What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-12 · 314 added, 345 removed, 235 unchanged (74% of the section changed)

40 unchanged sentences

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

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

As of September 30, 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

1 unchanged sentence

revenue and customer base.

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

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

transformation business unit) had a total of 889 customers in Japan .

12 unchanged sentences

first period presented in the accompanying consolidated financial statements .

Consulting Agreement

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

the Company and A.L.I.

Technologies Inc.

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

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;

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

pre-screening of potential investors;

1 to SYLA Consulting and Services Agreement

previously disclosed in the Current Report on Form 8-K filed on May 25, 2022 with the SEC, on May 13, 2022, the Company entered into

a Consulting and Services Agreement (the “SYLA Consulting Agreement”) by and between the Company and Syla

Technologies Co., Ltd.

f/k/a SYLA Holdings Co.

(“SYLA”), pursuant to which the Company agreed to provide SYLA

certain services.

August 17, 2022, the Company and SYLA entered into Amendment No.

1 to the SYLA Consulting Agreement (“Amendment No.

In Amendment No.

1, the parties acknowledged and agreed that pursuant to the terms of the SYLA Consulting Agreement, SYLA agreed to

pay to the Company, among other things, a cash “services fee” in the amount of $500,000, to be paid at certain times,

including $150,000 on August 13, 2022 (the “Second Payment”).

Pursuant to the terms of Amendment No.

1, the parties

agreed that in lieu of making the Second Payment, SYLA would issue to the Company a warrant to acquire 37,500 shares of SYLA’s

capital stock (the “New Warrant”).

Upon issuance of the New Warrant, the cash “services fee” will be deemed

reduced to $350,000, of which $200,000 was paid on May 13, 2022, and of which the remaining $150,000 will remain due and payable on

November 13, 2022.

August 17, 2022, SYLA issued the New Warrant to the Company.

Pursuant to the terms of the New Warrant, the Company may, at any time on

or after the date (the “IPO Date”) that SYLA completes its first initial public offering of stock in the United States resulting

in any class of SYLA’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”) and on or prior to the close of business on the tenth anniversary of the IPO Date, exercise the

New Warrant to purchase 37,500 shares of SYLA’s common stock for an exercise price per share of $0.01, subject to adjustment as

provided in the New Warrant.

The number of shares for which the New Warrant will be exercisable will be automatically adjusted on the

IPO Date to be 3% 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 New Warrant contains a 9.99% equity blocker.

Share Exchange and Purchase Agreement

September 6, 2022, the Company entered into a Share Exchange and Purchase Agreement (the “Sigmaways Agreement”), dated as

of September 6, 2022, by and among the Company, Sigmaways, Inc.

(“Sigmaways”) and Prakash Sadasivam (the “Seller”).

to the terms of the Sigmaways Agreement, the Company agreed to acquire from the Seller, and the Seller agreed to sell to the Company,

229,500 shares of stock of Sigmaways, representing 51% of Sigmaways’ outstanding shares (the “Acquisition”).

therefor, the Company agreed to (i) issue to the Seller 2,000,000 shares of the Company’s common stock;

(ii) pay to the Seller

cash consideration initially expected to be $1,000,000;

provided that the final number of shares of Company common stock and the final

cash consideration each will be jointly determined by the parties prior to the closing of the Acquisition (the “Closing”)

based on the valuation of Sigmaways as of the Closing;

and (iii) issue to the Seller a warrant to acquire 1,500,000 shares of the Company’s

common stock (the “Warrant”).

The per share exercise price of the Warrant will be the VWAP for the Company’s common

stock calculated as of the last trading day prior to the Closing date.

addition, at the Closing, the Company will acquire from Sigmaways additional shares of Sigmaways stock (the “Additional

Shares”) to be issued as newly issued shares, for a total investment of $2,000,000.

The parties will jointly determine and

agree to the following prior to Closing:

(i) the valuation of Sigmaways as of immediately prior to the Closing, and (ii) therefore,

the number of shares of Sigmaways stock which will constitute the Additional Shares.

Prior to Closing, Sigmaways will amend its articles of incorporation to increase the authorized number of

shares of Sigmaways stock to a number sufficient that the Additional Shares may be validly issued to the Company.

the Closing, two persons designated by the Company will be named to Sigmaways’ Board of Directors, and the sole other member of

the Sigmaways Board of Directors will be the Seller.

In addition, at the Closing, the Seller will be named to the Company’s Board

of Directors.

At the Closing, Sigmaways will enter into an employment agreement with the Seller and such other persons if agreed upon

by the parties.

Sigmaways Agreement contains certain covenants, representations and warranties customary for an agreement of this type.

the Closing is subject to the satisfaction or waiver of certain conditions, including, but not limited to, the following:

(i) the parties

shall have agreed, in each party’s sole discretion, on the valuation of Sigmaways as of the Closing, the resulting cash purchase

price and the number of Additional Shares to be acquired by the Company pursuant to the terms of the Sigmaways Agreement;

(ii) the Paycheck

Protection Program Loan received by Sigmaways shall have been forgiven.

Sigmaways Agreement may be terminated at any time prior to the Closing as follows:

● By mutual written

consent of all parties;

● By the Seller and

Sigmaways, acting jointly, or by the Company, if there shall be in effect a final non-appealable order, judgment, injunction or decree

entered by or with any governmental authority restraining, enjoining or otherwise prohibiting the consummation of the transactions that

are the subject of the Sigmaways Agreement;

● By the Company

if there shall have been a breach in any material respect of any representation, warranty, covenant or agreement on the part of Sigmaways

or the Seller and such breach has not been cured as set forth in the Sigmaways Agreement;

● By the Seller and

Sigmaways, acting jointly, if there shall have been a breach in any material respect of any representation, warranty, covenant or agreement

on the part of the Company and such breach has not been cured as set forth in the Sigmaways Agreement;

● By either the Seller

and Sigmaways, acting jointly, or by the Company, if the Closing has not occurred by December 31, 2022;

● By the Company

if, its sole discretion, at any time prior to the Closing, the Company determines that its due diligence review of Sigmaways is not satisfactory

to the Company.

As of the date of this filing, Sigmaways and the Company

were still undergoing the process of the share exchange transaction.

The transaction has not been closed yet.

Consulting and Services Agreement

October 20, 2022 (the “Effective Date”), the Company entered into a Consulting and Services Agreement (the “Metros

Consulting Agreement”) by and between the Company and Metros Development Co., Ltd., a Japanese corporation (“Metros”).

Pursuant to the terms of the Metros Consulting Agreement, the Company agreed to provide Metros certain services, including the following

(collectively, the “Company Services”):

(i) Assistance with

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

(ii) Assisting in the

preparation of documentation for internal controls required for an initial public offering or de-SPAC transaction or other Fundamental

Transaction (as defined below) by Metros;

(iii) Attend and, if

requested by Metros, lead meetings with Metros’ management and employees;

(iv) Provide Metros

with support services related to Metros’ NASDAQ listing;

(v) Assist in the preparation

of S-1 or F-1 filings;

(vi) Preparing an investor

presentation/deck and executive summary of Metros’ business and operations.

providing the Company Services, the Company will not render legal advice or perform accounting services, and will not act as an investment

advisor or broker/dealer.

Pursuant to the terms of the Metros Consulting Agreement, the parties agreed that the Company will

not provide the following services, among others:

negotiation of the sale of Metros’ securities;

participation in discussions between

Metros and potential investors;

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

pre-screening

of potential investors;

discuss details of the nature of the securities sold or whether recommendations were made concerning the sale

of securities;

due diligence activities;

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:

to be paid as follows:

(i) $200,000 on April 13, 2022;

(ii) $100,000 on the three-month anniversary of April 13, 2022;

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

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.

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

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

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

of the Company Services during the nine-month term (the “Term”):

(a) $300,000, to be

paid as follows:

(i) $100,000 on the Effective Date;

(ii) $100,000 on the three-month anniversary of the Effective Date;

and (iii) $100,000

on the six-month anniversary of the Effective Date;

(b) Issuance by Metros

to the Company of a warrant (the “Company Warrant”), deemed fully earned and vested as of the Effective Date, to acquire

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

Date (980 shares), subject to adjustment as set forth in the Company Warrant.

any services performed by the Company beyond the Term, Metros will compensate the Company for such Company 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

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.

Term of the Metros Consulting Agreement will expire unless renewed upon mutual written agreement of the parties.

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

to the terms of the Company Warrant, the Company may, at any time on or after the date (the “Metros IPO Date”)

that either (i) Metros completes its first initial public offering of stock in the United States resulting in any class of Metros’

stock being listed for trading on any tier of the Nasdaq Stock Market, the New York Stock Exchange or the NYSE American (the “Metros

IPO”), or (ii) Metros undertakes any other Fundamental Transaction, and on or prior to the close of business on the

tenth anniversary of the Metros IPO Date, exercise the Company Warrant to purchase 980 shares of capital stock of Metros

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

The Company Warrant contains a 9.99%

equity blocker.

1 to Metros Consulting and Services Agreement

October 26, 2022, the Company entered into Amendment No.

1 to Consulting and Services Agreement by and between the Company and Metros

(“Metros Amendment No.

Pursuant to the terms of Metros Amendment No.

1, the Company and Metros agreed to amend

the Metros Consulting Agreement such that Metros agreed to compensate the Company as follows in return for the provision

of the Company Services during the nine-month Term:

(a) $500,000, to be

paid as follows:

(i) $200,000 on the Effective Date;

(ii) $150,000 on the three-month anniversary of the Effective Date;

and (iii) $150,000

on the six-month anniversary of the Effective Date;

(b) Issuance by Metros

to the Company of a warrant (the “New Company Warrant”), deemed fully earned and vested as of the Effective Date, to acquire

a number of shares of capital stock of Metros, to initially be equal to 3% of the fully diluted share capital of Metros as of the Effective

Date (1,440 shares), subject to adjustment as set forth in the New Company Warrant.

addition, pursuant to the terms of Metros Amendment No.

1, the Company Warrant was terminated as of October 26, 2022.

as set forth in Metros Amendment No.

1, the Metros Consulting Agreement remains in full force and effect.

provided in Metros Amendment No.

1, on October 26, 2022, Metros issued the New Company Warrant to the Company.

the terms of the New Company Warrant, the Company may, at any time on or after the Metros IPO Date, and on or prior to the

close of business on the tenth anniversary of the Metros IPO Date, exercise the New Company Warrant to purchase 1,440 shares

of capital stock of Metros for an exercise price per share of $0.01, subject to adjustment as provided in the New Company Warrant.

New Company Warrant contains a 9.99% equity blocker.

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.

repurchase up to $3.5 million of its outstanding shares of common stock (the “Repurchase Program”).

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 funded these repurchases through existing cash balances.

Decisions regarding the amount and the timing

of purchases under the program were influenced by the Company’s cash on hand, cash flows from operations, general market conditions

and other factors.

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

This program had no set termination

date and could be suspended or discontinued by the Board at any time.

Repurchase Program was terminated on September 23, 2022.

The Company has repurchased an aggregate of 1,349,390 shares of its common stock

pursuant to the Repurchase Program.

the three months ended September 30, 2022 and 2021, we generated revenues of $1,872,476 and $3,470,510, respectively, and reported net

losses of $1,970,934 and net income of $191,349, respectively.

For the nine months ended September 30, 2022 and 2021, we generated revenues

of $6,818,774 and $8,446,011, respectively, and reported net losses of $5,253,026 and net income of $414,826, respectively, and cash

out flow used in operating activities of $4,206,370 and cash in flow provided by operating activities of $1,239,250, respectively.

noted in our unaudited consolidated financial statements, as of September 30, 2022, we had an accumulated deficit of $9,149,139.

of Operations

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

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

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

For the Three Months ended September 30,

$ (1,598,034 )

COST OF REVENUES

5 unchanged sentences

Income (loss) from operations

Other income (expenses)

Other income (expenses), net

Income (loss) before income tax provision

Income taxes expense

Income taxes expense (benefit)

Net income (loss)

3 unchanged sentences

$ (2,157,107 )

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

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,

total revenues decreased by $1,598,034, or 46.0%, to $1,872,476 for the three months ended September 30, 2022 from $3,470,510 for the

three months ended September 30, 2021, mainly attributable to the decrease in revenue from sales of on-premise software, because an important

customer renewed its software license in July 2021, and decrease in revenue from software development, offset by revenue from newly established

consulting services.

total costs of revenues decreased by $242,869, or 13.6%, to $1,543,256 for the three months ended September 30, 2022 from $1,786,125

for the three months ended September 30, 2021, in light of the decrease in sales of on-promise software and software development, offset

by the costs related to the consulting services.

total gross profit decreased by $1,355,165, or 80.5%, to $329,220 for the three months ended September 30, 2022 from $1,684,385 for the

three months ended September 30, 2021.

O ur overall gross

profit margin decreased by 30.9% to 17.6% in the three months ended September 30, 2022 from 48.5% in the three months ended September

selling expenses increased by $692,058, or 871.2%, to $771,496 in the three months ended September 30, 2022 from $79,438 in the three

months ended September 30, 2021, primarily attributable to an increase in advertising expenses, as t he

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

after the Company went public in the U.S.

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

a percentage of revenues, our selling expenses accounted for 41.2% and 2.3% of our total revenue for the three months ended September

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.

general and administrative expenses increased by $310,327 or 25.8%, to $1,513,028 in the three months ended September 30, 2022 from $1,202,701

in the three months ended September 30, 2021, primarily attributable to the increase in stock-based compensation, the U.S.

parent company’s

office expenses, and D&O indemnity insurance premiums, offset by the decrease in consulting and professional

fees as we finished the process of going public in early 2022.

a percentage of revenues, general and administrative expenses were 80.8% and 34.6% of our revenue for the three months ended September

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 .

research and development expenses decreased by $131,411 or 69.3%, to $58,275 in the three months ended September 30, 2022 from $189,686

in the three months ended September 30, 2021, primarily attributable to the decrease in outsourcing expenses relating

to the development of a high quality 12K VR camera and related data compression system, which was completed in June 2022.

a percentage of revenues, research and development expenses were 3.1% and 5.5% of our revenue for the three months ended September 30,

2022 and 2021, respectively .

Income (Expenses), net

1 unchanged sentence

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 .

We recorded other income, net of $23,576 in the three months ended

September 30, 2022, as compared to other expense, net of $7,689 in the three months ended September 30, 2021, primarily attributable

to the increase in interest income and other income .

Tax Expense (Benefit)

income taxes benefit was $19,069 in the three months ended September 30, 2022, as compared to the income taxes expense of $13,522 in

the three months ended September 30, 2021, mainly due to the increase in the net loss and 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.

a result of the foregoing, we reported a net loss of $1,970,934 for the three months ended September 30, 2022, representing a $2,162,283

or 1,130.0% decrease from a net income of $191,349 for the three months ended September 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.

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

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

The net income attributable to non-controlling interest was $5,176

in the three months ended June 30, 2021 .

in the three months ended September 30, 2021 .

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

6 unchanged sentences

Accordingly, we did not record non-controlling interest

income in the three months ended June 30, 2022.

income in the three months ended September 30, 2022.

Income (Loss) attributable to HeartCore Enterprises, Inc.

1 unchanged sentence

of $1,970,934 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,

September 30, 2022, representing a $2,157,107 or 1,158.7% decrease from a net income attributable to HeartCore Enterprises, Inc.

for the three months ended September 30, 2021 .

of Results of Operations for the Nine Months ended September 30, 2022 and 2021

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

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

such periods.

For the Nine Months ended September 30,

$ (1,627,237 )

COST OF REVENUES

7 unchanged sentences

Income (loss) before income tax provision

Income taxes expense

Income taxes expense (benefit)

Net income (loss)

3 unchanged sentences

$ (5,656,740 )

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 $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.

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

total revenues decreased by $1,627,237, or 19.3%, to $6,818,774 for the nine months ended September 30, 2022 from $8,446,011 for the

nine months ended September 30, 2021, primarily attributable to the decrease in revenue from sales of on-premise software, because an

important customer renewed its software license in July 2021, and the decrease in revenue from software development, offset by revenue

from newly established consulting services.

In addition, the ongoing depreciation of Japanese Yen in 2022 also caused the decrease in

total costs of revenues decreased by $433,236 or 9.9%, to $3,935,908 for the nine months ended September 30, 2022 from $4,369,144 for

the nine months ended September 30, 2021, in light of the decrease in sales of on-promise software and software development, offset by

the costs related to the consulting services.

total gross profit decreased by $1,194,001, or 29.3%, to $2,882,866 for the nine months ended September 30, 2022 from $4,076,867 for

the nine months ended September 30, 2021.

gross profit margin decreased by 6.0% to 42.3% in the nine months ended September 30, 2022 from 48.3% in the nine months ended September

selling expenses increased by $1,479,347, or 652.0%, to $1,706,250 in the nine months ended September 30, 2022 from $226,903 in the nine

months ended September 30, 2021, primarily attributable to an increase in advertising expenses, as t he

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

after the Company went public in the U.S.

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

a percentage of revenues, our selling expenses accounted for 25.0% and 2.7% of our total revenue for the nine months ended September

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 company reorganization and going public, 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 $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%

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

general and administrative expenses increased by $2,845,985 or 95.3%, to $5,832,276 in the nine months ended September 30, 2022 from

$2,986,291 in the nine months ended September 30, 2021, primarily attributable to the increase in stock-based compensation, salaries

and welfare, the U.S.

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

a percentage of revenues, general and administrative expenses were 85.5% and 35.4% of our revenue for the nine months ended September

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 $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 .

research and development expenses increased by $261,905 or 81.4%, to $583,762 in the nine months ended September 30, 2022 from $321,857

in the nine months ended September 30, 2021, primarily attributable to an increase in outsourcing expenses relating

to development of a high quality 12K VR camera and related data compression system in the nine months ended September 30, 2022.

a percentage of revenues, research and development expenses were 8.6% and 3.8% of our revenue for the nine months ended September 30,

2022 and 2021, respectively .

Expenses, net

1 unchanged sentence

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

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 .

Total other expenses, net, decreased by $5,043 or 17.1%, from $29,553

in the nine months ended September 30, 2021 to $24,510 in the nine months ended September 30, 2022 .

Tax Expense (Benefit)

income taxes benefit was $10,906 in the nine months ended September 30, 2022, as compared to the income taxes expense of $97,437 in the

nine months ended September 30, 2021, mainly due to the increase in net loss and 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.

a result of the foregoing, we reported a net loss of $5,253,026 for the nine months ended September 30, 2022, representing a $5,667,852

or 1,366.3% decrease from a net income of $414,826 for the nine months ended September 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.

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

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

The net income attributable to non-controlling interest was $11,112

in the six months ended June 30, 2021 .

in the nine months ended September 30, 2021 .

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

6 unchanged sentences

Accordingly, we did not record non-controlling interest

income in the six months ended June 30, 2022.

income in the nine months ended September 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 $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 .

of $5,253,026 for the nine months ended

September 30, 2022, representing a $5,656,740 or 1,401.2% decrease from a net income attributable to HeartCore Enterprises, Inc.

for the nine months ended September 30, 2021 .

and Capital Resources

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

of September 30, 2022, we had $7,843,208 in cash as compared to $3,136,839 as of December 31, 2021.

As of September 30, 2022, our working

capital was $6,149,541 as compared to $62,919 as of December 31, 2021.

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

We also had $621,345 in accounts receivable as of September 30,

Our accounts receivable primarily include balance due from customers for our on-premise 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 Six Months Ended

For the Nine Months Ended

September 30,

Net cash provided by (used in) operating activities

6 unchanged sentences

Cash and cash equivalents, end of the period

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.

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.

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.

cash used in operating activities was $4,206,370 for the nine months ended September 30, 2022, as compared to the amount of $1,239,250

net cash provided by operating activities for the nine months ended September 30, 2021, primarily consisting of the following:

loss of $5,253,026 for the nine months ended September 30, 2022.

decrease of $213,691 in operating lease liabilities, due to the rent payment made.

decrease of $206,569 in other liabilities, primarily due to the decrease in sales tax payable.

by non-cash lease expense of $207,549.

by share-based compensation of $1,225,477.

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.

cash used in investing activities amounted to $8,630 for the nine months ended September 30, 2022, as compared to net cash used in investing

activities amounted to $151,065 for the nine months ended September 30, 2021.

cash provided by financing activities amounted to $9,122,350 for the nine months ended September 30, 2022, as compared to net cash used

in financing activities amounted to $816,155 for the nine months ended September 30, 2021, primarily consisting of net 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 $3,500,000, and repayment of long-term debts of

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

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

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

Year ending December 31,

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

of September 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 June 30, 2022.

did not have any off-balance sheet arrangements as of September 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 the ASC Topic 606, “Revenue from Contracts with customers”.

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

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

56 unchanged sentences

The amount of revenues recognized

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

during the nine months ended September 30, 2022 and 2021 that were included in the opening deferred revenues balance was approximately

$1.2 million and $2.0 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