Digital Health Acquisition (DHAC) - 2025 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section details VSee Health, Inc.'s unaudited condensed consolidated financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements This section provides VSee Health, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' deficit, cash flows, and comprehensive explanatory notes Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' deficit as of March 31, 2025, and December 31, 2024 | ASSETS (Unaudited) | March 31, 2025 | December 31, 2024 | | :------------------- | :------------- | :---------------- | | Cash | $410,122 | $326,115 | | Total current assets | $3,079,853 | $3,020,967 | | Total assets | $19,395,686 | $19,992,488 | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | Total current liabilities | $21,982,860 | $19,010,320 | | Total liabilities | $22,892,683 | $20,010,976 | | Total stockholders' deficit | $(3,496,997) | $(18,488) | - The company's total assets decreased from $19,992,488 as of December 31, 2024, to $19,395,686 as of March 31, 2025. Total liabilities increased significantly from $20,010,976 to $22,892,683, leading to a substantial increase in stockholders' deficit from $(18,488) to $(3,496,997)[15] Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net income or loss for the three months ended March 31, 2025, and 2024 | (UNAUDITED) | For the Three Months Ended March 31, 2025 | For the Three Months Ended March 31, 2024 (Restated) | | :-------------------------------- | :---------------------------------------- | :--------------------------------------------------- | | Total revenues | $3,321,485 | $1,620,995 | | Cost of revenues | $1,461,514 | $386,253 | | Gross margin | $1,859,971 | $1,234,742 | | Total operating expenses | $3,691,289 | $1,130,682 | | Net operating profit (loss) income | $(1,831,318) | $104,060 | | Total other income (expense), net | $(2,114,617) | $(9,310) | | Net (loss) income | $(3,959,440) | $94,750 | | Net (loss) income attributable to stockholders | $(3,959,440) | $62,770 | | Basic (loss) income per common share | $(0.24) | $0.01 | - Total revenues increased by 105% to $3,321,485 for Q1 2025 compared to $1,620,995 for Q1 2024. However, the company reported a net loss of $(3,959,440) for Q1 2025, a significant decline from a net income of $94,750 in Q1 2024, primarily due to increased operating expenses and other expenses, including a substantial change in fair value of financial instruments[17] Condensed Consolidated Statements of Stockholders' Deficit This statement outlines changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit, for the period ended March 31, 2025 | Stockholders' Deficit | Balance - December 31, 2024 | Net loss for the period ending March 31, 2025 | Balance - March 31, 2025 | | :-------------------- | :-------------------------- | :-------------------------------------------- | :----------------------- | | Common Stock Amount | $1,630 | $13 | $1,643 | | Additional Paid-In Capital | $67,683,754 | $480,918 | $68,164,672 | | Accumulated Deficit | $(67,703,873) | $(3,959,440) | $(71,663,313) | | Total Stockholders' Deficit | $(18,488) | $(3,959,440) | $(3,496,997) | - The total stockholders' deficit significantly increased from $(18,488) at December 31, 2024, to $(3,496,997) at March 31, 2025, primarily driven by a net loss of $(3,959,440) for the three months ended March 31, 2025[18] Condensed Consolidated Statements of Cash Flows This statement summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2025, and 2024 | CASH FLOWS (UNAUDITED) | For Three Months Ended March 31, 2025 | For Three Months Ended March 31, 2024 (Restated) | | :----------------------- | :------------------------------------ | :----------------------------------------------- | | Net cash (used in) provided by operating activities | $(440,493) | $579,286 | | Net cash used in investing activities | $(11,873) | $(8,740) | | Net cash provided by financing activities | $536,373 | $0 | | NET CHANGE IN CASH | $84,007 | $570,546 | | CASH, END OF PERIOD | $410,122 | $689,280 | - The company experienced a shift from positive operating cash flow of $579,286 in Q1 2024 to negative operating cash flow of $(440,493) in Q1 2025. Net cash provided by financing activities significantly increased to $536,373 in Q1 2025, primarily from notes issued and common stock issuance, offsetting the operating cash burn[21] Note 1 Organization and Description of Business This note describes VSee Health, Inc.'s business as a telehealth software company, its recent business combination, and management's assessment of its going concern ability - VSee Health, Inc. (formerly Digital Health Acquisition Corp.) is a telehealth software company providing a scalable, API-driven platform for virtual healthcare delivery, integrating secure video with medical device data and EMRs[22] - On June 24, 2024, the Company completed a business combination with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc., with VSee Lab identified as the accounting acquirer. The acquisition of iDoc was treated as a business combination[23][24] - Management has identified substantial doubt about the Company's ability to continue as a going concern due to persistent operating losses and deteriorating liquidity. Measures to address this include new contracts (e.g., iDoc acquisition), negotiations for additional financing, and an existing equity line of credit (ELOC) for up to $50 million[25][26][28] Note 2 Restatement of Previously Issued Financial Statements This note explains the restatement of VSee Lab's financial statements due to errors in accrued expenses and revenue recognition cutoff for March 31, 2024 - The Company restated VSee Lab's condensed consolidated financial statements as of March 31, 2024, due to errors in recognizing and measuring accrued expenses and improper revenue transaction cutoff[29] - Key errors included failure to accrue $821,291 for sales and use taxes (affecting liabilities and accumulated deficit) and incorrect cutoff of a $125,000 technical engineering revenue transaction, which was subsequently recognized in Q1 2024[31] Impact of Restatement on VSee Lab, Inc. Financial Statements (March 31, 2024) | Line Item | As Reported | Adjustment | As Restated | | :------------------------------------------ | :---------- | :--------- | :---------- | | Accounts Payable and Accrued Liabilities | $1,819,512 | $821,292 | $2,640,804 | | Total Liabilities | $4,814,257 | $821,292 | $5,635,549 | | Accumulated Deficit | $(9,117,796) | $(821,292) | $(9,939,088) | | Total Stockholders' Deficit | $(3,383,478) | $(821,292) | $(4,204,770) | | Revenues, technical engineering fees | $162,950 | $125,000 | $287,950 | | Total revenue | $1,495,995 | $125,000 | $1,620,995 | | Net (loss) income attributable to shareholders | $(2,811) | $65,581 | $62,770 | Note 3 Summary of Significant Accounting Policies This note details the accounting principles used, including consolidation, segment reporting, revenue recognition, goodwill, and intangible assets - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP, including VSee Health, Inc. and its 100% wholly-owned subsidiaries VSee Lab and iDoc, and their subsidiaries. Historical data prior to June 24, 2024, reflects VSee Lab's operations[32][33] - The Company operates in two consolidated operating segments: Healthcare Technology (VSee Lab) and Telehealth Services (iDoc), with management evaluating performance and allocating resources based on these segments[36][37] - Revenue is recognized following ASC 606, based on a five-step model, for subscription fees, professional services, technical engineering fees, patient fees, and institutional fees. Patient fees involve third-party payors (Medicare, Medicaid, Commercial Insurance) and are presented net of estimated contractual adjustments and credit losses[42][43][57][60][61][62] - Goodwill is evaluated for impairment annually or when triggering events occur. A non-cash goodwill impairment charge of $56,675,210 was recorded in 2024 for the Telehealth Services reporting unit. No impairment indicators were identified for Q1 2025[88] - Intangible assets, primarily developed technology ($10 million) and customer relationships ($2.1 million) from the iDoc acquisition, are amortized over 5 and 10 years, respectively. Amortization expense for Q1 2025 was $552,500[90] Note 4 Business Combination This note describes the June 2024 business combination with VSee Lab and iDoc, including the acquisition accounting and purchase price allocation - On June 24, 2024, VSee Health, Inc. completed a business combination with VSee Lab and iDoc. The transaction was accounted for as a reverse recapitalization with VSee Lab as the accounting acquirer, and iDoc's acquisition was treated as a business combination[97] - The acquisition of iDoc, a provider of tele-intensive acute and neurocritical care services, enhanced the Company's platform by integrating clinical capabilities and expanding telehealth offerings[98] - The aggregate consideration for the iDoc acquisition was $68.9 million, consisting of 5,542,500 common shares and 300 Series A preferred shares (convertible into 150,000 common shares)[99] - The purchase price allocation included $10 million for developed technology and $2.1 million for customer relationships, resulting in goodwill of approximately $61.6 million. A goodwill impairment charge of $56.7 million was recorded in December 2024[100] Note 5 Leases This note provides details on the company's operating and finance leases, including right-of-use assets, liabilities, and associated expenses Operating Lease Right-of-Use Assets (Net) | | March 31, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Office lease | $433,173 | $433,173 | | Less: Accumulated amortization | $(74,112) | $(53,588) | | Right-of-use assets, net | $359,061 | $379,585 | Operating Lease Liabilities | | March 31, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Office lease | $325,396 | $342,174 | | Less: current portion | $(76,892) | $(72,836) | | Long term portion | $248,504 | $269,338 | - Operating lease expense for the three months ended March 31, 2025, was $35,635. The weighted average remaining lease term for operating leases is 3.3 years with a weighted average discount rate of 18%[105][106] Finance Lease Right-of-Use Assets (Net) | | March 31, 2025 | December 31, 2024 | | :------------------------ | :------------- | :---------------- | | Equipment lease | $736,624 | $736,624 | | Less: Accumulated amortization | $(286,619) | $(200,633) | | Leased equipment, net | $450,005 | $535,991 | - Finance lease liabilities were reclassified to current liabilities due to a revised forbearance agreement, with total finance lease expense of $100,970 for Q1 2025. The weighted average remaining lease term is 1.3 years with a discount rate of 19.3%[107][111][112] Note 6 Accounts Payable and Accrued Liabilities This note breaks down the components of accounts payable and accrued liabilities, highlighting changes between reporting periods Components of Accounts Payable and Accrued Liabilities | Component | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Accounts payable | $4,208,106 | $4,283,397 | | Accrued compensation and benefits | $2,330,203 | $2,176,070 | | Accrued interest | $536,057 | $558,358 | | Accrued sales and use tax | $1,067,461 | $999,547 | | Accrued financing lease | $482,830 | $446,890 | | Other accrued liabilities | $833,388 | $879,397 | | Total | $9,458,045 | $9,343,659 | - Total accounts payable and accrued liabilities increased from $9,343,659 at December 31, 2024, to $9,458,045 at March 31, 2025, primarily driven by increases in accrued compensation and benefits and accrued sales and use tax[113] Note 7 Factoring Payable This note explains the factoring payable liabilities assumed from the iDoc acquisition, detailing the outstanding balances - As a result of the iDoc acquisition, the Company assumed factoring payable liabilities. These agreements involve selling future receipts for a net purchase price, with weekly collections authorized to the factoring purchaser[114] Factoring Payable Balances | Factoring Agreement | March 31, 2025 | December 31, 2024 | | :------------------ | :------------- | :---------------- | | June 21, 2023 | $51,300 | $59,527 | | June 28, 2023 | $24,480 | $34,315 | | October 13, 2023 | $74,600 | $85,166 | | Total | $150,380 | $179,007 | Note 8 Line of Credit and Notes Payable, net of discount This note provides a comprehensive overview of the company's debt instruments, including new notes issued, fair value adjustments, and default statuses Summary of Notes Payable and Line of Credit | Note Payable | March 31, 2025 | December 31, 2024 | | :------------------------------------------ | :------------- | :---------------- | | Note payable issued November 29, 2021 | $336,983 | $336,983 | | Note payable issued December 1, 2021 | $1,500,600 | $1,500,600 | | Note payable issued August 18, 2023 | $33,000 | $33,000 | | Note payable issued November 29, 2023 | $64,000 | $64,000 | | Note payable issued March 20, 2025 (Convertible) | $238,020 | - | | Note payable issued March 20, 2025 (Promissory) | $418,603 | - | | Total notes payable and line of credit | $2,591,206 | $1,934,583 | | Less: Current portion | $(1,090,606) | $(433,983) | | Less: Fair value adjustment for debt | $(906,659) | $(906,659) | | Total notes payable, net of current portion | $593,941 | $593,941 | - The Company issued new March 2025 Convertible Note ($238,020 fair value) and March 2025 Promissory Note ($418,603 outstanding balance) during Q1 2025, significantly increasing total notes payable. Several existing notes are in default, leading to their classification as current liabilities[116][117][119][120][126][127][132] - The Exchange Note's fair value increased from $1,499,000 at December 31, 2024, to $2,462,897 at March 31, 2025, with a change in fair value of $953,739 recognized in Q1 2025. The Quantum Convertible Note's fair value also increased from $3,248,000 to $3,691,806, with a $96,194 change in fair value recognized[145][161] - The ELOC Purchase Agreement, classified as a liability and measured at fair value, had a fair value of $44,953 at March 31, 2025, down from $80,000 at December 31, 2024, resulting in a $35,047 gain on change in fair value. The floor price was modified to $1.25 in March 2025[164][168][171] - The September 2024 Convertible Note's fair value increased from $2,094,000 to $2,572,734, with a $459,290 change in fair value recognized in Q1 2025. The note is convertible at $2.00 per share and secured by company assets[177][179][183] Note 9 Related Party This note discloses transactions and balances with related parties, including former CEOs and Sponsor affiliates - Related party transactions include promissory notes from the former CEO, Milton Chen, to VSee Lab, totaling $323,000 in principal, which are currently in default and accruing interest at 26%[187] - iDoc had a related party balance due from its former CEO, Imoigele Aisiku, of $292,156 as of March 31, 2025, which is unsecured and non-interest-bearing. A $336,000 note receivable from Mr. Aisiku was written off in 2024[187] - DHAC assumed several related party loans from its Sponsor and affiliates, which were converted into Series A Preferred Shares at the Business Combination closing. As of March 31, 2025, $51,900 of advances due to the Sponsor remain payable[188][189][194] - SCS Capital Partners LLC, a Sponsor affiliate, owns approximately 40.74% of the Quantum Investor, which holds the $3,000,000 Quantum Convertible Note[189] Note 10 Commitments, Contingencies, and Concentration Risk This note outlines the company's legal proceedings, unpaid commitments, customer concentration, and sales and use tax exposure - The Company is involved in a pending lawsuit for alleged breach of contract and unjust enrichment, with plaintiffs seeking payment under promissory notes and the Encompass Acquisition Agreement. The Company has filed a counterclaim[192] - Unpaid commitments include $179,900 for Telepresence Robots and maintenance services, and $582,677 for a reseller agreement to generate international market revenue, both due upon invoicing or revenue generation[193][200] - The Company has significant customer concentration, with two customers representing 58% of total accounts receivable as of March 31, 2025, and one customer accounting for 26% of total revenue for Q1 2025[202][203] - A liability of $1,067,461 for estimated sales and use tax exposure was recorded as of March 31, 2025, with an expense of $67,913 recognized in Q1 2025[205] Note 11 Income Taxes This note presents the company's income (loss) before taxes and explains the effective tax rate for the reporting periods Income (Loss) Before Income Taxes | | For the three months ended March 31, 2025 | For the three months ended March 31, 2024 (Restated) | | :------------ | :---------------------------------------- | :--------------------------------------------------- | | United States | $(3,945,935) | $94,750 | | Total | $(3,945,935) | $94,750 | - The Company recorded an income tax expense of $13,505 for Q1 2025, compared to $0 in Q1 2024. The effective tax rate for Q1 2025 was (0.35%), varying from the statutory federal rate of 21.0% due to state income taxes, adjustments for expenses, changes in fair value of financial instruments, stock compensation, and valuation allowance changes[206] Note 12 Equity This note details the company's Series A Preferred Stock, common stock, equity incentive plan, and stock-based compensation - The Company has 6,158 shares of Series A Preferred Stock outstanding, which are convertible into common stock, have cumulative participating dividends, and liquidation preferences. They are not subject to liability or derivative treatment[209][210][211][212][213][215] - As of March 31, 2025, there were 16,422,190 shares of common stock outstanding, with 125,000 shares issued during Q1 2025. Common stockholders have one vote per share, dividend rights (subject to preferred stock), and liquidation rights after debt and preferred stock payments[216][217][218][219][220] - The 2024 Equity Incentive Plan reserved 2,544,021 shares for issuance. Stock-based compensation expense of $400,297 was recognized for Q1 2025, with approximately $373,977 in unrecognized compensation cost related to unvested options[221][223] - A common stock issuance obligation to employees, contingent on the Business Combination, was valued at $61,430 as of March 31, 2025, and is classified as a liability, with a net stock-based compensation expense reversal of $8,191 in Q1 2025[224] NOTE 13 Warrants This note provides information on the company's outstanding warrants, including their types, exercise prices, and remaining lives - The Company has 12,997,740 warrants outstanding as of March 31, 2025, including Public, Private, Bridge, Extension, and September 2024 Warrants. All are classified as equity instruments[226] Warrants Outstanding and Weighted Average Data (March 31, 2025) | Warrant Type | Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | | :------------------- | :---------- | :------------------------------ | :-------------------------------------- | | Public Warrants | 11,500,000 | $11.50 | 4.23 | | Private Warrants | 557,000 | $11.50 | 4.23 | | Bridge Warrants | 173,913 | $11.50 | 2.51 | | Extension Warrants | 26,086 | $11.50 | 3.10 | | September 2024 Warrants | 740,741 | $2.25 | 4.50 | | Total | 12,997,740 | $9.65 | 3.71 | - Public, Private, Bridge, and Extension Warrants generally have an exercise price of $11.50 and expire five years from issuance. The September 2024 Warrants have an exercise price of $2.25 and expire on September 30, 2029, subject to antidilution adjustments[228][229][230][231] Note 14 Reportable Segments This note presents financial data for the company's two reportable segments: Healthcare Technology and Telehealth Services - Subsequent to the June 2024 Business Combination, the Company has two reportable segments: Healthcare Technology (VSee Lab) and Telehealth Services (iDoc). The Co-CEOs act as the chief operating decision makers (CODM)[232][236][237] - The Technology segment generated $2,123,871 in total revenues for Q1 2025, with a gross margin of $1,049,747. The Telehealth segment generated $1,197,614 in total revenues, with a gross margin of $810,224[239] Segment Revenues and Gross Margin (Q1 2025) | For three months ended March 31, 2025 | Technology | Telehealth | Total | | :------------------------------------ | :--------- | :--------- | :---- | | Total revenues | $2,123,871 | $1,197,614 | $3,321,485 | | Cost of revenues | $1,074,124 | $387,390 | $1,461,514 | | Segment gross margin | $1,049,747 | $810,224 | $1,859,971 | Segment Assets (March 31, 2025 vs. December 31, 2024) | Total Assets | 2025 | 2024 | | :------------- | :----------- | :----------- | | Technology | $1,541,470 | $1,503,995 | | Telehealth | $17,712,598 | $18,271,724 | | Non-operating corporate | $141,618 | $216,769 | | Total | $19,395,686 | $19,992,488 | Note 15 Fair Value Measurements This note details the fair value measurements of financial liabilities, including valuation methodologies and key unobservable inputs Fair Value of Financial Liabilities (March 31, 2025) | Liabilities | Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :----------- | :------ | :------ | :---------- | | Exchange Note | $2,462,897 | $— | $— | $2,462,897 | | Equity line of credit | $44,953 | $— | $— | $44,953 | | Quantum Convertible Note, related party | $3,691,806 | $— | $— | $3,691,806 | | September 2024 Convertible Note | $2,572,734 | $— | $— | $2,572,734 | | Common stock issuance obligation | $61,430 | $61,430 | $— | $— | | March 2025 Convertible Note | $238,020 | $— | $— | $238,020 | - Most financial liabilities measured at fair value, including the Exchange Note, ELOC, Quantum Convertible Note, September 2024 Convertible Note, and March 2025 Convertible Note, are classified as Level 3 due to the use of unobservable inputs in valuation models (e.g., Monte Carlo model, probability-weighted scenario model)[245][247][249][252][255] Key Inputs for Level 3 Fair Value Measurements (March 31, 2025) | Input | Quantum Convertible Note | Exchange Note | ELOC Purchase Agreement | September 2024 Convertible Note | March 2025 Convertible Note | | :-------------------- | :----------------------- | :------------ | :---------------------- | :------------------------------ | :-------------------------- | | Risk-free interest rate | 3.92% | 4.05% | 3.89% | 4.03% | 4.06% | | Expected term (years) | 1.25 | 0.73 | 2.25 | 1.00 | 0.72 | | Volatility | 118.85% | -% | 114.04% | 112.73% | 115.61% | | Stock price | $1.20 | $- | $1.20 | $1.20 | $1.20 | | Debt discount rate | 13.90% | -% | N/A | 13.90% | N/A | - The total fair value of Level 3 financial liabilities increased from $6,990,621 at December 31, 2024, to $9,071,840 at March 31, 2025, primarily due to initial recognition of the March 2025 Convertible Note and significant losses on changes in fair value for the Quantum Convertible Note and Exchange Note[257] Note 16 Subsequent Events This note discloses significant events occurring after March 31, 2025, including new debt issuances and note amendments - Post-March 31, 2025, the Company issued the ELOC Commitment Fee Note ($500,000 principal) and amended the Quantum Convertible Note to extend its maturity to June 30, 2026, with guaranteed interest[258][259] - The Bridge Investor converted $32,408 of Additional Bridge Notes into 14,199 common shares on August 2, 2025, and $500,000 of the Exchange Note into 213,759 common shares on August 8, 2025[260][261] - On August 28, 2025, the Quantum Convertible Note was amended to provide an additional $380,000 in cash proceeds and an equivalent increase to the principal balance. The March 2025 Convertible Note will receive an equity kicker of 500,000 restricted common shares[262] - On September 5, 2025, the Company entered a Master Business Loan Agreement (MBLA) for up to $2,500,001 with Change Capital Holdings I, LLC, receiving an initial advance of $525,000. The MBLA Note is secured by a junior lien on all company assets and personally guaranteed by Co-CEOs Imo Aisiku, Milton Chen, and CFO Jerry Leonard[263] - On October 9, 2025, the Company issued a secured, non-convertible October 2025 Note for $133,333 (purchase price $120,000) to an institutional investor, bearing 5% interest and secured by all company assets. This note was consented to and subordinated by other creditors[264] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of VSee Health's financial performance and condition for the three months ended March 31, 2025 Overview This section introduces VSee Health, Inc.'s business transformation, its telehealth platform, iDoc's services, and its status as an emerging growth company - VSee Health, Inc. completed a business combination on June 24, 2024, with VSee Lab and iDoc, transforming from a blank check company into a telehealth software platform and high acuity patient care solution provider[267] - VSee Lab offers a scalable, API-driven technology platform for virtual healthcare delivery, featuring end-to-end encrypted video, integration with medical devices and EMRs, and customizable 'no-code' or 'low-code' solutions for clinicians[268][269][270] - iDoc, a wholly-owned subsidiary, provides elite physician services in intensive care units, specializing in neuro-critical care and general tele-critical care, serving hospitals, LTAC facilities, and correctional facilities[271][272][273] - The Company is an 'emerging growth company' and 'smaller reporting company,' allowing it to take advantage of certain exemptions from reporting requirements and an extended transition period for new accounting standards[274][275][276] Performance Factors This section discusses key drivers of future performance, including telehealth market growth, industry relationships, and product innovation - Future performance depends on the rapid transformation of the telehealth market, which is characterized by strong growth potential and major customers seeking new capabilities[277] - The Company aims to expand its market share by leveraging industry relationships with government, hospital systems, and insurance providers, as telehealth is still in its early stages of utilization[278] - Innovation and new product offerings are critical for long-term success, addressing current limitations in telehealth technology such as non-healthcare-specific tools, poor device integration, and complex backend software[280][281] Critical Accounting Estimates This section highlights significant management judgments and estimates in financial reporting, particularly for revenue recognition and goodwill impairment - The preparation of financial statements requires significant management estimates and judgments, particularly for revenue recognition (ASC 606), goodwill impairment, impairment of long-lived assets, and income taxes (ASC 740-10)[282][283][284][318][319][320][322] - Revenue recognition involves a five-step process, including identifying contracts, performance obligations (e.g., subscription services, professional services, patient fees, telehealth fees, institutional fees), determining transaction price (fixed and variable), allocating price, and recognizing revenue as obligations are satisfied[285][289][290][291][292][293][294][299][302][309][312] - Goodwill is tested for impairment annually or when triggering events occur. A $56.7 million non-cash impairment charge was recorded in 2024 for the Telehealth Services reporting unit, but no impairment indicators were found in Q1 2025[318] Financial Statement Components This section provides a detailed analysis of revenue, cost of goods sold, operating expenses, other income/expense, and net loss for the reporting periods Results of Operations (Q1 2025 vs. Q1 2024) | Metric | March 31, 2025 | March 31, 2024 (Restated) | Change ($) | Change (%) | | :------------------------ | :------------- | :------------------------ | :----------- | :--------- | | Revenue | $3,321,485 | $1,620,995 | $1,700,490 | 105% | | Cost of revenues | $1,461,514 | $386,253 | $1,075,261 | 278% | | Gross margin | $1,859,971 | $1,234,742 | $625,229 | 51% | | Operating expenses | $3,691,289 | $1,130,682 | $2,560,607 | 226% | | Other income (expense) | $(2,114,617) | $(9,310) | $(2,105,307) | 22613% | | Net loss before taxes | $(3,945,935) | $94,750 | $(4,040,685) | 4265% | | Net loss | $(3,959,440) | $94,750 | $(4,054,190) | 4279% | - Revenue increased by 105% to $3.32 million in Q1 2025, primarily driven by the iDoc acquisition ($1.19 million), a new HHS contract ($716,090), and higher physician services usage ($43,374). This was partially offset by a decline in recurring subscriptions and the Stand Together Aimee project[326] - Cost of goods sold surged by 278% to $1.46 million, mainly due to the iDoc acquisition (36% increase in compensation), higher headcount for the HHS project (21% increase in compensation), and increased procurement of medical devices for HHS (34% increase)[328] - Operating expenses increased by 226% to $3.69 million, driven by an 864% rise in general and administrative expenses (iDoc acquisition, amortization, bad debt, insurance, professional fees from DHAC recapitalization) and an 86% increase in compensation-related expenses (iDoc acquisition, stock-based compensation)[330] - Other income (expense) increased by 22613% to $(2.11) million, primarily due to a $1.26 million loss on change in fair value of debt and derivative financial instruments and a $697,221 increase in interest expense from new loan agreements[331] - The net loss for Q1 2025 was $(3.96) million, a 4279% increase from Q1 2024, mainly due to the iDoc acquisition and DHAC recapitalization, partially offset by a $1.93 million gain on change in fair value of debt and derivative financial instruments[332] Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities for the three months ended March 31, 2025, and 2024 Cash Flow Summary (Q1 2025 vs. Q1 2024) | Cash Flow Activity | March 31, 2025 | March 31, 2024 (Restated) | | :-------------------------------- | :------------- | :------------------------ | | Net cash used in operating activities | $(440,493) | $579,286 | | Net cash used in investing activities | $(11,873) | $(8,740) | | Net cash provided by financing activities | $536,373 | $0 | | Change in cash | $84,007 | $570,546 | - Cash used in operating activities was $(440,493) in Q1 2025, a significant decrease from $579,286 provided in Q1 2024, driven by a net loss of $(3,959,440) partially offset by non-cash adjustments[335][336] - Cash provided by financing activities was $536,373 in Q1 2025, primarily from $600,000 in proceeds from new notes issued, partially offset by payments to shareholders, factoring payables, and finance lease liabilities[338] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, VSee Health, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[339] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2025, due to material weaknesses - Disclosure controls and procedures were deemed ineffective as of March 31, 2025[340] - Material weaknesses identified include insufficient accounting personnel for segregation of duties, ineffective IT General Controls (access controls), lack of formalized control environment, and inadequate accounting for significant or non-recurring transactions[341] - These material weaknesses contributed to the inability to timely file the Quarterly Report on Form 10-Q and are not expected to be remediated until additional funding supports the accounting department[341][342] - Subsequent to quarter-end, the Company has enhanced processes for applying accounting requirements, including improved access to accounting literature and increased communication among personnel and third-party professionals[346] PART II — OTHER INFORMATION This section covers VSee Health, Inc.'s legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and exhibits Item 1. Legal Proceedings The Company is subject to various claims and lawsuits in the ordinary course of business, with management believing no material adverse effect - The Company is involved in legal proceedings, claims, and government investigations in the ordinary course of business[190][348] - Management believes the resolution of the sole pending matter will not have a material adverse effect on the Company's business, results of operations, cash flows, or financial condition[191][348] Item 1A. Risk Factors The Company refers readers to the risk factors discussed in its Annual Report on Form 10-K, as there have been no material changes - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, have occurred[349] - Readers should consider the risk factors from the Annual Report, as well as potential additional risks not currently known or deemed immaterial, which could adversely affect the business[349] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities to report for the fiscal quarter ended March 31, 2025, that have not been previously disclosed - No unregistered securities were issued during the fiscal quarter ended March 31, 2025, that have not been previously reported[350] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - This item is not applicable[351] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - This item is not applicable[352] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2025[353] Item 6. Exhibits This section lists all exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q - The report includes exhibits such as the Second Amended and Restated Certificate of Incorporation, Certificate of Designation of Series A Convertible Preferred Stock, Amended and Restated Bylaws, and various amendments to equity purchase and securities purchase agreements[355] - Certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Rule 13a-14(a) and 18 U.S.C. § 1350) are filed herewith[355] - XBRL (eXtensible Business Reporting Language) taxonomy extension documents are also included[355]