What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-16 · 397 added, 263 removed, 183 unchanged (78% of the section changed)

40 unchanged sentences

have made significant investments in our sales and marketing efforts globally.

As of March 31, 2022, our sales and marketing organization

was comprised of 15 employees including our field sales organization, which maintains a physical sales presence in the Japanese

software market.

As of June 30, 2022, our sales and marketing organization

was comprised of 16 employees including our field sales organization, which maintains a physical sales presence in the Japanese software

Using our go-to-market strategy, we believe we have made significant contributions in Japan and have established a diversified

revenue and customer base.

As of March 31, 2022, our combined business units (customer experience management business unit and

digital transformation business unit) had a total of 858 customers in Japan.

As of June 30, 2022, our combined business units (customer experience management business unit and digital

transformation business unit) had a total of 877 customers in Japan .

were incorporated in the State of Delaware on May 18, 2021.

We conduct business activities principally through our wholly-owned

subsidiary, HeartCore Co., Ltd., a Japanese corporation (“HeartCore Co”), which was established in Japan by Mr.

Yamamoto, our CEO, in 2009.

We acquired 97.5% of the equity interest of HeartCore Co in July 2021 and acquired the remaining

interest in February 2022.

HeartCore Co started out with helping companies effectively managing content with its powerful

content management system.

Since then, HeartCore Co has expanded offerings to help companies manage all forms of business

acquisition of HeartCore Co in July 2021 was accounted for as a recapitalization among entities under common control since the

same controlling shareholders controlled all these entities before and after the transaction.

The consolidation of the Company and its

subsidiaries 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 first period presented in the accompanying consolidated financial statements.

Consulting Agreement

March 31, 2022, we entered into a Consulting and Services Agreement (the “Moveaction Consulting Agreement”) by and between

the Company and Moveaction Co., Ltd.

(“Moveaction”).

Pursuant to the terms of the Moveaction Consulting Agreement, the Company

agreed to provide Moveaction certain services, including the following (collectively, the “Services”):

with the selection and negotiation of terms for a law firm, underwriter and auditing firm;

of process mining and task mining licenses for internal audit and internal control;

in the preparation of documentation for internal controls required for an initial public offering by Moveaction on the NASDAQ Stock

Market, the New York Stock Exchange or the NYSE American;

support services to remove problematic accounting accounts upon listing support;

of requested documents into English;

and, if requested by the other party, lead, meetings of management and employees;

support services related to the NASDAQ listing;

of accounting data from Japanese standards to U.S.

in the preparation of S-1 or F-1 filings;

of English web page;

an investor presentation/deck and executive summary of the operations.

providing the Services, the Company will not perform accounting services, and will not act as an investment advisor or broker/dealer.

Pursuant to the terms of the Consulting Agreement, the parties agreed that the Company will not provide the following services, among

negotiation of the sale of Moveaction’s securities;

participation in discussions between Moveaction and potential investors;

assisting in structuring any transactions involving the sale of Moveaction’s securities;

pre-screening of potential investors;

due diligence activities;

and providing advice relating to valuation of or financial advisability of any investments in Moveaction.

to the terms of the Consulting Agreement, Moveaction agreed to compensate the Company as follows in return for the provision of Services

during the initial term of nine months:

to be paid as follows:

(i) $180,000 on March 31, 2022;

(ii) $140,000 on the three-month anniversary of March 31, 2022;

$140,000 on the six-month anniversary of March 31, 2022;

by Moveaction to the Company of a warrant (the “Moveaction Warrant”) to acquire shares of Moveaction capital stock.

any Renewal Term (as defined below), Moveaction will compensate the Company for Services at the rate of $150 per hour.

Moveaction Consulting Agreement has an initial term of nine months, which will automatically renew for additional nine month period

(each, a “Renewal Term”) unless either party provides at least 30 days’ prior notice.

provided in the Moveaction Consulting Agreement, on the Effective Date, Moveaction issued to the Company the Moveaction Warrant.

to the terms of the Moveaction Warrant, the Company may, at any time on or after the date that Moveaction completes its first initial

public offering of stock in the United States resulting in any class of Moveaction’s stock being listed for trading on any tier

of the Nasdaq Stock Market, the New York Stock Exchange or the NYSE American (the “IPO Date”) and on or prior to the close

of business on the tenth anniversary of the IPO Date, exercise the Moveaction Warrant to purchase eight shares of Moveaction common stock

for an exercise price per share of $0.01, subject to adjustment as provided in the Moveaction Warrant.

The Warrant contains a 9.99% equity

We conduct business activities principally through our wholly-owned subsidiary,

HeartCore Co., Ltd., a Japanese corporation (“HeartCore Co”), which was established in Japan by Mr.

Sumitaka Yamamoto, our

CEO, in 2009.

We acquired 97.5% of the equity interest of HeartCore Co in July 2021 and acquired the remaining interest in February 2022.

HeartCore Co started out with helping companies effectively managing content with its powerful content management system.

HeartCore Co has expanded offerings to help companies manage all forms of business processes .

acquisition of HeartCore Co in July 2021 was accounted for as a recapitalization among entities under common control since the same controlling

shareholders controlled all these entities before and after the transaction.

The consolidation of the Company 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

first period presented in the accompanying consolidated financial statements .

Consulting Agreement

3 unchanged sentences

Pursuant to the terms of the ALI Consulting Agreement, the Company agreed

to provide consultant services to assist ALI to exposure to the US stock market.

Pursuant to the terms of the ALI Consulting

Agreement, the parties agreed that the Company will provide the following services, among others:

negotiation of the sale of ALI’s

to provide certain consulting services, including the following (collectively, the “Services”):

with the selection and negotiation of terms for a law firm, underwriter and auditing firm for ALI;

in the preparation of documentation for internal controls required for an initial public offering or de-SPAC by ALI;

support services to remove problematic accounting accounts upon listing;

of requested documents into English;

and, if requested by ALI, lead meetings with ALI’s management team and employees;

ALI with support services related to ALI’s NASDAQ listing;

of accounting data from Japanese standards to US GAAP;

to remove problematic accounting accounts upon listing;

for the ALI’s negotiations with the audit firm;

in the preparation of S-1 or S-4 filings;

of English language website;

an investor presentation/deck and executive summary of ALI’s business and operations.

providing the Services, the Company will not perform accounting services, and will not act as an investment advisor or broker/dealer.

Pursuant to the terms of the ALI Consulting Agreement, the parties agreed that the Company will not provide the following services, among

negotiation of the sale of ALI’s securities;

participation in discussions between ALI and potential investors;

assisting in structuring any transactions involving the

sale of ALI’s securities;

in structuring any transactions involving the sale of ALI’s securities;

pre-screening of potential investors;

due diligence activities;

providing advice relating to valuation

of or financial advisability of any investments in ALI.

nor providing advice relating to valuation of or financial advisability of any investments in ALI.

to the terms of the ALI Consulting Agreement, ALI agreed to compensate the Company as follows in return for the provision of Services:

during the six-month term (the “Term”):

to be paid as follows:

2 unchanged sentences

$100,000 on the six-month anniversary of April 13, 2022;

by ALI to the Company of a warrant (the “ALI Warrant”) to acquire a number of shares of capital stock of ALI, to initially

be equal to 1% of the fully diluted share capital of ALI as of April 13, 2022, subject to adjustment as set forth in the ALI Warrant.

any services performed by the Company beyond the Term, ALI will compensate the Company for Services at the rate of $150 per hour.

by ALI to the Company of a warrant to acquire a number of shares of capital stock of ALI, to initially be equal to 1% of the fully

diluted share capital of ALI as of April 13, 2022, subject to adjustment as set forth in the warrant.

ALI Consulting Agreement has a term of six months, which shall expire unless renewed upon mutual written agreement of the parties.

provided in the ALI Consulting Agreement, on April 13, 2022, ALI issued to the Company the ALI Warrant.

any services performed by the Company beyond the initial term, ALI will compensate the Company for Services at the rate of $150 per hour.

provided in the ALI Consulting Agreement, on April 13, 2022, ALI issued to the Company the warrant.

Pursuant to the terms of the warrant,

the Company may, at any time on or after the date that ALI completes its first initial public offering of stock in the United States

resulting in any class of ALI’s stock being listed for trading on any tier of the Nasdaq Stock Market, the New York Stock Exchange

or the NYSE American (the “IPO Date”) and on or prior to the close of business on the tenth anniversary of the IPO Date,

exercise the warrant to purchase 1% of the fully diluted share capital of ALI as of April 13, 2022 for an exercise price per share of

$0.01, subject to adjustment as provided in the warrant.

The number of shares for which the warrant will be exercisable will be automatically

adjusted on the IPO Date to be 1% of the fully diluted number and class of shares of capital stock of ALI as of the IPO Date that are

listed for trading.

The warrant contains a 9.99% equity blocker.

Consulting Agreement

May 13, 2022, the Company entered into a Consulting and Services Agreement (the “SYLA Consulting Agreement”) by and between

the Company and SYLA Holdings Co.

Pursuant to the terms of the SYLA Consulting Agreement, the Company agreed

to provide SYLA certain services, including the Services.

providing the Services, the Company will not perform accounting services, and will not act as an investment advisor or broker/dealer.

Pursuant to the terms of the SYLA Consulting Agreement, the parties agreed that the Company will not provide the following services,

among others:

negotiation of the sale of SYLA’s securities;

participation in discussions between SYLA and potential investors;

assisting in structuring any transactions involving the sale of SYLA’s securities;

pre-screening of potential investors;

due diligence

nor providing advice relating to valuation of or financial advisability of any investments in SYLA.

to the terms of the SYLA Consulting Agreement, SYLA agreed to compensate the Company as follows in return for the provision of Services:

to be paid as follows:

(i) $200,000 on the effective date of the SYLA Consulting Agreement;

(ii) $150,000 on the three-month anniversary

of the effective date of the SYLA Consulting Agreement;

and (iii) $150,000 on the six-month anniversary of the SYLA Consulting Agreement;

by SYLA to the Company of a warrant, deemed fully earned and vested as of the effective date of the SYLA Consulting Agreement, to

acquire a number of shares of capital stock of SYLA, to initially be equal to 2% of the fully diluted share capital of SYLA as of

the effective date of the SYLA Consulting Agreement, subject to adjustment as set forth in the warrant.

SYLA Consulting Agreement’s initial term of six months will expire unless renewed upon mutual written agreement of the parties.

For any services performed by the Company beyond the initial term, SYLA will compensate the Company for Services at the rate of $150

per hour, based on the hours spent by personnel of the Company.

provided in the SYLA Consulting Agreement, on the Effective Date, SYLA issued the warrant to the Company.

Pursuant to the terms of the

ALI Warrant, the Company may, at any time on or after the IPO Date and on or prior to the close of business on the tenth anniversary

of the IPO Date, exercise the ALI Warrant to purchase 1% of the fully diluted share capital of ALI as of April 13, 2022 for an exercise

price per share of $0.01, subject to adjustment as provided in the ALI Warrant.

The number of shares for which the ALI Warrant will be

exercisable will be automatically adjusted on the IPO Date to be 1% of the fully diluted number and class of shares of capital stock

of ALI as of the IPO Date that are listed for trading.

warrant, the Company may, at any time on or after the date the IPO Date and on or prior to the close of business on the tenth anniversary

of the IPO Date, exercise the warrant to purchase 2% of the fully diluted share capital of SYLA as of the effective date of the SYLA

Consulting Agreement for an exercise price per share of $0.01, subject to adjustment as provided in the warrant.

The number of shares

for which the warrant will be exercisable will be automatically adjusted on the IPO Date to be 2% of the fully diluted number and class

of shares of capital stock of SYLA as of the IPO Date that are listed for trading.

The warrant contains a 9.99% equity blocker.

forward, we expect that we will offer services substantially similar to the Services to other third parties, as well.

the three months ended March 31, 2022 and 2021, we generated revenues of $2,276,001 and $2,110,309, respectively, and reported net losses

of $1,578,451 and $188,237, respectively, and cash out flow used in operating activities of $2,393,853 and $850,812, respectively.

As noted in our unaudited consolidated financial statements, as of March 31, 2022, we had an accumulated deficit of $5,474,564.

Repurchase Program

Company’s Board of Directors (the “Board”) authorized a share repurchase program, pursuant to which the Company may

repurchase up to $3.5 million of its outstanding shares of common stock.

The Board authorized the Company to purchase its common stock

from time to time on a discretionary basis through open market purchases, privately negotiated transactions or other means, including

trading plans intended to qualify under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange

Act”), in accordance with applicable federal securities laws and other applicable legal requirements.

The Company expects to fund

these repurchases through existing cash balances.

Decisions regarding the amount and the timing of purchases under the program will be

influenced by the Company’s cash on hand, cash flows from operations, general market conditions and other factors.

not obligated to acquire any particular amount of its common stock.

This program has no set termination date and may be suspended or

discontinued by the Board at any time.

the three months ended June 30, 2022 and 2021, we generated revenues of $2,670,297 and $2,865,192, respectively, and reported net losses

of $1,703,641 and net income of $411,714, respectively.

For the six months ended June 30, 2022 and 2021, we generated revenues of $4,946,298

and $4,975,501, respectively, and reported net losses of $3,282,092 and net income of $223,477, respectively, and cash out flow used

in operating activities of $2,093,867 and cash in flow provided by operating activities of $347,683, respectively.

As noted in our unaudited

consolidated financial statements, as of June 30, 2022, we had an accumulated deficit of $7,178,205.

of Operations

of Results of Operations for the Three Months ended March 31, 2022 and 2021

following table summarizes our operating results as reflected in our unaudited statements of operations during the three

months ended March 31, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or (decrease)

during such periods.

For the Three Months ended March 31,

of Results of Operations for the Three Months ended June 30, 2022 and 2021

following table summarizes our operating results as reflected in our statements of income during the three months ended June 30, 2022

and 2021, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.

For the Three Months ended June 30,

COST OF REVENUES

4 unchanged sentences

Total operating expenses

Loss from operations

Other expenses

Loss before income tax provision

Income tax expense (benefit)

net loss attributable to non-controlling interest

NET LOSS ATTRIBUTABLE TO HEARTCORE ENTERPRISES, INC.

Income (loss) from operations

Other income (expenses)

Income (loss) before income tax provision

Income taxes expense

Net income (loss)

net income attributable to non-controlling interest

NET INCOME (LOSS) ATTRIBUTABLE TO HEARTCORE ENTERPRISES, INC.

$ (1,703,641 )

$ (2,104,431 )

For the Three Months ended March 31,

Revenue from on-premise software

total revenues decreased by $194,895, or 6.8%, to $2,670,297 for the three months ended June 30, 2022 from $2,865,192 for the three months

ended June 30, 2021.

The decrease in our revenues was attributable to the following reasons:

from sales of on-premise software decreased by $416,076,

or 36.7%, to $716,532 for the three months ended June 30, 2022 from $1,132,608 for the three

months ended June 30, 2021, mainly attributable to the concentration of sales of CMS licenses

revenue from maintenance and support services

Revenue from software as a service (“SaaS”)

Revenue from software development and other miscellaneous services

Total revenue

Cost of Revenue

Costs of on-premise software

Costs of maintenance and support services

Costs of software as a service (“SaaS”)

Costs of software development and other miscellaneous services

Total cost of revenue

On-premise software

Maintenance and support services

Software as a service (“SaaS”)

Software development and other miscellaneous services

Total gross profit

total revenues increased by $165,692, or 7.9%, to $2,276,001 for the three months ended March 31, 2022 from $2,110,309 for the three

months ended March 31, 2021.

The increase in our revenues was attributable to the following reasons:

the revenues from sales of on-premise software increased

by $551,993, or 221.1%, to $801,601 for the three months ended March 31, 2022 from $249,608 for the three

months ended March 31, 2021, mainly attributable to the increased sales volume of 15 in CMS licenses;

Offset by the revenues from maintenance and support services decreased

by $96,876, or 10.3%, to $845,339 for the three months ended March 31, 2022 from $942,215 for the three months ended March 31, 2021,

mainly attributable to the depreciation of Japanese Yen, without which, the sales would have slightly decreased by $15,301, or 1.5%.

Offset by the decrease of $264,271, or 34.5% in our revenue

from software development and other service, to $502,407 in the three months ended March 31, 2022 from $766,678 in

the three months ended March 31, 2021.

An important customer who contributed $229,035 to our revenue in the three months ended

March 31, 2021, was finished in the prior year and accordingly generated no revenue in the current period

total costs of revenues decreased by $352,276, or 25.0%, to $1,055,356 for the three months ended March 31, 2022 from $1,407,632 for

the three months ended March 31, 2021.

The decrease in our costs was attributable to the following reasons:

the costs of on-premises software decreased by $61,820,

or 21.9%, to $220,432 for the three months ended March 31, 2022 from $282,252 for the three months ended March 31, 2021.

In addition to the depreciation of the yen, CMS license costs were fixed monthly and not proportional to sales.

On the other hand,

the sales deceased in the three months ended March 31, 2022 for process mining products, the costs of which were proportional to

sales, resulting in a decrease in cost of sales.

the costs of SaaS decreased by $44,617, or 38.6%, to $70,924

for the three months ended March 31, 2022 from $115,541 for the three months ended March 31, 2021.

There were specialized

supporting employees and subcontractors for CXM Cloud (SaaS) in the first quarter of 2021.

As the product entered into a mature phase

and operations became stable in 2022, specialized supporting employees and subcontractors were no longer needed, and the costs decreased

the costs of software development and other miscellaneous services

decreased by $222,308, or 32.8%, to $455,714 for the three months ended March 31, 2022 from $678,022 for the three

months ended March 31, 2021.

As mentioned above, we incurred development costs for the product sold to the important customer in

the first quarter 2021, and we incurred no such costs in 2022 because the project development completed in 2021.

total gross profit increased by $517,968, or 73.7%, to $1,220,645 for the three months ended March 31, 2022 from $702,677 for

the three months ended March 31, 2021.

The increase in our gross profit was attributable to the gross profit from sales of on-premises

software increased by $613,813, or -1,880.3% from -$32,644 for the three months ended March 31, 2021 to $581,169

for the three months ended March 31, 2022, primarily due to the increased sales in CMS licenses, the costs of which is not proportional

to sales, but fixed monthly.

the reasons discussed above, our overall gross profit margin increased by 20.3% to 53.6% in the three months ended March 31, 2022 from

33.3% in the three months ended March 31, 2021.

following table sets forth the breakdown of our operating expenses for the three months ended March 31, 2022 and 2021:

For the Three Months ended March 31,

Total revenues

decreased by $163,275, or 18.3%, to $727,277 for the three months ended June 30, 2022 from

$890,552 for the three months ended June 30, 2021.

In addition to terminations of CMS major

maintenance contracts, sales decreased due to the ongoing depreciation of Japanese Yen;

by our newly generated revenue of $448,355 from consulting services provided to three Japan-based

companies, which intend to go public in the US capital markets.

total costs of revenues increased by $161,909, or 13.8%, to $1,337,296 for the three months ended June 30, 2022 from $1,175,387 for the

three months ended June 30, 2021.

The increase in our costs was attributable to the following reasons:

increase of $175,194 in the costs of newly established consulting services;

costs of software development and other miscellaneous services increased by $104,541, or

20.4%, to $616,461 for the three months ended June 30, 2022 from $511,920 for the three months

ended June 30, 2021.

The Company incurred high subcontracting costs for projects and defect

handling in the current period ;

by the costs of SaaS decreased by $90,343, or 77.6%, to $26,144 for the three months ended

June 30, 2022 from $116,487 for the three months ended June 30, 2021.

The Company incurred

expenses for process mining product menu Japanese language additions and manual maintenance

in June 2021;

total gross profit decreased by $356,804, or 21.1%, to $1,333,001 for the three months ended June 30, 2022 from $1,689,805 for the three

months ended June 30, 2021.

O ur overall gross profit

margin decreased by 9.1% to 49.9% in the three months ended June 30, 2022 from 59.0% in the three months ended June 30, 2021.

operating expenses primarily include selling expenses, general and administrative expenses, and research and development expenses.

selling expenses primarily include advertising expenses, sale commissions, and sales promotion expenses.

selling expenses increased by $627,712, or 620.7%, to $728,836 in the three months ended June 30, 2022 from $101,124 in the three months

ended June 30, 2021, primarily attributable to an increase in advertising expenses by $650,690, or 1,428.1%, to $696,252 in the three

months ended June 30, 2022 from $45,562 in the three months ended June 30, 2021.

company launched advertising activities to increase its visibility in the U.S.

after the Company going public in the U.S.

the Company increased advertising expenses for its newly established consulting services in Japan.

a percentage of revenues, our selling expenses accounted for 27.3% and 3.5% of our total revenue for the three months ended June 30,

2022 and 2021 , respectively.

and Administrative Expenses

general and administrative expenses primarily consist of employee salaries and welfare, consulting and professional service fees incurred

for maintaining the Company as a public company, depreciation and amortization expenses, rental expenses, office, utility and other

expenses, listing-related expenses, travel and entertainment expenses, and share-based compensation expense .

general and administrative expenses increased by $829,473 or 81.3%, to $1,850,315 in the three months ended June 30, 2022 from $1,020,842

in the three months ended June 30, 2021, primarily attributable to:

office, utility and other expenses increased by $146,359 or 154.7%, to $240,953 in the three

months ended June 30, 2022 from $94,594 in the three months ended June 30, 2021, primarily

due to the increase in the U.S.

parent company’s office expenses, and D&O indemnity

insurance premiums of the parent company;

consulting and professional

fees increased by $241,548 or 2,850.1%, to $250,023

in the three months ended June 30, 2022 from $8,475 in the three months ended June 30, 2021,

primarily due to the increase in consulting and legal fees related to maintaining as a public

company and stock promotion;

increase in salaries and welfare by $235,262, or 45.2%, to $755,300 in the three months ended

June 30, 2022 from $520,038 in the three months ended June 30, 2021, primarily due to the

salaries paid to the parent company’s newly hired U.S.

increase in share-based compensation of $466,662, or 100 .0 %, to $466,662 in the three months

ended June 30, 2022 from nil in the three months ended June 30, 2021, primarily due to the

amortization of fair value of stock options and restricted stock units granted.

overall increase in our general and administrative expenses in three months ended June 30, 2022 as compared to the three months ended

June 30, 2021 reflected the above-mentioned factors combined.

As a percentage of revenues, general and administrative expenses were 69.3%

and 35.6% of our revenue for the three months ended June 30, 2022 and 2021, respectively.

and Development Expenses

research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.

research and development expenses increased by $337,203 or 421.4%, to $417,228 in the three months ended June 30, 2022 from $80,025 in

the three months ended June 30, 2021, primarily attributable to an increase in outsourcing expenses by $323,308, or 403.5%, to $403,441

in the three months ended June 30, 2022 from $80,133 in the three months ended June 30, 2021, as

we outsourced certain development activities for more efficiency and experience, relating to development of a high quality 12K VR camera

and related data compression system.

overall increase in our research and development expenses in the three months ended June 30, 2022 as compared to the three months ended

June 30, 2021 reflected the above-mentioned factors combined.

As a percentage of revenues, research and development expenses were 15.6%

and 2.8% of our revenue for the three months ended June 30, 2022 and 2021, respectively .

Income (Expenses), net

other income (expenses) primarily includes interest income generated from bank deposits and loan to a related-party, interest expenses

for bank loans, bonds, and leases, other incomes, and other expenses.

Total other expenses, net, increased by $31,410, from other income,

net of $126 in the three months ended June 30, 2021 to other expense, net of $31,284 in the three months ended June 30, 2022 .

income taxes expense was $8,979 in the three months ended June 30, 2022, as compared to the income taxes expense of $76,226 in the three

months ended June 30, 2021, mainly due to the decrease in deferred tax expense .

Income (Loss)

a result of the foregoing, we reported a net loss of $1,703,641 for the three months ended June 30, 2022, representing a $2,115,355 or

513.8% increase from a net income of $411,714 for the three months ended June 30, 2021.

Income attributable to Non-controlling Interest

own 97.35% of the outstanding shares of the operation subsidiary, HeartCore Co, which located in Japan, as of June 30, 2021.

we recorded net income attributable to the non-controlling interest.

The net income attributable to non-controlling interest was $10,924

in the three months ended June 30, 2021 .

August 10, 2021, the Company and Dentsu Digital Investment Limited (“Dentsu Digital”), a non-controlling shareholder of HeartCore

Japan, entered into a stock purchase agreement, pursuant to which the Company has agreed to purchase the 278 shares of HeartCore Japan

held by Dentsu Digital in accordance with certain terms and conditions in the stock purchase agreement for JPY50,040,000 on the earlier

of the (i) the date the SEC declares effective a registration statement on Form S-1, for a firm commitment underwritten initial public

offering of common shares, filed by the Company with the SEC or (ii) December 20, 2022.

February 24, 2022, the Company purchased 278 shares of HeartCore Co from Dentsu Digital for JPY50,040,000 (approximately $435,500 when

As a result, HeartCore Co became a wholly owned subsidiary of the Company.

Accordingly, we did not record non-controlling interest

income in the three months ended June 30, 2022.

Income (Loss) attributable to HeartCore Enterprises, Inc.

a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc.

of $1,703,641 for the three months ended

June 30, 2022, representing a $2,104,431 or 525.1% increase from a net income attributable to HeartCore Enterprises, Inc.

for the three months ended June 30, 2021 .

of Results of Operations for the Six Months ended June 30, 2022 and 2021

following table summarizes our operating results as reflected in our unaudited statements of operations during the six months ended June

30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.

For the Six Months ended June 30,

COST OF REVENUES

Operating expenses

3 unchanged sentences

Total operating expenses

Selling Expenses

Income (Loss) from operations

Other expenses, net

Income (Loss) before income tax provision

Income taxes expense

Net income (loss)

net income attributable to non-controlling interest

NET INCOME (LOSS) ATTRIBUTABLE TO HEARTCORE ENTERPRISES, INC.

$ (3,282,092 )

$ (3,499,633 )

total revenues decreased by $29,203, or 0.6%, to $4,946,298 for the six months ended June 30, 2022 from $4,975,501 for the six months

ended June 30, 2021.

The decrease in our revenues was attributable to the following reasons:

revenue from maintenance and support services

decreased by $260,151, or 14.2%, to $1,572,616 for the six months ended June 30, 2022 from

$1,832,767 for the six months ended June 30, 2021.

In addition to terminations of CMS major

maintenance contracts, sales decreased due to the ongoing depreciation of Japanese yen.

depreciation amounted to approximately 14.1% from $1.00 to 107.74 Yen in the six months ended

June 30, 2021 to $1.00 to 122.98 Yen in the six months ended June 30, 2022;

revenue from software development and other services decreased by $291,708, or 19.9%, to

$1,177,290 for the six months ended June 30, 2022 from $1,468,998 for the six months ended

June 30, 2021, because we did not retain new software development clients in the current

period, in addition to the ongoing depreciation of Japanese yen;

by our newly generated revenue of $448,355 from consulting services provided to three Japan-based

companies, which intend to go public in the US capital markets.

total costs of revenues decreased by $190,367, or 7.4%, to $2,392,652 for the six months ended June 30, 2022 from $2,583,019 for the

six months ended June 30, 2021.

The decrease in our costs was attributable to the following reasons:

costs of on-premises software decreased by $95,989, or 20.1%, to $381,552 for the six months

ended June 30, 2022 from $477,541 for the six months ended June 30, 2021.

In addition to

the depreciation of the yen, CMS license costs were fixed monthly and not proportional to

On the other hands, the sales deceased in the six months ended June 30, 2022 for process

mining products, the costs of which were proportional to sales, resulting in a decrease in

cost of sales ;

costs of SaaS decreased by $134,960, or 58.2%, to $97,068 for the six months ended June 30,

2022 from $232,028 for the six months ended June 30, 2021.

There were specialized supporting

employees and subcontractors for CXM Cloud (SaaS) in the first two quarters of 2021.

product entered into a mature phase and operations became stable in 2022, specialized supporting

employees and subcontractors were no longer needed, and the costs decreased accordingly;

costs of software development and other miscellaneous services decreased by $117,767, or

9.9%, to $1,072,175 for the six months ended June 30, 2022 from $1,189,942 for the six months

ended June 30, 2021, in light of the decrease in sales as mentioned above;

by the increase of $175,194 in the costs of newly established consulting services .

total gross profit increased by $161,164, or 6.7%, to $2,553,646 for the six months ended June 30, 2022 from $2,392,482 for the six months

ended June 30, 2021.

Our overall gross profit margin

increased by 3.5% to 51.6% in the six months ended June 30, 2022 from 48.1% in the six months ended June 30, 2021.

operating expenses primarily include selling expenses, general and administrative expenses, and research and development expenses.

selling expenses primarily include advertising expenses, sales commissions, and sales promotion expenses.

selling expenses increased by $159,577, or 344.4%, to $205,918 in the three months ended March 31, 2022 from $46,341 in the three months

ended March 31, 2021, primarily attributable to an increase in advertising expenses by $157,270, or 527.8%, to 187,070 in the

three months ended March 31, 2022 from $29,800 in the three months ended March 31, 2021.

parent company launched advertising

activities to increase its visibility in the U.S.

selling expenses increased by $787,289, or 533.9%, to $934,754 in the six months ended June 30, 2022 from $147,465 in the six months

ended June 30, 2021, primarily attributable to an increase in advertising expenses by $807,960, or 1,072.1%, to 883,322 in the six months

ended June 30, 2022 from $75,362 in the six months ended June 30, 2021.

parent company

launched advertising activities to increase its visibility in the U.S.

after the Company going public in the U.S.

a percentage of revenues, our selling expenses accounted for 9.0% and 2.2% of our total revenue for the three months ended March 31,

the Company increased advertising expenses for its newly established consulting services in Japan.

a percentage of revenues, our selling expenses accounted for 18.9% and 3.0% of our total revenue for the six months ended June 30, 2022

and 2021 , respectively.

3 unchanged sentences

listing-related expenses, travel and entertainment expenses, and share-based compensation expense .

Our general and administrative expenses increased

by $1,706,185 or 223.7%, to $2,468,933 in the three months ended March 31, 2022 from $762,748 in the three months ended March

31, 2021, primarily attributable to (i) our office, utility and other expenses increased by $121,627 or 149.0%, to $203,257

in the three months ended March 31, 2022 from $81,630 in the three months ended March 31, 2021, primarily due to the increase

parent company’s office expenses, and D&O indemnity insurance premiums of the parent company;

(ii) our consulting

and professional fees increased by $412,713 or 399.3%, to $516,072 in the three months ended March 31, 2022 from

$103,359 in the three months ended March 31, 2021, primarily due to the increase in consulting and legal fees related to going

(iii) an increase in listing-related expenses of $283,468, or 100%, as compared the prior period;

(iv) an increase in salaries

and welfare by $384,388, or 79.8%, to $866,207 in the three months ended March 31, 2022 from $481,819 in

the three months ended March 31, 2021, primarily due to the salaries paid to the parent company’s newly hired U.S.

addition, the company paid approximately $150,000 in executive bonuses in the first quarter 2022;

(v) an increase in share-based compensation

of $422,164, or 100%, to $422,164 in the three months ended March 31, 2022 from nil in the three months ended March 31, 2021, primarily

due to the amortization of fair value of stock options and restricted stock units granted.

overall increase in our general and administrative expenses in three months ended March 31, 2021 as compared to the three months ended

March 31, 2020 reflected the above-mentioned factors combined.

general and administrative expenses increased by $2,535,658 or 142.2%, to $4,319,248 in the six months ended June 30, 2022 from $1,783,590

in the six months ended June 30, 2021, primarily attributable to:

office, utility and other expenses increased by $267,986 or 152.1%, to $444,210 in the six

months ended June 30, 2022 from $176,224 in the six months ended June 30, 2021, primarily

due to the increase in the U.S.

parent company’s office expenses, and D&O indemnity

insurance premiums of the parent company;

consulting and professional

fees increased by $654,261 or 585.0%, to $766,095 in

the six months ended June 30, 2022 from $111,834 in the six months ended June 30, 2021, primarily

due to the increase in consulting and legal fees related to going public and stock promotion;

increase in salaries and welfare by $619,650, or 61.9%, to $1,621,507 in the six months ended

June 30, 2022 from $1,001,857 in the six months ended June 30, 2021, primarily due to the

salaries paid to the parent company’s newly hired U.S.

In addition, the

company paid approximately $150,000 in executive bonuses in the first quarter 2022;

increase in share-based compensation of $888,826, or 100%, to $888,826 in the six months

ended June 30, 2022 from nil in the six months ended June 30, 2021, primarily due to the

amortization of fair value of stock options and restricted stock units granted.

overall increase in our general and administrative expenses in six months ended June 30, 2022 as compared to the six months ended June

30, 2021 reflected the above-mentioned factors combined.

As a percentage of revenues, general and administrative expenses were 87.3%

108.5% and 36.1% of our revenue for the three months ended March 31, 2022 and 2021, respectively.

and 35.8% of our revenue for the six months ended June 30, 2022 and 2021, respectively.

and Development Expenses

research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.

research and development expenses increased by $56,113 or 107.6%, to $108,259 in the three months ended March 31, 2022 from $52,146

in the three months ended March 31, 2021, primarily attributable to an increase in outsourcing expenses by $57,302, or 126.1%,

to $102,750 in the three months ended March 31, 2022 from $45,448 in the three months ended March 31, 2021, as we outsourced certain

development activities for more efficiency and experience, relating to CMS UI renewal and PIM/DAM large-scale development starting in

September 2021.

overall increase in our research and development expenses in the three months ended March 31, 2022 as compared to the three months ended

March 31, 2021 reflected the above-mentioned factors combined.

As a percentage of revenues, research and development expenses were 4.8%

and 2.5% of our revenue for the three months ended March 31, 2022 and 2021, respectively.

Other Expenses, net

other income (expenses) primarily includes interest income generated from bank deposits and loans to related-parties, interest expenses

research and development expenses increased by $393,316 or 297.6%, to $525,487 in the six months ended June 30, 2022 from $132,171 in

the six months ended June 30, 2021, primarily attributable to an increase in outsourcing expenses by $380,610, or 303.1%, to $506,191

in the six months ended June 30, 2022 from $125,581 in the six months ended June 30, 2021, as we

outsourced certain development activities for more efficiency and experience, relating to CMS UI renewal and development of a high quality

12K VR camera and related data compression system in the six months ended June 30,

overall increase in our research and development expenses in the six months ended June 30, 2022 as compared to the six months ended June

30, 2021 reflected the above-mentioned factors combined.

As a percentage of revenues, research and development expenses were 10.6% and

2.7% of our revenue for the six months ended June 30, 2022 and 2021, respectively .

Expenses, net

other income (expenses) primarily includes interest income generated from bank deposits and loan to a related-party, interest expenses

for bank loans, bonds, and leases, other incomes, and other expenses.

Total other expenses, net, decreased by $5,188 or 23.6%, from $21,990

in the three months ended March 31, 2021 to $16,802 in the three months ended March 31, 2022.

for Income Taxes

income taxes benefit was $816 in the three months ended March 31, 2022, as compared to the income taxes provision of $7,689 in the three

months ended March 31, 2021, mainly due to the increased loss.

a result of the foregoing, we reported a net loss of $1,578,451 for the three months ended March 31, 2022, representing a $1,390,214

or 738.5% increase from a net loss of $188,237 for the three months ended March 31, 2021.

loss attributable to non-controlling interest

own 97.35% of the outstanding shares of the operation subsidiary, HeartCore Co, which located in Japan, as of March 31, 2021.

we recorded net loss attributable to the non-controlling interest.

The net loss attributable to non-controlling interest

was $4,988 in the three months ended March 31, 2021.

On August 10, 2021, the Company and Dentsu Digital

Investment Limited (“Dentsu Digital”), a non-controlling shareholder of HeartCore Japan, entered into a stock purchase agreement,

pursuant to which the Company has agreed to purchase the 278 shares of HeartCore Japan held by Dentsu Digital in accordance with certain

terms and conditions in the stock purchase agreement for JPY50,040,000 on the earlier of the (i) the date the SEC declares effective

a registration statement on Form S-1, for a firm commitment underwritten initial public offering of common shares, filed by the Company

with the SEC or (ii) December 20, 2022.

On February 24, 2022, the Company purchased 278

shares of HeartCore Co from Dentsu Digital for JPY50,040,000 (approximately $435,500 when paid).

As a result, HeartCore Co became a wholly

owned subsidiary of the Company.

Accordingly, we did not record non-controlling interest income in the three months ended March 31, 2022.

loss attributable to HeartCore Enterprises, Inc.

Total other expenses, net, increased by $26,222 or 119.9%, from

$21,864 in the six months ended June 30, 2021 to $48,086 in the six months ended June 30, 2022 .

income taxes expense was $8,163 in the six months ended June 30, 2022, as compared to the income taxes expense of $83,915 in the six

months ended June 30, 2021, mainly due to the decrease in deferred tax expense .

Income (Loss)

a result of the foregoing, we reported a net loss of $3,282,092 for the six months ended June 30, 2022, representing a $3,505,569 or

1,568.6% decrease from a net income of $223,477 for the six months ended June 30, 2021.

Income attributable to Non-controlling Interest

own 97.35% of the outstanding shares of the operation subsidiary, HeartCore Co, which located in Japan, as of June 30, 2021.

we recorded net income attributable to the non-controlling interest.

The net income attributable to non-controlling interest was $5,936

in the six months ended June 30, 2021 .

August 10, 2021, the Company and Dentsu Digital Investment Limited (“Dentsu Digital”), a non-controlling shareholder of HeartCore

Japan, entered into a stock purchase agreement, pursuant to which the Company has agreed to purchase the 278 shares of HeartCore Japan

held by Dentsu Digital in accordance with certain terms and conditions in the stock purchase agreement for JPY50,040,000 on the earlier

of the (i) the date the SEC declares effective a registration statement on Form S-1, for a firm commitment underwritten initial public

offering of common shares, filed by the Company with the SEC or (ii) December 20, 2022.

February 24, 2022, the Company purchased 278 shares of HeartCore Co from Dentsu Digital for JPY50,040,000 (approximately $435,500 when

As a result, HeartCore Co became a wholly owned subsidiary of the Company.

Accordingly, we did not record non-controlling interest

income in the six months ended June 30, 2022.

Income (Loss) attributable to HeartCore Enterprises, Inc.

a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc.

of $1,578,451 for the three months ended

March 31, 2022, representing a $1,395,202 or 761.4% increase from a net loss of $183,249 for the three months ended March 31, 2021.

of $3,282,092 for the six months ended

June 30, 2022, representing a $3,499,633 or 1,608 .

7% increase from a net income attributable to HeartCore Enterprises, Inc.

for the six months ended June 30, 2021 .

and Capital Resources

of March 31, 2022, we had $13,913,886 in cash as compared to $3,136,839 as of December 31, 2021.

As of March 31, 2022, our working

of June 30, 2022, we had $12,463,179 in cash as compared to $3,136,839 as of December 31, 2021.

As of June 30, 2022, our working

capital was $10,003,897 as compared to $62,919 as of December 31, 2021.

We also had $1,116,254 in accounts receivable as of March

Our accounts receivable primarily include balance due from customers for our on-premises software sold and services provided

We also had $1,119,990 in accounts receivable as of June 30,

Our accounts receivable primarily include balance due from customers for our on-premises software sold and services provided to

and accepted by customers.

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

For the Three Months Ended

Net cash used in operating activities

For the Six Months Ended

Net cash provided by (used in) operating activities

$ (2,093,867 )

2 unchanged sentences

Effect of exchange rate changes

Net change in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of the period

Cash and cash equivalents, end of the period

cash used in operating activities was $2,393,853 for the three months ended March 31, 2022, primarily consisting of the following:

loss of $1,578,451 for the three months ended March 31, 2022.

cash used in operating activities was $2,093,867 for the six months ended June 30, 2022, primarily consisting of the following:

loss of $3,282,092 for the six months ended June 30, 2022.

increase in accounts receivable of $344,779.

The increase was primarily due to the increase in our sales in the current period.

collected accounts receivable is available cash, which can be used as working capital for our business operation, if necessary.

The increase was primarily due to the increase

in our sales in the current period.

The collected accounts receivable is available cash,

which can be used as working capital for our business operation, if necessary.

increase in prepaid expense of $266,030, primarily due to the increase in the prepayment

to an IR provider of $400,000.

A decreased in account payable and accrued expenses

of $79,982, primarily attributable to the payoff the accrued expenses related to the IPO.

decrease of deferred revenue of $295,176, primarily due to the completion of software development project.

by an increase in accounts payable and accrued expenses of $281,567, primarily attributable

to the payoff the accrued expenses related to the IPO.

by an increase of deferred revenue of $596,762, primarily due to the completion of software

development project.

by share-based compensation of $888,826.

cash used in operating activities was $850,812 for the three months ended March 31, 2021, primarily consisting of the following:

loss of $188,237 for the three months ended March 31, 2021.

increase in accounts receivable of $458,314.

The increase was primarily due to our increased sales in the three months ended March

The collected accounts receivable is available cash, which can be used as working capital for our business operation, if

increase in prepaid expense of $186,462, primarily due to the increase in the prepayments to software venders.

decrease of deferred revenue of $233,170, primarily due to the completion of software development project.

decrease of income tax payable of 159,991, primarily due to the decreased taxable income.

by an increase in accounts payable and accrued expenses of $319,323, primarily due to the increase in the accrued expense related

cash used in investing activities amounted to $35,281 for the three months ended March 31, 2022, and primarily included the purchase

of fixed assets of $18,903, and the loans provided to related parties of $25,480.

cash used in investing activities amounted to $64,510 for the three months ended March 31, 2021, and primarily included the purchase

of fixed assets of $4,239, and the loans provided to related parties of $60,271.

cash provided by financing activities amounted to $13,284,474 for the three months ended March 31, 2022, primarily consisting

of total proceeds of $13,823,126 from the initial public offering and issuance of common shares prior to the

initial public offering, and offset by payment for mandatorily redeemable financial interest of $430,489.

cash used in financing activities amounted to $346,391 for the three months ended March 31, 2021, primarily consisting of repayment of

long-term debts of $328,799 and payments for finance leases of $16,172.

Company’s subsidiary, HeartCore Co., Ltd.

entered into two leases for its office space and parking lot, which were classified as

operating leases.

HeartCore Co., Ltd.

also entered into two leases for office equipment and a lease for a vehicle, and these leases were

cash provided by operating activities was $347,911 for the six months ended June 30, 2021, primarily consisting of the following:

income of $223,477 for the six months ended June 30, 2021.

increase of deferred revenue of $621,707, primarily due to the upfront payment received for

software development projects.

increase in accounts payable and accrued expenses of $128,308, primarily attributable to the increase in accrued expenses related to

lease expense of 171,935 .

by an increase in accounts receivable of $570,886.

The increase was primarily due to the

increase in sales.

The collected accounts receivable is available cash, which can be used

as working capital for our business operation, if necessary.

by an increase in prepaid expense of $282,508, primarily due to the increase in the prepayments

to software venders.

cash used in investing activities amounted to $9,455 for the six months ended June 30, 2022, primarily included the purchase of fixed

assets of $30,963, offset by repayment of loan provided to a related party of $21,508.

cash used in investing activities amounted to $103,692 for the six months ended June 30, 2021, primarily included the purchase of fixed

assets of $19,894 and the loans provided to related parties of $83,798.

cash provided by financing activities amounted to $11,651,622 for the six months ended June 30, 2022, primarily consisting of total proceeds

of $13,823,126 from the initial public offering and issuance of common shares prior to the initial public offering, and offset by payment

for mandatorily redeemable financial interest of $430,489, payment for repurchase of common stocks of $1,336,762, and repayment of long-term

debts of $469,166.

cash used in financing activities amounted to $534,211 for the six months ended June 30, 2021, primarily consisting of repayment of long-term

debts of $503,230 and payments for finance leases of $29,561.

Company has entered into two leases for its office space, which were classified as operating leases.

It has also entered into two leases

for office equipment, one of which was terminated in June 2022, and a lease for a vehicle, and these leases were

classified as finance leases.

of March 31, 2022, future minimum lease payments under the non-cancellable lease agreements are as follows:

of June 30, 2022, future minimum lease payments under the non-cancelable lease agreements are as follows:

Year ending December 31,

Finance lease

Operating lease

Finance leases

Operating leases

Remaining of 2022

5 unchanged sentences

Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions.

of March 31, 2022, future minimum loan payments are as follows:

of June 30, 2022, future minimum loan payments are as follows:

Year ending December 31,

1 unchanged sentence

Sheet Arrangements

did not have any off-balance sheet arrangements as of March 31, 2022.

did not have any off-balance sheet arrangements as of June 30, 2022.

Accounting Policies and Estimates

14 unchanged sentences

the more significant judgments and estimates used in preparation of our unaudited consolidated financial statements.

Company recognizes revenue under ASC Topic 606, “Revenue from Contracts with customers”.

Company recognizes revenue under the ASC Topic 606, “Revenue from Contracts with customers”.

determine revenue recognition for contracts with customers, the Company performs the following five steps :

41 unchanged sentences

such as 3D Space photography.

The Company generally recognized revenue at a point in time when control is transferred to the customers

The Company generally recognizes revenue 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.

from Consulting Service

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 and supporting the listing process.

from consulting services are recognized over time as such services are performed.

The consulting service contracts are generally less

than one year in length.

timing of revenue recognition may differ from the timing of invoicing to the customers.

5 unchanged sentences

The amount of revenues recognized

during the three months ended March 31, 2022 and 2021 that were included in the opening deferred revenues balance was approximately $0.8

during the six months ended June 30, 2022 and 2021 that were included in the opening deferred revenues balance was approximately $1.1

million and $1.2 million, respectively.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis