VSee Health, Inc.(VSEE) - 2024 Q3 - Quarterly Report

Preliminary Information This section provides initial context, including cautionary notes on forward-looking statements and a summary of key risk factors Cautionary Note on Forward-Looking Statements & Risk Factors This section highlights that forward-looking statements are subject to uncertainties and outlines various risks, including competition, demand, potential losses, and financial fluctuations - Forward-looking statements are based on current management expectations and are inherently subject to uncertainties and changes in circumstances that may cause actual results to differ materially[6][7] - Key risks include operating in a competitive industry, high uncertainty regarding demand for software and solutions, potential for future losses, and challenges in evaluating the rapidly evolving nature of the business[7][8] - Operational and strategic risks encompass long and unpredictable sales cycles, potential medical malpractice risks, dependence on maintaining and expanding the telemedicine network, and challenges in developing new solutions or managing growth effectively[11][12][14][15][18] - Financial risks include the likely requirement for additional capital from equity or debt financings and potential volatility in the price of Common Stock and Public Warrants[21] PART I — FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows, with notes - The financial statements are unaudited and prepared in accordance with U.S. GAAP, with certain disclosures condensed or omitted for interim reporting[48] - The Business Combination on June 24, 2024, resulted in VSee Lab being the accounting acquirer, with historical comparative financial information prior to this date being that of VSee Lab[42][130] Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity, as of specified dates Condensed Consolidated Balance Sheets | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----------------------------------- | :----------- | :----------- | | Total Assets | $25,029,730 | $830,791 | | Total Liabilities | $20,270,718 | $4,243,438 | | Total Stockholders' Equity (Deficit) | $4,759,012 | $(3,412,647)$ | | Cash | $2,327,337 | $118,734 | - Total assets increased significantly by 2913% to $25,029,730 as of September 30, 2024, from $830,791 as of December 31, 2023, primarily due to the iDoc acquisition and related financing activities[26] Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss for the specified interim periods Metric (3 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Total Revenues | $3,354,437 | $1,451,471 | $1,902,966 | 131% | | Gross Margin | $2,413,049 | $973,072 | $1,439,977 | 148% | | Total Operating Expenses | $59,479,147 | $1,247,428 | $58,231,719 | 4668% | | Net Loss | $(51,751,525)$ | $(98,581)$ | $(51,652,944)$ | (52396)% | | Basic & Diluted Loss Per Share | $(3.43)$ | $(0.01)$ | $(3.42)$ | (34200)% | Metric (9 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Total Revenues | $6,561,998 | $4,337,962 | $2,224,036 | 51% | | Gross Margin | $4,747,717 | $2,809,954 | $1,937,763 | 69% | | Total Operating Expenses | $62,958,678 | $4,332,582 | $58,626,096 | 1353% | | Net Loss | $(52,084,317)$ | $(983,181)$ | $(51,101,136)$ | (5198)% | | Basic & Diluted Loss Per Share | $(6.24)$ | $(0.10)$ | $(6.14)$ | (6140)% | - Net loss significantly widened for both the three and nine months ended September 30, 2024, primarily due to $54,984,000 in goodwill impairment charges and increased operating expenses[27] Condensed Consolidated Statements of Shareholders' Equity (Deficit) This section outlines changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Metric | Metric | Sep 30, 2024 | Dec 31, 2023 | Change | % Change | | :----------------------------------- | :----------- | :----------- | :----------- | :------- | | Total Stockholders' Equity (Deficit) | $4,759,012 | $(3,412,647)$ | $8,171,659 | 239.4% | | Common Shares Outstanding | 15,362,278 | 4,639,643 | 10,722,635 | 231.1% | | Additional Paid-In Capital | $66,282,056 | $6,027,153 | $60,254,903 | 999.7% | | Accumulated Deficit | $(61,524,581)$ | $(9,114,985)$ | $(52,409,596)$ | 575% | - The company's total stockholders' equity shifted from a deficit of $(3,412,647) to a positive $4,759,012, primarily due to the Business Combination and related equity issuances, despite a significant increase in accumulated deficit[28][30] Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities Metric (9 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----------- | :------- | | Net Cash Used in Operating Activities | $(2,815,248)$ | $(523,436)$ | $(2,291,812)$ | 437.9% | | Net Cash Used in Investing Activities | $(21,384)$ | $(2,690)$ | $(18,694)$ | 693.5% | | Net Cash Provided by Financing Activities | $5,045,235 | $455,000 | $4,590,235 | 1008.8% | | Net Change in Cash and Cash Equivalents | $2,208,603 | $(71,126)$ | $2,279,729 | (3205)% | | Cash and Cash Equivalents, End of Period | $2,327,337 | $159,538 | $2,167,799 | 1358.8% | - Cash used in operating activities increased significantly by 437.9% to $(2,815,248) for the nine months ended September 30, 2024, while cash provided by financing activities surged by 1008.8% to $5,045,235, leading to a positive net change in cash[33] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the accounting policies, significant transactions, and financial disclosures Note 1 Organization and Description of Business This note describes the company's operations, its telehealth platform, and the recent business combination with VSee Lab and iDoc - VSee Health, Inc. (formerly Digital Health Acquisition Corp.) operates a telehealth software platform, offering end-to-end encrypted video streaming integrated with medical device data and EMRs for virtual healthcare delivery[34] - On June 24, 2024, the company completed a business combination with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc., with VSee Lab treated as the accounting acquirer[35][42][130] - The business combination involved the re-designation of DHAC common stock and warrants, conversion of VSee Lab and iDoc shares into VSee Health common stock, and conversion of certain indebtedness into Series A preferred stock and common stock[36][37][38] Note 2 Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the condensed consolidated financial statements Basis of Presentation and Consolidation This section details the basis for financial statement preparation and the entities included in the consolidated financial reporting - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim reporting, with certain disclosures condensed or omitted[48] - The consolidated entities include VSee Health, Inc. and its wholly-owned subsidiaries: VSee Lab, Inc., iDoc Virtual Telehealth Solutions, Inc., Encompass Healthcare Billing, LLC, and This American Doc, Inc. (TAD)[49] - Historical comparative financial information prior to June 24, 2024, is that of VSee Lab, as it is the accounting acquirer in the business combination[42][50] Implications of Being an Emerging Growth Company This section explains the reduced reporting requirements and accounting standard adoption choices as an emerging growth company - VSee Health is an 'emerging growth company' and 'smaller reporting company,' allowing it to take advantage of reduced reporting requirements[51][53] - The company has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards, aligning with private company adoption dates[52] Segments This section identifies the company's operating segments, Healthcare Technology and Telehealth Services, and their evaluation - The company operates with two consolidated operating segments: Healthcare Technology (VSee Lab, Inc.) and Telehealth Services (iDoc Virtual Telehealth Solutions, Inc.)[56] - Management evaluates these segments to allocate resources and assess performance[55] Use of Estimates This section highlights the reliance on management estimates and assumptions in financial statement preparation - Financial statement preparation requires significant management estimates and assumptions, including those for revenue recognition, goodwill impairment, credit losses, fair value of financial instruments, and income taxes[57] - Estimates are based on historical experience and reasonable assumptions, but actual results could differ from these estimates[58] Income Taxes This section describes the accounting for income taxes, including deferred tax assets, liabilities, and valuation allowances - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities for future tax consequences[59] - Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized, based on the likelihood of sustaining income tax positions[61] Revenue Recognition This section details the company's revenue recognition policies, including the five-step process and various revenue sources - Revenue is recognized in accordance with ASC 606, depicting the transfer of promised goods or services to customers in an amount reflecting the expected consideration[62][408] - The five-step process for revenue recognition involves identifying contracts, performance obligations, transaction price, allocating price to obligations, and recognizing revenue upon satisfaction of performance obligations[63][66][67][68][69][410][413][414][415][416] - Revenue sources include subscription fees, professional services, technical engineering fees, patient fees (from Medicare, Medicaid, commercial insurers), telehealth fees, and institutional fees (e.g., EEG interpretation services)[71][83][84][85][86][87][90][418][430][431][432][433][434][437] Cost of Goods Sold This section outlines the primary components of cost of goods sold, including cloud hosting, personnel, and third-party services - Cost of goods sold primarily consists of expenses related to cloud hosting, personnel for customer success teams, third-party software services and contractors, and compensation for telehealth service providers[95][456] Transaction Expenses This section details the professional fees and other costs incurred in relation to the recent business combination - Transaction expenses related to the business combination totaled $646,303 for the three months and $1,653,448 for the nine months ended September 30, 2024, primarily for professional fees[96] Net Loss Per Common Share This section explains the calculation of basic and diluted loss per common share, excluding anti-dilutive securities - Basic and diluted loss per common share are computed, but potentially dilutive securities are excluded from diluted EPS calculations when a net loss is reported, as their inclusion would be anti-dilutive[97][98] Potentially Dilutive Securities Excluded from EPS Calculation (as of Sep 30, 2024) | Security Type | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2024 | | :---------------------------- | :------------------------------ | :----------------------------- | | Public Warrants | 11,500,000 | 11,500,000 | | Private Warrants | 557,000 | 557,000 | | Bridge Warrants | 173,913 | 173,913 | | Extension Warrants | 26,086 | 26,086 | | September 2024 Warrants | 740,741 | 740,741 | | Quantum Convertible Note | 1,881,600 | 1,881,600 | | Additional Bridge Notes | 78,465 | 78,465 | | Exchange Note | 1,023,207 | 1,023,207 | | ELOC Commitment Fee Note | 50,000 | 50,000 | | September 2024 Note | 1,277,778 | 1,277,778 | | Series A Preferred Stock Equivalents | 3,079,000 | 3,079,000 | | Stock Options Granted | 803,646 | 803,646 | Cash This section defines cash and cash equivalents, noting the absence of cash equivalents for the reported periods - The company considers all highly liquid investments with maturities of three months or less at the time of acquisition to be cash equivalents; there were no cash equivalents as of September 30, 2024, and December 31, 2023[99] Accounts Receivable and Credit losses This section describes the accounting for accounts receivable, including the allowance for credit losses using the CECL approach - Accounts receivable are carried at net realizable value, with an allowance for credit losses estimated using a forward-looking Current Expected Credit Losses (CECL) approach[100] Allowance for Credit Losses | Metric | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------------------------------------------------------------ | :----------- | :----------- | | Beginning allowance for credit losses | $32,457 | $0 | | Allowance for credit losses, due to acquisition | $1,696,553 | $0 | | Allowance for credit losses | $342,634 | $32,457 | | Less: Accounts receivable write-off included in allowance for credit losses above | $(9,200)$ | $0 | | Ending allowance for credit losses | $2,062,444 | $32,457 | - The allowance for credit losses significantly increased from $32,457 at December 31, 2023, to $2,062,444 at September 30, 2024, largely due to the iDoc acquisition[102] Prepaid Assets This section defines prepaid assets as costs paid in advance and expensed as they are consumed over time - Prepaid assets represent costs that have been paid but are not yet used up or expired, and are expensed as they are consumed[103] Leases This section details the accounting for operating and finance leases under ASC Topic 842, including right-of-use assets and liabilities - The company accounts for leases under ASC Topic 842, recognizing operating and finance lease right-of-use assets and liabilities at the present value of future lease payments[104] - The company has elected not to apply the recognition provisions of ASC 842 to short-term leases (12 months or less), instead recognizing lease payments on a straight-line basis[105] Fair Value of Financial Instruments This section defines fair value, its three-level hierarchy, and how various financial instruments are measured - Fair value is defined as the price received or paid in an orderly transaction between market participants, categorized into a three-level hierarchy (Level 1: quoted prices in active markets, Level 2: observable inputs other than quoted prices, Level 3: unobservable inputs)[106][107][108] - The carrying amounts for cash, due from related party, and accounts payable approximate fair value due to their short-term nature[107] Derivative Financial Instruments This section explains the accounting for derivative instruments, recorded at fair value with changes reported in operations - Derivative instruments are recorded at fair value on the grant date and re-valued at each reporting date, with changes in fair value reported in the condensed consolidated statements of operations[111] Warrant Instruments This section describes the classification of warrants as either equity or liability based on specific terms and accounting guidance - Warrants are classified as either equity-classified or liability-classified based on specific terms and applicable authoritative guidance (ASC 480 and ASC 815)[112] - The company's Public, Private, Bridge, Extension, and September 2024 Warrants are classified as equity, meeting the requirements for equity classification under ASC 815[113] Fixed Assets This section details the accounting for fixed assets, including historical cost, depreciation methods, and recent additions - Fixed assets are recorded at historical cost, less accumulated depreciation, calculated on the straight-line method over estimated useful lives of three to ten years[114] - The acquisition of iDoc resulted in significant additions to office and medical equipment and furniture fixed assets[114] Goodwill This section explains the accounting for goodwill, including impairment testing and the significant impairment charge recorded - Goodwill is evaluated for impairment at the reporting unit level by assessing whether the fair value of a reporting unit exceeds its carrying value, using both income and market-based models[115] - A non-cash goodwill impairment charge of $54,984,000 was recorded for the Telehealth Services reporting unit for the three and nine months ended September 30, 2024, due to triggering events like a decline in stock price and market capitalization[115][120] - As of the Business Combination closing on June 24, 2024, the fair value of goodwill was $59,900,694, with accumulated impairment charges of $54,984,000 as of September 30, 2024[115] Intangible Assets This section describes the company's intangible assets, their amortization, and their net carrying value - Intangible assets, primarily developed technology and customer lists acquired from iDoc, are presented at fair value, net of amortization[116] - Developed technology is amortized over five years, and customer relationships over ten years[116] Intangible Assets, Net (Sep 30, 2024) | Asset Type | Amount | | :--------------------- | :----------- | | Customer relationships | $2,100,000 | | Developed technology | $10,000,000 | | Total | $12,100,000 | | Less: Accumulated amortization | $(552,500)$ | | Intangible Assets, Net | $11,547,500 | Impairment of Long-lived and Intangible Assets This section outlines the company's policy for reviewing long-lived assets for impairment and the goodwill impairment charge - The company regularly reviews the carrying amount of long-lived assets for impairment based on anticipated undiscounted cash flows[119] - A non-cash goodwill impairment charge of $54,984,000 was recorded for the Telehealth Services reporting unit for the three and nine months ended September 30, 2024, triggered by a sustained decline in stock price and market capitalization[120] Original Issue Discount on Debt This section explains how debt discounts are recorded and amortized as interest expense over the life of notes payable - When notes payable are issued with a face value higher than the proceeds received, the difference is recorded as a debt discount and amortized as interest expense over the life of the underlying note payable[121] Loss Contingencies and Litigation This section describes the accounting for loss contingencies and the company's involvement in a lawsuit - Loss contingencies are recorded if probable and estimable; if not, but a material loss is reasonably possible, it is disclosed[122] - The company is involved in a lawsuit for alleged breach of contract and unjust enrichment, but the range of potential loss cannot be reasonably estimated as of September 30, 2024, so no reserve was established[273][274] Going Concern This section addresses the significant doubt about the company's ability to continue as a going concern and management's plans - Significant doubt exists about the company's ability to continue as a going concern due to persistent operating losses and a deteriorating liquidity position[123][125] - Management is implementing revenue enhancement strategies (new contracts, market expansion) and has secured an Equity Line of Credit (ELOC) for up to $50,000,000 to address these concerns[123][124] - There is no assurance that the measures taken will be successful or successful within one year after the financial statements are issued[126] Recent Accounting Pronouncements This section discusses the company's evaluation of recently issued accounting standards updates - The company is evaluating ASU No. 2023-07, 'Improvements to Reportable Segment Disclosures,' effective for annual periods beginning after December 15, 2023[127] - The company is also reviewing ASU No. 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024[128] Note 3 Business Combination This note details the Business Combination, including the acquisition of iDoc and the resulting goodwill - On June 24, 2024, VSee Health completed the Business Combination, acquiring iDoc Telehealth Solutions, Inc. and undergoing a reverse recapitalization with DHAC, with VSee Lab as the accounting acquirer[130][146] - The acquisition of iDoc resulted in $59,900,694 in goodwill, primarily related to plans to harness scale and grow the platform for all stakeholders[134][140] iDoc Purchase Consideration (June 24, 2024) | 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 (convertible into 150,000 common shares at $12.11 per share) | $1,816,500 | | Total Purchase Consideration | $68,936,175 | Pro Forma Financial Information (Combined VSee Health & iDoc) | Metric (3 Months Ended Sep 30) | 2024 | 2023 | | :----------------------------- | :--------- | :----------- | | Total Revenues | $3,354,437 | $3,076,235 | | Net Loss | $(368,063)$ | $(1,322,199)$ | | Basic & Diluted Net Loss Per Share | $(0.02)$ | $(0.09)$ | Note 4 Fixed Assets This note provides a detailed breakdown of fixed assets, including additions from the iDoc acquisition and depreciation Fixed Assets, Net | Asset Type | Sep 30, 2024 | Dec 31, 2023 | | :--------------------- | :----------- | :----------- | | Office equipment | $23,259 | $3,335 | | Medical equipment | $123,095 | $1,000 | | Furniture | $5,045 | $0 | | Leased equipment | $736,624 | $0 | | Leasehold improvements | $6,604 | $0 | | Total Fixed Assets | $894,627 | $4,335 | | Less: Accumulated depreciation | $(99,939)$ | $(678)$ | | Fixed Assets, Net | $794,688 | $3,657 | - Depreciation expense was $7,253 (three months) and $9,735 (nine months) for 2024, while amortization expenses were $85,986 (three months) and $89,526 (nine months) for 2024, primarily due to the iDoc acquisition[151] Note 5 Leases This note details the company's operating and finance leases, including right-of-use assets and liabilities assumed from iDoc - The company assumed operating leases for office space and finance leases for office equipment from iDoc as part of the business combination[153][161] Operating Lease Right-of-Use Assets and Liabilities (Sep 30, 2024) | Metric | Amount | | :---------------------------- | :---------- | | Office lease ROU assets | $433,173 | | Less: Accumulated amortization | $(15,338)$ | | Right-of-use assets, net | $417,835 | | Office lease liability | $358,221 | | Less: Current portion | $(68,958)$ | | Long-term portion | $289,263 | Finance Lease Right-of-Use Assets and Liabilities (Sep 30, 2024) | Metric | Amount | | :---------------------------- | :---------- | | Equipment lease ROU assets | $736,624 | | Less: Accumulated amortization | $(89,526)$ | | Leased equipment, net | $647,098 | | Equipment lease liability | $372,642 | | Less: Current portion | $(191,330)$ | | Long-term portion | $181,312 | Note 6 Factoring Payable This note describes the factoring payable liabilities assumed from iDoc, including their balances and collateralization - The company assumed several factoring payable liabilities from iDoc, totaling $208,788 as of September 30, 2024[26] - These agreements involve the sale of future receipts with weekly collections, and some are collateralized by the company's assets[169][175] Factoring Payable Balances (Sep 30, 2024) | Agreement Date | Balance (Sep 30, 2024) | | :------------- | :--------------------- | | June 21, 2023 | $69,027 | | June 28, 2023 | $26,371 | | Oct 13, 2023 (1) | $92,916 | | Oct 13, 2023 (2) | $14,099 | | Jan 11, 2024 | $6,375 | | Total | $208,788 | Note 7 Line of Credit and Notes Payable, Net of Discount This note details the company's various notes payable, lines of credit, and their fair value accounting Notes Payable, Net of Discount (Sep 30, 2024) | Note Description | Sep 30, 2024 | Dec 31, 2023 | | :------------------------------- | :----------- | :----------- | | Note payable issued Nov 29, 2021 | $336,983 | $0 | | Note payable issued Dec 1, 2021 | $1,500,600 | $0 | | Note payable issued Jan 12, 2023 | $0 | $220,000 | | Note payable issued Aug 18, 2023 | $64,000 | $0 | | Note payable issued Nov 13, 2023 | $22,000 | $0 | | Note payable issued Jan 14, 2024 | $16,200 | $0 | | Total Notes Payable | $1,939,783 | $220,000 | | Less: Current portion | $(439,183)$ | $(220,000)$ | | Less: Fair value adjustment | $(906,659)$ | $0 | | Total Notes Payable, Net | $593,941 | $0 | - Several notes payable assumed from iDoc, including a $336,983 promissory note (Nov 2021) and a $1,500,600 promissory note (Dec 2021), are currently in default[181][182] - The company secured $2,700,000 from the Quantum Convertible Note and $2,000,000 from the September 2024 Convertible Note during the nine months ended September 30, 2024[33][220][234] - Key financing instruments like the Exchange Note, Additional Bridge Notes, Quantum Convertible Note, ELOC, ELOC Commitment Fee Note, and September 2024 Convertible Note are accounted for as liabilities at fair value due to variable share settlement features[203][208][220][226][231][240] Note 8 Related Party This note discloses transactions and balances with related parties, including former CEOs and a Sponsor affiliate - VSee Lab had promissory notes with its former CEO, Milton Chen, totaling $121,000, $132,000, and $77,000, many of which are in default with increased interest rates[250][252][253] - iDoc had a $795,380 balance due from its former CEO, Imoigele Aisiku, and a $245,500 note receivable from him, both unsecured and non-interest-bearing[255][256] - The company entered into a Consulting Services Agreement with SCS, LLC (a Sponsor affiliate) for $12,500/month for consulting and $2,500/month for office space, and issued shares as compensation[266][268] - Working capital funds of $405,000 advanced by SCS, LLC were converted into 202,500 shares of Common Stock on November 8, 2024, with approximately $52,000 remaining due[270][389] Note 9 Commitments, Contingencies, and Concentration Risk This note outlines the company's legal proceedings, contractual commitments, and customer/vendor concentration risks - The company is a defendant in a lawsuit for alleged breach of contract and unjust enrichment, but the range of potential loss cannot be reasonably estimated as of September 30, 2024[273][274] - Commitments include a reseller agreement for $1,049,985 (unpaid $82,677) and a purchase agreement for 20 Telepresence Robots for $711,900 (unpaid $179,900)[275][278] - As of September 30, 2024, there was no single customer concentration over 10% of total receivables, but one customer accounted for 10% of total revenue for the three months ended September 30, 2024[286][287] - One vendor represented 29% of the company's total accounts payable and accrued liabilities as of September 30, 2024[288] Note 10 Income Taxes This note details the company's income tax accounting, including deferred tax assets, valuation allowances, and effective tax rate - The company maintains a full valuation allowance against deferred tax assets due to the uncertainty of realizing future tax benefits from net operating loss carry-forwards and other deferred tax assets[289] - For the nine months ended September 30, 2024, the company recorded an income tax benefit of $2,791,238, with an effective tax rate of 5.1% that varied from the statutory federal rate due to state income taxes, adjustments, goodwill impairment, and fair value changes[291] Note 11 Equity This note describes the company's equity structure, including Series A Preferred Stock, Common Stock, and stock options - The company has Series A Convertible Preferred Stock outstanding (6,158 shares as of September 30, 2024) with specific voting, dividend, liquidation, and conversion rights[293][294][295][296][297] - As of September 30, 2024, there were 15,362,278 shares of Common Stock outstanding, with holders entitled to one vote per share, ratable dividends (if declared), and a ratable share of assets upon liquidation[305][306][307][308][309] - 803,646 stock options were granted at the Business Combination closing under the 2024 Equity Incentive Plan, with 174,302 unvested options subject to compensation expense recognition over a one-year service period[311][314] - Share-based compensation expense of $349,095 and $381,084 was recognized for the three and nine months ended September 30, 2024, respectively[316] Note 12 Warrants This note details the company's outstanding warrants, their classification, exercise prices, and redemption provisions - All Public, Private, Bridge, Extension, and September 2024 Warrants are classified as equity instruments, meeting the requirements under ASC 815[317] Warrants Outstanding (Sep 30, 2024) | Warrant Type | Number Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | | :-------------------- | :----------------- | :------------------------------ | :-------------------------------------- | | Public Warrants | 11,500,000 | $11.50 | 4.73 | | Private Warrants | 557,000 | $11.50 | 4.73 | | Bridge Warrants | 173,913 | $11.50 | 3.01 | | Extension Warrants | 26,086 | $11.50 | 3.60 | | September 2024 Warrants | 740,741 | $2.25 | 5.00 | | Total | 12,997,740 | $9.65 | 4.22 | - Warrants are generally exercisable for one common stock share at $11.50, with the September 2024 Warrants at $2.25, and include provisions for redemption and cashless exercise under certain conditions[319][321][324][353] Note 13 Reportable Segments This note provides financial information for the company's two reportable segments: Technology and Telehealth - The company has two reportable operating segments: Technology (VSee Lab) and Telehealth (iDoc), and a non-operating corporate segment, with the Co-CEOs serving as the chief operating decision makers[105][363] Revenues by Segment (9 Months Ended Sep 30) | Segment | 2024 | 2023 | | :--------- | :----------- | :----------- | | Technology | $5,385,359 | $4,337,962 | | Telehealth | $1,176,638 | $0 | | Total | $6,561,998 | $4,337,962 | Loss from Operations by Segment (9 Months Ended Sep 30) | Segment | 2024 | 2023 | | :---------------------- | :--------------- | :--------------- | | Technology | $23,942 | $(1,522,628)$ | | Telehealth | $(55,972,646)$ | $0 | | Non-operating corporate | $(2,262,256)$ | $0 | | Total | $(58,210,961)$ | $(1,522,628)$ | Note 14 Fair Value Measurements This note details the fair value measurements of financial liabilities, classified as Level 3, and the valuation models used - Financial liabilities measured at fair value, including various convertible notes and ELOC instruments, are classified as Level 3 due to the use of unobservable inputs[371] Fair Value of Financial Liabilities (Sep 30, 2024) | Liability Type | Fair Value | Level | | :------------------------------ | :----------- | :---- | | Quantum Convertible Note | $2,985,000 | 3 | | ELOC | $177,000 | 3 | | ELOC Commitment Fee Note | $495,000 | 3 | | Additional Bridge Notes | $122,000 | 3 | | Exchange Note | $1,851,000 | 3 | | September 2024 Convertible Note | $2,000,000 | 3 | - The fair values are determined using models such as Monte Carlo and Black-Scholes, with significant changes in fair value recognized in the condensed consolidated statement of operations[372][376][378][381][383][385][387] Note 15 Subsequent Events This note discloses significant events that occurred after the reporting period, including equity sales and conversions - As of October 21, 2024, the Bridge Investor purchased $200,000 worth of common stock from the company pursuant to the Equity Purchase Agreement[388] - On November 8, 2024, $405,000 of working capital funds advanced by SCS, LLC were converted into 202,500 shares of Common Stock[389] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, analyzing revenue, expenses, net loss, cash flows, and the Business Combination impact Overview This section provides an overview of VSee Health's business, including its telehealth platform and the iDoc acquisition - VSee Health completed a Business Combination on June 24, 2024, integrating VSee Lab's telehealth software platform and iDoc's high acuity patient care solutions[392][393][398] - The company's core platform is a highly scalable, API-driven technology for virtual healthcare delivery, offering configurable software building blocks and workflow templates[393][395] - iDoc provides elite physician services in intensive care units, including neuro-critical care and general critical care, aiming to address physician burnout and patient access to quality intensive care[398][399] Performance Factors This section discusses key factors influencing the company's performance, including market growth and innovation - The telehealth market is characterized by rapid transformation and strong future growth potential, offering an attractive value proposition to health systems and medical groups[400] - The company plans to leverage industry relationships to expand its customer base and market share within the growing telehealth market[401] - Innovation and new product offerings are critical for long-term success, addressing existing limitations in telehealth technology such as lack of healthcare-specific tools and integration issues[402][403][404][405] Critical Accounting Estimates This section highlights management's critical accounting estimates, including revenue recognition, goodwill, and asset impairment - Management's critical accounting estimates include revenue recognition (following ASC 606), fair value of financial instruments (using a three-level hierarchy), goodwill impairment, and impairment of long-lived and intangible assets[406][408][442][444][445] - A non-cash goodwill impairment charge of $54,984,000 was recorded for the Telehealth Services reporting unit for the three and nine months ended September 30, 2024, due to a decline in stock price and market capitalization[444][448] Financial Statement Components This section provides a detailed analysis of the components of the company's financial statements Revenue This section analyzes the company's revenue performance, detailing changes across subscription, technical, and professional fees Revenue Performance (3 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Total Revenues | $3,354,437 | $1,451,471 | $1,902,966 | 131% | | iDoc Acquisition Revenue | $1,114,069 | $0 | $1,114,069 | 100% | | Technical & Engineering Fees | $806,456 | $219,978 | $586,478 | 267% | | Professional & Other Fees | $396,455 | $283,968 | $112,487 | 40% | | Subscription Revenue | $1,037,457 | $947,525 | $89,932 | 9% | Revenue Performance (9 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Total Revenues | $6,561,998 | $4,337,962 | $2,224,036 | 51% | | iDoc Acquisition Revenue | $1,176,638 | $0 | $1,176,638 | 100% | | Technical & Engineering Fees | $1,159,345 | $444,315 | $715,030 | 161% | | Professional & Other Fees | $1,145,930 | $762,300 | $383,630 | 50% | | Subscription Revenue | $3,080,085 | $3,131,347 | $(51,262)$ | (2)% | - Revenue increased by 131% for the three months and 51% for the nine months ended September 30, 2024, primarily driven by the iDoc acquisition and higher technical/professional fees[454][455] Cost of Goods Sold This section analyzes the company's cost of goods sold, detailing the impact of the iDoc acquisition and other expenses Cost of Goods Sold Performance (3 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Cost of Goods Sold | $941,388 | $478,399 | $462,989 | 97% | | iDoc Acquisition Impact | $423,382 | $0 | $423,382 | 100% | | VSee Lab Compensation Expenses | $127,289 | $71,500 | $55,789 | 78% | | VSee Lab Software & Hosting Costs | $(85,664)$ | $285,500 | $(371,164)$ | (30)% | Cost of Goods Sold Performance (9 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Cost of Goods Sold | $1,814,281 | $1,528,008 | $286,273 | 19% | | iDoc Acquisition Impact | $448,713 | $0 | $448,713 | 100% | | VSee Lab Hosting Costs | $(154,613)$ | $672,000 | $(826,613)$ | (23)% | | VSee Lab Software Costs | $(91,871)$ | $213,000 | $(304,871)$ | (43)% | - Cost of goods sold increased by 97% for the three months and 19% for the nine months ended September 30, 2024, primarily due to the iDoc acquisition and higher compensation expenses, partially offset by lower software and hosting costs[457][458] Operating Expenses This section analyzes the company's operating expenses, highlighting the impact of goodwill impairment and administrative costs Operating Expenses Performance (3 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Total Operating Expenses | $59,479,147 | $1,247,428 | $58,231,719 | 4668% | | Goodwill Impairment Charges | $54,984,000 | $0 | $54,984,000 | 100% | | General & Administrative | $2,170,217 | $224,874 | $1,945,343 | 865% | | Transaction Expenses | $646,303 | $9,066 | $637,237 | 7029% | Operating Expenses Performance (9 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Total Operating Expenses | $62,958,678 | $4,332,582 | $58,626,096 | 1353% | | Goodwill Impairment Charges | $54,984,000 | $0 | $54,984,000 | 100% | | General & Administrative | $2,830,615 | $832,513 | $1,998,102 | 240% | | Transaction Expenses | $1,653,448 | $66,411 | $1,587,037 | 2389% | - Operating expenses dramatically increased by 4,668% for the three months and 1,353% for the nine months ended September 30, 2024, primarily driven by a $54,984,000 goodwill impairment charge and increased general and administrative and transaction expenses[461][462] Other Income (Expense) This section analyzes other income and expenses, focusing on fair value changes, interest expense, and extinguishment losses Other Income (Expense) Performance (3 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :-------------------------------------------- | :----------- | :----------- | :----------- | :------- | | Total Other Income (Expense) | $4,764,543 | $(57,941)$ | $4,822,484 | (8323)% | | Change in Fair Value of Financial Instruments | $5,737,606 | $(21,629)$ | $5,759,235 | (26638)% | | Interest Expense | $(232,082)$ | $(36,312)$ | $(195,770)$ | 539% | | Loss on Extinguishment | $(740,979)$ | $0 | $(740,979)$ | 100% | Other Income (Expense) Performance (9 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :-------------------------------------------- | :----------- | :----------- | :----------- | :------- | | Total Other Income (Expense) | $3,335,406 | $(51,507)$ | $3,386,913 | (6576)% | | Change in Fair Value of Financial Instruments | $6,285,706 | $92,448 | $6,193,258 | 6700% | | Interest Expense | $(591,087)$ | $(163,574)$ | $(427,513)$ | 261% | | Loss on Issuance of Financial Instruments | $(1,618,234)$ | $0 | $(1,618,234)$ | 100% | - Other income (expense) saw a significant increase in income for both periods, primarily driven by a substantial gain on the change in fair value of debt and derivative financial instruments, partially offset by higher interest expense and losses on extinguishment[463][464] Net Loss This section analyzes the company's net loss, primarily driven by goodwill impairment and financial instrument fair value changes Net Loss Performance (3 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Net Loss | $(51,751,525)$ | $(98,581)$ | $(51,652,944)$ | (52396)% | Net Loss Performance (9 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :----------------------------- | :----------- | :----------- | :----------- | :------- | | Net Loss | $(52,084,317)$ | $(983,181)$ | $(51,101,136)$ | (5198)% | - Net loss significantly increased for both periods, primarily driven by the substantial goodwill impairment charges and losses on extinguishment and issuance of financial instruments, partially offset by gains from fair value changes[464][465] Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities for the period Cash Flow Summary (9 Months Ended Sep 30) | Metric | 2024 | 2023 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----------- | :------- | | Net Cash Used in Operating Activities | $(2,815,248)$ | $(523,436)$ | $(2,291,812)$ | 437.9% | | Net Cash Used in Investing Activities | $(21,384)$ | $(2,690)$ | $(18,694)$ | 693.5% | | Net Cash Provided by Financing Activities | $5,045,235 | $455,000 | $4,590,235 | 1008.8% | | Net Change in Cash | $2,208,603 | $(71,126)$ | $2,279,729 | (3205)% | - Cash used in operating activities for the nine months ended September 30, 2024, was $2,815,248, driven by net loss adjusted for non-cash items like goodwill impairment and fair value changes[469] - Cash provided by financing activities for the nine months ended September 30, 2024, was $5,045,235, primarily from proceeds of the Quantum Note ($2.7M), September 2024 Convertible Note ($2.0M), and cash from the DHAC recapitalization ($1.3M)[472] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is marked as 'Not applicable' for the company - The company states that quantitative and qualitative disclosures about market risk are 'Not applicable' for this report[474] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in internal control over financial reporting, with remediation plans underway - As of September 30, 2024, the company's disclosure controls and procedures were deemed 'not effective' due to material weaknesses in internal control over financial reporting[477] - The material weakness is related to delays in filing and the ability to identify and appropriately apply complex accounting standards on a timely basis[478][481] - Remediation plans include providing enhanced access to accounting literature, research materials, and increasing communication among personnel and third-party professionals[481] PART II — OTHER INFORMATION This section provides disclosures on legal proceedings, equity sales, defaults, and other miscellaneous information Item 1. Legal Proceedings The company reports no legal proceedings under this item - The company reports 'None' for legal proceedings under this item[482] Item 1A. Risk Factors As a smaller reporting company, no disclosures are required, and no material changes to prior risk factors occurred - As a smaller reporting company, the company is not required to make disclosures under this item[483] - There have been no material changes to the risk factors disclosed in previous registration statements on Form S-1[483] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered sales of equity securities, including shares granted to vendors and converted from advances - On August 5, 2024, the company granted 227,500 shares of common stock to certain vendors as consideration for services rendered[484] - On November 8, 2024, $405,000 of working capital funds advanced by SCS, LLC (a Sponsor affiliate) were converted into 202,500 shares of Common Stock[485] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - The company reports 'None' for defaults upon senior securities[487] Item 4. Mine Safety Disclosures The company reports no mine safety disclosures - The company reports 'None' for mine safety disclosures[487] Item 5. Other Information The company reports no other information under this item - The company reports 'None' for other information[487] Item 6. Exhibits This section lists all exhibits filed or incorporated by reference into the Quarterly Report on Form 10-Q - The report includes various exhibits such as warrants, convertible notes, equity purchase agreements, and certifications, filed as part of or incorporated by reference into the Form 10-Q[486][488] SIGNATURES This section contains the official signatures certifying the submission of the report in accordance with Exchange Act requirements Signatures The report is signed by the Co-Chief Executive Officer and Chief Financial Officer on November 14, 2024 - The report is signed by Imoigele Aisiku (Co-Chief Executive Officer and Chairman of the Board) and Jerry Leonard (Chief Financial Officer and Secretary) on November 14, 2024[491]