HeartCore Enterprises, Inc.

CONSOLIDATED BALANCE SHEETS

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2025 AND 2024

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

HeartCore Enterprises, Inc. (“HeartCore USA”), a holding company, was incorporated under the laws of the State of Delaware on May 18, 2021.

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 15,999,994 shares of its common shares to the shareholders of HeartCore Japan in exchange for 10,706 shares out of 10,984 shares of common shares issued by HeartCore Japan, representing approximately 97.5% of HeartCore Japan’s outstanding common shares. On February 24, 2022, HeartCore USA purchased the remaining 278 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 accompanying unaudited consolidated financial statements.

HeartCore USA, via its wholly-owned operating subsidiary, HeartCore Japan, is mainly engaged in the business of developing and sales of comprehensive software. Beginning from early 2022, HeartCore USA is engaged in the business of providing consulting services to Japanese companies with intention to go public in the United States capital market.

On September 6, 2022, HeartCore USA entered into a share exchange and purchase agreement to acquire 51% 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 developing and sales of software 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 financial consulting services.

In November 2023, HeartCore Japan established a 51% owned subsidiary in Vietnam, HeartCore Luvina Vietnam Company Limited (“HeartCore Luvina”), which is engaged in the business of providing software development and other services. HeartCore Luvina started its operations from February 2024.

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 financial consulting services.

HeartCore USA, HeartCore Japan, Sigmaways, Sigmaways B.V., Sigmaways Technologies, HeartCore Financial, HeartCore Luvina and HeartCore Financial – Japan are hereafter referred to as the “Company”.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

These unaudited interim consolidated financial statements do not include all of the information and disclosure required by the U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments consisting of normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2024.

Use of Estimates

In preparing the unaudited consolidated financial statements in conformity U.S. GAAP, the management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the unaudited consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, useful life of property and equipment, impairment of long-lived assets, valuation of stock-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and finance leases, valuation of asset retirement obligations, valuation of investment in warrants, revenue recognition with respect to allocation of transaction price and valuation of derivative liability. Actual results could differ from those estimates.

Asset Retirement Obligations

Pursuant to the lease agreements for the office space, the Company is responsible to restore these spaces back to its original statute at the time of leaving. The Company recognizes an obligation related to these restorations as asset retirement obligations in the consolidated balance sheets, in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 410, “Asset Retirement Obligation Accounting”. The Company capitalizes the associated asset retirement cost by increasing the carrying amount of the related property and equipment.

The following table presents changes in asset retirement obligations:

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 three and six months ended June 30, 2025, software development costs expensed as incurred amounted to $161,481 and $285,374, respectively. In the three and six months ended June 30, 2024, software development costs expensed as incurred amounted to $111,268 and $200,402, respectively. These software development costs were included in the research and development expenses.

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 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 wereno impairments of these assets during the three and six months ended June 30, 2025 and 2024.

Foreign Currency Translation

The functional currency of HeartCore Japan and HeartCore Financial – Japan is the Japanese Yen (“JPY”). The functional currency of HeartCore USA, HeartCore Financial and Sigmaways is the United States Dollar (“US$”). The functional currency of Sigmaways B.V. is the Euro (“EUR”). The functional currency of Sigmaways Technologies is the Canada Dollar (“CAD”). The functional currency of HeartCore Luvina is the Vietnam Dong (“VND”). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited consolidated statements of operations and comprehensive income (loss).

The reporting currency of the Company is the US$, and the accompanying unaudited consolidated financial statements have been expressed in US$. In accordance with 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 rate on the balance sheet date. Revenues and expenses are translated at average rate prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive income within the unaudited consolidated statements of changes in shareholders’ equity.

Revenue Recognition

The Company recognizes revenues under ASC Topic 606, “Revenue from Contracts with Customers”.

To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the 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 respective performance obligations in the contract, and (v) recognize revenues when (or as) the Company satisfies the performance obligation. Revenues amount represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local government levies. The Consumption Tax on sales are calculated at 10% of gross sales in Japan and Vietnam, 5% of gross sales in Canada, 21% of gross sales in Netherlands and nil of gross sales in the United States.

The Company currently generates its revenues from the following main sources:

Revenues from On-premise Software

Licenses for on-premise software provide the customers with a right to use the software as it exists when made available to the customers. The Company provides on-premise software in the form of both perpetual licenses and term-based licenses which grant the customers with the right for a specified term. Revenues from on-premise licenses are recognized upfront at the point in time when the software is made available to the customers. Licenses for on-premise software are typically sold to the customers with maintenance and support services in a bundle. Revenues under the bundled arrangements are allocated based on the relative standalone selling prices (“SSP”) of on-premise software and maintenance and support services. The SSP for maintenance and support services is estimated based upon observable transactions when those services are sold on a standalone basis. The SSP of on-premise software is typically estimated using the residual approach as the Company is unable to establish the SSP for on-premise licenses based on observable prices given the same products are sold for a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is not discernible from past transactions or other observable evidence.

Revenues from Maintenance and Support Services

Maintenance and support services provided with software licenses consist of trouble shooting, technical support and the right to receive unspecified software updates when and if available during the subscription. Revenues from maintenance and support services are recognized over time as such services are performed. Revenues for consumption-based services are generally recognized as the services are performed and accepted by the customers.

Revenues from Software as a Service (“SaaS”)

The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer contract term beginning on the date the Company’s solution is made available to the customers. The subscription contracts are generally one year or less in length.

Revenues from Software Development and Other Miscellaneous 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 also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes revenues at a point in time when control is transferred to the customers and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers.

Revenues from Customized Software Development and Services

The Company’s customized software development and services revenues primarily include revenues from providing software development solutions and other support services to its customers. The contract pricing is at stated billing rates per hour. These contracts are generally short-term in nature and not longer than one year in duration. For services provided under the contracts that result in the transfer of control over time, the underlying deliverable in the contracts is owned and controlled by the customers and does not create an asset with an alternative use to the Company. The Company recognizes revenues on rate per hour contracts based on the amount billable to the customers, as the Company has the right to invoice the customers in an amount that directly corresponds with the value to the customers of the Company’s performance to date.

Revenues from Consulting Services

The Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting services contracts normally include both cash and noncash considerations. Cash consideration is paid in installment payments and is recognized in revenues over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is in the form of stocks and warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. The Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal 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.

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, current or non-current, 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 amount of revenues recognized during the six months ended June 30, 2025 and 2024 that were included in the opening deferred revenue balance are approximately $1.3 million and $1.5 million, respectively.

Disaggregation of Revenues

The Company disaggregates its revenues from contracts by product/service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenues and cash flows are affected by economic factors.

The Company’s disaggregation of revenues by revenue stream for the three and six months ended June 30, 2025 and 2024 is as follows:

The Company’s disaggregation of revenues by product/service for the three and six months ended June 30, 2025 and 2024 is as follows:

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable, note receivable and other receivable. The Company usually does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.

For the three and six months ended June 30, 2025 and 2024, customers account for 10% or more of the Company’s total revenues are as follows:

As of June 30, 2025 and December 31, 2024, customers account for 10% or more of the Company’s total accounts receivable are as follows:

For the three and six months ended June 30, 2025 and 2024, no vendor accounts for more than 10% of the Company’s total purchases.

As of June 30, 2025 and December 31, 2024, vendor accounts for 10% or more of the Company’s total accounts payable and accrued expenses is as follows:

Segment Reporting

ASC Topic 280, “Segment Reporting”, requires use of the management approach model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker (“CODM”) organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company (see NOTE 18).

Stock-based Compensation

The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the unaudited consolidated statements of operations and comprehensive income (loss) based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures as they occur.

Series A Convertible Preferred Shares and Derivative Liability

When the Company issues Series A convertible preferred shares (see NOTE 16), 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 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 (1) the Company must or may settle in a variable number of its equity shares, and (2) 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 its fair value recognized in the unaudited consolidated statements of operations and comprehensive income (loss). The Company values the fair value of derivative liability using the income approach with the discounted cash flow valuation method with the assistance of a third-party valuation appraiser. The determination of fair value requires management to make significant estimates and assumptions related to forecasted cash flows and discount rate.

Fair Value Measurements

The Company performs fair value measurements in accordance with ASC Topic 820, “Fair Value Measurements and Disclosures”. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:

As of June 30, 2025 and December 31, 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 June 30, 2025 and December 31, 2024 are summarized below (also see NOTE 6 for investments):

Recent Accounting Pronouncements

In December 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU No. 2023-09 is effective for public companies for annual reporting periods beginning after December 15, 2024, on a prospective basis. For all other entities, it is effective for annual reporting periods beginning after December 15, 2025, on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its unaudited consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, requiring public companies to disclose additional information about specific expense categories in the notes to the consolidated financial statements on an annual and interim basis. ASU No. 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its unaudited consolidated financial statements and related disclosures.

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

NOTE 4 – PREPAID EXPENSES

Prepaid expenses consist of the following:

NOTE 5 – RELATED PARTY TRANSACTIONS

As of June 30, 2025 and December 31, 2024, the Company had a due to related parties balance of $590 and $47, 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 six months ended June 30, 2025, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $514. During the six months ended June 30, 2024, the Company repaid to the related party for operating expenses the related party paid on behalf of the Company in a net amount of $1,246.

As of June 30, 2025 and December 31, 2024, the Company had a due to related parties balance ofnil 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 six months ended June 30, 2025 and 2024, the Company repaid to the related party for operating expenses the related party paid on behalf of the Company in a net amount of $884 andnil, respectively. As of June 30, 2025 and December 31, 2024, the Company had an accounts payable and accrued expenses balance of $22,924 and $47,199, respectively, to Luvina Software. During the three and six months ended June 30, 2025, the Company engaged the related party for software development and other support services in the amount of $42,761 and $85,571, respectively. During the three and six months ended June 30, 2024, the Company engaged the related party for software development and other support services in the amount of $31,590 and $31,590, respectively.

As of June 30, 2025 and December 31, 2024, the Company had a loan receivable balance of $158,378 and $164,067, respectively, from HeartCore Technology Inc., a company controlled by the CEO of the Company. The loan is made to the related party to support its operation. The balance is unsecured, bears an annual interest of 1.475%, and requires repayments in installments starting from February 2022. During the six months ended June 30, 2025 and 2024, the Company received repayments of $21,139 and $21,166, respectively, from this related party.

As of June 30, 2025 and December 31, 2024, the Company had a short-term debt balance of $75,000 to Prakash Sadasivam, the CEO of Sigmaways and Chief Strategy Officer (“CSO”) of the Company. 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.

NOTE 6 – 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. 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 period. The valuation of investment in warrants is determined using the Black-Scholes model based on the stock price, exercise price, expected volatility, time to maturity, and risk-free interest rate for the term of the warrants exercise.

The following table summarizes the Company’s investment in warrants activities for the six months ended June 30, 2025 and 2024:

Investments in Marketable Securities

The Company’s investments in marketable securities represent stocks received from its customers as noncash consideration from consulting services and stocks received upon the exercise of warrants described above. They are registered for public sale with readily determinable fair values, and are measured at quoted prices on a recurring basis at the end of the period.

The following table summarizes the Company’s investments in marketable securities activities for the six months ended June 30, 2025 and 2024:

NOTE 7 – LONG-TERM NOTE RECEIVABLE

On September 1, 2023, the Company purchased a $300,000 promissory note from a non-related company. The promissory note bears an interest rate of 4% per annum and matures on September 2, 2026. On the first business day following each annual anniversary of September 1, 2023, the promissory note issuer shall pay to the Company the sum of one-third of the total promissory note amount due and outstanding, including all accrued and unpaid interest as of such time, unless such annual payment has been forgiven by the Company pursuant to certain conditions. The interest rate would be 10% per annum for any amount that is unpaid when due. The Company forgave the first annual payment of the promissory note and recognized loss on forgiveness of long-term note receivable of $100,000 on December 31, 2024.

NOTE 8 – PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following:

For the three and six months ended June 30, 2025, the Company recognized depreciation expenses of $15,530 and $42,437, respectively. For the three and six months ended June 30, 2024, the Company recognized depreciation expenses of $27,486 and $56,196, respectively.

NOTE 9 – LEASES

The Company has entered into operating leases for office space with terms ranging from two to fifteen years, and finance leases for office equipment and vehicle with terms of five years. The estimated effect of lease renewal and termination options, as applicable, that are reasonably certain to be exercised in the determination of the lease term and initial measurement of lease right-of-use assets and lease liabilities is included in the unaudited consolidated financial statements. Right-of-use assets of finance leases of $57,612 and $60,440 are included in property and equipment, net as of June 30, 2025 and December 31, 2024, respectively.

Operating lease costs for lease payments are recognized on a straight-line basis over the lease term. Finance lease costs include amortization, which is recognized on a straight-line basis over the expected life of the leased assets, and interest expense, which is recognized following an effective interest rate method. Leases with initial term of twelve months or less are not recorded in the consolidated balance sheets.

The components of lease costs for the three and six months ended June 30, 2025 and 2024 are as follows:

The following table presents supplemental information related to the Company’s leases for the six months ended June 30, 2025 and 2024:

As of June 30, 2025, the future maturity of lease liabilities is as follows:

Pursuant to the operating lease agreements, the Company made security deposits to the lessors. The security deposits amounted to $225,649 and $307,996 as of June 30, 2025 and December 31, 2024, respectively.

NOTE 10 – OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

NOTE 11 – 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. Under 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 $850,000 in Purchased Receivable.

Selected accounts receivable is submitted to the Factor, and Sigmaways receives 90% of the face value of the accounts receivable by wire transfer. Upon payment by the customers, the remainder of the amount due is received from the Factor after deducting certain fees.

The Factoring Agreement specifies that eligible accounts receivable is factored with recourse. Under the terms of the recourse provision, Sigmaways is required to reimburse the Factor, upon demand, for Purchased Receivable that is not paid on time by the customers. The performance of all obligations and payments to the Factor is personally guaranteed by Prakash Sadasivam, the CEO of Sigmaways and CSO of the Company, and secured by all Sigmaways’ now owned and hereafter assets and any sums maintained by the Factor that are identified as payable to Sigmaways.

The Factoring Agreement has an initial term of twelve months and automatically renews for successive twelve-month renewal periods unless terminated 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 June 30, 2025 and December 31, 2024, there were $226,212 and $172,394 borrowed and outstanding under the Factoring Agreement, respectively. There are various fees charged by the Factor, including initial discount purchase fee, factoring fee and interest expense. During the three and six months ended June 30, 2025, the Company recorded $15,698 and $24,599 in interest expenses related to Factoring Agreement, respectively. During the three and six months ended June 30, 2024, the Company recorded $14,678 and $30,786 in interest expenses related to Factoring Agreement, respectively.

NOTE 12 – 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 $139,500 at an annual interest rate of 13.9% for eleven months from February 1, 2025, payable in eleven monthly installments of principal and interest.

In January 2024, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $172,689 at an annual interest rate of 13.9% for eleven months from February 1, 2024, payable in eleven monthly installments of principal and interest.

As of June 30, 2025 and December 31, 2024, the balances of the insurance premium financing were $90,869 and $16,626, respectively. During the three and six months ended June 30, 2025, the Company recorded $4,042 and $5,874 in interest expenses related to insurance premium financing, respectively. During the three and six months ended June 30, 2024, the Company recorded $5,005 and $7,044 in interest expenses related to insurance premium financing, respectively.

NOTE 13 – LONG-TERM DEBTS

The Company’s long-term debts represent loans borrowed from banks and financial institutions as follows:

During the three and six months ended June 30, 2025, the Company recorded $12,925 and $24,447 in interest expenses related to long-term debts, respectively. During the three and six months ended June 30, 2024, the Company recorded $17,056 and $32,942 in interest expenses related to long-term debts, respectively.

As of June 30, 2025, future minimum principal payments for long-term debts are as follows:

NOTE 14 – INCOME TAXES

United States

HeartCore USA, Sigmaways and HeartCore Financial, incorporated in the United States, are subject to federal income tax at 21% statutory tax rate with respect to the profit generated from the United States.

Netherlands

Sigmaways B.V. is a company incorporated in Netherlands in November 2019. The first EUR 200,000 of taxable income is subject to a statutory tax rate of 19% and the remaining taxable income is subject to a statutory tax rate of 25.80%.

Canada

Sigmaways Technologies is a company incorporated in British Columbia in Canada in August 2020. 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 38% of taxable income,28% after federal tax abatement. After the general tax reduction, the net federal tax rate is 15%. The provincial and territorial lower and higher tax rates in British Columbia are 2% and 12%, respectively.

Vietnam

HeartCore Luvina is a company incorporated in Vietnam in November 2023. It is subject to standard income tax rate at 20% with respect to the taxable income.

Japan

The Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the local tax authority. Income taxes in Japan applicable to the Company are imposed by the national, prefectural and municipal governments, and in the aggregate result in an effective statutory tax rate of approximately 34.59% for the three and six months ended June 30, 2025 and 2024.

For the three and six months ended June 30, 2025 and 2024, the Company’s income tax expense (benefit) are as follows:

For the three and six months ended June 30, 2025, the effective tax rate was (0.34)% and 2.62%, respectively. For the three and six months ended June 30, 2024, the effective tax rate was (3.16)% and (3.97)%, respectively.

NOTE 15 – STOCK-BASED COMPENSATION

Stock Options

On August 6, 2021, the Board of Directors and shareholders of the Company approved a 2021 Equity Incentive Plan (“2021 Plan”), under which 2,400,000 shares of common shares are authorized for issuance.

On August 9, 2022, the Company awarded stock options to purchase 14,500 shares of common shares at an exercise price of $2.48 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 August 9, 2026.

On February 3, 2023, the Company awarded stock options to purchase 100,000 shares of common shares pursuant to the 2021 Plan at an exercise price of $1.17 per share to an employee of the Company. The stock options vest 50% on the grant date and February 1, 2024, respectively, with the expiration date on February 3, 2033.

On August 1, 2023, the Board of Directors of the Company approved a 2023 Equity Incentive Plan, under which 2,000,000 shares of common shares are authorized for issuance.

On August 25, 2023, the Company awarded stock options to purchase 2,000 shares of common shares pursuant to the 2021 Plan at an exercise price of $1.10 per share to an employee of the Company. The stock options vest on each annual anniversary of the date of issuance, in an amount equal to 25% of the applicable shares of common shares, with the expiration date on August 25, 2033.

The following table summarizes the stock options activities and related information for the six months ended June 30, 2025 and 2024:

For the three and six months ended June 30, 2025, the Company recognized stock-based compensation related to stock options of $22,006 and $52,682, respectively. For the three and six months ended June 30, 2024, the Company recognized stock-based compensation related to stock options of $40,597 and $111,044, respectively. The outstanding unamortized stock-based compensation related to stock options was $59,573 (which will be recognized through December 2025) as of June 30, 2025.

Restricted Stock Units (“RSUs”)

On February 9, 2022, the Company entered into executive employment agreements with five executives and granted 85,820 RSUs pursuant to the 2021 Plan. The RSUs vest on each annual anniversary of the date of the employment agreement, in an amount equal to 25% of the applicable shares of common shares. The fair value of the RSUs at grant date is $424,809.

The following table summarizes the RSUs activities and related information for the six months ended June 30, 2025 and 2024:

For the three and six months ended June 30, 2025, the Company recognized stock-based compensation related to RSUs of $5,918 and $7,522, respectively. For the three and six months ended June 30, 2024, the Company recognized stock-based compensation related to RSUs of $15,445 and $36,710, respectively. The outstanding unamortized stock-based compensation related to RSUs was $14,420 (which will be recognized through February 2026) as of June 30, 2025.

NOTE 16 – SHAREHOLDERS’ EQUITY

Shares Authorized

The Company is authorized to issue 200,000,000 shares of common shares, par value of $0.0001 per share, and 20,000,000 shares of preferred shares, par value of $0.0001 per share.

Equity Purchase Agreement

On June 30, 2025, the Company entered into an equity purchase agreement and a registration rights agreement with Crom Structured Opportunities Fund I, LP (“Crom Structured”), pursuant to which Crom Structured has committed to purchase up to $25 million in shares of the Company’s common shares, subject to certain limitations and conditions set forth in the equity purchase agreement. The Company shall not issue or sell any shares of common shares under the equity purchase agreement which, when aggregated with all purchases of common shares made by Crom Structured pursuant to the equity purchase agreement, would result in beneficial ownership of more than 4.99% of the Company’s outstanding shares of common shares.

Under 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 $25 million, (ii) June 30, 2027, (iii) written notice of termination by the Company to Crom Structured, (iv) the registration statement is no longer effective after the initial effective date of the registration statement, or (v) the date that the Company commences a voluntary bankruptcy case, a bankruptcy proceeding is commenced against the Company, a custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors. The purchase price will be calculated as 96% of the volume weighted average price (“VWAP”) of the Company’s common shares on the trading day immediately preceding the respective common shares purchase notice delivery date.

Concurrently with the signing of the equity purchase agreement, the Company issued 485,437 shares of common shares to Crom Structured as a commitment fee. The total fair value of the shares issued for the commitment fee of $250,000 was recorded as deferred offering costs in the consolidated balance sheets.

During the six months ended June 30, 2025, no common shares were sold under the terms of the equity purchase agreement.

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 2,000 shares of preferred shares as Series A convertible preferred shares and each share of Series A convertible preferred shares has a stated value of $1,100. The following summarizes the material terms of the Series A convertible preferred shares:

On June 30, 2025, the Company entered into a securities purchase agreement and a registration rights agreement with Crom Structured, pursuant to which the Company closed, issued and sold to Crom Structured an aggregate of 2,000 shares of the Company’s designated Series A convertible preferred shares for an aggregate purchase price of $2,000,000. Concurrently with the signing of the securities purchase agreement, the Company issued 750,000 shares of common shares (“750,000 Common Shares”) to Crom Structured for no consideration. The Company received net proceeds of $1,800,000 from the securities purchase agreement after deducting share issuance transaction fees. The net proceeds from the securities purchase agreement were allocated to Series A convertible preferred shares and 750,000 Common Shares based on their relative fair values.

During the six months ended June 30, 2025, no shares of Series A convertible preferred shares were converted into common shares.

Dividends accrued on Series A convertible preferred shares amounted to $611 in the six months ended June 30, 2025.

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 $0.0001 per share, having an aggregate offering price of up to approximately $2 million (“ATM Shares”). The Company pays commission fees of 4% for each completed sale of ATM Shares under the terms of the ATM Agreement. During the six months ended June 30, 2025 and 2024, the Company sold a total of 15,892 andnil shares of the ATM Shares for net proceeds of $30,445 andnil after deducting commission fees and other transaction costs, respectively. The subscription receivable of $103,942 related to ATM Shares sold on December 31, 2024 was collected in full on January 2, 2025.

Capital Contribution for Non-controlling Shareholder

In November 2023, the Company established a 51% owned subsidiary in Vietnam, HeartCore Luvina. On February 16, 2024, the Company received capital contribution of VND1,646.4 million in cash, equivalent to $67,195, from the non-controlling shareholder of the subsidiary.

Distribution of Dividends on Common Shares

On March 29, 2024, the Board of Directors approved a dividend declaration of $0.02 per share of common share for the shareholders of record at the close of business on April 26, 2024. The dividends in the amount of $417,283 were paid on May 3, 2024.

Shares Issued and Outstanding

As of June 30, 2025 and December 31, 2024, there were 23,310,770 and 21,937,987 shares of common shares issued and outstanding, respectively.

As of June 30, 2025 and December 31, 2024, there were 2,000 andno shares of preferred shares (designated as Series A convertible preferred shares) issued and outstanding, respectively.

NOTE 17 – NET INCOME (LOSS) PER SHARE

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.

The computation of basic and diluted net income (loss) per share for the three and six months ended June 30, 2025 and 2024 is as follows:

NOTE 18 – SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

Operating segments are defined as components of an entity for which discrete financial information is available and is regularly reviewed by the CODM, the CEO of the Company, in making decisions regarding resource allocation and performance assessment. The Company determines its operations constitute a single operating segment and reportable segment in accordance with ASC Topic 280. The CODM assesses financial performance and decides how to allocate resources based on consolidated net income (loss). Segment assets are reported on the Company’s consolidated balance sheets.

The following table summarizes selected financial information with respect to the Company’s single operating segment and reportable segment for the three and six months ended June 30, 2025 and 2024:

Geographic Information

The following table summarizes the breakdown of revenues by geography for the three and six months ended June 30, 2025 and 2024:

The following table summarizes the breakdown of long-lived assets by geography as of June 30, 2025 and December 31, 2024:

NOTE 19 – SUBSEQUENT EVENT

On July 1, 2025, the Company converted partial of the warrants it received from a customer as noncash consideration from consulting services into marketable securities.

On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (“OBBBA”) which includes, among other provisions, changes to the U.S. corporate income tax system including the allowance of immediate expensing of qualifying research and development expenses and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. The Company is currently evaluating the impact of OBBBA on its unaudited consolidated financial statements and related disclosures.

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 to a non-related company for a cash consideration of approximately $12 million, subject to price adjustment.