10-Q: VSee Health Reports Soaring Losses Amid Revenue Growth, Going Concern Doubts

Sentiment:

Quarterly Report 15 October 2025 5:22 PM

VSee Health, Inc. reported a significant net loss of $3.96 million in Q1 2025, despite a 105% revenue increase, raising substantial doubt about its ability to continue as a going concern.

Delay expectedMaterial weaknesses in internal control over financial reporting contributed to the inability to timely file this Quarterly Report on Form 10-Q.The company defaulted on a forbearance agreement related to a promissory note and line of credit at the end of December 2023, which was subsequently revised multiple times, pushing the remaining balance due to December 10, 2025.

Capital raiseThe company is in negotiations with an investor for additional financing to support working capital and growth initiatives.An Equity Line of Credit (ELOC) purchase agreement provides the right to issue and sell up to $50,000,000 in common stock, with $49,240,000 remaining available as of March 31, 2025. The floor price was amended to $1.25.On March 20, 2025, the company issued a senior secured convertible promissory note (March 2025 Convertible Note) for $108,696 (initial proceeds $100,000) and 25,000 shares of common stock.On March 20, 2025, the company issued a senior secured convertible promissory note (March 2025 Promissory Note) for $555,556 (initial proceeds $500,000) and 100,000 shares of common stock.On August 28, 2025, an amendment to the Quantum Convertible Note provided for additional cash proceeds of $380,000 and an equivalent increase to the principal balance.On September 5, 2025, the company entered into a Master Business Loan Agreement (MBLA) for up to $2,500,001, with an initial advance of $525,000.On October 9, 2025, the company entered into a Note Purchase Agreement for a secured note (October 2025 Note) in the principal amount of $133,333 for a purchase price of $120,000.

Worse than expectedNet loss significantly widened to $3,959,440 in Q1 2025 from a net income of $62,770 in Q1 2024.Cash flow from operating activities turned negative, using $440,493 in Q1 2025 compared to providing $579,286 in Q1 2024.Total stockholders deficit deepened significantly from $(18,488) to $(3,496,997).Operating expenses surged by 226%, outpacing the 105% revenue growth.

Summary

Net loss for Q1 2025 was $3,959,440, a substantial increase from a net income of $62,770 in Q1 2024.
Total revenues increased by 105% to $3,321,485 in Q1 2025, up from $1,620,995 in Q1 2024.
Revenue growth was primarily driven by the iDoc acquisition ($1,197,614) and a new Human Health and Services (HHS) contract ($716,090).
Cost of revenues surged by 278% to $1,461,514, mainly due to iDoc acquisition compensation and higher procurement for the HHS project.
Operating expenses increased by 226% to $3,691,289, largely due to higher general and administrative costs from the iDoc acquisition and recapitalization, and increased compensation.
Other income (expense) worsened significantly, with a net expense of $2,114,617, primarily due to increased interest expense ($730,665) and a $1,261,471 change in fair value of financial instruments.
Cash used in operating activities was $(440,493) in Q1 2025, a reversal from $579,286 provided in Q1 2024.
Total liabilities increased to $22,892,683 as of March 31, 2025, from $20,010,976 as of December 31, 2024.
Total stockholders deficit deepened to $(3,496,997) as of March 31, 2025, from $(18,488) as of December 31, 2024.
Management identified material weaknesses in internal control over financial reporting, including insufficient accounting personnel and ineffective IT General Controls, which contributed to the inability to timely file this report.
Prior period financial statements (Q1 2024) were restated due to errors in accrued sales and use taxes and revenue cutoff.

Sentiment

Score: 2

Explanation: Despite revenue growth, the company reported a substantial net loss, negative operating cash flow, a deepening stockholders' deficit, and explicitly stated 'substantial doubt about its ability to continue as a going concern.' The presence of material weaknesses in internal controls and multiple debt defaults further exacerbates the negative sentiment.

Positives

Total revenues increased by 105% to $3,321,485 in Q1 2025, demonstrating significant top-line growth.
The acquisition of iDoc and new contracts, such as the Human Health and Services (HHS) contract, are driving substantial revenue increases.
Gross margin increased by 51% to $1,859,971 in Q1 2025.
The company secured new financing agreements, including a Master Business Loan Agreement for up to $2,500,001 and an October 2025 Note for $133,333.

Negatives

Net loss significantly widened to $3,959,440 in Q1 2025 from a net income of $62,770 in Q1 2024.
Operating expenses surged by 226%, outpacing revenue growth, primarily due to acquisition-related costs, professional fees, and increased compensation.
Cash flow from operating activities turned negative, using $440,493 in Q1 2025 compared to providing $579,286 in Q1 2024.
Total liabilities increased by approximately $2.88 million, while total assets decreased by approximately $0.6 million, further deteriorating the balance sheet.
The company's stockholders deficit deepened significantly from $(18,488) to $(3,496,997).
Substantial doubt exists about the company's ability to continue as a going concern due to persistent operating losses and deteriorating liquidity.
Material weaknesses in internal control over financial reporting were identified, including insufficient accounting personnel and ineffective IT General Controls, which management does not expect to remediate without additional funding.
Multiple notes payable are currently in default, and the company has entered into forbearance agreements.
Significant interest expense ($730,665) and losses from changes in fair value of financial instruments ($1,261,471) are impacting profitability.
High customer concentration, with two customers representing 58% of accounts receivable and one customer accounting for 26% of total revenue.

Risks

Substantial doubt about the ability to continue as a going concern due to persistent operating losses and deteriorating liquidity.
Material weaknesses in internal control over financial reporting, including insufficient accounting personnel, ineffective IT General Controls, and lack of formalized control environment, which could lead to material misstatements and contributed to the inability to timely file this report.
Dependence on additional financing to support working capital needs and growth initiatives, with no assurance of successful or timely alleviation of going concern doubts.
High customer concentration, with two customers representing 58% of accounts receivable and one customer accounting for 26% of total revenue, posing a risk if these relationships are disrupted.
High vendor concentration, with one vendor representing 21% of accounts payable and accrued liabilities.
Exposure to litigation, including a pending lawsuit for alleged breach of contract and unjust enrichment, which could result in settlement awards, monetary damages, fines, or injunctive orders.
Default on multiple promissory notes and lines of credit, leading to increased interest rates and potential acceleration of payments.
Fluctuations in the fair value of complex financial instruments (e.g., convertible notes, ELOC) can significantly impact reported earnings.
The company's ability to invest in new technology and develop new features is critical for long-term success in a rapidly transforming telehealth market.
The company's financial statements for prior periods were restated due to errors, indicating potential issues with financial reporting accuracy.
Personal guarantees by Co-CEOs and CFO on new debt (MBLA) could create conflicts of interest or impact management's focus.
Covenants in new debt agreements restrict the company's ability to incur additional indebtedness, grant liens, pay dividends, or dispose of assets without lender consent.

Future Outlook

Management believes future performance depends on the rapid transformation of the telehealth market, the ability to expand within the market and attract new customers, and continuous innovation and new product offerings. The company plans to leverage industry relationships to increase its customer base and invest in new technology to meet performance and compliance standards in healthcare. However, management also acknowledges substantial doubt about the company's ability to continue as a going concern for at least one year.

Management Comments

Management has determined that the liquidity condition and historical operating losses raises substantial doubt about its ability to continue as a going concern for a period of time of least one year after the date that the accompanying condensed consolidated financial statements are issued.
There is no assurance that the Company’s plans to alleviate such concerns will be successful or successful within one year after the date the condensed consolidated financial statements are issued.
We lack the resources to employ additional personnel to help mitigate these material weaknesses and we foresee that these material weaknesses will not be remediated until we receive additional funding to support our accounting department.
Notwithstanding the identified material weakness, our management believes that the consolidated financial statements included in this report fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
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.

Industry Context

The telehealth market is characterized by rapid transformation and strong future growth, with major customers and hospital systems seeking to build or add capabilities. Despite technological advancements, telehealth solutions have not fully penetrated medicine and hospital systems, representing less than 1% of total healthcare spending. This is attributed to existing video/hardware/software not being healthcare-specific, poor integration of remote monitoring devices, unoptimized backend software, and functional limitations of early telemedicine companies. VSee Health positions its platform as addressing these gaps with high-performance, scalable, HIPAA/SOC2/GDPR compliant solutions that enable clinicians to customize workflows without extensive programming.

Comparison to Industry Standards

The filing does not provide specific comparable companies, projects, or results to global benchmarks.
It generally states that telehealth solutions have not fully penetrated medicine and hospital systems, representing less than 1% of total healthcare spending according to Grandview Research, implying the company operates in an underpenetrated but growing market.

Legal Proceedings

On July 25, 2024, the company was notified of a lawsuit filed against it in federal court (US District Court for the District of Colorado) for alleged breach of contract and and unjust enrichment, seeking payment under promissory notes and the Encompass Acquisition Agreement.
The company denied all allegations and filed a counterclaim seeking breach of contract for failure to pay amounts owed to Encompass for services rendered and failure to pay a corporate credit card bill, promissory estoppel, and unjust enrichment.
Settlement discussions are actively ongoing, and management believes the resolution will not have a material adverse effect on the business, results of operations, cash flows, or financial condition.

Related Party Transactions

Balance due from related party (iDoc's then CEO, Imoigele Aisiku) was $289,156 as of March 31, 2025, down from $531,656 as of December 31, 2024. These transactions are unsecured and non-interest-bearing.
Promissory notes from then CEO Milton Chen: a $121,000 note, a $132,000 note, and a $70,000 note, all currently in default with a 26% default interest rate.
The Quantum Convertible Note ($3,691,806 fair value as of March 31, 2025) was issued to the Quantum Investor, in which SCS Capital Partners LLC (a Sponsor affiliate) owns approximately 40.74%.
A Consulting Services Agreement with SCS, LLC (Sponsor affiliate) for $12,500 per month for consulting and $2,500 per month for office space, plus stock issuances.
$51,900 of advances due to the Sponsor and certain Sponsor affiliates remain due and payable as of March 31, 2025.
Personal guarantees by Co-CEOs Imo Aisiku and Milton Chen, and CFO Jerry Leonard, on the new Master Business Loan Agreement (MBLA). Mr. Aisiku also pledged his common stock in the company as security for the MBLA.

Stakeholder Impact

Shareholders face substantial risk to investment value due to significant net losses, deepening stockholders' deficit, and explicit 'going concern' doubt, along with potential dilution from convertible notes and the ELOC.
Employees may be impacted by the company's financial difficulties and the need for additional funding to address internal control weaknesses.
Customers, particularly those with new large contracts like HHS, rely on the company's continued service delivery and innovation.
Suppliers and vendors, especially the one representing 21% of accounts payable, face increased risk if the company's financial health deteriorates further, and there is an unpaid commitment for telepresence robots.
Creditors face elevated credit risk due to multiple notes in default and forbearance agreements, although new debt is secured by company assets and some by personal guarantees.

Next Steps

Continue negotiations with an investor for additional financing to support working capital and growth initiatives.
Address material weaknesses in internal control over financial reporting, contingent on receiving additional funding.
Engage in ongoing settlement discussions for the pending lawsuit.
Make scheduled payments under revised forbearance agreements for existing debt.
Utilize the Equity Line of Credit and other new financing agreements as needed.
Continue to invest in new technology and develop new features, modules, and solutions to expand market share.

Key Dates

Date	Description
2021-11-29	iDoc issued a $654,044 promissory note to a bank and received a revolving line of credit.
2021-12-01	iDoc issued a $500,000 promissory note to a bank.
2022-01-01	iDoc acquired 100% of Encompass Healthcare Billing, LLC.
2022-09-01	iDoc issued a $336,000 note receivable to its then CEO, Imoigele Aisiku.
2022-10-05	DHAC, VSee Lab, and iDoc issued Original Bridge Notes in an aggregate principal amount of approximately $2,222,222 to the Bridge Investor.
2022-10-06	Bridge Warrants issued to the Bridge Investor.
2022-10-24	DHAC issued an unsecured promissory note of $350,000 to Digital Health Sponsor, LLC.
2023-01-09	iDoc agreed to an additional obligation of $45,000 related to the Encompass Acquisition Agreement.
2023-02-02	SCS Capital Partners LLC, a Sponsor affiliate, issued a $250,000 interest-free loan to DHAC.
2023-03-29	VSee Lab revised terms of a $110,000 loan from CEO Milton Chen to a $121,000 promissory note and received a $132,000 promissory note from him.
2023-05-05	DHAC entered into an Extension Purchase Agreement for a $300,000 promissory note (Extension Note) and issued Extension Warrants and Extension Shares.
2023-05-12	iDoc entered into a partnership agreement with an accredited investor for telepresence robot development.
2023-05-15	iDoc issued a $200,000 promissory note to a board member.
2023-08-03	iDoc issued a $33,000 promissory note to an accredited investor.
2023-08-17	SCS Capital Partners, LLC loan to DHAC amended to include an additional $315,000 interest-free loan.
2023-08-18	iDoc issued a $64,000 promissory note to an accredited investor.
2023-11-01	iDoc entered into a forbearance agreement related to its promissory note and line of credit.
2023-11-21	DHAC entered into an Equity Line of Credit (ELOC) Purchase Agreement for up to $50,000,000 and a convertible note purchase agreement for a $3,000,000 Quantum Convertible Note.
2023-12-26	VSee Lab received a $77,000 promissory note from CEO Milton Chen.
2024-03-28	iDoc issued a $224,000 secured convertible promissory note to Mr. David L. Wickersham.
2024-04-17	Company and investor amended the maturity date of the Extension Note to March 31, 2025.
2024-06-24	Business Combination with VSee Lab and iDoc completed; Digital Health Acquisition Corp. changed name to VSee Health, Inc. and an Agreed Judgment was signed resolving forbearance agreement litigation.
2024-06-25	Quantum Convertible Note for $3,000,000 funded to the Company.
2024-07-02	Company issued the ELOC Commitment Fee Note in a principal amount of $500,000.
2024-07-03	Quantum Convertible Note amended to change maturity date to June 30, 2026, and guarantee 18 months of interest.
2024-07-17	Mr. David L. Wickersham became a member of the Company's board of directors.
2024-07-25	Company was notified of a lawsuit filed against it.
2024-08-02	Bridge Investor converted $32,408 of Additional Bridge Notes into 14,199 shares of common stock.
2024-08-08	Bridge Investor converted $500,000 principal amount under the Exchange Note into 213,759 shares of common stock.
2024-09-30	Company entered into a securities purchase agreement for a $2,222,222 September 2024 Convertible Note and issued 740,741 warrants.
2024-11-08	Sponsor affiliate, SCS, converted $405,000 of working capital advances into 202,500 shares of Common Stock.
2024-11-26	Remaining $92,593 of Additional Bridge Notes converted into 46,565 shares of common stock.
2024-12-13	Company revised forbearance agreement for promissory note and line of credit.
2024-12-13	Company issued 50,000 shares to Dominion Capital to settle the ELOC Commitment Fee Note.
2025-03-20	Company issued a $108,696 senior secured convertible promissory note (March 2025 Convertible Note) and 25,000 shares of common stock, and a $555,556 senior secured convertible promissory note (March 2025 Promissory Note) and 100,000 shares of common stock. Also, Amendment No. 1 to the ELOC Purchase Agreement was made, modifying the floor price to $1.25.
2025-03-31	End of the current reporting period.
2025-08-05	Board approved stock grants totaling 227,500 shares of common stock to vendors.
2025-08-27	Company revised forbearance agreement for line of credit, agreeing to payments on September 5, 2025, and November 30, 2025, with remaining balance due December 10, 2025.
2025-08-28	Amendment to Quantum Convertible Note for additional cash proceeds of $380,000 and equivalent increase to principal balance.
2025-09-05	Company entered into a Master Business Loan Agreement (MBLA) for up to $2,500,001, with an initial advance of $525,000.
2025-10-09	Company entered into a Note Purchase Agreement for a secured note (October 2025 Note) in the principal amount of $133,333 for a purchase price of $120,000.
2025-10-14	17,022,690 shares of common stock outstanding.
2025-10-15	Filing date of the Quarterly Report on Form 10-Q.

Recommendation

strong sell

The company faces severe financial distress, evidenced by a substantial net loss, negative operating cash flow, and an explicit 'going concern' warning. The balance sheet shows a deepening stockholders' deficit and increasing liabilities. Material weaknesses in internal controls, coupled with multiple debt defaults and high-interest financing, indicate significant operational and financial instability. While revenue growth is positive, it is overshadowed by rapidly increasing costs and a deteriorating financial position. The reliance on continuous, high-cost financing, including personal guarantees from management, suggests a desperate need for capital. These factors collectively point to a highly speculative and risky investment, making a 'strong sell' recommendation appropriate for seasoned investors.

Keywords

Telehealth, Healthcare Technology, SEC Filing, Financial Report, Quarterly Results, Going Concern, Financial Weakness, Debt Financing, Convertible Notes, Internal Controls, Revenue Growth, Net Loss, iDoc Acquisition, HHS Contract, Risk Factors

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