UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
For the quarterly period ended
For the transition period from ______, 20___, to _____, 20___.
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of
Incorporation or Organization) |
(I.R.S. Employer
Identification Number) |
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each Exchange on which Registered | ||
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The
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Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
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☒ | Smaller reporting company |
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| Emerging growth company |
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If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
As of August 13, 2025, there were
HeartCore Enterprises, Inc.
Contents
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
| Item 4. | Controls and Procedures | 15 |
| PART II - OTHER INFORMATION | 16 | |
| Item 1. | Legal Proceedings | 16 |
| Item 1A. | Risk Factors | 16 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| Item 3. | Defaults Upon Senior Securities | 16 |
| Item 4. | Mine Safety Disclosures | 16 |
| Item 5. | Other Information | 16 |
| Item 6. | Exhibits | 17 |
| Signatures | 18 | |
i
ITEM 1. FINANCIAL STATEMENTS
HEARTCORE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Accounts receivable |
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| Investments in marketable securities |
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| Prepaid expenses |
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| Current portion of long-term note receivable |
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| Due from related party |
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| Deferred offering costs |
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| Other current assets |
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| Total current assets |
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| Non-current assets: | ||||||||
| Accounts receivable, non-current |
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| Property and equipment, net |
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| Operating lease right-of-use assets |
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| Long-term investment in warrants |
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| Long-term note receivable |
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| Deferred tax assets |
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| Security deposits |
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| Long-term loan receivable from related party |
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| Other non-current assets |
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| Total non-current assets |
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| Total assets | $ |
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$ |
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||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ |
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$ |
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| Accounts payable and accrued expenses – related party |
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| Accrued payroll and other employee costs |
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| Due to related parties |
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| Short-term debt – related party |
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| Current portion of long-term debts |
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| Insurance premium financing |
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| Factoring liability |
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| Operating lease liabilities, current |
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| Finance lease liabilities, current |
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| Income tax payables |
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| Deferred revenue |
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| Derivative liability |
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| Other current liabilities |
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| Total current liabilities |
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| Non-current liabilities: | ||||||||
| Long-term debts |
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| Operating lease liabilities, non-current |
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| Finance lease liabilities, non-current |
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| Asset retirement obligations |
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| Total non-current liabilities |
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||||||
| Total liabilities |
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||||||
| Shareholders’ equity: | ||||||||
|
Preferred shares, $
|
|
|||||||
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Common shares, $
|
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|
||||||
| Subscription receivable |
(
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) | ||||||
| Additional paid-in capital |
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||||||
| Accumulated deficit |
(
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) |
(
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) | ||||
| Accumulated other comprehensive income |
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||||||
| Total HeartCore Enterprises, Inc. shareholders’ equity |
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||||||
| Non-controlling interests |
(
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) |
(
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) | ||||
| Total shareholders’ equity |
|
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||||||
| Total liabilities and shareholders’ equity | $ |
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$ |
|
||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F- 1
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS )
|
For the Three Months Ended
June 30, |
For the Six Months Ended
June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Cost of revenues (including cost of revenues resulting from transactions with a related party of $
|
|
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||||||||||||
| Gross profit |
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| Operating expenses: | ||||||||||||||||
| Selling expenses |
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||||||||||||
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General and administrative expenses (including general and administrative expenses resulting from transactions with a related party of $
|
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||||||||||||
| Research and development expenses |
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||||||||||||
| Total operating expenses |
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||||||||||||
| Income (loss) from operations |
|
(
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) |
(
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) |
(
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) | |||||||||
| Other income (expenses): | ||||||||||||||||
| Changes in fair value of investments in marketable securities |
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(
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) |
(
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) |
(
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) | |||||||||
| Changes in fair value of investment in warrants |
|
(
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) |
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(
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) | ||||||||||
| Interest income |
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||||||||||||
| Interest expenses |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||
| Other income |
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||||||||||||
| Other expenses |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||
| Total other income (expenses) |
|
(
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) |
(
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) |
(
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) | |||||||||
| Income (loss) before income tax expense (benefit) |
|
(
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) |
(
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) |
(
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) | |||||||||
| Income tax expense (benefit) |
(
|
) |
(
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) |
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(
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) | |||||||||
| Net income (loss) |
|
(
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) |
(
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) |
(
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) | |||||||||
| Less: net loss attributable to non-controlling interests |
(
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) |
(
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) |
(
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) |
(
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) | ||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. |
|
(
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) |
(
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) |
(
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) | |||||||||
| Dividends accrued on Series A convertible preferred shares |
(
|
) |
(
|
) | ||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment |
|
(
|
) |
|
(
|
) | ||||||||||
| Total comprehensive income (loss) |
|
(
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) |
(
|
) |
(
|
) | |||||||||
| Less: comprehensive loss attributable to non-controlling interests |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Comprehensive income (loss) attributable to HeartCore Enterprises, Inc. | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
| Net income (loss) per common share attributable to HeartCore Enterprises, Inc. | ||||||||||||||||
| Basic | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
| Diluted | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic |
|
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|
||||||||||||
| Diluted |
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|
||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F- 2
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024
| Preferred Shares | Common Shares | Additional |
Accumulated
Other |
Total
HeartCore Enterprises, Inc. |
Non- | Total | ||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Subscription | Paid-in | Accumulated | Comprehensive | Shareholders’ | controlling | Shareholders’ | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Receivable | Capital | Deficit | Income | Equity | Interests | Equity | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | $ |
|
$ |
|
$ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||||||||||||||
| Net loss | - | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - |
(
|
) |
(
|
) |
|
(
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) | |||||||||||||||||||||||||||||||||||
| Issuance of common shares |
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|||||||||||||||||||||||||||||||||||||||
| Collection of subscription receivable | - | - |
|
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|||||||||||||||||||||||||||||||||||||||
| Exercise of stock options |
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| Stock-based compensation |
|
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|||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2025 |
|
$ |
|
|
(
|
) |
|
|
(
|
) |
|
|||||||||||||||||||||||||||||||||
| Net income (loss) | - | - |
|
|
(
|
) |
|
|||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - |
|
|
(
|
) |
|
|||||||||||||||||||||||||||||||||||||
| Issuance of Series A convertible preferred shares |
|
|
- |
|
|
|||||||||||||||||||||||||||||||||||||||
| Issuance of common shares related to securities purchase agreement |
|
|
|
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|
|||||||||||||||||||||||||||||||||||||||
| Issuance of common shares related to equity purchase agreement |
|
|
|
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|
|||||||||||||||||||||||||||||||||||||||
| Dividends accrued on Series A convertible preferred shares | - | - |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - |
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 |
|
$ |
|
|
$ |
|
$ | $ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||||||||||||||
| Common Shares | Additional |
Accumulated
Other |
Total
HeartCore Enterprises, Inc. |
Total | ||||||||||||||||||||||||||||
| Number of | Paid-in | Accumulated | Comprehensive | Shareholders’ | Non-controlling | Shareholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Equity | Interests | Equity | |||||||||||||||||||||||||
| Balance, December 31, 2023 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
| Net loss | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - |
|
|
(
|
) |
|
||||||||||||||||||||||||||
| Capital contribution from non-controlling shareholder | - |
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|
|||||||||||||||||||||||||||||
| Stock-based compensation |
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|
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|
|||||||||||||||||||||||||||
| Balance, March 31, 2024 |
|
|
|
(
|
) |
|
|
|
|
|||||||||||||||||||||||
| Net loss | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||
| Distribution of dividends | - |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||
| Stock-based compensation | - |
|
|
|
||||||||||||||||||||||||||||
| Balance, June 30, 2024 |
|
$ |
|
$ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F- 3
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the Six Months Ended
June 30, |
||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ |
(
|
) | $ |
(
|
) | ||
| Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
| Depreciation and amortization expenses |
|
|
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| Loss on disposal of property and equipment |
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| Amortization of debt issuance costs |
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| Non-cash lease expense |
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| Gain on termination of lease |
(
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) |
(
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) | ||||
| Deferred income taxes |
|
(
|
) | |||||
| Stock-based compensation |
|
|
||||||
| Changes in fair value of investments in marketable securities |
|
|
||||||
| Changes in fair value of investment in warrants |
(
|
) |
|
|||||
| Gain on settlement of asset retirement obligations |
(
|
) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable |
(
|
) |
(
|
) | ||||
| Prepaid expenses |
|
|
||||||
| Other assets |
|
(
|
) | |||||
| Accounts payable and accrued expenses |
(
|
) |
|
|||||
| Accounts payable and accrued expenses – related party |
(
|
) |
|
|||||
| Accrued payroll and other employee costs |
|
(
|
) | |||||
| Due to related parties |
(
|
) |
(
|
) | ||||
| Operating lease liabilities |
(
|
) |
(
|
) | ||||
| Income tax payables |
(
|
) |
(
|
) | ||||
| Deferred revenue |
(
|
) |
|
|||||
| Other liabilities |
(
|
) |
|
|||||
| Net cash flows used in operating activities |
(
|
) |
(
|
) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment |
(
|
) |
(
|
) | ||||
| Prepayment for property and equipment |
(
|
) | ||||||
| Purchase of investment in SAFE |
(
|
) | ||||||
| Net proceeds from sale of warrants |
|
|||||||
| Proceeds from sale of marketable securities |
|
|||||||
| Repayment of loan provided to related party |
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|
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| Net cash flows provided by investing activities |
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|
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| Cash flows from financing activities: | ||||||||
| Payments for finance leases |
(
|
) |
(
|
) | ||||
| Proceeds from short-term debt |
|
|
||||||
| Repayment of short-term and long-term debts |
(
|
) |
(
|
) | ||||
| Repayment of insurance premium financing |
(
|
) |
(
|
) | ||||
| Net proceeds from factoring arrangement |
|
|||||||
| Net repayment of factoring arrangement |
(
|
) | ||||||
| Capital contribution from non-controlling shareholder |
|
|||||||
| Distribution of dividends |
(
|
) | ||||||
| Proceeds from issuance of common shares |
|
|||||||
| Proceeds from collection of subscription receivable |
|
|||||||
| Proceeds from exercise of stock options |
|
|||||||
| Proceeds from issuance of Series A convertible preferred shares and common shares related to securities purchase agreement, net of share issuance costs |
|
|||||||
| Net cash flows provided by (used in) financing activities |
|
(
|
) | |||||
| Effect of exchange rate changes |
|
(
|
) | |||||
| Net change in cash and cash equivalents |
|
|
||||||
| Cash and cash equivalents – beginning of the period |
|
|
||||||
| Cash and cash equivalents – end of the period | $ |
|
$ |
|
||||
| Supplemental cash flow disclosures: | ||||||||
| Interest paid | $ |
|
$ |
|
||||
| Income taxes paid | $ |
|
$ |
|
||||
| Non-cash investing and financing transactions: | ||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | $ |
|
$ |
|
||||
| Insurance premium financing | $ |
|
$ |
|
||||
| Warrants converted to marketable securities | $ | $ |
|
|||||
| Issuance of common shares related to equity purchase agreement | $ |
|
$ | |||||
| Dividends accrued on Series A convertible preferred shares | $ |
|
$ | |||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F- 4
HEARTCORE ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
HeartCore Enterprises, Inc. (“HeartCore
USA”), a holding company, was incorporated under the laws of the State of Delaware on
On July 16, 2021, HeartCore USA executed a share
exchange agreement with certain shareholders of HeartCore Co., Ltd. (“HeartCore Japan”), a company that was incorporated in
Japan on June 12, 2009. Pursuant to the terms of the share exchange agreement, HeartCore USA issued
The share exchange on July 16, 2021 has been accounted for as a recapitalization between entities under common control since the same controlling shareholders controlled these two entities before and after the transaction. The consolidation of HeartCore USA and its subsidiary has been accounted for at historical cost and prepared on the basis as if the transaction had become effective as of the beginning of the earliest period presented in the accompanying unaudited consolidated financial statements.
HeartCore USA, via its wholly-owned operating subsidiary, HeartCore Japan, is mainly engaged in the business of developing and sales of comprehensive software. Beginning from early 2022, HeartCore USA is engaged in the business of providing consulting services to Japanese companies with intention to go public in the United States capital market.
On September 6, 2022, HeartCore USA entered into
a share exchange and purchase agreement to acquire
In January 2023, HeartCore USA incorporated a wholly-owned subsidiary, HeartCore Financial, Inc. (“HeartCore Financial”), under the laws of the State of Delaware. HeartCore Financial is engaged in the business of providing financial consulting services.
In November 2023, HeartCore Japan established
a
In April 2024, HeartCore Financial incorporated a branch office, HeartCore Financial, Inc. – Japan Branch Office (“HeartCore Financial – Japan”), in Japan. HeartCore Financial – Japan is engaged in the business of providing financial consulting services.
HeartCore USA, HeartCore Japan, Sigmaways, Sigmaways B.V., Sigmaways Technologies, HeartCore Financial, HeartCore Luvina and HeartCore Financial – Japan are hereafter referred to as the “Company”.
F- 5
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
These unaudited interim consolidated financial statements do not include all of the information and disclosure required by the U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments consisting of normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2024.
Use of Estimates
In preparing the unaudited consolidated financial statements in conformity U.S. GAAP, the management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the unaudited consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, useful life of property and equipment, impairment of long-lived assets, valuation of stock-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and finance leases, valuation of asset retirement obligations, valuation of investment in warrants, revenue recognition with respect to allocation of transaction price and valuation of derivative liability. Actual results could differ from those estimates.
Asset Retirement Obligations
Pursuant to the lease agreements for the office space, the Company is responsible to restore these spaces back to its original statute at the time of leaving. The Company recognizes an obligation related to these restorations as asset retirement obligations in the consolidated balance sheets, in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 410, “Asset Retirement Obligation Accounting”. The Company capitalizes the associated asset retirement cost by increasing the carrying amount of the related property and equipment.
The following table presents changes in asset retirement obligations:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Beginning balance | $ |
|
$ |
|
||||
| Accretion expense |
|
|
||||||
| Liabilities settled |
(
|
) |
(
|
) | ||||
| Foreign currency translation adjustment |
|
(
|
) | |||||
| Ending balance | $ |
|
$ |
|
||||
Software Development Costs
Software development costs are expensed as incurred until the point the Company establishes technological feasibility. Technological feasibility is established upon completion of a detailed program design or the completion of a working model. Costs incurred by the Company between establishment of technological feasibility and the point at which the product is ready for general release are capitalized and amortized over the economic life of the related products. The Company’s software development costs incurred subsequent to achieving technological feasibility have not been significant and all software development costs have been expensed as incurred.
F- 6
In the three and six months ended June 30, 2025,
software development costs expensed as incurred amounted to $
Investment in Warrants
Investment in warrants represents stock warrants earned from its consulting service customers. The warrants are measured at fair value and any changes in fair value are recognized in other income (expenses). Investment in warrants is classified as long-term if the warrants are exercisable over one year after the date of receipt.
Investments in Marketable Securities
Investments in marketable securities represent equity securities registered for public sale with readily determinable fair value. The marketable securities are obtained through stocks of its customers received as noncash consideration from consulting services and through exercise of stock warrants of its consulting service customers and measured at fair value with changes in fair value recognized in other income (expenses).
Impairment of Long-Lived Assets
Long-lived assets with finite lives, primarily property and equipment and operating lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were impairments of these assets during the three and six months ended June 30, 2025 and 2024.
Foreign Currency Translation
The functional currency of HeartCore Japan and HeartCore Financial – Japan is the Japanese Yen (“JPY”). The functional currency of HeartCore USA, HeartCore Financial and Sigmaways is the United States Dollar (“US$”). The functional currency of Sigmaways B.V. is the Euro (“EUR”). The functional currency of Sigmaways Technologies is the Canada Dollar (“CAD”). The functional currency of HeartCore Luvina is the Vietnam Dong (“VND”). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited consolidated statements of operations and comprehensive income (loss).
The reporting currency of the Company is the US$, and the accompanying unaudited consolidated financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rate prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive income within the unaudited consolidated statements of changes in shareholders’ equity.
Revenue Recognition
The Company recognizes revenues under ASC Topic 606, “Revenue from Contracts with Customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenues when (or as) the Company satisfies the performance obligation. Revenues amount represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local government levies. The Consumption Tax on sales are calculated at 10% of gross sales in Japan and Vietnam, 5% of gross sales in Canada, 21% of gross sales in Netherlands and nil of gross sales in the United States.
F- 7
The Company currently generates its revenues from the following main sources:
Revenues from On-premise Software
Licenses for on-premise software provide the customers with a right to use the software as it exists when made available to the customers. The Company provides on-premise software in the form of both perpetual licenses and term-based licenses which grant the customers with the right for a specified term. Revenues from on-premise licenses are recognized upfront at the point in time when the software is made available to the customers. Licenses for on-premise software are typically sold to the customers with maintenance and support services in a bundle. Revenues under the bundled arrangements are allocated based on the relative standalone selling prices (“SSP”) of on-premise software and maintenance and support services. The SSP for maintenance and support services is estimated based upon observable transactions when those services are sold on a standalone basis. The SSP of on-premise software is typically estimated using the residual approach as the Company is unable to establish the SSP for on-premise licenses based on observable prices given the same products are sold for a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is not discernible from past transactions or other observable evidence.
Revenues from Maintenance and Support Services
Maintenance and support services provided with software licenses consist of trouble shooting, technical support and the right to receive unspecified software updates when and if available during the subscription. Revenues from maintenance and support services are recognized over time as such services are performed. Revenues for consumption-based services are generally recognized as the services are performed and accepted by the customers.
Revenues from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer contract term beginning on the date the Company’s solution is made available to the customers. The subscription contracts are generally one year or less in length.
Revenues from Software Development and Other Miscellaneous Services
The Company provides customers with software development and support services pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes revenues at a point in time when control is transferred to the customers and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers.
Revenues from Customized Software Development and Services
The Company’s customized software development and services revenues primarily include revenues from providing software development solutions and other support services to its customers. The contract pricing is at stated billing rates per hour. These contracts are generally short-term in nature and not longer than one year in duration. For services provided under the contracts that result in the transfer of control over time, the underlying deliverable in the contracts is owned and controlled by the customers and does not create an asset with an alternative use to the Company. The Company recognizes revenues on rate per hour contracts based on the amount billable to the customers, as the Company has the right to invoice the customers in an amount that directly corresponds with the value to the customers of the Company’s performance to date.
Revenues from Consulting Services
The Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting services contracts normally include both cash and noncash considerations. Cash consideration is paid in installment payments and is recognized in revenues over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is in the form of stocks and warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. The Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved.
F- 8
Sales Returns and Allowances
The Company records reduction to revenues for estimated customer returns and allowances. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns. The actual amount of customer returns and allowances, which is inherently uncertain, may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to revenues in the period in which it makes such a determination. Reserves for customer refunds are included within other current liabilities on the consolidated balance sheets. At a minimum, the Company reviews and refines these estimates on a quarterly basis.
Contract Balances
The timing of revenue
recognition may differ from the timing of invoicing to the customers. The Company determines that its contracts do not include a significant
financing component. The Company records a contract asset, which is included in accounts receivable, current or non-current, in the consolidated
balance sheets, when revenues are recognized prior to invoicing. The Company factors certain accounts receivable upon or after the performance
obligation is being met. The Company records deferred revenue in the consolidated balance sheets when revenues are recognized subsequent
to cash collection for an invoice. Deferred revenue is reported net of related uncollected deferred revenue in the consolidated balance
sheets. The amount of revenues recognized during the six months ended June 30, 2025 and 2024 that were included in the opening deferred
revenue balance are approximately $
Disaggregation of Revenues
The Company disaggregates its revenues from contracts by product/service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenues and cash flows are affected by economic factors.
The Company’s disaggregation of revenues by revenue stream for the three and six months ended June 30, 2025 and 2024 is as follows:
|
For the Three Months
Ended June 30, |
For the Six Months
Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues from on-premise software | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Revenues from maintenance and support services |
|
|
|
|
||||||||||||
| Revenues from software as a service (“SaaS”) |
|
|
|
|
||||||||||||
| Revenues from software development and other miscellaneous services |
|
|
|
|
||||||||||||
| Revenues from customized software development and services |
|
|
|
|
||||||||||||
| Revenues from consulting services |
|
|
|
|
||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
F- 9
The Company’s disaggregation of revenues by product/service for the three and six months ended June 30, 2025 and 2024 is as follows:
|
For the Three Months
Ended June 30, |
For the Six Months
Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues from customer experience management platform | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Revenues from process mining |
|
|
|
|
||||||||||||
| Revenues from robotic process automation |
|
|
|
|
||||||||||||
| Revenues from task mining |
|
|
|
|
||||||||||||
| Revenues from customized software development and services |
|
|
|
|
||||||||||||
| Revenues from consulting services |
|
|
|
|
||||||||||||
| Revenues from others |
|
|
|
|
||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable, note receivable and other receivable. The Company usually does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For the three and six months ended June 30, 2025 and 2024, customers account for 10% or more of the Company’s total revenues are as follows:
|
For the Three Months
Ended June 30, |
For the Six Months
Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Customer A |
|
% |
|
% |
|
% |
|
% | ||||||||
| Customer B |
|
% |
|
% | ||||||||||||
As of June 30, 2025 and December 31, 2024, customers account for 10% or more of the Company’s total accounts receivable are as follows:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Customer B |
|
% | ||||||
| Customer C |
|
% |
|
% | ||||
For the three and six months ended June 30, 2025 and 2024, no vendor accounts for more than 10% of the Company’s total purchases.
As of June 30, 2025 and December 31, 2024, vendor accounts for 10% or more of the Company’s total accounts payable and accrued expenses is as follows:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Vendor A |
|
% | ||||||
| * |
|
Segment Reporting
ASC Topic 280, “Segment Reporting”, requires use of the management approach model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker (“CODM”) organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company (see NOTE 18).
Stock-based Compensation
The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the unaudited consolidated statements of operations and comprehensive income (loss) based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures as they occur.
F- 10
Series A Convertible Preferred Shares and Derivative Liability
When the Company issues Series A convertible preferred shares (see NOTE 16), it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC Topic 480, “Distinguishing Liabilities from Equity”, and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of the Series A convertible preferred shares would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, as a standalone instrument, meets the definition of an embedded derivative under ASC Topic 815, “Derivatives and Hedging”. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC Topic 815-40, or when it must be settled either in cash or by issuing equity shares that are readily convertible to cash.
The Company assesses the Series A convertible preferred shares as a whole and determines it does not meet the liability classification pursuant to ASC Topic 480 and the Company classifies the host instrument as permanent equity because no features provide for redemption by the holders of the Series A convertible preferred shares or conditional redemption, which is not solely within the Company’s control, and there are no unconditional obligations in that (1) the Company must or may settle in a variable number of its equity shares, and (2) the monetary value is predominantly fixed, varying with something other than the fair value of the Company’s equity shares or varying inversely in relation to the Company’s equity shares.
The Company assesses the conversion feature of the Series A convertible preferred shares for derivative accounting consideration and determines it meets the definition of an embedded derivative, which is separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheets at fair value, with any changes in its fair value recognized in the unaudited consolidated statements of operations and comprehensive income (loss). The Company values the fair value of derivative liability using the income approach with the discounted cash flow valuation method with the assistance of a third-party valuation appraiser. The determination of fair value requires management to make significant estimates and assumptions related to forecasted cash flows and discount rate.
Fair Value Measurements
The Company performs fair value measurements in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures”. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1: quoted prices in active markets for identical assets or liabilities; | |
| ● | Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or | |
| ● | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. |
As of June 30, 2025 and December 31, 2024, the carrying values of current assets, except for investments in marketable securities, and current liabilities, except for derivative liability, approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments.
F- 11
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2025 and December 31, 2024 are summarized below (also see NOTE 6 for investments):
| Fair Value Measurements as of June 30, 2025 | ||||||||||||||||
|
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Unobservable
Inputs (Level 3) |
Fair Value at
June 30, 2025 |
|||||||||||||
| Investments in marketable securities |
|
|
||||||||||||||
| Long-term investment in warrants |
|
|
||||||||||||||
| Derivative liability |
|
|
||||||||||||||
| Fair Value Measurements as of December 31, 2024 | ||||||||||||||||
|
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Unobservable
Inputs (Level 3) |
Fair Value at
December 31, 2024 |
|||||||||||||
| Investments in marketable securities |
|
|
||||||||||||||
| Long-term investment in warrants |
|
|
||||||||||||||
| Derivative liability | ||||||||||||||||
Recent Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU No. 2023-09 is effective for public companies for annual reporting periods beginning after December 15, 2024, on a prospective basis. For all other entities, it is effective for annual reporting periods beginning after December 15, 2025, on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its unaudited consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public companies to disclose additional information about specific expense categories in the notes to the consolidated financial statements on an annual and interim basis. ASU No. 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its unaudited consolidated financial statements and related disclosures.
F- 12
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accounts receivable – non-factored | $ |
|
$ |
|
||||
| Accounts receivable – factored with recourse |
|
|
||||||
| Total accounts receivable, gross |
|
|
||||||
| Less: allowance for credit losses | ||||||||
| Total accounts receivable |
|
|
||||||
| Less: current portion |
(
|
) |
(
|
) | ||||
| Accounts receivable, non-current | $ |
|
$ |
|
||||
NOTE 4 – PREPAID EXPENSES
Prepaid expenses consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Prepayments to software and consulting services vendors | $ |
|
$ |
|
||||
| Prepaid marketing fees |
|
|
||||||
| Prepaid subscription fees |
|
|
||||||
| Prepaid insurance premium |
|
|
||||||
| Others |
|
|
||||||
| Total prepaid expenses | $ |
|
$ |
|
||||
NOTE 5 – RELATED PARTY TRANSACTIONS
As of June 30, 2025 and December 31, 2024, the
Company had a due to related parties balance of $
As of June 30, 2025 and December 31, 2024, the
Company had a due to related parties balance of
and $
As of June 30, 2025 and December 31, 2024, the
Company had a loan receivable balance of $
As of June 30, 2025 and December 31, 2024, the
Company had a short-term debt balance of $
F- 13
NOTE 6 – INVESTMENTS
Investment in Warrants
The Company received warrants from its customers as noncash consideration from consulting services. The warrants are not registered for public sale and are initially measured at fair value at contract inception. The Company’s investment in warrants is measured on a recurring basis and carried on the consolidated balance sheets at an estimated fair value at the end of the period. The valuation of investment in warrants is determined using the Black-Scholes model based on the stock price, exercise price, expected volatility, time to maturity, and risk-free interest rate for the term of the warrants exercise.
The following table summarizes the Company’s investment in warrants activities for the six months ended June 30, 2025 and 2024:
| For the Six Months | ||||||||
| Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Fair value of investment in warrants at beginning of the period | $ |
|
$ |
|
||||
| Changes in fair value of investment in warrants |
|
(
|
) | |||||
| Warrants converted to marketable securities |
(
|
) | ||||||
| Fair value of investment in warrants at end of the period | $ |
|
$ |
|
||||
Investments in Marketable Securities
The Company’s investments in marketable securities represent stocks received from its customers as noncash consideration from consulting services and stocks received upon the exercise of warrants described above. They are registered for public sale with readily determinable fair values, and are measured at quoted prices on a recurring basis at the end of the period.
The following table summarizes the Company’s investments in marketable securities activities for the six months ended June 30, 2025 and 2024:
| For the Six Months | ||||||||
| Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Fair value of investments in marketable securities at beginning of the period | $ |
|
$ |
|
||||
| Marketable securities converted from warrants |
|
|||||||
| Changes in fair value of investments in marketable securities |
(
|
) |
(
|
) | ||||
| Marketable securities sold |
(
|
) | ||||||
| Fair value of investments in marketable securities at end of the period | $ |
|
$ |
|
||||
NOTE 7 – LONG-TERM NOTE RECEIVABLE
On September 1, 2023, the Company purchased a
$
F- 14
NOTE 8 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Leasehold improvements | $ |
|
$ |
|
||||
| Machinery and equipment |
|
|
||||||
| Vehicle |
|
|
||||||
| Software |
|
|
||||||
| Subtotal |
|
|
||||||
| Less: accumulated depreciation |
(
|
) |
(
|
) | ||||
| Total property and equipment, net | $ |
|
$ |
|
||||
For the three and six months ended June 30, 2025,
the Company recognized depreciation expenses of $
NOTE 9 – LEASES
The Company has entered into operating leases
for office space with terms ranging from two to fifteen years, and finance leases for office equipment and vehicle with terms of five
years. The estimated effect of lease renewal and termination options, as applicable, that are reasonably certain to be exercised in the
determination of the lease term and initial measurement of lease right-of-use assets and lease liabilities is included in the unaudited
consolidated financial statements. Right-of-use assets of finance leases of $
Operating lease costs for lease payments are recognized on a straight-line basis over the lease term. Finance lease costs include amortization, which is recognized on a straight-line basis over the expected life of the leased assets, and interest expense, which is recognized following an effective interest rate method. Leases with initial term of twelve months or less are not recorded in the consolidated balance sheets.
The components of lease costs for the three and six months ended June 30, 2025 and 2024 are as follows:
|
For the Three Months
Ended June 30, |
For the Six Months
Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Finance lease costs | ||||||||||||||||
| Amortization of finance lease right-of-use assets | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Interest on finance lease liabilities |
|
|
|
|
||||||||||||
| Total finance lease costs |
|
|
|
|
||||||||||||
| Operating lease costs |
|
|
|
|
||||||||||||
| Total lease costs | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
The following table presents supplemental information related to the Company’s leases for the six months ended June 30, 2025 and 2024:
| For the Six Months | ||||||||
| Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from finance leases | $ |
|
$ |
|
||||
| Operating cash flows from operating leases |
|
|
||||||
| Financing cash flows from finance leases |
|
|
||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities |
|
|
||||||
| Weighted average remaining lease term (years) | ||||||||
| Finance leases |
|
|
||||||
| Operating leases |
|
|
||||||
| Weighted average discount rate (per annum) | ||||||||
| Finance leases |
|
% |
|
% | ||||
| Operating leases |
|
% |
|
% | ||||
F- 15
As of June 30, 2025, the future maturity of lease liabilities is as follows:
| Year Ended December 31, |
Finance
Leases |
Operating
Leases |
||||||
| Remaining of 2025 | $ |
|
$ |
|
||||
| 2026 |
|
|
||||||
| 2027 |
|
|
||||||
| 2028 |
|
|
||||||
| 2029 |
|
|||||||
| Thereafter |
|
|||||||
| Total lease payments |
|
|
||||||
| Less: imputed interest |
(
|
) |
(
|
) | ||||
| Total lease liabilities |
|
|
||||||
| Less: current portion |
(
|
) |
(
|
) | ||||
| Non-current lease liabilities | $ |
|
$ |
|
||||
Pursuant to the operating lease agreements, the
Company made security deposits to the lessors. The security deposits amounted to $
NOTE 10 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accrued consumption taxes | $ |
|
$ |
|
||||
| Customer refund liability* |
|
|
||||||
| Others |
|
|
||||||
| Total other current liabilities | $ |
|
$ |
|
||||
| * |
|
NOTE 11 – FACTORING LIABILITY
Sigmaways, the subsidiary acquired by the Company
in February 2023, entered into a factoring and security agreement (“Factoring Agreement”) with The Southern Bank Company,
an unrelated factor (“Factor”), in February 2017, for the purpose of factoring certain accounts receivable. Under the terms
of the Factoring Agreement, Sigmaways may offer for sale, and the Factor may purchase in its sole discretion, certain accounts receivable
of Sigmaways (“Purchased Receivable”). The Factoring Agreement provided for a maximum of $
Selected accounts receivable is submitted to the
Factor, and Sigmaways receives
F- 16
The Factoring Agreement specifies that eligible accounts receivable is factored with recourse. Under the terms of the recourse provision, Sigmaways is required to reimburse the Factor, upon demand, for Purchased Receivable that is not paid on time by the customers. The performance of all obligations and payments to the Factor is personally guaranteed by Prakash Sadasivam, the CEO of Sigmaways and CSO of the Company, and secured by all Sigmaways’ now owned and hereafter assets and any sums maintained by the Factor that are identified as payable to Sigmaways.
The Factoring Agreement has an initial term of twelve months and automatically renews for successive twelve-month renewal periods unless terminated pursuant to the terms of the Factoring Agreement. Sigmaways may terminate the Factoring Agreement with sixty days’ written notice to the Factor and is subject to certain early termination fee.
The Factoring Agreement contains covenants that are customary for accounts receivable-based factoring agreements and also contains provisions relating to events of default that are customary for agreements of this type.
As of June 30, 2025 and December 31, 2024, there
were $
NOTE 12 – INSURANCE PREMIUM FINANCING
In January 2025, the Company entered into an insurance
premium financing agreement with AFCO Direct, a division of AFCO Credit Corporation, for $
In January 2024, the Company entered into an insurance
premium financing agreement with BankDirect Capital Finance for $
As of June 30, 2025 and December 31, 2024, the
balances of the insurance premium financing were $
F- 17
NOTE 13 – LONG-TERM DEBTS
The Company’s long-term debts represent loans borrowed from banks and financial institutions as follows:
| Name of Banks/Financial Institutions |
Original Amount
Borrowed |
Loan
Duration |
Annual
Interest Rate |
Balance as of
June 30, 2025 |
Balance as of
December 31, 2024 |
||||||||||||
| Resona Bank, Limited | JPY |
|
(a)(b) |
|
|
% | $ |
|
$ |
|
|||||||
| Resona Bank, Limited | JPY |
|
(a)(b) |
|
|
% |
|
|
|||||||||
| Resona Bank, Limited | JPY |
|
(a)(b) |
|
|
% |
|
|
|||||||||
| Sumitomo Mitsui Banking Corporation | JPY |
|
(a)(b) |
|
|
% |
|
|
|||||||||
| Sumitomo Mitsui Banking Corporation | JPY |
|
(a)(b) |
|
|
% |
|
|
|||||||||
| Sumitomo Mitsui Banking Corporation | JPY |
|
(a)(b) |
|
|
% |
|
|
|||||||||
| The Shoko Chukin Bank, Ltd. | JPY |
|
|
|
% |
|
|
||||||||||
| The Shoko Chukin Bank, Ltd. | JPY |
|
|
Tokyo Interbank Offered Rate +
|
% |
|
|
||||||||||
| Japan Finance Corporation | JPY |
|
|
|
% |
|
|
||||||||||
| Higashi-Nippon Bank | JPY |
|
(a) |
|
|
% |
|
||||||||||
| Higashi-Nippon Bank | JPY |
|
(a)(b) |
|
|
% |
|
|
|||||||||
| First Home Bank | $ |
|
(c) |
|
Wall Street Journal U.S. Prime Rate +
|
% |
|
|
|||||||||
| U.S. Small Business Administration | $ |
|
(c) |
|
|
% |
|
|
|||||||||
| Aggregate outstanding principal balances |
|
|
|||||||||||||||
| Less: unamortized debt issuance costs |
(
|
) |
(
|
) | |||||||||||||
| Less: current portion |
(
|
) |
(
|
) | |||||||||||||
| Non-current portion | $ |
|
$ |
|
|||||||||||||
| (a) |
|
| (b) |
|
| (c) |
|
During the three and six months ended June 30,
2025, the Company recorded $
F- 18
As of June 30, 2025, future minimum principal payments for long-term debts are as follows:
| Principal | ||||
| Year Ended December 31, | Payment | |||
| Remaining of 2025 | $ |
|
||
| 2026 |
|
|||
| 2027 |
|
|||
| 2028 |
|
|||
| 2029 |
|
|||
| Thereafter |
|
|||
| Total | $ |
|
||
NOTE 14 – INCOME TAXES
United States
HeartCore USA, Sigmaways and HeartCore Financial,
incorporated in the United States, are subject to federal income tax at
Netherlands
Sigmaways B.V. is a company incorporated in Netherlands
in November 2019. The first EUR
Canada
Sigmaways Technologies is a company incorporated
in British Columbia in Canada in August 2020. It is subject to income tax on income arising in, or derived from, the tax jurisdiction
in British Columbia it operates. The basic federal rate of Part I tax is
Vietnam
HeartCore Luvina is a company incorporated in
Vietnam in November 2023. It is subject to standard income tax rate at
Japan
The Company conducts its major businesses in Japan
and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to
examination by the local tax authority. Income taxes in Japan applicable to the Company are imposed by the national, prefectural and municipal
governments, and in the aggregate result in an effective statutory tax rate of approximately
F- 19
For the three and six months ended June 30, 2025 and 2024, the Company’s income tax expense (benefit) are as follows:
|
For the Three Months
Ended June 30, |
For the Six Months
Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Current | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Deferred |
(
|
) |
(
|
) |
|
(
|
) | |||||||||
| Income tax expense (benefit) | $ |
(
|
) | $ |
(
|
) | $ |
|
$ |
(
|
) | |||||
For the three and six months ended June 30, 2025, the effective tax
rate was (
NOTE 15 – STOCK-BASED COMPENSATION
Stock Options
On August 6, 2021, the Board of Directors and
shareholders of the Company approved a 2021 Equity Incentive Plan (“2021 Plan”), under which
On August 9, 2022, the Company awarded stock options
to purchase
On February 3, 2023, the Company awarded stock
options to purchase
On August 1, 2023, the Board of Directors of the
Company approved a 2023 Equity Incentive Plan, under which
On August 25, 2023, the Company awarded stock
options to purchase
The following table summarizes the stock options activities and related information for the six months ended June 30, 2025 and 2024:
|
Number of
Stock Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Term (Years) |
Intrinsic
Value |
|||||||||||||
| As of January 1, 2024 |
|
$ |
|
|
$ | |||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | |||||||||||||||
| Forfeited |
(
|
) |
|
- | ||||||||||||
| As of June 30, 2024 |
|
$ |
|
|
$ | |||||||||||
| As of January 1, 2025 |
|
$ |
|
|
$ |
|
||||||||||
| Granted | - | |||||||||||||||
| Exercised |
(
|
) |
|
- | ||||||||||||
| Forfeited |
(
|
) |
|
- | ||||||||||||
| As of June 30, 2025 |
|
$ |
|
|
$ | |||||||||||
| Vested and exercisable as of June 30, 2025 |
|
$ |
|
|
$ | |||||||||||
For the three and six months ended June 30, 2025,
the Company recognized stock-based compensation related to stock options of $
F- 20
Restricted Stock Units (“RSUs”)
On February 9, 2022, the Company entered into
executive employment agreements with five executives and granted
The following table summarizes the RSUs activities and related information for the six months ended June 30, 2025 and 2024:
|
Number of
RSUs |
Weighted
Average Grant Date Fair Value Per Share |
|||||||
| Unvested as of January 1, 2024 |
|
$ |
|
|||||
| Granted | ||||||||
| Vested |
(
|
) |
|
|||||
| Forfeited | ||||||||
| Unvested as of June 30, 2024 |
|
$ |
|
|||||
| Unvested as of January 1, 2025 |
|
$ |
|
|||||
| Granted | ||||||||
| Vested |
(
|
) |
|
|||||
| Forfeited |
(
|
) |
|
|||||
| Unvested as of June 30, 2025 |
|
$ |
|
|||||
For the three and six months ended June 30, 2025,
the Company recognized stock-based compensation related to RSUs of $
NOTE 16 – SHAREHOLDERS’ EQUITY
Shares Authorized
The Company
is authorized to issue
Equity Purchase Agreement
On June
30, 2025, the Company entered into an equity purchase agreement and a registration rights agreement with Crom Structured Opportunities
Fund I, LP (“Crom Structured”), pursuant to which Crom Structured has committed to purchase up to $
F- 21
Under the
terms of the equity purchase agreement, the Company has the right, but not the obligation, to sell to Crom Structured, shares of common
shares over the period commencing on the date of the equity purchase agreement and ending on the earlier of (i) the date on which Crom
Structured shall have purchased common shares pursuant to the equity purchase agreement equal to $
Concurrently with the signing
of the equity purchase agreement, the Company issued
During the six months ended June 30, 2025, no common shares were sold under the terms of the equity purchase agreement.
Designation of Series A Convertible Preferred Shares and Securities Purchase Agreement
On June
30, 2025, the Company filed a certificate of designations of preferences and rights of Series A convertible preferred shares (“Series
A COD”) with the Secretary of State of the State of Delaware to set forth the terms of the Series A convertible preferred shares.
Pursuant to the Series A COD, the Company designated
| ● |
Dividends – Each Series A convertible preferred shares holder
(“Holder”) shall be entitled to receive dividends of
|
| ● | Liquidation – In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of common shares and any other class or series of equity shares of the Company, an amount per share equal to the greater of (i) the stated value plus all accrued and unpaid dividends thereon or (ii) the amount that such Holder would receive if such Holder converts all of its shares of Series A convertible preferred shares into common shares immediately prior to such liquidation, dissolution or winding up. If, upon any such liquidation, dissolution or winding up, the assets and funds available for distribution among the Holders shall be insufficient to permit the payment to such Holders of the full preferential amount aforesaid, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the Holders in proportion to the amount that each such Holder is entitled to receive. After the payment of the full amount of the liquidation preference to which they are entitled, the Holders shall have no right or claim to any of the remaining assets of the Company. |
| ● |
Voting – The Series A convertible preferred shares shall have
no voting rights. However, as long as any shares of Series A convertible preferred shares are outstanding, the Company shall not, without
the affirmative vote of the Holders of a majority of the outstanding shares of Series A convertible preferred shares, and with each share
of Series A convertible preferred shares having
|
F- 22
| ● |
Conversion – Each Holder shall have the right, at such Holder’s
opinion, to convert any or all of the Series A convertible preferred shares held by such Holder into fully paid and nonassessable shares
of common shares. The number of shares of common shares issuable upon conversion of each share of Series A convertible preferred shares
shall be equal to the quotient obtained by dividing (i) the stated value plus all accrued and unpaid dividends thereon by (ii)
|
| ● | Redemption – No share of Series A convertible preferred shares shall be redeemable under any circumstances. |
On June
30, 2025, the Company entered into a securities purchase agreement and a registration rights agreement with Crom Structured, pursuant
to which the Company closed, issued and sold to Crom Structured an aggregate of
During the six months ended June 30, 2025, no shares of Series A convertible preferred shares were converted into common shares.
Dividends accrued on Series A convertible preferred shares amounted to $
At the Market Offering Agreement (“ATM Agreement”)
On October
23, 2023, the Company entered into a ATM Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), as sales agent, pursuant
to which the Company may offer and sell, from time to time, through Wainwright, shares of the Company’s common shares, par value
of $
Capital Contribution for Non-controlling Shareholder
In November
2023, the Company established a
Distribution of Dividends on Common Shares
On March
29, 2024, the Board of Directors approved a dividend declaration of $
Shares Issued and Outstanding
As of June
30, 2025 and December 31, 2024, there were
As of June
30, 2025 and December 31, 2024, there were
F- 23
NOTE 17 – NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated on the basis of weighted average outstanding common shares. Diluted net income (loss) per share is calculated on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs and Series A convertible preferred shares. Potentially dilutive common shares are determined by applying the treasury stock method to the assumed conversion of share repurchase liability to common shares related to the early exercised stock options and unvested RSUs. Potentially dilutive common shares issuable upon conversion of the Series A convertible preferred shares are determined by applying the if-converted method. Potentially dilutive common shares are not included in the calculation of diluted net income (loss) per share if their effect would be anti-dilutive.
The computation of basic and diluted net income (loss) per share for the three and six months ended June 30, 2025 and 2024 is as follows:
|
For the Three Months
Ended June 30, |
For the Six Months
Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net income (loss) per share – basic | ||||||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
| Denominator | ||||||||||||||||
| Weighted average number of common shares outstanding used in calculating net income (loss) per share – basic |
|
|
|
|
||||||||||||
| Net income (loss) per share – basic | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
| Net income (loss) per share – diluted | ||||||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
| Dividends accrued on Series A convertible preferred shares |
|
|
||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. |
|
(
|
) |
(
|
) |
(
|
) | |||||||||
| Denominator | ||||||||||||||||
| Weighted average number of common shares outstanding used in calculating net income (loss) per share – basic |
|
|
|
|
||||||||||||
| Dilutive effect of stock options, RSUs and Series A convertible preferred shares |
|
|||||||||||||||
| Weighted average number of common shares outstanding used in calculating net income (loss) per share – diluted |
|
|
|
|
||||||||||||
| Net income (loss) per share – diluted | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
NOTE 18 – SEGMENT AND GEOGRAPHIC INFORMATION
Segment Information
Operating segments are defined as components of an entity for which discrete financial information is available and is regularly reviewed by the CODM, the CEO of the Company, in making decisions regarding resource allocation and performance assessment. The Company determines its operations constitute a single operating segment and reportable segment in accordance with ASC Topic 280. The CODM assesses financial performance and decides how to allocate resources based on consolidated net income (loss). Segment assets are reported on the Company’s consolidated balance sheets.
F- 24
The following table summarizes selected financial information with respect to the Company’s single operating segment and reportable segment for the three and six months ended June 30, 2025 and 2024:
|
For the Three Months
Ended June 30, |
For the Six Months
Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Less: | ||||||||||||||||
| Software related cost of revenues |
|
|
|
|
||||||||||||
| Consulting related cost of revenues |
|
|
|
|
||||||||||||
| Selling expenses |
|
|
|
|
||||||||||||
| General and administrative expenses |
|
|
|
|
||||||||||||
| Research and development expenses |
|
|
|
|
||||||||||||
| Income (loss) from operations |
|
(
|
) |
(
|
) |
(
|
) | |||||||||
| Total other income (expenses) |
|
(
|
) |
(
|
) |
(
|
) | |||||||||
| Income (loss) before income tax expense (benefit) |
|
(
|
) |
(
|
) |
(
|
) | |||||||||
| Income tax expense (benefit) |
(
|
) |
(
|
) |
|
(
|
) | |||||||||
| Net income (loss) | $ |
|
$ |
(
|
) | $ |
(
|
) | $ |
(
|
) | |||||
Geographic Information
The following table summarizes the breakdown of revenues by geography for the three and six months ended June 30, 2025 and 2024:
|
For the Three Months
Ended June 30, |
For the Six Months
Ended June 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Japan | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| United States |
|
|
|
|
||||||||||||
| International |
|
|
|
|
||||||||||||
| Total revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
The following table summarizes the breakdown of long-lived assets by geography as of June 30, 2025 and December 31, 2024:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Japan | $ |
|
$ |
|
||||
| United States |
|
|
||||||
| International |
|
|
||||||
| Total long-lived assets | $ |
|
$ |
|
||||
NOTE 19 – SUBSEQUENT EVENT
On July 1, 2025, the Company converted partial of the warrants it received from a customer as noncash consideration from consulting services into marketable securities.
On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (“OBBBA”) which includes, among other provisions, changes to the U.S. corporate income tax system including the allowance of immediate expensing of qualifying research and development expenses and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. The Company is currently evaluating the impact of OBBBA on its unaudited consolidated financial statements and related disclosures.
On July 24, 2025, the Board of Directors of the
Company approved to enter into a non-binding letter of intent to sell
F- 25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe harbor for forward-looking statements made by us or on our behalf. We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission (“SEC”) and in our reports and presentations to stockholders or potential stockholders. In some cases, forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions. Such forward-looking statements include risks and uncertainties and there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and uncertainties can be found in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as the same may be updated from time to time, including in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q.
Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this report are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances.
Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
Business Overview
We are a leading software development company based in Tokyo, Japan. We provide software through two business units. The first business unit, our CX division, includes a customer experience management business (the “CXM Platform”) that has been in existence for over 15 years. Our CXM Platform includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience. We also provide education, services and support to help customers be successful with our CXM Platform.
The second business unit, our DX division, is a digital transformation business which provides customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises. We also have an ongoing technology innovation team to develop software that supports the narrow needs of large enterprise customers.
During 2022, we started the GO IPO business, which supports Japanese companies listing on The Nasdaq Stock Market (“Nasdaq”) and NYSE in the United States. As of June 30, 2025, we have entered into consulting agreements with 16 companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase 1% to 4% of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.
We were incorporated in the State of Delaware on May 18, 2021. We conduct business activities principally through our wholly owned subsidiary, HeartCore Co. Ltd. (“HeartCore Japan”), which was established in Japan in 2009 by Sumitaka Yamamoto, our Chairman of Board, Chief Executive Officer and President and a significant stockholder of the Company.
On September 6, 2022, we entered into a share exchange and purchase agreement to acquire 51% of the outstanding shares of Sigmaways, Inc. (“Sigmaways”), a company incorporated under the laws of the State of California, and its wholly owned subsidiaries. Sigmaways and its wholly owned subsidiaries are engaged in the business of developing and sales of software in the United States. The acquisition closed on February 1, 2023.
In the first quarter of 2023, we formed HeartCore Financial, Inc. (“HeartCore Financial”) in the U.S. as part of our GO IPO consulting business. In the fourth quarter of 2023, we formed HeartCore Luvina Vietnam Company (“HeartCore Luvina”) in Vietnam, which is engaged in the business of software development.
In April 2024, HeartCore Financial incorporated a branch office, HeartCore Financial, Inc. – Japan Branch Office, in Japan.
1
Recent Developments
Nasdaq Notice Regarding Minimum Bid Price Requirement
On May 6, 2025, we received written notice (the “Bid Price Notice”) from the Nasdaq Listing Qualification Department (the “Nasdaq Staff”) indicating that we were not in compliance with the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”) for continued listing on the Nasdaq Capital Market. The notification of noncompliance has no immediate effect on the listing or trading of our common stock on the Nasdaq Capital Market under the symbol “HTCR,” and 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.
The Nasdaq Listing Rules require listed securities to maintain a minimum bid price of $1.00 per share and, based upon the closing bid price for the last 30 consecutive business days, we no longer meet this requirement. The Bid Price Notice indicated that we will be provided 180 calendar days, or until November 3, 2025, in which to regain compliance. If at any time during this period the closing bid price of our common stock is at least $1.00 per share for a minimum of 10 consecutive business days, the Nasdaq Staff will provide us with written confirmation of compliance and the matter will be closed.
Alternatively, if we fail to regain compliance with Rule 5550(a)(2) prior to the expiration of the 180 calendar day period, but meet the continued listing requirement for market value of publicly held shares and all of the other applicable standards for initial listing on the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and provide written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary, then we may be granted an additional 180 calendar days to regain compliance with Rule 5550(a)(2).
There can be no assurance that we will be able to regain compliance with the Minimum Bid Price Requirement, even if we maintain compliance with the other listing requirements. 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, but no decisions regarding a response have been made at this time.
Nasdaq Notice Regarding Minimum Stockholders’ Equity Requirement
On May 24, 2025, we received written notice (the “Stockholders’ Equity Notice”) from the Nasdaq Staff indicating that we are not in compliance with the $2,500,000 minimum stockholders’ equity requirement set forth in Nasdaq Listing Rule 5550(b) (the “Minimum Stockholders’ Equity Requirement”) for continued listing on the Nasdaq Capital Market. Additionally, the Nasdaq Staff noted that we do not meet the alternatives of market value of listed securities or net income from continuing operations as of May 23, 2025.
Under Nasdaq rules, we had 45 calendar days (or until July 8, 2025) to submit a plan to regain compliance, which we did. On July 11, 2025, the Nasdaq Staff notified us that they had granted us an extension until September 30, 2025, to regain compliance with the Minimum Stockholders’ Equity Requirement. Pursuant to the terms of the extension, on or before September 30, 2025, we must complete the transactions pursuant to the Equity Purchase Agreement and Securities Purchase Agreement (both as defined below) and evidence compliance with the Minimum Stockholders’ Equity Requirement as indicated in the Nasdaq Staff’s notification.
The notification of noncompliance had no immediate effect on the listing or trading of our common stock on the Nasdaq Capital Market under the symbol “HTCR.” There can be no assurance that we will be able to regain compliance with the Minimum Stockholders’ Equity Requirement, even if we maintain compliance with the other listing requirements.
2
Consulting and Services Agreement with tmsuk Co. Ltd.
On May 30, 2025 (the “tmsuk Effective Date”), we entered into a Consulting and Services Agreement (the “tmsuk Consulting Agreement”) with tmsuk Co., Ltd., a Japanese corporation (“tmsuk”). Pursuant to the terms of the tmsuk Consulting Agreement, we agreed to provide tmsuk certain services, including the following (collectively, the “tmsuk Services”):
| (i) | Assistance with the introduction, for a law firm, underwriter and auditing firm for tmsuk, with tmsuk making their selections, at their sole discretion; |
| (ii) | Assisting in the preparation of documentation for internal controls required for an initial public offering or de-SPAC or other Fundamental Transaction (as defined in the tmsuk Warrant) by tmsuk; |
| (iii) | Providing support services to remove problematic accounting accounts upon listing; |
| (iv) | Translation of requested documents into English; |
| (v) | Attend and, if requested by tmsuk, lead, meetings with tmsuk’s management and employees; |
| (vi) | Provide tmsuk with support services related to tmsuk’s NASDAQ listing; |
| (vii) | Conversion of accounting data from Japanese standards to U.S. GAAP; |
| (viii) | Assist in the preparation of S-1 or F-1 filings; |
| (ix) | Creation of English web page; and |
| (x) | Preparing an investor presentation/deck and executive summary of tmsuk’s operations. |
In providing the tmsuk Services, we agreed to not render legal advice or perform accounting services, nor act as an investment advisor or broker/dealer. Pursuant to the terms of the tmsuk Consulting Agreement, the parties agreed that we will not provide the following services, among others: negotiation for the sale of tmsuk’s securities; participation in discussions between tmsuk and potential investors; assisting in structuring any transactions involving the sale of tmsuk’s securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in tmsuk; or handling any funds or securities on behalf of tmsuk.
Pursuant to the terms of the tmsuk Consulting Agreement, tmsuk agreed to compensate us as follows in return for the provision of the tmsuk Services during the nine-month term:
| (a) | $500,000, to be paid as follows: (i) $200,000 on the tmsuk Effective Date; (ii) $150,000 on the three-month anniversary of the tmsuk Effective Date; and (iii) $150,000 on the six-month anniversary of the tmsuk Effective Date; and |
| (b) | Issuance by tmsuk to the Company of a warrant (the “tmsuk Warrant”), deemed fully earned and vested as of the tmsuk Effective Date, to acquire a number of shares of capital stock of tmsuk, to initially be equal to 3% of the fully diluted share capital of tmsuk as of the tmsuk Effective Date, subject to adjustment as set forth in the tmsuk Consulting Agreement and the tmsuk Warrant. |
Issuance by tmsuk of the tmsuk Warrant may be subject to the approval of tmsuk’s stockholders, and in such case, the tmsuk Warrant will not be issued unless and until stockholder approval is obtained. In the event that tmsuk stockholder approval is not obtained, and the tmsuk Warrant is not issued, on or before the 90 th day following the tmsuk Effective Date, the parties agreed to reasonably cooperate to come to mutual agreement on an alternate method to provide to us the same value and rights as would have been provided pursuant to the tmsuk Warrant.
In the event that the term of the tmsuk Consulting Agreement is extended beyond the initial nine-month term, tmsuk agreed to compensate us for tmsuk Services provided at the rate of $150 per hour, based on the hours spent by our personnel providing the tmsuk Services.
The tmsuk Consulting Agreement may be terminated at any time by either party upon notice to the other party.
OEM Sales Agreement
On June 23, 2025, HeartCore Japan entered into an OEM Sales Agreement (the “Silver Egg Agreement”) by and between HeartCore Japan and Silver Egg Technology CO. Ltd. (“Silver Egg”). Pursuant to the terms of the Silver Egg Agreement, Silver Egg agreed to provide to HeartCore Japan its AI recommendation service, “Aigent Recommender,” developed by Silver Egg (the “Services”). The specific terms and conditions for the provision of the Services will be determined in individual agreements. The Silver Egg Agreement will serve as the basic agreement and will apply to all individual agreements between HeartCore Japan and Silver Egg during the term of the Silver Egg Agreement, and such individual agreements will constitute a part of the Silver Egg Agreement.
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The term of the Silver Egg Agreement is two years. Unless either party notifies the other in writing at least six months prior to the expiration of the term, the Silver Egg Agreement will automatically renew for additional two year periods. Notwithstanding the foregoing, if either party wishes to terminate the Silver Egg Agreement during the term, both parties must agree in writing. The term of each individual contract pursuant to the Silver Egg Agreement will commence on the date of the individual contract and will continue until the last day of the month in which 12 months have elapsed from the start date of the use of the Services. However, unless HeartCore Japan or Silver Egg gives written notice to the other party at least 30 days prior to the expiration of the term, the individual contract will be automatically renewed for an additional 12-month periods.
Pursuant to the terms of the individual agreement for the first year (through June 30, 2026) and for the second year (from July 1, 2026 to June 30, 2027), when HeartCore Japan achieves the target number of contracts (20), the monthly service fees to be paid by HeartCore Japan to Silver Egg will be as follows:
| ● | Up to 500,000 page views: 30,000 Yen |
| ● | 500,001 - 800,000 page views: 48,000 Yen |
| ● | 800,001 – 1,000,000 page views: 60,000 Yen |
If HeartCore Japan does not achieve the target number of contracts by June 30, 2026, the monthly service fees to be paid by HeartCore Japan to Silver Egg for the second year (from July 1, 2026 to June 30, 2027) will increase as follows:
| ● | Up to 500,000 page views: 35,000 Yen |
| ● | 500,001 - 800,000 page views: 56,000 Yen |
| ● | 800,001 – 1,000,000 page views: 70,000 Yen |
Consulting and Services Agreement with Cipher Core Co., Ltd.
On June 30, 2025, the Company entered into a Consulting and Services Agreement (the “Consulting Agreement”) with Cipher Core Co., Ltd. (“Cipher Core”). As compensation for its services under the Consulting Agreement, Cipher Core will pay the Company an aggregate of $500,000 in fees, and issue to the Company a warrant to acquire 3% of Cipher Core’s capital stock, on a fully diluted basis. The number of warrant shares, which is fully earned, vested, and non-returnable, may be subject to adjustments.
As part of the Consulting Agreement, the Company agreed to assist Cipher Core in its efforts to go public and list on the Nasdaq Stock Market (“Nasdaq”). Under the Consulting Agreement, the Company will assist Cipher Core with:
| i. | the introduction for a law firm, underwriter and auditing firm for Cipher Core, with Cipher Core making their selections, at their sole discretion; |
| ii. | translating requested documents into English; |
| iii. | assisting in the preparation of documentation for internal controls required for an IPO; |
| iv. | conversion of accounting data from Japanese standards to U.S. GAAP; |
| v. | providing support services to remove problematic accounting accounts upon listing; |
| vi. | support creation of an English web page; |
| vii. | preparation of an investor presentation and executive summary of the operations; |
| viii. | provision of providing general support services; and |
| ix. | assisting in the preparation of a registration statement. |
In providing the services under the Consulting Agreement, the Company will not render legal advice or perform accounting services, and will not act as an investment advisor or broker/dealer. Pursuant to the terms of the Consulting Agreement, the parties agreed that the Company will not provide the following services, among others: negotiation for the sale of Cipher Core’s securities; participation in discussions between Cipher Core and potential investors; assisting in structuring any transactions involving the sale of Cipher Core’s securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in Cipher Core; or handling any funds or securities on behalf of Cipher Core.
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Equity Purchase Agreement
On June 30, 2025, we and Crom Structured Opportunities Fund I, LP (“Crom” or the “Investor”), an accredited investor, entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”), pursuant to which the we have the right, but not the obligation, to direct the Investor , at any time and from time to time during the Commitment Period (as hereinafter defined) as provided in the Equity Purchase Agreement, to purchase up to $25,000,000 (the “Maximum Commitment Amount”) in aggregate gross purchase price of newly issued fully paid shares of our common stock, par value $0.0001 (the “Advance Shares”). The “Commitment Period” means, subject to the terms and conditions of the Equity Purchase Agreement, the period commencing on June 30, 2025 and ending on the earlier of (i) the date on which the Investor shall have purchased Advance Shares equal to the Maximum Commitment Amount, (ii) June 30, 2027, (iii) written notice of termination by us to the Investor , (iv) the Equity Line of Credit (“ELOC”) Registration Statement (as hereinafter defined) is no longer effective after the initial effective date of the ELOC Registration Statement, (v) the date that we commence a voluntary bankruptcy case, a bankruptcy proceeding is commenced against us, a custodian is appointed for us or for all or substantially all of its property, or we make a general assignment for the benefit of its creditors, or (vi) the date on which the Equity Purchase Agreement is terminated by mutual written consent of the parties.
Under the terms and subject to the conditions of the Equity Purchase Agreement, we have the right, but not the obligation, to direct the Investor , by our delivery to the Investor of a notice (the “Advance Notice”) from time to time, to purchase Advance Shares (i) in a minimum amount not less than $25,000, calculated based on 96% of the volume-weighted average price (“VWAP”) of our common stock on the trading day immediately preceding the date during the Commitment Period that an Advance Notice is deemed delivered (the “Advance Date”), and (ii) in a maximum amount up to the lesser of (a) $500,000, or (b) 50% of the average daily trading value of the common stock during the seven trading days immediately preceding the respective Advance Date (excluding the single highest volume trading day and the single lowest volume trading day from such calculation) multiplied by the lowest VWAP of the common stock during the seven trading days immediately preceding the respective Advance Date (each, an “Advance”). Each Advance is subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Equity Purchase Agreement.
The number of Advance Shares then to be purchased by the Investor may not exceed the number of such shares that, when aggregated with all other shares of common stock then owned by the Investor beneficially or deemed beneficially owned by the Investor , would result in the Investor owning more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable pursuant to an Advance Notice.
The Equity Purchase Agreement further provides that we may not issue or sell to the Investor any Advance Shares under the Equity Purchase Agreement in excess of 19.99% of our issued and outstanding common stock on June 30, 2025, until stockholder approval satisfying the requirements of Nasdaq Rule 5635(d) has been obtained and is in effect. We obtained this stockholder approval on June 30, 2025.
We also agreed to pay the Investor a commitment fee equal to $250,000 worth of shares of common stock (“ELOC Commitment Shares”), with the number of ELOC Commitment Shares issued being based on the Nasdaq official closing price of the common stock on June 27, 2025, the trading day immediately prior to the effective date of the Equity Purchase Agreement, in consideration for the Investor’s entry into the Equity Purchase Agreement.
Pursuant to the terms of the Equity Purchase Agreement, we agreed that we will not without the prior written consent of the Investor , enter into an “Equity Line of Credit” or a “Variable Rate Transaction,” as such terms are defined in the Equity Purchase Agreement. The Investor agreed not to engage in any short sale or hedging transactions with respect to the common stock during the term of the Equity Purchase Agreement. We may terminate the Equity Purchase Agreement at any time by written notice to the Investor at least five trading days in advance; provided that there are no outstanding Advance Notices. We and the Investor may also terminate the Equity Purchase Agreement at any time by mutual written consent. In addition, the Equity Purchase Agreement will automatically terminate at the end of the Commitment Period.
Pursuant to the terms of the Equity Purchase Agreement, we agreed that it would also comply with the ELOC Registration Rights Agreement (as hereinafter defined) with respect to the filing and effectiveness deadlines of the ELOC Registration Statement in accordance with the terms of the ELOC Registration Rights Agreement.
We will not issue or sell any shares of common stock to the Investor pursuant to the Equity Purchase Agreement, except for the ELOC Commitment Shares, until and unless the ELOC Registration Statement has been declared effective by the SEC.
The Equity Purchase Agreement also contains customary representations, warranties, indemnification provisions and closing conditions. The representations, warranties and covenants contained in the Equity Purchase Agreement were made only for purposes of the Equity Purchase Agreement and as of specific dates, were solely for the benefit of the parties to such agreement and are subject to certain important limitations.
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ELOC Registration Rights Agreement
In connection with the execution of the Equity Purchase Agreement, we and the Investor entered into a Registration Rights Agreement dated June 30, 2025 (the “ELOC Registration Rights Agreement”), pursuant to which we agreed to use our commercially reasonable efforts to prepare and file within 30 calendar days from the date of the Equity Purchase Agreement, an initial registration statement covering the resale of all of the shares of common stock which the Investor may acquire (including the Advance Shares and the Commitment Shares) pursuant to the Equity Purchase Agreement (the “ELOC Registration Statement”). We have also agreed to have the ELOC Registration Statement declared effective by the SEC within 90 days from June 30, 2025.
We filed such Registration Statement on Form S-1 (File No: 333-288937) with the SEC on July 25, 2025.
Securities Purchase Agreement
On June 30, 2025, we and the Investor executed a Securities Purchase Agreement (the “Securities Purchase Agreement”). According to the terms of the Securities Purchase Agreement, we agreed to issue to the Investor , and the Investor agreed to purchase from us, 2,000 shares of our Series A Convertible Preferred Stock at a purchase price equal to $1,000 per share ($2,000,000 in the aggregate), with each such share of Series A Convertible Preferred Stock having a stated value of $1,100. The sale of the shares of Series A Convertible Preferred Stock closed on June 30, 2025 (the “Closing”).
In connection with executing the Securities Purchase Agreement, for no additional consideration, at Closing, we issued to the Investor 750,000 shares of common stock (the “SPA Commitment Shares”).
The Investor has the right at any time (subject to certain ownership limitations) to convert all or any portion of the then Series A Convertible Preferred Stock into shares of common stock (the “Conversion Shares”). For additional information regarding the conversion terms of the Series A Convertible Preferred Stock, please see “ Series A Convertible Preferred Stock ” below.
Pursuant to the Securities Purchase Agreement, we will, at all times, reserve from its authorized and unissued shares of common stock, two times such number of shares of common stock as shall from time to time be sufficient to effectuate the conversion of all outstanding shares of Series A Convertible Preferred Stock.
The Securities Purchase Agreement also contains customary representations, warranties, indemnification provisions and closing conditions. The representations, warranties and covenants contained in the Securities Purchase Agreement were made only for purposes of the Securities Purchase Agreement and as of specific dates, were solely for the benefit of the parties to such agreement and are subject to certain important limitations.
SPA Registration Rights Agreement
In connection with the execution of the Securities Purchase Agreement, we and the Investor entered into a registration rights agreement (the “SPA Registration Rights Agreement”), pursuant to which we agreed to file, within 30 calendar days from the date of the Securities Purchase Agreement, an initial registration statement covering the resale of all of the Conversion Shares and SPA Commitment Shares. We have also agreed to have such registration statement declared effective by the SEC within 90 days from June 30, 2025.
Series A Convertible Preferred Stock
On June 30, 2025, we filed a Certificate of Designations of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (“Certificate of Designations”) with the Secretary of State of the State of Delaware. The number of shares of Series A Convertible Preferred Stock designated is 2,000 and each share of Series A Convertible Preferred Stock has a stated value equal to $1,100 (the “Stated Value”).
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The Series A Convertible Preferred Stock have no voting rights. However, as long as any shares of Series A Convertible Preferred Stock are outstanding, we will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Convertible Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series A Convertible Preferred Stock or alter or amend the Certificate of Designations, (b) increase the number of authorized shares of Series A Convertible Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing.
Upon any liquidation, dissolution or winding-up, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the Certificate of Designations), a holder of Series A Convertible Preferred Stock (“Holder”) will receive an amount per share equal to the greater of (i) the Stated Value plus all accrued and unpaid Dividends thereon or (ii) the amount that such Holder would receive if such Holder converted all of its shares of Series A Convertible Preferred Stock into common stock immediately prior to such liquidation, dissolution or winding up. If, upon any such liquidation, dissolution or winding up, the assets and funds available for distribution among the Holders of the Series A Convertible Preferred Stock will be insufficient to permit the payment to such Holders of the full preferential amount aforesaid, then the entire assets and funds legally available for distribution will be distributed ratably among the Holders of the Series A Convertible Preferred Stock in proportion to the amount that each such Holder is entitled to receive.
The conversion price in effect on any conversion date will be equal to 90% of the average of the two lowest volume-weighted average prices (the “VWAP”) of the common stock on Nasdaq (or such other national securities exchange on which the common stock is then listed) for the five Trading Days immediately preceding the date of the conversion notice delivered by the Holder of Series A Preferred Stock (the “Conversion Notice Date”), with such VWAP and resulting Conversion Price being subject to equitable adjustments for any stock splits or combinations occurring with respect to the common stock during such measurement period.
Each holder will be entitled to receive dividends of 10% per annum on the Stated Value of each share of Preferred Stock.
We filed such Registration Statement on Form S-1 (File No: 333-288937) with the SEC on July 25, 2025.
Stockholder Approval of Securities Issuances and Reverse Stock Split
On June 30, 2025, the holders of an aggregate of 13,147,393 shares of our common stock, representing approximately 60% of our overall voting power, executed a written consent in lieu of a meeting pursuant to which it approved (i) the issuance of a number of shares of our common stock in excess of 20% of the issued and outstanding shares of common stock as of the date of the execution of the Equity Purchase Agreement and the Securities Purchase Agreement, and the issuance of all shares of common stock pursuant to the Equity Purchase Agreement and the Securities Purchase Agreement, or on conversion of the Series A Convertible Preferred Stock (the “20% Issuance”), (ii) a reverse stock split of our common stock, at a ratio of no less than 1-for-2 and no more than 1-for-30, with such ratio to be determined at the sole discretion of the Board of Directors, and with any fractional shares of common stock resulting therefrom being rounded up to the nearest whole share of common stock (the “Reverse Stock Split”), and (iii) a form of amendment to our Certificate of Incorporation to effectuate the Reverse Stock Split (the “Reverse Stock Split Amendment” and collectively with the 20% Issuance and the Reverse Stock Split, the “Actions”).
Pursuant to rules adopted by the SEC under the Exchange Act, an Information Statement on Schedule 14C (the “Information Statement”) describing the Actions will be filed with the SEC and mailed to our stockholders. None of the Actions may become effective earlier than 20 calendar days following the mailing of the Information Statement.
Financial Overview
For the three months ended June 30, 2025 and 2024, we generated revenues of $4,744,246 and $4,066,388, respectively, and reported a net income (loss) of $1,061,506 and $(2,211,118), respectively.
For the six months ended June 30, 2025 and 2024, we generated revenues of $8,331,272 and $9,113,120, respectively, reported a net loss of $2,075,875 and $3,689,120, respectively, and had cash flows used in operating activities of $2,674,892 and $1,735,744, respectively. As noted in our unaudited consolidated financial statements, as of June 30, 2025, we had an accumulated deficit of $18,231,933.
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Results of Operations
Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024
The following table summarizes our operating results as reflected in our unaudited statements of operations for the three months ended June 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
| For the Three Months Ended June 30, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | Revenues | Amount | Revenues | Amount | % | |||||||||||||||||||
| Revenues | $ | 4,744,246 | 100.0 | % | $ | 4,066,388 | 100.0 | % | $ | 677,858 | 16.7 | % | ||||||||||||
| Cost of revenues | 2,526,651 | 53.3 | % | 3,260,507 | 80.2 | % | (733,856 | ) | -22.5 | % | ||||||||||||||
| Gross profit | 2,217,595 | 46.7 | % | 805,881 | 19.8 | % | 1,411,714 | 175.2 | % | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 385,622 | 8.1 | % | 179,408 | 4.4 | % | 206,214 | 114.9 | % | |||||||||||||||
| General and administrative expenses | 1,563,027 | 32.9 | % | 2,022,409 | 49.7 | % | (459,382 | ) | -22.7 | % | ||||||||||||||
| Research and development expenses | 161,481 | 3.4 | % | 111,268 | 2.7 | % | 50,213 | 45.1 | % | |||||||||||||||
| Total operating expenses | 2,110,130 | 44.4 | % | 2,313,085 | 56.8 | % | (202,955 | ) | -8.8 | % | ||||||||||||||
| Income (loss) from operations | 107,465 | 2.3 | % | (1,507,204 | ) | -37.0 | % | 1,614,669 | 107.1 | % | ||||||||||||||
| Other income (expenses) | 950,479 | 20.0 | % | (776,077 | ) | -19.1 | % | 1,726,556 | 222.5 | % | ||||||||||||||
| Income (loss) before income tax benefit | 1,057,944 | 22.3 | % | (2,283,281 | ) | -56.1 | % | 3,341,225 | 146.3 | % | ||||||||||||||
| Income tax benefit | (3,562 | ) | -0.1 | % | (72,163 | ) | -1.8 | % | (68,601 | ) | -95.1 | % | ||||||||||||
| Net income (loss) | 1,061,506 | 22.4 | % | (2,211,118 | ) | -54.3 | % | 3,272,624 | 148.0 | % | ||||||||||||||
| Less: net loss attributable to non-controlling interests | (38,396 | ) | -0.8 | % | (260,018 | ) | -6.4 | % | (221,622 | ) | -85.2 | % | ||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. | 1,099,902 | 23.2 | % | (1,951,100 | ) | -47.9 | % | 3,051,002 | 156.4 | % | ||||||||||||||
| Dividends accrued on Series A convertible preferred shares | (611 | ) | 0.0 | % | - | 0.0 | % | 611 | 100.0 | % | ||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ | 1,099,291 | 23.2 | % | $ | (1,951,100 | ) | -47.9 | % | $ | 3,050,391 | 156.3 | % | |||||||||||
Revenues
Our total revenues increased by $677,858, or 16.7%, to $4,744,246 for the three months ended June 30, 2025, from $4,066,388 for the three months ended June 30, 2024, primarily attributable to (i) an increased revenue of $1,155,548 from the sale of on-premise software, primarily attributable the Company obtained multiple large orders of CMS license in the current period, while no such comparable large order was obtained in second quarter 2024; (ii) an increased revenue of $134,571 from software as a service (“SaaS”), mainly because the Company put more efforts to expand and promote its traditional SaaS business in Japan during current quarter and obtained more orders, partially offset by (iii) a decreased revenue of $340,279 from customized software development and services in connection with the intense competition of the software market in the U.S.; and (iv) a decreased revenue of $319,396 from software development and other services, mainly as the Company shifted its business strategies to focus more on development and expansion its on-premise software revenue and SaaS revenue in the second quarter 2025, resulting in less resources and efforts were put on software development and other services.
Cost of Revenues
Our total cost of revenues decreased by $733,856, or 22.5%, to $2,526,651 for the three months ended June 30, 2025, from $3,260,507 for the three months ended June 30, 2024, mainly attributable to (i) the decrease of $579,688 in the cost of customized software development and services, which was in light of the decrease in sales in the second quarter 2025 and the decrease was also attributable to Sigmaways cut down its subcontracting cost in the current quarter by ending cooperation with certain costly vendors for cost saving purpose; and (ii) the decrease of $120,475 in the cost of GO IPO consulting services as fewer IPO projects were ongoing when compared with the second quarter 2024, and the Company also improved its operational efficiency in managing of IPO consulting projects, leading to costs decreased.
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Gross Profit
Our total gross profit increased by $1,411,714, or 175.2%, to $2,217,595 for the three months ended June 30, 2025, from $805,881 for the three months ended June 30, 2024, mainly attributable to (i) an increase of $1,086,885 in gross profit from sale of on-premises software, as the sale increased dramatically while there was not much change in the corresponding costs as the product was developed independently and fixed, which were not proportional to sales; (ii) an increase of $239,409 in gross profit from customized software development and services, as Sigmaways reduced outsourcing costs by ending cooperation with costly vendors in the second quarter 2025, resulting in costs decreased more than revenue did; and (iii) an increase of $147,654 in gross profit from IPO consulting service, as the Company implement its operational efficiency for consulting revenue with the accumulation of IPO consulting projects experience in the current quarter.
For the reasons discussed above, our overall gross profit margin increased by 26.9%, to 46.7%, for the three months ended June 30, 2025 from 19.8% for the three months ended June 30, 2024.
Selling Expenses
Our selling expenses increased by $206,214, or 114.9%, to $385,622 for the three months ended June 30, 2025 from $179,408 in the three months ended June 30, 2024, primarily attributable to an increase of $224,138 in sales salaries, commissions and welfare, resulting from the employee restructuring in late 2024 by transferring certain administrative and management department employees to sales department to promote selling activities for software business in Japan.
As a percentage of revenues, our selling expenses accounted for 8.1% and 4.4% of our total revenues for the three months ended June 30, 2025 and 2024, respectively.
General and Administrative Expenses
Our general and administrative expenses decreased by $459,382, or 22.7%, to $1,563,027 for the three months ended June 30, 2025 from $2,022,409 in the three months ended June 30, 2024, primarily attributable to (i) a decrease of $169,503 in depreciation and amortization expenses, primarily because we fully impaired intangible asset arose from acquisition of Sigmaways at the end of last fiscal year, resulting in no amortization expenses were recorded in current quarter; and (ii) a decrease of $284,619 in consultant and professional service fees, mainly because we incurred broker fees in connection with termination of the IPO consulting services in the second quarter 2024, while no such expenses incurred in the current quarter.
As a percentage of revenues, general and administrative expenses were 32.9% and 49.7% of our revenues for the three months ended June 30, 2025 and 2024, respectively.
Research and Development Expenses
Our research and development expenses increased by $50,213, or 45.1%, to $161,481 in the three months ended June 30, 2025, from $111,268 in the three months ended June 30, 2024, primarily attributable to an increase of $82,419 in salaries and welfare expenses for the employees assigned to the development of a new product, Global CMS, which started in late 2024, offset by a decrease of $32,016 in outsourcing costs due to the expiration of certain outsourcing contracts in the current period.
As a percentage of revenues, research and development expenses were 3.4% and 2.7% of our revenues for the three months ended June 30, 2025 and 2024, respectively.
Other Income (Expenses), Net
Our other income (expenses) primarily includes changes in fair value of investments in marketable securities, changes in fair value of investment in warrants, interest income generated from bank deposits, interest expenses for bank loans, other income and other expenses. Total other expenses, net, of $776,077 for the three months ended June 30, 2024 increased by $1,726,556, or 222.5%, to total other income, net, of $950,479 for the three months ended June 30, 2025, primarily attributable to (i) an increase of $1,048,958 in changes in fair value of investments in marketable securities due to fluctuations in stock price of investees; and (ii) an increase of $683,101 in changes in fair value of investment in warrants due to fair value measurement.
Income Tax Benefit
Income tax benefit was $3,562 for the three months ended June 30, 2025, representing a decrease of $68,601, or 95.1%, from income tax benefit of $72,163 in the three months ended June 30, 2024, mainly because we recognized deferred income tax benefit in connection with amortization expense for intangible asset raised from acquisition of Sigmaways in the three months ended June 30, 2024, whereas, the intangible asset was fully impaired in the fourth quarter of 2024, and thus no such deferred income tax benefit recorded in current quarter.
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Net Income (Loss)
As a result of the foregoing, we reported a net income of $1,061,506 for the three months ended June 30, 2025, representing a $3,272,624, or 148.0%, increase from a net loss of $2,211,118 for the three months ended June 30, 2024.
Net Loss Attributable to Non-controlling Interests
During the three months ended June 30, 2025 and 2024, we owned a 51% equity interest of Sigmaways and its subsidiaries and 51% equity interest of HeartCore Luvina. Accordingly, we recorded net loss attributable to the non-controlling interests of $38,396 and $260,018 in the three months ended June 30, 2025 and 2024, respectively.
Net Income (Loss) Attributable to HeartCore Enterprises, Inc.
As a result of the foregoing, we reported a net income attributable to HeartCore Enterprises, Inc. of $1,099,902 for the three months ended June 30, 2025, representing a $3,051,002, or 156.4%, increase from a net loss attributable to HeartCore Enterprises, Inc. of $1,951,100 for the three months ended June 30, 2024.
Dividends Accrued on Series A Convertible Preferred Shares
During the three months ended June 30, 2025, we issued 2,000 shares of Series A convertible preferred shares, which were granted a cumulative dividend of 10% per annum. Accordingly, we recorded dividends of $611 on Series A convertible preferred shares.
Net Income (Loss) Attributable to HeartCore Enterprises, Inc. Common Shareholders
As a result of the foregoing, we reported a net income attributable to HeartCore Enterprises, Inc. common shareholders of $1,099,291 for the three months ended June 30, 2025, representing a $3,050,391, or 156.3%, increase from a net loss attributable to HeartCore Enterprises, Inc. common shareholders of $1,951,100 for the three months ended June 30, 2024.
Comparison of Results of Operations for the Six Months Ended June 30, 2025 and 2024
The following table summarizes our operating results as reflected in our unaudited statements of operations for the six months ended June 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
| For the Six Months Ended June 30, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | Revenues | Amount | Revenues | Amount | % | |||||||||||||||||||
| Revenues | $ | 8,331,272 | 100.0 | % | $ | 9,113,120 | 100.0 | % | $ | (781,848 | ) | -8.6 | % | |||||||||||
| Cost of revenues | 5,013,393 | 60.2 | % | 6,275,050 | 68.9 | % | (1,261,657 | ) | -20.1 | % | ||||||||||||||
| Gross profit | 3,317,879 | 39.8 | % | 2,838,070 | 31.1 | % | 479,809 | 16.9 | % | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 676,782 | 8.1 | % | 399,115 | 4.4 | % | 277,667 | 69.6 | % | |||||||||||||||
| General and administrative expenses | 3,492,415 | 41.9 | % | 4,428,712 | 48.6 | % | (936,297 | ) | -21.1 | % | ||||||||||||||
| Research and development expenses | 285,374 | 3.4 | % | 200,402 | 2.2 | % | 84,972 | 42.4 | % | |||||||||||||||
| Total operating expenses | 4,454,571 | 53.4 | % | 5,028,229 | 55.2 | % | (573,658 | ) | -11.4 | % | ||||||||||||||
| Loss from operations | (1,136,692 | ) | -13.6 | % | (2,190,159 | ) | -24.1 | % | (1,053,467 | ) | -48.1 | % | ||||||||||||
| Other expenses | (886,109 | ) | -10.6 | % | (1,651,291 | ) | -18.1 | % | (765,182 | ) | -46.3 | % | ||||||||||||
| Loss before income tax expense (benefit) | (2,022,801 | ) | -24.2 | % | (3,841,450 | ) | -42.2 | % | (1,818,649 | ) | -47.3 | % | ||||||||||||
| Income tax expense (benefit) | 53,074 | 0.7 | % | (152,330 | ) | -1.7 | % | 205,404 | 134.8 | % | ||||||||||||||
| Net loss | (2,075,875 | ) | -24.9 | % | (3,689,120 | ) | -40.5 | % | (1,613,245 | ) | -43.7 | % | ||||||||||||
| Less: net loss attributable to non-controlling interests | (88,785 | ) | -1.1 | % | (404,670 | ) | -4.4 | % | (315,885 | ) | -78.1 | % | ||||||||||||
| Net loss attributable to HeartCore Enterprises, Inc. | (1,987,090 | ) | -23.8 | % | (3,284,450 | ) | -36.1 | % | (1,297,360 | ) | -39.5 | % | ||||||||||||
| Dividends accrued on Series A convertible preferred shares | (611 | ) | 0.0 | % | - | 0.0 | % | 611 | 100.0 | % | ||||||||||||||
| Net loss attributable to HeartCore Enterprises, Inc. common shareholders | $ | (1,987,701 | ) | -23.8 | % | $ | (3,284,450 | ) | -36.1 | % | $ | (1,296,749 | ) | -39.5 | % | |||||||||
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Revenues
Our total revenues decreased by $781,848, or 8.6%, to $8,331,272 for the six months ended June 30, 2025, from $9,113,120 for the six months ended June 30, 2024, primarily attributable to (i) a decreased revenue of $677,091 from customized software development and services in connection with a slowdown in revenue of Sigmaways, driven by intensified competition in the U.S. software market; (ii) a decreased revenue of $302,759 from GO IPO consulting services mainly due to fewer ongoing IPO consulting projects in the six months ended June 30, 2025 when compared with same period in last fiscal year; (iii) a decreased revenue of $341,497 from software development and other services, mainly as the Company shifted its business strategies to focus more on development and expansion its on-premise software revenue and SaaS revenue in the six months ended June 30, 2025, resulting in less resources and efforts were put on software development and other services, partially offset by (iv) an increased revenue of $411,694 from sale on-premise software, primarily because the Company obtained several large CMS license orders in the current period.
Cost of Revenues
Our total cost of revenues decreased by $1,261,657, or 20.1%, to $5,013,393 for the six months ended June 30, 2025, from $6,275,050 for the six months ended June 30, 2024, mainly attributable to (i) the decrease of $954,627 in the cost of customized software development and services, which was in light of the decrease in sales and the decrease was also attributable to Sigmaways cut down its subcontracting cost in the current quarter by ending cooperation with certain costly vendors for cost saving purpose; and (ii) the decrease of $346,943 in the cost of GO IPO consulting services as fewer IPO projects were ongoing in the six months ended June 30, 2025 when compared with the six months ended June 30, 2024, and the Company also improved its operational efficiency in managing of IPO consulting projects, leading to costs decreased.
Gross Profit
Our total gross profit increased by $479,809, or 16.9%, to $3,317,879 for the six months ended June 30, 2025, from $2,838,070 for the six months ended June 30, 2024, mainly attributable to (i) an increase of $335,670 in gross profit from sale of on-premises software, as sales rose significantly while related costs remained largely unchanged since the product was independently developed with fixed costs not proportional to sales; (ii) an increase of $277,536 in gross profit from customized software development and services, as Sigmaways reduced outsourcing costs by ending cooperation with costly vendors in the current period, resulting in costs decreased more than revenue did; and (iii) an increase of $190,583 in gross profit from SaaS in light of the increase in corresponding revenue, partially offset by (iv) a decrease of $313,105 in gross profit from software development and other services in light of the decrease in corresponding revenue.
For the reasons discussed above, our overall gross profit margin increased by 8.7%, to 39.8%, for the six months ended June 30, 2025, from 31.1% for the six months ended June 30, 2024.
Selling Expenses
Our selling expenses increased by $277,667, or 69.6%, to $676,782 for the six months ended June 30, 2025, from $399,115 in the six months ended June 30, 2024, primarily attributable to an increase of $321,760 in sales salaries, commissions and welfare, resulting from the employee restructuring in late 2024 by transferring certain administrative and management department employees to sales department to promote selling activities for software business in Japan.
As a percentage of revenues, our selling expenses accounted for 8.1% and 4.4% of our total revenues for the six months ended June 30, 2025 and 2024, respectively.
General and Administrative Expenses
Our general and administrative expenses decreased by $936,297, or 21.1%, to $3,492,415 for the six months ended June 30, 2025, from $4,428,712 in the six months ended June 30, 2024, primarily attributable to (i) a decrease of $274,084 in salaries and welfare expenses, mainly resulting from the employee restructuring in late 2024 as mentioned above; (ii) a decrease of $329,377 in depreciation and amortization expenses, primarily because we fully impaired intangible asset arose from the acquisition of Sigmaways at the end of the 2024 fiscal year, resulting in no amortization expenses recorded in current period; and (iii) a decrease of $292,771 in consultant and professional service fees, mainly because we incurred broker fees in connection with termination of the IPO consulting services in the six months ended June 30, 2024, while no such expenses incurred in the current period.
As a percentage of revenues, general and administrative expenses were 41.9% and 48.6% of our revenues for the six months ended June 30, 2025 and 2024, respectively.
Research and Development Expenses
Our research and development expenses increased by $84,972, or 42.4%, to $285,374 in the six months ended June 30, 2025, from $200,402 in the six months ended June 30, 2024, primarily attributable to an increase of $161,767 in salaries and welfare expenses for the employees assigned to the development of a new product, Global CMS, which started in late 2024, partially offset by a decrease of $76,266 in outsourcing costs due to the expiration of certain outsourcing contracts in the current period.
As a percentage of revenues, research and development expenses were 3.4% and 2.2% of our revenues for the six months ended June 30, 2025 and 2024, respectively.
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Other Income (Expenses), Net
Our other income (expenses) primarily includes changes in fair value of investments in marketable securities, changes in fair value of investment in warrants, interest income generated from bank deposits, interest expenses for bank loans, other income and other expenses. Total other expenses, net, of $1,651,291 for the six months ended June 30, 2024 decreased by $765,182, or 46.3%, to total other expenses, net, of $886,109 for the six months ended June 30, 2025, primarily attributable to (i) a decrease of $1,310,367 in changes in fair value of investment in warrants due to fair value measurement, partially offset by (ii) an increase of $498,624 in changes in fair value of investments in marketable securities due to fluctuations in stock price of investees.
Income Tax Expense (Benefit)
Income tax expense was $53,074 for the six months ended June 30, 2025, representing an increase of $205,404, or 134.8%, from income tax benefit of $152,330 for the six months ended June 30, 2024, mainly because we recognized deferred income tax benefit in connection with amortization expense for intangible asset raised from the acquisition of Sigmaways in the six months ended June 30, 2024, whereas the intangible asset was fully impaired in the fourth quarter of 2024, and thus no such deferred income tax benefit recorded in current period. Meanwhile, the income tax expenses incurred in the six months ended June 30, 2025 was mainly attributable to the decrease of deferred tax assets due to various revenue and expenses adjustments.
Net Loss
As a result of the foregoing, we reported a net loss of $2,075,875 for the six months ended June 30, 2025, representing a $1,613,245, or 43.7%, decrease from a net loss of $3,689,120 for the six months ended June 30, 2024.
Net Loss Attributable to Non-controlling Interests
During the six months ended June 30, 2025 and 2024, we owned a 51% equity interest of Sigmaways and its subsidiaries and 51% equity interest of HeartCore Luvina. Accordingly, we recorded net loss attributable to the non-controlling interests of $88,785 and $404,670 in the six months ended June 30, 2025 and 2024, respectively.
Net Loss Attributable to HeartCore Enterprises, Inc.
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $1,987,090 for the six months ended June 30, 2025, representing a $1,297,360, or 39.5%, decrease from a net loss attributable to HeartCore Enterprises, Inc. of $3,284,450 for the six months ended June 30, 2024.
Dividends Accrued on Series A Convertible Preferred Shares
In the six months ended June 30, 2025, we issued 2,000 shares of Series A convertible preferred shares, which were granted a cumulative dividend of 10% per annum. Accordingly, we recorded dividends of $611 on Series A convertible preferred shares.
Net Loss Attributable to HeartCore Enterprises, Inc. Common Shareholders
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. common shareholders of $1,987,701 for the six months ended June 30, 2025, representing a $1,296,749, or 39.5%, decrease from a net loss attributable to HeartCore Enterprises, Inc. common shareholders of $3,284,450 for the six months ended June 30, 2024.
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Liquidity and Capital Resources
As of June 30, 2025, we had $2,347,622 in cash and cash equivalents, as compared to $2,121,089 as of December 31, 2024. We also had $3,000,337 in accounts receivable as of June 30, 2025. Our accounts receivable primarily include the balance due from customers for our on-premise software sold and services provided and accepted by customers, as well as amounts billable to the customers for customized software development and services.
The following table sets forth summary of our cash flows for the periods indicated:
|
For the Six Months Ended
June 30, |
||||||||
| 2025 | 2024 | |||||||
| Net cash flows used in operating activities | $ | (2,674,892 | ) | $ | (1,735,744 | ) | ||
| Net cash flows provided by investing activities | 1,091,636 | 5,546,823 | ||||||
| Net cash flows provided by (used in) financing activities | 1,770,767 | (874,136 | ) | |||||
| Effect of exchange rate changes | 39,022 | (143,073 | ) | |||||
| Net change in cash and cash equivalents | 226,533 | 2,793,870 | ||||||
| Cash and cash equivalents, beginning of the period | 2,121,089 | 1,012,479 | ||||||
| Cash and cash equivalents, end of the period | $ | 2,347,622 | $ | 3,806,349 | ||||
Operating Activities
Net cash flows used in operating activities was $2,674,892 for the six months ended June 30, 2025, primarily consisting of the following:
| ● | Net loss of $2,075,875 for the six months ended June 30, 2025. | |
| ● | An increase of $1,145,166 in accounts receivable due to increased sale of on-premise software in the current period. | |
| ● | A decrease of $320,566 in accounts payable and accrued expenses as we continuously paid off such liabilities and decreased purchases to save operating expenses. | |
| ● | A decrease of $282,704 in deferred revenue, due to more revenue was recognized than the upfront payment received in the current period. | |
| ● | Offset by a loss of $928,955 on fair value changes in investments in marketable securities. | |
| ● | Offset by non-cash lease expense of $163,354. |
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Investing Activities
Net cash flows provided by investing activities amounted to $1,091,636 for the six months ended June 30, 2025, primarily attributable to the proceeds of $1,071,732 received from sale of marketable securities.
Financing Activities
Net cash flows provided by financing activities amounted to $1,770,767 for the six months ended June 30, 2025, primarily attributable to the proceeds of $1,800,000 received from issuance of Series A convertible preferred stock and common shares related to Securities Purchase Agreement after net against related share issuance costs.
Contractual Obligations
Lease Commitment
We entered into operating leases for office space with terms ranging from two to fifteen years, and a finance lease for vehicle with the term of five years.
As of June 30, 2025, future minimum lease payments under the non-cancelable lease agreements are as follows:
| Year Ended December 31, |
Finance
Lease |
Operating
Leases |
||||||
| Remaining of 2025 | $ | 9,151 | $ | 165,586 | ||||
| 2026 | 18,302 | 293,770 | ||||||
| 2027 | 18,302 | 293,770 | ||||||
| 2028 | 12,201 | 287,511 | ||||||
| 2029 | - | 285,425 | ||||||
| Thereafter | - | 663,320 | ||||||
| Total lease payments | 57,956 | 1,989,382 | ||||||
| Less: imputed interest | (1,205 | ) | (85,118 | ) | ||||
| Total lease liabilities | 56,751 | 1,904,264 | ||||||
| Less: current portion | (17,666 | ) | (290,886 | ) | ||||
| Non-current lease liabilities | $ | 39,085 | $ | 1,613,378 | ||||
Debts
The Company’s debts included long-term debts borrowed from banks and financial institutions.
As of June 30, 2025, future minimum principal payments for long-term debts are as follows:
| Principal | ||||
| Year Ended December 31, | Payment | |||
| Remaining of 2025 | $ | 168,363 | ||
| 2026 | 388,783 | |||
| 2027 | 416,931 | |||
| 2028 | 183,938 | |||
| 2029 | 27,926 | |||
| Thereafter | 304,723 | |||
| Total | $ | 1,490,664 | ||
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2025.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements. These financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenues and expenses, to disclose contingent assets and liabilities on the date of the unaudited consolidated financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period. We continue to evaluate the estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. We believe there are no critical accounting policies and estimates for the six months ended June 30, 2025.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2025. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2025, our disclosure controls and procedures were not effective, for the same reason as previously disclosed under Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2024, as filed with the SEC on March 31, 2025.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we are not required to disclose material changes to the risk factors that were contained in our Annual Report on Form 10-K for the year ended December 31, 2024, as updated from time to time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 30, 2025, the Company issued to Crom 485,437 shares of common stock, representing the ELOC Commitment Shares, pursuant to the Equity Purchase Agreement.
Also on June 30, 2025, pursuant to the Securities Purchase Agreement with Crom, the Company issued to Crom 2,000 shares of the Company’s Series A convertible preferred stock at a purchase price equal to $1,000 per share, or $2,000,000 in the aggregate.
In addition, in connection with executing the Securities Purchase Agreement, on June 30, 2025, the Company issued to Crom 750,000 shares of common stock, representing the SPA Commitment Shares, for no additional consideration.
The above shares were issued to an accredited investor without registration under the Securities Act, based upon exemptions from registration provided under Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder. The issuances did not involve any public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults in any material payments during the covered period.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since we last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
(c) During the quarter ended June 30, 2025,
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ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| HEARTCORE ENTERPRISES, INC. | ||
| Dated: August 13, 2025 | By: | /s/ Sumitaka Yamamoto |
| Sumitaka Yamamoto | ||
| Chief Executive Officer and President (principal executive officer) | ||
| Dated: August 13, 2025 | By: | /s/ Qizhi Gao |
| Qizhi Gao | ||
| Chief Financial Officer (principal financial officer and principal accounting officer) | ||
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