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

- Company: [Vsee Health, Inc.](/companies/vsee.md) (CIK 1864531)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 22:15 ET
- Period: 2024-09-30
- Accession: 0001558370-24-015753
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1864531/000155837024015753/vsee-20240930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1864531/000155837024015753/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $3.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $6.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $2.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $4.7m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$57.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$58.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$550.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | −$2.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$51.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$52.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$3.43 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$6.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$3.43 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$6.24 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 15,077,548 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 8,351,249 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$2.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $50.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $2.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $7.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $25.0m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $19.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $20.3m | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $593.9k | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $439.2k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $4.8m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 52,515 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 nine months ended September 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 nine-month period ended September 30, 2024 included elsewhere in this report. Our critical accounting policies are described below.

### Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, *Revenue from Contracts with Customers (“*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 goods and services to be transferred and the payment terms for the goods and 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 generally 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, and revenue for goods and services transferred prior to cancellation is not refundable or creditable.

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

Performance obligations promised in a contract are identified based on the goods and 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.

#### 3\) Determine the transaction price

Total transaction price is based on the amount to which the Company is entitled to base on the contracts with its customers. The Company believes the quoted transaction prices in the customer contracts represent the standalone selling prices for each of the separate performance obligations which are distinct and priced separately within the contract. Consideration promised in the Company’s contracts includes both fixed and variable amounts. The Company’s variable consideration is based on fixed unit price for promised services, though the total consideration is dependent upon the actual amounts of promised services used by the customers. If necessary, the Company estimates the total variable consideration based on the information available to management, and updates such estimates each financial period when needed.

#### 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 standalone selling price (“SSP”). The determination of a SSP for each distinct performance obligation requires judgment. Where applicable, the Company establishes standalone selling prices based on the observable prices of the good or service when the Company sells that good or service separately in similar circumstances and to similar customers. If a standalone selling price is not directly observable, the Company estimates the standalone selling price using the expected cost plus a margin approach.

#### 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 are transferred to the customer in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. For services transferred over time, the Company recognizes revenue based on the progress of services delivered measured using the input method. Such inputs include amount of resources the Company spends to provide such services, and are based on the best information available to management each financial period.

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 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 toward satisfaction of its obligations with revenue commencing upon the beginning of the subscription period. 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.

### 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 quantity of professional service hours to customers. The performance obligation in the contract for these services transferred to the customer is 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. When required, the Company estimates variable consideration for services with the quoted fees per promise using the expected value method for what the Company expects to collect.

The Company recognizes revenue when the Company satisfies its performance obligation to provide the contractual service hours for the duration of services under the contract.

### 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 payors and others for patient fee services. Third-party payors pay the Company based on contracted rates or the entities’ billed charges. Payments received from third-party payors are generally less than billed charges. 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 payors and records an estimated contractual allowance to properly account for the differences between billed and collected amounts.

Revenue from third-party payors 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, from estimated amounts and such difference could be material.

All of the Company’s telemedicine contracts for patient reimbursement fees are directly billed to the payors 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 Company’s affiliated provider network is reimbursed by the Medicare 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. The Company’s 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.

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 onetime 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 revenue when the start-up service is completed over time, using the input method to measure progress each financial period.

### 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 is 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 is 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 healthcare 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.

### 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.

See *Note 14 Fair Value Measurements* 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. During the three months ended September 30, 2024, the Company determined there were triggering events that required the Company to perform a quantitative analysis. Based on the analysis, the Company concluded the fair value of the Telehealth Services reporting unit was less than it’s carrying value. As a result, the Company recorded non-cash goodwill impairment charges of $54,984,000 on the consolidated statements of operation for the three and nine months ended September 30, 2024

### 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.

During the three months ended September 30, 2024, the Company determined that the continued decline in the Company’s stock price and corresponding market capitalization were triggering events that indicated the goodwill allocated to certain of the Company’s reporting units may be impaired. Based primarily on the respective financial and operational performance of certain of the Company’s reporting units with allocated goodwill, as well as the sustained decrease in the Company’s market capitalization, the Company identified a triggering event and performed an interim impairment test of the Telehealth Services reporting unit. As part of the Company’s impairment analysis, the fair value of the reporting unit was determined using a weighted average of the income approach and market approach, which used level 3 inputs and utilized management estimates related to revenue growth rates, profitability margins, estimated future cash flows and discount rates. Based on the analysis, the Company concluded the fair value of the Telehealth Services reporting unit was less than it’s carrying value. As a result, the Company recorded non-cash goodwill impairment charges of $54,984,000 on the consolidated statements of operation for the three and nine months ended September 30, 2024.

### Financial Statement Components

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

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

| ​ ​ ​ | ​ | ​ ​ For the three months ended September 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Change% | ​ | ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Revenue | ​ | $3,354,437 | ​ | $1,451,471 | ​ | $1,902,966 | ​ | 131% |
| Cost of goods sold | ​ | ​ 941,388 | ​ | ​ 478,399 | ​ | ​ 462,989 | ​ | 97% |
| Gross margin | ​ | ​ 2,413,049 | ​ | ​ 973,072 | ​ | ​ 1,439,977 | ​ | 148% |
| Operating expenses | ​ | ​ 59,479,147 | ​ | ​ 1,247,428 | ​ | ​ 58,231,719 | ​ | 4,668% |
| Other income (expense) | ​ | ​ 4,764,543 | ​ | ​ (57,941) | ​ | ​ 4,822,484 | ​ | (8,323)% |
| Net loss before taxes | ​ | ​ (52,301,555) | ​ | ​ (332,297) | ​ | ​ (51,969,258) | ​ | 15,639% |
| Income tax benefit | ​ | ​ 550,030 | ​ | ​ 233,716 | ​ | ​ 316,314 | ​ | 135% |
| Net loss | ​ | $(51,751,525) | ​ | $(98,581) | ​ | $(51,652,944) | ​ | (52,396)% |

### Nine Months Ended September 30, 2024 and 2023 Results of Operations

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

| ​ ​ ​ | ​ ​ | ​ ​ For the nine months ended September 30, 2024 | ​ | ​ ​ 2023 | ​ | ​ ​ Change% | ​ | ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Revenue | ​ | $6,561,998 | ​ | $4,337,962 | ​ | $2,224,036 | ​ | 51% |
| Cost of goods sold | ​ | ​ 1,814,281 | ​ | ​ 1,528,008 | ​ | ​ 286,273 | ​ | 19% |
| Gross margin | ​ | ​ 4,747,717 | ​ | ​ 2,809,954 | ​ | ​ 1,937,763 | ​ | 69% |
| Operating expenses | ​ | ​ 62,958,678 | ​ | ​ 4,332,582 | ​ | ​ 58,626,096 | ​ | 1,353% |
| Other income (expense) | ​ | ​ 3,335,406 | ​ | ​ (51,507) | ​ | ​ 3,386,913 | ​ | (6,576)% |
| Net loss before taxes | ​ | ​ (54,875,555) | ​ | ​ (1,574,135) | ​ | ​ (53,301,420) | ​ | 3,386% |
| Income tax benefit | ​ | ​ 2,791,238 | ​ | ​ 590,954 | ​ | ​ 2,200,284 | ​ | 372% |
| Net loss | ​ | $(52,084,317) | ​ | $(983,181) | ​ | $(51,101,136) | ​ | (5,198)% |

### 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 $3,354,437 for the three months ended September 30, 2024, compared to $1,451,471 for the three months ended September 30, 2023, an increase of $1,902,966 or 131%. The increase was driven by $1,114,069 or 100% of revenue from the acquisition of iDoc during the 2nd quarter, primarily from $623,198 and $485,971 of patient and telehealth fees, respectively. The increase was also driven by higher technical and engineering fees, and professional and other fees. Technical and engineering fees increased by $586,478 or 267% due to a higher volume of engineering, customizations, and integration services provided primarily to recently signed significant client. Professional and other fees increased by $112,487 or 40% due to higher project management services primarily to a recently signed significant client, and higher patient visits. Subscription revenue also increased $89,932 or 9% due to higher usage volumes.

Revenue was $6,561,998 for the nine months ended September 30, 2024, compared to $4,337,962 for the nine months ended September 30, 2023, an increase of $2,224,036 or 51%. The increase was driven by $1,176,638, or 100% of revenue from the acquisition of iDoc during the 2nd quarter, primarily from $654,718 and $516,540 of patient and telehealth fees, respectively. The increase was also driven by higher technical and engineering fees, and professional and other fees. Technical and engineering fees increased by $715,030, or 161%, due to a higher volume of engineering, customizations, and integration services provided to a recently signed significant client and existing customers. Professional and other fees increased by $383,630, or 50% due to higher project management services on new and existing projects, higher patient visits and higher hardware purchases from new customers during the 2nd quarter. These increases were slightly offset by the $51,262, or 2%, 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 Goods Sold

VSee Lab’s cost of goods sold 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 goods sold 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 goods sold for the three months ended September 30, 2024, increased $462,989 or 97% 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 $423,382, or 100%, primarily from compensation expenses. The increase was also due to the $39,607, or 8%, higher cost from VSee lab, primarily driven by $127,289, or 78%, higher compensation expenses from headcount reallocation to service a new customer, and were slightly offset by $85,664, or 30%, lower software and hosting costs from using a lower-cost provider and implementing scheduled server scaling, reducing service cost. The increase was also slightly offset by $2,018, or 8% of lower hardware related cost.

Cost of goods sold for the nine months ended September 30, 2024, increased $286,273, or 19%, 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 $448,713 or 100%, primarily from compensation expenses. This increase was slightly offset by $162,440, or 11%, reduction in VSee Lab’s cost. The decrease is primarily driven by lower hosting costs of $154,613, or 23% from using a lower-cost provider and implementing scheduled server scaling, reducing service costs. The decrease was also driven $91,871, or 43% lower software costs from lower client utilization. These decreases are slightly offset by higher hardware costs of $69,722, or 111%, driven by increased hardware sales and $14,322, or 2%, of higher compensation costs from higher resource reallocation to support a new client in the current quarter, and slightly offset by cost savings from headcount reduction during the first half of the year.

### Operating Expenses

VSee Lab’s operating expenses include all operating costs not included in the cost of goods sold. 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 goods sold. 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 September 30, 2024, increased by $58,231,719, or 4,668%, over the same period last year. The increase was driven by goodwill impairment charges of $54,984,000, higher general and administrative expenses of $1,945,343 or 865%, resulting from amortization expense of $552,500 and acquisition of iDoc at the close of business on June 24, 2024, driving $673,302 increase, and $637,237 of transaction expenses from the recapitalization and acquisition of DHAC and iDoc, respectively, primarily for professional and advisory services fees.

Operating expenses for the nine months ended September 30, 2024, increased by $58,626,096, or 1,353%, over the same period last year. The increase was driven by goodwill impairment charges of $54,984,000, higher general and administrative expenses of $1,998,102 or 240%, resulting from amortization expense of $552,500 and acquisition of iDoc at the close of business on June 24, 2024, driving $701,067 increase, and $1,587,037 of transaction expenses from the recapitalization and acquisition of DHAC and iDoc, respectively, primarily for professional and advisory services fees.

### Other Income (Expense)

Other income (expense) during the three months ended September 30, 2024, increased $4,822,484 or 8,323%. The increase was primarily driven by the gain on change in fair value of on the debt and derivative financial instruments of $5,759,235, offset by $195,770 of higher interest expense and loss on extinguishment of $740,979 related to note conversions and shares issued to vendors.

Other income during the nine months ended September 30, 2024, increased $3,386,913 or 6,576%. The increase was primarily driven by the gain on change in fair value of on the debt and derivative financial instruments of $6,193,258, offset by the $1,618,234 initial fair value loss on the Quantum Note, $427,513 of higher interest expense and loss on extinguishment of $740,979 related to note conversions and shares issued to vendors

### Net Loss

Net loss for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, increased by $51,652,944 or 52,396%. The increase in the Company’s net loss was driven by goodwill impairment charges of $54,984,000 and loss on extinguishment of $740,979, offset by gain on change in fair value of the debt and derivative financial instruments of $5,759,235.

Net loss for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, increased by $51,101,136 or 5,198%. The increase in the Company’s net loss was driven by goodwill impairment charges of $54,984,000, $1,618,234 initial fair value loss on the Quantum Note and loss on extinguishment of $740,979, offset by gain on change in fair value of the debt and derivative financial instruments of $6,193,258.

### Cash Flows

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

| ​ ​ ​ | ​ | ​ ​ For the nine months ended September 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: |
| Net cash used in operating activities | ​ | $(2,815,248) | ​ | $(523,436) |
| Net cash used in from investing activities | ​ | $(21,384) | ​ | $(2,690) |
| Net cash provided by financing activities | ​ | $5,045,235 | ​ | $455,000 |
| Change in cash | ​ | $2,208,603 | ​ | $(71,126) |

VSee Health’s principal sources of liquidity are cash and cash equivalents, totaling $2,327,337 and $159,538 as of September 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 $2,815,248 for nine months ended September 30, 2024. The change in operating activities presents changes for VSee Lab for the nine months ending September 30, 2024, and changes for iDoc and DHAC from the Business Combination date of June 24, 2024, to the end of the quarter, September 30, 2024. Cash used in operating activities consists of a net loss of $52,084,317, adjusted for non-cash items of $50,614,360, driven primarily by goodwill impairment charges of $54,984,000, loss on initial fair value loss on the Quantum Note of $1,618,234, and $740,979 loss on extinguishment, offset by $6,285,706 in fair value changes, and a $1,345,291 decrease in net changes in operating assets and liabilities. The decrease in net changes in operating assets was primarily driven by the increase in prepaids and other current assets from prepaid income taxes.

Cash used in operating activities was $523,436 for the nine months ended September 30, 2023. This consisted of a net loss of $983,181, adjusted for non-cash items of $494,190, and an increase in net changes in operating assets and liabilities of $953,935. 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 nine months ended September 30, 2024, was $21,384, driven primarily by $50,507 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 nine months ended September 30, 2023 was $2,690 and was used to purchase fixed assets.

### Cash Provided by Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2024, was $5,045,235, primarily consisting of $2,700,000 proceeds from the Quantum Note, $2,000,000 proceeds from the September 2024 Convertible Note, $1,323,362 cash from the recapitalization with DHAC, and offset by $365,750, $363,982, $150,616, $47,800, $33,000 and $13,889 for repayment on the Extension Note, financing lease liability, factoring payable, advances from a related party, note payable, and Additional Bridge Financing, respectively.

Cash provided by financing activities for the nine months ended September 30, 2023, was $455,000 and consisted of $200,000, $135,000 and $120,000 proceeds from note payable, share repurchase liability and related party loan payable, respectively.

## Controls and procedures

As filed, 3,605 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 September 30, 2024, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 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.

In light of the material weakness as described above, we have been enhancing 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, 922 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), August 7, 2024 (File No. 333-281319) and November 12, 2024 (File No. 333-283115). 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 Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-015753. Last ingested by Listed: Oct 24, 2026, 15:06 ET. No prices; not investment advice.