HeartCore Enterprises, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe harbor for forward-looking statements made by us or on our behalf. We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission (“SEC”) and in our reports and presentations to stockholders or potential stockholders. In some cases, forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions. Such forward-looking statements include risks and uncertainties and there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and uncertainties can be found in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as the same may be updated from time to time, including in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this report are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. Business Overview In 2022, HeartCore Enterprises, Inc. (“HeartCore USA”) started the GO IPO business, which supports Japanese companies listing on The Nasdaq Stock Market (“Nasdaq”) and the New York Stock Exchange (“NYSE”) in the United States. As of September 30, 2025, we have entered into consulting agreements with 16 companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase 1% to 4% of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share. We have also been a leading software development company based in Tokyo, Japan. We provide software through two business units. The first business unit, our CX division, includes a customer experience management business (the “CXM Platform”) that has been in existence for over 15 years. Our CXM Platform includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience. We also provide education, services and support to help customers be successful with our CXM Platform. The second business unit, our DX division, is a digital transformation business which provides customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises. We also have an ongoing technology innovation team to develop software that supports the narrow needs of large enterprise customers. We made the strategic decision to sell our software business assets in Japan and to concentrate our efforts on our GO IPO consulting business. 1 On October 31, 2025, the Company entered into a Purchase Agreement (the “HeartCore Japan Agreement”) with Smith Japan Holdings KK (“Smith Japan”), pursuant to which the Company agreed to sell to Smith Japan, and Smith Japan agreed to purchase (the “HeartCore Japan Sale”), all of the outstanding equity interests of HeartCore Co., Ltd., a wholly owned subsidiary of the Company (“HeartCore Japan”). See “Recent Events” below. In January 2023, we formed HeartCore Financial, Inc. (“HeartCore Financial”), a wholly owned subsidiary of HeartCore USA, in the U.S. as part of our GO IPO consulting business. In November 2023, we formed HeartCore Luvina Vietnam Company (“HeartCore Luvina”), a 51% owned subsidiary, in Vietnam, which is engaged in the business of software development and other services. HeartCore Luvina started operations in February 2024. In October 2025, HeartCore Japan transferred 51% of the outstanding shares of HeartCore Luvina to HeartCore USA. In April 2024, HeartCore Financial incorporated a branch office, HeartCore Financial, Inc. – Japan Branch Office (“HeartCore Financial – Japan”), in Japan. HeartCore Financial – Japan is engaged in the business of providing consulting services. In October 2025, HeartCore USA incorporated a wholly-owned subsidiary, Higgs Field Co., Ltd. (“Higgs Field”), in Japan. Higgs Field is engaged in the business of providing business and management consulting services. Recent Developments Sale of HeartCore Japan The Company has made the strategic decision to sell its software business assets in Japan and to concentrate its efforts on its GO IPO consulting business. On October 31, 2025, the Company entered into the HeartCore Japan Agreement with Smith Japan in relation to the HeartCore Japan Sale. Pursuant to the terms of the HeartCore Japan Agreement, the purchase price of the HeartCore Japan Sale is ¥1,800,418,650 (equivalent to approximately $12 million, based on the October 31, 2025 Federal Reserve conversion rate of ¥154.05 = USD $1) (the “Purchase Price”), subject to adjustment as set forth in the HeartCore Japan Agreement, to be paid as follows: (a) An amount of ¥1,013,340,000 less the amount of HeartCore Japan’s debts as set forth in the HeartCore Japan Agreement (the “Estimated Debt”) will be paid by the Smith Japan to the Company on the Closing Date (such final amount, the “Closing Payment”). (b) An amount of ¥126,133,200 (the “Holdback Amount”) will be retained by the Smith Japan from the Closing Payment, and, subject to the provisions of the HeartCore Japan Agreement, will be paid by Smith Japan to the Company on the first business day occurring the later of: (a) 180 after the Closing Date, or (b) if applicable, the date the Net Tangible Assets (as defined in the HeartCore Japan Agreement) is finally determined pursuant to the terms of the HeartCore Japan Agreement (the “Holdback Release Date”). (c) An amount of ¥273,866,800 (the “Long Term Holdback Amount”) in respect of the agreements (“Multi-year Licensing Agreements”) concerning the licensing of HeartCore Japan’s “HeartCore CMS” product to a specified customer for a period of more than one year will be retained by Smith Japan from the Closing Payment and will be paid by Smith Japan as set forth in the HeartCore Japan Agreement. (d) Subject to the provisions of the HeartCore Japan Agreement, an amount of ¥387,078,650 (the “Deferred Consideration”), which shall consist of a principal amount of ¥322,700,000 with an uncompounded rate of interest of 6.65% per annum, will be retained by Smith Japan from the Closing Payment and will be paid by Smith Japan on October 31, 2028, the third annual anniversary of the Closing Date. (e) Within five business days following the final determination of the actual amount of HeartCore Japan’s debts as of the Closing (the “Final Debt Amount”), Smith Japan shall pay to the Company an amount equal to (i) the Estimated Debt minus (ii) the Final Debt Amount (such payment, the “Debt True-Up Payment”). For the avoidance of doubt, if the Final Debt Amount is greater than the Estimated Debt, no payment shall be owed by Smith Japan. Pursuant to the terms of the HeartCore Japan Agreement, for a period of six months following the closing date (October 31, 2025), (i) the Company agreed to provide Smith Japan with certain accounting and reporting transition services, and (ii) Smith Japan agreed to provide the Company with certain human resources transition services. The HeartCore Japan Agreement contains customary representations, warranties, conditions, covenants, and indemnification obligations for a transaction of this type. The HeartCore Japan Sale closed on October 31, 2025. 2 One-Time Distribution to Stockholders HeartCore USA and its Board of Directors deemed it in the best interests of HeartCore USA and its stockholders to authorize a one-time payment to its stockholders in the amount of $0.13 per share of common stock. For U.S. federal tax purposes, this payment to stockholders will be deemed to be a distribution. The record date for holders of HeartCore USA’s common stock to participate in the distribution is November 10, 2025, and the payment date is November 17, 2025. Nasdaq Notice Regarding Minimum Bid Price Requirement On May 6, 2025, we received written notice (the “Bid Price Notice”) from the Nasdaq Listing Qualification Department (the “Nasdaq Staff”) indicating that we were not in compliance with the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”) for continued listing on the Nasdaq Capital Market. The notification of noncompliance has no immediate effect on the listing or trading of our common stock on the Nasdaq Capital Market under the symbol “HTCR,” and we are currently monitoring the closing bid price of our common stock and evaluating our alternatives, if appropriate, to resolve the deficiency and regain compliance with this rule. The Nasdaq Listing Rules require listed securities to maintain a minimum bid price of $1.00 per share and, based upon the closing bid price for the last 30 consecutive business days, we no longer meet this requirement. The Bid Price Notice indicated that we will be provided 180 calendar days, or until November 3, 2025, in which to regain compliance. If we failed to regain compliance with Rule 5550(a)(2) prior to the expiration of the 180 calendar day period, but meet the continued listing requirement for market value of publicly held shares and all of the other applicable standards for initial listing on the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and provide written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary, then we may be granted an additional 180 calendar days to regain compliance with Rule 5550(a)(2). On November 4, 2025, the Nasdaq Staff notified us of its determination that HeartCore USA is eligible for an additional 180-day period, or until May 1, 2026, to regain compliance with the Minimum Bid Price Requirement. If at any time during this additional time period the closing bid price of HeartCore USA’s security is at least $1 per share for a minimum of 10 consecutive business days, Nasdaq will close the matter. If compliance cannot be timely demonstrated, the Nasdaq Staff will provide notify us that our common stock will be delisted. At that time, we may appeal the Nasdaq Staff’s determination to a Hearings Panel. There can be no assurance that we will be able to regain compliance with the Minimum Bid Price Requirement, even if we maintain compliance with the other listing requirements. We are considering actions that we may take in response to the Bid Price Notice in order to regain compliance with the continued listing requirements, including a reverse stock split, if necessary, but no decisions regarding a response have been made at this time. 3 Financial Overview For the three months ended September 30, 2025 and 2024, we generated revenues of $2,990,329 and $16,240,865, respectively, and reported a net loss from continuing operations of $137,122 and a net income from continuing operations of $11,119,592, respectively. For the nine months ended September 30, 2025 and 2024, we generated revenues of $7,052,799 and $21,270,891, respectively, reported a net loss from continuing operations of $2,913,181 and a net income from continuing operations of $6,705,342, respectively, and had cash flows used in operating activities of continuing operations $2,980,958 and $3,027,115, respectively. As noted in our unaudited consolidated financial statements, as of September 30, 2025, we had an accumulated deficit of $17,797,861. Results of Operations Comparison of Results of Operations for the Three Months Ended September 30, 2025 and 2024 The following table summarizes our operating results as reflected in our unaudited statements of operations for the three months ended September 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods. For the Three Months Ended September 30, 2025 2024 Variance % of % of Amount Revenues Amount Revenues Amount % Revenues $ 2,990,329 100.0 % $ 16,240,865 100.0 % $ (13,250,536 ) -81.6 % Cost of revenues 1,521,920 50.9 % 2,230,749 13.8 % (708,829 ) -31.8 % Gross profit 1,468,409 49.1 % 14,010,116 86.2 % (12,541,707 ) -89.5 % Operating expenses: Selling expenses 94,718 3.2 % 162,372 1.0 % (67,654 ) -41.7 % General and administrative expenses 1,384,838 46.3 % 1,443,014 8.9 % (58,176 ) -4.0 % Research and development expenses - 0.0 % 63,709 0.4 % (63,709 ) -100.0 % Total operating expenses 1,479,556 49.5 % 1,669,095 10.3 % (189,539 ) -11.4 % Income (loss) from continuing operations (11,147 ) -0.4 % 12,341,021 75.9 % (12,352,168 ) -100.1 % Other expenses (122,602 ) -4.1 % (1,031,704 ) -6.3 % (909,102 ) -88.1 % Income (loss) from continuing operations before income tax expense (133,749 ) -4.5 % 11,309,317 69.6 % (11,443,066 ) -101.2 % Income tax expense 3,373 0.1 % 189,725 1.1 % (186,352 ) -98.2 % Net income (loss) from continuing operations (137,122 ) -4.6 % 11,119,592 68.5 % (11,256,714 ) -101.2 % Income (loss) from discontinued operations, net of income tax 488,297 16.3 % (302,662 ) -1.8 % 790,959 261.3 % Net income 351,175 11.7 % 10,816,930 66.7 % (10,465,755 ) -96.8 % Less: net loss attributable to non-controlling interests (82,897 ) -2.8 % (240,876 ) -1.4 % (157,979 ) -65.6 % Net income attributable to HeartCore Enterprises, Inc. 434,072 14.5 % 11,057,806 68.1 % (10,623,734 ) -96.1 % Dividends accrued on Series A convertible preferred shares (56,222 ) -1.8 % - 0.0 % 56,222 100.0 % Net income attributable to HeartCore Enterprises, Inc. common shareholders $ 377,850 12.7 % $ 11,057,806 68.1 % $ (10,679,956 ) -96.6 % 4 Revenues Our total revenues decreased by $13,250,536, or 81.6%, to $2,990,329 for the three months ended September 30, 2025, from $16,240,865 for the three months ended September 30, 2024, primarily attributable to (i) a decreased revenue of $12,641,365 from GO IPO consulting services as only one IPO consulting customer completed IPO in the third quarter 2025 compared with two customers completed IPO in the third quarter 2024 and we generated significant noncash consideration revenue from one large IPO deal in third quarter 2024; and (ii) a decreased revenue of $505,168 from customized software development and services in connection with the intense competition of the software market in the U.S. Cost of Revenues Our total cost of revenues decreased by $708,829, or 31.8%, to $1,521,920 for the three months ended September 30, 2025, from $2,230,749 for the three months ended September 30, 2024, mainly attributable to the decrease of $610,130 in the cost of customized software development and services, which was in light of the decrease in sales and the decrease was also attributable to Sigmaways cut down its subcontracting cost in the current period by ending cooperation with certain costly vendors for cost saving purpose. Gross Profit Our total gross profit decreased by $12,541,707, or 89.5%, to $1,468,409 for the three months ended September 30, 2025, from $14,010,116 for the three months ended September 30, 2024, mainly attributable to (i) a decrease of $12,589,606 in gross profit from GO IPO consulting services, as we generated a significant noncash consideration of from one large IPO deal in the prior period and the significant decrease in noncash consideration revenue caused the decrease in gross profit as we did not incur cost when revenue recognized from noncash consideration as cost incurred throughout the consulting service period before IPO completion; offset by (ii) an increase of $104,962 in gross profit from customized software development and services, as Sigmaways reduced outsourcing costs by ending cooperation with costly vendors to save operating cash flows in the current quarter, resulting in costs decreased more than revenue did. For the reasons discussed above, our overall gross profit margin decreased by 37.1%, to 49.1%, for the three months ended September 30, 2025 from 86.2% for the three months ended September 30, 2024. Selling Expenses Our selling expenses decreased by $67,654, or 41.7%, to $94,718 for the three months ended September 30, 2025 from $162,372 in the three months ended September 30, 2024, primarily attributable to a decrease of $42,557 in advertising expenses as we reduced certain marketing activities and cancelled promotion campaigns with lower advertising performance. As a percentage of revenues, our selling expenses accounted for 3.2% and 1.0% of our total revenues for the three months ended September 30, 2025 and 2024, respectively. 5 General and Administrative Expenses Our general and administrative expenses decreased by $58,176, or 4.0%, to $1,384,838 for the three months ended September 30, 2025 from $1,443,014 in the three months ended September 30, 2024, primarily attributable to (i) a decrease of $168,711 in depreciation and amortization expenses, primarily because we fully impaired intangible asset arose from acquisition of Sigmaways at the end of last fiscal year, resulting in no amortization expenses were recorded in current quarter; (ii) a decrease of $70,983 in salaries and welfare expenses, mainly resulting from Sigmaways cut down salary expense and recruiting expenses to save operating cash flow in the current period; offset by an increase of $206,002 in consultant and professional service fees, mainly because as we incurred legal service fee in relation to the registration statement for the registration of Series A convertible preferred shares in the third quarter of 2025, and there was no such activity in the third quarter of 2024. As a percentage of revenues, general and administrative expenses were 46.3% and 8.9% of our revenues for the three months ended September 30, 2025 and 2024, respectively. Research and Development Expenses Our research and development expenses decreased by $63,709, or 100.0%, to nil in the three months ended September 30, 2025, from $63,709 in the three months ended September 30, 2024, primarily attributable to a decrease of $63,000 in outsourcing expenses as we cut down outsourcing research and development expenses for cash flows saving purpose in the current period. As a percentage of revenues, research and development expenses were 0.0% and 0.4% of our revenues for the three months ended September 30, 2025 and 2024, respectively. Other Expenses, Net Our other income (expenses) include changes in fair value of investments in marketable securities, changes in fair value of investments in warrants, loss on sale of warrants, changes in fair value of derivative liability, interest income generated from bank deposits, interest expenses for bank loans, other income and other expenses. Total other expenses, net, of $1,031,704 for the three months ended September 30, 2024 decreased by $909,102, or 88.1%, to total other expenses, net, of $122,602 for the three months ended September 30, 2025, primarily attributable to (i) a decrease of $3,970,628 in loss on sale of warrants as we sold partial of warrants received in the third quarter of 2024, and there was no such activity in the third quarter of 2025; offset by a decrease of $3,016,176 in changes in fair value of investments in warrants due to fair value measurement. Income Tax Expenses Income tax expense was $3,373 for the three months ended September 30, 2025, representing a decrease of $186,352, or 98.2%, from income tax expense of $189,725 in the three months ended September 30, 2024, mainly because we recognized income tax expense due to the large pre-tax income position generated for the three months ended September 30, 2024, while we incurred pre-tax loss position in current quarter. Net Income (Loss) from Continuing Operations As a result of the foregoing, we reported a net loss from continuing operations of $137,122 for the three months ended September 30, 2025, representing a $11,256,714, or 101.2%, decrease from a net income from continuing operations of $11,119,592 for the three months ended September 30, 2024. Income (Loss) from Discontinued Operations, Net of Income Tax On July 24, 2025, the Board of Directors of the Company approved to enter into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. The results of operations of HeartCore Japan are reported as discontinued operations for all periods presented as the sale of HeartCore Japan represents a strategic shift that has or will have a major impact on its operations and financial results. The sale transaction was closed on October 31, 2025. We reported an income from discontinued operations, net of income tax of $488,297 for the three months ended September 30, 2025, representing a $790,959, or 261.3%, increase from a loss from discontinued operations, net of income tax of $302,662 for the three months ended September 30, 2024. 6 Net Income As a result of the foregoing, we reported a net income of $351,175 for the three months ended September 30, 2025, representing a $10,465,755, or 96.8%, decrease from a net income of $10,816,930 for the three months ended September 30, 2024. Net Loss Attributable to Non-controlling Interests During the three months ended September 30, 2025 and 2024, we owned a 51% equity interest of Sigmaways and its subsidiaries and 51% equity interest of HeartCore Luvina. Accordingly, we recorded net loss attributable to non-controlling interests of $82,897 and $240,876 in the three months ended September 30, 2025 and 2024, respectively. Net Income Attributable to HeartCore Enterprises, Inc. As a result of the foregoing, we reported a net income attributable to HeartCore Enterprises, Inc. of $434,072 for the three months ended September 30, 2025, representing a $10,623,734, or 96.1%, decrease from a net income attributable to HeartCore Enterprises, Inc. of $11,057,806 for the three months ended September 30, 2024. Dividends Accrued on Series A Convertible Preferred Shares On June 30, 2025, we issued 2,000 shares of Series A convertible preferred shares, which were granted a cumulative dividend of 10% per annum. Accordingly, we recorded dividends accrued on Series A convertible preferred shares of $56,222 during the three months ended September 30, 2025. Net Income Attributable to HeartCore Enterprises, Inc. Common Shareholders As a result of the foregoing, we reported a net income attributable to HeartCore Enterprises, Inc. common shareholders of $377,850 for the three months ended September 30, 2025, representing a $10,679,956, or 96.6%, decrease from a net income attributable to HeartCore Enterprises, Inc. common shareholders of $11,057,806 for the three months ended September 30, 2024. Comparison of Results of Operations for the Nine Months Ended September 30, 2025 and 2024 The following table summarizes our operating results as reflected in our unaudited statements of operations for the nine months ended September 30, 2025 and 2024, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods. 7 For the Nine Months Ended September 30, 2025 2024 Variance % of % of Amount Revenues Amount Revenues Amount % Revenues $ 7,052,799 100.0 % $ 21,270,891 100.0 % $ (14,218,092 ) -66.8 % Cost of revenues 4,453,735 63.1 % 6,208,885 29.2 % (1,755,150 ) -28.3 % Gross profit 2,599,064 36.9 % 15,062,006 70.8 % (12,462,942 ) -82.7 % Operating expenses: Selling expenses 338,615 4.8 % 518,627 2.4 % (180,012 ) -34.7 % General and administrative expenses 4,119,851 58.4 % 4,802,530 22.6 % (682,679 ) -14.2 % Research and development expenses - 0.0 % 172,140 0.8 % (172,140 ) -100.0 % Total operating expenses 4,458,466 63.2 % 5,493,297 25.8 % (1,034,831 ) -18.8 % Income (loss) from continuing operations (1,859,402 ) -26.3 % 9,568,709 45.0 % (11,428,111 ) -119.4 % Other expenses (998,893 ) -14.2 % (2,762,892 ) -13.0 % (1,763,999 ) - 63.8 % Income (loss) from continuing operations before income tax expense (2,858,295 ) -40.5 % 6,805,817 32.0 % (9,664,112 ) -142.0 % Income tax expense 54,886 0.8 % 100,475 0.5 % (45,589 ) -45.4 % Net income (loss) from continuing operations (2,913,181 ) -41.3 % 6,705,342 31.5 % (9,618,523 ) -143.4 % Income from discontinued operations, net of income tax 1,188,481 16.8 % 422,468 2.0 % 766,013 181.3 % Net income (loss) (1,724,700 ) -24.5 % 7,127,810 33.5 % (8,852,510 ) -124.2 % Less: net loss attributable to non-controlling interests (171,682 ) -2.4 % (645,546 ) -3.0 % (473,864 ) -73.4 % Net income (loss) attributable to HeartCore Enterprises, Inc. (1,553,018 ) -22.1 % 7,773,356 36.5 % (9,326,374 ) -120.0 % Dividends accrued on Series A convertible preferred shares (56,833 ) -0.8 % - 0.0 % 56,833 100.0 % Net income (loss) attributable to HeartCore Enterprises, Inc. common shareholders $ (1,609,851 ) -22.9 % $ 7,773,356 36.5 % $ (9,383,207 ) -120.7 % Revenues Our total revenues decreased by $14,218,092, or 66.8%, to $7,052,799 for the nine months ended September 30, 2025, from $21,270,891 for the nine months ended September 30, 2024, primarily attributable to (i) a decreased revenue of $12,944,124 from GO IPO consulting services mainly due to we generated significant revenue from noncash consideration of $12,641,365 from one large IPO deal in the prior period, and there was no such large amount of revenue recognized from noncash consideration in the same period in 2025; and (ii) a decreased revenue of $1,182,259 from customized software development and services in connection with a slowdown in revenue of Sigmaways, driven by intense competition in the U.S. software market. Cost of Revenues Our total cost of revenues decreased by $1,755,150, or 28.3%, to $4,453,735 for the nine months ended September 30, 2025, from $6,208,885 for the nine months ended September 30, 2024, mainly attributable to (i) the decrease of $1,564,757 in the cost of customized software development and services, which was in light of the decrease in sales and the decrease was also attributable to Sigmaways cut down its subcontracting cost in the current period by ending cooperation with certain costly vendors for cost saving purpose; and (ii) a decrease of $117,810 in the cost of software development services in light of the decrease of sale. 8 Gross Profit Our total gross profit decreased by $12,462,942, or 82.7%, to $2,599,064 for the nine months ended September 30, 2025, from $15,062,006 for the nine months ended September 30, 2024, mainly attributable to (i) a decrease of $12,871,541 in gross profit from GO IPO consulting services, as we generated a significant noncash consideration of from one large IPO deal in the prior period and the significant decrease in noncash consideration revenue caused the decrease in gross profit as we did not incur cost when revenue recognized from noncash consideration as cost incurred throughout the consulting service period before IPO completion; offset by (ii) an increase of $382,498 in gross profit from customized software development and services, as Sigmaways reduced outsourcing costs by ending cooperation with costly vendors in the current period, resulting in costs decreased more than revenue did. For the reasons discussed above, our overall gross profit margin decreased by 33.9%, to 36.9%, for the nine months ended September 30, 2025, from 70.8% for the nine months ended September 30, 2024. Selling Expenses Our selling expenses decreased by $180,012, or 34.7%, to $338,615 for the nine months ended September 30, 2025, from $518,627 in the nine months ended September 30, 2024, primarily attributable to (i) a decrease of $66,306 in stock-based compensation for sales staffs in the current period due to the graded vesting feature of stock options and RSUs; and (ii) a decrease of $51,753 in advertising expenses as we reduced certain marketing activities and cancelled promotion campaigns with lower advertising performance. As a percentage of revenues, our selling expenses accounted for 4.8% and 2.4% of our total revenues for the nine months ended September 30, 2025 and 2024, respectively. General and Administrative Expenses Our general and administrative expenses decreased by $682,679, or 14.2%, to $4,119,851 for the nine months ended September 30, 2025, from $4,802,530 in the nine months ended September 30, 2024, primarily attributable to (i) a decrease of $146,578 in salaries and welfare expenses, mainly resulting from Sigmaways cut down salary expense and recruiting expenses to save operating cash flow in the current period; (ii) a decrease of $489,590 in depreciation and amortization expenses, primarily because we fully impaired intangible asset arose from the acquisition of Sigmaways at the end of the 2024 fiscal year, resulting in no amortization expenses recorded in current period. As a percentage of revenues, general and administrative expenses were 58.4% and 22.6% of our revenues for the nine months ended September 30, 2025 and 2024, respectively. Research and Development Expenses Our research and development expenses decreased by $172,140, or 100.0%, to nil in the nine months ended September 30, 2025, from $172,140 in the nine months ended September 30, 2024, primarily attributable to a decrease of $170,389 in outsourcing expenses as we cut down outsourcing research and development expenses for cash flows saving purpose in the current period. As a percentage of revenues, research and development expenses were 0.0% and 0.8% of our revenues for the nine months ended September 30, 2025 and 2024, respectively. 9 Other Expenses, Net Our other income (expenses) include changes in fair value of investments in marketable securities, changes in fair value of investments in warrants, loss on sale of warrants, changes in fair value of derivative liability, interest income generated from bank deposits, interest expenses for bank loans, other income and other expenses. Total other expenses, net, of $2,762,892 for the nine months ended September 30, 2024 decreased by $1,763,999, or 63.8%, to total other expenses, net, of $998,893 for the nine months ended September 30, 2025, primarily attributable to (i) an decrease of $3,970,628 in loss on sale of warrants as we sold partial of warrants received in the third quarter of 2024, and there was no such activity in the current period; offset by (ii) a decrease of $1,705,809 in changes in fair value of investments in warrants due to fair value measurement. Income Tax Expense Income tax expense was $54,886 for the nine months ended September 30, 2025, representing a decrease of $45,589, or 45.4%, from income tax expense of $100,475 for the nine months ended September 30, 2024, mainly because we recognized income tax expense due to the large pre-tax income position generated for the nine months ended September 30, 2024, while we incurred pre-tax loss position in current period. Net Income (Loss) from Continuing Operations As a result of the foregoing, we reported a net loss from continuing operations of $2,913,181 for the nine months ended September 30, 2025, representing a $9,618,523, or 143.4%, decrease from a net income from continuing operations of $6,705,342 for the nine months ended September 30, 2024. Income from Discontinued Operations, Net of Income Tax On July 24, 2025, the Board of Directors of the Company approved to enter into a non-binding letter of intent to sell 100% of the outstanding shares of HeartCore Japan. The results of operations of HeartCore Japan are reported as discontinued operations for all periods presented as the sale of HeartCore Japan represents a strategic shift that has or will have a major impact on its operations and financial results. The sale transaction was closed on October 31, 2025. We reported an income from discontinued operations, net of income tax of $1,188,481 for the nine months ended September 30, 2025, representing a $766,013, or 181.3%, increase from an income from discontinued operations, net of income tax of $422,468 for the nine months ended September 30, 2024. Net Income (Loss) As a result of the foregoing, we reported a net loss of $1,724,700 for the nine months ended September 30, 2025, representing a $8,852,510, or 124.2%, decrease from a net income of $7,127,810 for the nine months ended September 30, 2024. Net Loss Attributable to Non-controlling Interests During the nine months ended September 30, 2025 and 2024, we owned a 51% equity interest of Sigmaways and its subsidiaries and 51% equity interest of HeartCore Luvina. Accordingly, we recorded net loss attributable to non-controlling interests of $171,682 and $645,546 in the nine months ended September 30, 2025 and 2024, respectively. Net Income (Loss) Attributable to HeartCore Enterprises, Inc. As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $1,553,018 for the nine months ended September 30, 2025, representing a $9,326,374, or 120.0%, decrease from a net income attributable to HeartCore Enterprises, Inc. of $7,773,356 for the nine months ended September 30, 2024. Dividends Accrued on Series A Convertible Preferred Shares On June 30, 2025, we issued 2,000 shares of Series A convertible preferred shares, which were granted a cumulative dividend of 10% per annum. Accordingly, we recorded dividends accrued on Series A convertible preferred shares of $56,833 in the current period. 10 Net Income (Loss) Attributable to HeartCore Enterprises, Inc. Common Shareholders As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. common shareholders of $1,609,851 for the nine months ended September 30, 2025, representing a $9,383,207, or 120.7%, decrease from a net income attributable to HeartCore Enterprises, Inc. common shareholders of $7,773,356 for the nine months ended September 30, 2024. Liquidity and Capital Resources As of September 30, 2025, we had $1,451,019 in cash and cash equivalents, as compared to $1,973,810 as of December 31, 2024. We also had $1,107,187 in accounts receivable as of September 30, 2025. Our accounts receivable primarily include the balance due from customers for our customized software development and services accepted by customers. The following table sets forth summary of our cash flows for the periods indicated: For the Nine Months Ended September 30, 2025 2024 Net cash flows used in operating activities of continuing operations $ (2,980,958 ) $ (3,027,115 ) Net cash flows provided by investing activities of continuing operations 1,071,732 5,565,000 Net cash flows provided by (used in) financing activities of continuing operations 1,953,032 (1,168,769 ) Net cash flows used in discontinued operations (166,736 ) (1,080,748 ) Effect of exchange rate changes 26,577 (68,730 ) Net change in cash and cash equivalents (96,353 ) 219,638 Cash and cash equivalents, beginning of the period 2,121,089 1,012,479 Cash and cash equivalents, end of the period $ 2,024,736 $ 1,232,117 Cash Flows from Operating Activities of Continuing Operations Net cash flows used in operating activities of continuing operations was $2,980,958 for the nine months ended September 30, 2025, primarily consisting of the following: ● Net loss from continuing operations of $2,913,181 for the nine months ended September 30, 2025. ● Warrants received as noncash consideration of $837,913 as one of our IPO consulting customers completed the IPO during the current period. ● A decrease of $304,033 in accounts payable and accrued expenses as we continuously paid off such liabilities and decreased purchases to save operating expenses. ● A decrease of $278,421 in deferred revenue, due to more revenue was recognized than the upfront payment received in the current period. ● Offset by a loss of $908,416 on fair value changes in investments in marketable securities. ● Offset by a loss of $116,981 on disposal of property and equipment. ● Offset by an increase of $116,399 in other assets mainly resulted from the decrease of security deposits in connection with the early termination of an office lease. 11 Net cash flows used in operating activities of continuing operations was $3,027,115 for the nine months ended September 30, 2024, primarily consisting of the following: ● Net income from continuing operations of $6,705,342 for the nine months ended September 30, 2024. ● Marketable securities and warrants received as noncash consideration in total of $13,541,693 as two of our IPO consulting customers completed the IPO during th is period. ● A gain of $1,631,700 on fair value changes in investments in warrants. ● Offset by a loss of $308,059 on fair value changes in investments in marketable securities. ● Offset by a loss of $3,970,628 recognized on sale of warrants to a third party. ● Offset by depreciation and amortization expenses of $532,958. ● Offset by an increase of $428,522 in other liabilities, mainly because we terminated the consulting service agreement with a GO IPO customer and will refund $500,000 to the customer. Cash Flows from Investing Activities of Continuing Operations Net cash flows provided by investing activities of continuing operations amounted to $1,071,732 for the nine months ended September 30, 2025, attributable to the proceeds of $1,071,732 received from sale of marketable securities. Net cash flows provided by investing activities of continuing operations amounted to $5,565,000 for the nine months ended September 30, 2024, primarily attributable to the net proceeds of $5,640,000 received from sale of warrants. Cash Flows from Financing Activities of Continuing Operations Net cash flows provided by financing activities of continuing operations amounted to $1,953,032 for the nine months ended September 30, 2025, primarily attributable to the proceeds of $1,800,000 received from issuance of Series A convertible preferred shares and common shares related to securities purchase agreement after net against related share issuance costs. Net cash flows used in financing activities of continuing operations amounted to $1,168,769 for the nine months ended September 30, 2024, primarily attributable to the dividend distribution of $834,566, and net repayment of $257,295 for factoring arrangement. Cash Flows from Discontinued Operations Net cash flows used in discontinued operations amounted to $166,736 and $1,080,748 in the nine months ended September 30, 2025 and 2024, respectively. Contractual Obligations Lease Commitment We entered into operating leases for office space and a finance lease for vehicle for operating purpose. 12 Debts The Company’s debts included long-term debts borrowed from a bank and a financial institution. As of September 30, 2025, future minimum principal payments for long-term debts are as follows: Principal Year Ended December 31, Payment Remaining of 2025 $ 11,939 2026 50,597 2027 55,325 2028 60,471 2029 27,857 Thereafter 304,723 Total $ 510,912 Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of September 30, 2025. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements. These financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenues and expenses, to disclose contingent assets and liabilities on the date of the unaudited consolidated financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period. We continue to evaluate the estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies reflect the more significant judgments and estimates used in preparation of our consolidated financial statements. Revenue Recognition We provide public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting service contracts normally include both cash and noncash considerations. Cash consideration is paid in installment payments and is recognized in revenues over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is primarily in the form of warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. We assess the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved. The valuation of noncash consideration in the form of warrants of the customers are estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses and are reviewed by consulting with third-party valuation appraisers. The fair value of the warrants received from the customers are estimated using the binomial model. Management applies significant judgement related to the valuation model and approach, such as stock price, volatility, selection of comparable companies, and etc. These significant assumptions are based on company specific information and projections, which may not be observable in the market, and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions. We believe the accounting estimate for revenue recognition in connection with the valuation of the warrants received by the Company as part of the consideration for consulting services is a critical accounting estimate because it requires estimates and judgement as to expectations that are highly subjective, but which are inherently uncertain and, as a result, actual results may differ from estimates. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.