Time Option Grants multiplied by $10,
minus (3) the aggregate amount of VSee's transaction expenses. "Effective Time
Option Grants" refers to the stock options with an exercise price of $10 per
share pursuant to the Incentive Plan to the individuals, in the amounts, and on
the terms set forth on Exhibit E to the Business Combination Agreement. 100% of
the VSee Closing Consideration will be paid in shares of Company Common Stock in
accordance with the terms of the Business Combination Agreement and subject to
deductions for the VSee Indemnity Escrow Amount as described below. The "VSee
Per Share Consideration" refers to a number of shares of Common Stock equal to
(a) (1) the VSee Closing Consideration, divided by (2) the total number of VSee
Outstanding Shares, divided by (b) 10. "VSee Outstanding Shares" refers to the
total number of shares of VSee Common Stock outstanding immediately prior to the
Effective Time, expressed on a fully-diluted and as-converted to VSee Common
Stock basis, and including, without limitation or duplication, the number of
shares of VSee Common Stock issuable upon conversion of the VSee Preferred
Stock.
"Aggregate Transaction Proceeds" refers to an amount equal to the sum of (i) the
aggregate cash proceeds available for release from the Trust Account in
connection with the transactions contemplated hereby (after, for the avoidance
of doubt, giving effect to all of the redemptions of the Public Shares) and (ii)
the Aggregate Closing PIPE Proceeds.
iDoc Merger Consideration
The aggregate merger consideration that the holders of iDoc Stock as of the
Effective Time are entitled to receive in the Business Combination, referred to
as the "iDoc Closing Consideration," is an amount equal to (1) $49,500,000,
minus (2) the aggregate amount of iDoc's transaction expenses. 100% of the iDoc
Closing Consideration will be paid in shares of Company Common Stock in
accordance with the terms of the Business Combination Agreement and subject to
deductions for the iDoc Indemnity Escrow Amount as described below. The "iDoc
Per Share Consideration" refers to a number of shares of Common Stock equal to
(a) (1) the iDoc
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Closing Consideration, divided by (2) the total number of iDoc Outstanding
Shares, divided by (b) 10. "iDoc Outstanding Shares" refers to the total number
of shares of iDoc Common Stock outstanding immediately prior to the Effective
Time, expressed on a fully-diluted and as-converted to iDoc Common Stock basis.
VSee Health, Inc. Incentive Plan
DHAC has agreed to approve and adopt the VSee Health, Inc. 2023 Equity Incentive
Plan (the "Incentive Plan") to be effective as of one day prior to the closing
Business Combination and in a form mutually acceptable to DHAC, VSee and iDoc.
The Incentive Plan shall provide for an initial aggregate share reserve equal to
15% of the number of shares of DHAC Common Stock outstanding following the
closing after giving effect to the Business Combination, including without
limitation, the PIPE Financing. Subject to approval of the Incentive Plan by
DHAC's Stockholders, DHAC has agreed to file a Form S-8 Registration Statement
with the SEC following the Effective Time with respect to the shares of DHAC
Common Stock issuable under the Incentive Plan.
Conditions to Closing
The obligations of DHAC, VSee and iDoc to consummate the Business Combination
are subject to certain closing conditions, including, but not limited to,
(i) the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the
approval of DHAC's stockholders, (iii) the approval of VSee's stockholders,
(iv) the approval of iDoc's stockholders and (v) after giving effect to the
transactions contemplated by the Business Combination Agreement, including the
PIPE Financing, DHAC having at least $5,000,001 of net tangible assets
immediately after the Effective Time and (vi) the delivery of applicable closing
deliverables.
In addition, the obligations of VSee and iDoc to consummate the Business
Combination are subject to the fulfillment of other closing conditions,
including, but not limited to, (i) the approval by the Nasdaq Capital Market of
DHAC's listing application in connection with the Business Combination and
(ii) the DHAC board of directors consisting of the number of directors, and
comprising the individuals, as contemplated by the Business Combination
Agreement
PIPE Securities Purchase Agreement
In connection with the execution of the Business Combination Agreement, DHAC
executed an Amended and Restated Securities Purchase Agreement (as amended from
time to time, the "PIPE Securities Purchase Agreement") dated October 6, 2022
with certain PIPE Investors whereby the PIPE Investors subscribed for and will
purchase, and DHAC will issue and sell, (i) 8,000 shares of Series A Preferred
Stock ("Initial PIPE Shares") convertible into shares of DHAC common stock and
(ii) warrants ("Initial PIPE Warrants") exercisable for 424,000 shares of DHAC
Common Stock (such transactions, the "Initial PIPE Financing") for aggregate
proceeds of at least $8,000,000.
The PIPE Securities Purchase Agreement also provides that at any time after the
date of the PIPE Securities Purchase Agreement and including (x) with respect to
the PIPE Investors' right to purchase Additional Offering Securities further to
an Additional Offering (as each term is defined below) the earlier to occur of
(I) the first anniversary of the date of the PIPE Securities Purchase Agreement
and (II) the date of the consummation of one or more Subsequent Placements (as
defined in the PIPE Securities Purchase Agreement) with the PIPE Investors on
terms identical to the PIPE Securities Purchase Agreement and the other PIPE
Financing documents in all material respects with an aggregate purchase price of
at least $10 million (the "Additional Offering", and the securities thereof, the
"Additional Offering Securities") and (y) with respect to Buyer's right to
participate in a Subsequent Placement other than an Additional Offering the
earlier to occur of (I) the initial date after the Closing that no PIPE Shares
remain outstanding, and (II) the date of the consummation of a Subsequent
Placement by the Company with gross proceeds, paid in cash, of at least
$5,000,000, in either case, neither the Company nor any of its subsidiaries
shall, directly or indirectly, effect any Subsequent Placement unless the
Company shall have first complied with the PIPE Investors' participation right
described herein and set forth in the PIPE Securities Purchase Agreement. With
respect to (i) Additional Offerings, DHAC is required to offer 100% of the
Additional Offering Securities to the PIPE Investors; and (ii) Subsequent
Placements, DHAC is required to offer 25% of the Offered Securities to the PIPE
Investors.
On January 18, 2023 DHAC and the Sponsor, entered into a Backstop Agreement (the
"Backstop Agreement") pursuant to which DHAC agreed to offer on or prior to the
closing of the Business Combination the PIPE Investors the option to purchase up
to an additional 2,000 shares of Series A Preferred Stock initially convertible
into 234,260 shares of DHAC common stock (the "Additional PIPE Shares" and
together with the Initial PIPE Shares, the "PIPE Shares"), together with
additional warrants to purchase up to 106,000 shares of DHAC common stock (the
"Additional PIPE Warrants" and together with the Initial PIPE Warrants, the
"PIPE Warrants"; the Additional PIPE Shares and Additional PIPE Warrants are
referred to as the "Additional PIPE Securities") pursuant to
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a participation right granted to the PIPE Investors under the PIPE Securities
Purchase Agreement, in each case, on the same terms and conditions set forth in
the PIPE Securities Purchase Agreement for an aggregate purchase price of up to
$2,000,000 (such proceeds together with the proceeds from the Initial PIPE
Financing, as increased pursuant to the amendment to the Backstop Agreement
described below, the "Aggregate Closing PIPE Proceeds"). Pursuant to the
Backstop Agreement, if the PIPE Investors do not elect to purchase all of the
Additional PIPE Securities, our Sponsor has agreed to purchase any such
unsubscribed Additional PIPE Securities concurrent with the closing of the
transactions contemplated by the PIPE Securities Purchase Agreement on the same
terms and conditions set forth in the PIPE Securities Purchase Agreement.
Effective March 31, 2023, the Sponsor and DHAC entered into an amendment to the
Backstop Agreement to increase the Additional PIPE Shares that may be purchased
pursuant to the Backstop Agreement from 2,000 shares of Series A Preferred Stock
to 7,000 shares of Series A Preferred Stock, for an aggregate additional PIPE
financing of up to $7,000,000, increasing the Aggregate Closing PIPE Proceeds to
a total of $15,000,000. Also effective March 31, 2023, the Company entered into
an amendment to the PIPE Securities Purchase Agreement to, among other things,
(a) amend and restate the form of Certificate of Designation of the Series A
Preferred Stock to provide the aggregate number of shares of Series A Preferred
Stock issuable thereunder shall not exceed 15,000, (b) amend and restate the
form of PIPE Warrant to correct an error in the redemption provision of the PIPE
Warrants, and (c) revise certain closing conditions for the PIPE Financing.
The Aggregate Closing PIPE Proceeds will be a part of the aggregate cash
proceeds available for release to DHAC, Merger Sub I, and Merger Sub II in
connection with the transactions contemplated by the Business Combination
Agreement. The PIPE Warrants are exercisable into shares of DHAC Common Stock at
a price of $12.50 per share and expire 5 years from the date of issuance. The
PIPE Shares are convertible into shares of DHAC Common Stock at a price of
$10.00 per share, subject to certain adjustments. The Certificate of Designation
of the Series A Preferred Stock establishes the terms and conditions of the
Series A Preferred Stock.
PIPE Registration Rights Agreements
In connection with the closing of the transactions contemplated by the PIPE
Securities Purchase Agreement, DHAC and the PIPE Investors will enter into the
registration rights agreement (the "PIPE Registration Rights Agreement"). The
PIPE Registration Rights Agreement provides the PIPE Investors with customary
registration rights with respect to the shares of Common Stock underlying the
PIPE Shares and PIPE Warrants issued to the PIPE Investors. Pursuant to the
Registration Rights Agreement, DHAC will agree to (i) file a registration
statement with the SEC for the registration and resale of a number of shares of
DHAC Common Stock at least equal to 200% of the sum of the number of shares of
DHAC Common Stock issuable upon conversion of the PIPE Shares and upon exercise
of the PIPE Warrants (collectively, the "Registrable Securities") within 30 days
after the closing of the PIPE Securities Purchase Agreement; (ii) to use DHAC's
best efforts to have such registration statement to be declared effective as
soon as practicable after the filing thereof, but no later than earlier of
(a) the 90th calendar day (or 120th calendar day if the SEC notifies the Company
that it will "review" the registration statement) and (b) the 2nd business day
after the date the Company is notified (orally or in writing, whichever is
earlier) by the SEC that the registration statement will not be "reviewed" or
will not be subject to further review and (iii) to use DHAC's best efforts to
maintain the effectiveness of such registration statement with respect to the
Registrable Securities at all times until the date all of the securities covered
hereby can be sold publicly without restriction or limitation under Rule 144
under the Securities Act.
PIPE Lock-Up Agreement
Pursuant to the PIPE Securities Purchase Agreement, certain of DHAC's
stockholders will enter into a lock-up agreement (the "PIPE Lock-Up Agreement")
with DHAC. Pursuant to the PIPE Lock-Up Agreement, such stockholders will not
(i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant
any option to purchase, make any short sale or otherwise dispose of or agree to
dispose of, directly or indirectly, any shares of DHAC Common Stock or
Convertible Securities (as defined in the PIPE Securities Purchase Agreement),
or establish or increase a put equivalent position or liquidate or decrease a
call equivalent position within the meaning of Section 16 of the Securities and
Exchange Act of 1934, as amended and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder with respect to any shares of
Common Stock or Convertible Securities owned directly by the PIPE Investors
(including holding as a custodian) or with respect to which each PIPE Investor
has beneficial ownership within the rules and regulations of the Securities and
Exchange Commission (collectively, the "PIPE Investor Shares"), or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of any of the PIPE Investor
Shares, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of shares of DHAC Common Stock or other securities, in
cash or otherwise, or (iii) make any demand for or exercise any right or cause
to be filed a registration statement, including any amendments thereto, with
respect to the registration of any shares of DHAC Common Stock or Convertible
Securities or (iv) publicly disclose the intention to do any of the foregoing.
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Under the PIPE Lock-Up Agreement, the PIPE Lock-Up Period means the period
beginning on the date of the Lock-Up Agreement and ending on the earliest of
(i) eight months after the Closing Date, or (ii) on the trading day after DHAC's
Common Stock exceeds $12.50 (as adjusted for any stock splits, stock dividends,
stock combinations recapitalizations and similar events) for a period of twenty
consecutive trading days after the Closing Date.
In addition, pursuant to the PIPE Securities Purchase Agreement and the Backstop
Agreement, any purchaser of Additional PIPE Securities will enter into a lock up
agreement with the Company pursuant to which such purchaser will agree not to,
subject to certain limited exceptions, (i) sell, offer to sell, contract or
agree to sell, hypothecate, pledge, grant any option to purchase, make any short
sale or otherwise dispose of or agree to dispose of, directly or indirectly, any
Additional PIPE Securities, or establish or increase a put equivalent position
or liquidate or decrease a call equivalent position within the meaning of
Section 16 of the Securities and Exchange Act of 1934, as amended and the rules
and regulations of the Securities and Exchange Commission promulgated thereunder
with respect to any Additional PIPE Securities owned directly by the purchaser
(including holding as a custodian) or with respect to which the purchaser has
beneficial ownership within the rules and regulations of the Securities and
Exchange Commission, or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of any of the purchaser's Additional PIPE Securities, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of shares of DHAC Common Stock or other securities, in cash or otherwise, (3)
make any demand for or exercise any right or cause to be filed a registration
statement, including any amendments thereto, with respect to the registration of
any Additional PIPE Securities or (4) publicly disclose the intention to do any
of the foregoing.
Bridge Securities Purchase Agreement
On October 6, 2022, in connection with the execution of the Business Combination
Agreement, DHAC, VSee and iDoc entered into a securities purchase agreement with
an accredited investor, who is also an investor in our Sponsor, pursuant to
which DHAC, VSee and iDoc each issued and sold to such investor 10% original
issue discount senior secured promissory notes due October 5, 2023 in the
aggregate principal amount of $2,222,222 (the "Bridge Notes"). The Bridge
Notes will be assumed by DHAC in connection with the closing of the Business
Combination. The Bridge Notes bear guaranteed interest at a rate of 10.00% per
annum. In connection with the purchase of the Bridge Notes, DHAC issued the
investor (i) 173,913 warrants, each representing the right to purchase one share
of DHAC common stock at an initial exercise price of $11.50, subject to certain
adjustments (the "Bridge Warrants") and (ii) 30,000 shares of DHAC common stock
as additional consideration for the purchase of the Bridge Notes and Bridge
Warrants. If the PIPE Financing closes in connection with the closing of the
Business Combination, 110% of all unpaid principal under the Bridge Notes and
guaranteed interest of 10% are due and payable at the closing of the PIPE
Financing. In connection with the Bridge financing, the Company entered into a
Registration Rights Agreement with the Bridge investor, dated October 5, 2022,
which provides that the Company will file a registration statement to register
the shares of Common Stock underlying the Bridge Warrants and the commitment
shares.
Critical Accounting Estimates
The preparation of consolidated financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America ("U.S. GAAP") 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 expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting estimates:
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S.
GAAP requires the Company's management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events. The most
significant accounting estimates were the assumptions used to fair value the
PIPE Forward Contract and the Bridge Note Bifurcated derivative. Accordingly,
the actual results could differ significantly from those estimates.
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Common Stock Subject to Possible Redemption
We account for the common stock subject to possible redemption in accordance
with the guidance in Accounting Standards Codification ("ASC") ASC 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
our control) is classified as temporary equity. At all other times, common stock
is classified as stockholders' deficit. The Company's common stock features
certain redemption rights that are considered to be outside of our control and
subject to occurrence of uncertain future events.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments
are derivatives or contain features that qualify as bifurcated derivatives in
accordance with ASC Topic 815, "Derivatives and Hedging". Derivative instruments
are recorded at fair value on the grant date and re- valued at each reporting
date, with changes in the fair value reported in the statements of operations.
Derivative assets and liabilities are classified in the balance sheet as current
or non-current based on whether or not net-cash settlement or conversion of the
instrument could be required within 12 months of the balance sheet date. The
Company has determined the PIPE financing agreement is a derivative instrument
and the Bridge Note's early redemption provision is an embedded feature that is
required to be bifurcated as a derivative instrument. FASB ASC 470-20, "Debt
with Conversion and Other Options," addresses the allocation of proceeds from
the issuance of debt into its debt and bifurcated derivative components. The
Company applies this guidance to allocate the Bridge Note proceeds between the
Bridge Note and the Bifurcated Derivative, using the residual method by
allocating the principal first to fair value of the bifurcated derivative and
then to the debt.
Net Loss per common stock
The Company complies with accounting and disclosure requirements of FASB ASC
Topic 260, "Earnings Per Share". Net loss per common stock is computed by
dividing net loss by the weighted average number of common stocks outstanding
for the period. This presentation contemplates a Business Combination as the
most likely outcome, in which case, both classes of common stocks share pro rata
in the loss of the Company. Accretion associated with the redeemable shares of
common stock is excluded from net loss per common stock as the redemption value
approximates fair value.
Recent Accounting Standards
In August 2020, the 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 and should be applied on a full or modified
retrospective basis, with early adoption permitted beginning on January 1, 2021.
The Company adopted ASU 2020-06 at inception on March 30, 2021. The adoption of
ASU 2020-06 did not have an impact on the Company's financial statements.
We do not believe that any recently issued, but not yet effective, accounting
pronouncements, if currently adopted, would have a material impact on our
consolidated financial statements except for the following:
Risks and Uncertainties
Our management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that while it is reasonably possible that the virus could have a
negative effect on our financial position, results of operations and/or search
for a target company, the specific impact is not readily determinable as of the
balance date.
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Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR Act") was
signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S.
domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is
imposed on the repurchasing corporation itself, not its stockholders from which
shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However,
for purposes of calculating the excise tax, repurchasing corporations are
permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In
addition, certain exceptions apply to the excise tax. The U.S. Department of the
Treasury (the "Treasury") has been given authority to provide regulations and
other guidance to carry out and prevent the abuse or avoidance of the excise
tax.
Any redemption or other repurchase that occurs after December 31, 2022, in
connection with a Business Combination, extension vote or otherwise, may be
subject to the excise tax. Whether and to what extent the Company would be
subject to the excise tax in connection with a Business Combination, extension
vote or otherwise would depend on a number of factors, including (i) the fair
market value of the redemptions and repurchases in connection with the Business
Combination, extension or otherwise, (ii) the structure of a Business
Combination, (iii) the nature and amount of any "PIPE" or other equity issuances
in connection with a Business Combination (or otherwise issued not in connection
with a Business Combination but issued within the same taxable year of a
Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by the
Company and not by the redeeming holder, the mechanics of any required payment
of the excise tax have not been determined. The foregoing could cause a
reduction in the cash available on hand to complete a Business Combination and
in the Company's ability to complete a Business Combination.
Recent Accounting Pronouncements
We do not believe that any recently issued, but not yet effective, accounting
pronouncements, if currently adopted, would have a material impact on our
financial statements except for the following:
In August 2020, the 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 and should be
applied on a full or modified retrospective basis, with early adoption permitted
beginning on January 1, 2021. The Company adopted ASU 2020-06 at inception on
March 30, 2021. The adoption of ASU 2020-06 did not have an impact on the
Company's financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
Emerging Growth Company Status
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the "JOBS
Act") was signed into law. 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 elected 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
consolidated financial statements may not be comparable to companies that comply
with new or revised accounting pronouncements as of public company effective
dates.
As an "emerging growth company," we are not required to, among other things,
(i) provide an auditor's attestation report on our system of internal controls
over financial reporting, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies, (iii) comply with any
requirement that may be adopted by the Public Company Accounting
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Oversight Board regarding mandatory audit firm rotation or a supplement to the
auditor's report providing additional information about the audit and the
financial statements (auditor discussion and analysis), and (iv) disclose
comparisons of the CEO's compensation to median employee compensation. These
exemptions will apply for a period of five (5) years following the completion of
our Initial Public Offering or until we otherwise no longer qualify as an
"emerging growth company."
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