# Vsee Health, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Vsee Health, Inc.](/companies/vsee.md) (CIK 1864531)
- Form: 10-Q
- Filed: 2024-09-23
- Accepted by EDGAR: Sep 23, 2024, 10:02 ET
- Period: 2024-06-30
- Accession: 0001558370-24-012936
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1864531/000155837024012936/vsee-20240630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1864531/000155837024012936/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $1.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $3.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $1.2m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $2.3m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$1.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$1.1m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | −$2.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | −$2.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$330.0k | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$332.8k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 5,302,490 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 4,971,066 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$2.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $45.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-06-30 | $1.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $5.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $79.0m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $22.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $24.2m | us-gaap:Liabilities |
| Long-term debt | at 2024-06-30 | $593.9k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-06-30 | $928.3k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-06-30 | $54.8m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 68,340 characters.

### MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF VSEE HEALTH

*The following discussion and analysis provide information that VSee Health’s management believes is relevant to an assessment and understanding of the results of operations and financial of VSee Health, Inc. (“VSee Health” and for purposes of this section only, referred to as the “Company”, “we,” “us” and “our”). The discussion and analysis should be read together with VSee Health’s consolidated financial statements as of and for the three and six months ended June 30, 2024 and 2023, and the related respective notes thereto. This discussion may contain forward-looking statements based upon VSee Health’s current expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”*

### Overview

Prior to June 24, 2024, we were a blank check company incorporated in the State of Delaware organized for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. On June 24, 2024, we completed the Business Combination pursuant to the Business Combination Agreement dated as of November 21, 2023, as amended by the first amendment dated February 13, 2024 and the second amendment dated April 17, 2024 (as amended, the “Business Combination Agreement”) that we entered into with VSee Lab and iDoc. Upon the completion of the Business Combination, we changed our name to “VSee Health, Inc.” and the business of VSee Lab and iDoc became our business.

Our wholly-owned subsidiary VSee Lab is a telehealth software platform. VSee Lab’s proprietary technology platform and modular software solution empower users to plug and play telehealth services with end-to-end encrypted video streaming integrated with medical device data, electronic medical records, and other sensitive data, with multiple other interactive functionalities that enable teamwork that VSee Lab believes are not available from any other system worldwide. Our company’s core platform is a highly scalable, integrated, application program interface (“API”) driven technology platform, for virtual healthcare delivery, with multiple real-time integrations spanning the healthcare ecosystem. Our platform’s APIs power external connectivity and deep integration with a wide range of payors, electronic medical records, third party applications, and other interfaces with employers, hospital systems, and health systems, which we believe uniquely positions us as a long-term partner meeting the unique needs of the rapidly changing, healthcare industry. Our company will also be able to white label our solutions so they fit into the plans and strategies of our clients, all on a platform that is high-performance and highly scalable.

We put telehealth software tools in the hands of clinicians to enable them to make changes without programming so that they can achieve the best patient outcomes. We provide our clients with capabilities specifically built to enable them to collaborate with their clinical and non-clinical colleagues, securely coordinate patient care, conduct virtual patient visits including remote physical exam and remote patient monitoring, and an analytical dashboard to manage their entire telehealth operations from patient satisfaction score to patient wait time to staffing allocations. We empower clinicians to create the workflow they want without waiting for IT; where today, most clinicians feel helpless given that IT departments often cannot give clinicians what they want.

Through VSee Lab, we offer a set of telehealth software building blocks, data connectors, and workflow templates that can be rapidly configured into the client’s workflows. Our offerings allow clinicians without programming experience to configure our building blocks into their existing workflow without requiring programmers - i.e. - no code. In addition, our building blocks allow programmers to increase their productivity with simple coding to piece together our building blocks - i.e. - low code. At the core of our platform is a comprehensive set of software building blocks for telehealth that include on-demand visits, scheduling appointments, in-take forms, signature for consent and compliance, team coordination, unified communication, remote exam and remote patient monitoring, payments including insurance processing, clinical notes, and administrative control panels and analytics. These set of building blocks can connect to electronic medical record systems such as EPIC and Cerner via HL7, FHIR, and SFTP. Lastly, we provide a set of templates to make creating telehealth workflow fast and easy. The entire telehealth platform sits on a scalable server architecture and is HIPAA compliant and SOC2 externally audited. VSee Lab is also GDPR compliant and supports single-sign-on (SSO) and multi-factor-authentication (MFA).

The Company’s wholly-owned subsidiary iDoc is a high acuity patient care solution providing elite physician services in intensive care units of our major hospital systems and other customers. iDoc delivers neuro-critical care through a proprietary technology platform. iDoc serves a diverse range of customers from large hospital systems to small/micro hospitals, long-term acute care (LTAC) facilities, correctional facilities and others. In addition to the specialization of neuro critical care, iDoc provides general tele-critical care services, and specialty e-consults to large organizations such as correctional facilities. iDoc has an experienced team of board-certified intensivists, neurointensivists, neurologists, and advanced practice providers that treat and coordinate care for acutely ill patients 24/7 in the Neurointensive Care Unit (“NICU”) and Intensive Care Unit (“ICU”) for stroke, brain trauma, spinal cord, and all other neurological conditions. Our Neurocritical care experts will also help develop multidisciplinary plans of care to optimally treat neurological conditions in relation to their overall medical needs. Our Neuro Critical care service delivery will focus on physicians and provider services in Teleneurocritical care, epileptology, and teleneurology. In addition to standard interventions, our Neurocritical care experts will offer specific care including monitoring intracranial pressure, cerebral hemodynamics, advanced multimodal neuro monitoring (brain oximetry, cerebral microdialysis and continuous electroencephalography).

We strive to be the solutions provider of access to the shortage of intensivists across the care continuum utilizing sophisticated telehealth solutions to bridge the care gap. In a post Covid, physician burnout health care system, we aim to provide a solution to physician burnout and to a lack of patient access to quality intensive care. By using the sophisticated leading telehealth software and hardware devices, we provide access to highly skilled physicians in the highest acuity in patient setting, the ICU. We provide elite physician services in the Intensive care units of major hospital systems and other customers. Our core service delivers general critical care, neurology, EEG reading, and neuro critical care through a custom internal virtual health care technology platform. We also serves a diverse range of customers from large hospital systems to small/micro hospitals, to long-term acute care (LTAC) facilities to the federal prison system and others. We connect critically ill patients to high quality Neurointensivists, general and cardiac intensivists and specialty specific e-consultations and helps to improve outcomes for patients as well as improved productivity and physician burnout while reduced costs for health systems. We have developed a unique quality control program in collaboration with each hospital by development of a hospital specific reporting dashboard to monitor and achieve high quality critical care quality. In addition, current workflows and protocols are evaluated to adjust to incorporate critical care. Continuous process improvement and readjustment of target metrics with the ICU team to maximize patient safety and improve outcomes.

### Performance Factors

We believe that our future performance will depend on many factors, including the following:

### The Rapid Transformation of the Telehealth Market

The Telehealth market today is one characterized by rapid transformation, with major customers and hospital systems looking to build or add capabilities and major legacy competitors looking to shore up historical limitations. We believe that the rapid transformation of the telehealth market indicates strong future growth of the market, and our current offerings provide an attractive value proposition to health systems, medical groups, and individual medical practitioners, driving higher market share. We plan to continue to harness our scale to further grow the value proposition of our platform for all stakeholders.

### Ability to Expand Within the Market and Attract New Customers

Telehealth is still in its total infancy stages in terms of utilization, scope, and services. Most of the growth is expected within hospital systems, definition, and segmentation structure, and we believe our software platform and services have significant potential. We plan to leverage our industry relationships with government, hospital systems and insurance providers to increase our customer base.

### Innovation and New Product Offerings

Despite the rapid advancements in technology, growth in virtual healthcare delivery, and improvement in decision support algorithms and machine learning tools, Telehealth Technology Solutions have not fully penetrated medicine and hospital systems to become the standard methodology of care and represent less than 1% of total healthcare spending according to Grandview Research. Major reasons for Telehealth solutions not capturing its full potential include:

- Many of the existing video and hardware and software used in telehealth are repurposed businesses that are not healthcare specific.
- Remote monitoring/diagnostic devices do not readily integrate into telehealth systems limiting doctors real time metrics to enable diagnostics and assessment.
- Backend software coordination is not optimized for telehealth use and connectivity, resulting in significant greater complexity and costs for implementation.
- The software and code foundations of the early telemedicine companies have major functionality limitations and arduous implementation and incremental coding/connectivity requirements adding significant cost and reducing functionality.

We believe our technology solutions meet the performance and compliance standards in healthcare, increase the sharing of patient history, files and scheduling are integrated into the video view for doctors, create sophisticated video engagement between patients, staff and doctors and seamlessly integrate patients’ records to provide more comprehensive telehealth care. We believe our ability to invest in new technology and develop new features, modules, and solutions will be critical to our long-term success.

### Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP. The preparation of consolidated financial statements also requires we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, balance sheet, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving our management’s judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our balance sheet and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those consolidated financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates. Our significant accounting policies are described in Note 2 to our Unaudited Condensed Consolidated Financial Statements for the three-month and six-month period ended June 30, 2024 included elsewhere in this report. Our critical accounting policies are described below.

### Segments

The Company determined its reporting units in accordance with ASC 280, *Segment Reporting (“*ASC 280”). Management evaluates a reporting unit by first identifying operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.

Management has determined that the Company has two consolidated operating segments. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.

The Company’s reporting segments are Healthcare Technology (“Technology”) and Telehealth Services (“Telehealth”). VSee Lab, Inc is included in Technology, while iDoc Virtual Telehealth Solutions, Inc. is included in Telehealth.

### Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Update (“ASU”) No. 2014-09, *Revenue from Contracts with Customers* (Topic 606) (“ASC 606”). ASC 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The core principle of ASC 606 is to recognize revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services.

The Company determines revenue recognition in accordance with ASC 606, through the following five steps:

#### 1\) Identify the contract with a customer

The Company considers the terms and conditions of its contracts and the Company’s customary business practices in identifying its contracts under ASC 606. The Company determines it has a contract with a customer when the contract has been approved by both parties, it can identify each party’s rights regarding the services to be transferred and the payment terms for the services, it has determined the customer to have the ability and intent to pay, and the contract has commercial substance. The Company applies judgment in determining the customer’s ability and intent to pay, which is based on a variety of factors, including the customer’s payment history or, in the case of a new customer, credit and financial information pertaining to the customer.

Contractual terms for subscription services are typically 12 months. Contracts are cancellable with a 30-day notice period and customers are billed in annual, quarterly, or monthly installments in advance of the service period of the subscription. The Company is not required to refund any prorated prepayment fees invoiced to cover services that were provided.

The Company also has service contracts with hospitals or hospital systems, physician practice groups, and other users. These customer contracts typically range from two to three years, with an automatic renewal process. The Company either invoices these customers for the monthly fixed fee in advance or at the end of the month, depending on the contract terms. The contracts typically contain cancellation clauses with advance notice; therefore, the Company does not believe that it has any material outstanding commitment for future revenues beyond one year from the end of a reporting period.

#### 2\) Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. The Company’s contracts typically contain cancellation clauses with advance notice; therefore, the Company does not believe that they have any material outstanding commitments for future revenues beyond one year from the end of a reporting period.

#### 3\) Determine the transaction price

The Company believes the quoted transaction prices in the customer contracts represent the stand- alone selling prices for each of the separate performance obligations which are distinct and priced separately within the contract. The transaction price for each service provided is independent and established in the contract and based on the duration of service provided or for a rate for service provided. Fees are established based on the service transferred to the client.

#### 4\) Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative stand-alone selling price (“SSP”). The determination of a SSP for each distinct performance obligation requires judgment. The Company believes the quoted transaction prices in the customer contracts represent the stand alone selling prices for each of the separate performance obligations that are distinct and priced separately within the contract.

#### 5\) Recognize revenue when or as the Company satisfies a performance obligation

Revenue is recognized when or as control of the promised goods or service is transferred to the customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services.

The Company derives revenue from business services associated with direct tele-physician provider patient fee services, telehealth services, subscription services and institutional services provided to our clients.

### Subscription Service Contracts and Performance Obligation

#### Subscriptions Services

Subscriptions represent a series of distinct goods or services because the performance obligations are satisfied over time as customers simultaneously receive and consume the benefits related to the services as the Company performs. In the case of module specific subscriptions, a consistent level of service is provided during each monthly period of subscription to the Company’s platform. The Company commences revenue recognition when the customer is provided with platform subscription for the initial monthly period and revenue is recognized over time as a consistent level of subscription service during the subsequent period is delivered. The Company’s obligation for its integrated subscriptions is to stand-ready throughout the subscription period; therefore, the Company considers an output method of time to measure progress towards satisfaction of its obligations with revenue commencing upon the beginning of the subscription period. Upfront nonrefundable fees on subscription services do not result in the transfer of a promised good or service to the client, therefore, the Company defers this revenue and recognizes it over the subscription period of the customer contract. Deferred revenue consists of the unamortized balance of nonrefundable upfront fees which are classified as current and non-current based on the timing of when the Company expects to recognize revenue.

The Company treats each subscription to a specific module as a distinct performance obligation because each module is capable of being distinct as the customer can benefit from the subscription to each module on its own and each subscription can be sold standalone.

Furthermore, the subscriptions to individual modules are distinct in the context of the contract as (1) the Company is not integrating the services with other services promised in the contract into a bundle of services that represent a combined output, (2) the subscriptions to specific modules do not significantly modify or customize the subscription to another module, and (3) the specific modules are not highly interdependent or highly interrelated. The subscription to each module is treated as a series of distinct performance obligations because it is distinct and substantially the same, satisfied over time, and has the same measure of progress.

The transaction price is determined based on the consideration the Company expects to be entitled to in exchange for transferring services to the customer. Under the contracts, the clients pay a fixed rate per user per subscription service. Prior to the start of a contract, clients generally make upfront nonrefundable payments to the Company when contracting for implementation services.

The contract pricing is fixed and stated in the arrangements based on the work to be performed by the Company and represents the amount the Company is entitled to for delivering such goods and services. The quoted fees per promise and performance obligation are based on the most likely amount method for what the Company expects to collect.

### Professional Services and Technical Engineering Fees and Performance Obligation

Performance obligations in the contract for professional services and technical engineering services are based on the specified quantify of professional service hours to customers. The performance obligation in the contract for these services transferred to the customer are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.

The transaction price is determined based on the consideration the Company expects to be entitled to in exchange for transferring services to the customer. Under the contracts, the Company uses standalone prices when allocating the transfer price. The contract pricing is fixed and stated in the arrangements based on the work to be performed by the Company and represents the amount the Company is entitled to for delivering such goods and services. The quoted fees per promise and performance obligation are based on the most likely amount method for what the Company expects to collect.

The Company commences revenue recognition when the Company satisfies its performance obligation to provide the contractual service hours or the duration of services under the contract. Revenue is recognized based on the percentage of service hours provided to customers.

### Patient Fees Services and Performance Obligation

#### Patient Fee Services

Patient fees represent a series of distinct services because the performance obligations are met when the Company’s physicians provide professional medical services to patients at the client site as this is deemed as transfer of goods and services to respective patients. The patient benefits from the professional services when care is rendered by the Company’s medical professionals. The Company commences revenue recognition on patient services when the Company satisfies its performance obligation to provide professional medical services to patients.

#### Patient Fee Contracts Involving Third-Party Payors

The Company receives payments from patients, third-party payers and others for patient fee services. Third-party payers pay the Company based on contracted rates or the entities’ billed charges. Payments received from third-party payers are generally less than billed charges. The Company receives less than its total established charges for its services. The Company determines the transaction price on patient fees based on standard charges for services provided, reduced by adjustments provided to third-party payors, and implicit price concessions provided to uninsured patients. The Company monitors its revenue and receivables from third-party payers and records an estimated contractual allowance to properly account for the differences between billed and reimbursed amounts.

Revenue from third-party payers is presented net of an estimated provision for contractual adjustments. Patient revenues are net of service credits and service adjustments, and allowance for doubtful accounts receivable. These adjustments and implicit price concessions represent the difference between the amount billed and the estimated consideration the Company expects to receive, based on historical collection experience, market conditions and other factors. Although the Company believes that its approach to estimates and judgments as described herein is reasonable, actual results could differ and the Company may be exposed to increases or decreases in revenue that could be material.

All of the Company’s telemedicine contracts for patient reimbursement fees are directly billed to the payers by the Company. The Company earns patient fees by providing high acuity patient care solutions. For patient fees, performance obligations are met when the Company’s physicians provide professional medical services to patients at the client site as this is deemed as transfer of goods and services to respective patients. The patient benefits from the professional services when care is rendered by the Company’s medical professionals. The revenue is determined based on the telemedicine billing code(s) associated with the respective professional service rendered to patients. The Company earns primarily from reimbursement from the following third-party payors:

#### Medicare

The Medicare program offers beneficiaries different ways to obtain medical benefits: (i) Medicare Part A, which covers, among other things, in-patient hospital, SNFs, home healthcare, and certain other types of healthcare services; (ii) Medicare Part B, which covers physicians’ services, outpatient services, durable medical equipment, and certain other types of items and healthcare services; (iii) Medicare Part C, also known as Medicare Advantage, which is a managed care option for beneficiaries who are entitled to Medicare Part A and enrolled in Medicare Part B; and (iv) Medicare Part D, which provides coverage for prescription drugs that are not otherwise covered under Medicare Part A or Part B for those beneficiaries that enroll.

The Company’s affiliated provider network is reimbursed by the Part B and Part C programs for certain of the telemedicine services it provides to Medicare beneficiaries. Medicare coverage for telemedicine services is treated distinctly from other types of professional medical services and is limited by federal statute and subject to specific conditions of participation and payment pursuant to Medicare regulations, policies and guidelines, including the location of the patient, the type of service, and the modality for delivering the telemedicine service, among others.

#### Medicaid

Medicaid programs are funded jointly by the federal government and the states and are administered by states (or the state’s designated managed care or other similar organizations) under approved plans. Our affiliated provider network is reimbursed by certain State Medicaid programs for certain of the telemedicine services it provides to Medicaid beneficiaries. Medicaid coverage for telemedicine services varies by state and is subject to specific conditions of participation and payment.

#### Commercial Insurance Providers

The Company is reimbursed by commercial insurance carriers. The basis for payment to the commercial insurance providers is consistent with Medicare reimbursement fee structure guidelines and the Company is in-network or out-of-network with the commercial insurance carriers based on state and insurer requirements.

### Telehealth Fees Service Contracts and Performance Obligation

#### Contract For Telemedicine Care Services

Performance obligations in the contract for telemedicine care are based on services provided via the use of hardware and software integration that includes multi-participant video conferencing, and electronic communication for 24 hours per day, seven days per week for the duration of the contract. The Company provides administrative support for the tele-physician services and coordinates the services of its clinicians’ network through administrative support, hardware support, and software support and provider coverage availability. The Company provides coverage availability of its physician services ranging from 12-24 hours per day. Performance obligations in the contract for these services transferred to the customer are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from patient services and institutional services obligations. Performance obligations are met when the Company provides administrative, business, and medical records and reports related to their professional services rendered pursuant to the agreement in such format and upon such interval as hospitals may require. Revenue from telemedicine care services is included in telehealth fees in the condensed consolidated financial statements.

The Company recognizes revenue for variable consideration when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company estimates the amount of revenue to be recognized on variable consideration, using the expected value or the most likely amount method, whichever is expected to better predict the amount. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on assessments of legal enforceability, performance, and all information that is reasonably available to the Company. The determination of the amount of revenue the Company can recognize each accounting period requires management to make estimates and judgments on the estimated expected customer life or expected performance period, of at least 3 years.

The Company commences revenue recognition when the Company satisfies its performance obligation to provide the contractual tele-physician hours services monthly. Prior to the commencement of services, customers generally make initial start-up nonrefundable payments to the Company when contracting for Company training, hardware and software installation and integration, which includes a one-time setup of software security, API interfaces, and compatibility between hospital existing equipment and hardware and software. The Company recognizes revenue upon completion of the implementation when the performance obligation of equipment setup and initial training is completed. The start-up fees do not significantly modify or customize the other goods in the contract. As the start-up service primarily covers initial administrative services for which the Company’s clients can cancel future services upon completion, management considers it to be separable from the ongoing business services, and the Company records start-up fees as one-time revenue when the start-up service is complete.

### Institutional Fees Service Contracts and Performance Obligation

#### Contract For Electroencephalogram (“EEG”) Professional Interpretation Services

Performance obligations in the contract for EEG professional interpretation services are based on the number of professional services EEG interpretation provides monthly. The performance obligation in the contract for these services transferred to the customer are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To facilitate the delivery of the EEG professional interpretation services, the Company’s physicians use EEG telemedicine equipment provided by the Company. The performance obligation is satisfied based on the number of EEG professional interpretations performed by the Company’s physicians. The number of professional interpretations is traced monthly by both parties and used to determine the revenue earned based on established contractual rates and are included in institutional fees in the condensed consolidated financial statements.

Under most of the Company’s contracts, including contracts with its two top customers, the customer pays fixed monthly fees for telemedicine consultation services, EEG professional interpretation services, platform software services, and hardware fees. The fixed monthly fee provides for a predetermined number of daily, monthly, or annual physician hours of coverage and agreed upon rates for interpretation and software services. To facilitate the delivery of the consultation services, the facilities use telemedicine equipment and the Company’s virtual health care platform, which is provided and installed by the Company. The Company also provides the hospitals with user training, maintenance and support services for the telemedicine equipment used to perform the consultation services.

The Company commences revenue recognition on EEG professional interpretation services when the Company satisfies its performance obligation to provide professional interpretation monthly. The performance obligation in the contract for these services transferred to the customer are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.

### Cost of Revenue

Cost of revenue consists primarily of expenses related to cloud hosting, personnel-related expenses for the Company’s customer success team, costs for third-party software services and contractors, and other services used in connection with delivery and support of the Company’s platform subscription services. The Company’s Cost of revenue also consists primarily of expenses related to compensation-related expenses for the Company’s telehealth service providers, costs for third-party software and hardware services and independent medical providers, and other services used in connection with the delivery and support of the Company’s telehealth platform.

### Income Taxes

The Company accounts for income taxes using the asset and liability method, whereby deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities measured at tax rates that will be in effect for the year in which the differences are expected to affect taxable income. Management evaluates all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed. We assess the realizability of our deferred tax assets, and to the extent that we believe a recovery is not likely, we establish a valuation allowance to reduce the deferred tax asset to the amount we estimate will be recoverable. As of June 31, 2024, the Company established a valuation allowance of $ 2,507,245 for the portion of its deferred tax assets that are not more likely than not expected to be realized, compared to a valuation allowance of $2,463,599 as of December 31, 2023.

### Accounts Receivable and Credit Losses

VSee Health carries its accounts receivable at net realizable value. VSee Lab maintains an allowance for credit losses for the estimated losses resulting from the inability of the Company’s clients to pay their invoices. Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, *Credit Losses - Measurement of Credit Losses on Financial Instruments (“*ASU 2016-13”), which requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. No credit losses were recognized for the six months ending June 30, 2024 and 2023.

The allowance for credit losses is calculated based on a general reserve for at-risk balances considering the Company’s ability to collect. The allowance for credit losses was $1,741,238 and $32,457 as of June 30, 2024 and December 31, 2023, respectively.

### Fair Value of Financial Instruments

“Fair value” is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that prioritizes and ranks the level of observability of inputs used to measure investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment, characteristics specific to the investment, market conditions and other factors. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets will typically have a higher degree of input observability and a lesser degree of judgment applied in determining fair value.

The carrying amounts reflected in the accompanying balance sheets for cash, due from related party, and accounts payable approximate fair value due to their short-term nature. The three levels of the fair value hierarchy under ASC 820 are as follows:

- “Level 1”, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
- “Level 2”, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
- “Level 3”, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

In some cases, the inputs used to measure fair value might fall within different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the investment is categorized in its entirety is determined based on the lowest level input that is significant to the investment. Assessing the significance of a particular input to the valuation of an investment in its entirety requires judgment and considers factors specific to the investment. The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the perceived risk of that investment.

See Note 14 of the financial statements for additional information on assets and liabilities measured at fair value.

### Goodwill

Goodwill represents the excess of purchase price in a business combination over the fair value of the net identifiable assets acquired. We evaluate goodwill for impairment at the reporting unit level by assessing whether it is more likely than not that the fair value of a reporting unit exceeds its carrying value. If this assessment concludes that it is more likely than not that the fair value of a reporting unit exceeds its carrying value, then goodwill is not considered impaired and no further impairment testing is required. Conversely, if the assessment concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a goodwill impairment test is performed to compare the fair value of the reporting unit to its carrying value. The Company determines fair value of the two reporting units using both income and market-based models. Our models contain significant assumptions and accounting estimates about discount rates, future cash flows, and terminal values that could materially affect our operating results or financial position if they were to change significantly in the future and could result in an impairment. We perform our goodwill impairment assessment whenever events or changes in facts or circumstances indicate that impairment may exist and during the fourth quarter each year. The cash flow estimates and discount rates incorporate management’s best estimates, using appropriate and customary assumptions and projections at the date of evaluation. As of June 30, 2024, the fair value of goodwill was $59,900,694, as described in Note 3, *Business Combination.*

### Intangible Assets

Intangible assets are presented at fair value, net of amortization. The fair value is determined based on the appraised value of the asset. Intangible assets comprise of developed technology and customer list (See Note 3 – Business Combination). Developed technology and customer relationships are amortized using the straight-line method over the five-year and 15-year estimated useful lives of the assets, respectively. As of June 30, 2024, the fair value of developed technology and customer list was $10,000,000 and $2,100,000 respectively, as described in Note 3, *Business Combination.*

### Impairment of Long-lived and Intangible Assets

In accordance with ASC 360-10, the Company, on a regular basis, reviews the carrying amount of long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. The Company determines if the carrying amount of a long-lived asset is impaired based on anticipated undiscounted cash flows, before interest, from the use of the asset. In the event of impairment, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined based on the appraised value of the assets or the anticipated cash flows from the use of the asset, discounted at a rate commensurate with the risk involved. The Company recorded $0 of impairment charges during the six months ended June 30, 2024 and 2023.

### Contractual Obligation

The Company, through its wholly-owned subsidiary iDoc, leases office space in Boston, Massachusetts (“Massachusetts Lease”), Houston, Texas (“Texas Lease”), Atlanta, Georgia (“Georgia Lease”) and Lakewood, Colorado (“Colorado Lease”). The Company commenced a new Massachusetts lease on September 1, 2023, ending on August 31, 2028. The Texas Lease was renewed on February 1, 2022 and ends on January 31, 2027. The Georgia Lease commenced on May 25, 2021, and ended on June 24, 2022. The Company commenced a new Georgia lease on June 1, 2022, ending on May 31, 2027. The new Georgia lease was terminated on November 30, 2023. The Colorado Lease commenced on April 1, 2020, and ended on March 31, 2023. The monthly lease payments for the Massachusetts Lease are $9,380 between September 1, 2023 and August 31, 2024, $9,630 between September 1, 2024 and August 31, 2025, $9,870 between September 1, 2025 and August 31, 2026, $10,120 between September 1, 2026 and August 31, 2027, and $10,360 between September 1, 2027 and August 31, 2028. The monthly lease payments for the Texas Lease are $10,000, and for the Georgia Lease are $6,000 for the lease commenced on June 1, 2022. The monthly lease payments for the Georgia lease terminated on June 24, 2022 were $4,097. The monthly lease payments for the Colorado Lease are $4,678 between April 1, 2020 and March 31, 2021, $4,851 between April 1, 2021 and March 31, 2022 and $5,024 between April 1, 2022 and March 31, 2023. The Colorado lease was terminated on March 31, 2023.

The Company also has three office equipment leases, which will mature on June 2026 and August 2026. See further Note 5 – *Leases* for further discussion.

### Stock-Based Compensation

The Company has a stock-based employee compensation plan - the VSee Health, Inc. 2024 Equity Incentive Plan, which is described more fully in Note 9 – *Commitments, Contingencies and Concentration Risks* to the financial statements section above. The Company accounts for stock-based compensation in accordance with ASC 718 “Compensation - Stock Compensation”. In connection with the Closing of the Business Combination, the Company granted in the aggregate of 803,646 stock options to certain VSee Lab employees.

In accordance with ASC 718, 174,302 of the options granted are awards granted with a performance condition which will vest over one year from grant date. Two employees who received option at the closing included a performance condition, as such the unvested portion of the options is not considered part of the consideration paid and as such the proportional value of the unvested portion of the options will be recognized over the one-year service period. As of June 30, 2024 the amount was de minimis, as such compensation expense will be recognized going forward. The fair value of the unvested options was estimated using a Black-Scholes option model utilizing assumptions related to the contractual term of the instruments, estimated volatility of the price of the Common Stock and current interest rates.

### Recent Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, *Improvements to Reportable Segment Disclosures* (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024.

In December 2023, the FASB issued ASU No. 2023-09, *Income Taxes* (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023 - 09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 202309 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. ASU 2023-09 will become effective for annual periods beginning after December 15, 2024. The Company is still reviewing the impact of ASU 2023-09. Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.

### Emerging Growth Company Status

We qualify as an emerging growth company, as defined in the Jumpstart Our Business Startups (“***JOBS Act”***). For so long as we remain an emerging growth company, we are permitted and intends to rely on certain exemptions from various public company reporting requirements, including delaying adopting new or revised accounting standards issued until such time as those standards apply to private companies, not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes - Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non - binding advisory vote on executive compensation and any golden parachute payments not previously approved. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

Following the closing of the Business Combination, we are an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of the initial public offering, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b - 2 under the Exchange Act, which would occur if the market value of our common stock held by non - affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which we have issued more than $1.0 billion in non - convertible debt securities during the prior three - year period.

We qualify as a “smaller reporting company,” as such term is defined in Rule 12b - 2 of the Exchange Act, meaning that the market value of our common stock held by non - affiliates plus the proposed aggregate amount of gross proceeds to the Company as a result of the Business Combination is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company following the closing of the Business Combination if either (i) the market value of our common stock held by non - affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our common stock held by non - affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10 - K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

We expect to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act.

### Financial Statement Components

### Three Months Ended June 30, 2024 and 2023 Results of Operations

The following table presents VSee Health’s results of operations for the three months ended June 30, 2024 and 2023:

| ​ ​ ​ | ​ | ​ ​ For the three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Change% | ​ | ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Revenue | ​ | $1,711,566 | ​ | $1,290,223 | ​ | $421,343 | ​ | 33% |
| Cost of revenue | ​ | ​ 486,640 | ​ | ​ 474,287 | ​ | ​ 12,353 | ​ | 3% |
| Gross profit | ​ | ​ 1,224,926 | ​ | ​ 815,936 | ​ | ​ 408,990 | ​ | 50% |
| Operating expenses | ​ | ​ 2,408,268 | ​ | ​ 1,427,063 | ​ | ​ 981,205 | ​ | 69% |
| Other (expenses)/income | ​ | ​ (1,419,827) | ​ | ​ 8,151 | ​ | ​ (1,427,978) | ​ | (17,519)% |
| Net income (loss) before taxes | ​ | ​ (2,603,169) | ​ | ​ (602,976) | ​ | ​ (2,000,193) | ​ | 332% |
| Income tax (expense) benefit | ​ | ​ 2,241,208 | ​ | ​ 174,395 | ​ | ​ 2,066,813 | ​ | 1,185% |
| Net income (loss) | ​ | $(361,961) | ​ | $(428,581) | ​ | $66,620 | ​ | 16% |

### Six Months Ended June 30, 2024 and 2023 Results of Operations

The following table presents VSee Health’s results of operations for the six months ended June 30, 2024 and 2023:

| ​ ​ ​ | ​ ​ | ​ ​ For the six months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Change% | ​ | ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Revenue | ​ | $3,207,561 | ​ | $2,886,491 | ​ | $321,070 | ​ | 11% |
| Cost of revenue | ​ | ​ 872,893 | ​ | ​ 1,049,609 | ​ | ​ (176,716) | ​ | (17)% |
| Gross profit | ​ | ​ 2,334,668 | ​ | ​ 1,836,882 | ​ | ​ 497,786 | ​ | 27% |
| Operating expenses | ​ | ​ 3,479,531 | ​ | ​ 3,085,154 | ​ | ​ 394,377 | ​ | 13% |
| Other (expenses)/income | ​ | ​ (1,429,137) | ​ | ​ 6,434 | ​ | ​ (1,435,571) | ​ | (22,312)% |
| Net income (loss) before taxes | ​ | ​ (2,574,000) | ​ | ​ (1,241,838) | ​ | ​ (1,332,162) | ​ | 107% |
| Income tax (expense) benefit | ​ | ​ 2,241,208 | ​ | ​ 357,238 | ​ | ​ 1,883,970 | ​ | 527% |
| Net income (loss) | ​ | $(332,792) | ​ | $(884,600) | ​ | $551,808 | ​ | 62% |

### Revenue

Through our wholly-owned subsidiary VSee Lab, the Company generates revenue from subscription services to its software platform. Subscriptions represent a series of distinct goods or services because the performance obligations are satisfied over time as customers simultaneously receive and consume the benefits related to the services as VSee Lab performs. Through our wholly-owned subsidiary iDoc, the Company establishes management and administrative services contracts with hospitals or hospital systems to provide telehealth physician services to acute patients of the hospitals or hospital systems. iDoc also generate revenue by directly billing the insurance companies for care provided at hospitals or hospital systems. iDoc’s contracts typically range in length from two to three years, with an automatic renewal process.

Revenue was $1,711,566 for the three months ended June 30, 2024, compared to $1,290,223 for the three months ended June 30, 2023, an increase of $421,343 or 33%. Higher professional and other fees and technical and engineering fees primarily drove the revenue increase. Professional and other fees increased by $202,690 or 93% due to higher hardware purchases from new customers, and technical and engineering fees increased by $141,289 or 290% due to a higher volume of engineering, customizations, and integration services provided to existing and new customers. Subscription revenue also increased $14,795 or 1.4%, and the acquisition of iDoc at the close of business led to higher fees of $62,569 or 100%.

Revenue was $3,207,561 for the six months ended June 30, 2024, compared to $2,886,491 for the six months ended June 30, 2023, an increase of $321,070 or 11%. Higher professional and other fees and technical and engineering fees primarily drove the revenue increase. Professional and other fees increased by $271,143 or 57% due to higher hardware purchases from new customers during the current quarter, and technical and engineering fees increased by $128,552 or 57% due to a higher volume of engineering, customizations, and integration services provided to existing and new customers during the current quarter. The increase was also driven by $62,569, or 100% of higher fees, primarily from patient and telehealth fees, from the acquisition of iDoc at the close of the Business Combination on June 24, 2024. These increases were slightly offset by the $141,194 or 6% decline in subscription revenue due to the churned enterprise customers in 2024 with little to no clinic usage, as some clients gradually shifted back to face-to-face consultations.

### Cost of Revenue

VSee Lab’s cost of revenue consists primarily of expenses related to cloud hosting, personnel-related expenses for VSee’s customer success team, costs for third-party software services and contractors, and other services. iDoc’s cost of revenue is primarily comprised of personnel-related expenses for our employee and consulting physicians and other medical providers, and the costs for third-party software services and hardware used in connection with delivery of high acuity patient care solution when providing elite physician services in the intensive care units of our major hospital systems and other customers.

Cost of revenue for the three months ended June 30, 2024, increased $12,353 or 3% over the same period last year. The increase was primarily driven by the acquisition of iDoc at the close of business on June 24, 2024, driving $25,331, or 100%, primarily from compensation expenses. The increase was slightly offset by the $12,978 or 2.7% decrease in cost from VSee lab, primarily driven by lower hosting costs from using a lower-cost provider and implementing scheduled server scaling, reducing service costs by up to 30%. The increase was also driven by headcount reduction. These decreases are slightly offset by higher hardware costs driven by the increase in hardware sales.

Cost of revenue for the six months ended June 30, 2024, decreased $176,716 or 17% over the same period last year. The decrease is primarily driven by lower hosting costs of $140,417 or 30% from using a lower-cost provider and implementing scheduled server scaling, reducing service costs by up to 30%. The decrease was also driven by headcount reduction, lowering compensation costs by $112,967 or 26% and $16,628 or 15% lower software costs from lower client utilization. These decreases are slightly offset by higher hardware costs of $69,310 or 215%, driven by increased hardware sales. The decrease was slightly offset by the acquisition of iDoc at the close of business on June 24, 2024, driving $25,331, or 100%, primarily from compensation expenses.

### Operating Expenses

VSee Lab’s operating expenses include all operating costs not included in cost of revenue. These costs consist of general and administrative expenses composed primarily of all payroll and payroll-related expenses, professional fees, and other costs related to the administration of its business. iDoc’s operating expenses include all operating costs not included in cost of revenue. These costs consist of compensation, general and administrative expenses composed primarily of all payroll and payroll- related expenses, professional fees, insurance, software costs, occupancy expenses related to iDoc’s operations, including utilities, depreciation and amortization, and other costs related to the administration of its business.

Operating expenses for the three months ended June 30, 2024, increased by $981,205, or 69%, over the same period last year. The increase was driven by $964,748, or 6,008%, of higher transaction expenses related to the business combination, led by $496,531 of higher legal and professional fees and $452,500 of higher advisory and consulting fees. The increase was also driven by higher general and administrative expenses of $182,664, or 56%, driven primarily by the $213,592 of higher reseller fees and slightly offset by $19,966 in lower software cost from the lower headcounts, resulting in lower utilization of software licenses, reduced the centralized logging by adjusting blog level, cloud storage, tier storage. These increases were slightly offset by the $166,207 or 15% of lower compensation and related benefits, primarily from lower utilization of independent contractors and employee headcount reduction.

Operating expenses for the six months ended June 30, 2024, increased by $394,377, or 13%, over the same period last year. The increase was driven by $949,800, or 1656%, of higher transaction expenses related to the business combination, led by $496,531 of higher legal and professional fees and $452,500 of higher advisory and consulting fees. The increase was also driven by higher general and administrative expenses of $52,759, or 9%, driven by $27,765 of expenses related to the iDoc acquisition on June 24, 2024 and by $24,706 of higher general and expenses in the VSee Lab business primarily from higher reseller fees, which was slightly offset by lower software and business service costs from lower headcounts, resulting in lower utilization of software licenses, reduced the Centralized logging by adjusting blog level, cloud storage, tier storage. These increases were slightly offset by the $608,182 or 25% of lower compensation and related benefits, primarily from lower utilization of independent contractors and employee headcount reduction.

### Other (Expense) Income

Other expense during the three months ended June 30, 2024, increased $1,427,978 or 17,519%. The increase was primarily driven by the $1,618,234 initial fair value loss on the Quantum Note, $269,835 of higher interest expense, driven by $304,932 of interest related to the Quantum Note, and slightly offset by lower VSee Labs interest expense from carry lower debt levels. These increases were offset by a $20,565 net loss on settlement of the SAFE Note, $480,656 of fair value gains on the debt and derivative financial instructions acquired through DHAC from the Business Combination on June 24, 2024.

Other expense during the six months ended June 30, 2024, increased $1,435,571 or 22,312%. The increase was primarily driven by the $1,618,234 initial fair value loss on the Quantum Note, $231,743 of higher interest expense, driven by $304,932 of interest related to Quantum Convertible Note, and slightly offset by lower VSee Lab interest expense from carry lower debt levels. This increase was also driven by a $20,565 net loss on settlement of the SAFE Note, $19,619 of other income in the prior year compared to $2 in the current year. These increases were offset by the $434,023 change in fair value gain, primarily from the debt and derivative financial instructions acquired through DHAC from the Business Combination on June 24, 2024, and offset by the fair value gain on the embedded derivative last year compared to none in the current period.

### Net loss

Net loss for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, decreased by $66,620 or 16%. The decrease in the Company’s net loss was driven by the $2,066,813 tax benefit primarily related to valuation allowance changes related to the Business Combination on June 24, 2024 (see further Note 3- *Business Combination*) and by $421,343 of higher revenue, and were slightly offset by $981,205 of higher operating expenses and ($1,427,978) of higher other (expense) income, primarily due to the combination of DHAC at the close of the business combination on June 24, 2024 (See further Note 3 – *Business Combination).*

Net loss for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, decreased by $551,808 or 62%. The decrease in the Company’s net loss was driven by the tax the $1,883,970 income tax benefit primarily related to the valuation allowance changes related to the business combination on June 24, 2024 (see further Note 3 – Business Combination) and the $321,070 higher revenue, and were slightly offset by $1,435,571 of higher other (expense) income and $394,377 of higher operating expenses, primarily due to the combination of DHAC at the close of the business combination on June 24, 2024 (see further Note3 – *Business Combination).*

### Cash Flows

The following table presents selected captions from VSee Health’s consolidated statements of cash flows for the six months ended June 30, 2024 and 2023:

| ​ ​ ​ | ​ | ​ ​ For the six months ended June 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Net cash used in operating activities | ​ | $(2,594,214) | ​ | $(474,643) |
| Net cash used in from investing activities | ​ | $(16,390) | ​ | $(2,690) |
| Net cash provided by financing activities | ​ | $3,597,841 | ​ | $320,000 |
| Change in cash | ​ | $987,237 | ​ | $(157,333) |

VSee Health’s principal sources of liquidity are cash and cash equivalents, totaling $1,105,971 and $73,331 as of June 30, 2024 and 2023, respectively.

VSee Health’s future capital requirements will depend on many factors, including our growth rate, contract renewal activity, number of subscription renewals, the continuing market acceptance of telehealth, and debt funding.

### Cash Used in Operating Activities

Cash used in operating activities was $2,594,214 for six months ended June 30, 2024. The change in operating activities presents changes for VSee Lab for the six months ending June 30, 2024, and changes for iDoc and DHAC from the Business Combination date of June 24, 2024, to the end of the quarter, June 30, 2024. Cash used in operating activities consists of a net loss of $332,792, adjusted for non-cash items of $895,392, driven primarily by fair value changes, and a $1,366,030 decrease in net changes in operating assets and liabilities. The decrease in net changes in operating assets was primarily driven by the decreases in accounts payable and accrued liabilities and due to related party, and slightly offset by the reduction in accounts receivable and the increase in deferred revenue.

Cash used in operating activities was $474,643 for the six months ended June 30, 2023. This consisted of a net (loss) of $884,600, adjusted for non-cash items of $373,823, and an increase in net changes in operating assets and liabilities of $783,780. The net changes in operating assets and liabilities were primarily driven by increases in accounts payable and accrued liabilities and due to related party, partially offset by the decrease in deferred revenue.

### Cash Used in Investing Activities

Cash used for investing activities for the six months ended June 30, 2024, was $16,390, driven primarily by $45,513 for the purchase fixed assets and was slightly offset by $29,123 of cash acquired from the acquisition of iDoc. Cash used for investing activities for the six months ended June 30, 2023 was $2,690 and was used to purchase fixed assets.

### Cash Provided by Financing Activities

Cash provided by financing activities for the six months ended June 30, 2024, was $3,597,841, primarily consisting of $2,700,000 proceeds from the Quantum Note, $1,323,362 cash from the recapitalization with DHAC, and offset by $365,750, $47,800, $10,941 and $1,030 for repayment on the Extension Note, advances from a related party, factoring payable and due on acquisition purchase, respectively.

Cash provided by financing activities for the six months ended June 30, 2023, was $320,000 and consisted of $200,000 and $120,000 proceeds from note payable and related party loan payable, respectively.

## Controls and procedures

As filed, 3,620 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of June 30, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of June 30, 2024, our disclosure controls and procedures were not effective.

Management concluded that material weaknesses in internal control over financial reporting existed relating to the delay in filing. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Subsequent to the quarter end, in light of the material weakness as described above, we have enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements on a timely basis. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding application and financial reporting. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

## Risk factors

As filed, 881 characters.

As a smaller reporting company, we are not required to make disclosures under this Item. In addition, there have been no material changes to the risk factors disclosed in the registration statement on Form S-1 filed with the SEC on July 17, 2024 (File No. 333-280845) and August 7, 2024 (File No. 333-281319). Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in the final prospectuses. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in said Registration Statements.

Filed Sep 23, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-012936. Last ingested by Listed: Oct 24, 2026, 15:06 ET. No prices; not investment advice.