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.
