HTCR.NASDAQHeartcore Enterprises, INC
10-Q: HeartCore Q3 Loss Widens Amid Revenue Decline, Strategic Shift
Sentiment:
Quarterly Report
HeartCore Enterprises reported a significant net loss in Q3 2025, driven by a sharp revenue decline in its consulting services and the strategic divestiture of its Japan software business.
Delay expectedThe company did not receive the second annual payment of the $300,000 promissory note from a non-related company.The $500,000 customer refund liability, which was due in August 2025, was not paid as of the report date.
Capital raiseIssued 2,000 Series A convertible preferred shares for an aggregate purchase price of $2,000,000.Entered into an equity purchase agreement with Crom Structured Opportunities Fund I, LP to purchase up to $25 million in common shares.The company has an At The Market (ATM) Agreement to sell up to $2 million in common shares.
Worse than expectedNet loss from continuing operations significantly widened for both the three and nine months ended September 30, 2025, compared to net income in the prior year periods.Total revenues decreased by 81.6% for Q3 2025 and 66.8% for the nine months ended September 30, 2025, primarily due to a sharp decline in GO IPO consulting services revenue.Gross profit decreased by 89.5% for Q3 2025 and 82.7% for the nine months ended September 30, 2025.The company received a Nasdaq notice for non-compliance with the minimum bid price requirement, indicating a potential risk to its listing status.
Summary
- Net loss from continuing operations was $(137,122) for the three months ended September 30, 2025, a significant decrease from net income of $11,119,592 in the prior year period.
- Total revenues decreased by $13,250,536, or 81.6%, to $2,990,329 for Q3 2025, primarily due to fewer IPO completions and less noncash consideration from GO IPO consulting services.
- The company made a strategic decision to sell 100% of its HeartCore Japan software business, which closed on October 31, 2025, for approximately $12 million in cash consideration.
- Income from discontinued operations (HeartCore Japan) improved to $488,297 for Q3 2025, compared to a loss of $(302,662) for Q3 2024.
- HeartCore received a Nasdaq notice on May 6, 2025, for non-compliance with the $1.00 minimum bid price requirement and was granted an extension until May 1, 2026, to regain compliance.
- A one-time distribution of $0.13 per share of common stock was approved, with a record date of November 10, 2025, and payment on November 17, 2025.
- The accumulated deficit increased to $17,797,861 as of September 30, 2025.
- Cash and cash equivalents decreased to $1,451,019 as of September 30, 2025, from $1,973,810 at December 31, 2024.
- The company issued 2,000 Series A convertible preferred shares for $2,000,000 and entered into an equity purchase agreement for up to $25 million in common shares with Crom Structured Opportunities Fund I, LP.
Sentiment
Score: 3
Explanation: The company experienced a substantial decline in revenue and a shift from net income to significant net losses in its continuing operations. The Nasdaq minimum bid price non-compliance is a serious concern. While the divestiture of HeartCore Japan and new capital raising agreements offer some strategic direction and liquidity, the overall financial performance is poor.
Positives
- Income from discontinued operations significantly improved to $488,297 in Q3 2025 from a loss of $(302,662) in Q3 2024.
- Net cash flows provided by financing activities of continuing operations increased to $1,953,032 for the nine months ended September 30, 2025, primarily due to the issuance of Series A convertible preferred shares and common shares.
- The strategic divestiture of HeartCore Japan for approximately $12 million in cash allows the company to concentrate efforts on its GO IPO consulting business.
- Gross profit margin for customized software development and services increased due to reduced outsourcing costs by ending cooperation with costly vendors.
Negatives
- Total revenues decreased by 81.6% for Q3 2025 and 66.8% for the nine months ended September 30, 2025, primarily due to a sharp decline in GO IPO consulting services revenue.
- Net loss from continuing operations widened significantly to $(137,122) for Q3 2025 and $(2,913,181) for the nine months ended September 30, 2025, compared to net income in the prior periods.
- Gross profit decreased by 89.5% for Q3 2025 and 82.7% for the nine months ended September 30, 2025.
- The accumulated deficit increased to $17,797,861 as of September 30, 2025.
- Cash and cash equivalents decreased to $1,451,019 as of September 30, 2025.
- The company received a Nasdaq notice for non-compliance with the minimum bid price requirement, with an extended deadline of May 1, 2026.
- A significant decrease of $3,016,176 in changes in fair value of investments in warrants was recorded for Q3 2025.
- A customer refund liability of $500,000, due in August 2025, was not paid as of the report date.
- The second annual payment of a $300,000 promissory note was not received, following the forgiveness of the first annual payment of $100,000.
- Disclosure controls and procedures were not effective as of September 30, 2025.
Risks
- Failure to regain compliance with Nasdaq's $1.00 minimum bid price requirement by May 1, 2026, could result in the delisting of common stock.
- Intense competition in the software market in Japan led to the strategic decision to sell HeartCore Japan, indicating market pressures.
- Intense competition in the U.S. software market contributed to a slowdown in revenue for customized software development and services.
- Reliance on noncash consideration (stocks and warrants) from consulting services introduces volatility due to fair value changes, impacting reported revenues and other income/expenses.
- The company faces risks related to the collection of accounts receivable and notes receivable, as evidenced by the unpaid customer refund and unreceived promissory note payment.
- Ineffective disclosure controls and procedures pose a risk to the accuracy and reliability of financial reporting.
Future Outlook
The company has strategically decided to divest its software business in Japan to focus on its GO IPO consulting business. It is actively evaluating options, including a reverse stock split, to regain compliance with Nasdaq's minimum bid price requirement. An equity purchase agreement provides a commitment for up to $25 million in common share purchases, subject to conditions, through June 30, 2027.
Management Comments
- "We have made the strategic decision to sell our software business assets in Japan and to concentrate our efforts on our GO IPO consulting business."
- "We are currently monitoring the closing bid price of our common stock and evaluating our alternatives, if appropriate, to resolve the deficiency and regain compliance with this rule."
- "We are considering actions that we may take in response to the Bid Price Notice in order to regain compliance with the continued listing requirements, including a reverse stock split, if necessary, but no decisions regarding a response have been made at this time."
- "HeartCore USA and its Board of Directors deemed it in the best interests of HeartCore USA and its stockholders to authorize a one-time payment to its stockholders in the amount of $0.13 per share of common stock."
Industry Context
The company's strategic shift away from its software business in Japan is attributed to intense competition in that market. Similarly, intense competition in the U.S. software market is cited for a slowdown in customized software development and services revenue. The GO IPO consulting business, now the primary focus, appears susceptible to market conditions and the volume of successful IPOs, as evidenced by the significant revenue fluctuations tied to noncash consideration from such deals.
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Plan Approval | Board of Directors and shareholders approved the 2021 Equity Incentive Plan, authorizing 2,400,000 shares of common shares for issuance. | 2021-08-06 | Provides a framework for equity-based compensation to attract and retain talent. |
| Plan Approval | Board of Directors approved the 2023 Equity Incentive Plan, authorizing 2,000,000 shares of common shares for issuance. | 2023-08-01 | Expands the pool of shares available for equity compensation, supporting employee incentives. |
| Dividend Declaration | Board of Directors approved a dividend declaration of $0.02 per share of common shares. | 2024-03-29 | Returns capital to shareholders, potentially enhancing shareholder value. |
| Dividend Declaration | Board of Directors approved a dividend declaration of $0.02 per share of common shares. | 2024-07-22 | Returns capital to shareholders, potentially enhancing shareholder value. |
| Strategic Decision | Board of Directors approved to enter into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. | 2025-07-24 | Represents a major strategic shift to focus on the GO IPO consulting business, divesting from the software market in Japan. |
| Dividend Declaration | Board of Directors approved a distribution declaration of $0.13 per share of common shares. | 2025-10-19 | A one-time distribution to stockholders, returning capital. |
| Bylaw Amendment | Board of Directors approved to amend the number of designated shares of Series A convertible preferred shares to 4,000 shares pursuant to the Series A COD. | 2025-10-22 | Increases flexibility for future preferred share issuances, potentially for capital raising. |
| Internal Control Deficiency | Disclosure controls and procedures were not effective. | 2025-09-30 | Indicates a weakness in the company's ability to ensure material information is known and reported accurately, posing a risk to financial reporting integrity. |
Legal Proceedings
- To the knowledge of management, there are no legal proceedings currently pending against the company that would have a material effect on its business, financial position, or results of operations, and no such proceedings are contemplated or threatened.
Related Party Transactions
- Due to related party balances of nil as of September 30, 2025, and $885 as of December 31, 2024, from Luvina Software Joint Stock Company (non-controlling shareholder of HeartCore Luvina).
- Accounts payable and accrued expenses of $25,507 as of September 30, 2025, and $47,199 as of December 31, 2024, to Luvina Software.
- Engaged Luvina Software for software development and other support services totaling $61,078 for Q3 2025 and $146,649 for 9M 2025.
- Short-term debt balances of $70,900 as of September 30, 2025, and $75,000 as of December 31, 2024, to Prakash Sadasivam (CEO and non-controlling shareholder of Sigmaways), bearing an annual interest of 7.5%.
- Long-term debts from First Home Bank and the U.S. Small Business Administration are guaranteed by Prakash Sadasivam and secured by all assets of Sigmaways.
Stakeholder Impact
- Shareholders face negative impacts from significant net losses, revenue decline, and Nasdaq compliance issues, but may benefit from a one-time $0.13 per share distribution and potential future capital raises. Dilution risk exists from ATM, equity purchase agreements, and convertible preferred shares.
- Employees, particularly at Sigmaways, may experience job insecurity or reduced compensation due to salary and recruiting expense cuts.
- Customers include one whose consulting agreement was terminated, resulting in an unpaid $500,000 refund liability.
- Creditors are exposed to ongoing financial obligations, with potential payment difficulties indicated by the unpaid customer refund and unreceived promissory note payment.
Next Steps
- Regain compliance with Nasdaq's $1.00 minimum bid price requirement by May 1, 2026, potentially through a reverse stock split.
- Continue to focus on the GO IPO consulting business following the divestiture of HeartCore Japan.
- Address the unpaid customer refund liability of $500,000.
- Pursue the collection of the promissory note payment.
- Improve disclosure controls and procedures.
Key Dates
| Date | Description |
|---|---|
| 2021-05-18 | HeartCore Enterprises, Inc. (HeartCore USA) incorporated in Delaware. |
| 2021-07-16 | HeartCore USA executed a share exchange agreement with HeartCore Co., Ltd. (HeartCore Japan) shareholders. |
| 2021-08-06 | Board of Directors and shareholders approved the 2021 Equity Incentive Plan. |
| 2021-12-25 | Company awarded stock options to purchase 1,534,500 shares. |
| 2022-02-09 | Company entered into executive employment agreements with five executives and granted 85,820 RSUs. |
| 2022-02-24 | HeartCore USA purchased remaining 278 shares of HeartCore Japan, making it a wholly-owned subsidiary. |
| 2022-08-09 | Company awarded stock options to purchase 14,500 shares to three prior employees. |
| 2022-09-06 | HeartCore USA entered into a share exchange and purchase agreement to acquire 51% of Sigmaways, Inc. |
| 2023-01-01 | HeartCore Financial, Inc. incorporated as a wholly-owned subsidiary. |
| 2023-02-01 | Acquisition of Sigmaways closed. |
| 2023-02-03 | Company awarded stock options to purchase 100,000 shares to an employee. |
| 2023-08-01 | Board of Directors approved the 2023 Equity Incentive Plan. |
| 2023-08-25 | Company awarded stock options to purchase 2,000 shares to an employee. |
| 2023-09-01 | Company purchased a $300,000 promissory note from a non-related company. |
| 2023-10-23 | Company entered into an At The Market (ATM) Agreement with H.C. Wainwright & Co., LLC. |
| 2023-11-30 | HeartCore Japan established HeartCore Luvina Vietnam Company Limited (HeartCore Luvina). |
| 2024-02-16 | Company received capital contribution of VND 1,646.4 million ($67,195) from non-controlling shareholder of HeartCore Luvina. |
| 2024-02-29 | Company entered into a warrants transfer agreement to sell partial warrants for $9,000,000 cash. |
| 2024-03-29 | Board of Directors approved a dividend declaration of $0.02 per common share. |
| 2024-04-01 | HeartCore Financial incorporated a branch office, HeartCore Financial, Inc. Japan Branch Office. |
| 2024-05-03 | Dividends of $417,283 paid. |
| 2024-06-28 | Company entered into a settlement agreement with a customer to refund $500,000 by August 2025. |
| 2024-07-22 | Board of Directors approved a dividend declaration of $0.02 per common share. |
| 2024-08-26 | Dividends of $417,283 paid. |
| 2024-09-01 | Company completed sale of warrants. |
| 2024-12-31 | Company forgave the first annual payment of the promissory note ($100,000). |
| 2025-01-01 | Subscription receivable of $103,942 related to ATM Shares sold on December 31, 2024, was collected. |
| 2025-01-31 | Company entered into an insurance premium financing agreement for $139,500. |
| 2025-05-06 | Received Nasdaq Bid Price Notice for non-compliance with $1.00 minimum bid price. |
| 2025-06-30 | Company filed a certificate of designations of preferences and rights of Series A convertible preferred shares. |
| 2025-06-30 | Company entered into a securities purchase agreement and a registration rights agreement with Crom Structured Opportunities Fund I, LP, issuing 2,000 Series A convertible preferred shares for $2,000,000 and 750,000 common shares. |
| 2025-06-30 | Company entered into an equity purchase agreement and a registration rights agreement with Crom Structured, issuing 485,437 common shares as a commitment fee. |
| 2025-07-24 | Board of Directors approved a non-binding letter of intent to sell 100% of HeartCore Japan. |
| 2025-08-01 | Customer refund of $500,000 was due but not paid as of report date. |
| 2025-09-30 | End of the reporting period. |
| 2025-10-03 | Company granted 153,482 RSUs to four executives. |
| 2025-10-19 | Board of Directors approved a distribution declaration of $0.13 per common share. |
| 2025-10-20 | Crom Structured converted 480 shares of Series A convertible preferred shares into 1,143,730 common shares. |
| 2025-10-22 | Board of Directors approved to amend the number of designated shares of Series A convertible preferred shares to 4,000 shares. |
| 2025-10-31 | Sale of HeartCore Japan to Smith Japan Holdings KK closed for approximately $12 million. |
| 2025-11-03 | Crom Structured converted 503 shares of Series A convertible preferred shares into 811,825 common shares. |
| 2025-11-04 | Nasdaq Staff notified eligibility for an additional 180-day period (until May 1, 2026) to regain compliance. |
| 2025-11-10 | Record date for $0.13 per share distribution. |
| 2025-11-17 | Payment date for $0.13 per share distribution. |
| 2025-11-18 | Filing date of the 10-Q report. |
| 2026-05-01 | Extended deadline to regain compliance with Nasdaq's minimum bid price requirement. |
| 2026-09-02 | Maturity date for the $300,000 promissory note. |
| 2027-06-30 | Equity purchase agreement with Crom Structured ends. |
| 2028-10-31 | Deferred consideration of $387,078,650 from HeartCore Japan sale due. |
Recommendation
sellThe company's continuing operations show a dramatic decline in revenue and a substantial shift from profit to loss. The Nasdaq minimum bid price non-compliance poses a significant delisting risk. While the divestiture of HeartCore Japan aims to streamline operations, the immediate financial performance is very weak. The reliance on non-cash consideration for revenue in the past and the current inability to collect on a promissory note and pay a customer refund raise concerns about cash flow and operational stability. The capital raise activities, while providing liquidity, also indicate a need for external funding amidst poor performance and carry potential for dilution.
Keywords
SEC Filing, 10-Q, Quarterly Report, Financial Results, Software Development, Consulting Services, IPO Consulting, Nasdaq Listing, Discontinued Operations, HeartCore Japan, Financial Performance, Revenue Decline, Net Loss, Capital Raise, Series A Preferred Shares, Equity Purchase Agreement, Nasdaq Compliance, Stock-based Compensation, Warrants, Marketable Securities
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