markdown [Cautionary Note on Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20on%20Forward-Looking%20Statements) This section outlines the nature of forward-looking statements, emphasizing inherent uncertainties and risks [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) This section details forward-looking statements, their inherent uncertainties, and key risks that could cause actual results to differ - Forward-looking statements are identified by words like 'plan,' 'believe,' 'expect,' 'anticipate,' 'intend,' 'outlook,' 'estimate,' 'forecast,' 'project,' 'continue,' 'could,' 'may,' 'might,' 'possible,' 'potential,' 'predict,' 'should,' 'would' and similar expressions[5](index=5&type=chunk) - Key risks include operating in a **competitive industry**, uncertainty in demand for software and solutions, potential for future losses, challenges in evaluating the evolving business, and fluctuations in business results[6](index=6&type=chunk)[7](index=7&type=chunk)[8](index=8&type=chunk) - Other **significant** risks involve the impact of the COVID-19 pandemic, long and unpredictable sales cycles, adverse developments in healthcare spending, medical malpractice risks, economic uncertainties, client retention issues, and the ability to maintain and expand the telemedicine network[9](index=9&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk)[13](index=13&type=chunk) - The company also highlights risks related to developing new solutions, providing high-quality technical support, attracting and retaining skilled employees, management's strategic decisions, potential acquisitions, managing future **growth**, accuracy of market size estimates, stock price volatility, litigation, medical liability claims, tax assertions, and the need for additional capital[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) [PART I — FINANCIAL INFORMATION](index=8&type=section&id=PART%20I%20%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents VSee Health's unaudited condensed consolidated financial statements and detailed explanatory notes [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's condensed consolidated balance sheets, detailing key financial metrics Condensed Consolidated Balance Sheets | ASSETS | June 30, 2024 (Unaudited) | December 31, 2023 | | :-------------------------- | :------------------------ | :---------------- | | Cash | $1,105,971 | $118,734 | | Accounts receivable, net | $2,513,855 | $628,480 | | Total current assets | $5,166,549 | $827,134 | | Goodwill | $59,900,694 | — | | Total assets | $78,987,750 | $830,791 | | LIABILITIES AND EQUITY | June 30, 2024 (Unaudited) | December 31, 2023 | | :-------------------------- | :------------------------ | :---------------- | | Accounts payable & accrued | $6,752,985 | $1,824,408 | | Total current liabilities | $22,879,867 | $4,243,438 | | Total liabilities | $24,177,194 | $4,243,438 | | Total stockholders' equity | $54,810,556 | $(3,412,647) | | Total liabilities and equity| $78,987,750 | $830,791 | - **Total assets significantly increased** from **$830,791** at December 31, 2023, to **$78,987,750** at June 30, 2024, **primarily due to** the business combination and acquisition of iDoc, which introduced **substantial** goodwill and other assets[25](index=25&type=chunk) - **Stockholders' equity shifted** from a deficit of **$(3,412,647)** to a **positive $54,810,556**, **reflecting** the impact of the reverse recapitalization and new equity issuances[25](index=25&type=chunk) [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's condensed consolidated statements of operations, detailing key financial metrics Condensed Consolidated Statements of Operations | Metric (Unaudited) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $1,711,566 | $1,290,223 | $3,207,561 | $2,886,491 | | Gross margin | $1,224,926 | $815,936 | $2,334,668 | $1,836,882 | | Total operating expenses | $2,408,268 | $1,427,063 | $3,479,531 | $3,085,154 | | Net operating loss | $(1,183,342) | $(611,127) | $(1,144,863) | $(1,248,272) | | Loss before income taxes | $(2,603,169) | $(602,976) | $(2,574,000) | $(1,241,838) | | Benefit from income tax | $2,241,208 | $174,395 | $2,241,208 | $357,238 | | Net loss | $(361,961) | $(428,581) | $(332,792) | $(884,600) | | Basic and diluted loss per common share | $(0.06) | $(0.09) | $(0.07) | $(0.19) | - **Total revenue increased** by **33%** for the three months ended June 30, 2024, and **11%** for the six months ended June 30, 2024, compared to the prior year periods, **driven by** higher professional services, technical engineering fees, and the iDoc acquisition[26](index=26&type=chunk) - **Net loss decreased** for both the three-month (**16%**) and six-month (**62%**) periods ended June 30, 2024, **primarily due to** a **significant** income tax benefit related to valuation allowance changes from the business combination[26](index=26&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity (Deficit)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Deficit)) This section presents the company's condensed consolidated statements of shareholders' equity (deficit), detailing key financial metrics Condensed Consolidated Statements of Shareholders' Equity (Deficit) | Metric | December 31, 2023 | June 30, 2024 | | :-------------------------------------- | :---------------- | :------------ | | Total Stockholders' Equity (Deficit) | $(3,412,647) | $54,810,556 | | Common Shares Outstanding | 4,639,643 | 14,806,820 | | Additional Paid-In Capital | $6,027,153 | $64,582,130 | | Accumulated Deficit | $(9,114,985) | $(9,773,056) | - The company's **total stockholders' equity dramatically increased** from a deficit of **$3.41 million** at December 31, 2023, to a **positive $54.81 million** at June 30, 2024, **primarily due to** the reverse recapitalization and issuance of new shares in connection with the Business Combination[28](index=28&type=chunk) - **Common shares outstanding increased** from **4,639,643** to **14,806,820**, and **additional paid-in capital grew** from **$6.03 million** to **$64.58 million**, **reflecting significant** equity transactions during the period[28](index=28&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's condensed consolidated statements of cash flows, detailing key financial metrics Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2024 | 2023 | | :-------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(2,594,214) | $(474,643) | | Net cash used in investing activities | $(16,390) | $(2,690) | | Net cash provided by financing activities | $3,597,841 | $320,000 | | Change in cash | $987,237 | $(157,333) | - **Net cash used in operating activities increased significantly** to **$(2,594,214)** in H1 2024 from **$(474,643)** in H1 2023, **primarily due to** changes in operating assets and liabilities[31](index=31&type=chunk) - **Net cash provided by financing activities surged** to **$3,597,841** in H1 2024 from **$320,000** in H1 2023, **driven by** proceeds from the Quantum Convertible Note and reverse recapitalization with DHAC[31](index=31&type=chunk) - The company experienced a **positive** net change in cash and cash equivalents of **$987,237** in H1 2024, ending the period with **$1,105,971** in cash, a **substantial increase** from **$73,331** in H1 2023[31](index=31&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section presents the company's notes to condensed consolidated financial statements, detailing key financial information [Note 1 Organization and Description of Business](index=13&type=section&id=Note%201%20Organization%20and%20Description%20of%20Business) VSee Health completed a business combination, integrating VSee Lab's telehealth platform and iDoc's high acuity patient care solutions - VSee Health, Inc. operates a telehealth software platform with proprietary technology for virtual healthcare delivery, integrating video streaming, medical device data, and EMRs[32](index=32&type=chunk) - On June 24, 2024, Digital Health Acquisition Corp. (DHAC) completed a business combination with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc., changing its name to VSee Health, Inc[33](index=33&type=chunk) - The business combination was accounted for as a reverse recapitalization, with VSee Lab as the accounting acquirer and DHAC and iDoc as accounting acquirees[41](index=41&type=chunk) - The transaction involved the issuance of common stock to VSee Lab and iDoc stockholders, conversion of debt into Series A preferred stock and common stock, and the establishment of an Equity Line of Credit (ELOC) for up to **$50,000,000**[34](index=34&type=chunk)[35](index=35&type=chunk)[38](index=38&type=chunk)[40](index=40&type=chunk) [Note 2 Summary of Significant Accounting Policies](index=17&type=section&id=Note%202%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines critical accounting policies and estimates, involving **significant** management judgment and assumptions - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include VSee Health, Inc. and its **100%** wholly-owned subsidiaries, VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc[45](index=45&type=chunk)[46](index=46&type=chunk) - The company is an 'emerging **growth** company' and 'smaller reporting company,' allowing it to take advantage of certain exemptions from reporting requirements and delay adoption of new accounting standards[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - The company has two consolidated operating segments: Healthcare Technology ('Technology') and Telehealth Services ('Telehealth'), with VSee Lab in Technology and iDoc in Telehealth[52](index=52&type=chunk)[53](index=53&type=chunk) - **Revenue** is recognized following ASC 606, based on a five-step model, with **revenue** derived from subscription fees, professional services, technical engineering fees, patient fees, telehealth fees, and institutional fees[59](index=59&type=chunk)[60](index=60&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - The company's ability to continue as a going concern is in **substantial** doubt **due to** historical operating losses and deteriorating liquidity, but management is pursuing **revenue** enhancement strategies and additional financing[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) [Note 3 Business Combination](index=38&type=section&id=Note%203%20Business%20Combination) This note details the acquisition of iDoc Telehealth Solutions, Inc. and its accounting treatment as a business combination - On June 24, 2024, VSee Health, Inc. completed the Business Combination, acquiring iDoc Telehealth Solutions, Inc. and undergoing a reverse recapitalization with DHAC[126](index=126&type=chunk) - The acquisition of iDoc was treated as a business combination under ASC 805, with VSee Lab as the accounting acquirer, aiming to integrate iDoc's high acuity patient care and critical care expertise[126](index=126&type=chunk) iDoc Purchase Consideration | Consideration Type | Amount | | :-------------------------------------------------------------------------------------------------------------- | :------------- | | 4,950,000 shares of common stock issued to sellers at $12.11 per share | $59,944,500 | | 292,500 shares of common stock issued upon conversion of debt at $12.11 per share | $3,542,175 | | 300,000 shares of common stock issued upon conversion of debt at $12.11 per share | $3,633,000 | | 300 shares of series A preferred stock issued upon conversion of debt (150,000 common shares issuable) at $12.11 per share | $1,816,500 | | **Total purchase consideration** | **$68,936,175**| Preliminary Allocation of iDoc Purchase Consideration | Item | Amount | | :---------------------------------------- | :------------- | | Total purchase price consideration, net of cash acquired | $68,907,052 | | Estimated fair value of assets acquired | $17,161,687 | | Estimated fair value of liabilities assumed | $8,155,329 | | **Goodwill** | **$59,900,694**| Purchased Intangible Assets from iDoc Acquisition | Intangible Asset | Weighted-Average Useful Life (in Years) | Amount | | :----------------- | :-------------------------------------- | :----------- | | Customer relationships | 10 | $2,100,000 | | Developed technology | 5 | $10,000,000 | | **Total** | | **$12,100,000**| [Note 4 Fixed Assets](index=45&type=section&id=Note%204%20Fixed%20Assets) This section presents the company's fixed assets, detailing key financial metrics Fixed Assets, Net | Asset Category | June 30, 2024 | December 31, 2023 | | :----------------------- | :------------ | :---------------- | | Office equipment | $19,264 | $3,335 | | Medical equipment | $122,095 | $1,000 | | Furniture | $5,045 | — | | Leased equipment | $736,624 | — | | Leasehold improvements | $6,604 | — | | Less accumulated depreciation | $(6,309) | $(678) | | **Fixed Assets, net** | **$883,323** | **$3,657** | - **Fixed assets**, net, **increased substantially** from **$3,657** at December 31, 2023, to **$883,323** at June 30, 2024, **largely due to** the acquisition of iDoc, which brought in **significant** leased equipment, medical equipment, and other **fixed assets**[143](index=143&type=chunk)[144](index=144&type=chunk) - Depreciation expense for the six months ended June 30, 2024, was **$2,091**, compared to **$204** in the prior year, **reflecting** the expanded asset base[143](index=143&type=chunk) [Note 5 Leases](index=45&type=section&id=Note%205%20Leases) This note details the company's operating and finance leases, including right-of-use assets and liabilities - The company assumed operating leases for office spaces in Boston, Houston, and a new Houston lease, with varying monthly payments and lease terms up to August 2028, as a result of the iDoc acquisition[145](index=145&type=chunk) Operating Lease Right-of-Use Assets and Liabilities (June 30, 2024) | Item | Amount | | :--------------------------------- | :---------- | | Office Lease Right-of-Use, net | $431,311 | | Office Lease - related party, net | $260,373 | | Operating Lease Liabilities (current portion) | $121,509 | | Operating Lease Liabilities (long term portion) | $307,849 | | Related Party Operating Lease Liabilities (current portion) | $101,401 | | Related Party Operating Lease Liabilities (long term portion) | $163,658 | - **Finance leases** for office equipment were also assumed from iDoc, with maturities in June and August 2026. The weighted average discount rate for **finance leases** was **19.3%** as of June 30, 2024[155](index=155&type=chunk)[162](index=162&type=chunk) Finance Lease Right-of-Use Assets and Liabilities (June 30, 2024) | Item | Amount | | :--------------------------------- | :---------- | | Equipment Lease Right-of-Use, net | $733,084 | | Finance Lease Liabilities (current portion) | $507,538 | | Finance Lease Liabilities (long term portion) | $231,879 | [Note 6 Factoring Payable](index=49&type=section&id=Note%206%20Factoring%20Payable) This note details factoring payable liabilities assumed from iDoc, representing future receipts sale agreements - VSee Health assumed several **factoring payable** liabilities from iDoc upon the business combination, totaling **$348,463** as of June 30, 2024[25](index=25&type=chunk)[163](index=163&type=chunk) - These agreements involve iDoc selling future receipts for a net purchase price, with weekly collection amounts authorized to factoring purchasers[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - Most factoring agreements are not collateralized by a general security agreement over iDoc's assets, except for one January 11, 2024 agreement which is collateralized by a security interest in all accounts[163](index=163&type=chunk)[166](index=166&type=chunk)[172](index=172&type=chunk) [Note 7 Line of Credit and Notes Payable](index=51&type=section&id=Note%207%20Line%20of%20Credit%20and%20Notes%20Payable) This note outlines the company's line of credit and various notes payable, many assumed from iDoc and DHAC Notes Payable & Line of Credit (June 30, 2024) | Item | Amount | | :-------------------------------------------- | :------------ | | Total notes payable and line of credit | $2,428,880 | | Less: current portion | $(928,280) | | Less fair value adjustment for debt | $(906,659) | | **Total notes payable and line of credit, net of current portion** | **$593,941** | - The company assumed several **notes payable** and a line of credit from iDoc, with many currently in default and bearing **increased** interest rates[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[183](index=183&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) - **Significant** financing activities include the Exchange Note (**$5,666,873** fair value), Additional Bridge Notes (**$397,408** fair value), and the **Quantum Convertible Note** (**$4,697,050** fair value), all classified as liabilities under ASC 480 and re-measured at fair value[199](index=199&type=chunk)[204](index=204&type=chunk)[212](index=212&type=chunk) - The company also has an Equity Line of Credit (ELOC) agreement for up to **$50,000,000**, with an ELOC Note issued as a commitment fee, and the ELOC Purchase Agreement is recorded as a liability under ASC 815 and re-measured at fair value[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) [Note 8 Related Party](index=67&type=section&id=Note%208%20Related%20Party) This note details various related party transactions involving VSee Lab, iDoc, and DHAC, including loans and debt conversions - VSee Lab had **related party transactions** including employee stock subscriptions converted to VSee Health common stock and promissory notes from its former CEO, Milton Chen, totaling **$121,000**, **$132,000**, and **$77,000**, all of which are currently in default[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) - iDoc's **related party transactions** include a balance **due to** its former CEO, Imoigele Aisiku (**$785,934**), a note receivable from him (**$245,000**), and a promissory note with a board member (**$141,651**), all unsecured or non-interest-bearing and some in default[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) - DHAC's **related party transactions** involved unsecured promissory notes and outstanding office expenses with its Sponsor and affiliates, which were converted into Series A Preferred Shares at the closing of the Business Combination[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk) - As of June 30, 2024, **$456,859** in advances from the Sponsor and certain Sponsor affiliates remained **due to** DHAC[241](index=241&type=chunk) [Note 9 Commitments, Contingencies, and Concentration Risk](index=71&type=section&id=Note%209%20Commitments,%20Contingencies,%20and%20Concentration%20Risk) This note outlines the company's commitments, contingencies, and concentration risks, including potential litigation and customer concentrations - The company has an **unpaid commitment** of **$103,833** on a reseller agreement to generate international market **revenue**, payable upon **revenue** generation[244](index=244&type=chunk) - iDoc has an **unpaid commitment** of **$179,900** for the purchase of twenty Telepresence Robots and related services, **due to** upon invoicing for delivery and installation[246](index=246&type=chunk) - A forbearance agreement related to iDoc's promissory note and line of credit resulted in a court-ordered payment of **$1,499,409** principal plus interest, accrued in the company's liabilities[249](index=249&type=chunk) - The VSee Health, Inc. 2024 Equity Incentive Plan reserved **2,544,021** shares of common stock for issuance[251](index=251&type=chunk) - As of June 30, 2024, the company had no single customer concentration exceeding **10%** of **total receivables**, but one customer accounted for **12%** of **total revenue** for the three months ended June 30, 2024[254](index=254&type=chunk)[255](index=255&type=chunk) [Note 10 Income Taxes](index=75&type=section&id=Note%2010%20Income%20Taxes) This note details the company's income tax accounting, including deferred tax assets, liabilities, and valuation allowances - As of June 30, 2024, the company has a **valuation allowance** of **$2,152,167** against net domestic deferred tax assets, indicating uncertainty about their realization[256](index=256&type=chunk) Income Tax Expense (Six Months Ended June 30) | Item | 2024 | 2023 | | :---------------------------------------- | :------------ | :------------ | | Loss before taxes | $(2,574,000) | $(1,241,838) | | Expected United States income tax benefit | $540,540 | $259,956 | | Expected income tax (expense) benefit at statutory rate | $1,700,668 | $97,282 | | **Total income tax benefit** | **$2,241,208**| **$357,238** | - The company recorded a **substantial** income tax benefit of **$2,241,208** for the six months ended June 30, 2024, compared to **$357,238** in the prior year, **primarily due to** **valuation allowance** changes from the business combination[257](index=257&type=chunk) [Note 11 Equity](index=77&type=section&id=Note%2011%20Equity) This note describes the company's equity structure, including preferred and common stock, and the equity incentive plan - The company has **6,158** shares of **Series A Preferred Stock** outstanding as of June 30, 2024, which have voting rights, cumulative participating dividends, liquidation preferences, and are convertible into common stock[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk) - **Common stock outstanding increased** to **14,806,820** shares as of June 30, 2024, from **4,639,643** shares at December 31, 2023, following the reverse recapitalization[266](index=266&type=chunk) - The VSee Health, Inc. 2024 Equity Incentive Plan reserved **2,544,021** shares, with **803,646** stock options granted at an exercise price of **$12.11** as of June 24, 2024[271](index=271&type=chunk)[273](index=273&type=chunk) - Unrecognized compensation cost related to unvested options was approximately **$1,394,222** as of June 30, 2024, to be recognized over a one-year service period[275](index=275&type=chunk)[276](index=276&type=chunk) [Note 12 Warrants](index=82&type=section&id=Note%2012%20Warrants) This note details various **warrants** assumed from DHAC, including Public, Private, Bridge, and Extension **Warrants**, classified as equity - VSee Health assumed **12,256,999 warrants** from DHAC as of June 24, 2024, including Public, Private, Bridge, and Extension **Warrants**, all classified as equity[277](index=277&type=chunk)[278](index=278&type=chunk) Warrants Outstanding (June 30, 2024) | Warrant Type | Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Life (years) | | :----------- | :---------- | :------------------------------ | :-------------------------------------- | | Public | 11,500,000 | $11.50 | 4.99 | | Private | 557,000 | $11.50 | 4.99 | | Bridge | 173,913 | $11.50 | 3.27 | | Extension | 26,086 | $11.50 | 3.85 | | **Total** | **12,256,999**| **$11.50** | **4.27** | - Public and Private **Warrants** are exercisable at **$11.50** per share, expiring on the fifth anniversary of the business combination, and may be redeemed by the company under certain conditions[279](index=279&type=chunk)[280](index=280&type=chunk)[281](index=281&type=chunk) - Bridge and Extension **Warrants** also have an exercise price of **$11.50** per share and are subject to various anti-dilution adjustments[292](index=292&type=chunk)[293](index=293&type=chunk)[299](index=299&type=chunk)[305](index=305&type=chunk)[312](index=312&type=chunk) [Note 13 Reportable segments](index=92&type=section&id=Note%2013%20Reportable%20segments) This note identifies the company's two reportable operating segments: Technology and Telehealth, providing summary financial information - As of June 2024, following the business combination, the company has two **reportable operating segments**: Technology (VSee Lab, Inc.) and Telehealth (iDoc Virtual Telehealth Solutions, Inc.)[315](index=315&type=chunk) Segment Revenue (Six Months Ended June 30) | Segment | 2024 | 2023 | | :--------- | :------------ | :------------ | | Technology | $3,144,992 | $2,886,491 | | Telehealth | $62,569 | — | | **Total** | **$3,207,561**| **$2,886,491**| Segment Loss from Operations (Six Months Ended June 30) | Segment | 2024 | 2023 | | :---------------------- | :------------ | :------------ | | Technology | $(236,002) | $(1,248,272) | | Telehealth | $(17,902) | — | | Non-operating corporate | $(890,959) | — | | **Total** | **$(1,144,863)**| **$(1,248,272)**| - **Telehealth segment reported $76,843,794** in **total assets** and **$59,900,694** in goodwill as of June 30, 2024, **reflecting** the iDoc acquisition[318](index=318&type=chunk) [Note 14 Fair Value Measurements](index=96&type=section&id=Note%2014%20Fair%20Value%20Measurements) This note provides fair value information for financial liabilities, classified within Level 3 of the fair value hierarchy Fair Value of Financial Liabilities (June 30, 2024) | Liability | Fair Value (Level 3) | | :------------------------- | :------------------- | | Convertible note-Quantum | $4,697,050 | | ELOC | $638,321 | | Additional Bridge Note | $397,408 | | Exchange Note | $5,666,873 | | **Total** | **$11,399,652** | - The **Quantum Convertible Note**, ELOC, Additional Bridge Note, and Exchange Note are all classified within Level 3 of the fair value hierarchy, indicating **significant** unobservable inputs in their valuation[323](index=323&type=chunk)[325](index=325&type=chunk)[327](index=327&type=chunk)[329](index=329&type=chunk)[331](index=331&type=chunk) - Valuation models used include the Monte Carlo model for the **Quantum Convertible Note**, Additional Bridge Note, Exchange Note, and ELOC, and a Discounted Cash Flow model for the Extension Note Bifurcated Derivative[322](index=322&type=chunk)[324](index=324&type=chunk)[326](index=326&type=chunk)[328](index=328&type=chunk)[330](index=330&type=chunk) - The **change** in fair value of Level 3 financial liabilities from June 24, 2024, to June 30, 2024, resulted in a net **decrease** of **$(535,665)**[332](index=332&type=chunk) [Note 15 Subsequent Events](index=101&type=section&id=Note%2015%20Subsequent%20Events) This note discloses **significant** subsequent events, including note amendments and conversions of debt into common stock - On July 3, 2024, the **Quantum Note's** maturity date was extended from June 25, 2025, to June 30, 2026, with **18** months of guaranteed interest[334](index=334&type=chunk) - On July 2, 2024, the company issued an **Equity Purchase Commitment Note** for **$500,000**, payable in common stock, as a commitment fee for the equity purchase agreement[335](index=335&type=chunk) - In August 2024, the **Bridge Investor converted $32,408** principal from the Additional Bridge Note into **14,199** shares of common stock[336](index=336&type=chunk) - On August 8, 2024, the **Bridge Investor converted $500,000** principal from the Exchange Note into **213,759** shares of common stock[337](index=337&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=102&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's discussion and analysis of VSee Health's financial condition and results of operations [Overview](index=102&type=section&id=Overview) VSee Health completed a business combination, integrating VSee Lab's telehealth platform and iDoc's high acuity patient care solutions - VSee Health, Inc. (formerly DHAC) completed a business combination on June 24, 2024, integrating VSee Lab and iDoc Virtual Telehealth Solutions[340](index=340&type=chunk) - VSee Lab provides a proprietary telehealth software platform with end-to-end encrypted video, medical device integration, EMR connectivity, and customizable workflows for virtual healthcare delivery[341](index=341&type=chunk)[342](index=342&type=chunk)[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk) - iDoc, a wholly-owned subsidiary, offers high acuity patient care solutions, including neuro-critical and general critical care services, leveraging a custom internal virtual health care technology platform[346](index=346&type=chunk)[347](index=347&type=chunk) [Performance Factors](index=104&type=section&id=Performance%20Factors) Future performance is **driven by** telehealth market **growth**, market share expansion, and continuous innovation in product offerings - Future performance depends on the rapid transformation of the telehealth market, which is characterized by **strong growth potential** and an attractive value proposition for health systems[348](index=348&type=chunk) - The company aims to expand within the market and attract new customers by leveraging industry relationships and the **significant potential** of its software platform and services in the nascent telehealth sector[349](index=349&type=chunk) - Innovation and new product offerings are critical, addressing existing telehealth limitations such as non-healthcare-specific video, poor device integration, and complex backend software[350](index=350&type=chunk)[351](index=351&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk) [Critical Accounting Estimates](index=106&type=section&id=Critical%20Accounting%20Estimates) This section outlines critical accounting policies and estimates, involving **significant** management judgment and assumptions - The company's critical accounting policies include **revenue** recognition (ASC 606), income taxes (asset and liability method with **valuation allowances**), accounts receivable and credit losses (CECL model), fair value measurements (Level 3 hierarchy), goodwill impairment, and intangible assets amortization[354](index=354&type=chunk)[359](index=359&type=chunk)[395](index=395&type=chunk)[396](index=396&type=chunk)[398](index=398&type=chunk)[402](index=402&type=chunk)[403](index=403&type=chunk)[404](index=404&type=chunk) - Management has determined two consolidated operating segments: Healthcare Technology ('Technology') and Telehealth Services ('Telehealth')[357](index=357&type=chunk)[358](index=358&type=chunk) - The allowance for credit losses was **$1,741,238** as of June 30, 2024, a **significant increase** from **$32,457** at December 31, 2023[397](index=397&type=chunk) - Goodwill, valued at **$59,900,694** as of June 30, 2024, is evaluated for impairment annually or when circumstances indicate, using income and market-based models[402](index=402&type=chunk) - Intangible assets, including developed technology (**$10,000,000**) and customer list (**$2,100,000**), are amortized over **5** and **15** years, respectively[403](index=403&type=chunk) [Recent Accounting Pronouncements](index=121&type=section&id=Recent%20Accounting%20Pronouncements) This section discusses recently issued accounting standards, including ASU No. 2023-07 and ASU No. 2023-09 - ASU No. 2023-07, effective for annual periods beginning after December 15, 2023, requires additional disclosures for reportable segment expenses and CODM information[409](index=409&type=chunk) - ASU No. 2023-09, effective for annual periods beginning after December 15, 2024, mandates additional income tax rate reconciliation and disaggregation of income taxes paid[410](index=410&type=chunk) - Management is evaluating both ASUs and does not believe they will have a material effect on the company's condensed consolidated financial statements upon adoption[409](index=409&type=chunk)[412](index=412&type=chunk) [Emerging Growth Company Status](index=123&type=section&id=Emerging%20Growth%20Company%20Status) VSee Health qualifies as an 'emerging **growth** company' and 'smaller reporting company' under the JOBS Act - VSee Health qualifies as an 'emerging **growth** company' and 'smaller reporting company' under the JOBS Act[413](index=413&type=chunk)[415](index=415&type=chunk) - This status allows the company to rely on exemptions such as delaying adoption of new accounting standards, reduced executive compensation disclosures, and exemptions from certain advisory votes[413](index=413&type=chunk)[415](index=415&type=chunk)[416](index=416&type=chunk) - The company expects to use the extended transition period for accounting standards, which may make its financial statements not comparable to companies that comply with public company effective dates[416](index=416&type=chunk) [Financial Statement Components](index=124&type=section&id=Financial%20Statement%20Components) This section analyzes the company's financial performance, highlighting changes **driven by** the iDoc acquisition and cost management [Three Months Ended June 30, 2024 and 2023 Results of Operations](index=124&type=section&id=Three%20Months%20Ended%20June%2030,%202024%20and%202023%20Results%20of%20Operations) This section presents the company's three months ended june 30, 2024 and 2023 results of operations, detailing key financial metrics Three Months Ended June 30, 2024 vs. 2023 | Metric | 2024 | 2023 | Change | % Change | | :------------------------- | :------------ | :------------ | :------------ | :-------- | | Revenue | $1,711,566 | $1,290,223 | $421,343 | 33% | | Cost of revenue | $486,640 | $474,287 | $12,353 | 3% | | Gross profit | $1,224,926 | $815,936 | $408,990 | 50% | | Operating expenses | $2,408,268 | $1,427,063 | $981,205 | 69% | | Other (expenses)/income | $(1,419,827) | $8,151 | $(1,427,978) | (17,519)% | | Net income (loss) before taxes | $(2,603,169) | $(602,976) | $(2,000,193) | 332% | | Income tax (expense) benefit | $2,241,208 | $174,395 | $2,066,813 | 1,185% | | Net income (loss) | $(361,961) | $(428,581) | $66,620 | 16% | - **Revenue increased** by **33% due to** higher professional and technical engineering fees, and the iDoc acquisition[421](index=421&type=chunk) - **Net loss decreased** by **16% primarily due to** a **significant** income tax benefit, despite higher operating expenses and other expenses[434](index=434&type=chunk) [Six Months Ended June 30, 2024 and 2023 Results of Operations](index=124&type=section&id=Six%20Months%20Ended%20June%2030,%202024%20and%202023%20Results%20of%20Operations) This section presents the company's six months ended june 30, 2024 and 2023 results of operations, detailing key financial metrics Six Months Ended June 30, 2024 vs. 2023 | Metric | 2024 | 2023 | Change | % Change | | :------------------------- | :------------ | :------------ | :------------ | :-------- | | Revenue | $3,207,561 | $2,886,491 | $321,070 | 11% | | Cost of revenue | $872,893 | $1,049,609 | $(176,716) | (17)% | | Gross profit | $2,334,668 | $1,836,882 | $497,786 | 27% | | Operating expenses | $3,479,531 | $3,085,154 | $394,377 | 13% | | Other (expenses)/income | $(1,429,137) | $6,434 | $(1,435,571) | (22,312)% | | Net income (loss) before taxes | $(2,574,000) | $(1,241,838) | $(1,332,162) | 107% | | Income tax (expense) benefit | $2,241,208 | $357,238 | $1,883,970 | 527% | | Net income (loss) | $(332,792) | $(884,600) | $551,808 | 62% | - **Revenue increased** by **11% driven by** higher professional and technical engineering fees, and the iDoc acquisition, partially offset by a **decline** in subscription **revenue**[424](index=424&type=chunk) - **Net loss decreased** by **62% due to** a **significant** income tax benefit, despite higher operating expenses and other expenses[435](index=435&type=chunk) [Revenue](index=124&type=section&id=Revenue) This section presents the company's **revenue**, highlighting total **revenue** for the three months ended June 30, 2024, **increased** by **$421,343** (**33%**) to **$1,711,566** - **Total revenue** for the three months ended June 30, 2024, **increased** by **$421,343** (**33%**) to **$1,711,566**, **primarily due to** a **93% increase** in professional and other fees and a **290% increase** in technical engineering fees[421](index=421&type=chunk) - For the six months ended June 30, 2024, **total revenue increased** by **$321,070** (**11%**) to **$3,207,561**, **driven by 57% increases** in professional and other fees and technical engineering fees, and **$62,569** from the iDoc acquisition[424](index=424&type=chunk) - Subscription **revenue declined** by **$141,194** (**6%**) for the six-month period **due to** churned enterprise customers and a **shift** back to face-to-face consultations[424](index=424&type=chunk) [Cost of Revenue](index=126&type=section&id=Cost%20of%20Revenue) This section presents the company's cost of **revenue**, highlighting cost of **revenue** for the three months ended June 30, 2024, **increased** by **$12,353** (**3%**) - **Cost of revenue** for the three months ended June 30, 2024, **increased** by **$12,353** (**3%**), **primarily due to** **$25,331** from the iDoc acquisition, partially offset by a **2.7% decrease** from VSee Lab **due to** lower hosting costs and headcount reduction[426](index=426&type=chunk) - For the six months ended June 30, 2024, **cost of revenue decreased** by **$176,716** (**17%**), **driven by** a **30% reduction** in hosting costs and a **26% decrease** in compensation costs from headcount reduction, partially offset by higher hardware costs and iDoc acquisition costs[427](index=427&type=chunk) [Operating Expenses](index=126&type=section&id=Operating%20Expenses) This section presents the company's operating expenses, highlighting operating expenses for the three months ended June 30, 2024, **increased** by **$981,205** (**69%**) - Operating expenses for the three months ended June 30, 2024, **increased** by **$981,205** (**69%**), mainly **due to** a **6,008% increase** in transaction expenses related to the business combination (**$964,748**), and a **56% increase** in general and administrative expenses[429](index=429&type=chunk) - For the six months ended June 30, 2024, operating expenses **increased** by **$394,377** (**13%**), **driven by** a **1,656% increase** in transaction expenses (**$949,800**) and a **9% increase** in general and administrative expenses, partially offset by a **25% decrease** in compensation and **related benefits**[430](index=430&type=chunk)[431](index=431&type=chunk) [Other (Expense) Income](index=128&type=section&id=Other%20(Expense)%20Income) This section presents the company's other (expense) income, highlighting other expense for the three months ended June 30, 2024, **increased** by **$1,427,978** (**17,519%**) - Other expense for the three months ended June 30, 2024, **increased** by **$1,427,978** (**17,519%**), **primarily due to** a **$1,618,234** initial fair value **loss** on the **Quantum Note** and **$269,835** higher interest expense, partially offset by **$480,656** in fair value gains on financial instruments[432](index=432&type=chunk) - For the six months ended June 30, 2024, other expense **increased** by **$1,435,571** (**22,312%**), **driven by** the **Quantum Note** fair value **loss** and higher interest expense, partially offset by a **$434,023 change** in fair value gain from financial instruments[433](index=433&type=chunk) [Net loss](index=128&type=section&id=Net%20loss) This section presents the company's net **loss**, highlighting net **loss** for the three months ended June 30, 2024, **decreased** by **$66,620** (**16%**) - **Net loss** for the three months ended June 30, 2024, **decreased** by **$66,620** (**16%**) to **$(361,961)**, **driven by** a **$2,066,813** tax benefit and higher **revenue**, partially offset by **increased** operating and other expenses[434](index=434&type=chunk) - **Net loss** for the six months ended June 30, 2024, **decreased** by **$551,808** (**62%**) to **$(332,792)**, **primarily due to** a **$1,883,970** income tax benefit and higher **revenue**, partially offset by **increased** operating and other expenses[435](index=435&type=chunk) [Cash Flows](index=128&type=section&id=Cash%20Flows) This section analyzes cash flow activities, highlighting **increased** cash from financing **due to** the **Quantum Note** and recapitalization Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2024 | 2023 | | :-------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(2,594,214) | $(474,643) | | Net cash used in investing activities | $(16,390) | $(2,690) | | Net cash provided by financing activities | $3,597,841 | $320,000 | | Change in cash | $987,237 | $(157,333) | - **Net cash used in operating activities increased** to **$(2,594,214)** in H1 2024, **primarily due to** a **decrease** in net changes in operating assets and liabilities[439](index=439&type=chunk) - **Net cash provided by financing activities significantly increased** to **$3,597,841** in H1 2024, **driven by $2,700,000** from the **Quantum Note** and **$1,323,362** from the recapitalization with DHAC[442](index=442&type=chunk) - The company's cash and cash equivalents at the end of June 30, 2024, totaled **$1,105,971**, a **substantial increase** from **$73,331** in the prior year[438](index=438&type=chunk) [Cash Used in Operating Activities](index=130&type=section&id=Cash%20Used%20in%20Operating%20Activities) This section presents the company's cash used in operating activities, highlighting cash used in operating activities was **$(2,594,214)** for the six months ended June 30, 2024 - Cash used in operating activities was **$(2,594,214)** for the six months ended June 30, 2024, **reflecting** a net **loss** of **$332,792**, adjusted for non-cash items of **$895,392**, and a **$1,366,030 decrease** in net changes in operating assets and liabilities[439](index=439&type=chunk) - The **decrease** in net changes in operating assets was **primarily due to** **decreases** in accounts payable and accrued liabilities and amounts **due to related parties**[439](index=439&type=chunk) [Cash Used in Investing Activities](index=130&type=section&id=Cash%20Used%20in%20Investing%20Activities) This section presents the company's cash used in investing activities, highlighting cash used for investing activities for the six months ended June 30, 2024, was **$(16,390)** - Cash used for investing activities for the six months ended June 30, 2024, was **$(16,390)**, **primarily due to $45,513** for **fixed asset** purchases, partially offset by **$29,123** cash acquired from the iDoc acquisition[441](index=441&type=chunk) [Cash Provided by Financing Activities](index=130&type=section&id=Cash%20Provided%20by%20Financing%20Activities) This section presents the company's cash provided by financing activities, highlighting cash provided by financing activities for the six months ended June 30, 2024, was **$3,597,841** - Cash provided by financing activities for the six months ended June 30, 2024, was **$3,597,841**, mainly from **$2,700,000** proceeds from the **Quantum Note** and **$1,323,362** from the recapitalization with DHAC[442](index=442&type=chunk) - This was partially offset by repayments on the Extension Note (**$365,750**), advances from a **related party** (**$47,800**), **factoring payable** (**$10,941**), and acquisition purchase (**$1,030**)[442](index=442&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=130&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that quantitative and qualitative disclosures about market risk are not applicable for this report [Item 4. Controls and Procedures](index=130&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of disclosure controls and procedures, noting material weaknesses related to filing delays - As of June 30, 2024, the company's disclosure controls and procedures were deemed not effective **due to** material weaknesses in internal control over financial reporting[445](index=445&type=chunk)[447](index=447&type=chunk) - A material weakness was identified relating to delays in filing, indicating a reasonable possibility of material misstatement not being prevented or detected timely[447](index=447&type=chunk) - The company plans to remediate these weaknesses by enhancing access to accounting literature, research materials, and **increasing** communication among personnel and third-party professionals[450](index=450&type=chunk) [PART II — OTHER INFORMATION](index=132&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=132&type=section&id=Item%201.%20Legal%20Proceedings) The company has no legal proceedings to report - The company has no legal proceedings to report[451](index=451&type=chunk) [Item 1A. Risk Factors](index=132&type=section&id=Item%201A.%20Risk%20Factors) As a smaller reporting company, VSee Health is exempt from Item 1A disclosures, with no material changes to risk factors - As a smaller reporting company, VSee Health is exempt from making disclosures under Item 1A[452](index=452&type=chunk) - There have been no material changes to the risk factors previously disclosed in the registration statements on Form S-1 filed on July 17, 2024, and August 7, 2024[452](index=452&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=132&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on unregistered sales of equity securities, detailing common stock issuance to satisfy a promissory note - iDoc Virtual Telehealth Solutions, Inc. issued **114,000** shares of the company's common stock to Mr. David L. Wickersham to fully satisfy a secured convertible promissory note of **$224,000**[454](index=454&type=chunk)[456](index=456&type=chunk) [Item 3. Defaults Upon Senior Securities](index=134&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There are no defaults upon senior securities to report - There are no defaults upon senior securities to report[456](index=456&type=chunk) [Item 4. Mine Safety Disclosures](index=134&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures to report - There are no mine safety disclosures to report[456](index=456&type=chunk) [Item 5. Other Information](index=134&type=section&id=Item%205.%20Other%20Information) There is no other information to report - There is no other information to report[456](index=456&type=chunk) [Item 6. Exhibits](index=134&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including agreements and certifications - The exhibits include the Third Amended and Restated Business Combination Agreement and its amendments, Second Amended and Restated Certificate of Incorporation, Certificate of Designation of **Series A Convertible Preferred Stock**, and Amended and Restated Bylaws[458](index=458&type=chunk) - Key agreements listed are various Securities Purchase Agreements, Additional Bridge Notes, Exchange Agreement, **Quantum Note**, Equity Purchase Agreement, and **related** registration rights and security agreements[458](index=458&type=chunk)[459](index=459&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Rule 13a-14(a) and 18 U.S.C. § 1350) are also included[461](index=461&type=chunk) [SIGNATURES](index=139&type=section&id=SIGNATURES) [Signatures](index=139&type=section&id=Signatures) This section contains the official signatures of the registrant's Co-Chief Executive Officer and Chief Financial Officer - The report was signed on September 23, 2024, by Imoigele Aisiku, Co-Chief Executive Officer and Chairman of the Board, and Jerry Leonard, Chief Financial Officer and Secretary[464](index=464&type=chunk)
VSee Health, Inc.(VSEE) - 2024 Q2 - Quarterly Report