20-F: Zhongchao Inc. Reports Financials Amidst Strategic Shifts

Zhongchao Inc. disclosed its annual financial results, highlighting a significant revenue decrease and a net loss for the fiscal year ended December 31, 2025, attributed to strategic adjustments and market conditions.

Summary

• Zhongchao Inc. reported total revenues of $11,374,996 for the fiscal year ended December 31, 2025, a decrease of 28.3% from $15,864,773 in the prior year.
• The company incurred a net loss of $5,814,867 for the fiscal year ended December 31, 2025, compared to a net loss of $273,413 for the fiscal year ended December 31, 2024.
• General and administrative expenses increased significantly by 96.6% to $9,814,087 in 2025, primarily due to higher share-based compensation and credit loss expenses.
• The company ceased operations of Xinjiang Pharmaceutical on June 30, 2025, which contributed to a decrease in product revenue and cost of revenue.
• Zhongchao Inc. regained compliance with the Nasdaq Minimum Bid Price Requirement on March 17, 2026, after receiving a deficiency notice on November 28, 2025.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the significant revenue decline, widening net loss, and increased operating expenses, despite regaining Nasdaq compliance.

Positives

• Regained compliance with Nasdaq Minimum Bid Price Requirement on March 17, 2026.
• Cash and cash equivalents increased to $8,098,075 as of December 31, 2025, from $7,841,306 in the prior year.
• The company has a strong brand presence in China's healthcare training and education sector with its MDMOOC platform.

Negatives

• Total revenues decreased by 28.3% to $11,374,996 in 2025.
• Net loss widened significantly to $5,814,867 in 2025 from $273,413 in 2024.
• General and administrative expenses increased by 96.6% to $9,814,087 in 2025, driven by share-based compensation and credit loss expenses.
• Gross profit margin decreased from 56.2% in 2024 to 45.0% in 2025.
• The company ceased operations of Xinjiang Pharmaceutical, impacting product revenue and cost of revenue.

Risks

• The dual-class share structure concentrates voting control with the CEO, limiting shareholder influence.
• The company's reliance on VIE arrangements introduces risks related to PRC laws and regulations, potential conflicts of interest with VIE shareholders, and enforceability of agreements.
• Significant dependence on a small number of major customers for revenue, making the company vulnerable to loss of business from these customers.
• Intense competition in the healthcare information, education, and training services market is expected to increase, potentially reducing revenues and market share.
• Uncertainties surrounding PRC laws and regulations governing business operations, foreign investment, and data security could adversely affect the company's business and prospects.
• The company faces risks related to cybersecurity and data privacy, including potential liability for improper use or appropriation of personal information.
• The company received a Nasdaq notification regarding a Minimum Bid Price deficiency, although it has since regained compliance.

Future Outlook

The company intends to use its current cash and cash equivalents to grow its business, focusing on research into international markets for expansion opportunities, global talent recruitment, and gradual development of global markets for long-term international presence. However, the company's financial performance is subject to intense competition, evolving PRC regulations, and the strategic decisions made regarding its business operations.

Management Comments

• The primary reason for the overall revenue decline is an approximately $0.8 million decrease in revenue from medical training and education services and an approximately $2.2 million decrease in revenues from patient-aid projects. This decrease resulted from our optimizing projects with extended payment cycles by choosing not to renew contracts or reducing collaborations.
• The decrease in gross margin was primarily due to intensified competition leading to reduced revenue, while platform costs and other inputs could not be reduced at the same pace. Moreover, project execution costs have increased to meet higher customer expectations.
• The increase in administrative expenses was primarily attributed to three factors: (i) an increase of approximately $3.7 million in share-based compensation expense due to issuance of ordinary shares to management and consultants as compensations; (ii) an increase of approximately $0.8 million in credit loss expenses for aged accounts receivable and related to written off of accounts receivable; and (iii) an increase of approximately $0.5 million in salary expenses due to one-time layoff compensation.

Industry Context

StockSavvy.ai notes that Zhongchao Inc.'s financial performance reflects challenges common in the competitive Chinese healthcare information and education technology sector, including intense competition, regulatory shifts, and the impact of economic policies on drug sales. The company's strategic pivot away from drug sales towards its core training and patient management services indicates an adaptation to market dynamics.

Comparison to Industry Standards

• The company's revenue decline and increased G&A expenses are notable when compared to industry peers who may be experiencing growth or better cost management. For instance, companies in similar sectors that have successfully navigated regulatory changes or competition often demonstrate more stable revenue streams or improved operational efficiencies.
• The significant increase in share-based compensation expense as a driver of G&A costs is a common practice in growth-oriented tech companies, but its magnitude here, coupled with credit loss expenses, warrants close monitoring of its impact on profitability.
• The company's gross margin decline from 56.2% to 45.0% is a significant shift, suggesting pricing pressures or increased operational costs that may be higher than industry averages for similar service providers.

Corporate Governance

Legal Proceedings

• The company is not currently a party to any legal proceedings that, in the opinion of management, if determined adversely, would have a material adverse effect on its business, financial condition, operating results, or cash flows.

Related Party Transactions

• Employment agreements with key executives (Weiguang Yang, Pei Xu) outlining compensation, duties, and termination clauses.
• Share-based compensation granted to directors, officers, and consultants under the 2019 and 2025 Equity Incentive Plans.
• The company made a prepayment of $112,980 to Beijing Ougaini Trading Co., Ltd. (controlled by an immediate family member of Mr. Yang) in 2022 for products, which was received in January 2023.

Stakeholder Impact

• Shareholders may experience diluted voting power due to the dual-class share structure, with the CEO holding a majority of the voting power.
• Investors may be concerned about the company's net loss and revenue decline, potentially impacting share value.
• Employees may be affected by the increase in general and administrative expenses, which included layoff compensation in 2025.
• The company's ability to pay dividends is dependent on its subsidiaries' profitability and PRC regulations on profit repatriation.

Next Steps

• Continue research on international markets for expansion opportunities.
• Recruit talent globally to support business growth and innovation.
• Gradually develop global markets for long-term international presence.
• Monitor and manage cybersecurity risks and data privacy compliance.
• Continue efforts to remediate material weaknesses in internal control over financial reporting.

Key Dates

Recommendation

While the company has regained Nasdaq compliance and is adapting its business strategy, the significant revenue decline, widening net loss, and increased operating expenses in 2025, coupled with ongoing regulatory risks in China and the concentrated voting power, suggest a cautious approach. The company's ability to stabilize revenue and improve profitability will be key factors for future performance. Therefore, a 'hold' recommendation is appropriate pending clearer signs of operational improvement and strategic execution.

Keywords

Zhongchao Inc., Form 20-F, Annual Report, Financial Results, Revenue, Net Loss, Healthcare Services, Online Education, VIE Structure, PRC Regulations, Nasdaq Compliance, Share Capital, MDMOOC