HTCR Heartcore Enterprises, Inc. - 10-K

ITEM 1A. RISK FACTORS

An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this annual report on Form 10-K, including our historical financial statements and related notes included elsewhere in this annual report on Form 10-K, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our common shares and warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements.”

We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.

Risks Related to Our Business and Strategy

We are a holding company and depend upon our subsidiary for our cash flows.

We are a holding company. All of our operations are conducted, and almost all of our assets are owned, by our subsidiary. Consequently, our cash flows and our ability to meet our obligations depend upon the cash flows of our subsidiary and the payment of funds by this subsidiary to us in the form of dividends, distributions or otherwise. The ability of our subsidiary to make any payments to us depends on their earnings, the terms of their indebtedness, including the terms of any credit facilities and legal restrictions. Any failure to receive dividends or distributions from our subsidiary when needed could have a material adverse effect on our business, results of operations or financial condition.

We may require additional funding for our growth plans, and such funding may result in a dilution of your investment.

We attempted to estimate our funding requirements in order to implement our growth plans. If the costs of implementing such plans should exceed these estimates significantly or if we come across opportunities to grow through expansion plans which cannot be predicted at this time, and our funds generated from our operations prove insufficient for such purposes, we may need to raise additional funds to meet these funding requirements.

These additional funds may be raised by issuing equity or debt securities or by borrowing from banks or other resources. We cannot assure you that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. If we fail to obtain additional financing on terms that are acceptable to us, we will not be able to implement such plans fully if at all. Such financing, even if obtained, may be accompanied by conditions that limit our ability to pay dividends or require us to seek lenders’ consent for payment of dividends, or restrict our freedom to operate our business by requiring lender’s consent for certain corporate actions.

Further, if we raise additional funds by way of a rights offering or through the issuance of new shares, any shareholders who are unable or unwilling to participate in such an additional round of fund raising may suffer dilution in their investment.

The Company’s payment of cash dividends from additional paid-in capital may expose the Company to potential liabilities arising out of state and federal fraudulent conveyance laws and legal distribution requirements.

In the past, the Company has paid cash dividends, and the Company may continue to issue quarterly dividends going forward, contingent upon the Board of Directors’ approval, following review of the Company’s then-current financial results. Although the Company believed that it would be adequately capitalized following payment of each of its cash dividends, the Company’s payment of cash dividends could be challenged under various state and federal fraudulent conveyance laws. Fraudulent conveyances or transfers are generally defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. Any unpaid creditor could claim that any one or the aggregate of the cash dividends left the Company insolvent or with unreasonably small capital or that the Company intended or believed the Company would incur debts beyond the Company’s ability to pay such debts as they mature. If a court were to agree with such a plaintiff, then such court could void the distributions as a fraudulent transfer or impose substantial liabilities on it, which could adversely affect the Company’s financial condition and the Company’s results of operations.

The payment of cash dividends is also subject to review under state corporate distribution statutes. Under the Delaware General Corporation Law, a corporation may only pay dividends to its stockholders either (i) out of its surplus (net assets minus capital) or (ii) if there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Although the Company’s Board of Directors made the distributions out of its surplus, there can be no assurance that a court will not later determine that some or all of the distributions were unlawful.

We may experience significant quarterly fluctuations in our operating results due to our specialized business model and reliance on a limited number of consulting agreements, which makes our future results difficult to predict.

Our quarterly operating results have fluctuated in the past and are expected to fluctuate significantly in the future. As a result of the shift in our business model, our past results may not be indicative of our future performance, and comparing our operating results on a period-to-period basis may not be meaningful. Unlike companies with recurring subscription revenue, our current business is almost entirely dependent on providing Go IPO consulting services to a specific niche of private Japanese issuers. As a result, our revenue in any given period is highly dependent on the number of new consulting agreements we execute and the progress of our existing clients through the IPO pipeline.

Specific factors that may cause our quarterly operating results to fluctuate include:

Timing and Concentration of Agreements: Our revenue is driven by a limited number of high-value consulting agreements. The failure to enter into anticipated agreements in a particular quarter, or a delay in a client’s IPO timeline, can cause significant revenue shortfalls.

Volatility of Equity-Based Compensation: A substantial portion of our compensation consists of warrants or stock acquisition rights. The fair value of these instruments is subject to significant quarterly adjustments based on the valuation of the underlying private Japanese companies and market conditions, which may result in non-cash fluctuations in our reported earnings.

Pipeline Delays: The U.S. IPO process for Japanese issuers is subject to regulatory hurdles, audit delays, and market windows that are outside of our control. Any delay in a client’s filing of a Form S-1 or F-1 can defer the payment of cash installments.

Niche Market Focus: Our current business relates exclusively to Go IPO services for Japanese companies. Changes in Japanese economic policy, U.S.-Japan trade relations, or a cooling of the U.S. IPO market specifically for foreign issuers would disproportionately affect our results.

Resource Allocation: The amount and timing of operating expenses, particularly the costs associated with bilingual professional staff, process mining licenses, and specialized translation services required to onboard new clients.

Dependence on Third Parties: Our ability to fulfill our service obligations often depends on the schedule and performance of third-party law firms, underwriters, and auditors selected by our clients.

Foreign Currency Exchange Rates: As we serve Japanese issuers, fluctuations in the JPY/USD exchange rate can affect the value of our consulting fees and the exercise prices of the stock acquisition rights we hold.

Because of these and other factors, our past results should not be relied upon as an indication of our future performance. If our revenue or operating results in a particular quarter fall below the expectations of investors or securities analysts, or below any guidance we may provide, the price of our common stock could decline.

We provide consulting services and ultimately do not control our client’s abilities to go public in the United States or secure a listing on American stock exchanges.

In providing our consulting services, we do not perform accounting services, and do not act as an investment advisor or broker-dealer. Pursuant to the terms of the consulting agreements with the issuers, the parties agree that we will not provide the following services, among others: negotiation of the sale of the issuers’ securities; participation in discussions between the issuers and potential investors; assisting in structuring any transactions involving the sale of the issuers’ securities; pre-screening of potential investors; due diligence activities; and providing advice relating to valuation of or financial advisability of any investments in the issuers. Additionally, we do not take part in the selection of, or negotiation of terms with, law firms, underwriters or audit firms. Such selection and negotiation is the sole responsibility of the client.

Our GO IPO clients may rely on advice from their third party advisors, including law firms and underwriters. Any of these third party advisors may advise our GO IPO clients on strategies that could delay or even terminate their ability to go public in the United States or secure a listing on an American stock exchange. The ability of our client to go public in the United States or secure a listing on an American stock exchange is subject to our client’s ability to execute their business plan and attract investors. Ultimately, market conditions could also create delays or terminate our client’s plans.

The value of the equity rights we receive from our GO IPO clients could be volatile, lose value, and even become worthless.

We do not control the management or strategies of our GO IPO client companies. The value of our equity rights received from our consulting services is tied to the market value of the client and will likely be volatile. Among other factors the following occurrences, which is not an exhaustive list, could reduce the value of our equity rights or even cause our equity rights to become worthless:

If a client company changes management or strategies;

If a client company is engaged in material litigation;

If a client company cannot develop a liquid market for their shares underlying our equity rights;

If a client company cannot satisfy a listing requirement to be listed on an exchange;

If the market value of the equity rights is too low;

If the client company cannot secure market makers;

If the client company cannot meet the rules and requirements mandated by the exchanges and markets;

If the client company suffers a business downturn, through their fault or caused by a material partner or events that affect the market in general; and/or

If the market conditions do not provide an opportunity to capitalize on the equity rights.

Our GO IPO business assists companies in navigating the IPO process in the U.S. markets. We do not provide investment, accounting, or legal advice. If state or federal regulatory agency determined our Company provided legal or investment advice in violation of existing law, there could be a material adverse effect on our business operations and stock value.

Our GO IPO services assist companies in improving their internal systems, planning, and readiness to take their company through the IPO process. We also assist with introductions to third party professional advisors such as law firms, investment bankers, and auditors, in order that clients can make their selections, at their sole discretion. We do not provide investment advice regarding the value of securities, nor do we engage in the solicitation of investors or the negotiation of securities transactions.

We are not an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”). The 1940 Act has restrictions that could make it impractical for us to continue our business as contemplated. Our GO IPO services are consulting services only, and we are not in the business of investing, reinvesting or trading in securities. An entity will generally be deemed an “investment company” under Section 3(a)(1) of the 1940 Act if: (a) it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities, or (b) absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We conduct our operations so that we will not be deemed an investment company.

If our activities were deemed to be those of an unregistered broker-dealer or investment adviser, we could face significant civil and criminal penalties and our consulting contracts could be rendered void.

General Risks

Failure to comply with laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions.

We are exposed to fluctuations in currency exchange rates.

We are exposed to fluctuations in currency exchange rates. Our operations expose us to movements in foreign currency exchange rates, primarily between the U.S. dollar and Japanese Yen. As a result, our revenue, expenses, and operating results may be affected by changes in exchange rates when transactions denominated in foreign currencies are translated into our reporting currency.

In addition, as we continue to develop our business in Japan and may expand our operations internationally in the future, our exposure to foreign currency fluctuations may increase. Exchange rate volatility may affect our ability to accurately predict our financial results and could result in increased variability in our reported earnings.

Although we may implement certain strategies to mitigate foreign currency risks, such strategies may not be effective and may involve additional costs and operational complexity.

Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.

Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds to invest in future growth opportunities. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could seriously harm our business and operating results. If we incur debt, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Any additional equity or equity-linked financings would be dilutive to our stockholders. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.

The Company’s certificate of incorporation, as amended (the “Certificate of Incorporation”), and bylaws provide that state or federal court located within the state of Delaware will be the sole and exclusive forum for substantially all disputes between us and our shareholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.

Section 21 of our Certificate of Incorporation and Section 7.4 of our bylaws provides that “[u]nless the corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be a state or federal court located in the county in which the principal office of the corporation in the State of Delaware is established, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Notwithstanding the foregoing, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange of 1934, as amended, the Securities Act of 1933, as amended, or any claim for which the federal courts have exclusive or concurrent jurisdiction.” Therefore, the exclusive forum provision in our Certificate of Incorporation and our bylaws will not relieve us of our duty to comply with the federal securities laws and the rules and regulations thereunder, and shareholders will not be deemed to have waived our compliance with these laws, rules and regulations.

This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us or our directors, officers or other employees. In addition, shareholders who do bring a claim in the state or federal court in the State of Delaware could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The state or federal court of the State of Delaware may also reach different judgments or results than would other courts, including courts where a shareholder would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our shareholders. However, the enforceability of similar exclusive forum provisions in other companies’ certificates of incorporation have been challenged in legal proceedings, and it is possible that a court could find this type of provision to be inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings. If a court were to find the exclusive forum provision contained in our Certificate of Incorporation and our bylaws to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions.

You are bound by the fee-shifting provision contained in our bylaws, which may discourage you to pursue actions against us and could discourage shareholder lawsuits that might otherwise benefit the Company and its shareholders.

Section 7.4 of our bylaws provides that “[i]f any action is brought by any party against another party, relating to or arising out of these Bylaws, or the enforcement hereof, the prevailing party shall be entitled to recover from the other party reasonable attorneys’ fees, costs and expenses incurred in connection with the prosecution or defense of such action.”

Our bylaws provide that for this section, the term “attorneys’ fees” or “attorneys’ fees and costs” means the fees and expenses of counsel to the Company and any other parties asserting a claim subject to Section 7.4 of the bylaws, which may include printing, photocopying, duplicating and other expenses, air freight charges, and fees billed for law clerks, paralegals and other persons not admitted to the bar but performing services under the supervision of an attorney, and the costs and fees incurred in connection with the enforcement or collection of any judgment obtained in any such proceeding.

We adopted the fee-shifting provision to eliminate or decrease nuisance and frivolous litigation. We intend to apply the fee-shifting provision broadly to all actions except for claims brought under the Exchange Act and Securities Act.

There is no set level of recovery required to be met by a plaintiff to avoid payment under this provision. Instead, whoever is the prevailing party is entitled to recover the reasonable attorneys’ fees, costs and expenses incurred in connection with the prosecution or defense of such action. Any party who brings an action, and the party against whom such action is brought under Section 7.4 of our bylaws, which could include, but is not limited to former and current shareholders, Company directors, officers, affiliates, legal counsel, expert witnesses and other parties, are subject to this provision. Additionally, any party who brings an action, and the party against whom such action is brought under Section 7.4 of our bylaws, which could include, but is not limited to former and current shareholders, Company directors, officers, affiliates, legal counsel, expert witnesses and other parties, would be able to recover fees under this provision.

In the event you initiate or assert a claim against us, in accordance with the dispute resolution provisions contained in our Bylaws, and you do not, in a judgment prevail, you will be obligated to reimburse us for all reasonable costs and expenses incurred in connection with such claim, including, but not limited to, reasonable attorney’s fees and expenses and costs of appeal, if any. Additionally, this provision in Section 7.4 of our bylaws could discourage shareholder lawsuits that might otherwise benefit the Company and its shareholders.

THE FEE SHIFTING PROVISION CONTAINED IN THE BYLAWS IS NOT INTENDED TO BE DEEMED A WAIVER BY ANY HOLDER OF COMMON STOCK OF THE COMPANY’S COMPLIANCE WITH THE U.S. FEDERAL SECURITIES LAWS AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER. THE FEE SHIFTING PROVISION CONTAINED IN THE BYLAWS DO NOT APPLY TO CLAIMS BROUGHT UNDER THE EXCHANGE ACT AND SECURITIES ACT.

Risks Related to Employee Matters

If we cannot maintain our company culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success and our business may be harmed.

We believe that a critical component to our success has been our company culture, which is based on transparency and personal autonomy. We have invested substantial time and resources in building our team within this company culture. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. As we grow, we may find it difficult to maintain these important aspects of our company culture. If we fail to maintain our company culture, our business may be adversely impacted.

We rely on our management team and other key employees, and the loss of one or more key employees could harm our business.

Our success and future growth depend upon the continued services of our management team, including our Chief Executive Officer, Sumitaka Yamamoto, and other key employees. From time to time, there may be changes in our management team resulting from the hiring or departure of executives, which could disrupt our business. The loss of one or more of our key employees could harm our business.

The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.

To execute our business strategy, we must attract and retain highly qualified personnel. We have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and difficulty in retaining employees with appropriate qualifications. In particular, we have experienced a competitive hiring environment in Japan, where we are headquartered, and expect to continue to experience a competitive hiring environment. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.

Related to Ownership of Our Common Stock

There can be no assurance that we will be able to comply with Nasdaq Capital Market’s continued listing standards.

Our common stock is listed on Nasdaq Capital Market under the symbol “HTCR.” There can be no assurance any broker will continue to be interested in trading our stock. Therefore, it may be difficult to sell your shares of common stock if you desire or need to sell them. We cannot provide any assurance that an active and liquid trading market in our common stock will develop or, if developed, that such market will continue.

There is no guarantee that we will be able to maintain a listing on the Nasdaq Capital Market for any period of time by perpetually satisfying Nasdaq’s continued listing requirements. Our failure to continue to meet these requirements may result in our common stock being delisted from Nasdaq Capital Market.

The market price of our common stock may be volatile, and you could lose all or part of your investment.

We cannot predict the prices at which our common stock will trade. The market price of our common stock depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. In addition, the limited public float of our common stock will tend to increase the volatility of the trading price of our common stock. These fluctuations could cause you to lose all or part of your investment in our common stock, since you might not be able to sell your shares at or above the price you paid for them. Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, the following:

actual or anticipated changes or fluctuations in our results of operations;

the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;

announcements by us of new consulting agreements or capital commitments;

industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC;

rumors and market speculation involving us;

price and volume fluctuations in the overall stock market from time to time;

the expiration of market stand-off or contractual lock-up agreements and sales of shares of our common stock by us or our stockholders;

failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

actual or anticipated developments in our business, or our competitors’ businesses, or the competitive landscape generally;

litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors;

announced or completed acquisitions of businesses by us or our competitors;

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

any major changes in our management or our board of directors, particularly with respect to Mr. Yamamoto;

general economic conditions and slow or negative growth of our markets; and

other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market prices of a particular company’s securities, securities class action litigation has often been instituted against that company. Securities litigation, if instituted against us, could result in substantial costs and divert our management’s attention and resources from our business. This could materially adversely affect our business, financial condition, results of operations, and prospects.

Our common stock may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified as “penny stock.”

Our common stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price below $5.00) in the future. While our common stock is not currently considered “penny stock” since it is listed on Nasdaq, if we are unable to maintain that listing and our common stock is no longer listed on Nasdaq, unless we maintain a per-share price above $5.00, our common stock will become “penny stock.” These rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.

Legal remedies available to an investor in “penny stocks” may include the following:

If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment.

If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages.

These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.

Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.

For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance at what time, if ever, our common stock will not be classified as a “penny stock” in the future.

As an “emerging growth company” under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors’ report providing additional information about the audit and the consolidated financial statements (i.e., an auditor discussion and analysis);

submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our consolidated financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company until the earliest to occur of: (i) the end of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (ii) the end of the fiscal year in which the market value of our common shares that are held by non-affiliates is at least $700.0 million as of the last business day of our most recently completed second fiscal quarter; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and (iv) the end of the fiscal year during which the fifth anniversary of our initial public offering (which closed on February 14, 2022) occurs.

Until such time, however, we cannot predict if investors will find our securities less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and have an adverse effect on the value of our securities.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Further, we will be required to report any changes in internal controls on a quarterly basis. In addition, we are required to furnish a report by management on the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We design, implement, and test internal control over financial reporting to comply with these obligations. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of its internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the value of our securities could be negatively affected. We also could become subject to investigations by the SEC or other regulatory authorities, which could require additional financial and management resources.

As an emerging growth company, our auditor is not required to attest to the effectiveness of our internal controls.

Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting while we are an emerging growth company. This means that the effectiveness of our internal control over financial reporting may differ from our peer companies in that they may be required to obtain independent registered public accounting firm attestations as to the effectiveness of their internal control over financial reporting and we are not. While our management is required to attest to internal control over financial reporting and we are required to detail changes to our internal controls on a quarterly basis, we cannot provide assurance that the independent registered public accounting firm’s review process in assessing the effectiveness of our internal control over financial reporting, if obtained, would not find one or more material weaknesses or significant deficiencies. Further, once we cease to be an emerging growth company and cease to be a smaller reporting company (as described below), we will be subject to independent registered public accounting firm attestation regarding the effectiveness of our internal control over financial reporting. Even if management finds such controls to be effective, our independent registered public accounting firm may decline to attest to the effectiveness of such internal controls and issue a qualified report.

We are a smaller reporting company and are, therefore, exempt from certain disclosure requirements, which could make our common stock less attractive to potential investors.

Rule 12b-2 of the Exchange Act defines a “smaller reporting company” as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter, computed by multiplying the aggregate worldwide number of shares of its voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity; or

in the case of an initial registration statement under the Securities Act or the Exchange Act for shares of its common equity, had a public float of less than $250 million as of a date within 30 days of the date of the filing of the registration statement, computed by multiplying the aggregate worldwide number of such shares held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of such shares included in the registration statement by the estimated public offering price of the shares; or

in the case of an issuer whose public float as calculated under paragraph (1) or (2) of this definition was zero or whose public float was less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available.

As a smaller reporting company, we are not required to include a Compensation Discussion and Analysis section in our proxy statements; we provide only two years of financial statements; and we are not required to provide the table of selected financial data. We also have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies, which could make our common stock less attractive to potential investors, and which could make it more difficult for our stockholders to sell their shares.

We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to compliance initiatives.

As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act imposes various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting on the later of our second annual report on Form 10-K or the first annual report on Form 10-K following the date on which we are no longer an emerging growth company or a smaller reporting company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the value of our securities could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on value of our securities, and could adversely affect our ability to access the capital markets.

Anti-takeover provisions contained in our Certificate of Incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

The Company’s Certificate of Incorporation and bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include:

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

limiting the liability of, and providing indemnification to, our directors and officers;

providing that a special meeting of the stockholders may only be called by a majority of the board of directors;

providing that directors may be removed prior to the expiration of their terms by the affirmative vote of the holders of not less than 2/3 of the voting power of the issued and outstanding stock entitled to vote; and

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.

These provisions, alone or together, could delay hostile takeovers and changes in control of the Company or changes in our board of directors and management.

Any provision of our Certificate of Incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our security holders to receive a premium for their securities and could also affect the price that some investors are willing to pay for our securities.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements

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 this Annual Report on Form 10-K.

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 Annual Report on Form 10-K 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 Annual Report on Form 10-K and the information incorporated by reference in this Annual Report on Form 10-K to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Annual Report on Form 10-K. References herein to “we,” “us” or the “Company” refers to HeartCore Enterprises, Inc. (“HeartCore USA”) and its consolidated subsidiaries, including  HeartCore Financial, Inc. (“HeartCore Financial”) and its branch office in Japan, Higgs Field Co., Ltd. (“Higgs Field”), HeartCore Luvina Vietnam Company Limited (“HeartCore Luvina”), and Sigmaways, Inc. (“Sigmaways”) and its subsidiaries.

Business Overview

In 2022, 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 December 31, 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.

Prior to November 2025, we were also a leading software development company based in Tokyo, Japan. We provided software through two business units. The first business unit, our CX division, included a customer experience management business (the “CXM Platform”). The second business unit, our DX division, was a digital transformation business which provided customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises. In 2025, we made the strategic decision to sell our software business assets in Japan and to concentrate our efforts on our GO IPO consulting business. 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 then-wholly owned subsidiary of the Company (“HeartCore Japan”). The HeartCore Japan Sale closed on October 31, 2025.

We were incorporated in the State of Delaware on May 18, 2021. We conduct business activities principally through our wholly owned subsidiary, HeartCore Co., a Japanese corporation, which was established in Japan by Mr. Sumitaka Yamamoto, our CEO, in 2009.

On September 6, 2022, HeartCore Enterprises, Inc. entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51% of the outstanding shares of Sigmaways, a company incorporated under the laws of the State of California, and its wholly owned subsidiaries. Sigmaways and its wholly owned subsidiaries are engaged in the business of developing and sales of software in the United States. The acquisition closed on February 1, 2023.

In 2025, the Company made the strategic decision to sell its software business assets in Japan and to concentrate its efforts on the GO IPO consulting business. In connection therewith, in addition to the HeartCore Japan Sale, which closed on October 31, 2025, the Company is assessing all strategic alternatives to divest its 51% equity interest in Sigmaways.

As of the date of this report, the Company has not entered into a definitive agreement with respect to a sale of its equity interest in Sigmaways. Accordingly, there can be no assurance that any transaction will be consummated. Any potential transaction remains subject to, among other things, the negotiation and execution of definitive agreements and the satisfaction of customary closing conditions.

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.

Go IPO Consulting Services

Since February 2022, we have been offering “Go IPO” consulting services to a number of private Japanese companies where we assist such private Japanese companies and/or their affiliates with their initial public offerings (“IPOs”) in the United States as well as their simultaneous listings onto the Nasdaq Stock Market, the New York Stock Exchange or the NYSE American. More specifically, these consulting services (collectively, “Services”) include the following:

Assisting with introductions to law firms, underwriters and auditing firms, in order that clients can make their selections, at their sole discretion;

Provision of process mining and task mining licenses for internal audit and internal control;

Assisting in the preparation of documentation for internal controls required for an initial public offering and simultaneous listing on the Nasdaq Stock Market, the New York Stock Exchange or the NYSE American;

Providing support services to remove problematic accounting accounts upon listing support;

Translation of requested documents into English;

Attend and, if requested by the other party, lead, meetings of management and employees;

Provide support services related to the Nasdaq, the New York Stock Exchange or the NYSE American listing;

Conversion of accounting data from Japanese standards to accounting principles generally accepted in the U.S. (“U.S. GAAP”);

Assist in the preparation of S-1 or F-1 filings;

Creation of English web page; and

Preparing an investor presentation/deck and executive summary of the operations.

In providing the Services, we do not provide investment advice regarding the value of securities, nor do we engage in the solicitation of investors or the negotiation of securities transactions. We do not provide accounting or legal advice, and we do not act as an investment advisor or broker-dealer.

Pursuant to the terms of the consulting agreements with the issuers, the parties agree that we will not provide the following services, among others: negotiation of the sale of the issuers’ securities; participation in discussions between the issuers and potential investors; assisting in structuring any transactions involving the sale of the issuers’ securities; pre-screening of potential investors; due diligence activities; and providing advice relating to valuation of or financial advisability of any investments in the issuers. Additionally, we do not take part in the selection of, or negotiation of terms with, law firms, underwriters or audit firms. Such selection and negotiation is the sole responsibility of the client.

Pursuant to the terms of the consulting agreements with the issuers, the issuers agree to compensate us as follows in return for the provision of Services during the initial term of the consulting agreements:

A cash fee payable in installment payments; and

Issuance by issuers to us of warrants or stock acquisition rights to acquire a number of shares of capital stock of the issuer, to initially be equal to a designated percentage of the fully diluted share capital of the issuer, subject to adjustment as set forth in the warrants or stock acquisition rights.

Recent Developments

Establishment of Higgs Field Co., Ltd.

In October 2025, the Company established Higgs Field Co., Ltd. as a new subsidiary in Japan as part of its strategic transition toward financial services-related business opportunities.

Higgs Field Co., Ltd. is currently engaged in providing consulting services related to digital securities, including self-offered corporate bonds and similar instruments. Over the longer term, the Company intends to expand this business by pursuing registration as a licensed securities firm in Japan, which would enable it to broaden the scope of its services, subject to obtaining the necessary regulatory approvals.

Sale of 51% Interest in Sigmaways, Inc.

In 2025, the Company made the strategic decision to sell its software business assets in Japan and to concentrate its efforts on the GO IPO consulting business. In connection therewith, in addition to the HeartCore Japan Sale, which closed on October 31, 2025, the Company is assessing all strategic alternatives to divest its 51% equity interest in Sigmaways, Inc. to a third party.

As of the date of this report, the Company has not entered into a definitive agreement with respect to a sale of its equity interest in Sigmaways. Accordingly, there can be no assurance that any transaction will be consummated. Any potential transaction remains subject to, among other things, the negotiation and execution of definitive agreements and the satisfaction of customary closing conditions.

Sale of HeartCore Japan

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 was ¥1,800,418,650 (equivalent to approximately $12 million, based on the October 31, 2025 Federal Reserve conversion rate of ¥154.10 = USD $1) (the “Purchase Price”), subject to adjustment as set forth in the HeartCore Japan Agreement, to be paid as follows:

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”).

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 days 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”).

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.

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.

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. 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.

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 was November 10, 2025, and the payment date was 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.

Financial Overview

For the years ended December 31, 2025 and 2024, we generated revenues of $8,968,732 and $22,685,544, respectively, and reported a net loss from continuing operations of $4,184,005 and $5,148,651, respectively. We had cash flows used in operating activities of $3,117,101 and $3,890,317, respectively. As noted in our consolidated financial statements, as of December 31, 2025, we had an accumulated deficit of $13,755,534.

Results of Operations

Comparison of Results of Operations for the Fiscal Years Ended December 31, 2025 and 2024

The following table summarizes our operating results as reflected in our statements of operations for the fiscal years ended December 31, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

For the Years Ended December 31,

Variance

Amount

Revenues

Amount

Revenues

Amount

Revenues

Cost of revenues

Gross profit

Operating expenses:

Selling expenses

General and administrative expenses

Research and development expenses

Impairment of intangible asset

Impairment of goodwill

Total operating expenses

Loss from continuing operations

Other expenses

Loss from continuing operations before income tax expense (benefit)

Income taxes expense (benefit)

Net 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

For the Years Ended December 31,

Variance

Amount

Amount

Amount

Revenues

Revenues from software development services

Revenues from customized software development and services

Revenues from consulting services

Total revenues

Cost of revenues

Costs of software development services

Costs of customized software development and services

Costs of consulting services

Total cost of revenues

Gross profit

Software development services

Customized software development and services

Consulting services

Total gross profit

Revenues

Our total revenues decreased by $13,716,812, or 60.5%, to $8,968,732 for the year ended December 31, 2025 from $22,685,544 for the year ended December 31, 2024, mainly attributable to (i) a decreased revenue of $12,823,826 from GO IPO consulting services mainly because we generated significant revenue from noncash consideration of $12,969,683 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; (ii) a decreased revenue of $995,039 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; and (iii) offset by an increased revenue of $102,053 from software development services in connection with the additional customer orders obtained in Japan.

Cost of Revenues

Our total costs of revenues decreased by $2,152,619, or 27.0%, to $5,817,279 for the year ended December 31, 2025 from $7,969,898 for the year ended December 31, 2024, mainly attributable to the decrease of $2,143,213 in the cost of customized software development and services, which was in light of (i) the decrease in sales and (ii) the decrease was also attributable to Sigmaways’ reduction in 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 $11,564,193, or 78.6%, to $3,151,453 for the year ended December 31, 2025 from $14,715,646 for the year ended December 31, 2024, mainly attributable to (i) a decrease of $12,730,251 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 was recognized from noncash consideration as costs were incurred throughout the consulting service period before IPO completion; offset by (ii) an increase of $1,148,174 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 decreasing more than revenue did.

For the reasons discussed above, our overall gross profit margin decreased by 29.8% to 35.1% for the year ended December 31, 2025 from 64.9% in the fiscal year 2024.

Operating Expenses

The following table sets forth the breakdown of our operating expenses for the fiscal years ended December 31, 2025 and 2024:

For the Years Ended December 31,

Variance

Amount

Revenues

Amount

Revenues

Amount

Total revenues

Operating expenses:

Selling expenses

General and administrative expenses

Research and development expenses

Impairment of intangible asset

Impairment of goodwill

Total operating expenses

Selling Expenses

Our selling expenses primarily include advertising expenses, referral expenses, and stock-based compensation.

For the Years Ended December 31,

Variance

Amount

Amount

Amount

Selling expenses

Advertising expenses

Referral expenses

Stock-based compensation

Total selling expenses

Our selling expenses decreased by $387,326, or 62.4%, to $233,744 for the year ended December 31, 2025 from $621,070 in the fiscal year 2024, primarily attributable to (i) a decrease of $260,815 in stock-based compensation due to the resignation from the Company of some of the option and RSU holders resigned from the Company, resulted in the forfeiture of options and RSUs and reversal of SBC expense in 2025 and brought SBC expense in 2025 to negative amounts, while there were no such large amount of forfeiture and reversal of SBC expense in prior year ; and (ii) a decrease of $115,885 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 2.6% and 2.7% of our total revenues for the years ended December 31, 2025 and 2024, respectively.

General and Administrative Expenses

Our general and administrative expenses primarily consist of employee salaries and welfare expenses, consulting and professional service fees, depreciation and amortization expenses, rent expense, office, utility and other expenses, bad debt, travel and entertainment expenses, and stock-based compensation.

For the Years Ended December 31,

Variance

Amount

Amount

Amount

General and administrative expenses

Salaries and welfare expenses

Consulting and professional service fees

Depreciation and amortization expenses

Rent expense

Office, utility and other expenses

Bad debt

Travel and entertainment expenses

Stock-based compensation

Total general and administrative expenses

Our general and administrative expenses decreased by $882,933 or 12.8%, to $6,039,026 for the year ended December 31, 2025 from $6,921,959 in the fiscal year 2024, primarily attributable to (i) a decrease of $625,245 in depreciation and amortization expenses, primarily because we fully impaired intangible assets arising from the acquisition of Sigmaways at the end of the 2024 fiscal year, resulting in no amortization expenses recorded in 2025; (ii) a decrease of $504,948 in consulting and professional services fees mainly because of the decrease in public relations service fees as the Company engaged in public relations related activities in the previous year to enhance compliance and regulation information, while no such activities occurred in 2025; offset by (iii) an increase of $212,733 in salaries and welfare, primarily due to the distribution of a one-time bonus to certain officers and employees in connection with the successful disposition of HeartCore Japan.

As a percentage of revenues, general and administrative expenses were 67.3% and 30.5% of our revenues for the fiscal years ended December 31, 2025 and 2024, respectively.

Research and Development Expenses

Our research and development expenses primarily consist of outsourcing expenses and stock-based compensation.

For the Years Ended December 31,

Variance

Amount

Amount

Amount

Research and development expenses

Outsourcing expenses

Stock-based compensation

Total research and development expenses

Our research and development expenses decreased by $179,762, or 100.0%, to nil in the year ended December 31, 2025 from $179,762 in the year ended December 31, 2024, primarily attributable to a decrease of $177,389 in outsourcing expenses as we reduced outsourcing research and development expenses for cash flow saving purposes in 2025.

As a percentage of revenues, research and development expenses were 0.0% and 0.8% of our revenues for the fiscal years ended December 31, 2025 and 2024, respectively.

Impairment of Intangible Asset

Our impairment of intangible asset decreased by $3,878,125 or 100.0%, to nil for the year ended December 31, 2025 from $3,878,125 in the fiscal year 2024, primarily because we fully impaired intangible asset and goodwill raised from acquisition of Sigmaways due to the recurring net loss position and negative operating cash flows in the prior year, while there was no such impairment of intangible asset activities in 2025.

Impairment of Goodwill

Our impairment of goodwill decreased by $3,276,441 or 100.0%, to nil for the year ended December 31, 2025 from $3,276,441 in the fiscal year 2024, primarily because we fully impaired intangible asset and goodwill raised from acquisition of Sigmaways due to the recurring net loss position and negative operating cash flows in the prior year, while there was no such impairment of goodwill activities in 2025.

Other Income (Expenses), Net

Our other income (expenses) primarily includes changes in fair value of investments in marketable securities, changes in fair value of investment in warrants, loss on sale of warrants, interest income generated from bank deposits, interest expenses for bank loans and bonds, c hanges in fair value of derivative liability , impairment of investment in equity securities, loss on forgiveness of note receivable, other income, and other expenses. Total other expenses, net, decreased by $4,332,308 or 81.0%, from other expenses, net, of $5,350,096 for the year ended December 31, 2024 to other expenses, net, of $1,017,788 for the year ended December 31, 2025, primarily attributable to (i) a decrease of $3,970,628 in loss on sale of warrants; (ii) a decrease of $918,151 in loss on fair value changes in investments in marketable securities; (iii) a decrease of $300,000 in impairment of investment in equity securities; offset by (iv) a decrease of $1,032,024 in gain on fair value changes in investment in warrants.

Income Tax Expense (Benefit)

Income tax expense was $44,900 for the year ended December 31, 2025, representing a decrease of $408,056, or 112.4%, from income tax benefit of $363,156 in the fiscal year 2024, mainly because we incurred income tax benefit position in the prior year (mainly because the Company recognized large deferred income tax benefit due to impairment of intangible asset) and income tax expense position in 2025 (the Company incurred consolidated net loss from continuing operations before tax position and minor income tax expense recognized for subsidiaries generated income).

Net Loss from Continuing Operations

As a result of the foregoing, we reported a net loss from continuing operations of $4,184,005 for the year ended December 31, 2025, representing a $964,646, or 18.7%, decrease from a net loss from continuing operations of $5,148,651 for the year ended December 31, 2024.

Income (Loss) from Discontinued Operations, Net of Income Tax

On July 24, 2025, the Board of Directors of the Company approved entry into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. On October 31, 2025, the Company entered into the HeartCore Japan Agreement with Smith Japan in relation to the sale 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 closed on October 31, 2025. We reported an income from discontinued operations, net of income tax of $9,677,293 for the year ended December 31, 2025, representing a $9,741,542, or 15162.2%, increase from a loss from discontinued operations, net of income tax of $64,249 for the year ended December 31, 2024.

Net Income (Loss)

As a result of the foregoing, we reported a net income of $5,493,288 for the fiscal year ended December 31, 2025, representing a $10,706,188 or 205.4% increase from a net loss of $5,212,900 for the fiscal year ended December 31, 2024.

Net Loss Attributable to Non-controlling Interests

We owned a 51% equity interest of Sigmaways and its subsidiaries and a 51% equity interest of HeartCore Luvina as of December 31, 2025. Accordingly, we recorded net loss attributable to the non-controlling interests of $300,596 and $3,731,526 in the year ended December 31, 2025 and 2024, respectively.

Net Income (Loss) Attributable to HeartCore Enterprises, Inc.

As a result of the foregoing, we reported a net income attributable to HeartCore Enterprises, Inc. of $5,793,884 for the fiscal year ended December 31, 2025, representing a $7,275,258 or 491.1% increase from a net loss attributable to HeartCore Enterprise, Inc. of $1,481,374 for the fiscal year ended December 31, 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 $94,357 in the current period.

Net Income (Loss) Attributable to HeartCore Enterprises, Inc. Common Shareholders

As a result of the foregoing, we reported a net income attributable to HeartCore Enterprises, Inc. common shareholders of $5,699,527 for the year ended December 31, 2025, representing a $7,180,901, or 484.7%, increase from a net loss attributable to HeartCore Enterprises, Inc. common shareholders of $1,481,374 for the year ended December 31, 2024.

Liquidity and Capital Resources

As of December 31, 2025, we had $1,985,962 in cash and cash equivalents as compared to $1,973,810 as of December 31, 2024. We also had $707,865 in accounts receivable as of December 31, 2025. Our accounts receivable primarily include balance due from customers for customized software development and services.

As of December 31, 2025, our working capital was $3,085,642. In assessing our liquidity, management monitors and analyzes our cash, our ability to generate sufficient revenues in the future, and our operating and capital expenditure commitments.

Cash Flows for the Years Ended December 31, 2025 and 2024

The following table sets forth summary of our cash flows for the periods indicated:

For the Years Ended

December 31,

Net cash flows used in operating activities of continuing operations

Net cash flows provided by investing activities of continuing operations

Net cash flows provided by (used in) financing activities of continuing 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 year

Cash and cash equivalents, end of the year

Operating Activities

Net cash used in operating activities was $3,117,101 for the year ended December 31, 2025, primarily consisting of the following:

Net loss from continuing operations of $4,184,005 for the fiscal year.

Warrants received as noncash consideration in total of $837,913 as our GO IPO consulting customers completed the IPO during the period.

A gain of $625,675 on fair value changes in investment in warrants due to fair value measurement.

Offset by loss of $1,494,234 on fair value changes in investments in marketable securities due to fair value measurement.

Offset by an increase of $1,036,456 in income tax payables in connection with the gain recognized from the sale of discontinued operations.

Net cash used in operating activities was $3,890,317 for the year ended December 31, 2024, primarily consisting of the following:

Net loss from continuing operations of $5,148,651 for the fiscal year.

Marketable securities and warrants received as non-cash consideration of $13,541,693 as our IPO consulting customers completed the IPO during the period.

Offset by a total of $7,154,566 loss recognized on impairment of goodwill and intangible asset acquired from business acquisition of Sigmaways and its subsidiaries.

Offset by loss of $3,970,628 recognized on sale of warrants to a third party.

Offset by a loss of $2,412,385 on fair value changes in investments in marketable securities due to fair value measurement.

Offset by a decrease of $1,050,522 in accounts receivable.

Investing Activities

Net cash provided by investing activities amounted to $5,590,600 for the year ended December 31, 2025, primarily consisted of (i) net proceeds of $4,518,868 from sale of discontinued operations, net of cash divested; and (ii) net proceeds of $1,071,732 from sale of marketable securities.

Net cash provided by investing activities amounted to $6,314,546 for the year ended December 31, 2024, primarily consisted of (i) net proceeds of $5,640,000 from sale of warrants, and (ii) net proceeds of $749,546 from sale of marketable securities.

Financing Activities

Net cash used in financing activities amounted to $1,493,076 for the year ended December 31, 202 5 , primarily consisted of (i) dividends payment of $3,304,575 for common shares ; offset by (ii) net p roceeds of $1,800,000 from issuance of Series A convertible preferred shares and common shares related to securities purchase agreement.

Net cash provided by financing activities amounted to $134,098 for the year ended December 31, 2024, primarily consisted of (i) net proceed of $1,423,342 from issuance of common shares related to at the market offering agreement; offset by (ii) net repayment of $390,373 for factoring arrangement, and (iii) dividend payment of $834,566 to common shares.

Contractual Obligations

Lease Commitment

The Company has entered into operating leases for office space.

Debt s

The Company’s debts included long-term debts borrowed from banks and financial institutions.

As of December 31, 2025, future minimum payments for long-term debts are as follows:

Principal

Year Ended December 31,

Payment

Thereafter

Total

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2025.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our 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 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 generate revenues from the following main sources: software development services, customized software development and services and consulting services.

Revenue is recognized when control of the goods and services provided are transferred to our customers and in an amount that reflects the consideration we expect to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when we satisfy the performance obligations.

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 in the amount of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved.

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 dividend yield assumption, risk free interest rate, volatility, selection of comparable companies, and etc. These 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 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.