UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______, 20___, to _____, 20___.

Commission File Number 001-41272

HeartCore Enterprises, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

87-0913420

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

1-2-33, Higashigotanda, Shinagawa-ku

Tokyo, Japan

(Address of Principal Executive Offices) (Zip Code)

(206) 385-0488, ext. 100

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each Exchange on which Registered
Common Stock		HTCR		The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 15, 2025, there were 22,075,333 shares of outstanding common stock, par value $0.0001 per share, of the registrant.

HeartCore Enterprises, Inc.

Contents

		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	F-1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8

Item 4.	Controls and Procedures	8

PART II - OTHER INFORMATION		9

Item 1.	Legal Proceedings	9

Item 1A.	Risk Factors	9

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9

Item 3.	Defaults Upon Senior Securities	9

Item 4.	Mine Safety Disclosures	9

Item 5.	Other Information	9

Item 6.	Exhibits	10

Signatures		11

ITEM 1. FINANCIAL STATEMENTS

HEARTCORE ENTERPRISES, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2025			2024
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	738,984		$	2,121,089
Accounts receivable		2,114,655			1,950,050
Investments in marketable securities		2,251,276			4,495,703
Prepaid expenses		537,970			458,839
Current portion of long-term note receivable		100,000			100,000
Due from related party		42,453			40,139
Other current assets		278,961			251,545
Total current assets		6,064,299			9,417,365

Non-current assets:
Accounts receivable, non-current		694,302			752,930
Property and equipment, net		438,243			584,854
Operating lease right-of-use assets		1,830,486			1,936,097
Long-term investment in warrants		526,165			577,786
Long-term note receivable		100,000			100,000
Deferred tax assets		115,802			152,300
Security deposits		325,441			307,996
Long-term loan receivable from related party		120,459			123,928
Other non-current assets		7,810			11,778
Total non-current assets		4,158,708			4,547,669

Total assets	$	10,223,007		$	13,965,034

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,839,759		$	2,039,323
Accounts payable and accrued expenses – related party		22,814			47,199
Accrued payroll and other employee costs		517,436			675,502
Due to related parties		239			932
Short-term debt		134,689			-
Short-term debt – related party		75,000			75,000
Current portion of long-term debts		367,871			401,255
Insurance premium financing		127,567			16,626
Factoring liability		127,053			172,394
Operating lease liabilities, current		279,840			371,951
Finance lease liabilities, current		16,932			15,956
Income tax payables		739,450			822,014
Deferred revenue		1,437,248			1,876,490
Other current liabilities		1,009,373			907,080
Total current liabilities		6,695,271			7,421,722

Non-current liabilities:
Long-term debts		1,166,678			1,238,813
Operating lease liabilities, non-current		1,600,977			1,614,996
Finance lease liabilities, non-current		41,854			43,593
Asset retirement obligations		117,940			183,895
Total non-current liabilities		2,927,449			3,081,297

Total liabilities		9,622,720			10,503,019

Shareholders’ equity:
Preferred shares ($0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding as of March 31, 2025 and December 31, 2024)		-			-
Common shares ($0.0001 par value, 200,000,000 shares authorized; 22,075,333 and 21,937,987 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively)		2,207			2,193
Subscription receivable		-			(103,942	)
Additional paid-in capital		20,835,864			20,656,153
Accumulated deficit		(19,331,835	)		(16,244,843	)
Accumulated other comprehensive income		334,685			343,936
Total HeartCore Enterprises, Inc. shareholders’ equity		1,840,921			4,653,497
Non-controlling interests		(1,240,634	)		(1,191,482	)
Total shareholders’ equity		600,287			3,462,015

Total liabilities and shareholders’ equity	$	10,223,007		$	13,965,034

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-1

HEARTCORE ENTERPRISES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	For the Three Months Ended March 31,
	2025			2024
Revenues	$	3,587,026		$	5,046,732
Cost of revenues (including cost of revenues resulting from transactions with a related party of $25,195 and nil for the three months ended March 31, 2025 and 2024, respectively)		2,486,742			3,014,543
Gross profit		1,100,284			2,032,189

Operating expenses:
Selling expenses		291,160			219,707
General and administrative expenses (including general and administrative expenses resulting from transactions with a related party of $17,615 and nil for the three months ended March 31, 2025 and 2024, respectively)		1,929,388			2,406,303
Research and development expenses		123,893			89,134
Total operating expenses		2,344,441			2,715,144

Loss from operations		(1,244,157	)		(682,955	)

Other income (expenses):
Changes in fair value of investments in marketable securities		(1,781,664	)		(234,082	)
Changes in fair value of investment in warrants		(51,621	)		(678,887	)
Interest income		3,020			2,594
Interest expenses		(29,133	)		(36,661	)
Other income		35,359			97,016
Other expenses		(12,549	)		(25,194	)
Total other expenses		(1,836,588	)		(875,214	)
Loss before income tax expense (benefit)		(3,080,745	)		(1,558,169	)
Income tax expense (benefit)		56,636			(80,167	)
Net loss		(3,137,381	)		(1,478,002	)
Less: net loss attributable to non-controlling interests		(50,389	)		(144,652	)
Net loss attributable to HeartCore Enterprises, Inc.	$	(3,086,992	)	$	(1,333,350	)

Other comprehensive income (loss):
Foreign currency translation adjustment		(8,014	)		10,295
Total comprehensive loss		(3,145,395	)		(1,467,707	)
Less: comprehensive loss attributable to non-controlling interests		(49,152	)		(149,563	)
Comprehensive loss attributable to HeartCore Enterprises, Inc.	$	(3,096,243	)	$	(1,318,144	)

Net loss per common share attributable to HeartCore Enterprises, Inc.
Basic	$	(0.14	)	$	(0.06	)
Diluted	$	(0.14	)	$	(0.06	)
Weighted average common shares outstanding
Basic		22,054,029			20,854,714
Diluted		22,054,029			20,854,714

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-2

HEARTCORE ENTERPRISES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024

	Common Shares							Additional					Accumulated Other			Total HeartCore Enterprises, Inc.			Non-			Total
	Number of Shares		Amount		Subscription Receivable			Paid-in Capital		Accumulated Deficit			Comprehensive Income			Shareholders’ Equity			controlling Interests			Shareholders’ Equity
Balance, December 31, 2024		21,937,987	$	2,193	$	(103,942	)	$	20,656,153	$	(16,244,843	)	$	343,936		$	4,653,497		$	(1,191,482	)	$	3,462,015
Net loss		-		-		-			-		(3,086,992	)		-			(3,086,992	)		(50,389	)		(3,137,381	)
Foreign currency translation adjustment		-		-		-			-		-			(9,251	)		(9,251	)		1,237			(8,014	)
Issuance of common shares		15,892		2		-			30,443		-			-			30,445			-			30,445
Collection of subscription receivable		-		-		103,942			-		-			-			103,942			-			103,942
Exercise of stock options		100,000		10		-			116,990		-			-			117,000			-			117,000
Stock-based compensation		21,454		2		-			32,278		-			-			32,280			-			32,280
Balance, March 31, 2025		22,075,333	$	2,207	$	-		$	20,835,864	$	(19,331,835	)	$	334,685		$	1,840,921		$	(1,240,634	)	$	600,287

	Common Shares				Additional					Accumulated Other		Total HeartCore Enterprises, Inc.			Non-			Total
	Number of Shares		Amount		Paid-in Capital		Accumulated Deficit			Comprehensive Income		Shareholders’ Equity			controlling Interests			Shareholders’ Equity
Balance, December 31, 2023		20,842,690	$	2,083	$	19,594,801	$	(14,763,469	)	$	331,881	$	5,165,296		$	2,501,518		$	7,666,814
Net loss		-		-		-		(1,333,350	)		-		(1,333,350	)		(144,652	)		(1,478,002	)
Foreign currency translation adjustment		-		-		-		-			15,206		15,206			(4,911	)		10,295
Capital contribution from non-controlling shareholder		-		-		-		-			-		-			67,195			67,195
Stock-based compensation		21,454		2		91,710		-			-		91,712			-			91,712
Balance, March 31, 2024		20,864,144	$	2,085	$	19,686,511	$	(16,096,819	)	$	347,087	$	3,938,864		$	2,419,150		$	6,358,014

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-3

HEARTCORE ENTERPRISES, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended March 31,
	2025			2024
Cash flows from operating activities:
Net loss	$	(3,137,381	)	$	(1,478,002	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization expenses		26,907			188,085
Loss on disposal of property and equipment		117,305			-
Amortization of debt issuance costs		1,222			1,173
Non-cash lease expense		90,508			93,133
Gain on termination of lease		(9,059	)		(469	)
Deferred income taxes		43,932			(80,780	)
Stock-based compensation		32,280			91,712
Changes in fair value of investments in marketable securities		1,781,664			234,082
Changes in fair value of investment in warrants		51,621			678,887
Gain on settlement of asset retirement obligations		(45,873	)		-
Changes in assets and liabilities:
Accounts receivable		(14,678	)		(523,110	)
Prepaid expenses		78,792			102,028
Other assets		(13,759	)		(18,618	)
Accounts payable and accrued expenses		(219,830	)		295,799
Accounts payable and accrued expenses – related party		(24,224	)		-
Accrued payroll and other employee costs		(178,339	)		(149,603	)
Due to related parties		(702	)		(1,161	)
Operating lease liabilities		(84,948	)		(90,035	)
Income tax payables		(84,284	)		(2,387	)
Deferred revenue		(496,079	)		(300,011	)
Other liabilities		84,134			60,658
Net cash flows used in operating activities		(2,000,791	)		(898,619	)

Cash flows from investing activities:
Net proceeds from sale of warrants		-			1,640,000
Proceeds from sale of marketable securities		462,763			-
Repayment of loan provided to related party		10,298			10,814
Net cash flows provided by investing activities		473,061			1,650,814

Cash flows from financing activities:
Payments for finance leases		(4,071	)		(4,474	)
Proceeds from short-term debt		134,689			68,138
Repayment of short-term and long-term debts		(165,165	)		(207,486	)
Repayment of insurance premium financing		(28,559	)		(14,772	)
Net repayment of factoring arrangement		(45,341	)		(383,353	)
Capital contribution from non-controlling shareholder		-			67,195
Proceeds from issuance of common shares		30,445			-
Proceeds from collection of subscription receivable		103,942			-
Proceeds from exercise of stock options		117,000			-
Net cash flows provided by (used in) financing activities		142,940			(474,752	)

Effect of exchange rate changes		2,685			(70,671	)

Net change in cash and cash equivalents		(1,382,105	)		206,772
Cash and cash equivalents – beginning of the period		2,121,089			1,012,479
Cash and cash equivalents – end of the period	$	738,984		$	1,219,251

Supplemental cash flow disclosures:
Interest paid	$	22,857		$	37,098
Income taxes paid	$	93,586		$	117,524

Non-cash investing and financing transactions:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	-		$	125,735
Insurance premium financing	$	139,500		$	172,689

The accompanying notes are an integral part of these unaudited consolidated financial statements.

F-4

HEARTCORE ENTERPRISES, INC.

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”.

F-5

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 and revenue recognition with respect to allocation of transaction price. 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 included in other non-current liabilities 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:

	March 31,			December 31,
	2025			2024
Beginning balance	$	183,895		$	208,732
Accretion expense		82			342
Liabilities settled		(76,640	)		(3,779	)
Foreign currency translation adjustment		10,603			(21,400	)
Ending balance	$	117,940		$	183,895

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 months ended March 31, 2025 and 2024, software development costs expensed as incurred amounted to $123,893 and $89,134, respectively. These software development costs were included in the research and development expenses.

F-6

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 were no impairments of these assets during the three months ended March 31, 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 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 revenue 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.

F-7

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.

F-8

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 three months ended March 31, 2025 and 2024 that were included in the opening deferred revenue balance are approximately $0.8 million and $1.0 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 months ended March 31, 2025 and 2024 is as follows:

	For the Three Months Ended
	March 31,
	2025		2024
Revenues from on-premise software	$	334,882	$	1,078,736
Revenues from maintenance and support services		567,619		627,764
Revenues from software as a service (“SaaS”)		172,844		139,700
Revenues from software development and other miscellaneous services		425,357		447,458
Revenues from customized software development and services		1,840,781		2,177,593
Revenues from consulting services		245,543		575,481
Total revenues	$	3,587,026	$	5,046,732

The Company’s disaggregation of revenues by product/service for the three months ended March 31, 2025 and 2024 is as follows:

	For the Three Months Ended
	March 31,
	2025		2024
Revenues from customer experience management platform	$	1,341,468	$	2,059,589
Revenues from process mining		28,963		73,155
Revenues from robotic process automation		48,811		56,191
Revenues from task mining		62,000		45,858
Revenues from customized software development and services		1,840,781		2,177,593
Revenues from consulting services		245,543		575,481
Revenues from others		19,460		58,865
Total revenues	$	3,587,026	$	5,046,732

F-9

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 months ended March 31, 2025, customer B represents 18.7% of the Company’s total revenues. For the three months ended March 31, 2024, customer A and B represent 13.4% and 13.0%, respectively, of the Company’s total revenues.

As of March 31, 2025 and December 31, 2024, customer A represents 17.9% and 17.6%, respectively, of the Company’s total accounts receivable.

For the three months ended March 31, 2025, vendor A represents 12.5% of the Company’s total purchases. For the three months ended March 31, 2024, no vendor accounts for more than 10% of the Company’s total purchases.

As of March 31, 2025, no vendor accounts for more than 10% of the Company’s total accounts payable and accrued expenses. As of December 31, 2024, vendor B represents 10.6% of the Company’s total accounts payable and accrued expenses.

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 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.

Fair Value Measurements

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

	●	Level 1: quoted prices in active markets for identical assets or liabilities;

	●	Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or

	●	Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.

As of March 31, 2025 and December 31, 2024, the carrying values of current assets, except for investments in marketable securities, and current liabilities approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments.

F-10

Assets measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024 are summarized below (also see NOTE 6).

Fair Value Measurements as of March 31, 2025
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Fair Value at March 31, 2025
Investments in marketable securities		2,251,276		-		-		2,251,276
Long-term investment in warrants		-		526,165		-		526,165

Fair Value Measurements as of December 31, 2024
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Fair Value at December 31, 2024
Investments in marketable securities		4,495,703		-		-		4,495,703
Long-term investment in warrants		-		577,786		-		577,786

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.

F-11

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	March 31, 2025			December 31, 2024
Accounts receivable – non-factored	$	2,633,465		$	2,485,417
Accounts receivable – factored with recourse		175,492			217,563
Total accounts receivable, gross		2,808,957			2,702,980
Less: allowance for credit losses		-			-
Total accounts receivable		2,808,957			2,702,980
Less: current portion		(2,114,655	)		(1,950,050	)
Accounts receivable, non-current	$	694,302		$	752,930

NOTE 4 – PREPAID EXPENSES

Prepaid expenses consist of the following:

	March 31,		December 31,
	2025		2024
Prepayments to software and consulting services vendors	$	173,252	$	188,528
Prepaid marketing fees		20,076		32,129
Prepaid subscription fees		84,523		115,593
Prepaid insurance premium		179,524		44,023
Others		80,595		78,566
Total prepaid expenses	$	537,970	$	458,839

NOTE 5 – RELATED PARTY TRANSACTIONS

As of March 31, 2025 and December 31, 2024, the Company had a due to related parties balance of $239 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 three months ended March 31, 2025, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $182. During the three months ended March 31, 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 $1,161.

As of March 31, 2025 and December 31, 2024, the Company had a due to related parties balance of nil and $885, respectively, from Luvina Software Joint Stock Company (“Luvina Software”), the non-controlling shareholder of HeartCore Luvina. The balance is unsecured, non-interest bearing and due on demand. During the three months ended March 31, 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 and nil, respectively. As of March 31, 2025 and December 31, 2024, the Company had an accounts payable and accrued expenses balance of $22,814 and $47,199, respectively, to Luvina Software. During the three months ended March 31, 2025 and 2024, the Company engaged the related party for software development and other support services in the amount of $42,810 and nil, respectively.

F-12

As of March 31, 2025 and December 31, 2024, the Company had a loan receivable balance of $162,912 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 three months ended March 31, 2025 and 2024, the Company received repayments of $10,298 and $10,814, respectively, from this related party.

As of March 31, 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 matures on June 30, 2025.

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 three months ended March 31, 2025 and 2024:

	For the Three Months Ended
	March 31,
	2025			2024
Fair value of investment in warrants at beginning of the period	$	577,786		$	2,004,308
Changes in fair value of investment in warrants		(51,621	)		(678,887	)
Fair value of investment in warrants at end of the period	$	526,165		$	1,325,421

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 three months ended March 31, 2025 and 2024:

	For the Three Months Ended
	March 31,
	2025			2024
Fair value of investments in marketable securities at beginning of the period	$	4,495,703		$	642,348
Changes in fair value of investments in marketable securities		(1,781,664	)		(234,082	)
Marketable securities sold		(462,763	)		-
Fair value of investments in marketable securities at end of the period	$	2,251,276		$	408,266

F-13

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:

	March 31,			December 31,
	2025			2024
Leasehold improvements	$	258,921		$	440,333
Machinery and equipment		664,250			646,252
Vehicle		85,231			80,586
Software		142,877			135,089
Subtotal		1,151,279			1,302,260
Less: accumulated depreciation		(713,036	)		(717,406	)
Total property and equipment, net	$	438,243		$	584,854

Depreciation expenses are $26,907 and $28,710 for the three months ended March 31, 2025 and 2024, 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 right-of-use assets and lease liabilities is included in the unaudited consolidated financial statements. Right-of-use assets of finance leases of $59,616 and $60,440 are included in property and equipment, net as of March 31, 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 are recognized on a straight-line basis over the expected life of the leased assets, and interest expense, which are 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 are as follows:

	For the Three Months Ended
	March 31,
	2025		2024
Finance lease costs
Amortization of right-of-use assets	$	4,179	$	4,628
Interest on lease liabilities		198		265
Total finance lease costs		4,377		4,893
Operating lease costs		98,056		103,426
Total lease costs	$	102,433	$	108,319

F-14

The following table presents supplemental information related to the Company’s leases:

	For the Three Months Ended
	March 31,
	2025			2024
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	198		$	265
Operating cash flows from operating leases		91,763			106,037
Financing cash flows from finance leases		4,071			4,474
Operating lease right-of-use assets obtained in exchange for operating lease liabilities		-			125,735

Weighted average remaining lease term (years)
Finance leases		3.5			4.5
Operating leases		7.0			7.4

Weighted average discount rate (per annum)
Finance leases		1.32	%		1.32	%
Operating leases		1.36	%		1.38	%

As of March 31, 2025, the future maturity of lease liabilities is as follows:

Year Ended December 31,	Finance lease			Operating leases
Remaining of 2025	$	13,199		$	232,733
2026		17,599			274,468
2027		17,599			274,468
2028		11,733			274,468
2029		-			274,468
Thereafter		-			637,857
Total lease payments		60,130			1,968,462
Less: imputed interest		(1,344	)		(87,645	)
Total lease liabilities		58,786			1,880,817
Less: current portion		(16,932	)		(279,840	)
Non-current lease liabilities	$	41,854		$	1,600,977

Pursuant to the operating lease agreements, the Company made security deposits to the lessors. The security deposits amounted to $325,441 and $307,996 as of March 31, 2025 and December 31, 2024, respectively.

NOTE 10 – OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

	March 31,		December 31,
	2025		2024
Accrued consumption taxes	$	379,402	$	277,593
Customer refund liability*		500,000		500,000
Others		129,971		129,487
Total other current liabilities	$	1,009,373	$	907,080

On June 28, 2024, the Company entered into a settlement agreement with a customer, pursuant to which the consulting services agreement with the customer was terminated and the Company will refund $500,000 to the customer in August 2025.

F-15

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 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 March 31, 2025 and December 31, 2024, there were $127,053 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 months ended March 31, 2025 and 2024, the Company recorded $8,901 and $16,108 in interest expenses related to the 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 March 31, 2025 and December 31, 2024, the balances of the insurance premium financing were $127,567 and $16,626, respectively. During the three months ended March 31, 2025 and 2024, the Company recorded $1,832 and $2,039, respectively, in interest expenses related to the insurance premium financing.

NOTE 13 – DEBTS

Short-term Debt

The Company’s short-term debt represents a loan borrowed from a financial institution as follows:

Name of Financial
Institution

Original
Amount
Borrowed

Loan
Duration

Monthly
Interest Rate

Balance as of
March 31,
2025

Balance as of
December 31,
2024

PMG Co., Ltd.

JPY20,140,000

(a)

3/27/2025 – 4/30/2025

4.511

134,689

(a)

The debt is secured by accounts receivable of HeartCore Japan in the amount of JPY21,200,000.

F-16

Long-term Debts

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

Name of Banks/Financial Institutions	Original Amount Borrowed			Loan Duration	Annual Interest Rate			Balance as of March 31, 2025			Balance as of December 31, 2024
Resona Bank, Limited		JPY10,000,000	(b)(c)	9/30/2020 – 9/30/2027		1.000	%	$	27,473		$	29,440
Resona Bank, Limited		JPY40,000,000	(b)(c)	9/30/2020 – 9/30/2027		1.000	%		109,891			117,762
Resona Bank, Limited		JPY20,000,000	(b)(c)	11/13/2020 – 10/31/2027		1.600	%		56,537			60,386
Sumitomo Mitsui Banking Corporation		JPY10,000,000	(b)(c)	12/30/2019 – 12/30/2026		1.975	%		19,909			22,441
Sumitomo Mitsui Banking Corporation		JPY10,000,000	(b)(c)	10/4/2023 – 9/30/2028		0.600	%		52,204			54,062
Sumitomo Mitsui Banking Corporation		JPY10,000,000	(b)(c)	10/4/2023 – 9/30/2028		0.000	%		52,204			54,062
The Shoko Chukin Bank, Ltd.		JPY50,000,000		7/27/2020 – 6/30/2027		1.290	%		133,752			141,638
The Shoko Chukin Bank, Ltd.		JPY30,000,000		7/25/2023 – 6/30/2028		Tokyo Interbank Offered Rate + 1.950	%		152,879			154,220
Japan Finance Corporation		JPY80,000,000		11/17/2020 – 11/30/2027		0.210	%		246,104			256,971
Higashi-Nippon Bank		JPY30,000,000	(b)	3/31/2022 – 3/31/2025		1.550	%		-			51,597
Higashi-Nippon Bank		JPY30,000,000	(b)(c)	10/11/2023 – 9/30/2028		1.600	%		160,503			164,401
First Home Bank	$	350,000	(d)	4/18/2019 – 4/18/2029		Wall Street Journal U.S. Prime Rate + 2.750	%		186,627			195,766
U.S. Small Business Administration	$	350,000	(d)	5/30/2020 – 5/30/2050		3.750	%		347,900			349,322
Aggregate outstanding principal balances									1,545,983			1,652,068
Less: unamortized debt issuance costs									(11,434	)		(12,000	)
Less: current portion									(367,871	)		(401,255	)
Non-current portion								$	1,166,678		$	1,238,813

	(b)	These debts are guaranteed by Sumitaka Yamamoto, the CEO and major shareholder of the Company.
	(c)	These debts are guaranteed by Tokyo Credit Guarantee Association, and the Company has paid guarantee expenses for these debts.
	(d)	These debts are guaranteed by Prakash Sadasivam, the CEO of Sigmaways and CSO of the Company, and secured by all assets of Sigmaways.

F-17

Interest expenses for short-term debt and long-term debts are $6,878 and $11,522, respectively, for the three months ended March 31, 2025. Interest expenses for short-term debt and long-term debts are $2,628 and $15,886, respectively, for the three months ended March 31, 2024.

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

	Principal
Year Ended December 31,	Payment
Remaining of 2025	$	255,284
2026		375,797
2027		403,051
2028		179,204
2029		27,924
Thereafter		304,723
Total	$	1,545,983

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 EUR200,000 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 months ended March 31, 2025 and 2024.

F-18

For the three months ended March 31, 2025 and 2024, the Company’s income tax expense (benefit) are as follows:

	For the Three Months Ended
	March 31,
	2025		2024
Current	$	12,704	$	613
Deferred		43,932		(80,780	)
Income tax expense (benefit)	$	56,636	$	(80,167	)

The effective tax rate was 1.84% and (5.14)% for the three months ended March 31, 2025 and 2024, 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 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.

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

The following table summarizes the stock options activities and related information for the three months ended March 31, 2025 and 2024:

	Number of Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Term (Years)		Intrinsic Value
As of January 1, 2024		1,547,000		$	2.41		8.01	$	-
Granted		-			-		-		-
Exercised		-			-		-		-
Forfeited		(8,000	)		2.15		-		-
As of March 31, 2024		1,539,000		$	2.41		7.76	$	-

As of January 1, 2025		1,506,500		$	2.41		7.01	$	64,500
Granted		-			-		-		-
Exercised		(100,000	)		1.17		-		-
Forfeited		-			-		-		-
As of March 31, 2025		1,406,500		$	2.50		6.68	$	-
Vested and exercisable as of March 31, 2025		1,058,500		$	2.50		6.67	$	-

F-19

The Company recognized stock-based compensation related to stock options of $30,676 and $70,447 during the three months ended March 31, 2025 and 2024, respectively. The outstanding unamortized stock-based compensation related to stock options was $90,874 (which will be recognized through December 2025) as of March 31, 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 three months ended March 31, 2025 and 2024:

	Number of RSUs			Weighted Average Grant Date Fair Value Per Share
Unvested as of January 1, 2024		64,366		$	4.95
Granted		-			-
Vested		(21,454	)		4.95
Forfeited		-			-
Unvested as of March 31, 2024		42,912		$	4.95

Unvested as of January 1, 2025		42,912		$	4.95
Granted		-			-
Vested		(21,454	)		4.95
Forfeited		(2,268	)		4.95
Unvested as of March 31, 2025		19,190		$	4.95

The Company recognized stock-based compensation related to RSUs of $1,604 and $21,265 during the three months ended March 31, 2025 and 2024, respectively. The outstanding unamortized stock-based compensation related to RSUs was $20,338 (which will be recognized through February 2026) as of March 31, 2025.

NOTE 16 – SHAREHOLDERS’ EQUITY

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.

On October 23, 2023, the Company entered into an at the market offering agreement (“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 three months ended March 31, 2025 and 2024, the Company sold a total of 15,892 and nil shares of the ATM Shares for net proceeds of $30,445 and nil 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.

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.

F-20

As of March 31, 2025 and December 31, 2024, there were 22,075,333 and 21,937,987 shares of common shares issued and outstanding, respectively.

No preferred shares were issued and outstanding as of March 31, 2025 and December 31, 2024.

NOTE 17 – NET LOSS PER SHARE

Basic net loss per share is calculated on the basis of weighted average outstanding common shares. Diluted net loss per share is computed on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options and RSUs. 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, and are not included in the calculation of diluted loss per share if their effect would be anti-dilutive.

The computation of basic and diluted net loss per share for the three months ended March 31, 2025 and 2024 is as follows:

	For the Three Months Ended
	March 31,
	2025			2024
Numerator:
Net loss attributable to HeartCore Enterprises, Inc. common shareholders	$	(3,086,992	)	$	(1,333,350	)
Denominator:
Weighted average number of common shares outstanding used in calculating net loss per share		22,054,029			20,854,714
Net loss per share – basic and diluted	$	(0.14	)	$	(0.06	)

For the three months ended March 31, 2025 and 2024, the weighted average common shares outstanding are the same for basic and diluted net loss per share calculations, as the inclusion of potentially dilutive common shares related to the early exercised stock options and unvested RSUs would have an anti-dilutive effect.

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 months ended March 31, 2025 and 2024:

	For the Three Months Ended
	March 31,
	2025			2024
Revenues	$	3,587,026		$	5,046,732
Less:
Software related cost of revenues		2,407,895			2,709,228
Consulting related cost of revenues		78,847			305,315
Selling expenses		291,160			219,707
General and administrative expenses		1,929,388			2,406,303
Research and development expenses		123,893			89,134
Loss from operations		(1,244,157	)		(682,955	)
Total other expenses		(1,836,588	)		(875,214	)
Loss before income tax expense (benefit)		(3,080,745	)		(1,558,169	)
Income tax expense (benefit)		56,636			(80,167	)
Net loss	$	(3,137,381	)	$	(1,478,002	)

F-21

Geographic Information

The following table summarizes the breakdown of revenues by geography for the three months ended March 31, 2025 and 2024:

	For the Three Months Ended
	March 31,
	2025		2024
Japan	$	1,739,156	$	2,869,139
United States		1,736,018		2,020,280
International		111,852		157,313
Total revenues	$	3,587,026	$	5,046,732

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

	March 31,		December 31,
	2025		2024
Japan	$	2,226,634	$	2,470,598
United States		34,104		39,996
International		7,991		10,357
Total long-lived assets	$	2,268,729	$	2,520,951

NOTE 19 – SUBSEQUENT EVENTS

During the subsequent period, the Company sold marketable securities for proceeds of approximately $270,000.

F-22

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

We are 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.

During 2022, we started the GO IPO business, which supports Japanese companies listing on Nasdaq and NYSE in the United States. As of March 31, 2025, we have entered into consulting agreements with 14 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 were incorporated in the State of Delaware on May 18, 2021. We conduct business activities principally through our wholly owned subsidiary, HeartCore Co. Ltd. (“HeartCore Japan”), which was established in Japan by Sumitaka Yamamoto, our Chairman of Board, Chief Executive Officer and President and a significant stockholder of the Company, in 2009.

On September 6, 2022, the Company 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, and its wholly owned subsidiaries. Sigmaways and its wholly owned subsidiaries are engaged in the business of developing and sales of software in the United States. The acquisition closed on February 1, 2023.

In the first quarter of 2023, we formed HeartCore Financial, Inc. (“HeartCore Financial”) in the U.S. as part of our Go IPO consulting business. In the fourth quarter of 2023, we formed HeartCore Luvina Vietnam Company (“HeartCore Luvina”) in Vietnam, which is engaged in the business of software development.

In April 2024, HeartCore Financial incorporated a branch office, HeartCore Financial, Inc. – Japan Branch Office, in Japan.

Recent Developments

Change in Controlled Company Status and Board Committee Formation

In the first quarter of 2025, the Company announced that its Board of Directors (the “Board”) had formed a Compensation Committee and a Nominating and Corporate Governance Committee. The Compensation Committee is comprised of three independent directors: Ferdinand Groenewald, Heather Neville (Chair) and Koji Sato. The Nominating and Corporate Governance Committee is comprised of three independent directors: Ferdinand Groenewald, Heather Neville and Koji Sato (Chair).

In exchange for their service on the Compensation Committee, the Chair of the Compensation Committee will receive an additional $7,000 annually, and the other Compensation Committee members will receive an additional $4,000 annually.

In exchange for their service on the Nominating and Corporate Governance Committee, the Chair of the Nominating and Corporate Governance Committee will receive an additional $6,000 annually, and the other Nominating and Corporate Governance Committee members will receive an additional $3,000 annually.

Upon initially listing with the Nasdaq Capital Market, the Company qualified as a “controlled company” because more than 50% of the voting power for the election of directors was held by Mr. Yamamoto. As a result of certain sales under the Company’s previously announced at-the-market offering, Mr. Yamamoto no longer holds more than 50% of the voting power for the election of directors and therefore, the Company no longer qualifies as a controlled company. As a result, the Company is required, subject to phase-in rules, to comply with Nasdaq requirements that:

●

a majority of the Board consist of independent directors as defined by Nasdaq’s applicable rules and regulations;

●

the compensation of the Company’s executive officers be determined, or recommended to the Board for determination, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a compensation committee comprised solely of independent directors; and

●

director nominees be selected, or recommended to the Board for selection, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a nomination committee comprised solely of independent directors.

The Company previously availed itself of certain of the controlled company exemptions. More specifically, the Company did not have a compensation committee or a nominating and corporate governance committee.

We no longer qualify as a controlled company and accordingly, we have formed a Compensation Committee and a Nominating and Corporate Governance Committee; however, we currently utilize and presently intend to continue to utilize, the exemption relating to a majority independent Board. Pursuant to Nasdaq’s phase-in rules, we have a period of one year from the date on which we ceased to be a controlled company to comply with the majority independent Board requirement.

Three of six members of the Company’s Board are independent directors within the meaning of Nasdaq Capital Market rules: Ferdinand Groenewald, Heather Neville, and Koji Sato.

Nasdaq Notice Regarding Minimum Bid Price Requirement

On May 6, 2025, the Company received written notice (the “Bid Price Notice”) from the Nasdaq Listing Qualification Department (the “Nasdaq Staff”) indicating that the Company is 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 the Company’s common stock on the Nasdaq Capital Market under the symbol “HTCR,” and the Company is currently monitoring the closing bid price of its common stock and evaluating its 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, the Company no longer meets this requirement. The Bid Price Notice indicated that the Company will be provided 180 calendar days, or until November 3, 2025, in which to regain compliance. If at any time during this period the closing bid price of the Company’s common stock is at least $1.00 per share for a minimum of 10 consecutive business days, the Nasdaq Staff will provide the Company with written confirmation of compliance and the matter will be closed.

Alternatively, if the Company fails to regain compliance with Rule 5550(a)(2) prior to the expiration of the 180 calendar day period, but meets 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 provides written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary, then the Company may be granted an additional 180 calendar days to regain compliance with Rule 5550(a)(2).

There can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement, even if it maintains compliance with the other listing requirements. The Company is considering actions that it may take in response to the Bid Price Notice in order to regain compliance with the continued listing requirements, but no decisions regarding a response have been made at this time.

Financial Overview

For the three months ended March 31, 2025 and 2024, we generated revenues of $3,587,026 and $5,046,732, respectively, and reported net loss of $3,137,381 and $1,478,002, respectively, and cash flows used in operating activities of $2,000,791 and $898,619, respectively. As noted in our unaudited consolidated financial statements, as of March 31, 2025, we had an accumulated deficit of $19,331,835.

Results of Operations

Comparison of Results of Operations for the Three Months Ended March 31, 2025 and 2024

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

	For the Three Months Ended March 31,
	2025						2024						Variance
				% of						% of
	Amount			Revenues			Amount			Revenues			Amount			%

Revenues	$	3,587,026			100.0	%	$	5,046,732			100.0	%	$	(1,459,706	)		-28.9	%
Cost of revenues		2,486,742			69.3	%		3,014,543			59.7	%		(527,801	)		-17.5	%
Gross profit		1,100,284			30.7	%		2,032,189			40.3	%		(931,905	)		-45.9	%

Operating expenses:
Selling expenses		291,160			8.1	%		219,707			4.4	%		71,453			32.5	%
General and administrative expenses		1,929,388			53.8	%		2,406,303			47.6	%		(476,915	)		-19.8	%
Research and development expenses		123,893			3.5	%		89,134			1.8	%		34,759			39.0	%
Total operating expenses		2,344,441			65.4	%		2,715,144			53.8	%		(370,703	)		-13.7	%

Loss from operations		(1,244,157	)		-34.7	%		(682,955	)		-13.5	%		(561,202	)		82.2	%

Other expenses		(1,836,588	)		-51.2	%		(875,214	)		-17.4	%		(961,374	)		109.8	%

Loss before income tax expense (benefit)		(3,080,745	)		-85.9	%		(1,558,169	)		-30.9	%		(1,522,576	)		97.7	%

Income tax expense (benefit)		56,636			1.6	%		(80,167	)		-1.6	%		136,803			-170.6	%

Net loss		(3,137,381	)		-87.5	%		(1,478,002	)		-29.3	%		(1,659,379	)		112.3	%

Less: net loss attributable to non-controlling interests		(50,389	)		-1.4	%		(144,652	)		-2.9	%		94,263			-65.2	%

Net loss attributable to HeartCore Enterprises, Inc.	$	(3,086,992	)		-86.1	%	$	(1,333,350	)		-26.4	%	$	(1,753,642	)		131.5	%

Revenues

Our total revenues decreased by $1,459,706, or 28.9%, to $3,587,026 for the three months ended March 31, 2025 from $5,046,732 for the three months ended March 31, 2024, primarily attributable to (i) a decreased revenue of $743,854 from sale on-premise software, mainly because the Company obtained several large orders of CMS license during the first quarter of 2024, while only one such comparable large order was obtained in the current period; (ii) a decreased revenue of $336,812 from customized software development and services in connection with the intense competition of the software market in the U.S.; and (iii) a decreased revenue of $329,938 from GO IPO consulting services, as no new IPO consulting orders were entered this quarter mainly as heightened uncertainty in the U.S. stock market caused by rising tariffs.

Cost of Revenues

Our total cost of revenues decreased by $527,801, or 17.5%, to $2,486,742 for the three months ended March 31, 2025 from $3,014,543 for the three months ended March 31, 2024, mainly attributable to the decrease of $374,939 and $226,468 in the cost of customized software development and services and GO IPO consulting services, respectively, in light of the decreases in sales.

Gross Profit

Our total gross profit decreased by $931,905, or 45.9%, to $1,100,284 for the three months ended March 31, 2025 from $2,032,189 for the three months ended March 31, 2024, mainly attributable to (i) a decrease of $751,215 in gross profit from sale of on-premises software, as the sale decreased dramatically while there was not much change in the corresponding costs as the product was developed independently and fixed, which were not proportional to sales, and (ii) a decrease of $103,470 in gross profit from GO IPO consulting services, in light of the decrease in sale.

For the reasons discussed above, our overall gross profit margin decreased by 9.6% to 30.7% for the three months ended March 31, 2025 from 40.3% for the three months ended March 31, 2024.

Selling Expenses

Our selling expenses increased by $71,453, or 32.5%, to $291,160 for the three months ended March 31, 2025 from $219,707 in the three months ended March 31, 2024, primarily attributable to an increase of $97,622 in sales salaries, commissions and welfare, resulting from the employee restructuring in late 2024 by transferring certain administrative and management department employees to sales department to promote selling activities for software business in Japan.

As a percentage of revenues, our selling expenses accounted for 8.1% and 4.4% of our total revenues for the three months ended March 31, 2025 and 2024, respectively.

General and Administrative Expenses

Our general and administrative expenses decreased by $476,915 or 19.8%, to $1,929,388 for the three months ended March 31, 2025 from $2,406,303 in the three months ended March 31, 2024, primarily attributable to (i) a decrease of $153,770 in salaries and welfare expenses, mainly resulting from the employee restructuring in late 2024 as mentioned above; (ii) a decrease of $159,874 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; and (iii) a decrease of $113,477 in office, utility and other expenses, reflecting from our continued efforts to save operating expenses.

As a percentage of revenues, general and administrative expenses were 53.8% and 47.6% of our revenues for the three months ended March 31, 2025 and 2024, respectively.

Research and Development Expenses

Our research and development expenses increased by $34,759 or 39.0%, to $123,893 in the three months ended March 31, 2025 from $89,134 in the three months ended March 31, 2024, primarily attributable to an increase of $79,348 in salaries and welfare expenses for the employees assigned to the development of a new product, Global CMS, which started in late 2024; offset by a decrease of $44,250 in outsourcing costs due to the expiration of certain outsourcing contracts in the current period.

As a percentage of revenues, research and development expenses were 3.5% and 1.8% of our revenues for the three months ended March 31, 2025 and 2024, respectively.

Other Income (Expenses), Net

Our other income (expenses) primarily includes changes in fair value of investments in marketable securities, changes in fair value of investment in warrants, interest income generated from bank deposits, interest expenses for bank loans, other income, and other expenses. Total other expenses, net, of $875,214 for the three months ended March 31, 2024 increased by $961,374 or 109.8% to total other expenses, net, of $1,836,588 for the three months ended March 31, 2025, primarily attributable to an increase of $1,547,582 in loss on fair value changes in investments in marketable securities due to decreased stock price of investees, partially offset by a decrease of $627,266 in loss on fair value changes in investment in warrants.

Income Tax Expense (Benefit)

Income tax expense was $56,636 for the three months ended March 31, 2025, representing a decrease of $136,803, or 170.6% from income tax benefit of $80,167 in the three months ended March 31, 2024, mainly because we recognized deferred income tax benefit in connection with amortization expense for intangible asset raised from acquisition of Sigmaways in the three months ended March 31, 2024, whereas, the intangible asset was fully impaired in the fourth quarter of 2024, and thus no such deferred income tax benefit recorded in current quarter. Meanwhile, the income tax expenses incurred in the current quarter mainly attributable to the decrease of deferred tax assets due to various revenue and expenses adjustments.

Net Loss

As a result of the foregoing, we reported a net loss of $3,137,381 for the three months ended March 31, 2025, representing a $1,659,379 or 112.3% increase from a net loss of $1,478,002 for the three months ended March 31, 2024.

Net Loss Attributable to Non-controlling Interests

We owned 51% equity interest of Sigmaways and its subsidiaries and 51% equity interest of HeartCore Luvina. Accordingly, we recorded net loss attributable to the non-controlling interests of $50,389 and $144,652 in the three months ended March 31, 2025 and 2024, respectively.

Net Loss Attributable to HeartCore Enterprises, Inc.

As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $3,086,992 for the three months ended March 31, 2025, representing a $1,753,642 or 131.5% increase from a net loss attributable to HeartCore Enterprises, Inc. of $1,333,350 for the three months ended March 31, 2024.

Liquidity and Capital Resources

As of March 31, 2025, we had $738,984 in cash and cash equivalents as compared to $2,121,089 as of December 31, 2024. We also had $2,114,655 in accounts receivable as of March 31, 2025. Our accounts receivable primarily include balance due from customers for our on-premise software sold and services provided and accepted by customers, as well as amounts billable to the customers for customized software development and services.

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

	For the Three Months Ended March 31,
	2025			2024
Net cash flows used in operating activities	$	(2,000,791	)	$	(898,619	)
Net cash flows provided by investing activities		473,061			1,650,814
Net cash flows provided by (used in) financing activities		142,940			(474,752	)
Effect of exchange rate changes		2,685			(70,671	)
Net change in cash and cash equivalents		(1,382,105	)		206,772
Cash and cash equivalents, beginning of the period		2,121,089			1,012,479
Cash and cash equivalents, end of the period	$	738,984		$	1,219,251

Operating Activities

Net cash flows used in operating activities was $2,000,791 for the three months ended March 31, 2025, primarily consisting of the following:

	●	Net loss of $3,137,381 for the three months ended March 31, 2025.
	●	A decrease of $496,079 in deferred revenue, due to decreased upfront payment received for sales of on-premise software revenue as we obtained fewer orders.
	●	A decrease of $219,830 in accounts payable and accrued expenses, as we continuously paid off such liabilities and decreased purchases to save operating expenses.
	●	A decrease of $178,339 in accrued payroll and other employee costs, resulting from payment for accrued bonus and sales commission during the period.
	●	Offset by a loss of $1,781,664 on fair value changes in investments in marketable securities.
	●	Offset by a loss of $117,305 on disposal of property and equipment brought by early termination of an operating lease.
	●	Offset by non-cash lease expense of $90,508.

Investing Activities

Net cash flows provided by investing activities amounted to $473,061 for the three months ended March 31, 2025, primarily attributable to the proceeds of $462,763 from sale of marketable securities.

Financing Activities

Net cash flows provided by financing activities amounted to $142,940 for the three months ended March 31, 2025, primarily consisting of (i) proceeds of $134,689 from short-term debt borrowing; (ii) proceeds of $117,000 from exercise of stock options; (iii) collection of subscription receivable of $103,942; and offset by (iv) repayment of $165,165 for long-term debts.

Contractual Obligations

Lease Commitment

The Company has entered into operating leases for office space with terms ranging from two to fifteen years, and a finance lease for vehicle with the term of five years.

As of March 31, 2025, future minimum lease payments under the non-cancelable lease agreements are as follows:

Year Ended December 31,	Finance Lease			Operating Leases
Remaining of 2025	$	13,199		$	232,733
2026		17,599			274,468
2027		17,599			274,468
2028		11,733			274,468
2029		-			274,468
Thereafter		-			637,857
Total lease payments		60,130			1,968,462
Less: imputed interest		(1,344	)		(87,645	)
Total lease liabilities		58,786			1,880,817
Less: current portion		(16,932	)		(279,840	)
Non-current lease liabilities	$	41,854		$	1,600,977

Debts

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

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

	Principal
Year Ended December 31,	Payment
Remaining of 2025	$	255,284
2026		375,797
2027		403,051
2028		179,204
2029		27,924
Thereafter		304,723
Total	$	1,545,983

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 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. We believe there are no critical accounting policies and estimates for the three months ended March 31, 2025.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2025. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2025, the Company’s disclosure controls and procedures were not effective, for the same reason as previously disclosed under Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2024, as filed with the Securities and Exchange Commission on March 31, 2025.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.

ITEM 1A. RISK FACTORS

As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as updated from time to time.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

There have been no defaults in any material payments during the covered period.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) None.

(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.

(c) During the quarter ended March 31, 2025, no director or officer of the Company adopted or terminated a contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or a non-Rule 10b5-1 trading arrangement.

ITEM 6. EXHIBITS

Exhibit Number		Description of Document

31.1*		Rule 13a-14(a) Certification of Principal Executive Officer.

31.2*		Rule 13a-14(a) Certification of Principal Financial Officer.

32.1**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Principal Executive Officer and Principal Financial Officer.

101.INS*		Inline XBRL Instance Document

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*		Inline XBRL Taxonomy Extension Labels Linkbase

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase

104*		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Filed herewith.
**	Furnished herewith.
†	Management contracts and compensation plans and arrangements.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

	HEARTCORE ENTERPRISES, INC.

Dated: May 15, 2025	By:	/s/ Sumitaka Yamamoto
		Sumitaka Yamamoto
		Chief Executive Officer and President (principal executive officer)

Dated: May 15, 2025	By:	/s/ Qizhi Gao
		Qizhi Gao
		Chief Financial Officer (principal financial officer and principal accounting officer)

SEC Form 10-Q filed by Heartcore Enterprises Inc.