HTCR 10-K
HeartCore Enterprises, Inc. (HTCR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
For
the fiscal year ended
For the transition period from ______, 20 ____, to ______, 20_____.
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
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Securities registered pursuant to section 12(g) of the Act:
| N/A |
| (Title of class) |
| N/A |
| (Title of class) |
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The
aggregate market value of the voting and non-voting common equity held by non-affiliates based upon the closing price of $0.4899 per
share of common stock as of June 30, 2025, the last business day of the registrant’s most recently completed second fiscal quarter
was $
As of March 31, 2026, there were shares of common stock, par value $ per share, of the registrant issued and outstanding.
Documents Incorporated by Reference
Table of Contents
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this annual report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this annual report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the following risks, uncertainties and other factors:
| ● | the level of demand for our services; | |
| ● | competition in our markets; | |
| ● | our ability to grow and manage growth profitably; | |
| ● | our ability to access additional capital; | |
| ● | changes in applicable laws or regulations; | |
| ● | our ability to attract and retain qualified personnel; | |
| ● | the possibility that we may be adversely affected by other economic, business, and/or competitive factors; and | |
| ● | other risks and uncertainties, including those listed under the captions “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” |
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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PART I
ITEM 1. BUSINESS
This Business section, along with other sections of this annual report on Form 10-K, includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data and we do not make any representation as to the accuracy of the information. Unless the context otherwise requires, references herein to “we,” “us” or the “Company” refer 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.
Overview
We were incorporated in the State of Delaware on May 18, 2021. 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 March 31, 2026, 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 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.
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; |
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| ● | 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) | A cash fee payable in installment payments; and | |
| (b) | 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. |
Sales and Marketing
Our sales and marketing strategy is focused on supporting growth-stage Japanese enterprises seeking access to U.S. capital markets through our Go IPO service offering. We specialize in providing end-to-end advisory and execution support to companies navigating the transition from Japanese domestic standards to the regulatory, financial reporting, and governance requirements applicable to U.S. public companies.
Unlike traditional software-driven sales models, our go-to-market approach is relationship-driven and highly targeted. We primarily source potential clients through our established network of strategic partners, including securities firms, legal advisors, accounting firms, and financial consultants, as well as through referrals from existing clients and industry participants. We also engage directly with prospective clients through industry seminars, educational workshops, and targeted outreach to companies that we believe are suitable candidates for U.S. listings.
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Our sales process typically begins with an initial assessment of a prospective client’s readiness for a U.S. public listing, including an evaluation of financial reporting capabilities, internal controls, and corporate governance structures. Based on this assessment, we provide tailored advisory proposals that outline the scope of services required to achieve compliance with U.S. regulatory standards. Engagements are generally structured as long-term advisory relationships, reflecting the complexity and duration of the IPO preparation process.
We further expand our client base by cultivating long-term relationships with key stakeholders in the capital markets ecosystem. Our partnerships enable us to maintain a steady pipeline of potential clients and enhance our ability to deliver integrated solutions across legal, financial, and operational domains.
Our marketing efforts are focused on establishing thought leadership and building credibility within our target market. We conduct and participate in industry events, publish educational content related to U.S. capital markets and regulatory requirements, and leverage our professional network to increase awareness of our services. These efforts are designed to position us as a trusted partner for Japanese companies seeking cross-border capital market opportunities.
In addition, we support client retention and expansion through ongoing advisory services following initial engagements. As clients progress through their IPO journey and beyond, we provide continuous support in areas such as financial reporting, compliance, and investor relations, which may lead to additional service opportunities.
Competition
The market for providing consulting services to private Japanese companies seeking to list on United States securities exchanges is highly competitive and fragmented. We compete with a wide range of firms, from large global consultancies to specialized boutique firms and financial services providers.
Competitive Landscape
Our primary competitors generally fall into the following categories:
| ● | Global Consulting and Accounting Firms: Large multinational firms provide comprehensive IPO readiness, internal control conversion, and U.S. GAAP reconciliation services (from generally accepted accounting principles in Japan (“Japanese GAAP”). These firms possess significant brand recognition, vast global resources, and long-standing relationships with Japanese conglomerates. | |
| ● | Specialized Financial Advisory and IR Firms: Various boutique firms in both Japan and the U.S. specialize in investor relations, “equity story” development, and English-language financial communications. | |
| ● | Investment Banks and Underwriters: While we do not act as an underwriter or broker-dealer, the advisory arms of major investment banks often provide preliminary structuring and “readiness” advice to their clients as part of the underwriting relationship. |
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Our Competitive Advantages
We believe our ability to compete effectively depends on several factors, including but not limited to, our specific expertise in the Japan-to-U.S. listing pipeline, our unique fee structure, and the quality of our bilingual execution. Our competitive strengths include:
| ● | Niche Specialization: Unlike broad-based consultancies, our Go IPO suite is specifically engineered for the unique regulatory and cultural hurdles Japanese issuers face when entering the U.S. markets (e.g., Japanese GAAP to U.S. GAAP conversion and SEC-compliant internal control documentation). | |
| ● | Integrated Execution: By combining technical accounting support, process mining technology, English-language translation, and investor deck preparation into a single service suite, we offer a “one-stop” solution that reduces the administrative burden on the issuer’s management. | |
| ● | Aligned Compensation Model: Our willingness to accept a portion of our compensation in the form of warrants aligns our long-term interests with the successful public debut and post-listing performance of our clients. | |
| ● | Independence: Because we do not act as auditors, underwriters or legal counsel, we occupy an independent advisory role that allows us to assist clients with introductions to these third-party professionals without the conflicts of interest inherent in integrated financial institutions. 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. |
Competitive Risks
Many of our current and potential competitors have significantly greater financial, technical, and marketing resources than we do. They may have longer operating histories, larger client bases, and more established relationships with U.S. exchanges and regulators. Increased competition could result in price reductions, reduced operating margins, or a loss of market share. To remain competitive, we must continue to enhance our service offerings and maintain our reputation for successfully navigating the complexities of the U.S. IPO process for Japanese issuers.
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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:
| (a) | An amount of ¥1,013,340,000 less the amount of HeartCore Japan’s debts as set forth in the HeartCore Japan Agreement (the “Estimated Debt”) will be paid by the Smith Japan to the Company on the closing date (such final amount, the “Closing Payment”). | |
| (b) | An amount of ¥126,133,200 (the “Holdback Amount”) will be retained by the Smith Japan from the Closing Payment, and, subject to the provisions of the HeartCore Japan Agreement, will be paid by Smith Japan to the Company on the first business day occurring the later of: (a) 180 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”). | |
| (c) | An amount of ¥273,866,800 (the “Long Term Holdback Amount”) in respect of the agreements (“Multi-year Licensing Agreements”) concerning the licensing of HeartCore Japan’s “HeartCore CMS” product to a specified customer for a period of more than one year will be retained by Smith Japan from the Closing Payment and will be paid by Smith Japan as set forth in the HeartCore Japan Agreement. |
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| (d) | Subject to the provisions of the HeartCore Japan Agreement, an amount of ¥387,078,650 (the “Deferred Consideration”), which shall consist of a principal amount of ¥322,700,000 with an uncompounded rate of interest of 6.65% per annum, will be retained by Smith Japan from the Closing Payment and will be paid by Smith Japan on October 31, 2028, the third annual anniversary of the closing date. | |
| (e) | Within five business days following the final determination of the actual amount of HeartCore Japan’s debts as of the closing (the “Final Debt Amount”), Smith Japan shall pay to the Company an amount equal to (i) the Estimated Debt minus (ii) the Final Debt Amount. 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, (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.
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Properties
Our corporate headquarters were previously operated through HeartCore Co., Ltd. On October 31, 2025, we disposed of HeartCore Co., Ltd. and, on the same date, established Higgs Field Co., Ltd. From November 1, 2025 through January 10, 2026, Higgs Field Co., Ltd. operated from office space within HeartCore Co., Ltd. On January 11, 2026, we relocated our office to 14F, Shibuya Sakura Stage Central Building, 1-2 Sakuragaoka-cho, Shibuya-ku, Tokyo, Japan, where we lease approximately 2,005 square feet of office space from an unaffiliated third party. This lease has a term from January 11, 2026 through January 10, 2028, with an expected renewal period of an additional two years. Terms of the office lease provide for a base rent payment of $23,268 per month and a share of sales taxes of $2,327 per month.
The Japan branch office of HeartCore Financial, Inc. is located at JP Tower 14F, 2-7-2 Marunouchi, Chiyoda-ku, Tokyo, Japan, where we lease office space from an unaffiliated third party. This lease has a term ending in March 2026. Terms of the office lease provide for a base rent payment of $935 per month and a share of sales taxes of $94 per month.
The office of HeartCore Luvina Vietnam Company Limited is located at Software Park Building, No. 2 Quang Trung, Hai Chau district, Da Nang City, Vietnam, where we lease approximately 915 square feet of office space from an unaffiliated third party with lease term ending in January 2026. Terms of the office lease provide for a quarterly base rent payment of $2,516.
Employees and Human Capital Management
We are passionate about building a company culture where people can do their best work. Our company culture and our people are not just human resources priorities but critical business priorities. As a result, we consistently focus on how we can continue to help employees grow, both personally and professionally.
Since 2009, we have expanded beyond our Japanese headquarters to several offices globally and have built a large remote community. Currently, we are operating primarily from our office in Japan. As of December 31, 2025, we had 44 full-time employees. None of our employees is represented by a union. We consider our relations with our employees to be good.
| ● | Culture and Values. Our culture is built on the firm belief that personal and professional growth is just as important as business growth. We believe the best people do not only fit our culture, they further it. | |
| ● | Diversity, Inclusion, and Belonging. We have launched various initiatives to further our goal of being a more diverse, inclusive, and equitable workplace. We have a team dedicated to diversity, inclusion, and belonging initiatives, including but not limited to, hiring goals focused on increasing black, indigenous and people of color representation company-wide, anti-racism training for employees and managers, key external partnerships, and our annual diversity report. | |
| ● | Compensation and Benefits. We provide competitive compensation and benefits for our employees globally. Our compensation packages may include base salary, commission or semi-annual bonuses, and stock-based compensation. We evaluate both compensation and benefit offerings on an annual basis to ensure competitiveness of both programs and we make adjustments as needed. |
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Government Regulation
Investment Company Act of 1940
Our GO IPO business assists companies in navigating the IPO process in the U.S. markets. We 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 do not provide accounting or legal advice. If state or federal regulatory agencies determined that we provided legal or investment advice in violation of existing law, there could be a material adverse effect on our business operations and stock value.
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.
Anti-Money Laundering (“AML”)
The Financial Crimes Enforcement Network (“FinCEN”) is a bureau of the U.S. Department of the Treasury that safeguards the financial system from illicit use, combats money laundering, and counters terrorism financing. Beginning January 1, 2026, new FinCEN rules have expanded AML compliance program requirements to a broader range of consultants and advisers. We maintain internal protocols designed to monitor for suspicious activity as part of our internal risk management practices.
Our operations in Japan are subject to complex and evolving regulatory requirements, and failure to comply with these regulations could have a material adverse effect on our business.
We operate, and intend to expand our operations, in Japan in areas that may be subject to regulation under various Japanese laws and regulations, including, but not limited to, the Financial Instruments and Exchange Act, the Foreign Exchange and Foreign Trade Act, and the Act on the Protection of Personal Information. These laws impose, or may impose, restrictions, licensing requirements, reporting obligations, and other compliance obligations on our current and planned business activities.
In particular, our current consulting services relating to digital securities and our planned expansion into financial services may require us to obtain registrations or licenses under the Financial Instruments and Exchange Act, including registration as a Type I Financial Instruments Business Operator. There can be no assurance that we will be able to obtain such licenses in a timely manner, or at all. If we are required to obtain such licenses and fail to do so, we may be subject to administrative penalties, business restrictions, or other enforcement actions, which could materially and adversely affect our business.
In addition, our cross-border activities and transactions may be subject to regulations under the Foreign Exchange and Foreign Trade Act, including notification or approval requirements. Failure to comply with such requirements could result in penalties or restrictions on our operations.
We also collect and process certain personal information in the course of our operations, and are therefore subject to data protection and privacy regulations in Japan, including the Act on the Protection of Personal Information. Any failure to comply with applicable data protection laws or to adequately safeguard personal information could result in legal liability, regulatory penalties, and reputational harm.
Furthermore, applicable laws and regulations in Japan are subject to change, and regulatory authorities may introduce new interpretations or enforcement practices. As a result, we may be required to modify our business practices, incur additional compliance costs, or obtain additional approvals, any of which could have a material adverse effect on our business, financial condition, and results of operations.
Legal Proceedings
From time to time, we are involved in various legal proceedings arising from the normal course of business activities. We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
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.
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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.
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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. |
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| ● | 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. |
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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.
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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.
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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.
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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; |
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| ● | 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.
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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.
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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 |
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| ● | 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.
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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 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
The
cybersecurity risk management program, processes and strategy described in this section are limited to the personal and business information
belonging to or maintained by the Company (collectively, “Confidential Information”), our own
We have established cybersecurity risk management practices designed to protect the confidentiality,
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Our cybersecurity risk management program includes:
| ● | risk assessments designed to help identify material cybersecurity risks to our Confidential Information, Critical Systems and the broader enterprise IT environment; | |
| ● | a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; | |
| ● | cybersecurity awareness and spear-phishing resistance training of our employees, and senior management; | |
| ● | a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and | |
| ● | a vendor management policy for service providers. |
Our executive management team, along with our managed information technology service provider, is responsible for assessing and managing risks from cybersecurity threats to the Company, including our Confidential Information and Critical Systems. The team has primary responsibility for our overall cybersecurity risk management program. Our management team works closely with our information technology service provider.
Our Board shall also receive periodic reports from management on our cybersecurity risks and cybersecurity risk management program.
ITEM 2. PROPERTIES
Our corporate headquarters were previously operated through HeartCore Co., Ltd. On October 31, 2025, we disposed of HeartCore Co., Ltd. and, on the same date, established Higgs Field Co., Ltd. From November 1, 2025 through January 10, 2026, Higgs Field Co., Ltd. operated from office space within HeartCore Co., Ltd. On January 11, 2026, we relocated our office to 14F, Shibuya Sakura Stage Central Building, 1-2 Sakuragaoka-cho, Shibuya-ku, Tokyo, Japan, where we lease approximately 2,005 square feet of office space from an unaffiliated third party. This lease has a term from January 11, 2026 through January 10, 2028, with an expected renewal period of an additional two years. Terms of the office lease provide for a base rent payment of $23,268 per month and a share of sales taxes of $2,327 per month.
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The Japan branch office of HeartCore Financial, Inc. is located at JP Tower 14F, 2-7-2 Marunouchi, Chiyoda-ku, Tokyo, Japan, where we lease office space from an unaffiliated third party. This lease has a term ending in March 2026. Terms of the office lease provide for a base rent payment of $935 per month and a share of sales taxes of $94 per month.
The office of HeartCore Luvina Vietnam Company Limited is located at Software Park Building, No.2 Quang Trung, Hai Chau district, Da Nang City, Vietnam, where we lease approximately 915 square feet of office space from an unaffiliated third party with lease term ending in January 2026. Terms of the office lease provide for a quarterly base rent payment of $2,516 per quarter.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings arising from the normal course of business activities. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened. Defending such proceedings is costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed the Nasdaq Capital Market and its stock symbol is “HTCR.” The closing price of our common stock on Nasdaq on March 27, 2026 was $0.2262.
Holders
As of December 31, 2025, there were 25,419,807 shares of common stock issued and outstanding, and we had approximately 28 holders of record of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
One-Time Distribution to Stockholders
The Company and its Board of Directors deemed it in the best interests of the Company 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 the Company’s common stock to participate in the distribution was November 10, 2025, and the payment date was November 17, 2025.
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Purchases of Equity Securities by the Issuer
On February 18, 2026, the Board of Directors approved a share repurchase program (“2026 Share Repurchase Program”) pursuant to which the Company is authorized to repurchase up to $2.0 million of its outstanding common shares. The timing and amount of repurchases under the program are determined by the Company’s management based on its evaluation of market conditions and other factors. This program has no set termination date and may be suspended or discontinued at any time. To date, the Company has not repurchased any shares pursuant to the 2026 Share Repurchase Program.
Transfer Agent and Registrar
The Company’s transfer agent is Transhare Corporation. The transfer agent’s address is Bayside Center 1, 17755 US Highway 19 N, Suite 140, Clearwater, Florida 33764, and its telephone number is (303) 662-1112.
ITEM 6. RESERVED
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.
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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. |
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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) | A cash fee payable in installment payments; and | |
| (b) | 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:
| (a) | An amount of ¥1,013,340,000 less the amount of HeartCore Japan’s debts as set forth in the HeartCore Japan Agreement (the “Estimated Debt”) will be paid by the Smith Japan to the Company on the closing date (such final amount, the “Closing Payment”). | |
| (b) | An amount of ¥126,133,200 (the “Holdback Amount”) will be retained by the Smith Japan from the Closing Payment, and, subject to the provisions of the HeartCore Japan Agreement, will be paid by Smith Japan to the Company on the first business day occurring the later of: (a) 180 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”). | |
| (c) | An amount of ¥273,866,800 (the “Long Term Holdback Amount”) in respect of the agreements (“Multi-year Licensing Agreements”) concerning the licensing of HeartCore Japan’s “HeartCore CMS” product to a specified customer for a period of more than one year will be retained by Smith Japan from the Closing Payment and will be paid by Smith Japan as set forth in the HeartCore Japan Agreement. | |
| (d) | Subject to the provisions of the HeartCore Japan Agreement, an amount of ¥387,078,650 (the “Deferred Consideration”), which shall consist of a principal amount of ¥322,700,000 with an uncompounded rate of interest of 6.65% per annum, will be retained by Smith Japan from the Closing Payment and will be paid by Smith Japan on October 31, 2028, the third annual anniversary of the closing date. | |
| (e) | Within five business days following the final determination of the actual amount of HeartCore Japan’s debts as of the closing (the “Final Debt Amount”), Smith Japan shall pay to the Company an amount equal to (i) the Estimated Debt minus (ii) the Final Debt Amount. For the avoidance of doubt, if the Final Debt Amount is greater than the Estimated Debt, no payment shall be owed by Smith Japan. |
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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.
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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, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | Revenues | Amount | Revenues | Amount | % | |||||||||||||||||||
| Revenues | $ | 8,968,732 | 100.0 | % | $ | 22,685,544 | 100.0 | % | $ | (13,716,812 | ) | -60.5 | % | |||||||||||
| Cost of revenues | 5,817,279 | 64.9 | % | 7,969,898 | 35.1 | % | (2,152,619 | ) | -27.0 | % | ||||||||||||||
| Gross profit | 3,151,453 | 35.1 | % | 14,715,646 | 64.9 | % | (11,564,193 | ) | -78.6 | % | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 233,744 | 2.6 | % | 621,070 | 2.7 | % | (387,326 | ) | -62.4 | % | ||||||||||||||
| General and administrative expenses | 6,039,026 | 67.3 | % | 6,921,959 | 30.5 | % | (882,933 | ) | -12.8 | % | ||||||||||||||
| Research and development expenses | - | - | 179,762 | 0.8 | % | (179,762 | ) | -100.0 | % | |||||||||||||||
| Impairment of intangible asset | - | - | 3,878,125 | 17.1 | % | (3,878,125 | ) | -100.0 | % | |||||||||||||||
| Impairment of goodwill | - | - | 3,276,441 | 14.5 | % | (3,276,441 | ) | -100.0 | % | |||||||||||||||
| Total operating expenses | 6,272,770 | 69.9 | % | 14,877,357 | 65.6 | % | (8,604,587 | ) | -57.8 | % | ||||||||||||||
| Loss from continuing operations | (3,121,317 | ) | -34.8 | % | (161,711 | ) | -0.7 | % | 2,959,606 | 1830.2 | % | |||||||||||||
| Other expenses | (1,017,788 | ) | -11.3 | % | (5,350,096 | ) | -23.6 | % | (4,332,308 | ) | -81.0 | % | ||||||||||||
| Loss from continuing operations before income tax expense (benefit) | (4,139,105 | ) | -46.1 | % | (5,511,807 | ) | -24.3 | % | (1,372,702 | ) | -24.9 | % | ||||||||||||
| Income taxes expense (benefit) | 44,900 | 0.5 | % | (363,156 | ) | -1.6 | % | (408,056 | ) | -112.4 | % | |||||||||||||
| Net loss from continuing operations | (4,184,005 | ) | -46.6 | % | (5,148,651 | ) | -22.7 | % | (964,646 | ) | -18.7 | % | ||||||||||||
| Income (loss) from discontinued operations, net of income tax | 9,677,293 | 107.9 | % | (64,249 | ) | -0.3 | % | 9,741,542 | 15162.2 | % | ||||||||||||||
| Net income (loss) | 5,493,288 | 61.3 | % | (5,212,900 | ) | -23.0 | % | 10,706,188 | 205.4 | % | ||||||||||||||
| Less: net loss attributable to non-controlling interests | (300,596 | ) | -3.4 | % | (3,731,526 | ) | -16.4 | % | (3,430,930 | ) | -91.9 | % | ||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. | 5,793,884 | 64.7 | % | (1,481,374 | ) | -6.6 | % | 7,275,258 | 491.1 | % | ||||||||||||||
| Dividends accrued on Series A convertible preferred shares | (94,357 | ) | -1.1 | % | - | - | 94,357 | 100.0 | % | |||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ | 5,699,527 | 63.6 | % | $ | (1,481,374 | ) | -6.6 | % | $ | 7,180,901 | 484.7 | % | |||||||||||
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| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Revenues | ||||||||||||||||||||||||
| Revenues from software development services | 196,538 | 2.2 | % | 94,485 | 0.4 | % | 102,053 | 108.0 | % | |||||||||||||||
| Revenues from customized software development and services | 6,859,246 | 76.5 | % | 7,854,285 | 34.6 | % | (995,039 | ) | -12.7 | % | ||||||||||||||
| Revenues from consulting services | 1,912,948 | 21.3 | % | 14,736,774 | 65.0 | % | (12,823,826 | ) | -87.0 | % | ||||||||||||||
| Total revenues | 8,968,732 | 100.0 | % | 22,685,544 | 100.0 | % | (13,716,812 | ) | -60.5 | % | ||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||
| Costs of software development services | 154,325 | 2.6 | % | 70,156 | 0.9 | % | 84,169 | 120.0 | % | |||||||||||||||
| Costs of customized software development and services | 5,142,222 | 88.4 | % | 7,285,435 | 91.4 | % | (2,143,213 | ) | -29.4 | % | ||||||||||||||
| Costs of consulting services | 520,732 | 9.0 | % | 614,307 | 7.7 | % | (93,575 | ) | -15.2 | % | ||||||||||||||
| Total cost of revenues | 5,817,279 | 100.0 | % | 7,969,898 | 100.0 | % | (2,152,619 | ) | -27.0 | % | ||||||||||||||
| Gross profit | ||||||||||||||||||||||||
| Software development services | 42,213 | 1.3 | % | 24,329 | 0.2 | % | 17,884 | 73.5 | % | |||||||||||||||
| Customized software development and services | 1,717,024 | 54.5 | % | 568,850 | 3.8 | % | 1,148,174 | 201.8 | % | |||||||||||||||
| Consulting services | 1,392,216 | 44.2 | % | 14,122,467 | 96.0 | % | (12,730,251 | ) | -90.1 | % | ||||||||||||||
| Total gross profit | $ | 3,151,453 | 100.0 | % | $ | 14,715,646 | 100.0 | % | $ | (11,564,193 | ) | -78.6 | % | |||||||||||
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.
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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, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | Revenues | Amount | Revenues | Amount | % of | |||||||||||||||||||
| Total revenues | $ | 8,968,732 | 100.0 | % | $ | 22,685,544 | 100.0 | % | $ | (13,716,812 | ) | -60.5 | % | |||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 233,744 | 2.6 | % | 621,070 | 2.7 | % | (387,326 | ) | -62.4 | % | ||||||||||||||
| General and administrative expenses | 6,039,026 | 67.3 | % | 6,921,959 | 30.5 | % | (882,933 | ) | -12.8 | % | ||||||||||||||
| Research and development expenses | - | - | 179,762 | 0.8 | % | (179,762 | ) | -100.0 | % | |||||||||||||||
| Impairment of intangible asset | - | - | 3,878,125 | 17.1 | % | (3,878,125 | ) | -100.0 | % | |||||||||||||||
| Impairment of goodwill | - | - | 3,276,441 | 14.5 | % | (3,276,441 | ) | -100.0 | % | |||||||||||||||
| Total operating expenses | $ | 6,272,770 | 69.9 | % | $ | 14,877,357 | 65.6 | % | $ | (8,604,587 | ) | -57.8 | % | |||||||||||
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Selling Expenses
Our selling expenses primarily include advertising expenses, referral expenses, and stock-based compensation.
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Selling expenses | ||||||||||||||||||||||||
| Advertising expenses | $ | 310,572 | 132.9 | % | $ | 426,457 | 68.7 | % | $ | (115,885 | ) | -27.2 | % | |||||||||||
| Referral expenses | 39,374 | 16.8 | % | 50,000 | 8.0 | % | (10,626 | ) | -21.3 | % | ||||||||||||||
| Stock-based compensation | (116,202 | ) | -49.7 | % | 144,613 | 23.3 | % | (260,815 | ) | -180.4 | % | |||||||||||||
| Total selling expenses | $ | 233,744 | 100.0 | % | $ | 621,070 | 100.0 | % | $ | (387,326 | ) | -62.4 | % | |||||||||||
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, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| General and administrative expenses | ||||||||||||||||||||||||
| Salaries and welfare expenses | $ | 3,023,466 | 50.1 | % | $ | 2,810,733 | 40.6 | % | $ | 212,733 | 7.6 | % | ||||||||||||
| Consulting and professional service fees | 1,399,168 | 23.2 | % | 1,904,116 | 27.5 | % | (504,948 | ) | -26.5 | % | ||||||||||||||
| Depreciation and amortization expenses | 46,373 | 0.8 | % | 671,618 | 9.7 | % | (625,245 | ) | -93.1 | % | ||||||||||||||
| Rent expense | 61,336 | 1.0 | % | 90,376 | 1.3 | % | (29,040 | ) | -32.1 | % | ||||||||||||||
| Office, utility and other expenses | 1,202,595 | 19.9 | % | 1,082,353 | 15.6 | % | 120,242 | 11.1 | % | |||||||||||||||
| Bad debt | 146,115 | 2.4 | % | - | - | 146,115 | 100.0 | % | ||||||||||||||||
| Travel and entertainment expenses | 176,213 | 2.9 | % | 156,999 | 2.3 | % | 19,214 | 12.2 | % | |||||||||||||||
| Stock-based compensation | (16,240 | ) | -0.3 | % | 205,764 | 3.0 | % | (222,004 | ) | -107.9 | % | |||||||||||||
| Total general and administrative expenses | $ | 6,039,026 | 100.0 | % | $ | 6,921,959 | 100.0 | % | $ | (882,933 | ) | -12.8 | % | |||||||||||
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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, | ||||||||||||||||||||||||
| 2025 | 2024 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||
| Outsourcing expenses | $ | - | - | $ | 177,389 | 98.7 | % | $ | (177,389 | ) | -100.0 | % | ||||||||||||
| Stock-based compensation | - | - | 2,373 | 1.3 | % | (2,373 | ) | -100.0 | % | |||||||||||||||
| Total research and development expenses | $ | - | - | $ | 179,762 | 100.0 | % | $ | (179,762 | ) | -100.0 | % | ||||||||||||
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.
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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, changes 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.
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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, | ||||||||
| 2025 | 2024 | |||||||
| Net cash flows used in operating activities of continuing operations | $ | (3,117,101 | ) | $ | (3,890,317 | ) | ||
| Net cash flows provided by investing activities of continuing operations | 5,590,600 | 6,314,546 | ||||||
| Net cash flows provided by (used in) financing activities of continuing operations | (1,493,076 | ) | 134,098 | |||||
| Net cash flows used in discontinued operations | (1,034,279 | ) | (1,302,740 | ) | ||||
| Effect of exchange rate changes | (81,271 | ) | (146,977 | ) | ||||
| Net change in cash and cash equivalents | (135,127 | ) | 1,108,610 | |||||
| Cash and cash equivalents, beginning of the year | 2,121,089 | 1,012,479 | ||||||
| Cash and cash equivalents, end of the year | $ | 1,985,962 | $ | 2,121,089 | ||||
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. |
| 36 |
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, 2025, primarily consisted of (i) dividends payment of $3,304,575 for common shares; offset by (ii) net proceeds 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.
Debts
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 | |||
| 2026 | $ | 50,598 | ||
| 2027 | 55,325 | |||
| 2028 | 60,471 | |||
| 2029 | 27,857 | |||
| 2030 | 9,973 | |||
| Thereafter | 294,750 | |||
| Total | $ | 498,974 | ||
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.
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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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages F-1 through F-31 comprising a portion of this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this annual report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December 31, 2025, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of December 31, 2025, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to the existence of the material weakness identified below.
| ● | Lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and the Securities and Exchange Commission (“SEC”) reporting and compliance requirements to design, implement and operate key controls over financial reporting process to address complex technical accounting issues and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC. |
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025. In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO – 2013) in Internal Control-Integrated Framework. Based on its assessment, management concluded that, as of December 31, 2025, our Company’s internal control over financial reporting was not effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Officers and Directors
The following table sets forth, as of March 31, 2026, the names and ages of the members of our Board of Directors and our executive officers and the positions held by each. Each director’s term continues until his or her successor is elected or qualified at the next annual meeting, unless such director earlier resigns or is removed.
| Name | Age | Positions | ||
| Sumitaka Yamamoto | 60 | Chairman of Board, Chief Executive Officer and President | ||
| Kimio Hosaka | 57 | Chief Operating Officer and Director | ||
| Qizhi Gao | 44 | Chief Financial Officer | ||
| Ferdinand Groenewald | 41 | Director | ||
| Yoonji Lee | 30 | Director | ||
| Koji Sato | 56 | Director |
Biographical information concerning our directors and executive officers listed above is set forth below.
Sumitaka Yamamoto. Mr. Yamamoto has served as our Chairman of the Board of Directors since August 16, 2021 and as our Chief Executive Officer and President and been a member of our Board of Directors since May 18, 2021. Mr. Yamamoto is also the founder of HeartCore Co. and has served as the Chief Executive Officer and member of the Board of Directors of HeartCore Co. since June 2009. Mr. Yamamoto is a seasoned information technology software programmer. Mr. Yamamoto graduated with a bachelor’s degree in Spanish from Kansai Gaidai University, Tokyo, Japan. Mr. Yamamoto does not hold, and has not previously held, any directorships in any reporting companies. We believe that Mr. Yamamoto is qualified to serve on our Board of Directors due to his experience in all aspects of our business and his ability to provide an insider’s perspective in board discussions about the business and strategic direction of the Company. We believe that his experience gives him unique insights into our opportunities, challenges and operations.
Kimio Hosaka. Mr. Hosaka has served as our Chief Operating Officer and been a member of our Board of Directors since May 18, 2021. Mr. Hosaka has served as the Chief Operating Officer and member of the Board of Managers of HeartCore Co. since August 2015. Mr. Hosaka graduated with a bachelor’s degree in physics from Chuo University, Tokyo, Japan. Mr. Hosaka does not hold, and has not previously held, any directorships in any reporting companies. We believe that Mr. Hosaka is qualified to serve on our Board of Directors due to his experience in business and operations matters.
Qizhi Gao. Mr. Gao has served as our Chief Financial Officer since May 18, 2021. Mr. Gao has also served as the Chief Financial Officer of HeartCore Co. since May 2017. From December 2007 through April 2017, Mr. Gao served as the Group Leader, Finance & Accounting Department at Marubishi Corporation in Tokyo, Japan. Mr. Gao graduated with a bachelor’s degree in computer accounting from Chuo College of Information and Accounting, Japan. Mr. Gao does not hold, and has not previously held, any directorships in any reporting companies.
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Ferdinand Groenewald. Mr. Groenewald has been an independent member of our Board of Directors since January 24, 2022. From January 2022 to July 2022, Mr. Groenewald served as the Chief Accounting Officer of Sadot Group, Inc. (f/k/a Muscle Maker, Inc., a Nasdaq listed company). From September 2018 to January 2, 2022, Mr. Groenewald served as the Chief Financial Officer of Muscle Maker, Inc. From January 25, 2018 through May 29, 2018, Mr. Groenewald served as the Vice President of Finance, Principal Financial Officer and Principal Accounting Officer of Muscle Maker, Inc., Muscle Maker Development, LLC and Muscle Maker Corp., LLC. In addition, from October 2017 through May 29, 2018, he served as the controller of Muscle Maker, Inc. Mr. Groenewald is a certified public accountant with significant experience in finance and accounting. From July 2018 through August 2018, he served as senior financial reporting accountant of Wrinkle Gardner & Company, a full service tax, accounting and business consulting firm. From February 2017 to October 2017, Mr. Groenewald served as Senior Financial Accounting Consultant at Pharos Advisors, Inc. serving a broad range of industries. From November 2013 to February 2017, he served as a Senior Staff Accountant at Financial Consulting Strategies, LLC where he provided a broad range of accounting, financial reporting, and pre-auditing services to various industries. From August 2015 to December 2015, Mr. Groenewald served as a Financial Reporting Analyst at Valley National Bank. Mr. Groenewald holds a Bachelor of Science in accounting from the University of South Africa. Mr. Groenewald does not hold, and has not previously held, any directorships in any reporting companies.
Yoonji Lee. Ms. Lee has served as a member of our Board since September 2025. She is the Founder and CEO of CEEDA Inc., a Tokyo-based HR search fund specializing in women executives and board-level talent. She has served in this role since founding the company in 2022. From 2023 to 2025, she also served as a member of the Board of DG Capital, a power digital grid company. Prior to founding CEEDA Inc., Ms. Lee was a Business Development and Product Manager at KLKTN, a subsidiary of Animoca Brands KK, where she led strategy planning, marketing, and regulatory communication for blockchain-related products. From 2018 to 2022, she worked at JP Morgan Chase & Co. as part of the Corporate & Investment Banking Division, providing advisory services related to equity finance, cross-held shares, and M&A for Japanese prime listed companies. Ms. Lee received a B.A. in Economics and Business from the University of Tokyo. We believe that Ms. Lee is qualified to serve on our Board of Directors due to her experience in business development, financial advisory, and cross-border human capital consulting.
Koji Sato. Mr. Sato has served as a member of our Board since September 2023. He is founder and Managing Partner of GIIP Global Advisory, Inc., a multi-country accounting and CFO service business. He has served as Managing Partner since its founding in 2009. Mr. Sato previously served as Senior Financial Officer and fund of funds manager for Japanese investors for AIFAM Inc. and as Senior Consultant at KPMG, LLP and PricewaterhouseCoopers Japan (Chuo-Aoyama Audit Corporation). Mr. Sato received a Masters in Business Administration from University of Southern California, Marshall School of Business, and a B.S. in Social Science from Hitotsubashi University in Tokyo, Japan. We believe that Mr. Sato is qualified to serve on our Board of Directors due to his experience in business, financial and accounting matters.
Our Board of Directors elects our executive officers annually by majority vote. Each director’s term continues until his or her successor is elected or qualified at the next annual meeting, unless such director earlier resigns or is removed.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Involvement in Certain Legal Proceedings
No executive officer, member of the board of directors or control person of our Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
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Board Leadership Structure and Board’s Role in Risk Oversight
We have not separated the positions of Chairman of the Board and Chief Executive Officer. Mr. Yamamoto has served as our Chairman of the Board of Directors since August 16, 2021 and Chief Executive Officer since May 18, 2021. We believe that combining the positions of Chairman and Chief Executive Officer allows for focused leadership of our organization which benefits us in our relationships with investors, customers, suppliers, employees and other constituencies. We believe that consolidating the leadership of the Company under Mr. Yamamoto is the appropriate leadership structure for our Company at this time and that any risks inherent in that structure are balanced by the oversight of our other independent directors on our Board. However, no single leadership model is right for all companies and at all times. The Board recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, the Board may periodically review its leadership structure. In addition, our Board holds executive sessions in which only independent directors are present.
Our Board is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal source of risk falls into the financial category. The audit committee oversees management of financial risks, and our Board regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The Board regularly reviews plans, results and potential risks related to our business. The Board is also expected to oversee risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors, particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which could have a material adverse effect on the Company.
Change in Controlled Company Status and Director Independence
Upon initially listing with Nasdaq and until February 2025, the Company qualified as a “controlled company” because more than 50% of the voting power for the election of directors was held by Mr. Yamamoto, the Company’s Chairman of the Board, Chief Executive Officer and President. As of February 2025, Mr. Yamamoto no longer held more than 50% of the voting power for the election of directors and therefore, the Company no longer qualifies as a “controlled company.” As a result, the Company is required, subject to phase-in rules, to comply with Nasdaq requirements that:
| ● | a majority of the Board consist of “independent directors” as defined by Nasdaq’s applicable rules and regulations; | |
| ● | the compensation of the Company’s executive officers be determined, or recommended to the Board of Directors for determination, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a compensation committee comprised solely of independent directors; and | |
| ● | director nominees be selected, or recommended to the Board of Directors for selection, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a nomination committee comprised solely of independent directors. |
The Company previously availed itself of certain of the controlled company exemptions. More specifically, the Company did not have a compensation committee or a nominating and corporate governance committee.
We no longer qualify as a controlled company and accordingly, on February 14, 2025, we formed a compensation committee and a nominating and corporate governance committee. The Company’s Board of Directors has affirmatively determined that three of its five directors (Ferdinand Groenewald, Yoonji Lee, and Koji Sato) are independent directors of the Company within the meaning of Nasdaq Capital Market’s rules. Accordingly, we comply with Nasdaq’s majority independent board requirement.
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Committees of the Board of Directors
Our Board of Directors has established three standing committees—the audit committee, compensation committee, and nominating and corporate governance committee—each of which operates under a charter that has been approved by our Board of Directors. Each charter is posted on our website at https://heartcore-enterprises.com/documents-charters.html.
Audit Committee
Our audit committee consists of three independent directors: Ferdinand Groenewald, Yoonji Lee and Koji Sato. Mr. Groenewald is the chair of the audit committee. Mr. Groenewald qualifies as an “audit committee financial expert” under SEC rules. Our audit committee adopted a written charter, a copy of which is posted on the Corporate Governance section of our website, at https://heartcore-enterprises.com/documents-charters.html.
Our audit committee is authorized to:
| ● | approve and retain the independent auditors to conduct the annual audit of our financial statements; | |
| ● | review the proposed scope and results of the audit; | |
| ● | review and pre-approve audit and non-audit fees and services; | |
| ● | review accounting and financial controls with the independent auditors and our financial and accounting staff; | |
| ● | review and approve transactions between us and our directors, officers and affiliates; | |
| ● | recognize and prevent prohibited non-audit services; | |
| ● | establish procedures for complaints received by us regarding accounting matters; and | |
| ● | oversee internal audit functions, if any. |
Compensation Committee
Because we ceased to be a “controlled company” in February 2025, on February 14, 2025, we formed a compensation committee. The compensation committee is comprised of three independent directors: Ferdinand Groenewald, Yoonji Lee and Koji Sato, with Ms. Lee as the Chair of the compensation committee. Our compensation committee adopted a written charter, a copy of which is posted on the Corporate Governance section of our website, at https://heartcore-enterprises.com/documents-charters.html.
Our compensation committee assists our Board of Directors in the discharge of its responsibilities relating to the compensation of our executive officers. Our compensation committee is responsible for, among other things:
| ● | To review and approve the compensation of the Chief Executive Officer and to approve the compensation of all other executive officers. | |
| ● | To review, and approve and, when appropriate, recommend to the Board for approval, any employment agreements and any severance arrangements or plans, including any benefits to be provided in connection with a change in control, for the Chief Executive Officer and other executive officers, which includes the ability to adopt, amend and terminate such agreements, arrangements or plans. | |
| ● | To review our incentive compensation arrangements. |
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| ● | To review and recommend to the Board for approval the frequency with which we will conduct say-on-pay votes. | |
| ● | To review director compensation for service on the Board and Board committees at least once a year and to recommend any changes to the Board. | |
| ● | To meet at least two times a year. | |
| ● | To review the compensation committee charter at least annually and recommend any proposed changes to the Board for approval. |
Nominating and Corporate Governance Committee
Because we ceased to be a “controlled company” in February 2025, on February 14, 2025, we formed a nominating and corporate governance committee. The nominating and corporate governance committee is comprised of three independent directors: Ferdinand Groenewald, Yoonji Lee and Koji Sato, with Mr. Sato as the Chair of the nominating and corporate governance committee. Our nominating and corporate governance committee adopted a written charter, a copy of which is posted on the Corporate Governance section of our website, at https://heartcore-enterprises.com/documents-charters.html.
Our nominating and corporate governance committee is responsible for, among other things:
| ● | To determine the qualifications, qualities, skills, and other expertise required to be a director and to develop, and recommend to the Board for its approval, criteria to be considered in selecting nominees for director. | |
| ● | To select and approve the nominees for director to be submitted to a stockholder vote at the annual meeting of stockholders. | |
| ● | To review the Board’s committee structure and composition and to appoint directors to serve as members of each committee and committee chairmen. | |
| ● | To develop and recommend to the Board for approval standards for determining whether a director has a relationship with us that would impair its independence. | |
| ● | To review and discuss with management the disclosure regarding the operations of the nominating and corporate governance committee and director independence, and to recommend that this disclosure be included in our proxy statement or annual report on Form 10-K, as applicable. | |
| ● | To monitor compliance with our Code of Ethics and Business Conduct (the “Code of Ethics”), to investigate any alleged breach or violation of the Code of Ethics and to enforce the provisions of the Code of Ethics. | |
| ● | To meet at least two times a year. | |
| ● | To review the nominating and corporate governance committee charter at least annually and recommend any proposed changes to the Board for approval |
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Procedures for Contacting the Board
The Board has established a process for stockholders and other interested parties to send written communications to the Board, the independent directors, a particular committee or to individual directors, as applicable. Such communications should be addressed to:
HeartCore Enterprises, Inc. Board of Directors
c/o HeartCore Enterprises, Inc.
Attention: Corporate Secretary
14F, Shibuya Sakura Stage Central Building
1-2 Sakuragaoka-cho
Shibuya-ku, Tokyo, Japan 150-0031
The Board has instructed the Corporate Secretary to promptly forward all communications so received to the full Board, the independent directors or the individual Board member(s) specifically addressed in the communication. Comments or questions regarding our accounting, internal controls or auditing matters, our compensation and benefit programs, or the nomination of directors and other corporate governance matters will remain with the full Board.
Depending on the subject matter, the Company’s Corporate Secretary will:
| ● | Forward the communication to the director or directors to whom it is addressed; | |
| ● | Attempt to handle the inquiry directly, for example, where it is a request for information about our Company or if it is a stock-related matter; or | |
| ● | Not forward the communication if it is primarily commercial in nature or if it relates to a topic that is not relevant to the Board or a particular committee or is otherwise improper. |
Procedures for Recommending, Nominating and Evaluating Director Candidates
A stockholder may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the notice and information provisions contained in our bylaws. Such notice must be in writing to our company not less than 90 days and not more than 120 days prior to the anniversary date of the preceding year’s annual meeting of stockholders or as otherwise required by requirements of the Exchange Act. In addition, stockholders furnishing such notice must be a holder of record on both (i) the date of delivering such notice and (ii) the record date for the determination of stockholders entitled to vote at such meeting.
We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the Board of Directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.
Code of Ethics
The Company adopted the Code of Ethics, which applies to all of its directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, and any person performing similar functions) and employees. The Code of Ethics is available on our website at https://heartcore-enterprises.com/documents-charters.html.
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We are required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our website within four business days following the date of any such amendment to, or waiver from, a provision of our code of ethics.
Insider Trading Arrangements and Policies
We
have
Anti-Hedging Policy
Under the terms of our insider trading policy, we prohibit each officer, director and employee, and each of their family members and controlled entities, from engaging in certain forms of hedging or monetization transactions. Such transactions include those, such as zero-cost collars and forward sale contracts, that would allow them to lock in much of the value of their stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock, and to continue to own the covered securities but without the full risks and rewards of ownership.
Delinquent Section 16(a) Reports
Under U.S. securities laws, directors, certain officers and persons holding more than 10% of our common stock must report their initial ownership of our common stock and any changes in their ownership to the SEC. The SEC has designated specific due dates for these reports and we must identify in this Annual Report on Form 10-K those persons who did not file these reports when due. Based solely on our review of copies of the reports filed with the SEC and the written representations of our directors and executive officers, we believe that all reporting requirements for fiscal year 2025 were complied with by each person who at any time during the 2025 fiscal year was a director or an executive officer or held more than 10% of our common stock, except for the following: (i) Yasui Daishin, a 10% stockholder, failed to timely file his Form 3 due in 2022, with such Form 3 being filed in 2025; and Mr. Daishin failed to timely file a Form 4 for two transactions in 2025, with such Form 4 being filed in 2025.
Limitation on Liability and Indemnification of Officers and Directors
Our Certificate of Incorporation provides that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our Certificate of Incorporation provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, except to the extent such exemption from liability or limitation thereof is not permitted by the General Corporation Law of the State of Delaware.
Our independent directors have entered into independent director agreements and indemnification agreements with us. Each independent director agreement and indemnification agreement provides, among other things, for indemnification to the fullest extent permitted by law and our Certificate of Incorporation and bylaws against any and all expenses, judgments, fines, penalties and amounts paid in settlement of any claim. The indemnification agreements provide for the advancement or payment of all expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our Certificate of Incorporation and bylaws.
Our Certificate of Incorporation also permits us to maintain insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit such indemnification. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.
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These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.
We believe that these provisions and the insurance are necessary to attract and retain talented and experienced officers and directors.
Any repeal or amendment of provisions of our Certificate of Incorporation affecting indemnification rights, whether by our board of directors, stockholders or by changes in applicable law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to provide broader indemnification rights on a retroactive basis, and will not in any way diminish or adversely affect any right or protection existing thereunder with respect to any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
ITEM 11. EXECUTIVE COMPENSATION
2025 Summary Compensation Table
The following summary compensation table provides information regarding the compensation paid during our fiscal years ended December 31, 2025 and 2024 to certain of our executive officers, who we collectively refer to as our “Named Executive Officers.”
| Name and Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-qualified Deferred Compensation Earnings ($) | All
Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
| Sumitaka Yamamoto | 2025 | $ | 516,709 | 144,813 | $ | 96,316 | $ | $ | $ | 757,838 | ||||||||||||||||||||||||||
| Chief Executive Officer | 2024 | $ | 505,714 | — | 34,917 | $ | — | — | — | $ | — | $ | 540,631 | |||||||||||||||||||||||
| Kimio Hosaka | 2025 | $ | 150,709 | 96,531 | $ | 22,426 | $ | $ | $ | 269,666 | ||||||||||||||||||||||||||
| Chief Operating Officer | 2024 | $ | 139,714 | — | 6,316 | $ | — | — | — | $ | — | $ | 146,030 | |||||||||||||||||||||||
| Keisuke Kuno | 2025 | $ | 112,864 | 96,531 | $ | 23,920 | $ | $ | $ | 233,315 | ||||||||||||||||||||||||||
| CX Division Vice President | 2024 | $ | 123,673 | — | 7,111 | $ | — | — | — | $ | — | $ | 130,784 | |||||||||||||||||||||||
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Employment Agreements
Executive Employment Agreement with Sumitaka Yamamoto
On October 28, 2022, we entered in an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant to the Amendment Agreement, Mr. Yamamoto’s annual salary increased from $381,000 to $450,000, effective November 1, 2022.
Executive Employment Agreement with Kimio Hosaka
On January 10, 2023, we entered in an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant to the Amendment Agreement, Mr. Hosaka’s annual salary increased from $95,459 to $164,770, effective January 1, 2023.
Executive Employment Agreement with Keisuke Kuno
On January 10, 2023, we entered into an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant to the Amendment Agreement, Mr. Kuno’s annual salary increased from $103,535 to $145,831, effective January 1, 2023. Mr. Kuno resigned in October 2025.
Provisions Applicable to All Employment Agreements
Each of the Employment Agreements as described above, has an initial term of one year, provided that the term of each agreement will automatically be extended for one or more additional terms of one year each unless either the Company or applicable executive provides notice to the other of their desire to not so renew the initial term or renewal term (as applicable) at least 30 days prior to the expiration of then-current initial term or renewal term (as applicable). Each of the agreements provide that the applicable executive’s employment with the Company shall be “at will,” meaning that either applicable executive or the Company may terminate the applicable executive’s employment at any time and for any reason, subject to the other provisions of the agreement.
Each of the agreements may be terminated by the Company, either with or without “Cause”, or by the applicable executive, either with or without “Good Reason”.
For purposes of each agreement, “Cause” means:
| ● | a violation of any material written rule or policy of the Company for which violation any employee may be terminated pursuant to the written policies of the Company reasonably applicable to an executive employee; |
| ● | misconduct by the applicable executive to the material detriment of the Company; |
| ● | the applicable executive’s conviction (by a court of competent jurisdiction, not subject to further appeal) of, or pleading guilty to, a felony; |
| ● | the applicable executive’s gross negligence in the performance of the applicable executive’s duties and responsibilities to the Company as described in this Agreement; or |
| ● | the applicable executive’s material failure to perform the applicable executive’s duties and responsibilities to the Company as described in the agreement (other than any such failure resulting from the applicable executive’s incapacity due to physical or mental illness or any such failure subsequent to the applicable executive being delivered a notice of termination without Cause by the Company or delivering a notice of termination for Good Reason to the Company), in either case after written notice from the Board to the applicable executive of the specific nature of such material failure and the applicable executive’s failure to cure such material failure within 10 days following receipt of such notice. |
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For purposes of each agreement, “Good Reason” means:
| ● | at any time following a Change of Control (as defined below), a material diminution by the Company of compensation and benefits (taken as a whole) provided to the applicable executive immediately prior to a Change of Control; |
| ● | a reduction in base salary or target or maximum bonus, other than as part of an across-the-board reduction in salaries of management personnel; |
| ● | the relocation of the applicable executive’s principal executive office to a location more than 50 miles further from the applicable executive’s principal executive office immediately prior to such relocation; or |
| ● | a material breach by the Company of any of the terms and conditions of the agreement which the Company fails to correct within 10 days after the Company receives written notice from the applicable executive of such violation. |
For purposes of each agreement a “Change of Control” of the Company will be deemed to have occurred if, after the effective date of the applicable agreement, (i) the beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than 50% of the combined voting power of the Company is acquired by any “person” as defined in sections 13(d) and 14(d) of the Exchange Act (other than the Company, any subsidiary of the Company, or any trustee or other fiduciary holding securities under an employee benefit plan of the Company), (ii) the merger or consolidation of the Company with or into another corporation where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any) in substantially the same proportion as their ownership of the Company immediately prior to such merger or consolidation, or (iii) the sale or other disposition of all or substantially all of the Company’s assets to an entity, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned directly or indirectly by shareholders of the Company, immediately prior to the sale or disposition, in substantially the same proportion as their ownership of the Company immediately prior to such sale or disposition.
In the event that the Company terminates the term of the applicable agreement or the applicable executive’s employment with Cause, or if the applicable executive terminates their agreement without good reason, then, subject to any other agreements between the company with respect to other equity grants made to such executive:
| ● | the Company will pay to the applicable executive any unpaid base salary and benefits then owed or accrued, and any unreimbursed expenses; |
| ● | any unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the Company will immediately be forfeited; and |
| ● | all of the parties’ rights and obligations under the agreement will cease, other than those rights or obligations which arose prior to the termination date or in connection with such termination, and subject to the survival provisions of the agreements. |
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In the event that the Company terminates the term of the applicable agreement or the applicable executive’s employment without Cause, or if the applicable executive terminates their agreement with good reason, then, subject to any other agreements between the company with respect to other equity grants made to such executive:
| ● | the Company will pay to the applicable executive any base salary, bonuses, and benefits then owed or accrued, and any unreimbursed expenses; |
| ● | the Company will pay to the applicable executive, in one lump sum, an amount equal to the base salary that would have been paid to the applicable executive for the remainder of the initial term of the applicable agreement (if the termination occurs during the initial term of the applicable agreement) or renewal term of the applicable agreement (if the termination occurs during a renewal term of the applicable agreement); |
| ● | any unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the Company will, to the extent not already vested, be deemed automatically vested; and |
| ● | all of the parties’ rights and obligations under the agreement will cease, other than those rights or obligations which arose prior to the termination date or in connection with such termination, and subject to the survival provisions of the agreements. |
In the event of the applicable executive’s death or total disability during the term of the applicable agreement, the term of the applicable agreement and the applicable executive’s employment shall terminate on the date of death or total disability. In the event of such termination, the Company’s sole obligations hereunder to the applicable executive (or the applicable executive’s estate) shall be for unpaid base salary, accrued but unpaid bonus and benefits (then owed or accrued and owed in the future), a pro-rata bonus for the year of termination based on the applicable executive’s target bonus for such year and the portion of such year in which the applicable executive was employed, and reimbursement of expenses pursuant to the terms hereon through the effective date of termination, and any unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the Company will immediately be forfeited as of the termination date.
In the event that the term of the applicable agreement is not renewed by either party, any unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the Company will immediately be forfeited as of the expiration of the term of the applicable agreement without any further action of the parties.
If it is determined that any payment provided to the applicable executive under the applicable agreement or otherwise, whether or not in connection with a Change of Control (a “Payment”), would constitute an “excess parachute payment” within the meaning of section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), such that the Payment would be subject to an excise tax under section 4999 of the Code (the “Excise Tax”), the Company will pay to the applicable executive an additional amount (the “Gross-Up Payment”) such that the net amount of the Gross-Up Payment retained by the applicable executive after the payment of any Excise Tax and any federal, state and local income and employment tax on the Gross-Up Payment, shall be equal to the Excise Tax due on the Payment and any interest and penalties in respect of such Excise Tax.
During the term of the applicable agreement, the applicable executive is entitled to fringe benefits consistent with the practices of the Company, and to the extent the Company provides similar benefits to the Company’s executive officers, and is entitled to reimbursement for all reasonable and necessary out-of-pocket business, entertainment and travel expenses incurred by the applicable executive in connection with the performance of the applicable executive’s duties hereunder and in accordance with the Company’s expense reimbursement policies and procedures.
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Each of the agreements provides that, during the term of the applicable agreement, the applicable executive will be entitled to indemnification and insurance coverage for officers’ liability, fiduciary liability and other liabilities arising out of the applicable executive’s position with the Company in any capacity, in an amount not less than the highest amount available to any other executive, and such coverage and protections, with respect to the various liabilities as to which the applicable executive has been customarily indemnified prior to termination of employment, shall continue for at least six years following the end of the term of the applicable agreement. Any indemnification agreement entered into between the Company and the applicable executive shall continue in full force and effect in accordance with its terms following the termination of the applicable.
Each of the employment agreements contains customary confidentiality provisions, and customary provisions related to Company ownership of intellectual property conceived or made by the applicable executive in connection with the performance of their duties under the applicable agreement (i.e., a “work-made-for-hire” provision).
Each of the agreements contains a non-compete provision which provides that, for the term of the applicable agreement and for a period of two years thereafter, the applicable executive shall not, directly or indirectly: (i) engage in any other business, association or relationship of any kind with any business which provides, in whole or in part, the same or similar services and/or products offered by the which directly or indirectly competes with Company; nor (ii) solicit or accept, or induce any person or entity to reduce goods or services to Company, or in any manner assist others in the solicitation, acceptance, or inducement of, any business transactions with Company’s existing and prospective clients, accounts, suppliers and/or other persons or entities with whom the Company has had business relationships (or whom Company had specifically identified for a prospective business relationship). These restrictions extend to the geographic area in which Company actively conducted business immediately prior to termination of the applicable agreement.
Each of the agreements also contains a customary non-solicitation provision, in which the applicable executive agrees that, for the term of the applicable agreement and for a period of three years thereafter, the applicable executive will not, directly or indirectly solicit or discuss with any employee of Company the employment of such Company employee by any other commercial enterprise other than Company, nor recruit, attempt to recruit, hire or attempt to hire any such Company employee on behalf of any commercial enterprise other than Company, provided that this provision does not prohibit the applicable executive from undertaking a general recruitment advertisement provided that the foregoing is not targeted towards any person or entity identified above, or from hiring, employing or engaging any such person or entity who responds to such general recruitment advertisement.
Due to the application of various states’ laws, there is no assurance that the non-compete provisions or the non-solicitation provisions as set forth in each of the agreements will be enforced. Each of the agreements contains a “blue pencil” provision that, in the event that a court determines that any of these restrictions are unenforceable, the parties to the agreement agreed that it is their desire that the court substitute an enforceable restriction in place of any restriction deemed unenforceable, and that the substitute restriction be deemed incorporated in the agreement and enforceable against the applicable executive.
Each of the agreements contains customary representations and warranties by the applicable executive, relating to the agreement, and any securities of the Company that may be issued to the executive, and contains other customary miscellaneous provisions relating to waivers, assignments, third party rights, survival of provisions following termination, severability, notices, waiver of jury trials and other provisions.
Each of the agreements is governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and for all purposes shall be construed in accordance with the laws of such state, without giving effect to the choice of law provisions of such state. Each of the agreements provide that all legal proceedings concerning the applicable agreement will be in the state and federal courts sitting in Santa Clara County, California, provided that each agreement also includes a provision relating to any disputes being settled by arbitration.
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Outstanding Equity Awards at 2025 Fiscal Year-End
The following table sets forth information on outstanding options and stock awards held by the Named Executive Officers as of December 31, 2025.
| Option Awards | Stock Awards | |||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units Of Stock that Have Not Vested (#) | Market Value Per Share Of Shares Or Units of Stock That Have Not Vested ($) | ||||||||||||||||||
| Sumitaka Yamamoto | - | - | $ | - | - | 11,430 | $ | 0.3052 | ||||||||||||||||
| Kimio Hosaka | 100,000 | - | $ | 2.5 | 12/25/2031 | 2,866 | $ | 0.3052 | ||||||||||||||||
| Keisuke Kuno | - | - | $ | - | - | - | $ | - | ||||||||||||||||
Additional Narrative Disclosure
Retirement Benefits
We have not maintained, and do not currently maintain, a defined benefit pension plan, non-qualified deferred compensation plan, or other retirement benefits.
Potential Payments Upon Termination or Change in Control
As described under “Employment Agreements” above, each of the executive officers with whom the Company has entered into an employment agreement is entitled severance if their employment is terminated by the Company without “Cause” or is terminated by the applicable executive with “Good Reason”, in each case as described above.
Policies and Practices Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information
We do not have any formal policy that requires us to grant, or avoid granting, stock options at particular times. Consistent with its annual compensation cycle, if options are to be granted, the Compensation Committee generally seeks to grant annual stock option awards after its Annual Report on Form 10-K has been filed. The timing of any stock option grants in connection with new hires, promotions, or other non-routine grants is tied to the event giving rise to the award (such as an employee’s commencement of employment or promotion effective date). As a result, in all cases, the timing of grants of stock options occurs independent of the release of any material nonpublic information, and we do not time the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation.
No stock options were issued to executive officers in 2025 during any period beginning four business days before the filing of a periodic report or current report disclosing material non-public information and ending one business day after the filing or furnishing of such report with the SEC.
Director Compensation
Other than as set forth in the table below and as described more fully below, we did not pay any compensation or make any equity awards or non-equity awards to any of our non-employee directors during fiscal year 2025.
Non-employee Board members received $50,000 for their service on our Board of Directors. In addition, in exchange for their service on the Audit Committee, the Chair of the Audit Committee receives an additional $7,000 annually, and the other Audit Committee members receives an additional $4,000 annually. In exchange for their service on the Compensation Committee, the Chair of the Compensation Committee receives an additional $7,000 annually, and the other Compensation Committee members receive an additional $4,000 annually. In exchange for their service on the Nominating and Corporate Governance Committee, the Chair of the Nominating and Corporate Governance Committee receives an additional $6,000 annually, and the other Nominating and Corporate Governance Committee members receive an additional $3,000 annually.
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Directors may be reimbursed for travel and other expenses directly related to their activities as directors. Directors who also serve as employees receive no additional compensation for their service as directors.
The following table presents the total compensation for each person who served as a non-employee director of the Company during the fiscal year ended December 31, 2025.
2025 Director Compensation
| Name | Fees Earned or Paid in Cash ($) | All Other Compensation ($) | Total ($) | |||||||||
| Ferdinand Groenewald | 63,125 | - | 63,125 | |||||||||
| Yoonji Lee (1) | 21,334 | - | 21,334 | |||||||||
| Heather Neville (2) | 41,594 | - | 41,594 | |||||||||
| Koji Sato | 62,750 | - | 62,750 | |||||||||
| (1) | Ms. Lee joined the Company’s Board on September 26, 2025. | |
| (2) | Ms. Neville resigned from the Company’s Board effective September 1, 2025. |
Independent Director Agreements
Our independent directors are parties to Independent Director Agreements with us. Such agreements provide that each non-employee director will be compensated as follows:
| ● | Each director will be paid the sum of $50,000 annually for director’s service as a director of the Company, to be paid $12,500 each calendar quarter, payable within five business days of the end of each calendar quarter, and with such amount for any partial calendar quarter being appropriately prorated. |
| ● | Each director shall be paid $4,000 annually for service as a member of the Audit Committee and an additional sum of $3,000 annually for service as the Chairman of the Audit Committee, with each of these payments to be paid quarterly in equal portions, within five business days of the end of each calendar quarter, and with any amount for any partial calendar quarter being appropriately prorated. |
The Independent Director Agreements contain additional terms. During the term of the applicable director agreement, the Company will reimburse the applicable director for all reasonable out-of-pocket expenses incurred by the applicable director in attending any in-person meetings, provided that the applicable director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses. Any reimbursements for allocated expenses (as compared to out-of-pocket expenses of the applicable director in excess of $500) must be approved in advance by the Company.
Each of the agreements contains customary confidentiality provisions, and customary provisions related to Company ownership of intellectual property conceived or made by the applicable director in connection with the performance of their duties under the applicable agreement (i.e., a “work-made-for-hire” provision).
Each of the agreements provide that, during the term (which continues as long as the applicable director is serving as a director of the Company), the applicable director is be entitled to indemnification and insurance coverage for officers’ liability, fiduciary liability and other liabilities arising out of the applicable director’s position with the Company in any capacity, in an amount not less than the highest amount available to any other director, and such coverage and protections, with respect to the various liabilities as to which the applicable director has been customarily indemnified prior to termination of employment, shall continue for at least six years following the end of the term. Any indemnification agreement entered into between the Company and the applicable director will continue in full force and effect in accordance with its terms following the termination of the applicable agreement.
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Each of the agreements contains customary representations and warranties by the applicable director, relating to the agreement, and contains other customary miscellaneous provisions relating to waivers, assignments, third party rights, survival of provisions following termination, severability, notices, waiver of jury trials and other provisions.
Each of the agreements is governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and for all purposes shall be construed in accordance with the laws of such state, without giving effect to the choice of law provisions of such state. Each of the agreements provide that all legal proceedings concerning the applicable agreement will be in the state and federal courts sitting in Santa Clara County, California, provided that each agreement also includes a provision relating to any disputes being settled by arbitration.
2023 Equity Incentive Plan
On August 1, 2023, the Board approved, and proposed for stockholder approval, the 2023 Equity Incentive Plan (the “2023 Plan”). The Company’s stockholders approved the 2023 Plan on September 29, 2023. The 2023 Plan provides for various stock-based incentive awards, including incentive stock options (“ISOs”) and non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”), and other equity-based or cash-based awards. As of December 31, 2025, there were 1,776,865 shares available for award under the 2023 Plan.
Highlights of the 2023 Plan are as follows:
| ● | The Board or a committee of the Board will administer the 2023 Plan. | |
| ● | The total number of shares of common stock authorized for issuance under the 2023 Plan is 2,000,000 shares, or approximately 9.60% of the common stock outstanding at the time of approval. | |
| ● | No non-employee director may be granted awards under the 2023 Plan during any calendar year if such awards would exceed a total value of $300,000 (calculated in accordance with the terms of the 2023 Plan). | |
| ● | The exercise price of options and SARs may not be less than the fair market value of the common stock on the date of grant. | |
| ● | In addition to other vesting requirements, the administrator may condition the vesting of awards on the achievement of specific performance targets. |
Material features of the 2023 Plan are set forth below.
Term
The 2023 Plan was effective August 1, 2023 and will terminate on August 1, 2033, unless the Board terminates it earlier.
Purpose
The purpose of the 2023 Plan is to provide a means through with the Company and its subsidiaries may attract and retain key personnel, and to provide a means whereby directors, officer, employees, consultants, and advisors of the Company and its subsidiaries can acquire and maintain an equity interest in the Company, or be paid incentive compensation, thereby strengthening their commitment to the welfare of the Company and its subsidiaries and aligning their interests with those of the Company’s stockholders.
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Administration
Pursuant to the terms of the 2023 Plan, the Board or a committee of the Board shall administer the 2023 Plan. The administrator will have the authority to, among other things, (i) determine fair market value under the 2023 Plan; (ii) select the service providers to whom awards may be granted; (iii) determine the number of shares to be covered by each award granted under the 2023 Plan; (iv) approve forms of award agreements for use under the 2023 Plan; (v) determine the terms and conditions, not inconsistent with the terms of the 2023 Plan, of any award, with such terms and conditions including, but not being limited to, the exercise price, the time or times when awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any award or the shares relating thereto, based in each case on such factors as the administrator will determine; (vi) determine whether an award will be settled in shares, cash, other property or in any combination thereof; (vii) construe and interpret the terms of the 2023 Plan and awards granted pursuant to the 2023 Plan; (viii) prescribe, amend and rescind rules and regulations relating to the 2023 Plan, including rules and regulations relating to sub-plans; (ix) modify or amend awards; (x) correct any defect, supply any omission or reconcile any inconsistency in the 2023 Plan or any award agreement and make all other determinations and take such other actions with respect to the 2023 Plan or any award as the administrator may deem advisable to the extent not inconsistent with the provisions of the 2023 Plan or applicable law; and (xi) make all other determinations deemed necessary or advisable for administering the 2023 Plan.
The administrator will have the discretion to select particular performance targets in connection with awards under the 2023 Plan.
Eligibility
Employees, directors and consultants (except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction, or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiaries will be eligible to receive awards under the 2023 Plan. ISOs may only be granted to employees.
Grants
The administrator may, from time to time, grant awards under the 2023 Plan to one or more eligible participants. All awards will vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the administrator and as set forth in any applicable award agreement, including, without limitation, attainment of performance targets, consistent with the terms of the 2023 Plan.
Maximum Shares Available
Subject to the provisions of the 2023 Plan, the maximum aggregate number of shares that may be subject to awards and sold under the 2023 Plan is 2,000,000. The shares may be authorized but unissued, or reacquired common stock. If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, RSUs, performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than options or SARs, the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2023 Plan (unless the 2023 Plan has terminated).
Adjustments
In the event that any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Company’s common stock occurs, the administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2023 Plan, will adjust the number and class of shares of stock that may be delivered under the 2023 Plan and/or the number, class, and price of shares of stock covered by each outstanding award, and the numerical share limits provided in the 2023 Plan.
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Stock Options
The administrator may grant options to purchase shares of common stock under the 2023 Plan to eligible participants for such numbers of shares and having such terms as the administrator designates and consistent with the 2023 Plan. However, ISOs may only be granted to employees of the Company or its subsidiaries. The administrator will also determine the type of option granted (e.g., ISO) or a combination of various types of options. Each option granted under the 2023 Plan will be evidenced by an award agreement.
The exercise price for an option may not be less than 100% of the fair market value of the Company’s common stock on the date the option is granted; provided, however, that in the case of an ISO granted to an employee who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any subsidiary, the exercise price will be no less than 110% of the fair market value on the grant date.
The term of each option will be stated in the applicable award agreement. In the case of an ISO, the term will be no more than 10 years from the date of grant. In the case of an ISO granted to a participant who, at the time the ISO is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary, the term of the ISO will be five years from the date of grant or such shorter term as may be provided in the award agreement.
Stock Appreciation Rights
The administrator may grant SARs under the 2023 Plan to eligible participants having such terms as the administrator designates and consistent with the 2023 Plan. Each SAR granted under the 2023 Plan will be evidenced by a SAR agreement. The exercise price for a SAR may not be less than 100% of the fair market value of the Company’s common stock on the date the SAR is granted.
Restricted Stock
The administrator may grant shares of restricted stock under the 2023 Plan to eligible participants in such amounts and upon such terms as the administrator determines and consistent with the 2023 Plan.
Except as provided in the 2023 Plan or as the administrator determines, shares of restricted stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable period of restriction. The administrator, in its sole discretion, may impose such other restrictions on shares of restricted stock as it may deem advisable or appropriate. Except as otherwise provided in the 2023 Plan, shares of restricted stock will be released from escrow as soon as practicable after the last day of the period of restriction or at such other time as the administrator may determine. The administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.
During the period of restriction, grantees holding shares of restricted stock granted under the 2023 Plan may exercise full voting rights with respect to those shares, unless the administrator determines otherwise. During the period of restriction, grantees holding shares of restricted stock will be entitled to receive all dividends and other distributions paid with respect to such shares, unless the administrator provides otherwise. If any such dividends or distributions are paid in shares of common stock, the shares will be subject to the same restrictions on transferability and forfeitability as the shares of restricted stock with respect to which they were paid.
On the date set forth in the award agreement, the restricted stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the 2023 Plan.
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Restricted Stock Units
The administrator may grant RSUs under the 2023 Plan to eligible participants in such amounts and upon such terms as the administrator determines and consistent with the 2023 Plan. The administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of RSUs that will be paid out to the grantee. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the administrator in its discretion.
Upon meeting the applicable vesting criteria, the grantee will be entitled to receive a payout as determined by the administrator or as set forth in the applicable award agreement. Notwithstanding the foregoing, at any time after the grant of RSUs, the administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout. Payment of earned RSUs will be made as soon as practicable after the date(s) determined by the administrator and set forth in the award agreement. The administrator, in its sole discretion, may settle earned RSUs in cash, shares of common stock, or a combination of both.
Grantees will have no voting rights with respect to shares of common stock represented by RSUs until the date of the issuance of such shares. However, the administrator, in its discretion, may provide in the applicable award agreement that the grantee will be entitled to dividend equivalent rights with respect to the payment of cash dividends on common stock during the period beginning on the date such award is granted and ending, with respect to each share subject to the award, on the earlier of the date the award is settled or the date on which it is terminated. Dividend equivalent rights, if any, shall be paid by crediting the grantee with a cash amount or with additional whole RSUs as of the date of payment of such cash dividends on common stock, as determined by the administrator. The number of additional RSUs (rounded to the nearest whole number), if any, to be credited shall be determined by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of shares of common stock represented by the RSUs previously credited to the grantee by (b) the fair market value per share of common stock on such date. Such cash amount or additional RSUs will be subject to the same terms and conditions and will be settled in the same manner and at the same time as the RSUs originally subject to the RSU award. In the event of a dividend or distribution paid in shares of common stock or other property or any other adjustment made upon a change in the capital structure of the Company as provided in the 2023 Plan, appropriate adjustments will be made in the grantee’s RSU award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the grantee would be entitled by reason of the shares of common stock issuable upon settlement of the award, and all such new, substituted or additional securities or other property shall be immediately subject to the same vesting conditions as are applicable to the award.
On the date set forth in the award agreement, all unearned RSUs will be forfeited to the Company.
Performance Units and Performance Shares
Performance awards may be granted to eligible participants at any time and from time to time, as will be determined by the Administrator, in its sole discretion. Each performance unit will have an initial value that is established by the administrator on or before the date of grant. Each performance share will have an initial value equal to the fair market value of a share of common stock on the date of grant.
The administrator will set performance objectives or other vesting provisions in its discretion which, depending on the extent to which they are met, will determine the number or value of performance units/shares that will be paid out to the grantees. Each performance award will be evidenced by an award agreement that will specify the performance period, and such other terms and conditions as the administrator, in its sole discretion, will determine.
The administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the administrator in its discretion. Performance goals shall be established by the administrator on the basis of targets to be attained with respect to one or more measures of business or financial performance, subject to the terms of the 2023 Plan.
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Performance measures may be based upon one or more of the following, as determined by the administrator: (1) revenue; (2) sales; (3) expenses; (4) operating income; (5) gross margin; (6) operating margin; (7) earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; (8) pre-tax profit; (9) net operating income; (10) net income; (11) economic value added; (12) free cash flow; (13) operating cash flow; (14) balance of cash, cash equivalents and marketable securities; (15) stock price; (16) earnings per share; (17) return on stockholder equity; (18) return on capital; (19) return on assets; (20) return on investment; (21) total stockholder return; (22) employee satisfaction; (23) employee retention; (24) market share; (25) customer satisfaction; (26) product development; (27) research and development expenses; (28) completion of an identified special project; and (29) completion of a joint venture or other corporate transaction.
After the applicable performance period has ended, the holder of performance units/shares will be entitled to receive a payout of the number of performance units/shares earned by the participant over the performance period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a performance unit/share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance unit/share.
Payment of earned performance units or performance shares will be made as soon as practicable after the expiration of the applicable performance period. The administrator, in its sole discretion, may pay earned performance units/shares in the form of cash, in shares of common stock (which have an aggregate fair market value equal to the value of the earned performance units/shares at the close of the applicable performance period) or in a combination thereof.
On the date set forth in the award agreement, all unearned or unvested performance units or performance shares will be forfeited to the Company, and again will be available for grant under the 2023 Plan.
Restricted stock and RSUs granted to officers and employees may be granted with the intent that the award satisfy the “Performance-Based Exception” (any such award intended to satisfy the Performance-Based Exception, a “Qualified Performance-Based Award”). The grant, vesting, or payment of a Qualified Performance-Based Award may depend on the degree of achievement of one or more performance goals relative to a pre-established targeted level or levels using one or more performance targets as determined by the administrator (on an absolute or relative (including, without limitation, relative to the performance of one or more other companies or upon comparisons of any of the indicators of performance relative to one or more other companies) basis, any of which may also be expressed as a growth or decline measure relative to an amount or performance for a prior date or period) for the Company on a consolidated basis or for one or more of the Company’s subsidiaries, segments, divisions, or business or operational units, or any combination of the foregoing. The performance period applicable to any performance units or performance shares may not be less than three months nor more than 10 years. To satisfy the Performance-Based Exception, the performance measure(s) applicable to the Qualified Performance-Based Award and specific performance formula, goal or goals (“targets”) must be established and approved by the administrator during the first 90 days of the applicable performance period (and, in the case of performance periods of less than one year, in no event after 25% or more of the performance period has elapsed) and while performance relating to such target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code.
Participants shall have no voting rights with respect to shares of common stock represented by performance share awards until the date of the issuance of such shares of common stock, if any. However, the administrator, in its discretion, may provide in the award agreement evidencing any performance share award that the participant shall be entitled to dividend equivalent rights with respect to the payment of cash dividends on common stock during the period beginning on the date the award is granted and ending, with respect to each share subject to the award, on the earlier of the date on which the performance shares are settled or the date on which they are forfeited. Such dividend equivalent rights, if any, shall be credited to the participant either in cash or in the form of additional whole performance shares as of the date of payment of such cash dividends on common stock, as determined by the administrator and as provided in the 2023 Plan. Dividend equivalent rights shall not be paid with respect to performance units.
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Other Equity-Based Awards and Other Cash-Based Awards
The administrator may grant other equity-based awards and other cash-based awards under the 2023 Plan to eligible persons, pursuant to the terms of the 2023 Plan.
Amendment and Termination
The administrator may amend, alter, suspend or terminate the 2023 Plan. However, the Company will obtain stockholder approval of any amendment to the extent necessary and desirable to comply with applicable laws.
Federal Income Tax Effects of the 2023 Plan
The federal income tax consequences applicable to the Company in connection with ISOs, NQSOs, SARs, restricted stock, RSUs and performance awards are complex and depend, in large part, on the surrounding facts and circumstances. A participant should consult with his or her tax advisor regarding the taxation of awards under the Plan. Under current federal income tax laws, however, a participant will generally recognize income with respect to grants of stock options, SARs, restricted stock, RSUs and performance awards as described below.
Stock Options
Stock options may be granted in the form of ISOs or NQSOs. ISOs are eligible for favorable tax treatment under the Code. To meet the Code requirements, the maximum value of ISOs that first become exercisable in any one year (determined as of the dates of grants of the ISOs) is limited to $100,000. Under the Code, persons do not realize compensation income upon the grant of an ISO or NQSO. At the time of exercise of a NQSO, the holder realizes compensation income in the amount of the difference between the grant price and the fair market value of the Company stock on the date of exercise multiplied by the number of shares for which the option is exercised. At the time of exercise of an ISO, no compensation income, however, is recognized but the difference between the grant price and the fair market value of the Company’s common stock on the date of exercise multiplied by the number of shares for which the option is exercised is an item of tax preference which may require the payment of alternative minimum tax. The tax basis for determining capital gain or loss from the sale of stock acquired pursuant to a NQSO is the fair market value of the stock or the date of exercise. If the shares acquired on exercise of an ISO are held for at least two years after grant of the option and one year after exercise, the excess of the amount realized on sale over the exercise price is taxed as capital gains. If the shares acquired on exercise of an ISO are disposed of, including disposition by gift, within two years after grant or one year of exercise, the holder realizes compensation income equal to the excess of the fair market value of shares on the date of exercise over the option price. Additional amounts realized are taxed as capital gains. The Company generally is entitled to a deduction under the Code at the time and equal to the amount of compensation income realized by the holder of an option under the 2023 Plan.
Compensation income recognized by the exercise of NQSOs is subject to Federal Insurance Contributions Act (“FICA”) and Medicare taxes when the optionee is an employer and self-employment tax when the optionee is a director. Compensation income realized upon the premature disposition of stock acquired pursuant to an ISO is not subject to FICA and Medicare taxes.
SARs and RSUs
SARs are taxed on the date of exercise and RSUs are taxed on the date of vesting. A participant is taxed on the amount he or she is paid upon exercise of an SAR or vesting of an RSU. The Company accrues a corresponding deduction. The amount taxed is also subject to FICA and Medicare taxes in the case of an employee and self-employment tax in the case of a director.
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Restricted Stock
Participants recognize as taxable income the fair market value of restricted stock on the date the restriction period ends. The amount taxed is subject to FICA and Medicare taxes in the case of an employee and self-employment tax in the case of a director. The Company is entitled to a corresponding tax deduction at the same time. Dividends paid during the restricted period are taxable compensation/income to the participant and are deductible by the Company. The value of the stock on the date the restriction period ends becomes the participant’s tax basis for determining subsequent capital gain or loss on the sale of the stock. A participant may elect to have the fair market value of restricted stock taxed to him or her at the time of grant. In this event, the participant recognizes no income when the restrictions lapse. The participant’s tax basis in the stock, for determining capital gain or loss upon the subsequent sale of the stock, is the fair market value of the stock on the date of grant. In this event, the Company accrues a tax deduction equal to the amount of income recognized by the participant on the grant date, and the participant does not accrue a tax deduction or benefit in the event the stock is subsequently forfeited.
Performance Awards
Cash payments pursuant to performance awards are taxable as compensatory income to a participant when it is paid and the Company accrues a corresponding income tax deduction in this amount. The amount taxed is subject to FICA and Medicare taxes.
Code Section 162(m)
Section 162(m) of the Code limits the deductibility by the Company of compensation paid to the CEO and the other four most highly compensated executives. Section 162(m) of the Code provides an exception to this deduction limitation for certain “qualified performance-based compensation.” Payments or grants under the 2023 Plan are intended to qualify as “qualified performance-based compensation” under the Code and applicable regulations.
Code Section 280G and 4999
A 20% excise tax is imposed under Code Section 4999 on participants who receive certain payments in connection with a change of control of the Company and the Company cannot deduct such payments. It is possible that the value of accelerated vesting and lapse of restrictions on 2023 Plan awards could constitute change of control payments and that (i) the value of the acceleration could be subject to the excise tax, (ii) this could cause other Company change of control payments to be subject to the tax, and (iii) in this event, the Company would not be able to deduct these items for income tax purposes.
2021 Equity Incentive Plan
Overview
The Board of Directors and stockholders of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”) on August 6, 2021. Under the 2021 Plan, 2,400,000 shares of common stock are authorized for issuance to employees, directors and independent contractors (except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction, or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiary. The 2021 Plan authorizes equity-based and cash-based incentives for participants. There were 4,330 shares available for award as of December 31, 2025 under the 2021 Plan.
The purpose of 2021 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this 2021 Plan, in whole or in part. To the extent then required by applicable law or any applicable stock exchange or required under the Code to preserve the intended tax consequences of the 2021 Plan, or deemed necessary or advisable by the Board, the 2021 Plan and any amendment to the 2021 Plan shall be subject to stockholder approval. Unless earlier terminated by the Board, the 2021 Plan will terminate 10 years from the date of adoption.
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Authorized Shares
A total of 2,400,000 shares of the Company’s common stock were initially authorized for issuance pursuant to the 2021 Plan. Subject to adjustment as provided in the 2021 Plan, the maximum aggregate number of shares that may be issued under the 2021 Plan will be cumulatively increased on January 1, 2022 and on each subsequent January 1, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Board.
Additionally, if any award issued pursuant to the 2021 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2021 Plan, or, with respect to restricted stock, RSUs, performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2021 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). Shares that have actually been issued under the 2021 Plan under any award will not be returned to the 2021 Plan and will not become available for future distribution under the 2021 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure to vest, such shares will become available for future grant under the 2021 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2021 Plan. To the extent an award under the 2021 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2021 Plan.
Notwithstanding the foregoing and, subject to adjustment as provided in the 2021 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Code and regulations promulgated thereunder, any shares that become available for issuance under the 2021 Plan in accordance with the foregoing.
Plan Administration
The Board or one or more committees appointed by the Board will administer the 2021 Plan. In addition, if the Company determines it is desirable to qualify transactions under the 2021 Plan as exempt under Rule 16b-3 of the Exchange Act, such transactions will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the 2021 Plan, the administrator has the power to administer the 2021 Plan and make all determinations deemed necessary or advisable for administering the 2021 Plan, including the power to determine the fair market value of the Company’s common stock, select the service providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2021 Plan, determine the terms and conditions of awards (including the exercise price, the time or times at which the awards may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto), construe and interpret the terms of the 2021 Plan and awards granted under it, prescribe, amend and rescind rules relating to the 2021 Plan, including creating sub-plans and modify or amend each award, including the discretionary authority to extend the post-termination exercisability period of awards (provided that no option or stock appreciation right will be extended past its original maximum term), and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which may have a higher or lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.
Eligibility
Awards under the 2021 Plan, other than incentive stock options, may be granted to employees (including officers) of the Company or a subsidiary, members of the Company’s Board, or consultants engaged to render bona fide services to the Company or a subsidiary. Incentive stock options may be granted only to employees of the Company or a subsidiary.
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Stock Options
Stock options may be granted under the 2021 Plan. The exercise price of options granted under the 2021 Plan generally must at least be equal to the fair market value of the Company’s common stock on the date of grant. The term of each option will be as stated in the applicable award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service. An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of options.
Stock Appreciation Rights
SARs may be granted under the 2021 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of the Company’s common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of the Company’s common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.
Restricted Stock
Restricted stock may be granted under the 2021 Plan. Restricted stock awards are grants of shares of the Company’s common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant and, subject to the provisions of the 2021 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to the Company); provided, however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to the Company’s right of repurchase or forfeiture.
Restricted Stock Units
RSUs may be granted under the 2021 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of the Company’s common stock. Subject to the provisions of the 2021 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may pay earned RSUs in the form of cash, in shares of the Company’s common stock or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied.
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Performance Units and Performance Shares
Performance units and performance shares may be granted under the 2021 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator on or prior to the grant date. Performance shares shall have an initial value equal to the fair market value of the Company’s common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof.
Non-Employee Directors
The 2021 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options) under the 2021 Plan. The 2021 Plan includes a maximum limit of $750,000 of equity awards that may be granted to a non-employee director in any fiscal year, increased to $1,500,000 in connection with his or her initial service. For purposes of this limitation, the value of equity awards is based on the grant date fair value (determined in accordance with accounting principles generally accepted in the United States). Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to the Company’s non-employee directors.
Non-transferability of Awards
Unless the administrator provides otherwise, the 2021 Plan generally does not allow for the transfer of awards and only the recipient of an award may exercise an award during their lifetime. If the administrator makes an award transferrable, such award will contain such additional terms and conditions as the administrator deems appropriate.
Certain Adjustments
In the event of certain changes in the Company’s capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2021 Plan, the administrator will adjust the number and class of shares that may be delivered under the 2021 Plan or the number, and price of shares covered by each outstanding award and the numerical share limits set forth in the 2021 Plan.
Dissolution or Liquidation
In the event of the Company’s proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.
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Merger or Change in Control
The 2021 Plan provides that in the event of the Company’s merger with or into another corporation or entity or a “change in control” (as defined in the 2021 Plan), each outstanding award will be treated as the administrator determines, including, without limitation, that (i) awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant, that the participant’s awards will terminate upon or immediately prior to the consummation of such merger or change in control; (iii) outstanding awards will vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon consummation of such merger or change in control and, to the extent the administrator determines, terminate upon or immediately prior to the effectiveness of such merger or change in control; (iv) (A) the termination of an award in exchange for an amount of cash or property, if any, equal to the amount that would have been attained upon the exercise of such award or realization of the participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the administrator determines in good faith that no amount would have been attained upon the exercise of such award or realization of the participant’s rights, then such award may be terminated by the Company without payment) or (B) the replacement of such award with other rights or property selected by the administrator in its sole discretion; or (v) any combination of the foregoing. The administrator will not be obligated to treat all awards, all awards a participant holds, or all awards of the same type, similarly. In the event that awards (or portion thereof) are not assumed or substituted for in the event of a merger or change in control, the participant will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, including shares as to which such awards would not otherwise be vested or exercisable, all restrictions on restricted stock and RSUs will lapse and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of the Company’s subsidiary or parents, as applicable. If an option or stock appreciation right is not assumed or substituted in the event of a merger or change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the vested option or stock appreciation right will terminate upon the expiration of such period.
For awards granted to an outside director, the outside director will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, all restrictions on restricted stock and RSUs will lapse and, for awards with performance-based vesting, unless specifically provided for in the award agreement, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met.
Clawback
Awards will be subject to any Company clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable laws. The administrator also may specify in an award agreement that the participant’s rights, payments or benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events. The Board may require a participant to forfeit, return or reimburse the Company all or a portion of the award or shares issued under the award, any amounts paid under the award and any payments or proceeds paid or provided upon disposition of the shares issued under the award in order to comply with such clawback policy or applicable laws.
Amendment and Termination
The administrator has the authority to amend, suspend or terminate the 2021 Plan provided such action does not impair the existing rights of any participant. The 2021 Plan automatically will terminate on August 6, 2031, unless it is terminated sooner.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of our common stock as of March 31, 2026 by:
| ● | each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; | |
| ● | each of our Named Executive Officers and directors that beneficially owns shares of our common stock; and | |
| ● | all of our executive officers and directors as a group. |
In the table below, percentage ownership is based on 25,419,807 shares of our common stock issued and outstanding as of December 31, 2025. Unless otherwise noted below, the address for each beneficial owner listed on the table is c/o HeartCore Enterprises, Inc., 14F, Shibuya Sakura Stage Central Building, 1-2 Sakuragaoka-cho, Shibuya-ku, Tokyo, Japan 150-0031. We have determined beneficial ownership in accordance with the rules of the SEC. We believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
| Name and Address of Beneficial Owner | Number and Nature of Shares Beneficially Owned (1) | Percentage of Outstanding Common Stock | ||||||
| Directors and Executive Officers: | ||||||||
| Sumitaka Yamamoto | 10,751,609 | 42.30 | % | |||||
| Qizhi Gao | 48,068 | * | ||||||
| Kimio Hosaka | 133,820 | * | ||||||
| Prakash Sadasivam | 2,500,000 | 9.83 | % | |||||
| Ferdinand Groenewald | - | - | ||||||
| Heather Marie Neville | - | - | ||||||
| Yoonji Lee | - | - | ||||||
| Koji Sato | - | - | ||||||
| All executive officers and directors as a group (9 persons) (2) | 13,448,442 | 52.91 | % | |||||
| Other 5% Stockholders: | ||||||||
| - | - | % | ||||||
| * | less than 1%. |
| (1) | The percentages in the table have been calculated based on 25,419,807 shares of our common stock outstanding on December 31, 2025. To calculate a stockholder’s percentage of beneficial ownership, we include in the numerator and denominator the common stock outstanding and all shares of our common stock issuable to that person in the event of the exercise of outstanding options and other derivative securities owned by that person which are exercisable within 60 days of December 31, 2025. Common stock options and derivative securities held by other stockholders are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership among our stockholders may differ. Unless we have indicated otherwise, each person named in the table has sole voting power and sole investment power for the shares listed opposite such person’s name. |
| (2) | Includes the directors and Named Executive Officers listed above, as well as 14,945 shares beneficially owned by Toru Oyama, a director of Higgs Field Co., Ltd. |
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Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2025, regarding our compensation plans under which equity securities are authorized for issuance:
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted- average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by security holders | 2,395,670 | 1.65 | 1,781,195 | (1) | ||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | 2,395,670 | 1.65 | 1,781,195 | |||||||||
| (1) | This represents shares of common stock issuable pursuant to the 2023 Plan and the 2021 Plan. |
Our Board of Directors and stockholders approved the 2021 Plan on August 6, 2021. Under the 2021 Plan, 2,400,000 shares of common stock are authorized for issuance to employees, directors and independent contractors (except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiary. The 2021 Plan authorizes equity-based and cash-based incentives for participants. As of December 31, 2025, there were 4,330 shares available for award under the 2021 Plan.
On August 1, 2023 and September 29, 2023, the Board and stockholders, respectively, approved the 2023 Plan. The 2023 Plan provides for various stock-based incentive awards, including ISOs and NQSOs, SARs, restricted stock and RSUs, and other equity-based or cash-based awards. As of December 31, 2025, there were 1,776,865 shares available for award under the 2023 Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Policies and Procedures for Related Party Transactions
Under Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiary were or are a party, or in which we or our subsidiary were or are a participant, in which the amount involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities (a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.
We recognize that transactions between us and any of our directors or executives or with a third party in which one of our officers, directors or significant shareholders has an interest can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our Company and stockholders.
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The Audit Committee of the Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any such transactions, as reported or disclosed to the Audit Committee by the independent auditors, employees, officers, members of the Board of Directors or otherwise, and to determine whether the terms of the transaction are not less favorable to us than could be obtained from an unaffiliated party.
From time to time, we engage in transactions with related parties. The following is a summary of the related party transactions during the fiscal years ended December 31, 2025 and 2024, and any proposed transactions, requiring disclosure pursuant to Item 404 of Regulation S-K. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
Related Party Transactions
As of December 31, 2025 and 2024, the Company had due to related party balances of $285 and nil, respectively, from Sumitaka Yamamoto, the Chief Executive Officer (“CEO”) and major shareholder of the Company. The balance is unsecured, non-interest bearing and due on demand. During the years ended December 31, 2025 and 2024, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $299 and nil, respectively.
As of December 31, 2025 and 2024, the Company had due to related party balances of nil and $885, respectively, from Luvina Software Joint Stock Company (“Luvina Software”), the non-controlling shareholder of HeartCore Luvina. The balance is unsecured, non-interest bearing and due on demand. During the year ended December 31, 2025, the Company repaid to the related party for operating expenses the related party paid on behalf of the Company of $884. During the year ended December 31, 2024, the related party paid operating expenses on behalf of the Company in the amount of $899. As of December 31, 2025 and 2024, the Company had accounts payable and accrued expenses balances of $124,618 and $47,199, respectively, to Luvina Software. During the years ended December 31, 2025 and 2024, the Company engaged the related party for software development and other support services of $290,305 and $202,288, respectively.
As of December 31, 2025 and 2024, the Company had a short-term debt balance of $75,000 to Prakash Sadasivam, the CEO and non-controlling shareholder of Sigmaways. The debt is borrowed from the related party for working capital purpose. The balance is unsecured, bears an annual interest of 7.5% and due on demand.
Director Independence
The Company’s Board of Directors has affirmatively determined that three of its five directors (Ferdinand Groenewald, Yoonji Lee, and Koji Sato), representing a majority of the Company’s directors, are independent directors of the Company within the meaning of Nasdaq Capital Market’s rules. Until February 14, 2025, we were a “controlled company” under Nasdaq Capital Market rules and therefore, were not required to have a majority of independent directors on the Board.
As a controlled company until February 14, 2025, the Company was not required to comply with certain corporate governance requirements under Nasdaq Capital Market rules, including, but not limited to, the requirement that a majority of the Company’s Board of Directors consist of “independent directors” as defined by the applicable rules and regulations of Nasdaq Capital Market. Because we no longer qualify as a controlled company, on February 14, 2025, we formed a Compensation Committee and a Nominating and Corporate Governance Committee, and we are required, subject to a phase-in period, to have a majority of independent directors on the Board. We currently comply with the majority independent director requirement.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following is a summary of fees paid or to be paid to MaloneBailey, LLP, our independent registered public accounting firm, for the fiscal years ended December 31, 2025 and 2024.
| Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Audit Fees | $ | 442,900 | $ | 609,779 | ||||
| Audit Related Fees | $ | - | $ | - | ||||
| Tax Fees | $ | - | $ | - | ||||
| All Other Fees | $ | - | $ | - | ||||
| Total | $ | 442,900 | $ | 609,779 | ||||
Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by our independent registered public accounting firm in connection with regulatory filings. The above amounts include interim procedures and audit fees, as well as attendance at Board meetings.
Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Tax Fees. Tax fees consist of fees billed for tax planning services and tax advice. The board of directors must specifically approve all other tax services.
All Other Fees. Other services are services provided by the independent registered public accounting firm that do not fall within the established audit, audit-related, and tax services categories. The board of directors preapproves specified other services that do not fall within any of the specified prohibited categories of services.
Pre-Approval Policy
Since formation of our audit committee, all of the foregoing services were pre-approved by our audit committee. Our audit committee will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a) | The following documents are filed as part of this annual report: |
| (1) | Financial Statements |
See Index to Financial Statements on page F-1.
| (2) | Financial Statements Schedules |
| All financial statements schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto beginning on page F-1 of this annual report. | |
| (3) | Exhibits |
| We hereby file as part of this annual report the exhibits listed in the Exhibit Index immediately before the signature page to this Annual Report on Form 10-K. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov. |
Item 16. Form 10-K Summary
Not applicable.
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HEARTCORE ENTERPRISES, INC.
INDEX TO FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
HeartCore Enterprises, Inc.
Opinion on the Financial Statements
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
www.malonebailey.com
We have served as the Company’s auditor since 2021.
March 31, 2026
| F-2 |
HeartCore Enterprises, Inc.
Consolidated Balance Sheets
| December 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Investments in marketable securities | ||||||||
| Prepaid expenses | ||||||||
| Current portion of long-term note receivable | ||||||||
| Deferred offering costs | ||||||||
| Other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Proceeds receivable from sale of discontinued operations | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Long-term investment in warrants | ||||||||
| Long-term note receivable | ||||||||
| Deferred tax assets | ||||||||
| Security deposits | ||||||||
| Other non-current assets | ||||||||
| Non-current assets of discontinued operations | ||||||||
| Long-term proceeds receivable from sale of discontinued operations | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable and accrued expenses - related party | ||||||||
| Accrued payroll and other employee costs | ||||||||
| Due to related party | ||||||||
| Short-term debt - related party | ||||||||
| Current portion of long-term debts | ||||||||
| Insurance premium financing | ||||||||
| Factoring liability | ||||||||
| Operating lease liabilities, current | ||||||||
| Finance lease liabilities, current | ||||||||
| Income tax payables | ||||||||
| Deferred revenue | ||||||||
| Derivative liability | ||||||||
| Other current liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Long-term debts | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Finance lease liabilities, non-current | ||||||||
| Asset retirement obligations | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred
shares, $ par value, shares authorized; Series A convertible preferred shares, and shares designated,
and shares issued and outstanding as of December 31, 2025 and 2024, respectively; aggregate liquidation preference of $ | ||||||||
| Common shares, $ par value, shares authorized, and shares issued and outstanding as of December 31, 2025 and 2024, respectively | ||||||||
| Subscription receivable | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total HeartCore Enterprises, Inc. shareholders’ equity | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
HeartCore Enterprises, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
| For the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost
of revenues (including cost of revenues resulting from transactions with a related party of $ | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling expenses | ||||||||
| General
and administrative expenses (including general and administrative expenses resulting from transactions with a related party of $ | ||||||||
| Research and development expenses | ||||||||
| Impairment of intangible asset | ||||||||
| Impairment of goodwill | ||||||||
| Total operating expenses | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Other income (expenses): | ||||||||
| Changes in fair value of investments in marketable securities | ( | ) | ( | ) | ||||
| Changes in fair value of investment in warrants | ||||||||
| Loss on sale of warrants | ( | ) | ||||||
| Impairment of investment in equity securities | ( | ) | ||||||
| Changes in fair value of derivative liability | ||||||||
| Loss on forgiveness of note receivable | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Interest expenses | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Total other expenses | ( | ) | ( | ) | ||||
| Loss from continuing operations before income tax expense (benefit) | ( | ) | ( | ) | ||||
| Income tax 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 | $ | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Total comprehensive income (loss) | ( | ) | ||||||
| Less: comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ||||
| Comprehensive income (loss) attributable to HeartCore Enterprises, Inc. | $ | $ | ( | ) | ||||
| Net income (loss) from continuing operations attributable to HeartCore Enterprises, Inc. per common share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Income (loss) from discontinued operations per common share | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
| Weighted average common shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
HeartCore Enterprises, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
| Preferred Shares | Common Shares | Accumulated | Total HeartCore Enterprises, | |||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Subscription | Additional Paid-in | Accumulated | Other Comprehensive | Inc. Shareholders’ | Non-controlling | Total Shareholders’ | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Receivable | Capital | Deficit | Income (Loss) | Equity | Interests | Equity | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Capital contribution from non-controlling shareholder | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares related to at the market offering agreement | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Dividends paid for common shares | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Cumulative translation adjustment reclassified into earnings due to disposal of discontinued operations | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of common shares related to at the market offering agreement | - | |||||||||||||||||||||||||||||||||||||||||||
| Collection of subscription receivable | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series A convertible preferred shares | - | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares related to securities purchase agreement | - | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares related to equity purchase agreement | - | |||||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred shares converted to common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common shares for dividends on Series A convertible preferred shares | - | |||||||||||||||||||||||||||||||||||||||||||
| Dividends accrued on Series A convertible preferred shares | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividends paid for common shares | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Exercise of stock options | - | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
HeartCore Enterprises, Inc.
Consolidated Statements of Cash Flows
| For the year ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities of continuing operations: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Income (loss) from discontinued operations, net of income tax | ( | ) | ||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss from continuing operations to net cash flows used in operating activities of continuing operations: | ||||||||
| Depreciation and amortization expenses | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Non-cash lease expense | ||||||||
| Gain on termination of lease | ( | ) | ||||||
| Impairment of intangible asset | ||||||||
| Impairment of goodwill | ||||||||
| Deferred income taxes | ( | ) | ||||||
| Stock-based compensation | ( | ) | ||||||
| Marketable securities received as noncash consideration | ( | ) | ||||||
| Warrants received as noncash consideration | ( | ) | ( | ) | ||||
| Changes in fair value of investments in marketable securities | ||||||||
| Changes in fair value of investment in warrants | ( | ) | ( | ) | ||||
| Loss on sale of warrants | ||||||||
| Impairment of investment in equity securities | ||||||||
| Impairment of investment in SAFE | ||||||||
| Changes in fair value of derivative liability | ( | ) | ||||||
| Loss on forgiveness of note receivable | ||||||||
| Gain on settlement of asset retirement obligations | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accounts payable and accrued expenses - related party | ||||||||
| Accrued payroll and other employee costs | ( | ) | ||||||
| Due to related party | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Income tax payables | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ||||||
| Net cash flows used in operating activities of continuing operations | ( | ) | ( | ) | ||||
| Cash flows from investing activities of continuing operations: | ||||||||
| Purchase of investment in SAFE | ( | ) | ||||||
| Net proceeds from sale of warrants | ||||||||
| Proceeds from sale of marketable securities | ||||||||
| Proceeds from sale of discontinued operations, net of cash divested | ||||||||
| Net cash flows provided by investing activities of continuing operations | ||||||||
| Cash flows from financing activities of continuing operations: | ||||||||
| Payments for finance lease | ( | ) | ( | ) | ||||
| Proceeds from related party debt | ||||||||
| Repayment of long-term debts | ( | ) | ( | ) | ||||
| Repayment of insurance premium financing | ( | ) | ( | ) | ||||
| Net repayment of factoring arrangement | ( | ) | ( | ) | ||||
| Capital contribution from non-controlling shareholder | ||||||||
| Dividends paid for common shares | ( | ) | ( | ) | ||||
| Proceeds from issuance of common shares related to at the market offering agreement | ||||||||
| Proceeds from collection of subscription receivable | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Proceeds from issuance of Series A convertible preferred shares and common shares related to securities purchase agreement, net of share issuance costs | ||||||||
| Net cash flows provided by (used in) financing activities of continuing operations | ( | ) | ||||||
| Cash flows from discontinued operations: | ||||||||
| Net cash flows used in operating activities of discontinued operations | ( | ) | ( | ) | ||||
| Net cash flows provided by investing activities of discontinued operations | ||||||||
| Net cash flows used in financing activities of discontinued operations | ( | ) | ( | ) | ||||
| Net cash flows used in discontinued operations | ( | ) | ( | ) | ||||
| Effect of exchange rate changes | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents - beginning of the year | ||||||||
| Cash and cash equivalents - end of the year | $ | $ | ||||||
| Supplemental cash flow disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Insurance premium financing | $ | $ | ||||||
| Warrants converted to marketable securities | $ | $ | ||||||
| Issuance of common shares related to equity purchase agreement | $ | $ | ||||||
| Dividends accrued on Series A convertible preferred shares | $ | $ | ||||||
| Issuance of common shares for dividends on Series A convertible preferred shares | $ | $ | ||||||
| Series A convertible preferred shares converted to common shares | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
HEARTCORE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
HeartCore
Enterprises, Inc. (“HeartCore USA”), a holding company, was incorporated under the laws of the State of Delaware on
On July 16, 2021, HeartCore USA executed a share exchange agreement with certain shareholders of HeartCore Co., Ltd. (“HeartCore Japan”), a company that was incorporated in Japan on June 12, 2009. Pursuant to the terms of the share exchange agreement, HeartCore USA issued shares of its common shares to the shareholders of HeartCore Japan in exchange for shares out of shares of common shares issued by HeartCore Japan, representing approximately % of HeartCore Japan’s outstanding common shares. On February 24, 2022, HeartCore USA purchased the remaining shares of common shares of HeartCore Japan. As a result, HeartCore Japan became a wholly-owned operating subsidiary of HeartCore USA.
The share exchange on July 16, 2021 has been accounted for as a recapitalization between entities under common control since the same controlling shareholders controlled these two entities before and after the transaction. The consolidation of HeartCore USA and its subsidiary has been accounted for at historical cost and prepared on the basis as if the transaction had become effective as of the beginning of the earliest period presented in the consolidated financial statements.
HeartCore USA, via its wholly-owned operating subsidiary, HeartCore Japan, is mainly engaged in the business of developing and sales of comprehensive software. Beginning from early 2022, HeartCore USA is engaged in the business of providing consulting services to Japanese companies with intention to go public in the United States capital market.
On September 6, 2022, HeartCore USA entered into a share exchange and purchase agreement to acquire % of the outstanding shares of Sigmaways, Inc. (“Sigmaways”), a company incorporated under the laws of the State of California in April 2006, and its wholly-owned subsidiaries, Sigmaways B.V. and Sigmaways Technologies Ltd. (“Sigmaways Technologies”). Sigmaways B.V. was incorporated in Netherlands in November 2019. Sigmaways Technologies was incorporated in Canada in August 2020. Sigmaways and its wholly-owned subsidiaries are primarily engaged in the business of providing software development and other services in the United States. The acquisition was closed on February 1, 2023.
In January 2023, HeartCore USA incorporated a wholly-owned subsidiary, HeartCore Financial, Inc. (“HeartCore Financial”), under the laws of the State of Delaware. HeartCore Financial is engaged in the business of providing consulting services.
In
November 2023, HeartCore Japan established a
In April 2024, HeartCore Financial incorporated a branch office, HeartCore Financial, Inc. – Japan Branch Office (“HeartCore Financial – Japan”), in Japan. HeartCore Financial – Japan is engaged in the business of providing consulting services.
On July 24, 2025, the Board of Directors of the Company approved entry into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. The sale of HeartCore Japan represented a strategic shift that had a major impact on the results of operations and has been accounted for as a discontinued operation (see NOTE 15). The sale transaction closed on October 31, 2025.
In October 2025, HeartCore USA incorporated a wholly-owned subsidiary, Higgs Field Co., Ltd. (“Higgs Field”), in Japan. Higgs Field is engaged in the business of providing business and management consulting services.
HeartCore USA, HeartCore Japan, Sigmaways, Sigmaways B.V., Sigmaways Technologies, HeartCore Financial, HeartCore Luvina, HeartCore Financial – Japan and Higgs Field are hereafter referred to as the “Company” unless specific reference is made to an entity.
| F-7 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its subsidiaries. The Company has presented the assets and liabilities of HeartCore Japan and its results of operations and cash flows as discontinued operations in the consolidated financial statements as of and for all periods presented. All footnotes exclude balances and activities of HeartCore Japan unless otherwise noted. All significant intercompany accounts and transactions have been eliminated.
Non-controlling Interests
The portion of the income or loss applicable to the non-controlling interests in Sigmaways and its wholly-owned subsidiaries and HeartCore Luvina is separately reflected in the consolidated statements of operations and comprehensive income (loss).
Use of Estimates
In preparing the consolidated financial statements in conformity U.S. GAAP, the management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, useful life of property and equipment, impairment of long-lived assets, valuation of stock-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and finance leases, valuation of asset retirement obligations, valuation of investment in warrants, revenue recognition with respect to fair value of noncash consideration, and valuation of derivative liability. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and deposits in banks and other financial institutions that are unrestricted as to withdrawal or use.
Accounts Receivable
Accounts receivable represents the amounts that the Company has an unconditional right to consideration, which are stated at the original amount less an allowance for credit losses. The allowance for credit losses reflects the Company’s current estimate of credit losses expected to be incurred over the life of the receivables. The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses including the aging of receivables and aging trends, customer creditworthiness and specific exposures related to particular customers. The Company also monitors other risk factors and forward-looking information, such as country specific risks and economic factors that may affect a customer’s ability to pay in establishing and adjusting its allowance for credit losses. Accounts receivable balances are written off after all collection efforts have ceased. The allowance is recorded against accounts receivable balances, with a corresponding charge recorded in the consolidated statements of operations and comprehensive income (loss). In circumstances in which the Company receives payment for accounts receivable that have previously been written off, the Company reverses the allowance and credit losses.
| F-8 |
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives, as more details follow:
| Depreciation Method | Useful Life | |||
| Leasehold improvements | ||||
| Machinery and equipment | ||||
| Vehicle |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments, which substantially extend the useful lives of the assets, are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and comprehensive income (loss).
Software Development Costs
Software development costs are expensed as incurred until the point the Company establishes technological feasibility. Technological feasibility is established upon completion of a detailed program design or the completion of a working model. Costs incurred by the Company between establishment of technological feasibility and the point at which the product is ready for general release are capitalized and amortized over the economic life of the related products. The Company’s software development costs incurred subsequent to achieving technological feasibility have not been significant and all software development costs have been expensed as incurred.
In
the years ended December 31, 2025 and 2024, software development costs expensed as incurred amounted to and $
Investment in Warrants
Investment in warrants represents stock warrants earned from its consulting service customers. The warrants are measured at fair value and any changes in fair value are recognized in other income (expenses). Investment in warrants is classified as long-term if the warrants are exercisable over one year after the date of receipt.
Investments in Marketable Securities
Investments in marketable securities represent equity securities registered for public sale with readily determinable fair value. The marketable securities are obtained through stocks of its customers received as noncash consideration from consulting services and through exercise of stock warrants of its consulting service customers and measured at fair value with any changes in fair value recognized in other income (expenses).
Impairment of Long-Lived Assets
Long-lived
assets with finite lives, primarily property and equipment and operating lease right-of-use assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows
from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired
and written down to its fair value. There were
Foreign Currency Translation
The functional currency of HeartCore Japan, HeartCore Financial – Japan and Higgs Field is the Japanese Yen (“JPY”). The functional currency of HeartCore USA, HeartCore Financial and Sigmaways is the United States Dollar (“US$”). The functional currency of Sigmaways B.V. is the Euro (“EUR”). The functional currency of Sigmaways Technologies is the Canada Dollar (“CAD”). The functional currency of HeartCore Luvina is the Vietnam Dong (“VND”). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statements of operations and comprehensive income (loss).
| F-9 |
The reporting currency of the Company is the US$, and the consolidated financial statements have been expressed in US$. In accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rates on the balance sheet dates. Revenues and expenses are translated at average rates prevailing during the periods. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive income (loss) within the consolidated statements of changes in shareholders’ equity.
Translation of amounts from the functional currency of the Company into US$1 has been made at the following exchange rates:
| December
31, 2025 | December
31, 2024 | |||||||
| Current JPY: US$1 exchange rate | ||||||||
| Average JPY: US$1 exchange rate | ||||||||
| Current EUR: US$1 exchange rate | ||||||||
| Average EUR: US$1 exchange rate | ||||||||
| Current CAD: US$1 exchange rate | ||||||||
| Average CAD: US$1 exchange rate | ||||||||
| Current VND: US$1 exchange rate | ||||||||
| Average VND: US$1 exchange rate | ||||||||
Revenue Recognition
The Company recognizes revenues under ASC Topic 606, “Revenue from Contracts with Customers”.
To
determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s)
with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable
consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price
to the performance obligations in the contract, and (v) recognize revenues when (or as) the Company satisfies a performance obligation.
The Company currently generates its revenues from the following main sources:
Revenues from Software Development Services
The Company provides customers with software development and support services pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application and workflow development. The Company recognizes revenues at a point in time when control is transferred to the customers and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers.
Revenues from Customized Software Development and Services
The Company’s customized software development and services revenues primarily include revenues from providing software development solutions and other support services to its customers. The contract pricing is at stated billing rates per hour. These contracts are generally short-term in nature and not longer than one year in duration. For services provided under the contracts that result in the transfer of control over time, the underlying deliverable in the contracts is owned and controlled by the customers and does not create an asset with an alternative use to the Company. The Company recognizes revenues on rate per hour contracts based on the amount billable to the customers, as the Company has the right to invoice the customers in an amount that directly corresponds with the value to the customers of the Company’s performance to date.
| F-10 |
Revenues from Consulting Services
The Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting services contracts normally include both cash and noncash considerations. Cash consideration is paid in installment payments and is recognized in revenues over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is in the form of stocks and warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. The Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved.
Sales Returns and Allowances
The Company records reduction to revenues for estimated customer returns and allowances. The Company bases its estimates on historical rates of customer returns and allowances as well as the specific identification of outstanding returns. The actual amount of customer returns and allowances, which is inherently uncertain, may differ from the Company’s estimates. If the Company determines that actual or expected returns or allowances are significantly higher or lower than the reserves it established, it would record a reduction or increase, as appropriate, to revenues in the period in which it makes such a determination. Reserves for customer refunds are included within other current liabilities on the consolidated balance sheets. At a minimum, the Company reviews and refines these estimates on a quarterly basis.
Contract Balances
The
timing of revenue recognition may differ from the timing of invoicing to the customers. The Company determines that its contracts do
not include a significant financing component. The Company records a contract asset, which is included in accounts receivable in the
consolidated balance sheets, when revenues are recognized prior to invoicing. The Company factors certain accounts receivable upon or
after the performance obligation is being met. The Company records deferred revenue in the consolidated balance sheets when revenues
are recognized subsequent to cash collection for an invoice. Deferred revenue is reported net of related uncollected deferred revenue
in the consolidated balance sheets. The amounts of revenues recognized during the years ended December 31, 2025 and 2024 that were included
in the opening deferred revenue balances were approximately $
Disaggregation of Revenues
The Company disaggregates its revenues from contracts by revenue stream types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenues and cash flows are affected by economic factors. The Company’s disaggregation of revenues by revenue stream for the years ended December 31, 2025 and 2024 is as follows:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues from software development services | $ | $ | ||||||
| Revenues from customized software development and services | ||||||||
| Revenues from consulting services | ||||||||
| Total revenues | $ | $ | ||||||
| F-11 |
Cost of Revenues
Cost of revenues primarily consists of salaries and outsourcing expenses for personnel and parties directly involved in the delivery of services to customers.
Advertising Expenses
Advertising
expenses consist primarily of costs of promotion and marketing for the Company’s image and services, and costs of direct advertising,
and are included in selling expenses. The Company expenses advertising costs as incurred or the first time the advertising takes place,
whichever is earlier, in accordance with the ASC Topic 720-35, “Advertising Costs”. The advertising expenses were $
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable, note receivable and other receivable. The Company usually does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For the years ended December 31, 2025 and 2024, customers account for 10% or more of the Company’s revenues are as follows:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2025 | 2024 | |||||||
| Customer A | % | % | ||||||
| Customer B | * | % | ||||||
As of December 31, 2025 and 2024, customers account for 10% or more of the Company’s accounts receivable are as follows:
| December
31, 2025 | December
31, 2024 | |||||||
| Customer A | % | % | ||||||
| Customer C | % | % | ||||||
| Customer D | * | % | ||||||
| Customer E | * | % | ||||||
| Customer F | * | % | ||||||
For the years ended December 31, 2025 and 2024, no vendor accounts for 10% or more of the Company’s purchases.
As of December 31, 2025 and 2024, vendors account for 10% or more of the Company’s accounts payable and accrued expenses are as follows:
| December
31, 2025 | December
31, 2024 | |||||||
| Vendor A | % | * | ||||||
| Vendor B | * | % | ||||||
| Vendor C | * | % | ||||||
| * |
| F-12 |
Segment Reporting
ASC Topic 280, “Segment Reporting”, requires use of the management approach model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker (“CODM”) organizes segments within the Company for making operating decisions, assessing performance and allocating resources. Reportable segments are based on services, geography, legal structure, management structure, or any other manner in which management disaggregates a company (see NOTE 16).
Comprehensive Income or Loss
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income (loss), as presented in the consolidated statements of changes in shareholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation.
The Company computes basic and diluted net income (loss) per share in accordance with ASC Topic 260, “Earnings Per Share”. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and potentially dilutive common shares outstanding during the reporting period. Potentially dilutive common shares are not included in the calculation of diluted net income (loss) per share if their effect would be anti-dilutive.
Stock-based Compensation
The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statements of operations and comprehensive income (loss) based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures as they occur.
Related Parties and Transactions
The Company identifies related parties, and accounts for and discloses related party transactions in accordance with ASC Topic 850, “Related Party Disclosures” and other relevant ASC standards.
Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive and free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions are consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Income Taxes
Income taxes are accounted for using an asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes”. Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
| F-13 |
The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expenses and penalties are classified in general and administrative expenses in the consolidated statements of operations and comprehensive income (loss).
Series A Convertible Preferred Shares and Derivative Liability
When the Company issues the Series A convertible preferred shares (see NOTE 13), it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC Topic 480, “Distinguishing Liabilities from Equity”, and second evaluates whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of the Series A convertible preferred shares would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, as a standalone instrument, meets the definition of an embedded derivative under ASC Topic 815, “Derivatives and Hedging”. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC Topic 815-40, or when it must be settled either in cash or by issuing equity shares that are readily convertible to cash.
The Company assesses the Series A convertible preferred shares as a whole and determines it does not meet the liability classification pursuant to ASC Topic 480 and the Company classifies the host instrument as permanent equity because no features provide for redemption by the holders of the Series A convertible preferred shares or conditional redemption, which is not solely within the Company’s control, and there are no unconditional obligations in that (i) the Company must or may settle in a variable number of its equity shares, and (ii) the monetary value is predominantly fixed, varying with something other than the fair value of the Company’s equity shares or varying inversely in relation to the Company’s equity shares.
The Company assesses the conversion feature of the Series A convertible preferred shares for derivative accounting consideration and determines it meets the definition of an embedded derivative, which is separated from the host instrument and classified as a derivative liability carried on the consolidated balance sheets at fair value with any changes in fair value recognized in other income (expenses). The Company values the fair value of derivative liability using the income approach with the discounted cash flow valuation method with the assistance of a third-party valuation appraiser. The determination of fair value requires management to make significant estimates and assumptions related to forecasted cash flows and discount rate.
| F-14 |
Fair Value Measurements
The Company performs fair value measurements in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures”. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1: quoted prices in active markets for identical assets or liabilities; | |
| ● | Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or | |
| ● | Level 3: unobservable inputs that are supported by little or no market activities and that are significant to the fair values of the assets or liabilities. |
As of December 31, 2025 and 2024, the carrying values of current assets, except for investments in marketable securities, and current liabilities, except for derivative liability, approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments.
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024 are summarized below (also see NOTE 5 for investments):
| Fair Value Measurements as of December 31, 2025 | ||||||||||||||||
| Quoted
Prices in Active Markets for Identical Assets (Level 1) | Significant
Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair
Value at December 31, 2025 | |||||||||||||
| Investments in marketable securities | ||||||||||||||||
| Long-term investment in warrants | ||||||||||||||||
| Derivative liability | ||||||||||||||||
| Fair Value Measurements as of December 31, 2024 | ||||||||||||||||
| Quoted
Prices in Active Markets for Identical Assets (Level 1) | Significant
Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Fair
Value at December 31, 2024 | |||||||||||||
| Investments in marketable securities | ||||||||||||||||
| Long-term investment in warrants | ||||||||||||||||
Assets Held for Sale and Discontinued Operations
In accordance with ASC Topic 205-20, “Presentation of Financial Statements – Discontinued Operations”, a component or a group of components of an entity shall be classified as held for sale in the period in which all of the following criteria are met: (i) management, having the authority to approve the action, commits to a plan to sell the entity to be sold; (ii) the entity to be sold is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such entities to be sold; (iii) an active program to locate a buyer or buyers and other actions required to complete the plan to sell the entity to be sold have been initiated; (iv) the sale of the entity to be sold is probable and transfer of the entity to be sold is expected to qualify for recognition as a completed sale within one year; (v) the entity to be sold is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. A component or a group of components of an entity classified as held for sale is reported at the lower of its carrying amount or fair value less cost to sell. If the fair value of the entity to be sold less cost to sell is lower than its carrying amount, an impairment loss is recognized and update each reporting period as appropriate. Assets held for sale are not depreciated or amortized.
| F-15 |
The results of operations of the entity to be sold classified as held for sale are reported as discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.
The Company assesses the sale of HeartCore Japan and determines it meets the held for sale criteria and the discontinued operations criteria. The assets and liabilities of HeartCore Japan have been reflected as assets and liabilities of discontinued operations in the consolidated balance sheets for all periods presented. The results of operations of HeartCore Japan are presented as discontinued operations in the consolidated statements of operations and comprehensive income (loss) for all periods presented. Prior periods have been adjusted to conform to the current presentation. The required disclosures are included in NOTE 15.
Recent Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU No. 2023-09 is effective for public companies for annual reporting periods beginning after December 15, 2024, on a prospective basis. The Company adopted ASU No. 2023-09 for the year ended December 31, 2025 (see NOTE 11).
New Accounting Pronouncements Not Yet Effective
In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public companies to disclose additional information about specific expense categories in the notes to the consolidated financial statements on an annual and interim basis. ASU No. 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The amendments in ASU No. 2025-05 provide entities with a practical expedient to simplify the estimation of expected credit losses on current accounts receivable and current contract assets that arise from transactions accounted for under ASC Topic 606 by allowing the assumption that current conditions as of the balance sheet date will not change during the remaining life of the asset. ASU No. 2025-05 is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU No. 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its interim consolidated financial statements and related disclosures.
| F-16 |
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
| December
31, 2025 | December
31, 2024 | |||||||
| Accounts receivable – non-factored | $ | $ | ||||||
| Accounts receivable – factored with recourse | ||||||||
| Total accounts receivable, gross | ||||||||
| Less: allowance for credit losses | ||||||||
| Total accounts receivable | $ | $ | ||||||
NOTE 4 – RELATED PARTY TRANSACTIONS
As
of December 31, 2025 and 2024, the Company had due to related party balances of $
As
of December 31, 2025 and 2024, the Company had due to related party balances of and
$
As
of December 31, 2025 and 2024, the Company had a short-term debt balance of $
NOTE 5 – INVESTMENTS
Investment in Warrants
The Company received warrants from its customers as noncash consideration from consulting services. The warrants are not registered for public sale and are initially measured at fair value at contract inception using the binomial model with the assistance of a third-party valuation appraiser. The following table summarizes the inputs to the model used to estimate the fair value of the warrants received and recognized as consulting services revenues for the years ended December 31, 2025 and 2024:
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Time to maturity (in years) | ||||||||
| Risk-free interest rate | % | % | ||||||
| F-17 |
The Company’s investment in warrants is measured on a recurring basis and carried on the consolidated balance sheets at an estimated fair value at the end of the year. The valuation of investment in warrants is determined using the Black-Scholes model. The following table summarizes the inputs to the model used to estimate the fair value of the investment in warrants as of December 31, 2025 and 2024:
| December
31, 2025 | December
31, 2024 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Expected volatility | % | % | ||||||
| Time to maturity (in years) | ||||||||
| Risk-free interest rate | % | % | ||||||
The following table summarizes the Company’s investment in warrants activities for the years ended December 31, 2025 and 2024:
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Fair value of investment in warrants at beginning of the year | $ | $ | ||||||
| Warrants received as noncash consideration | ||||||||
| Changes in fair value of investment in warrants | ||||||||
| Warrants converted to marketable securities | ( | ) | ( | ) | ||||
| Warrants sold* | ( | ) | ||||||
| Fair value of investment in warrants at end of the year | $ | $ | ||||||
| * |
Investments in Marketable Securities
The Company’s investments in marketable securities represent stocks received from its customers as noncash consideration from consulting services and stocks received upon the exercise of warrants described above. They are registered for public sale with readily determinable fair values, and are measured at quoted prices on a recurring basis at the end of the year.
The following table summarizes the Company’s investments in marketable securities activities for the years ended December 31, 2025 and 2024:
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Fair value of investments in marketable securities at beginning of the year | $ | $ | ||||||
| Marketable securities received as noncash consideration | ||||||||
| Marketable securities converted from warrants** | ||||||||
| Changes in fair value of investments in marketable securities | ( | ) | ( | ) | ||||
| Marketable securities sold | ( | ) | ( | ) | ||||
| Fair value of investments in marketable securities at end of the year | $ | $ | ||||||
| ** |
| F-18 |
NOTE 6 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| December
31, 2025 | December
31, 2024 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Vehicle | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
For
the years ended December 31, 2025 and 2024, the Company recognized depreciation expenses of $
NOTE 7 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
| December
31, 2025 | December
31, 2024 | |||||||
| Customer refund liability* | $ | $ | ||||||
| Others | ||||||||
| Total other current liabilities | $ | $ | ||||||
| * |
NOTE 8 – FACTORING LIABILITY
Sigmaways,
the subsidiary acquired by the Company in February 2023, entered into a factoring and security agreement (“Factoring Agreement”)
with The Southern Bank Company, an unrelated factor (“Factor”), in February 2017, for the purpose of factoring certain accounts
receivable. Pursuant to the terms of the Factoring Agreement, Sigmaways may offer for sale, and the Factor may purchase in its sole discretion,
certain accounts receivable of Sigmaways (“Purchased Receivable”). The Factoring Agreement provided for a maximum of $
Selected
accounts receivable is submitted to the Factor, and Sigmaways receives
The Factoring Agreement specifies that eligible accounts receivable is factored with recourse. Pursuant to the terms of the recourse provision, Sigmaways is required to reimburse the Factor, upon demand, for Purchased Receivable that is not paid on time by the customers. The performance of all obligations and payments to the Factor is secured by all Sigmaways’ now owned and hereafter assets and any sums maintained by the Factor that are identified as payable to Sigmaways.
The Factoring Agreement has an initial term of twelve months and automatically renews for successive twelve-month renewal periods unless terminates pursuant to the terms of the Factoring Agreement. Sigmaways may terminate the Factoring Agreement with sixty days’ written notice to the Factor and is subject to certain early termination fee.
The Factoring Agreement contains covenants that are customary for accounts receivable-based factoring agreements and also contains provisions relating to events of default that are customary for agreements of this type.
As
of December 31, 2025 and 2024, there were $
| F-19 |
NOTE 9 – INSURANCE PREMIUM FINANCING
In
January 2025, the Company entered into an insurance premium financing agreement with AFCO Direct, a division of AFCO Credit Corporation,
for $
In
January 2024, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $
As
of December 31, 2025 and 2024, the balances of the insurance premium financing were $
NOTE 10 – LONG-TERM DEBTS
The Company’s long-term debts represent loans borrowed from a bank and a financial institution as follows:
| Name of Bank/Financial Institution | Original
Amount Borrowed | Loan Duration | Annual Interest Rate | Balance as of December 31, 2025 | Balance
as of December 31, 2024 | |||||||||||
| First Home Bank | $ | (a) | Wall Street Journal U.S. Prime
Rate + | % | $ | $ | ||||||||||
| U.S. Small Business Administration | $ | (a) | % | |||||||||||||
| Aggregate outstanding principal balances | ||||||||||||||||
| Less: current portion | ( | ) | ( | ) | ||||||||||||
| Non-current portion | $ | $ | ||||||||||||||
| (a) |
For
the years ended December 31, 2025 and 2024, the Company recorded $
As of December 31, 2025, future minimum principal payments for long-term debts are as follows:
| Principal | ||||
| Year Ended December 31, | Payment | |||
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 11 – INCOME TAXES
United States
HeartCore
USA, Sigmaways and HeartCore Financial, incorporated in the United States, are subject to federal income tax at
| F-20 |
Netherlands
Sigmaways
B.V. is a company incorporated in Netherlands.
Canada
Sigmaways
Technologies is a company incorporated in British Columbia in Canada. It is subject to income tax on income arising in, or derived from,
the tax jurisdiction in British Columbia it operates. The basic federal rate of Part I tax is
Vietnam
HeartCore
Luvina is a company incorporated in Vietnam. It is subject to standard income tax rate at
Japan
HeartCore
Financial – Japan and Higgs Field are companies incorporated in Japan. Income taxes in Japan are imposed by the national, prefectural
and municipal governments, and in the aggregate result in an effective statutory tax rate of approximately
For the years ended December 31, 2025 and 2024, the Company’s income tax expense (benefit) are as follows:
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Current | $ | $ | ||||||
| Deferred | ( | ) | ||||||
| Income tax expense (benefit) | $ | $ | ( | ) | ||||
After the adoption of ASU No. 2023-09 on a prospective basis, a reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S. federal statutory income tax rate to loss from continuing operations before income tax expense (benefit) for the year ended December 31, 2025 is as follows:
| For
the Year Ended December 31, 2025 | ||||||||
| Amount | Percent | |||||||
| Tax at U.S. federal statutory rate | $ | ( | ) | % | ||||
| State and local income tax, net of federal income tax effect | ( | ) | % | |||||
| Foreign tax effects: | ||||||||
| Other foreign jurisdictions | ( | ) | % | |||||
| Effect of expenses not deductible for tax purpose | ( | )% | ||||||
| Change in valuation allowance | ( | )% | ||||||
| Other adjustments | ( | )% | ||||||
| Effective income tax rate | $ | ( | )% | |||||
| F-21 |
For the year ended December 31, 2024, prior to the adoption of ASU No. 2023-09, a reconciliation of the effective income tax rate to the U.S. federal statutory income tax rate is as follows:
| For the Year Ended December 31, 2024 | ||||
| Tax at U.S. federal statutory rate | % | |||
| State and local income tax, net of federal income tax effect | % | |||
| Effect of income tax difference under different tax jurisdictions | ( | )% | ||
| Effect of expenses not deductible for tax purpose | ( | )% | ||
| Goodwill impairment | ( | )% | ||
| Change in valuation allowance | ( | )% | ||
| Other adjustments | ( | )% | ||
| Effective income tax rate | % | |||
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2025 and 2024 are presented below:
| December
31, 2025 | December
31, 2024 | |||||||
| Deferred tax assets | ||||||||
| Revenue adjustments | $ | $ | ||||||
| Expense adjustments | ||||||||
| Lease liabilities | ||||||||
| Asset retirement obligations | ||||||||
| Fair value change on investment securities | ||||||||
| Net operating losses carried forward | ||||||||
| Others | ||||||||
| Total deferred tax assets, gross | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets, net | $ | $ | ||||||
| Deferred tax liabilities | ||||||||
| Right-of-use assets | $ | ( | ) | $ | ( | ) | ||
| Asset retirement costs | ( | ) | ||||||
| Fair value change on derivative liability | ( | ) | ||||||
| Total deferred tax liabilities | $ | ( | ) | $ | ( | ) | ||
| Deferred tax assets, net | $ | $ | ||||||
The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company regularly assesses the ability to realize its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, projected future taxable income, and tax planning strategies.
The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth. The adjustments of a valuation allowance against deferred tax assets may cause greater volatility in the effective income tax rate in the periods in which the valuation allowance is adjusted.
The following table presents income taxes paid, net of refunds:
| For the Year Ended December 31, 2025 | ||||
| Federal | ||||
| State and local | ||||
| Foreign: | ||||
| Japan | ||||
| Canada | ||||
| Vietnam | ||||
| Total | ||||
| F-22 |
Uncertain Tax Positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2025 and 2024, the management considered the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest or penalties tax for the years ended December 31, 2025 and 2024. The Company does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months from December 31, 2025. The Company files U.S. federal, state and foreign tax returns. The tax years ending from December 31, 2022 through December 31, 2024 generally remain subject to examination by the Internal Revenue Service and various state taxing authorities. The tax years ending from December 31, 2021 through December 31, 2024 generally remain subject to examination by various foreign jurisdictions. The Company is not currently under examination in any jurisdictions.
On August 6, 2021, the Board of Directors and shareholders of the Company approved a 2021 Equity Incentive Plan (“2021 Plan”), under which shares of common shares are authorized for issuance.
On August 1, 2023, the Board of Directors of the Company approved a 2023 Equity Incentive Plan (“2023 Plan”), under which shares of common shares are authorized for issuance.
Stock Options
On December 25, 2021, the Company awarded stock options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to various officers, directors, employees and consultants of the Company. The stock options vest on each annual anniversary of the date of issuance, in an amount equal to % of the applicable shares of common shares, with the expiration date on .
On August 9, 2022, the Company awarded stock options to purchase shares of common shares at an exercise price of $ per share to three prior employees of the Company. The stock options are fully vested and exercisable on the grant date, with the expiration date on .
On February 3, 2023, the Company awarded stock options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The stock options vest % on the grant date and February 1, 2024, respectively, with the expiration date on .
Number of Stock Options | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | Intrinsic Value | |||||||||||||
| As of January 1, 2024 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||
| As of December 31, 2024 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | ( | ) | - | - | ||||||||||||
| Forfeited | ( | ) | - | - | ||||||||||||
| As of December 31, 2025 | $ | $ | ||||||||||||||
| Vested and exercisable as of December 31, 2025 | $ | $ | ||||||||||||||
For the years ended December 31, 2025 and 2024, the Company recognized stock-based compensation related to stock options of $() and $, respectively. There was outstanding unamortized stock-based compensation related to stock options as of December 31, 2025.
| F-23 |
Restricted Stock Units (“RSUs”)
On February 9, 2022, the Company entered into executive employment agreements with five executives and granted RSUs pursuant to the 2021 Plan. The RSUs vest on each annual anniversary of the date of the employment agreements, in an amount equal to % of the applicable shares of common shares. The fair value of the RSUs at grant date is $.
On October 1, 2024, the Company granted RSUs pursuant to the 2023 Plan to four executives of the Company. The RSUs are fully vested upon issuance. The fair value of the RSUs at grant date is $.
On October 3, 2025, the Company granted RSUs pursuant to the 2023 Plan to four executives of the Company. The RSUs are fully vested on the grant date. The fair value of the RSUs at grant date is $.
The following table summarizes the RSUs activities and related information for the years ended December 31, 2025 and 2024:
| Number of RSUs | Weighted
Average Value Per Share | |||||||
| Unvested as of January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested as of December 31, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Unvested as of December 31, 2025 | $ | |||||||
For the years ended December 31, 2025 and 2024, the Company recognized stock-based compensation related to RSUs of $ and $, respectively. The outstanding unamortized stock-based compensation related to RSUs was $ (which will be recognized through February 2026) as of December 31, 2025.
NOTE 13 – SHAREHOLDERS’ EQUITY
Shares Authorized
The Company is authorized to issue shares of common shares, par value of $ per share, and shares of preferred shares, par value of $ per share.
At the Market Offering Agreement (“ATM Agreement”)
On
October 23, 2023, the Company entered into a ATM Agreement with H.C. Wainwright & Co., LLC (“Wainwright”), as sales agent,
pursuant to which the Company may offer and sell, from time to time, through Wainwright, shares of the Company’s common shares,
par value of $ per share, having an aggregate offering price of up to approximately $
| F-24 |
Designation of Series A Convertible Preferred Shares and Securities Purchase Agreement
On June 30, 2025, the Company filed a certificate of designations of preferences and rights of Series A convertible preferred shares (“Series A COD”) with the Secretary of State of the State of Delaware to set forth the terms of the Series A convertible preferred shares. Pursuant to the Series A COD, the Company designated shares of preferred shares as Series A convertible preferred shares and each share of Series A convertible preferred shares has a stated value of $. On October 22, 2025, the Board of Directors of the Company approved to amend the number of designated shares of Series A convertible preferred shares to shares pursuant to the Series A COD. The following summarizes the material terms of the Series A convertible preferred shares:
| ● | Dividends – Each Series A convertible preferred shares holder (“Holder”) shall be entitled to receive dividends of % per annum on the stated value of each share of Series A convertible preferred shares. |
| ● | Liquidation – In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of common shares and any other class or series of equity shares of the Company, an amount per share equal to the greater of (i) the stated value plus all accrued and unpaid dividends thereon or (ii) the amount that such Holder would receive if such Holder converts all of its shares of Series A convertible preferred shares into common shares immediately prior to such liquidation, dissolution or winding up. If, upon any such liquidation, dissolution or winding up, the assets and funds available for distribution among the Holders shall be insufficient to permit the payment to such Holders of the full preferential amount aforesaid, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the Holders in proportion to the amount that each such Holder is entitled to receive. After the payment of the full amount of the liquidation preference to which the Holders are entitled, the Holders shall have no right or claim to any of the remaining assets of the Company. |
| ● | Voting – The Series A convertible preferred shares shall have no voting rights. However, as long as any shares of Series A convertible preferred shares are outstanding, the Company shall not, without the affirmative vote of the Holders of a majority of the outstanding shares of Series A convertible preferred shares, and with each share of Series A convertible preferred shares having on (i) alter or change adversely the powers, preferences or rights given to the Series A convertible preferred shares or alter or amend the Series A COD, (ii) issue additional shares of Series A convertible preferred shares or increase or decrease (other than by conversion) the number of authorized shares of Series A convertible preferred shares, or (iii) enter into any agreement with respect to any of the foregoing. |
| ● | Conversion – Each Holder shall have the right, at such Holder’s opinion, to convert any or all of the Series A convertible preferred shares held by such Holder into fully paid and nonassessable shares of common shares. The number of shares of common shares issuable upon conversion of each share of Series A convertible preferred shares shall be equal to the quotient obtained by dividing (i) the stated value plus all accrued and unpaid dividends thereon by (ii) % of the average of the two lowest volume weighted average price (“VWAP”) of the Company’s common shares for the five trading days immediately preceding the respective common shares conversion notice delivery date. |
| ● | Redemption – No share of Series A convertible preferred shares shall be redeemable under any circumstances. |
On
June 30, 2025, the Company entered into a securities purchase agreement and a registration rights agreement with Crom Structured Opportunities
Fund I, LP (“Crom Structured”), pursuant to which the Company closed, issued and sold to Crom Structured an aggregate of
shares of the Company’s designated Series A convertible preferred shares for an aggregate purchase price of $. Concurrently
with the signing of the securities purchase agreement, the Company issued shares of common shares (“ Common Shares”)
to Crom Structured for no consideration. The Company received net proceeds of $
| F-25 |
For the year ended December 31, 2025, there were shares of Series A convertible preferred shares converted into shares of common shares.
For
the year ended December 31, 2025, the Company paid dividends on Series A convertible preferred shares of $
Equity Purchase Agreement
On
June 30, 2025, the Company entered into an equity purchase agreement and a registration rights agreement with Crom Structured, pursuant
to which Crom Structured has committed to purchase up to $
Pursuant
to the terms of the equity purchase agreement, the Company has the right, but not the obligation, to sell to Crom Structured, shares
of common shares over the period commencing on the date of the equity purchase agreement and ending on the earlier of (i) the date on
which Crom Structured shall have purchased common shares pursuant to the equity purchase agreement equal to $
Concurrently
with the signing of the equity purchase agreement, the Company issued shares of common shares to Crom Structured as a commitment
fee. The total fair value of the common shares issued for the commitment fee of $
For the year ended December 31, 2025, no common shares were sold pursuant to the terms of the equity purchase agreement.
Capital Contribution for Non-controlling Shareholder
In
November 2023, the Company established a
Dividends Paid for Common Shares
On
March 29, 2024, the Board of Directors of the Company approved a dividend declaration of $ per share of common shares for the shareholders
of record at the close of business on April 26, 2024. The dividends of $
On
July 22, 2024, the Board of Directors of the Company approved a dividend declaration of $ per share of common shares for the shareholders
of record at the close of business on August 19, 2024. The dividends of $
| F-26 |
On
October 19, 2025, the Board of Directors of the Company approved a dividend declaration of $ per share of common shares for the shareholders
of record at the close of business on November 10, 2025. The dividends of $
Shares Issued and Outstanding
As of December 31, 2025 and 2024, there were and shares of common shares issued and outstanding, respectively.
As of December 31, 2025 and 2024, there were and shares of preferred shares (designated as Series A convertible preferred shares) issued and outstanding, respectively.
Basic net income (loss) per share is calculated on the basis of weighted average outstanding common shares. Diluted net income (loss) per share is calculated on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs and Series A convertible preferred shares. Potentially dilutive common shares are determined by applying the treasury stock method to the assumed conversion of share repurchase liability to common shares related to the early exercised stock options and unvested RSUs. Potentially dilutive common shares issuable upon conversion of the Series A convertible preferred shares are determined by applying the if-converted method. Potentially dilutive common shares are not included in the calculation of diluted net income (loss) per share if their effect would be anti-dilutive.
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Net loss from continuing operations attributable to HeartCore Enterprises, Inc. per common share – basic | ||||||||
| Numerator | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Less: net loss from continuing operations attributable to non-controlling interests | ( | ) | ( | ) | ||||
| Net loss from continuing operations attributable to HeartCore Enterprises, Inc. | ( | ) | ( | ) | ||||
| Dividends accrued on Series A convertible preferred shares | ( | ) | ||||||
| Net loss from continuing operations attributable to HeartCore Enterprises, Inc. common shareholders | ( | ) | ( | ) | ||||
| Denominator | ||||||||
| Weighted average number of common shares outstanding – basic | ||||||||
| Net loss from continuing operations attributable to HeartCore Enterprises, Inc. per common share – basic | $ | ( | ) | $ | ( | ) | ||
| Net loss from continuing operations attributable to HeartCore Enterprises, Inc. per common share – diluted | ||||||||
| Numerator | ||||||||
| Net loss from continuing operations attributable to HeartCore Enterprises, Inc. common shareholders | $ | ( | ) | $ | ( | ) | ||
| Add: dividends accrued on unconverted Series A convertible preferred shares | ||||||||
| Less: changes in fair value of derivative liability, net of income tax | ||||||||
| Net loss from continuing operations attributable to HeartCore Enterprises, Inc. – diluted | ( | ) | ( | ) | ||||
| Denominator | ||||||||
| Weighted average number of common shares outstanding – diluted | ||||||||
| Net loss from continuing operations attributable to HeartCore Enterprises, Inc. per common share – diluted | $ | ( | ) | $ | ( | ) | ||
| F-27 |
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Income (loss) from discontinued operations per common share – basic | ||||||||
| Numerator | ||||||||
| Income (loss) from discontinued operations, net of income tax | $ | $ | ( | ) | ||||
| Denominator | ||||||||
| Weighted average number of common shares outstanding – basic | ||||||||
| Income (loss) from discontinued operations per common share – basic | $ | $ | ( | ) | ||||
| Income (loss) from discontinued operations per common share – diluted | ||||||||
| Numerator | ||||||||
| Income (loss) from discontinued operations, net of income tax | $ | $ | ( | ) | ||||
| Denominator | ||||||||
| Weighted average number of common shares outstanding – basic | ||||||||
| Dilutive effect of stock options, RSUs and Series A convertible preferred shares | ||||||||
| Weighted average number of common shares outstanding – diluted | ||||||||
| Income (loss) from discontinued operations per common share – diluted | $ | $ | ( | ) | ||||
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share – basic | ||||||||
| Numerator | ||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ | $ | ( | ) | ||||
| Denominator | ||||||||
| Weighted average number of common shares outstanding – basic | ||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share – basic | $ | $ | ( | ) | ||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share – diluted | ||||||||
| Numerator | ||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders | $ | $ | ( | ) | ||||
| Add: dividends accrued on unconverted Series A convertible preferred shares | ||||||||
| Less: changes in fair value of derivative liability, net of income tax | ||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. – diluted | ( | ) | ||||||
| Denominator | ||||||||
| Weighted average number of common shares outstanding – basic | ||||||||
| Dilutive effect of stock options, RSUs and Series A convertible preferred shares | ||||||||
| Weighted average number of common shares outstanding – diluted | ||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. per common share – diluted | $ | $ | ( | ) | ||||
| F-28 |
NOTE 15 – DISCONTINUED OPERATIONS
On
July 24, 2025, in light of the intense competition of the software market in Japan, the Board of Directors of the Company approved
entry into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. The sale transaction was closed
on October 31, 2025. The Company does not expect to have any continuing involvement in HeartCore Japan subsequent to the closing.
The Company determines the assets of HeartCore Japan met the criteria for classification as held for sale. Additionally, the Company
determines the sale of HeartCore Japan represents a strategic shift that has a major impact on its operations and financial results.
Accordingly, all results of operations of HeartCore Japan have been removed from continuing operations and presented as discontinued
operations in the consolidated statements of operations and comprehensive income (loss) for all periods presented. All assets and
liabilities of HeartCore Japan have been presented separately as assets and liabilities of discontinued operations in the
consolidated balance sheets as of December 31, 2025 and 2024. On October 31, 2025, the Company entered into a purchase agreement to
sell
The following table summarizes the results of operations from discontinued operations, net of income tax in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2025 and 2024:
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Total operating expenses | ||||||||
| Income from discontinued operations | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Gain on sale of discontinued operations | ||||||||
| Income from discontinued operations before income tax expense | ||||||||
| Income tax expense | ||||||||
| Income (loss) from discontinued operations, net of income tax | $ | $ | ( | ) | ||||
| F-29 |
The following table summarizes the assets and liabilities of discontinued operations in the consolidated balance sheets as of December 31, 2025 and 2024:
| December
31, 2025 | December
31, 2024 | |||||||
| Assets of discontinued operations | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Due from related party | ||||||||
| Other current assets | ||||||||
| Accounts receivable, non-current | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| Security deposits | ||||||||
| Long-term loan receivable from related party | ||||||||
| Other non-current assets | ||||||||
| Total assets of discontinued operations | $ | $ | ||||||
| Liabilities of discontinued operations | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and other employee costs | ||||||||
| Due to related party | ||||||||
| Current portion of long-term debts | ||||||||
| Operating lease liabilities, current | ||||||||
| Income tax payables | ||||||||
| Deferred revenue | ||||||||
| Other current liabilities | ||||||||
| Long-term debts | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Asset retirement obligations | ||||||||
| Total liabilities of discontinued operations | $ | $ | ||||||
Assets and liabilities classified as held for sale are reported at the lower of carrying amount or fair value less cost to sell. There was no valuation allowance against the assets classified as held for sale. As of the closing date of the sale of HeartCore Japan, the assets and liabilities classified as held for sale were derecognized and gain on sale of discontinued operations was recorded.
NOTE 16 – SEGMENT AND GEOGRAPHIC INFORMATION
Segment Information
Operating segments are defined as components of an entity for which discrete financial information is available and is regularly reviewed by the CODM, the CEO of the Company, in making decisions regarding resource allocation and performance assessment. The Company determines its operations constitute a single operating segment and reportable segment in accordance with ASC Topic 280. The CODM assesses financial performance and decides how to allocate resources based on consolidated net loss from continuing operations. Segment assets are reported on the Company’s consolidated balance sheets.
| F-30 |
The following table summarizes the selected financial information with respect to the Company’s single operating segment and reportable segment for the years ended December 31, 2025 and 2024:
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | $ | $ | ||||||
| Less: | ||||||||
| Software related cost of revenues | ||||||||
| Consulting related cost of revenues | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Impairment of intangible asset | ||||||||
| Impairment of goodwill | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Total other expenses | ( | ) | ( | ) | ||||
| Loss from continuing operations before income tax expense (benefit) | ( | ) | ( | ) | ||||
| Income tax expense (benefit) | ( | ) | ||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
Geographic Information
The following table summarizes the breakdown of revenues by geography for the years ended December 31, 2025 and 2024:
| For
the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Japan | $ | $ | ||||||
| United States | ||||||||
| International | ||||||||
| Total revenues | $ | $ | ||||||
The following table summarizes the breakdown of long-lived assets by geography as of December 31, 2025 and 2024:
| December
31, 2025 | December
31, 2024 | |||||||
| Japan | $ | $ | ||||||
| United States | ||||||||
| International | ||||||||
| Total long-lived assets | $ | $ | ||||||
NOTE 17 – SUBSEQUENT EVENTS
In
January 2026, the Company entered into an insurance premium financing agreement with AFCO Direct, a division of AFCO Credit Corporation,
for $
On
February 18, 2026, the Board of Directors of the Company approved a share repurchase program, pursuant to which the Company is authorized
to repurchase up to $
On
March 5, 2026, the Board of Directors of the Company approved to sell
| F-31 |
EXHIBIT INDEX
| 71 |
| 72 |
| 73 |
| * | Filed herewith |
| ** | Furnished herewith. |
| † | Management contracts and compensation plans and arrangements |
| 74 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HEARTCORE ENTERPRISES, INC. | ||
| Dated: March 31, 2026 | By: | /s/ Sumitaka Yamamoto |
| Sumitaka Yamamoto | ||
| Chief Executive Officer and President | ||
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Sumitaka Yamamoto and Qizhi Gao, and each of them, as attorneys-in-fact with full power of substitution to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to the annual report on Form 10-K, which amendments may make such changes in the report as the attorney-in-fact acting deems appropriate and to file any such amendment to the annual report on Form 10-K with the Securities and Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Sumitaka Yamamoto | Chairman of Board, Chief Executive Officer and President | March 31, 2026 | ||
| Sumitaka Yamamoto | (Principal Executive Officer) | |||
| /s/ Qizhi Gao | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | March 31, 2026 | ||
| Qizhi Gao | ||||
| /s/ Kimio Hosaka | Director | March 31, 2026 | ||
| Kimio Hosaka | ||||
| /s/ Ferdinand Groenewald | Director | March 31, 2026 | ||
| Ferdinand Groenewald | ||||
| /s/ Yoonji Lee | Director | March 31, 2026 | ||
| Yoonji Lee | ||||
| /s/ Koji Sato | Director | March 31, 2026 | ||
| Koji Sato |
| 75 |