HTCR

HeartCore Enterprises, Inc. - 10-Q Summary (Q1 2026)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2026. HeartCore Enterprises, Inc. (HeartCore USA) operates primarily through its subsidiaries, focusing on "Go IPO" consulting services for Japanese companies seeking U.S. listings and software development via its subsidiary Sigmaways. The Company recently completed a strategic shift by selling its Japanese software subsidiary, HeartCore Japan, in October 2025, which is now reported as discontinued operations. The Company is classified as a non-accelerated filer, smaller reporting company, and emerging growth company.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Revenues decreased by 40.5% ($847,569) primarily due to a significant drop in customized software development services revenue ($827,435 decrease) amidst intense market competition.
• Margin Compression: Gross profit margin collapsed from 26.0% to 5.9%. This was driven by increased outsourcing costs for software engineers and higher resource allocation to Go IPO consulting services, which lowered margins in that segment.
• Operating Expenses: Selling expenses dropped 72.0% due to reduced marketing activities. General and administrative expenses remained relatively flat, decreasing only 0.6%.
• Other Expenses: Total other expenses decreased by 77.2% to $418,745, largely due to a reduced loss on the fair value of marketable securities compared to the prior year.
• Discontinued Operations: The prior year included a loss of $67,350 from discontinued operations (HeartCore Japan), whereas Q1 2026 shows no activity in this category following the sale closure in late 2025.

Outlook, Risks, and Unusual Items

• Liquidity and Going Concern: Management has raised substantial doubt about the Company's ability to continue as a going concern. The Company incurred a net loss of $2.0 million and used $1.2 million in operating cash flows in Q1 2026. Cash balances of $0.8 million may be insufficient to fund operations for the next 12 months without additional financing.
• Financing Plans: The Company plans to raise capital through equity financing, debt arrangements, or operational restructuring. A $25 million equity purchase agreement with Crom Structured Opportunities Fund I, LP is in place, though no shares were sold in Q1 2026.
• Share Repurchase Program: In February 2026, the Board authorized a $2.0 million share repurchase program. No shares were repurchased in Q1 2026.
• Reverse Stock Split: A 1-for-20 reverse stock split was approved in March 2026 and became effective on April 2, 2026. All share and per-share data in this filing have been retroactively adjusted.
• Controls and Procedures: Management concluded that disclosure controls and procedures were not effective as of March 31, 2026, citing reasons previously disclosed in the 2025 10-K.
• Customer Concentration: Customer A accounted for 32.0% of revenues in Q1 2026. Customer B, C, and D also represented significant portions (16.6%, 13.7%, and 11.3% respectively).

Investor Verification Checklist

• Going Concern Status: Verify the Company's progress in securing additional funding to address the substantial doubt regarding its ability to continue operations.
• Revenue Sustainability: Assess the stability of the "Go IPO" consulting business model and the impact of the sale of HeartCore Japan on future revenue streams.
• Customer Concentration Risk: Review the dependency on top customers (Customer A at 32%) and the potential impact of losing key contracts.
• Equity Dilution: Monitor the utilization of the $25 million equity purchase agreement and the $2 million share repurchase program, noting the recent 1-for-20 reverse split.
• Internal Controls: Investigate the specific material weaknesses in internal controls that led to the conclusion of ineffective disclosure controls.