VSee Health, Inc.(VSEE) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents VSee Health's unaudited condensed consolidated financial statements, covering balance sheets, income statements, equity, cash flows, and accounting notes Condensed Consolidated Balance Sheets Total assets decreased to $18.2 million, liabilities increased to $23.9 million, and stockholders' deficit worsened to $(5.7) million by June 30, 2025 Key Balance Sheet Metrics (June 30, 2025 vs. December 31, 2024) | Metric | December 31, 2024 | June 30, 2025 | | :-------------------------- | :------------------ | :------------------ | | Total assets | $19,992,488 | $18,210,041 | | Total liabilities | $20,010,976 | $23,946,345 | | Total stockholders' deficit | $(18,488) | $(5,736,304) | Condensed Consolidated Statements of Operations Total revenues increased by 101% to $6.7 million, but net loss significantly widened to $(6.6) million due to increased operating and other expenses Consolidated Statements of Operations (6 Months Ended June 30) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 (Restated) | YoY Change (%) | | :--------------------------------- | :----------------------------------- | :----------------------------------- | :------------- | | Total revenues | $6,711,604 | $3,332,561 | 101% | | Cost of revenues | $3,263,141 | $1,320,823 | 147% | | Gross margin | $3,448,463 | $2,011,738 | 71% | | Total operating expenses | $7,534,521 | $2,840,201 | 165% | | Net operating (loss) profit | $(4,086,058) | $(828,463) | (393%) | | Total other (expense), net | $(2,468,676) | $(1,421,277) | (74%) | | Net loss | $(6,572,723) | $(571,352) | (1050%) | | Basic and diluted loss per common share | $(0.40) | $(0.11) | (264%) | Condensed Consolidated Statements of Stockholders' Equity (Deficit) Total stockholders' deficit worsened to $(5.7) million by June 30, 2025, primarily due to a $(6.6) million net loss, partially offset by new paid-in capital Key Stockholders' Equity (Deficit) Metrics | Metric | December 31, 2024 | June 30, 2025 | | :--------------------------------- | :------------------ | :------------------ | | Total Stockholder's Deficit | $(18,488) | $(5,736,303) | | Net loss for the six months ended June 30, 2025 | N/A | $(6,572,723) | | Additional paid-in capital | $67,683,754 | $68,538,649 | | Accumulated deficit | $(67,703,873) | $(74,276,596) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $(0.77) million, while financing cash decreased to $0.75 million, resulting in a $(34,520) net cash decrease for the period Selected Cash Flow Captions (6 Months Ended June 30) | Cash Flow Activity | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash used in operating activities | $(765,094) | $(2,594,214) | | Net cash used in investing activities | $(15,466) | $(16,390) | | Net cash provided by financing activities | $746,040 | $3,597,841 | | NET CHANGE IN CASH | $(34,520) | $987,237 | | CASH, END OF PERIOD | $291,595 | $1,105,971 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering the Company's organization, significant accounting policies, business combination with iDoc, restatement of prior financials, and specific notes on leases, debt, equity, related party transactions, commitments, and fair value measurements Note 1 Organization and Description of Business VSee Health, a telehealth software company, completed a business combination with VSee Lab and iDoc in June 2024, but faces substantial doubt about its ability to continue as a going concern due to losses - VSee Health, Inc. is a Delaware-based telehealth software company providing a scalable, API-driven platform for virtual healthcare delivery, integrating secure video streaming with medical device data, EMRs, and other health information[25] - On June 24, 2024, the Company completed a business combination with VSee Lab, Inc. and iDoc Virtual Telehealth Solutions, Inc., with Digital Health Acquisition Corp. changing its name to VSee Health, Inc. The transaction was accounted for as a reverse recapitalization, with VSee Lab, Inc. identified as the accounting acquirer[26] - Management has determined that the liquidity condition and historical operating losses raise substantial doubt about its ability to continue as a going concern for at least one year after the financial statements' issuance date[29] - To address going concern issues, the Company is implementing revenue enhancement strategies, including new contracts and market expansion (e.g., acquisition of iDoc), and pursuing additional financing, including an existing equity line of credit (ELOC) for up to $50 million[31] Note 2 Restatement of Previously Issued Financial Statements The Company restated its June 30, 2024, financial statements due to material misstatements in tax accruals, revenue, and compensation, significantly impacting key financial items - The Company restated its previously issued VSee Lab, Inc. condensed consolidated financial statements for June 30, 2024, due to material misstatements, including errors in sales and use tax accruals, revenue recognition, accrued expenses for DHAC and iDoc, and compensation obligations[32] Impact of Restatement on Consolidated Balance Sheet (June 30, 2024) | Metric | As Reported | Adjustment | As Restated | | :--------------------------------- | :---------- | :--------- | :---------- | | Accounts receivable | $2,513,855 | $(1,590,596) | $923,259 | | Prepaids and other current assets | $760,789 | $(500,000) | $260,789 | | Total current assets | $5,166,549 | $(2,090,596) | $3,075,953 | | Goodwill | $59,900,694 | $1,691,210 | $61,591,904 | | Total assets | $78,987,750 | $(399,386) | $78,588,364 | | Accounts payable and accrued liabilities | $6,752,985 | $1,291,896 | $8,044,881 | | ELOC Note | $500,000 | $(500,000) | $- | | Common stock issuance obligation | $- | $447,930 | $447,930 | | Total current liabilities | $22,879,867 | $1,239,826 | $24,119,693 | | Deferred tax liability | $- | $67,378 | $67,378 | | Total liabilities | $24,177,194 | $1,307,204 | $25,484,398 | | Additional paid-in-capital | $64,582,130 | $(906,436) | $63,675,694 | | Accumulated deficit | $(9,773,056) | $(800,154) | $(10,573,210) | | Total stockholders' equity (deficit) | $54,810,556 | $(1,706,590) | $53,103,966 | Impact of Restatement on Consolidated Statement of Operations (6 Months Ended June 30, 2024) | Metric | As Reported | Adjustment | As Restated | | :--------------------------------- | :---------- | :--------- | :---------- | | Revenues, technical engineering fees | $352,889 | $125,000 | $477,889 | | Total Revenue | $3,207,561 | $125,000 | $3,332,561 | | Cost of revenues | $872,893 | $447,930 | $1,320,823 | | Gross margin | $2,334,668 | $(322,930) | $2,011,738 | | Compensation and related benefits | $1,811,988 | $(5,668) | $1,806,320 | | General and administrative expenses | $660,398 | $118,838 | $779,236 | | Transaction expenses | $1,007,145 | $(752,500) | $254,645 | | Total operating expenses | $3,479,531 | $(639,330) | $2,840,201 | | Net operating (loss) profit | $(1,144,863) | $316,400 | $(828,463) | | Interest expense | $(359,005) | $7,860 | $(351,145) | | Total other income (expense), net | $(1,429,137) | $7,860 | $(1,421,277) | | (Loss) income before income taxes | $(2,574,000) | $324,260 | $(2,249,740) | | (Provision for) benefit from income tax | $2,241,208 | $(562,820) | $1,678,388 | | Net loss | $(332,792) | $(238,560) | $(571,352) | | Net loss attributable to stockholders | $(332,792) | $(238,560) | $(571,352) | | Basic and diluted net loss per common share | $(0.07) | $(0.04) | $(0.11) | Note 3 Summary of Significant Accounting Policies This note outlines the Company's significant accounting policies, covering consolidation, segment reporting, revenue recognition, and fair value measurements - The Company's condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include VSee Health, VSee Lab, iDoc, Encompass Healthcare Billing, LLC, and This American Doc, Inc. (TAD)[37][38] - 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[41][42] - Revenue is recognized in accordance with ASC 606, based on a five-step model, for various services including subscription fees, professional services, technical engineering fees, patient fees, telehealth fees, and institutional fees[47][48][49] Net Loss Per Common Share (6 Months Ended June 30) | Metric | 2025 | 2024 (Restated) | | :--------------------------------- | :--------- | :-------------- | | Net loss | $(6,572,723) | $(571,352) | | Weighted average shares outstanding – basic and diluted | 16,368,254 | 4,971,066 | | Net loss per share – basic and diluted | $(0.40) | $(0.11) | - The allowance for credit losses increased from $2,393,033 as of December 31, 2024, to $2,639,917 as of June 30, 2025, with credit loss expense recognized as $246,884 for the six months ended June 30, 2025[80][81] - Goodwill impairment assessment is performed annually and when triggering events occur. A non-cash goodwill impairment charge of $56,675,210 was recorded for the year ended December 31, 2024, related to the Telehealth Services reporting unit. No impairment indicators were identified for the three and six months ended June 30, 2025[95] Intangible Assets, Net (June 30, 2025 vs. December 31, 2024) | Asset Type | June 30, 2025 | December 31, 2024 | | :------------------- | :-------------- | :---------------- | | Customer relationships | $2,115,000 | $2,100,000 | | Developed technology | $10,000,000 | $10,000,000 | | Less: Accumulated amortization | $(2,224,998) | $(1,105,000) | | Intangible assets, net | $9,890,002 | $10,995,000 | Note 4 Business Combination VSee Health completed a business combination with VSee Lab and iDoc on June 24, 2024, acquiring iDoc for $68.9 million, resulting in $61.6 million goodwill, later impaired by $56.7 million - On June 24, 2024, VSee Health, Inc. completed a Business Combination with VSee Lab and iDoc, a provider of tele-intensive acute and neurocritical care services. The transaction was accounted for as a reverse recapitalization with VSee Lab as the accounting acquirer[107] - The acquisition of iDoc enhanced the Company's platform by integrating iDoc's clinical capabilities in managing critically ill patients and supported the Company's strategy to expand its telehealth offerings[108] - At closing, the Company issued 5,542,500 shares of common stock and 300 shares of Series A preferred stock (convertible into 150,000 common shares), totaling 5,692,500 common shares on an as-converted basis, with an aggregate consideration of $68.9 million[109] - The purchase price allocation included $10 million for developed technology and $2.1 million for customer relationships, resulting in approximately $61.6 million in goodwill. A goodwill impairment charge of $56.7 million was recorded in December 2024[110] Note 5 Leases Operating lease assets decreased to $337,770 and liabilities to $307,850, while finance lease liabilities, now fully current, decreased to $234,673 by June 30, 2025 Operating Lease Right-of-Use Assets, Net | Metric | June 30, 2025 | December 31, 2024 (Restated) | | :-------------------------- | :-------------- | :--------------------------- | | Office lease | $433,173 | $433,173 | | Less: Accumulated amortization | $(95,403) | $(53,588) | | Right-of-use assets, net | $337,770 | $379,585 | Operating Lease Liabilities | Metric | June 30, 2025 | December 31, 2024 (Restated) | | :-------------------------- | :-------------- | :--------------------------- | | Office lease | $307,850 | $342,174 | | Less: current portion | $(81,132) | $(72,836) | | Long term portion | $226,718 | $269,338 | Finance Lease Liabilities | Metric | June 30, 2025 | December 31, 2024 (Restated) | | :-------------------------- | :-------------- | :--------------------------- | | Equipment lease | $234,673 | $328,833 | | Less: Current portion | $(234,673) | $(328,833) | | Long term portion | $— | $— | - The entirety of the finance lease liability has been reclassified to current liabilities as of June 30, 2025, and December 31, 2024, due to a revised forbearance agreement with a repayment expected by November 2025[118][123] Note 6 Accounts Payable and Accrued Liabilities Total accounts payable and accrued liabilities increased to $9.6 million by June 30, 2025, driven by higher sales and use tax and financing lease liabilities, partially offset by lower compensation accruals Components of Accounts Payable and Accrued Liabilities | Component | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Accounts payable | $4,402,224 | $4,283,397 | | Accrued compensation and benefits | $2,090,240 | $2,176,070 | | Accrued interest | $536,796 | $558,358 | | Accrued sales and use tax | $1,157,346 | $999,547 | | Accrued financing lease | $543,770 | $446,890 | | Other accrued liabilities | $890,513 | $879,397 | | Total | $9,620,889 | $9,343,659 | Note 7 Factoring Payable The Company assumed $143,220 in unsecured, non-interest-bearing factoring payables from iDoc as part of the June 2024 business combination, subject to weekly adjustments - The Company assumed factoring payable liabilities from iDoc as a result of the June 24, 2024, Business Combination. These agreements are generally unsecured, non-interest-bearing, and subject to weekly adjustments based on future receipts[125] Factoring Payable Balances | Agreement Date | June 30, 2025 | December 31, 2024 | | :------------------- | :-------------- | :---------------- | | June 21, 2023 | $51,300 | $59,527 | | June 28, 2023 | $17,320 | $34,315 | | October 13, 2023 | $74,600 | $85,166 | | Total Factoring Payable | $143,220 | $179,007 | Note 8 Line of Credit and Notes Payable This note details various notes payable and lines of credit, including defaulted notes, new convertible notes, and an ELOC, with many financial instruments measured at fair value due to embedded features Summary of Notes Payable (June 30, 2025 vs. December 31, 2024) | Note Payable | June 30, 2025 | December 31, 2024 (Restated) | | :--------------------------------- | :-------------- | :--------------------------- | | Note payable issued Nov 29, 2021 | $336,983 | $336,983 | | Note payable issued Dec 1, 2021 | $1,500,600 | $1,500,600 | | Note payable issued Aug 18, 2023 | $64,000 | $64,000 | | Note payable issued Nov 29, 2023 | $33,000 | $33,000 | | Total notes payable and line of credit | $1,934,583 | $1,934,583 | | Less: Current portion | $(433,983) | $(433,983) | | Less: Fair value adjustment for debt | $(906,659) | $(906,659) | | Total notes payable, net of current portion | $593,941 | $593,941 | - Several assumed notes payable (November 29, 2021; December 1, 2021; August 3, 2023; August 18, 2023) are currently in default, leading to increased interest rates (e.g., 26% per annum for some defaulted notes) and full classification as current liabilities[130] - The March 2025 Convertible Note ($108,696 principal) and May 2025 Convertible Note ($216,871 principal) were issued in 2025, both accounted for at fair value due to embedded features, with significant losses recognized on initial recognition or extinguishment of prior notes[132][137][149] - The Exchange Note, Quantum Convertible Note, and September 2024 Convertible Note are share-settled debt instruments accounted for as liabilities under ASC 480 and re-measured at fair value each reporting period, with significant changes in fair value recognized in earnings[166][182][204] - The Equity Line of Credit (ELOC) Agreement allows the Company to sell up to $50,000,000 of common stock over 36 months. It is classified as a liability under ASC 815 and re-measured at fair value, with a floor price of $1.25 per share as of March 20, 2025[185][187][191] Note 9 Related Party This note details various related party transactions, including loans from VSee Lab's CEO, a note receivable from iDoc's CEO, and advances from DHAC's Sponsor, many converted to equity - VSee Lab incurred several promissory notes from its then CEO, Milton Chen, totaling $323,000 in principal, with default interest rates of 26% per annum. Accrued interest balances as of June 30, 2025, were $64,991, $72,459, and $27,253 respectively[210] - iDoc had a related party balance due from its then CEO, Imoigele Aisiku, of $241,122 as of June 30, 2025, which is unsecured and non-interest-bearing. A $336,000 note receivable from Mr. Aisiku was written off in 2024, resulting in a $245,500 loss[209][211] - DHAC had various loans and advances from its Sponsor and affiliates, totaling $1,268,000, which were converted into Series A Preferred Stock at the closing of the Business Combination. Additionally, $405,000 in working capital advances from SCS (a Sponsor affiliate) were converted into 202,500 shares of Common Stock, treated as a troubled debt restructuring[212][213][219] - SCS Capital Partners LLC, a Sponsor affiliate, owns approximately 40.74% of the Quantum Investor, which subscribed for the $3,000,000 Quantum Convertible Note[213] Note 10 Commitments, Contingencies, and Concentration Risk The Company faces legal proceedings, commitments for robots and reseller agreements, and credit risk concentrations with key customers, alongside a significant sales tax liability - The Company is involved in a pending lawsuit for alleged breach of contract and unjust enrichment, with settlement discussions actively ongoing. The Company believes the resolution will not have a material adverse effect on its business[215][216][217] - Commitments include an unpaid $179,900 for telepresence robots, a $200,000 promissory note with a related party where payments are based on 80% of monthly revenue from deployed robots, and a $413,731 commitment on a reseller agreement for international market expansion[223] - The Company faces concentrations of credit risk in cash and trade accounts receivables. As of June 30, 2025, two customers represented 35% of total accounts receivable, and one customer accounted for approximately 29% of total revenue for the three months ended June 30, 2025[224][225][226] - A sales tax liability of $1,157,346 was recorded as of June 30, 2025, with $89,885 in sales tax expense recognized for the three months ended June 30, 2025[228] Note 11 Income Taxes For the six months ended June 30, 2025, the Company reported a $(6.5 million) loss before taxes and an income tax expense of $17,989, resulting in a (0.27%) effective tax rate Loss Before Income Taxes (6 Months Ended June 30) | Geographic Area | 2025 | 2024 | | :-------------- | :----------- | :----------- | | United States | $(6,544,734) | $(2,249,740) | | Total | $(6,544,734) | $(2,249,740) | Income Tax Expense and Effective Tax Rate (6 Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------- | :--------- | :----------- | | Income tax expense (benefit) | $17,989 | $(1,678,388) | | Effective tax rate | (0.27%) | 74.6% | | Statutory federal income tax rate | 21.0% | 21.0% | - The effective tax rate varied from the statutory federal income tax rate primarily due to state income taxes, adjustments for meals, entertainment and penalties, changes in fair value of financial instruments, stock compensation expenses, and changes to valuation allowance[229][230] Note 12 Equity The Company has authorized preferred and common stock, with 6,158 Series A Preferred and 16.4 million common shares outstanding, alongside stock options and a common stock issuance obligation - The Company has 10,000,000 authorized preferred shares ($0.0001 par value), with 6,158 Series A Preferred Stock shares issued and outstanding as of June 30, 2025. These shares have voting rights, cumulative participating dividends, and are convertible into common stock at the holder's option[232][233][234] - The Company is authorized to issue 100,000,000 shares of common stock ($0.0001 par value), with 16,422,690 shares outstanding as of June 30, 2025, an increase from 16,297,190 shares at December 31, 2024[239] - The 2024 Equity Incentive Plan reserves 2,544,021 shares of common stock, with 803,646 stock options granted at the closing of the Business Combination on June 24, 2024, at an exercise price of $12.11[240] - A common stock issuance obligation of $59,383 as of June 30, 2025 (down from $69,621 at December 31, 2024) for iDoc employees is classified as a liability and re-measured at fair value each reporting date[243] Note 13 Warrants The Company has 12.99 million equity-classified warrants outstanding, including Public, Private, Bridge, Extension, and September 2024 Warrants, with a weighted average exercise price of $9.65 - The Company's Public, Private, Bridge, Extension, and September 2024 Warrants are classified as equity instruments under ASC 480 and ASC 815, as they meet the requirements for equity classification[245] Summary of Warrants Outstanding (June 30, 2025) | Warrant Type | Outstanding (Shares) | Weighted Average Exercise Price | Weighted Average Remaining Life (Years) | | :------------------- | :------------------- | :------------------------------ | :-------------------------------------- | | Public Warrants | 11,500,000 | $11.50 | 3.98 | | Private Warrants | 557,000 | $11.50 | 3.98 | | Bridge Warrants | 173,913 | $11.50 | 2.26 | | Extension Warrants | 26,086 | $11.50 | 2.85 | | September 2024 Warrants | 740,741 | $2.25 | 4.25 | | Total | 12,997,740 | $9.65 | 3.46 | - Public and Private Warrants have an exercise price of $11.50 and expire on the fifth anniversary of the business combination. They are redeemable by the Company at $0.01 per warrant if the common stock price equals or exceeds $18.00 for 20 trading days within a 30-day period[246][247] - September 2024 Warrants, issued to an institutional investor, are exercisable at $2.25 per share for five years and are subject to standard and down-round antidilution adjustments[253] Note 14 Reportable segments The Company operates in Healthcare Technology and Telehealth Services segments; for H1 2025, Technology generated $4.46 million revenue with a $(83,969) loss, while Telehealth generated $2.25 million revenue with a $(1.3 million) loss - The Company has two reportable segments: Healthcare Technology (VSee Lab) and Telehealth Services (iDoc), which align with how the Co-CEOs review results and allocate resources[254][257][258] Segment Revenues and Operating Income (Loss) (6 Months Ended June 30, 2025) | Metric | Technology | Telehealth | Total | | :--------------------------------- | :----------- | :----------- | :----------- | | Total revenues | $4,458,800 | $2,252,805 | $6,711,604 | | Cost of revenues | $2,435,618 | $827,523 | $3,263,141 | | Segment gross margin | $2,023,181 | $1,425,282 | $3,448,463 | | Segment operating income (loss) | $(83,969) | $(1,300,001) | $(1,383,970) | Segment Total Assets (June 30, 2025 vs. December 31, 2024) | Segment | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Technology | $1,016,971 | $1,503,995 | | Telehealth | $17,138,696 | $18,271,724 | | Non-operating corporate | $54,374 | $216,769 | | Total | $18,210,041 | $19,992,488 | Segment Depreciation and Amortization (6 Months Ended June 30) | Segment | 2025 | 2024 | | :---------- | :------- | :------- | | Technology | $4,888 | $1,716 | | Telehealth | $1,289,749 | $375 | | Total | $1,294,636 | $2,091 | Segment Interest Expense (6 Months Ended June 30) | Segment | 2025 | 2024 | | :-------------------- | :--------- | :--------- | | Technology | $21,155 | $47,205 | | Telehealth | $112,170 | $3,941 | | Non-Operating corporate | $837,919 | $299,999 | | Total | $971,244 | $351,145 | Note 15 Fair Value Measurements This note details fair value measurements for financial liabilities, primarily Level 3 instruments like convertible notes, valued using Monte Carlo models, while common stock issuance obligation is Level 1 Fair Value of Financial Liabilities (June 30, 2025) | Liabilities | Fair Value | Level 1 | Level 2 | Level 3 | | :--------------------------------- | :--------- | :------ | :------ | :--------- | | Exchange Note | $2,485,636 | $— | $— | $2,485,636 | | Equity line of credit | $59,843 | $— | $— | $59,843 | | Quantum Convertible Note, related party | $3,580,612 | $— | $— | $3,580,612 | | September 2024 Convertible Note | $2,918,875 | $— | $— | $2,918,875 | | Common stock issuance obligation | $59,383 | $59,383 | $— | $— | | March 2025 Convertible Note | $194,791 | $— | $— | $194,791 | | May 2025 Convertible Note | $342,996 | $— | $— | $342,996 | - The Quantum Convertible Note, Exchange Note, ELOC Agreement, September 2024 Convertible Note, March 2025 Convertible Note, and May 2025 Convertible Note are classified within Level 3 of the fair value hierarchy due to the use of unobservable inputs in their valuation models (e.g., Monte Carlo model)[269][271][273] - The common stock issuance obligation is classified within Level 1 of the fair value hierarchy as its fair value is estimated based on the observable closing price of the Company's common stock[278] Level 3 Changes in Fair Value of Derivatives (December 31, 2024 to June 30, 2025) | Metric | Quantum Convertible Note | Exchange Note | ELOC | September Convertible Note | Common Stock Issuance Obligation | March 2025 Convertible Note | May 2025 Convertible Note | Total | | :--------------------------------- | :----------------------- | :------------ | :----- | :------------------------- | :------------------------------- | :-------------------------- | :------------------------ | :---------- | | Fair value as of December 31, 2024 | $3,248,000 | $1,499,000 | $80,000 | $2,094,000 | $69,621 | $— | $— | $6,990,621 | | Initial fair value at issuance | $— | $— | $— | $— | $— | $238,020 | $342,996 | $581,016 | | (Gain) Loss on change in fair value | $332,612 | $986,636 | $(20,157) | $824,875 | $(10,238) | $(43,229) | $— | $2,070,499 | | Fair value as of June 30, 2025 | $3,580,612 | $2,485,636 | $59,843 | $2,918,875 | $59,383 | $194,791 | $342,996 | $9,642,136 | Note 16 Subsequent Events Subsequent events include the issuance of the ELOC Commitment Fee Note, Quantum Note maturity extension, conversions of bridge and exchange notes, and new loan agreements with Change Capital and an October 2025 Note - On July 2, 2025, the Company issued the ELOC Commitment Fee Note ($500,000 principal) payable in common stock. On July 3, 2025, the Quantum Note's maturity date was extended to June 30, 2026, with 18 months of guaranteed interest[284][285] - In August 2025, Additional Bridge Notes ($32,408 principal) and the Exchange Note ($500,000 principal) were converted into 14,199 and 213,759 shares of common stock, respectively[286][287] - On September 5, 2025, the Company entered a Master Business Loan Agreement (MBLA) with Change Capital Holdings I, LLC for up to $2,500,001 in advances. An initial advance of $525,000 was secured by a junior lien on all Company assets and personal guarantees from Co-CEOs and CFO[288] - On October 9, 2025, the Company issued a secured, non-convertible promissory note (October 2025 Note) for $133,333 (purchase price $120,000), bearing 5% annual interest and secured by all Company assets, subordinated to existing debt[289] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses VSee Health's financial condition and operations, focusing on the impact of the June 2024 business combination, revenue growth, increased expenses, net loss, and liquidity Overview VSee Health, formed by the June 2024 business combination of VSee Lab and iDoc, provides a scalable telehealth software platform and high-acuity patient care solutions - VSee Health, Inc. completed a business combination with VSee Lab and iDoc on June 24, 2024, transforming from a blank check company into a telehealth software and services provider[291] - VSee Lab's core platform is a highly scalable, API-driven technology for virtual healthcare delivery, offering customizable and white-labeled solutions with deep integration across the healthcare ecosystem, enabling clinicians to configure workflows with low-code/no-code tools[292][293][294] - iDoc, a wholly-owned subsidiary, provides high-acuity patient care solutions, including elite physician services in intensive care units, specializing in neuro-critical care, general tele-critical care, and specialty e-consults to various hospital systems and facilities[295][296][297] Implications of Being an Emerging Growth Company As an emerging growth and smaller reporting company, VSee Health benefits from reduced reporting requirements and an extended transition period for new accounting standards - VSee Health is an 'emerging growth company' and 'smaller reporting company,' allowing it to take advantage of exemptions from certain reporting requirements, such as auditor attestation for Section 404 of Sarbanes-Oxley and reduced executive compensation disclosures[298][300] - The Company has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards, meaning it will adopt new standards at the same time as private companies, which may impact comparability with other public companies[299] Performance Factors VSee Health's future performance depends on capitalizing on the telehealth market, expanding customer base through industry relationships, and continuous innovation to address existing solution limitations - Future performance depends on capitalizing on the rapid transformation of the telehealth market, which is characterized by strong future growth and an attractive value proposition from the Company's current offerings[301] - The Company aims to expand within the market and attract new customers by leveraging industry relationships with government, hospital systems, and insurance providers, as telehealth is still in its infancy stages[302] - Innovation and new product offerings are critical for long-term success, as existing telehealth solutions often lack healthcare-specific design, device integration, optimized backend coordination, and robust functionality, which the Company's technology aims to address[304][305] Critical Accounting Estimates This section outlines critical accounting estimates requiring significant management judgment, including revenue recognition, fair value measurements, goodwill impairment, and income taxes, which can materially affect financial statements - Critical accounting estimates involve significant management judgment and affect reported amounts, including revenue recognition (ASC 606), fair value of financial instruments (ASC 820), goodwill impairment (ASC 350), impairment of long-lived and intangible assets (ASC 360-10), and income taxes (ASC 740-10)[306][307][308] - Revenue recognition follows a five-step model under ASC 606, involving identifying contracts, performance obligations, transaction price, allocation, and timing of recognition for various service types (subscription, professional, patient, telehealth, institutional fees)[310][313][314] - Goodwill is evaluated for impairment at the reporting unit level, with a non-cash goodwill impairment charge of $56,675,210 recorded in 2024 for the Telehealth Services unit. No impairment indicators were identified for the three and six months ended June 30, 2025[340][341] Financial Statement Components (Results of Operations) For H1 2025, total revenue increased by 101% to $6.7 million, but net loss widened by 1050% to $(6.6) million due to surging cost of revenues and operating expenses Results of Operations (6 Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--------------------------------- | :----------- | :----------- | :----------- | :----------- | | Revenue | $6,711,604 | $3,332,561 | $3,379,043 | 101% | | Cost of revenues | $3,263,141 | $1,320,823 | $1,942,318 | 147% | | Gross margin | $3,448,463 | $2,011,738 | $1,436,725 | 71% | | Operating expenses | $7,534,521 | $2,840,201 | $4,694,320 | 165% | | Other income (expense) | $(2,468,676) | $(1,421,277) | $(1,047,399) | 74% | | Net loss before taxes | $(6,554,734) | $(2,249,740) | $4,304,994 | 191% | | Income tax benefit | $(17,989) | $1,678,388 | $(1,696,377) | 101% | | Net loss | $(6,572,723) | $(571,352) | $(6,001,371) | 1050% | - Total revenue increased by 101% for the six months ended June 30, 2025, driven by a 3,501% increase in iDoc revenue (primarily patient and telehealth fees) from its acquisition, and higher professional services and technical engineering fees related to the HHS contract. This was partially offset by an 18% decline in subscription revenue[351] - Cost of goods sold increased by 147% for the six months ended June 30, 2025, mainly due to 146% higher compensation expenses (from HHS contract support and iDoc acquisition) and 623% higher procurement of medical devices for the HHS project[354] - Operating expenses rose by 165% for the six months ended June 30, 2025, primarily due to a 440% increase in general and administrative expenses (from iDoc acquisition, amortization, bad debt, insurance, and DHAC recapitalization professional fees) and 84% higher compensation-related expenses[357] - Other expense increased by 74% for the six months ended June 30, 2025, driven by a $1,964,396 loss on change in fair value of debt and derivative financial instruments and a $620,099 increase in interest expense, partially offset by the absence of a prior period initial fair value loss on the Quantum Note and $183,007 in other income (ERC)[359] Cash Flows Net cash used in operating activities improved to $(0.77) million, while financing cash decreased to $0.75 million, resulting in a $(34,520) net cash decrease for H1 2025 Selected Cash Flow Captions (6 Months Ended June 30) | Cash Flow Activity | 2025 | 2024 | | :--------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(765,094) | $(2,594,214) | | Net cash used in investing activities | $(15,466) | $(16,390) | | Net cash provided by financing activities | $746,040 | $3,597,841 | | Change in cash | $(34,520) | $987,237 | - Cash used in operating activities improved to $(765,094) for the six months ended June 30, 2025, from a net loss of $(6,572,723), adjusted by $4,027,812 in non-cash items and a $1,779,817 increase in net changes in operating assets and liabilities (primarily accounts payable and deferred revenue)[364] - Cash provided by financing activities for the six months ended June 30, 2025, was $746,040, mainly from $816,871 in proceeds from new notes (M2B, Ascent, FWE Capital) offset by payments to shareholders, factoring payables, and finance lease liabilities[367] 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 - As a smaller reporting company, VSee Health, Inc. is exempt from providing quantitative and qualitative disclosures about market risk[369] Item 4. Controls and Procedures As of June 30, 2025, VSee Health's disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting. These weaknesses 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. Management believes these issues will persist without additional funding for the accounting department, though they assert the financial statements fairly represent the Company's condition - As of June 30, 2025, the Company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[370] - Material weaknesses include insufficient accounting personnel for segregation of duties, ineffective IT General Controls (access controls), lack of formalized control environment and oversight, and inadequate accounting for significant or non-recurring transactions[371] - Management anticipates these material weaknesses will not be remediated without additional funding for the accounting department, but believes the consolidated financial statements fairly represent the Company's financial condition[372][373] - Subsequent to quarter-end, the Company has enhanced processes to identify and apply accounting requirements, including improved access to accounting literature and increased communication, though remediation will take time[376] PART II — OTHER INFORMATION Item 1. Legal Proceedings The Company is subject to claims, lawsuits, and other legal and administrative proceedings in the ordinary course of business. While defending such proceedings is costly and burdensome, management does not believe that any currently pending litigation, if determined adversely, would individually or in aggregate have a material adverse effect on the Company's business, operating results, cash flows, or financial condition - The Company is subject to claims, lawsuits, and legal proceedings in the ordinary course of business, which can be costly and burdensome[378] - Management believes that no currently pending litigation would individually or in aggregate have a material adverse effect on the Company's business, operating results, cash flows, or financial condition[378] Item 1A. Risk Factors The Company refers readers to the risk factors discussed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and does not believe there have been any material changes to these risks. Additional unknown or currently immaterial risks may also adversely affect the business - Readers should consider the risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[379] - The Company does not believe there have been any material changes to the previously disclosed risk factors, but acknowledges that additional unknown or immaterial risks could adversely affect the business[379] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds For the fiscal quarter ended June 30, 2025, there were no unregistered securities to report that had not been previously disclosed in prior SEC filings - No unregistered sales of equity securities or use of proceeds were reported for the fiscal quarter ended June 30, 2025, that had not been previously disclosed[380] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - This item is not applicable[381] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - This item is not applicable[382] Item 5. Other Information During the six months ended June 30, 2025, no directors or officers informed the Company of the adoption or termination of any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements - No directors or officers reported the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the six months ended June 30, 2025[383] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q, including organizational documents, certifications, and XBRL taxonomy documents - The exhibits filed include the Second Amended and Restated Certificate of Incorporation, Certificate of Designation of Series A Convertible Preferred Stock, Amended and Restated Bylaws, CEO and CFO certifications, and XBRL taxonomy documents[386] Signatures 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 October 15, 2025, certifying its submission in accordance with the Exchange Act - 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 October 15, 2025[390]