HeartCore Enterprises, Inc. 10-Q

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. JPY 20,140,000 (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 JPY 21,200,000 . 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 JPY 10,000,000 (b)(c) 9/30/2020 – 9/30/2027 1.000 % $ 27,473 $ 29,440 Resona Bank, Limited JPY 40,000,000 (b)(c) 9/30/2020 – 9/30/2027 1.000 % 109,891 117,762 Resona Bank, Limited JPY 20,000,000 (b)(c) 11/13/2020 – 10/31/2027 1.600 % 56,537 60,386 Sumitomo Mitsui Banking Corporation JPY 10,000,000 (b)(c) 12/30/2019 – 12/30/2026 1.975 % 19,909 22,441 Sumitomo Mitsui Banking Corporation JPY 10,000,000 (b)(c) 10/4/2023 – 9/30/2028 0.600 % 52,204 54,062 Sumitomo Mitsui Banking Corporation JPY 10,000,000 (b)(c) 10/4/2023 – 9/30/2028 0.000 % 52,204 54,062 The Shoko Chukin Bank, Ltd. JPY 50,000,000 7/27/2020 – 6/30/2027 1.290 % 133,752 141,638 The Shoko Chukin Bank, Ltd. JPY 30,000,000 7/25/2023 – 6/30/2028 Tokyo Interbank Offered Rate + 1.950 % 152,879 154,220 Japan Finance Corporation JPY 80,000,000 11/17/2020 – 11/30/2027 0.210 % 246,104 256,971 Higashi-Nippon Bank JPY 30,000,000 (b) 3/31/2022 – 3/31/2025 1.550 % - 51,597 Higashi-Nippon Bank JPY 30,000,000 (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 EUR 200,000 of taxable income is subject to a statutory tax rate of 19 % and the remaining taxable income is subject to a statutory tax rate of 25.80 %. Canada Sigmaways Technologies is a company incorporated in British Columbia in Canada in August 2020. It is subject to income tax on income arising in, or derived from, the tax jurisdiction in British Columbia it operates. The basic federal rate of Part I tax is 38 % of taxable income, 28 % after federal tax abatement. After the general tax reduction, the net federal tax rate is 15 %. The provincial and territorial lower and higher tax rates in British Columbia are 2 % and 12 %, respectively. Vietnam HeartCore Luvina is a company incorporated in Vietnam in November 2023. It is subject to standard income tax rate at 20 % with respect to the taxable income. Japan The Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the local tax authority. Income taxes in Japan applicable to the Company are imposed by the national, prefectural and municipal governments, and in the aggregate result in an effective statutory tax rate of approximately 34.59 % for the three 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