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)
|
|
|
|
|
(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 | ||
|
|
|
The
|
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 | ☐ |
|
|
☒ | Smaller reporting company |
|
| Emerging growth company |
|
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 November 18, 2025, there were shares of outstanding common stock of the registrant.
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 | 13 |
| Item 4. | Controls and Procedures | 13 |
| PART II - OTHER INFORMATION | 14 | |
| Item 1. | Legal Proceedings | 14 |
| Item 1A. | Risk Factors | 14 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 |
| Item 3. | Defaults Upon Senior Securities | 14 |
| Item 4. | Mine Safety Disclosures | 14 |
| Item 5. | Other Information | 14 |
| Item 6. | Exhibits | 14 |
| Signatures | 15 | |
| i |
ITEM 1. FINANCIAL STATEMENTS
HEARTCORE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Accounts receivable |
|
|
||||||
| Investments in marketable securities |
|
|
||||||
| Investment in warrants |
|
|||||||
| Prepaid expenses |
|
|
||||||
| Current portion of long-term note receivable |
|
|
||||||
| Deferred offering costs |
|
|||||||
| Other current assets |
|
|
||||||
| Current assets of discontinued operations |
|
|
||||||
| Total current assets |
|
|
||||||
| Non-current assets: | ||||||||
| Property and equipment, net |
|
|
||||||
| Operating lease right-of-use assets |
|
|
||||||
| Long-term investment in warrants |
|
|
||||||
| Long-term note receivable |
|
|||||||
| Deferred tax assets |
|
|
||||||
| Security deposits |
|
|
||||||
| Other non-current assets |
|
|
||||||
| Non-current assets of discontinued operations |
|
|||||||
| Total non-current assets |
|
|
||||||
| Total assets | $ |
|
$ |
|
||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ |
|
$ |
|
||||
| Accounts payable and accrued expenses – related party |
|
|
||||||
| Accrued payroll and other employee costs |
|
|
||||||
| Due to related party |
|
|||||||
| Short-term debt – related party |
|
|
||||||
| Current portion of long-term debts |
|
|
||||||
| Insurance premium financing |
|
|
||||||
| Factoring liability |
|
|
||||||
| Operating lease liabilities, current |
|
|
||||||
| Finance lease liabilities, current |
|
|
||||||
| Income tax payables |
|
|
||||||
| Deferred revenue |
|
|
||||||
| Derivative liability |
|
|||||||
| Other current liabilities |
|
|
||||||
| Current liabilities of discontinued operations |
|
|
||||||
| Total current liabilities |
|
|
||||||
| Non-current liabilities: | ||||||||
| Long-term debts |
|
|
||||||
| Operating lease liabilities, non-current |
|
|
||||||
| Finance lease liabilities, non-current |
|
|
||||||
| Asset retirement obligations |
|
|||||||
| Non-current liabilities of discontinued operations |
|
|||||||
| Total non-current liabilities |
|
|
||||||
| Total liabilities |
|
|
||||||
| Shareholders’ equity: | ||||||||
|
Preferred shares, $
par value,
shares authorized; Series A convertible preferred shares,
and
shares designated, issued and outstanding as of September 30, 2025 and December 31, 2024, respectively; aggregate liquidation preference of $
|
|
|||||||
| Common shares, $ par value, shares authorized, and shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively |
|
|
||||||
| Subscription receivable |
(
|
) | ||||||
| Additional paid-in capital |
|
|
||||||
| Accumulated deficit |
(
|
) |
(
|
) | ||||
| Accumulated other comprehensive income |
|
|
||||||
| Total HeartCore Enterprises, Inc. shareholders’ equity |
|
|
||||||
| Non-controlling interests |
(
|
) |
(
|
) | ||||
| Total shareholders’ equity |
|
|
||||||
| Total liabilities and shareholders’ equity | $ |
|
$ |
|
||||
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
September 30, |
For the Nine Months Ended
September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Cost of revenues (including cost of revenues resulting from transactions with a related party of $
|
|
|
|
|
||||||||||||
| Gross profit |
|
|
|
|
||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses |
|
|
|
|
||||||||||||
|
General and administrative expenses (including general and administrative expenses resulting from transactions with a related party of
and $
|
|
|
|
|
||||||||||||
| Research and development expenses |
|
|
||||||||||||||
| Total operating expenses |
|
|
|
|
||||||||||||
| Income (loss) from continuing operations |
(
|
) |
|
(
|
) |
|
||||||||||
| Other income (expenses): | ||||||||||||||||
| Changes in fair value of investments in marketable securities |
|
|
(
|
) |
(
|
) | ||||||||||
| Changes in fair value of investments in warrants |
(
|
) |
|
(
|
) |
|
||||||||||
| Loss on sale of warrants |
(
|
) |
(
|
) | ||||||||||||
| Changes in fair value of derivative liability |
(
|
) |
(
|
) | ||||||||||||
| Interest income |
|
|
|
|
||||||||||||
| Interest expenses |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Other income |
|
|
|
|
||||||||||||
| Other expenses |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Total other expenses |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Income (loss) from continuing operations before income tax expense |
(
|
) |
|
(
|
) |
|
||||||||||
| Income tax expense |
|
|
|
|
||||||||||||
| Net income (loss) from continuing operations |
(
|
) |
|
(
|
) |
|
||||||||||
| Income (loss) from discontinued operations, net of income tax |
|
(
|
) |
|
|
|||||||||||
| Net income (loss) |
|
|
(
|
) |
|
|||||||||||
| Less: net loss attributable to non-controlling interests |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. |
|
|
(
|
) |
|
|||||||||||
| 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) |
|
|
(
|
) |
|
|||||||||||
| Less: comprehensive loss attributable to non-controlling interests |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Comprehensive income (loss) attributable to HeartCore Enterprises, Inc. | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. per common share | ||||||||||||||||
| Basic | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
||||||
| Diluted | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
||||||
| Income (loss) from discontinued operations per common share | ||||||||||||||||
| Basic | $ |
|
$ |
(
|
) | $ |
|
$ |
|
|||||||
| Diluted | $ |
|
$ |
(
|
) | $ |
|
$ |
|
|||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share | ||||||||||||||||
| Basic | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| Diluted | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic |
|
|
|
|
||||||||||||
| Diluted |
|
|
|
|
||||||||||||
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 NINE MONTHS ENDED SEPTEMBER 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 | - | - |
(
|
) |
(
|
) |
|
(
|
) | |||||||||||||||||||||||||||||||||||
| Issuance of common shares related to at the market offering agreement | - |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
| Collection of subscription receivable | - | - |
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
| 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 | - |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
| Issuance of common shares related to equity purchase agreement | - |
|
|
|
|
|
||||||||||||||||||||||||||||||||||||||
| Dividends accrued on Series A convertible preferred shares | - | - |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - |
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2025 |
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
||||||||||||||||||||||||||||||||
| Net income (loss) | - | - |
|
|
(
|
) |
|
|||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||
| Dividends accrued on Series A convertible preferred shares | - | - |
(
|
) |
(
|
) |
(
|
) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - |
- |
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2025 |
|
$ |
|
|
$ |
|
$ | $ |
|
$ |
(
|
) | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||||||||||||||||||
| Common Shares | Additional | Accumulated Other | Total HeartCore Enterprises, Inc. | Non- | Total | |||||||||||||||||||||||||||
| Number of | Paid-in | Accumulated | Comprehensive | Shareholders’ | 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 | - |
|
|
|||||||||||||||||||||||||||||
| Stock-based compensation |
|
|
|
|
|
|||||||||||||||||||||||||||
| Balance, March 31, 2024 |
|
|
|
(
|
) |
|
|
|
|
|||||||||||||||||||||||
| Net loss | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - |
(
|
) |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||
| Distribution of dividends | - |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||||
| Stock-based compensation | - |
|
|
|
||||||||||||||||||||||||||||
| Balance, June 30, 2024 |
|
|
|
(
|
) |
|
|
|
|
|||||||||||||||||||||||
| Net income (loss) | - |
|
|
(
|
) |
|
||||||||||||||||||||||||||
| Foreign currency translation adjustment | - |
|
|
(
|
) |
|
||||||||||||||||||||||||||
| Distribution of dividends | - |
(
|
) |
(
|
) |
(
|
) | |||||||||||||||||||||||||
| Stock-based compensation | - |
|
|
|
||||||||||||||||||||||||||||
| Balance, September 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 Nine Months Ended
September 30, |
||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities of continuing operations: | ||||||||
| Net income (loss) | $ |
(
|
) | $ |
|
|||
| Income from discontinued operations, net of income tax |
|
|
||||||
| Net income (loss) from continuing operations |
(
|
) |
|
|||||
| Adjustments to reconcile net income (loss) from continuing operations to net cash flows used in operating activities of continuing operations: | ||||||||
| Depreciation and amortization expenses |
|
|
||||||
| Loss on disposal of property and equipment |
|
|
||||||
| Non-cash lease expense |
|
|
||||||
| Gain on termination of lease |
(
|
) | ||||||
| Deferred income taxes |
|
(
|
) | |||||
| Stock-based compensation |
|
|
||||||
| Marketable securities received as noncash consideration |
(
|
) | ||||||
| Warrants received as noncash consideration |
(
|
) |
(
|
) | ||||
| Changes in fair value of investments in marketable securities |
|
|
||||||
| Changes in fair value of investments in warrants |
|
(
|
) | |||||
| Loss on sale of warrants |
|
|||||||
| Changes in fair value of derivative liability |
|
|||||||
| 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 party |
(
|
) | ||||||
| Operating lease liabilities |
(
|
) |
(
|
) | ||||
| Income tax payables |
(
|
) |
|
|||||
| Deferred revenue |
(
|
) |
(
|
) | ||||
| Other liabilities |
|
|
||||||
| Net cash flows used in operating activities of continuing operations |
(
|
) |
(
|
) | ||||
| Cash flows from investing activities of continuing operations: | ||||||||
| Purchase of investment in SAFE |
(
|
) | ||||||
| Net proceeds from sale of warrants |
|
|||||||
| Proceeds from sale of marketable securities |
|
|||||||
| Net cash flows provided by investing activities of continuing operations |
|
|
||||||
| Cash flows from financing activities of continuing operations: | ||||||||
| Payments for finance lease |
(
|
) |
(
|
) | ||||
| Repayment of related party debt |
(
|
) | ||||||
| Repayment of 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 related to at the market offering agreement |
|
|||||||
| 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 of continuing operations |
|
(
|
) | |||||
| Cash flows from discontinued operations: | ||||||||
| Net cash flows provided by (used in) operating activities of discontinued operations |
|
(
|
) | |||||
| Net cash flows provided by investing activities of discontinued operations |
|
|
||||||
| Net cash flows used in financing activities of discontinued operations |
(
|
) |
(
|
) | ||||
| Net cash flows used in discontinued operations |
(
|
) |
(
|
) | ||||
| 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: | ||||||||
| 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 shares of its common shares to the shareholders of HeartCore Japan in exchange for shares out of shares of common shares issued by HeartCore Japan, representing approximately % of HeartCore Japan’s outstanding common shares. On February 24, 2022, HeartCore USA purchased the remaining shares of common shares of HeartCore Japan. As a result, HeartCore Japan became a wholly-owned operating subsidiary of HeartCore USA.
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 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 % of the outstanding shares of Sigmaways, Inc. (“Sigmaways”), a company incorporated under the laws of the State of California in April 2006, and its wholly-owned subsidiaries, Sigmaways B.V. and Sigmaways Technologies Ltd. (“Sigmaways Technologies”). Sigmaways B.V. was incorporated in Netherlands in November 2019. Sigmaways Technologies was incorporated in Canada in August 2020. Sigmaways and its wholly-owned subsidiaries are primarily engaged in the business of providing software development and other services in the United States. The acquisition was closed on February 1, 2023.
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 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 consulting services.
On July 24, 2025, the Board of Directors approved to enter into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. The sale of HeartCore Japan represents a strategic shift that has or will have a major impact on the results of operations and has been accounted for as a discontinued operation (see NOTE 16). The sale transaction was closed on October 31, 2025.
In October 2025, HeartCore USA incorporated a wholly-owned subsidiary, Higgs Field Co., Ltd. (“Higgs Field”), in Japan. Higgs Field is engaged in the business of providing business and management consulting services.
HeartCore USA, HeartCore Japan, Sigmaways, Sigmaways B.V., Sigmaways Technologies, HeartCore Financial, HeartCore Luvina, HeartCore Financial – Japan and Higgs Field are hereafter referred to as the “Company” unless specific reference is made to an entity.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The 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. The Company has presented the assets and liabilities of HeartCore Japan and its results of operations and cash flows as discontinued operations in the unaudited consolidated financial statements as of and for all periods presented. All footnotes exclude balances and activities of HeartCore Japan unless otherwise noted. All significant intercompany accounts and transactions have been eliminated.
| F- 5 |
These unaudited interim consolidated financial statements do not include all of the information and disclosures required by the U.S. GAAP for complete consolidated 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 disclosures 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 investments in warrants, revenue recognition with respect to fair value of noncash consideration and allocation of transaction price, and valuation of derivative liability. Actual results could differ from those estimates.
Investments in Warrants
Investments in warrants represent 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). Investments 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 any 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 no impairments of these assets during the three and nine months ended September 30, 2025 and 2024.
Foreign Currency Translation
The functional currency of HeartCore Japan, HeartCore Financial – Japan and Higgs Field is the Japanese Yen (“JPY”). The functional currency of HeartCore USA, HeartCore Financial and Sigmaways is the United States Dollar (“US$”). The functional currency of Sigmaways B.V. is the Euro (“EUR”). The functional currency of Sigmaways Technologies is the Canada Dollar (“CAD”). The functional currency of HeartCore Luvina is the Vietnam Dong (“VND”). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited consolidated statements of operations and comprehensive income (loss).
| F- 6 |
The reporting currency of the Company is the US$, and the unaudited consolidated financial statements have been expressed in US$. In accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rates on the balance sheet dates. Revenues and expenses are translated at average rates prevailing during the periods. 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 a 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 performance obligations in the contract, and (v) recognize revenues when (or as) the Company satisfies a performance obligation.
The Company currently generates its revenues from the following main sources:
Revenues from Software Development 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 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 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- 7 |
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 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 amounts of revenues recognized during the nine months ended September 30, 2025 and 2024 that
were included in the opening deferred revenue balances were approximately $
Disaggregation of Revenues
The Company disaggregates its revenues from contracts by revenue stream 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 nine months ended September 30, 2025 and 2024 is as follows:
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues from software development services | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Revenues from customized software development and services |
|
|
|
|
||||||||||||
| Revenues from consulting services |
|
|
|
|
||||||||||||
| 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 nine months ended September 30, 2025 and 2024, customers account for 10% or more of the Company’s revenues are as follows:
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Customer A |
|
% | * |
|
% | * | ||||||||||
| Customer B |
|
% | * |
|
% | * | ||||||||||
| Customer C | * |
|
% | * |
|
% | ||||||||||
| F- 8 |
As of September 30, 2025 and December 31, 2024, customers account for 10% or more of the Company’s accounts receivable are as follows:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Customer B |
|
% |
|
% | ||||
| Customer D |
|
% |
|
% | ||||
| Customer E |
|
% |
|
% | ||||
| Customer F | * |
|
% | |||||
| Customer G | * |
|
% | |||||
For the three and nine months ended September 30, 2025 and 2024, vendor accounts for 10% or more of the Company’s purchases is as follows:
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Vendor A |
|
% | * | * | * | |||||||||||
As of September 30, 2025 and December 31, 2024, vendors account for 10% or more of the Company’s accounts payable and accrued expenses are as follows:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Vendor B |
|
% | * | |||||
| Vendor C | * |
|
% | |||||
| Vendor D | * |
|
% | |||||
| * |
|
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 17).
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- 9 |
Series A Convertible Preferred Shares and Derivative Liability
When the Company issues the Series A convertible preferred shares (see NOTE 14), 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 evaluates 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 (i) the Company must or may settle in a variable number of its equity shares, and (ii) 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 fair value recognized in other income (expenses). 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 activities and that are significant to the fair values of the assets or liabilities. |
As of September 30, 2025 and December 31, 2024, the carrying values of current assets, except for investments in marketable securities and investment in warrants, 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.
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2025 and December 31, 2024 are summarized below (also see NOTE 5 for investments):
| Fair Value Measurements as of September 30, 2025 | ||||||||||||||||
|
Quoted Prices
in Active Markets for Identical Assets or Liabilities (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Unobservable
Inputs (Level 3) |
Fair Value at
September 30, 2025 |
|||||||||||||
| Investments in marketable securities |
|
|
||||||||||||||
| Investment in warrants |
|
|
||||||||||||||
| 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 |
|
|
||||||||||||||
| F- 10 |
Assets Held for Sale and Discontinued Operations
In accordance with ASC Topic 205-20, “Presentation of Financial Statements – Discontinued Operations”, a component or a group of components of an entity shall be classified as held for sale in the period in which all of the following criteria are met: (i) management, having the authority to approve the action, commits to a plan to sell the entity to be sold; (ii) the entity to be sold is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such entities to be sold; (iii) an active program to locate a buyer or buyers and other actions required to complete the plan to sell the entity to be sold have been initiated; (iv) the sale of the entity to be sold is probable and transfer of the entity to be sold is expected to qualify for recognition as a completed sale within one year; (v) the entity to be sold is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. A component or a group of components of an entity classified as held for sale is reported at the lower of its carrying amount or fair value less cost to sell. If the fair value of the entity to be sold less cost to sell is lower than its carrying amount, an impairment loss is recognized and update each reporting period as appropriate. Assets held for sale are not depreciated or amortized.
The results of operations of the entity to be sold classified as held for sale are reported as discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.
The Company assesses the sale of HeartCore Japan and determines it meets the held for sale criteria and the discontinued operations criteria. The assets and liabilities of HeartCore Japan have been reflected as assets and liabilities of discontinued operations in the consolidated balance sheets for all periods presented. The results of operations of HeartCore Japan are presented as discontinued operations in the unaudited consolidated statements of operations and comprehensive income (loss) for all periods presented. Prior periods have been adjusted to conform to the current presentation.
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- 11 |
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
| September 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 | $ |
|
$ |
|
||||
NOTE 4 – RELATED PARTY TRANSACTIONS
As
of September 30, 2025 and December 31, 2024, the Company had due to related party balances of
and $
As
of September 30, 2025 and December 31, 2024, the Company had short-term debt balances of $
NOTE 5 – INVESTMENTS
Investments 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 investments in warrants are 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 investments 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 investments in warrants activities for the nine months ended September 30, 2025 and 2024:
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Fair value of investments in warrants at beginning of the period | $ |
|
$ |
|
||||
| Warrants received as noncash consideration |
|
|
||||||
| Changes in fair value of investments in warrants |
(
|
) |
|
|||||
| Warrants converted to marketable securities |
(
|
) |
(
|
) | ||||
| Warrants sold * |
(
|
) | ||||||
| Fair value of investments in warrants at end of the period | $ |
|
$ |
|
||||
| * |
|
| F- 12 |
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 nine months ended September 30, 2025 and 2024:
| For the Nine Months | ||||||||
| Ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Fair value of investments in marketable securities at beginning of the period | $ |
|
$ |
|
||||
| Marketable securities received as noncash consideration |
|
|||||||
| 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 6 – LONG-TERM NOTE RECEIVABLE
On
September 1, 2023, the Company purchased a $
promissory note from a non-related company. The promissory note bears an interest
rate of
% per annum and matures on
NOTE 7 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Leasehold improvements | $ | $ |
|
|||||
| Machinery and equipment |
|
|
||||||
| Vehicle |
|
|
||||||
| Subtotal |
|
|
||||||
| Less: accumulated depreciation |
(
|
) |
(
|
) | ||||
| Total property and equipment, net | $ |
|
$ |
|
||||
For
the three and nine months ended September 30, 2025, the Company recognized depreciation expenses of $
| F- 13 |
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Customer refund liability * | $ |
|
$ |
|
||||
| Cumulative dividends accrued on Series A convertible preferred shares |
|
|||||||
| Others |
|
|
||||||
| Total other current liabilities | $ |
|
$ |
|
||||
| * |
|
NOTE 9 – 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. Pursuant to 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 90% of the face value of the accounts receivable by wire transfer. Upon payment by the customers, the remainder of the amount due is received from the Factor after deducting certain fees.
The Factoring Agreement specifies that eligible accounts receivable is factored with recourse. Pursuant to 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 and non-controlling shareholder of Sigmaways, 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 terminates 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 September 30, 2025 and December 31, 2024, there were $
| F- 14 |
NOTE 10 – 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 September 30, 2025 and December 31, 2024, the balances of the insurance premium financing were $
NOTE 11 – LONG-TERM DEBTS
The Company’s long-term debts represent loans borrowed from a bank and a financial institution as follows:
| Name of Bank/Financial Institution |
Original Amount
Borrowed |
Loan
Duration |
Annual
Interest Rate |
Balance as of
September 30, 2025 |
Balance as of
December 31, 2024 |
||||||||||||
| First Home Bank | $ |
|
(a) |
|
Wall Street Journal U.S. Prime Rate +
|
% | $ |
|
$ |
|
|||||||
| U.S. Small Business Administration | $ |
|
(a) |
|
|
|
|
||||||||||
| Aggregate outstanding principal balances |
|
|
|||||||||||||||
| Less: current portion |
(
|
) |
(
|
) | |||||||||||||
| Non-current portion | $ |
|
$ |
|
|||||||||||||
| (a) |
|
During
the three and nine months ended September 30, 2025, the Company recorded $
As of September 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 | $ |
|
||
| F- 15 |
NOTE 12 – 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.
Canada
Sigmaways
Technologies is a company incorporated in British Columbia in Canada. 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. 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
For the three and nine months ended September 30, 2025 and 2024, the Company’s income tax expense are as follows:
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Current | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Deferred |
|
(
|
) |
|
(
|
) | ||||||||||
| Income tax expense | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
For
the three and nine months ended September 30, 2025, the effective tax rate were
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 shares of common shares are authorized for issuance.
On December 25, 2021, the Company awarded stock options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to various officers, directors, employees and consultants of the Company. The stock options vest on each annual anniversary of the date of issuance, in an amount equal to % of the applicable shares of common shares, with the expiration date on .
| F- 16 |
On August 9, 2022, the Company awarded stock options to purchase shares of common shares at an exercise price of $ per share to three prior employees of the Company. The stock options are fully vested and exercisable on the grant date, with the expiration date on .
On February 3, 2023, the Company awarded stock options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The stock options vest % on the grant date and February 1, 2024, respectively, with the expiration date on .
On August 1, 2023, the Board of Directors of the Company approved a 2023 Equity Incentive Plan (“2023 Plan”), under which shares of common shares are authorized for issuance.
On August 25, 2023, the Company awarded stock options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The stock options vest on each annual anniversary of the date of issuance, in an amount equal to % of the applicable shares of common shares, with the expiration date on .
|
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 September 30, 2024 |
|
$ |
|
$ | ||||||||||||
| As of January 1, 2025 |
|
$ |
|
$ |
|
|||||||||||
| Granted | - | - | ||||||||||||||
| Exercised |
(
|
) |
|
- | - | |||||||||||
| Forfeited |
(
|
) |
|
- | - | |||||||||||
| As of September 30, 2025 |
|
$ |
|
$ | ||||||||||||
| Vested and exercisable as of September 30, 2025 |
|
$ |
|
$ | ||||||||||||
For the three and nine months ended September 30, 2025, the Company recognized stock-based compensation related to stock options of $ and $ , respectively. For the three and nine months ended September 30, 2024, the Company recognized stock-based compensation related to stock options of $ and $ , respectively. The outstanding unamortized stock-based compensation related to stock options was $ (which will be recognized through December 2025) as of September 30, 2025.
Restricted Stock Units (“RSUs”)
On February 9, 2022, the Company entered into executive employment agreements with five executives and granted RSUs pursuant to the 2021 Plan. The RSUs vest on each annual anniversary of the date of the employment agreements, in an amount equal to % of the applicable shares of common shares. The fair value of the RSUs at grant date is $ .
| F- 17 |
The following table summarizes the RSUs activities and related information for the nine months ended September 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 September 30, 2024 |
|
$ |
|
|||||
| Unvested as of January 1, 2025 |
|
$ |
|
|||||
| Granted | ||||||||
| Vested |
(
|
) |
|
|||||
| Forfeited |
(
|
) |
|
|||||
| Unvested as of September 30, 2025 |
|
$ |
|
|||||
For the three and nine months ended September 30, 2025, the Company recognized stock-based compensation related to RSUs of $ and $ , respectively. For the three and nine months ended September 30, 2024, the Company recognized stock-based compensation related to RSUs of $ and $ , respectively. The outstanding unamortized stock-based compensation related to RSUs was $ (which will be recognized through February 2026) as of September 30, 2025.
NOTE 14 – SHAREHOLDERS’ EQUITY
Shares Authorized
The Company is authorized to issue shares of common shares, par value of $ per share, and shares of preferred shares, par value of $ per share.
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 $
per share, having an aggregate offering price of up to approximately $
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 shares of preferred shares as Series A convertible preferred shares and each share of Series A convertible preferred shares has a stated value of $ . The following summarizes the material terms of the Series A convertible preferred shares:
| ● | Dividends – Each Series A convertible preferred shares holder (“Holder”) shall be entitled to receive dividends of % per annum on the stated value of each share of Series A convertible preferred shares. |
| F- 18 |
| ● | 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 the Holders 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 on (i) alter or change adversely the powers, preferences or rights given to the Series A convertible preferred shares or alter or amend the Series A COD, (ii) issue additional shares of Series A convertible preferred shares or increase or decrease (other than by conversion) the number of authorized shares of Series A convertible preferred shares, or (iii) enter into any agreement with respect to any of the foregoing. |
| ● | 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) % of the average of the two lowest volume weighted average price (“VWAP”) of the Company’s common shares for the five trading days immediately preceding the respective common shares conversion notice delivery date. |
| ● | 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 Opportunities
Fund I, LP (“Crom Structured”), pursuant to which the Company closed, issued and sold to Crom Structured an aggregate of
shares of the Company’s designated Series A convertible preferred shares for an aggregate purchase price of $
. Concurrently
with the signing of the securities purchase agreement, the Company issued
shares of common shares (“
Common Shares”)
to Crom Structured for no consideration. The Company received net proceeds of $
During the three and nine months ended September 30, 2025, shares of Series A convertible preferred shares were converted into common shares.
In
the three and nine months ended September 30, 2025, dividends accrued on Series A convertible preferred shares amounted to $
Equity Purchase Agreement
On
June 30, 2025, the Company entered into an equity purchase agreement and a registration rights agreement with Crom Structured, pursuant
to which Crom Structured has committed to purchase up to $
| F- 19 |
Pursuant
to 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
shares of common shares to Crom Structured as a commitment
fee. The total fair value of the common shares issued for the commitment fee of $
During the three and nine months ended September 30, 2025, no common shares were sold pursuant to the terms of the equity purchase agreement.
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 of the Company approved a dividend declaration of $
per share of common shares for the shareholders
of record at the close of business on April 26, 2024. The dividends of $
On
July 22, 2024, the Board of Directors of the Company approved a dividend declaration of $
per share of common shares for the shareholders
of record at the close of business on August 19, 2024. The dividends of $
Shares Issued and Outstanding
As of September 30, 2025 and December 31, 2024, there were and shares of common shares issued and outstanding, respectively.
As of September 30, 2025 and December 31, 2024, there were and shares of preferred shares (designated as Series A convertible preferred shares) issued and outstanding, respectively.
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.
| F- 20 |
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. per common share – basic | ||||||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) from continuing operations | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
||||||
| Less: net loss from continuing operations attributable to non-controlling interests |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. |
(
|
) |
|
(
|
) |
|
||||||||||
| Dividends accrued on Series A convertible preferred shares |
(
|
) |
(
|
) | ||||||||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. common shareholders |
(
|
) |
|
(
|
) |
|
||||||||||
| Denominator | ||||||||||||||||
| Weighted average number of common shares outstanding – basic |
|
|
|
|
||||||||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. per common share – basic | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. per common share – diluted | ||||||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
||||||
| Less: changes in fair value derivative liability |
(
|
) |
(
|
) | ||||||||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. – diluted |
(
|
) |
|
(
|
) |
|
||||||||||
| Denominator | ||||||||||||||||
| Weighted average number of common shares outstanding – diluted |
|
|
|
|
||||||||||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. per common share – diluted | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
||||||
| F- 21 |
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Income (loss) from discontinued operations per common share – basic | ||||||||||||||||
| Numerator | ||||||||||||||||
| Income (loss) from discontinued operations, net of income tax | $ |
|
$ |
(
|
) | $ |
|
$ |
|
|||||||
| Denominator | ||||||||||||||||
| Weighted average number of common shares outstanding – basic |
|
|
|
|
||||||||||||
| Income (loss) from discontinued operations per common share – basic | $ |
|
$ |
(
|
) | $ |
|
$ |
|
|||||||
| Income (loss) from discontinued operations per common share – diluted | ||||||||||||||||
| Numerator | ||||||||||||||||
| Income (loss) from discontinued operations, net of income tax | $ |
|
$ |
(
|
) | $ |
|
$ |
|
|||||||
| Denominator | ||||||||||||||||
| Weighted average number of common shares outstanding – basic |
|
|
|
|
||||||||||||
| Dilutive effect of stock options, RSUs and Series A convertible preferred shares |
|
|
||||||||||||||
| Weighted average number of common shares outstanding – diluted |
|
|
|
|
||||||||||||
| Income (loss) from discontinued operations per common share – diluted | $ |
|
$ |
(
|
) | $ |
|
$ |
|
|||||||
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share – basic | ||||||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| Denominator | ||||||||||||||||
| Weighted average number of common shares outstanding – basic |
|
|
|
|
||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share – basic | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share – diluted | ||||||||||||||||
| Numerator | ||||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| Less: changes in fair value derivative liability |
(
|
) |
(
|
) | ||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. – diluted |
|
|
(
|
) |
|
|||||||||||
| Denominator | ||||||||||||||||
| Weighted average number of common shares outstanding – basic |
|
|
|
|
||||||||||||
| Dilutive effect of stock options, RSUs and Series A convertible preferred shares |
|
|||||||||||||||
| Weighted average number of common shares outstanding – diluted |
|
|
|
|
||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share – diluted | $ |
|
$ |
|
$ |
(
|
) | $ |
|
|||||||
| F- 22 |
NOTE 16 – DISCONTINUED OPERATIONS
On
July 24, 2025, in light of the intense competition of the software market in Japan, the Board of Directors of the Company approved to
enter into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. The sale transaction was closed
on October 31, 2025. The Company does not expect to have any continuing involvement in HeartCore Japan subsequent to the closing
.
The Company determines the assets of HeartCore Japan met the criteria for classification as held for sale as of
September 30, 2025. Additionally, the Company determines the sale of HeartCore Japan represents a strategic shift that has or will have
a major impact on its operations and financial results. Accordingly, all results of operations of HeartCore Japan have been removed from
continuing operations and presented as discontinued operations in the unaudited consolidated statements of operations and comprehensive
income (loss) for all periods presented. All assets and liabilities of HeartCore Japan have been presented separately as assets and liabilities
of discontinued operations in the consolidated balance sheets as of September 30, 2025 and December 31, 2024. On October 31, 2025, the
Company entered into a purchase agreement to sell
The following table summarizes the results of operations from discontinued operations, net of income tax in the unaudited consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2025 and 2024:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenues | $ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Cost of revenues |
|
|
|
|
||||||||||||
| Gross profit |
|
|
|
|
||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses |
|
|
|
|
||||||||||||
| General and administrative expenses |
|
|
|
|
||||||||||||
| Research and development expenses |
|
|
|
|
||||||||||||
| Total operating expenses |
|
|
|
|
||||||||||||
| Income (loss) from discontinued operations |
|
(
|
) |
|
|
|||||||||||
| Total other income (expenses) |
(
|
) |
(
|
) |
(
|
) |
|
|||||||||
| Income (loss) from discontinued operations before income tax expense (benefit) |
|
(
|
) |
|
|
|||||||||||
| Income tax expense (benefit) |
|
|
|
(
|
) | |||||||||||
| Income (loss) from discontinued operations, net of income tax | $ |
|
$ |
(
|
) | $ |
|
$ |
|
|||||||
The following table summarizes the assets and liabilities of discontinued operations in the consolidated balance sheets as of September 30, 2025 and December 31, 2024:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Assets of discontinued operations | ||||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Accounts receivable |
|
|
||||||
| Prepaid expenses |
|
|
||||||
| Due from related party |
|
|
||||||
| Other current assets |
|
|
||||||
| Accounts receivable, non-current |
|
|
||||||
| Property and equipment, net |
|
|
||||||
| Operating lease right-of-use assets |
|
|
||||||
| Deferred tax assets |
|
|
||||||
| Security deposits |
|
|
||||||
| Long-term loan receivable from related party |
|
|
||||||
| Other non-current assets |
|
|
||||||
| Total assets of discontinued operations | $ |
|
$ |
|
||||
| Liabilities of discontinued operations | ||||||||
| Accounts payable and accrued expenses | $ |
|
$ |
|
||||
| Accrued payroll and other employee costs |
|
|
||||||
| Due to related party |
|
|
||||||
| Current portion of long-term debts |
|
|
||||||
| Operating lease liabilities, current |
|
|
||||||
| Income tax payables |
|
|
||||||
| Deferred revenue |
|
|
||||||
| Other current liabilities |
|
|
||||||
| Long-term debts |
|
|
||||||
| Operating lease liabilities, non-current |
|
|
||||||
| Asset retirement obligations |
|
|
||||||
| Total liabilities of discontinued operations | $ |
|
$ |
|
||||
Assets and liabilities classified as held for sale are reported at the lower of carrying amount or fair value less cost to sell. There was no valuation allowance against the assets classified as held for sale as of September 30, 2025. As of the closing date of the sale of HeartCore Japan, the assets classified as held for sale, net of valuation allowance, and liabilities classified as held for sale will be derecognized and any gain or loss on sale will be recorded.
| F- 23 |
NOTE 17 – 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) from continuing operations. Segment assets are reported on the Company’s consolidated balance sheets.
The following table summarizes the selected financial information with respect to the Company’s single operating segment and reportable segment for the three and nine months ended September 30, 2025 and 2024:
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 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 continuing operations |
(
|
) |
|
(
|
) |
|
||||||||||
| Total other expenses |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
| Income (loss) from continuing operations before income tax expense |
(
|
) |
|
(
|
) |
|
||||||||||
| Income tax expense |
|
|
|
|
||||||||||||
| Net income (loss) from continuing operations | $ |
(
|
) | $ |
|
$ |
(
|
) | $ |
|
||||||
Geographic Information
The following table summarizes the breakdown of revenues by geography for the three and nine months ended September 30, 2025 and 2024:
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 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 September 30, 2025 and December 31, 2024:
| September 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Japan | $ |
|
$ |
|
||||
| United States |
|
|
||||||
| International |
|
|
||||||
| Total long-lived assets | $ |
|
$ |
|
||||
NOTE 18 – SUBSEQUENT EVENTS
On October 3, 2025, the Company granted RSUs pursuant to the 2023 Plan to four executives of the Company. The RSUs are fully vested on the grant date. The fair value of the RSUs at grant date is $ .
On
October 19, 2025, the Board of Directors of the Company approved a distribution declaration of $
per share of common shares for the shareholders
of record at the close of business on November 10, 2025. The distribution of $
On October 20, 2025, Crom Structured converted shares of Series A convertible preferred shares into shares of common shares.
On October 22, 2025, the Board of Directors of the Company approved to amend the number of designated shares of Series A convertible preferred shares to shares pursuant to the Series A COD.
On
October 31, 2025, the Company entered into a purchase agreement to sell
On November 3, 2025, Crom Structured converted shares of Series A convertible preferred shares into shares of common shares.
| F- 24 |
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
In 2022, HeartCore Enterprises, Inc. (“HeartCore USA”) started the GO IPO business, which supports Japanese companies listing on The Nasdaq Stock Market (“Nasdaq”) and the New York Stock Exchange (“NYSE”) in the United States. As of September 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 have also been 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.
We made the strategic decision to sell our software business assets in Japan and to concentrate our efforts on our GO IPO consulting business.
| 1 |
On October 31, 2025, the Company entered into a Purchase Agreement (the “HeartCore Japan Agreement”) with Smith Japan Holdings KK (“Smith Japan”), pursuant to which the Company agreed to sell to Smith Japan, and Smith Japan agreed to purchase (the “HeartCore Japan Sale”), all of the outstanding equity interests of HeartCore Co., Ltd., a wholly owned subsidiary of the Company (“HeartCore Japan”). See “Recent Events” below.
In January 2023, we formed HeartCore Financial, Inc. (“HeartCore Financial”), a wholly owned subsidiary of HeartCore USA, in the U.S. as part of our GO IPO consulting business. In November 2023, we formed HeartCore Luvina Vietnam Company (“HeartCore Luvina”), a 51% owned subsidiary, in Vietnam, which is engaged in the business of software development and other services. HeartCore Luvina started operations in February 2024. In October 2025, HeartCore Japan transferred 51% of the outstanding shares of HeartCore Luvina to HeartCore USA.
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 consulting services.
In October 2025, HeartCore USA incorporated a wholly-owned subsidiary, Higgs Field Co., Ltd. (“Higgs Field”), in Japan. Higgs Field is engaged in the business of providing business and management consulting services.
Recent Developments
Sale of HeartCore Japan
The Company has made the strategic decision to sell its software business assets in Japan and to concentrate its efforts on its GO IPO consulting business.
On October 31, 2025, the Company entered into the HeartCore Japan Agreement with Smith Japan in relation to the HeartCore Japan Sale. Pursuant to the terms of the HeartCore Japan Agreement, the purchase price of the HeartCore Japan Sale is ¥1,800,418,650 (equivalent to approximately $12 million, based on the October 31, 2025 Federal Reserve conversion rate of ¥154.05 = USD $1) (the “Purchase Price”), subject to adjustment as set forth in the HeartCore Japan Agreement, to be paid as follows:
| (a) | An amount of ¥1,013,340,000 less the amount of HeartCore Japan’s debts as set forth in the HeartCore Japan Agreement (the “Estimated Debt”) will be paid by the Smith Japan to the Company on the Closing Date (such final amount, the “Closing Payment”). | |
| (b) | An amount of ¥126,133,200 (the “Holdback Amount”) will be retained by the Smith Japan from the Closing Payment, and, subject to the provisions of the HeartCore Japan Agreement, will be paid by Smith Japan to the Company on the first business day occurring the later of: (a) 180 after the Closing Date, or (b) if applicable, the date the Net Tangible Assets (as defined in the HeartCore Japan Agreement) is finally determined pursuant to the terms of the HeartCore Japan Agreement (the “Holdback Release Date”). | |
| (c) | An amount of ¥273,866,800 (the “Long Term Holdback Amount”) in respect of the agreements (“Multi-year Licensing Agreements”) concerning the licensing of HeartCore Japan’s “HeartCore CMS” product to a specified customer for a period of more than one year will be retained by Smith Japan from the Closing Payment and will be paid by Smith Japan as set forth in the HeartCore Japan Agreement. | |
| (d) | Subject to the provisions of the HeartCore Japan Agreement, an amount of ¥387,078,650 (the “Deferred Consideration”), which shall consist of a principal amount of ¥322,700,000 with an uncompounded rate of interest of 6.65% per annum, will be retained by Smith Japan from the Closing Payment and will be paid by Smith Japan on October 31, 2028, the third annual anniversary of the Closing Date. | |
| (e) | Within five business days following the final determination of the actual amount of HeartCore Japan’s debts as of the Closing (the “Final Debt Amount”), Smith Japan shall pay to the Company an amount equal to (i) the Estimated Debt minus (ii) the Final Debt Amount (such payment, the “Debt True-Up Payment”). For the avoidance of doubt, if the Final Debt Amount is greater than the Estimated Debt, no payment shall be owed by Smith Japan. |
Pursuant to the terms of the HeartCore Japan Agreement, for a period of six months following the closing date (October 31, 2025), (i) the Company agreed to provide Smith Japan with certain accounting and reporting transition services, and (ii) Smith Japan agreed to provide the Company with certain human resources transition services.
The HeartCore Japan Agreement contains customary representations, warranties, conditions, covenants, and indemnification obligations for a transaction of this type.
The HeartCore Japan Sale closed on October 31, 2025.
| 2 |
One-Time Distribution to Stockholders
HeartCore USA and its Board of Directors deemed it in the best interests of HeartCore USA and its stockholders to authorize a one-time payment to its stockholders in the amount of $0.13 per share of common stock. For U.S. federal tax purposes, this payment to stockholders will be deemed to be a distribution. The record date for holders of HeartCore USA’s common stock to participate in the distribution is November 10, 2025, and the payment date is November 17, 2025.
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 we failed 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).
On November 4, 2025, the Nasdaq Staff notified us of its determination that HeartCore USA is eligible for an additional 180-day period, or until May 1, 2026, to regain compliance with the Minimum Bid Price Requirement. If at any time during this additional time period the closing bid price of HeartCore USA’s security is at least $1 per share for a minimum of 10 consecutive business days, Nasdaq will close the matter.
If compliance cannot be timely demonstrated, the Nasdaq Staff will provide notify us that our common stock will be delisted. At that time, we may appeal the Nasdaq Staff’s determination to a Hearings Panel. 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, including a reverse stock split, if necessary, but no decisions regarding a response have been made at this time.
| 3 |
Financial Overview
For the three months ended September 30, 2025 and 2024, we generated revenues of $2,990,329 and $16,240,865, respectively, and reported a net loss from continuing operations of $137,122 and a net income from continuing operations of $11,119,592, respectively.
For the nine months ended September 30, 2025 and 2024, we generated revenues of $7,052,799 and $21,270,891, respectively, reported a net loss from continuing operations of $2,913,181 and a net income from continuing operations of $6,705,342, respectively, and had cash flows used in operating activities of continuing operations $2,980,958 and $3,027,115, respectively. As noted in our unaudited consolidated financial statements, as of September 30, 2025, we had an accumulated deficit of $17,797,861.
Results of Operations
Comparison of Results of Operations for the Three Months Ended September 30, 2025 and 2024
The following table summarizes our operating results as reflected in our unaudited statements of operations for the three months ended September 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | Revenues | Amount | Revenues | Amount | % | |||||||||||||||||||
| Revenues | $ | 2,990,329 | 100.0 | % | $ | 16,240,865 | 100.0 | % | $ | (13,250,536 | ) | -81.6 | % | |||||||||||
| Cost of revenues | 1,521,920 | 50.9 | % | 2,230,749 | 13.8 | % | (708,829 | ) | -31.8 | % | ||||||||||||||
| Gross profit | 1,468,409 | 49.1 | % | 14,010,116 | 86.2 | % | (12,541,707 | ) | -89.5 | % | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 94,718 | 3.2 | % | 162,372 | 1.0 | % | (67,654 | ) | -41.7 | % | ||||||||||||||
| General and administrative expenses | 1,384,838 | 46.3 | % | 1,443,014 | 8.9 | % | (58,176 | ) | -4.0 | % | ||||||||||||||
| Research and development expenses | - | 0.0 | % | 63,709 | 0.4 | % | (63,709 | ) | -100.0 | % | ||||||||||||||
| Total operating expenses | 1,479,556 | 49.5 | % | 1,669,095 | 10.3 | % | (189,539 | ) | -11.4 | % | ||||||||||||||
| Income (loss) from continuing operations | (11,147 | ) | -0.4 | % | 12,341,021 | 75.9 | % | (12,352,168 | ) | -100.1 | % | |||||||||||||
| Other expenses | (122,602 | ) | -4.1 | % | (1,031,704 | ) | -6.3 | % | (909,102 | ) | -88.1 | % | ||||||||||||
| Income (loss) from continuing operations before income tax expense | (133,749 | ) | -4.5 | % | 11,309,317 | 69.6 | % | (11,443,066 | ) | -101.2 | % | |||||||||||||
| Income tax expense | 3,373 | 0.1 | % | 189,725 | 1.1 | % | (186,352 | ) | -98.2 | % | ||||||||||||||
| Net income (loss) from continuing operations | (137,122 | ) | -4.6 | % | 11,119,592 | 68.5 | % | (11,256,714 | ) | -101.2 | % | |||||||||||||
| Income (loss) from discontinued operations, net of income tax | 488,297 | 16.3 | % | (302,662 | ) | -1.8 | % | 790,959 | 261.3 | % | ||||||||||||||
| Net income | 351,175 | 11.7 | % | 10,816,930 | 66.7 | % | (10,465,755 | ) | -96.8 | % | ||||||||||||||
| Less: net loss attributable to non-controlling interests | (82,897 | ) | -2.8 | % | (240,876 | ) | -1.4 | % | (157,979 | ) | -65.6 | % | ||||||||||||
| Net income attributable to HeartCore Enterprises, Inc. | 434,072 | 14.5 | % | 11,057,806 | 68.1 | % | (10,623,734 | ) | -96.1 | % | ||||||||||||||
| Dividends accrued on Series A convertible preferred shares | (56,222 | ) | -1.8 | % | - | 0.0 | % | 56,222 | 100.0 | % | ||||||||||||||
| Net income attributable to HeartCore Enterprises, Inc. common shareholders | $ | 377,850 | 12.7 | % | $ | 11,057,806 | 68.1 | % | $ | (10,679,956 | ) | -96.6 | % | |||||||||||
| 4 |
Revenues
Our total revenues decreased by $13,250,536, or 81.6%, to $2,990,329 for the three months ended September 30, 2025, from $16,240,865 for the three months ended September 30, 2024, primarily attributable to (i) a decreased revenue of $12,641,365 from GO IPO consulting services as only one IPO consulting customer completed IPO in the third quarter 2025 compared with two customers completed IPO in the third quarter 2024 and we generated significant noncash consideration revenue from one large IPO deal in third quarter 2024; and (ii) a decreased revenue of $505,168 from customized software development and services in connection with the intense competition of the software market in the U.S.
Cost of Revenues
Our total cost of revenues decreased by $708,829, or 31.8%, to $1,521,920 for the three months ended September 30, 2025, from $2,230,749 for the three months ended September 30, 2024, mainly attributable to the decrease of $610,130 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 period by ending cooperation with certain costly vendors for cost saving purpose.
Gross Profit
Our total gross profit decreased by $12,541,707, or 89.5%, to $1,468,409 for the three months ended September 30, 2025, from $14,010,116 for the three months ended September 30, 2024, mainly attributable to (i) a decrease of $12,589,606 in gross profit from GO IPO consulting services, as we generated a significant noncash consideration of from one large IPO deal in the prior period and the significant decrease in noncash consideration revenue caused the decrease in gross profit as we did not incur cost when revenue recognized from noncash consideration as cost incurred throughout the consulting service period before IPO completion; offset by (ii) an increase of $104,962 in gross profit from customized software development and services, as Sigmaways reduced outsourcing costs by ending cooperation with costly vendors to save operating cash flows in the current quarter, resulting in costs decreased more than revenue did.
For the reasons discussed above, our overall gross profit margin decreased by 37.1%, to 49.1%, for the three months ended September 30, 2025 from 86.2% for the three months ended September 30, 2024.
Selling Expenses
Our selling expenses decreased by $67,654, or 41.7%, to $94,718 for the three months ended September 30, 2025 from $162,372 in the three months ended September 30, 2024, primarily attributable to a decrease of $42,557 in advertising expenses as we reduced certain marketing activities and cancelled promotion campaigns with lower advertising performance.
As a percentage of revenues, our selling expenses accounted for 3.2% and 1.0% of our total revenues for the three months ended September 30, 2025 and 2024, respectively.
| 5 |
General and Administrative Expenses
Our general and administrative expenses decreased by $58,176, or 4.0%, to $1,384,838 for the three months ended September 30, 2025 from $1,443,014 in the three months ended September 30, 2024, primarily attributable to (i) a decrease of $168,711 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; (ii) a decrease of $70,983 in salaries and welfare expenses, mainly resulting from Sigmaways cut down salary expense and recruiting expenses to save operating cash flow in the current period; offset by an increase of $206,002 in consultant and professional service fees, mainly because as we incurred legal service fee in relation to the registration statement for the registration of Series A convertible preferred shares in the third quarter of 2025, and there was no such activity in the third quarter of 2024.
As a percentage of revenues, general and administrative expenses were 46.3% and 8.9% of our revenues for the three months ended September 30, 2025 and 2024, respectively.
Research and Development Expenses
Our research and development expenses decreased by $63,709, or 100.0%, to nil in the three months ended September 30, 2025, from $63,709 in the three months ended September 30, 2024, primarily attributable to a decrease of $63,000 in outsourcing expenses as we cut down outsourcing research and development expenses for cash flows saving purpose in the current period.
As a percentage of revenues, research and development expenses were 0.0% and 0.4% of our revenues for the three months ended September 30, 2025 and 2024, respectively.
Other Expenses, Net
Our other income (expenses) include changes in fair value of investments in marketable securities, changes in fair value of investments in warrants, loss on sale of warrants, changes in fair value of derivative liability, interest income generated from bank deposits, interest expenses for bank loans, other income and other expenses. Total other expenses, net, of $1,031,704 for the three months ended September 30, 2024 decreased by $909,102, or 88.1%, to total other expenses, net, of $122,602 for the three months ended September 30, 2025, primarily attributable to (i) a decrease of $3,970,628 in loss on sale of warrants as we sold partial of warrants received in the third quarter of 2024, and there was no such activity in the third quarter of 2025; offset by a decrease of $3,016,176 in changes in fair value of investments in warrants due to fair value measurement.
Income Tax Expenses
Income tax expense was $3,373 for the three months ended September 30, 2025, representing a decrease of $186,352, or 98.2%, from income tax expense of $189,725 in the three months ended September 30, 2024, mainly because we recognized income tax expense due to the large pre-tax income position generated for the three months ended September 30, 2024, while we incurred pre-tax loss position in current quarter.
Net Income (Loss) from Continuing Operations
As a result of the foregoing, we reported a net loss from continuing operations of $137,122 for the three months ended September 30, 2025, representing a $11,256,714, or 101.2%, decrease from a net income from continuing operations of $11,119,592 for the three months ended September 30, 2024.
Income (Loss) from Discontinued Operations, Net of Income Tax
On July 24, 2025, the Board of Directors of the Company approved to enter into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. The results of operations of HeartCore Japan are reported as discontinued operations for all periods presented as the sale of HeartCore Japan represents a strategic shift that has or will have a major impact on its operations and financial results. The sale transaction was closed on October 31, 2025. We reported an income from discontinued operations, net of income tax of $488,297 for the three months ended September 30, 2025, representing a $790,959, or 261.3%, increase from a loss from discontinued operations, net of income tax of $302,662 for the three months ended September 30, 2024.
| 6 |
Net Income
As a result of the foregoing, we reported a net income of $351,175 for the three months ended September 30, 2025, representing a $10,465,755, or 96.8%, decrease from a net income of $10,816,930 for the three months ended September 30, 2024.
Net Loss Attributable to Non-controlling Interests
During the three months ended September 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 non-controlling interests of $82,897 and $240,876 in the three months ended September 30, 2025 and 2024, respectively.
Net Income Attributable to HeartCore Enterprises, Inc.
As a result of the foregoing, we reported a net income attributable to HeartCore Enterprises, Inc. of $434,072 for the three months ended September 30, 2025, representing a $10,623,734, or 96.1%, decrease from a net income attributable to HeartCore Enterprises, Inc. of $11,057,806 for the three months ended September 30, 2024.
Dividends Accrued on Series A Convertible Preferred Shares
On 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 accrued on Series A convertible preferred shares of $56,222 during the three months ended September 30, 2025.
Net Income 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 $377,850 for the three months ended September 30, 2025, representing a $10,679,956, or 96.6%, decrease from a net income attributable to HeartCore Enterprises, Inc. common shareholders of $11,057,806 for the three months ended September 30, 2024.
Comparison of Results of Operations for the Nine Months Ended September 30, 2025 and 2024
The following table summarizes our operating results as reflected in our unaudited statements of operations for the nine months ended September 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
| 7 |
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | Revenues | Amount | Revenues | Amount | % | |||||||||||||||||||
| Revenues | $ | 7,052,799 | 100.0 | % | $ | 21,270,891 | 100.0 | % | $ | (14,218,092 | ) | -66.8 | % | |||||||||||
| Cost of revenues | 4,453,735 | 63.1 | % | 6,208,885 | 29.2 | % | (1,755,150 | ) | -28.3 | % | ||||||||||||||
| Gross profit | 2,599,064 | 36.9 | % | 15,062,006 | 70.8 | % | (12,462,942 | ) | -82.7 | % | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 338,615 | 4.8 | % | 518,627 | 2.4 | % | (180,012 | ) | -34.7 | % | ||||||||||||||
| General and administrative expenses | 4,119,851 | 58.4 | % | 4,802,530 | 22.6 | % | (682,679 | ) | -14.2 | % | ||||||||||||||
| Research and development expenses | - | 0.0 | % | 172,140 | 0.8 | % | (172,140 | ) | -100.0 | % | ||||||||||||||
| Total operating expenses | 4,458,466 | 63.2 | % | 5,493,297 | 25.8 | % | (1,034,831 | ) | -18.8 | % | ||||||||||||||
| Income (loss) from continuing operations | (1,859,402 | ) | -26.3 | % | 9,568,709 | 45.0 | % | (11,428,111 | ) | -119.4 | % | |||||||||||||
| Other expenses | (998,893 | ) | -14.2 | % | (2,762,892 | ) | -13.0 | % | (1,763,999 | ) | - 63.8 | % | ||||||||||||
| Income (loss) from continuing operations before income tax expense | (2,858,295 | ) | -40.5 | % | 6,805,817 | 32.0 | % | (9,664,112 | ) | -142.0 | % | |||||||||||||
| Income tax expense | 54,886 | 0.8 | % | 100,475 | 0.5 | % | (45,589 | ) | -45.4 | % | ||||||||||||||
| Net income (loss) from continuing operations | (2,913,181 | ) | -41.3 | % | 6,705,342 | 31.5 | % | (9,618,523 | ) | -143.4 | % | |||||||||||||
| Income from discontinued operations, net of income tax | 1,188,481 | 16.8 | % | 422,468 | 2.0 | % | 766,013 | 181.3 | % | |||||||||||||||
| Net income (loss) | (1,724,700 | ) | -24.5 | % | 7,127,810 | 33.5 | % | (8,852,510 | ) | -124.2 | % | |||||||||||||
| Less: net loss attributable to non-controlling interests | (171,682 | ) | -2.4 | % | (645,546 | ) | -3.0 | % | (473,864 | ) | -73.4 | % | ||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. | (1,553,018 | ) | -22.1 | % | 7,773,356 | 36.5 | % | (9,326,374 | ) | -120.0 | % | |||||||||||||
| Dividends accrued on Series A convertible preferred shares | (56,833 | ) | -0.8 | % | - | 0.0 | % | 56,833 | 100.0 | % | ||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ | (1,609,851 | ) | -22.9 | % | $ | 7,773,356 | 36.5 | % | $ | (9,383,207 | ) | -120.7 | % | ||||||||||
Revenues
Our total revenues decreased by $14,218,092, or 66.8%, to $7,052,799 for the nine months ended September 30, 2025, from $21,270,891 for the nine months ended September 30, 2024, primarily attributable to (i) a decreased revenue of $12,944,124 from GO IPO consulting services mainly due to we generated significant revenue from noncash consideration of $12,641,365 from one large IPO deal in the prior period, and there was no such large amount of revenue recognized from noncash consideration in the same period in 2025; and (ii) a decreased revenue of $1,182,259 from customized software development and services in connection with a slowdown in revenue of Sigmaways, driven by intense competition in the U.S. software market.
Cost of Revenues
Our total cost of revenues decreased by $1,755,150, or 28.3%, to $4,453,735 for the nine months ended September 30, 2025, from $6,208,885 for the nine months ended September 30, 2024, mainly attributable to (i) the decrease of $1,564,757 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 period by ending cooperation with certain costly vendors for cost saving purpose; and (ii) a decrease of $117,810 in the cost of software development services in light of the decrease of sale.
| 8 |
Gross Profit
Our total gross profit decreased by $12,462,942, or 82.7%, to $2,599,064 for the nine months ended September 30, 2025, from $15,062,006 for the nine months ended September 30, 2024, mainly attributable to (i) a decrease of $12,871,541 in gross profit from GO IPO consulting services, as we generated a significant noncash consideration of from one large IPO deal in the prior period and the significant decrease in noncash consideration revenue caused the decrease in gross profit as we did not incur cost when revenue recognized from noncash consideration as cost incurred throughout the consulting service period before IPO completion; offset by (ii) an increase of $382,498 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.
For the reasons discussed above, our overall gross profit margin decreased by 33.9%, to 36.9%, for the nine months ended September 30, 2025, from 70.8% for the nine months ended September 30, 2024.
Selling Expenses
Our selling expenses decreased by $180,012, or 34.7%, to $338,615 for the nine months ended September 30, 2025, from $518,627 in the nine months ended September 30, 2024, primarily attributable to (i) a decrease of $66,306 in stock-based compensation for sales staffs in the current period due to the graded vesting feature of stock options and RSUs; and (ii) a decrease of $51,753 in advertising expenses as we reduced certain marketing activities and cancelled promotion campaigns with lower advertising performance.
As a percentage of revenues, our selling expenses accounted for 4.8% and 2.4% of our total revenues for the nine months ended September 30, 2025 and 2024, respectively.
General and Administrative Expenses
Our general and administrative expenses decreased by $682,679, or 14.2%, to $4,119,851 for the nine months ended September 30, 2025, from $4,802,530 in the nine months ended September 30, 2024, primarily attributable to (i) a decrease of $146,578 in salaries and welfare expenses, mainly resulting from Sigmaways cut down salary expense and recruiting expenses to save operating cash flow in the current period; (ii) a decrease of $489,590 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.
As a percentage of revenues, general and administrative expenses were 58.4% and 22.6% of our revenues for the nine months ended September 30, 2025 and 2024, respectively.
Research and Development Expenses
Our research and development expenses decreased by $172,140, or 100.0%, to nil in the nine months ended September 30, 2025, from $172,140 in the nine months ended September 30, 2024, primarily attributable to a decrease of $170,389 in outsourcing expenses as we cut down outsourcing research and development expenses for cash flows saving purpose in the current period.
As a percentage of revenues, research and development expenses were 0.0% and 0.8% of our revenues for the nine months ended September 30, 2025 and 2024, respectively.
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Other Expenses, Net
Our other income (expenses) include changes in fair value of investments in marketable securities, changes in fair value of investments in warrants, loss on sale of warrants, changes in fair value of derivative liability, interest income generated from bank deposits, interest expenses for bank loans, other income and other expenses. Total other expenses, net, of $2,762,892 for the nine months ended September 30, 2024 decreased by $1,763,999, or 63.8%, to total other expenses, net, of $998,893 for the nine months ended September 30, 2025, primarily attributable to (i) an decrease of $3,970,628 in loss on sale of warrants as we sold partial of warrants received in the third quarter of 2024, and there was no such activity in the current period; offset by (ii) a decrease of $1,705,809 in changes in fair value of investments in warrants due to fair value measurement.
Income Tax Expense
Income tax expense was $54,886 for the nine months ended September 30, 2025, representing a decrease of $45,589, or 45.4%, from income tax expense of $100,475 for the nine months ended September 30, 2024, mainly because we recognized income tax expense due to the large pre-tax income position generated for the nine months ended September 30, 2024, while we incurred pre-tax loss position in current period.
Net Income (Loss) from Continuing Operations
As a result of the foregoing, we reported a net loss from continuing operations of $2,913,181 for the nine months ended September 30, 2025, representing a $9,618,523, or 143.4%, decrease from a net income from continuing operations of $6,705,342 for the nine months ended September 30, 2024.
Income from Discontinued Operations, Net of Income Tax
On July 24, 2025, the Board of Directors of the Company approved to enter into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. The results of operations of HeartCore Japan are reported as discontinued operations for all periods presented as the sale of HeartCore Japan represents a strategic shift that has or will have a major impact on its operations and financial results. The sale transaction was closed on October 31, 2025. We reported an income from discontinued operations, net of income tax of $1,188,481 for the nine months ended September 30, 2025, representing a $766,013, or 181.3%, increase from an income from discontinued operations, net of income tax of $422,468 for the nine months ended September 30, 2024.
Net Income (Loss)
As a result of the foregoing, we reported a net loss of $1,724,700 for the nine months ended September 30, 2025, representing a $8,852,510, or 124.2%, decrease from a net income of $7,127,810 for the nine months ended September 30, 2024.
Net Loss Attributable to Non-controlling Interests
During the nine months ended September 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 non-controlling interests of $171,682 and $645,546 in the nine months ended September 30, 2025 and 2024, respectively.
Net Income (Loss) Attributable to HeartCore Enterprises, Inc.
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $1,553,018 for the nine months ended September 30, 2025, representing a $9,326,374, or 120.0%, decrease from a net income attributable to HeartCore Enterprises, Inc. of $7,773,356 for the nine months ended September 30, 2024.
Dividends Accrued on Series A Convertible Preferred Shares
On 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 accrued on Series A convertible preferred shares of $56,833 in the current period.
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Net Income (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 $1,609,851 for the nine months ended September 30, 2025, representing a $9,383,207, or 120.7%, decrease from a net income attributable to HeartCore Enterprises, Inc. common shareholders of $7,773,356 for the nine months ended September 30, 2024.
Liquidity and Capital Resources
As of September 30, 2025, we had $1,451,019 in cash and cash equivalents, as compared to $1,973,810 as of December 31, 2024. We also had $1,107,187 in accounts receivable as of September 30, 2025. Our accounts receivable primarily include the balance due from customers for our customized software development and services accepted by customers.
The following table sets forth summary of our cash flows for the periods indicated:
|
For the Nine Months Ended
September 30, |
||||||||
| 2025 | 2024 | |||||||
| Net cash flows used in operating activities of continuing operations | $ | (2,980,958 | ) | $ | (3,027,115 | ) | ||
| Net cash flows provided by investing activities of continuing operations | 1,071,732 | 5,565,000 | ||||||
| Net cash flows provided by (used in) financing activities of continuing operations | 1,953,032 | (1,168,769 | ) | |||||
| Net cash flows used in discontinued operations | (166,736 | ) | (1,080,748 | ) | ||||
| Effect of exchange rate changes | 26,577 | (68,730 | ) | |||||
| Net change in cash and cash equivalents | (96,353 | ) | 219,638 | |||||
| Cash and cash equivalents, beginning of the period | 2,121,089 | 1,012,479 | ||||||
| Cash and cash equivalents, end of the period | $ | 2,024,736 | $ | 1,232,117 | ||||
Cash Flows from Operating Activities of Continuing Operations
Net cash flows used in operating activities of continuing operations was $2,980,958 for the nine months ended September 30, 2025, primarily consisting of the following:
| ● | Net loss from continuing operations of $2,913,181 for the nine months ended September 30, 2025. | |
| ● | Warrants received as noncash consideration of $837,913 as one of our IPO consulting customers completed the IPO during the current period. | |
| ● | A decrease of $304,033 in accounts payable and accrued expenses as we continuously paid off such liabilities and decreased purchases to save operating expenses. | |
| ● |
A decrease of $278,421 in deferred revenue, due to more revenue was recognized than the upfront payment received in the current period.
|
|
| ● | Offset by a loss of $908,416 on fair value changes in investments in marketable securities. | |
| ● |
Offset by a loss of $116,981 on disposal of property and equipment.
|
|
| ● | Offset by an increase of $116,399 in other assets mainly resulted from the decrease of security deposits in connection with the early termination of an office lease. |
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Net cash flows used in operating activities of continuing operations was $3,027,115 for the nine months ended September 30, 2024, primarily consisting of the following:
| ● | Net income from continuing operations of $6,705,342 for the nine months ended September 30, 2024. | |
| ● | Marketable securities and warrants received as noncash consideration in total of $13,541,693 as two of our IPO consulting customers completed the IPO during th is period. | |
| ● | A gain of $1,631,700 on fair value changes in investments in warrants. | |
| ● | Offset by a loss of $308,059 on fair value changes in investments in marketable securities. | |
| ● | Offset by a loss of $3,970,628 recognized on sale of warrants to a third party. | |
| ● |
Offset by depreciation and amortization expenses of $532,958.
|
|
| ● | Offset by an increase of $428,522 in other liabilities, mainly because we terminated the consulting service agreement with a GO IPO customer and will refund $500,000 to the customer. |
Cash Flows from Investing Activities of Continuing Operations
Net cash flows provided by investing activities of continuing operations amounted to $1,071,732 for the nine months ended September 30, 2025, attributable to the proceeds of $1,071,732 received from sale of marketable securities.
Net cash flows provided by investing activities of continuing operations amounted to $5,565,000 for the nine months ended September 30, 2024, primarily attributable to the net proceeds of $5,640,000 received from sale of warrants.
Cash Flows from Financing Activities of Continuing Operations
Net cash flows provided by financing activities of continuing operations amounted to $1,953,032 for the nine months ended September 30, 2025, primarily attributable to the proceeds of $1,800,000 received from issuance of Series A convertible preferred shares and common shares related to securities purchase agreement after net against related share issuance costs.
Net cash flows used in financing activities of continuing operations amounted to $1,168,769 for the nine months ended September 30, 2024, primarily attributable to the dividend distribution of $834,566, and net repayment of $257,295 for factoring arrangement.
Cash Flows from Discontinued Operations
Net cash flows used in discontinued operations amounted to $166,736 and $1,080,748 in the nine months ended September 30, 2025 and 2024, respectively.
Contractual Obligations
Lease Commitment
We entered into operating leases for office space and a finance lease for vehicle for operating purpose.
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Debts
The Company’s debts included long-term debts borrowed from a bank and a financial institution.
As of September 30, 2025, future minimum principal payments for long-term debts are as follows:
| Principal | ||||
| Year Ended December 31, | Payment | |||
| Remaining of 2025 | $ | 11,939 | ||
| 2026 | 50,597 | |||
| 2027 | 55,325 | |||
| 2028 | 60,471 | |||
| 2029 | 27,857 | |||
| Thereafter | 304,723 | |||
| Total | $ | 510,912 | ||
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 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. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies reflect the more significant judgments and estimates used in preparation of our consolidated financial statements.
Revenue Recognition
We provide 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 service 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 primarily in the form of 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. We assess 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 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.
The valuation of noncash consideration in the form of warrants of the customers are estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses and are reviewed by consulting with third-party valuation appraisers. The fair value of the warrants received from the customers are estimated using the binomial model. Management applies significant judgement related to the valuation model and approach, such as stock price, volatility, selection of comparable companies, and etc. These significant assumptions are based on company specific information and projections, which may not be observable in the market, and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions. We believe the accounting estimate for revenue recognition in connection with the valuation of the warrants received by the Company as part of the consideration for consulting services is a critical accounting estimate because it requires estimates and judgement as to expectations that are highly subjective, but which are inherently uncertain and, as a result, actual results may differ from estimates.
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 September 30, 2025. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 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, as the same may be amended from time to time.
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 September 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 the same may be updated from time to time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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 September 30, 2025, no HeartCore USA director or officer
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
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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: November 18, 2025 | By: | /s/ Sumitaka Yamamoto |
| Sumitaka Yamamoto | ||
| Chief Executive Officer and President (principal executive officer) | ||
| Dated: November 18, 2025 | By: | /s/ Qizhi Gao |
| Qizhi Gao | ||
| Chief Financial Officer (principal financial officer and principal accounting officer) | ||
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