10q10k10q10k.net

What changed in HeartCore Enterprises, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of HeartCore Enterprises, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+236 added−213 removedSource: 10-K (2024-04-09) vs 10-K (2023-03-31)

Top changes in HeartCore Enterprises, Inc.'s 2023 10-K

236 paragraphs added · 213 removed · 165 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

62 edited+28 added−7 removed323 unchanged
Biggest changeTerms of the Okinawa office lease provide for a base rent payment of $1,370 per month and a share of sales taxes of $137 per month. Employees and Human Capital Management Helping millions of organizations grow better requires a truly remarkable team. We are passionate about building a company culture where people can do their best work.
Biggest changeEmployees and Human Capital Management Helping millions of organizations grow better requires a truly remarkable team. We are passionate about building a company culture where people can do their best work. Our company culture and our people are not just human resources priorities but critical business priorities.
Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. There is the potential for non-paying customers to become paying customers again if and when they start utilizing our paid services again.
Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. There is the potential for non-paying customers to become paying customers again if and when they start utilizing our paid services again.
Our customers span a variety of industries and across various departments within an organization and include: Consumer and Retail SONY Panasonic Bridgestone Philips Energy Tohoku Electric Power Co The Kansai Electric Power Co., Inc. Tokyo GAS Financial Services Bank of Japan AEON Bank, Ltd au Jibun Bank Corporation Nomura Securities Co., Ltd Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
Our customers span a variety of industries and across various departments within an organization and include: Consumer and Retail Energy Financial Services SONY Tohoku Electric Power Co Bank of Japan Panasonic The Kansai Electric Power Co., Inc. AEON Bank, Ltd Bridgestone Tokyo GAS au Jibun Bank Corporation Philips Nomura Securities Co., Ltd Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
Yamamoto pertaining to a claim on property rights; ● Conclusion or change of important contracts or other important juridical act; and ● Offering of the shares held by Mr. Yamamoto.
Yamamoto pertaining to a claim on property rights; ● Conclusion or change of important contracts or other important juridical act; and ● Offering of the shares held by Mr.
The options vest on each annual anniversary of the date of issuance, in an amount equal to 25% of the applicable shares of common stock, subject to the terms and conditions of the 2021 Plan and the option award agreements pursuant to which the options were awarded.
The options vest on each annual anniversary of the date of issuance, in an amount equal to 25% of the applicable shares of common stock, subject to the terms and conditions of the 2021 Plan and the option award agreements pursuant to which the options were awarded.
To the extent not in conflict with the laws of the United States or the State of Delaware or the rules and regulations of any securities exchange or securities market on which the Company’s securities are traded or listed for trading, and provided that legal counsel to the Company does not advise the Company that any such notification is inadvisable due to such information being material non-public information or due to such disclosure being a breach of the fiduciary duties of the officers or Directors of the Company, the Company or HeartCore Co. also agreed to provide to Dentsu a summary of the following matters pertaining to the Company or HeartCore Co.: ● Damage arising from disasters or operations; ● Filing of a lawsuit by a third party which may affect its financial condition, or becoming subject to a judgment, or any order or award equivalent thereto which may affect its financial condition; ● Petition for an injunction of the business or a provisional disposition order equivalent thereto, or conclusion of legal proceedings not based on an order or a judgement by the court; ● Revocation of license, suspension of business or other equivalent dispositions by an administrative agency based on laws and regulations, or accusation by an administrative agency for violation of the laws; ● Merger or other reorganization involving the Company, HeartCore Co., or any of their related parties; 27 ● Filing of a petition for commencement of bankruptcy proceedings, commencement of civil rehabilitation proceedings, commencement of corporate reorganization proceedings, commencement of special liquidation or enforcement of the corporate security interest by a third party, suspension of payments or dishonor of bills or checks with regard to HeartCore Co. or the Company; ● Commencement of bankruptcy proceedings, commencement of civil rehabilitation proceedings, commencement of corporate reorganization proceedings, commencement of special liquidation or petition for exercise of corporate security interest, suspension of payments or dishonor of bills or checks pertaining to the Company, HeartCore Co. or any of its related parties; ● Suspension of transactions with material customers, suppliers, distributors, agents, or other business partners; ● The occurrence of risk of default by an obligor of the Company or HeartCore Co., or a principal obligor of a guarantee obligation of which the Company or HeartCore Co. is a guarantor; and ● Cancellation of debts by creditors, reduction or extension of interest or assumption or repayment of debts by third parties.
Yamamoto. 28 To the extent not in conflict with the laws of the United States or the State of Delaware or the rules and regulations of any securities exchange or securities market on which the Company’s securities are traded or listed for trading, and provided that legal counsel to the Company does not advise the Company that any such notification is inadvisable due to such information being material non-public information or due to such disclosure being a breach of the fiduciary duties of the officers or Directors of the Company, the Company or HeartCore Co. also agreed to provide to Dentsu a summary of the following matters pertaining to the Company or HeartCore Co.: ● Damage arising from disasters or operations; ● Filing of a lawsuit by a third party which may affect its financial condition, or becoming subject to a judgment, or any order or award equivalent thereto which may affect its financial condition; ● Petition for an injunction of the business or a provisional disposition order equivalent thereto, or conclusion of legal proceedings not based on an order or a judgement by the court; ● Revocation of license, suspension of business or other equivalent dispositions by an administrative agency based on laws and regulations, or accusation by an administrative agency for violation of the laws; ● Merger or other reorganization involving the Company, HeartCore Co., or any of their related parties; ● Filing of a petition for commencement of bankruptcy proceedings, commencement of civil rehabilitation proceedings, commencement of corporate reorganization proceedings, commencement of special liquidation or enforcement of the corporate security interest by a third party, suspension of payments or dishonor of bills or checks with regard to HeartCore Co. or the Company; ● Commencement of bankruptcy proceedings, commencement of civil rehabilitation proceedings, commencement of corporate reorganization proceedings, commencement of special liquidation or petition for exercise of corporate security interest, suspension of payments or dishonor of bills or checks pertaining to the Company, HeartCore Co. or any of its related parties; ● Suspension of transactions with material customers, suppliers, distributors, agents, or other business partners; ● The occurrence of risk of default by an obligor of the Company or HeartCore Co., or a principal obligor of a guarantee obligation of which the Company or HeartCore Co. is a guarantor; and ● Cancellation of debts by creditors, reduction or extension of interest or assumption or repayment of debts by third parties.
Yamamoto may cause a third party to acquire such shares with the approval of Dentsu. The per share-transfer price for the shares in this case shall be the purchase price paid by Dentsu for the acquisition of shares of HeartCore Co., subject to appropriate adjustments for stock splits, stock consolidations, and similar events involving the shares.
Yamamoto may cause a third party to acquire such shares with the approval of Dentsu. 29 The per share-transfer price for the shares in this case shall be the purchase price paid by Dentsu for the acquisition of shares of HeartCore Co., subject to appropriate adjustments for stock splits, stock consolidations, and similar events involving the shares.
Therefore, the Memorandum ceased to be in effect upon the closing of our initial public offering on February 14, 2022. 26 Pursuant to the Memorandum, the Company and HeartCore Co. agreed to give advance notice to Dentsu when decisions are made with respect to any of the following matters pertaining to the Company or HeartCore Co.: ● Changes to the certificate of incorporation or articles of incorporation, limited to the creation of class shares, changes in the features of common shares as class shares, establishment of or changes in share units, and other changes that may affect the position of common shareholders; ● Dissolution, a petition for commencement of bankruptcy proceedings, civil rehabilitation proceedings or corporate reorganization proceedings filed by the Company, HeartCore Co. or its directors; ● Approval of demand for sale of the shares by Mr.
Therefore, the Memorandum ceased to be in effect upon the closing of our initial public offering on February 14, 2022. 27 Pursuant to the Memorandum, the Company and HeartCore Co. agreed to give advance notice to Dentsu when decisions are made with respect to any of the following matters pertaining to the Company or HeartCore Co.: ● Changes to the certificate of incorporation or articles of incorporation, limited to the creation of class shares, changes in the features of common shares as class shares, establishment of or changes in share units, and other changes that may affect the position of common shareholders; ● Dissolution, a petition for commencement of bankruptcy proceedings, civil rehabilitation proceedings or corporate reorganization proceedings filed by the Company, HeartCore Co. or its directors; ● Approval of demand for sale of the shares by Mr.
Unless the context otherwise requires, “HeartCore,” “we,” “us,” “our,” or the “Company” refers to HeartCore Enterprises, Inc. and its consolidated subsidiaries, including, but not limited to, HeartCore Co., Ltd. (“HeartCore Co.”), HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), HeartCore Financial, Inc. (HeartCore Financial”), and Sigmaways, Inc. (“Sigmaways”). HeartCore Financial was incorporated in January 2023.
Unless the context otherwise requires, “HeartCore,” “we,” “us,” “our,” or the “Company” refers to HeartCore Enterprises, Inc. and its consolidated subsidiaries, including, but not limited to, HeartCore Co., Ltd. (“HeartCore Co.”) and its subsidiary, HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), HeartCore Financial, Inc. (“HeartCore Financial”), and Sigmaways, Inc. (“Sigmaways”) and its subsidiaries. HeartCore Financial was incorporated in January 2023.
Although we rely on intellectual property rights, including patents, copyrights, trademarks, and trade secrets, as well as contractual protections to establish and protect our proprietary rights, we believe that factors such as the technological and creative skills of our personnel, development of new services, features, and functionality, and frequent enhancements to our software are equally essential to establishing and maintaining our technology leadership position. 24 We control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers, and partners.
Although we rely on intellectual property rights, including patents, copyrights, trademarks, and trade secrets, as well as contractual protections to establish and protect our proprietary rights, we believe that factors such as the technological and creative skills of our personnel, development of new services, features, and functionality, and frequent enhancements to our software are equally essential to establishing and maintaining our technology leadership position. 25 We control access to and use of our proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers, and partners.
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions. In the first quarter of 2023, we formed HeartCore Financial and HeartCore Capital Advisors as a part of our Go IPO consulting business.
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions in Japan. In the first quarter of 2023, we formed HeartCore Financial and HeartCore Capital Advisors as a part of our Go IPO consulting business.
Our competitors offer various point applications that provide certain functions and features that we provide, including: ● cloud-based marketing automation providers; ● content management systems; ● email marketing software vendors; ● sales force automation and customer experience management software vendors; ● customer service platform vendors; and ● large-scale enterprise suites. 19 In addition, instead of using our CXM Platform, some prospective customers may elect to combine disparate point applications, such as content management, marketing automation, analytics, social media management, ticketing, and conversational bots.
Our competitors offer various point applications that provide certain functions and features that we provide, including: ● cloud-based marketing automation providers; ● content management systems; ● email marketing software vendors; ● sales force automation and customer experience management software vendors; ● customer service platform vendors; and ● large-scale enterprise suites. 20 In addition, instead of using our CXM Platform, some prospective customers may elect to combine disparate point applications, such as content management, marketing automation, analytics, social media management, ticketing, and conversational bots.
As our engaged audience grows, more solutions partners collaborate with us, more third-party developers integrate their applications with our CXM Platform, and more professionals complete our certification programs, all of which help to drive more businesses to adopt our CXM Platform. 20 Digital Transformation Business We believe that the following are key strengths of our digital transformation business: Broad Set of Complementary Solutions .
As our engaged audience grows, more solutions partners collaborate with us, more third-party developers integrate their applications with our CXM Platform, and more professionals complete our certification programs, all of which help to drive more businesses to adopt our CXM Platform. 21 Digital Transformation Business We believe that the following are key strengths of our digital transformation business: Broad Set of Complementary Solutions .
Yamamoto agreed to negotiate with the buyer and take all necessary measures to transfer the shares that Dentsu desires to transfer. 28 The Memorandum also provides that in the event that Mr.
Yamamoto agreed to negotiate with the buyer and take all necessary measures to transfer the shares that Dentsu desires to transfer. The Memorandum also provides that in the event that Mr.
This will enable us to grow better in serving our customers. 31 Government Regulation Our business is and will continue to be subject to extensive U.S. federal and state and foreign laws and regulations, including laws and regulations involving privacy, data protection, security, intellectual property, competition, taxation, anti-corruption, anti-bribery, anti-money laundering, and other similar laws.
This will enable us to grow better in serving our customers. 34 Government Regulation Our business is and will continue to be subject to extensive U.S. federal and state and foreign laws and regulations, including laws and regulations involving privacy, data protection, security, intellectual property, competition, taxation, anti-corruption, anti-bribery, anti-money laundering, and other similar laws.
Our sales organization is supported by a team of pre-sales engineers and our professional services organization that offer technical expertise to help customers speed adoption and return on investment. 17 We sell to organizations of all sizes across a broad range of industries, with a focus on enterprise customers. Our go-to-market strategy is focused on a model.
Our sales organization is supported by a team of pre-sales engineers and our professional services organization that offer technical expertise to help customers speed adoption and return on investment. 18 We sell to organizations of all sizes across a broad range of industries, with a focus on enterprise customers. Our go-to-market strategy is focused on a model.
Our software can be easily learned and operated by employees with or without technical knowledge, without the need for large implementation costs or costly professional services. 21 Resilient Automations . Our software is capable of fully emulating the behavior of enterprise workers as they manipulate applications and systems to execute processes.
Our software can be easily learned and operated by employees with or without technical knowledge, without the need for large implementation costs or costly professional services. 22 Resilient Automations . Our software is capable of fully emulating the behavior of enterprise workers as they manipulate applications and systems to execute processes.
Although our company has been in existence for less than two years, our wholly owned operating subsidiary, HeartCore Co. operated throughout the pandemic and continues to operate after the pandemic. HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and post-pandemic that are beyond our control.
Although our company has been in existence for less than three years, our wholly owned operating subsidiary, HeartCore Co. operated throughout the pandemic and continues to operate after the pandemic. HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and post-pandemic that are beyond our control.
Our partner network includes, among others, content management systems, customer experience management systems, Heartcore Robo (RPA), Apromore, myInvenio and Controlio. We intend to continue to expand and enhance our partner relationships to grow our market presence and drive greater sales efficiencies. 23 Extend Our Technology Leadership Through Continued Innovation and Investment in Our Software .
Our partner network includes, among others, content management systems, customer experience management systems, Heartcore Robo (RPA), Apromore, myInvenio and Controlio. We intend to continue to expand and enhance our partner relationships to grow our market presence and drive greater sales efficiencies. 24 Extend Our Technology Leadership Through Continued Innovation and Investment in Our Software .
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions. 25 The duration and extent of the impact from the pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the disruption caused by such actions, the effectiveness of vaccines and other treatments for COVID-19, and the impact of these and other factors on our employees, customers, partners and vendors.
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions in Japan. 26 The duration and extent of the impact from the pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the disruption caused by such actions, the effectiveness of vaccines and other treatments for COVID-19, and the impact of these and other factors on our employees, customers, partners and vendors.
In accordance with the terms of the Stock Purchase Agreement, the Company shall purchase the 278 shares of HeartCore Co. from Dentsu Digital for 50,040,000 Japanese Yen (approximately $435,500) 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 stock, filed by the Company with the SEC or (ii) December 20, 2022.
In accordance with the terms of the Stock Purchase Agreement, the Company was to purchase the 278 shares of HeartCore Co. from Dentsu Digital for 50,040,000 Japanese Yen (approximately $435,500) 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 stock, filed by the Company with the SEC or (ii) December 20, 2022.
As of December 31, 2022, we held one issued patent in Japan. Our issued patent is scheduled to expire between October 2028 and January 2030. As of December 31, 2022, we held one pending U.S. trademark application, and more than two active foreign trademark filings.
As of December 31, 2023, we held one issued patent in Japan. Our issued patent is scheduled to expire between October 2028 and January 2030. As of December 31, 2023, we held one pending U.S. trademark application, and more than two active foreign trademark filings.
Content management systems and customer experience management systems need to provide rich features to fill the new generation of customers’ needs. 4 Digital Transformation Business RPA is a technology that allows automation for a defined set of tasks. RPA robots can emulate most human-computer interactions to carry out error-free tasks at high volume and speed.
Content management systems and customer experience management systems need to provide rich features to fill the new generation of customers’ needs. 4 Digital Transformation Business Robotic Process Automation (“RPA”) is a technology that allows automation for a defined set of tasks. RPA robots can emulate most human-computer interactions to carry out error-free tasks at high volume and speed.
As of December 31, 2022, our sales and marketing organization was comprised of 14 employees including our field sales organization, which maintains a physical sales presence in the Japanese software market. 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 December 31, 2023, 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 market. 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 December 31, 2022, our sales and marketing organization was comprised of 14 employees including our field sales organization, which maintains a physical sales presence in the Japanese software market. 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 December 31, 2023, 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 market. Using our go-to-market strategy, we believe we have made significant contributions in Japan and have established a diversified revenue and customer base.
We nurture users through their trial license by providing training and certifications through our Academy, detailing best practices and use cases, and offering continuous support through our interactive forum or pre-sales organization. Customers We have a large and diversified customer base. No single customer accounted for more than 10% of our revenue for the year ended December 31, 2022.
We nurture users through their trial license by providing training and certifications through our Academy, detailing best practices and use cases, and offering continuous support through our interactive forum or pre-sales organization. Customers We have a large and diversified customer base. Three customers accounted for more than 10% of our revenue for the year ended December 31, 2023.
As of December 31, 2022, our combined business units (customer experience management business unit and digital transformation business unit) had 903 total customers of varying sizes. We pride ourselves in providing what we believe to be a great experience to every single customer and user of our software.
As of December 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 949 total customers of varying sizes. We pride ourselves in providing what we believe to be a great experience to every single customer and user of our software.
The Dai-ichi Life Insurance Manufacturing Hitachi Toshiba FujiFilm Richo Nippon Steel Corporation Technology NTT Data NEC Roland Canon Telecommunications NTT Docomo Softbank KDDI Other TOYOTA HONDA NNK JAL ANA JR East 18 These customers are representative of the Company’s overall customer base, but that are also particularly well-known customers and often appear in the Company’s case studies.
FujiFilm Sysmex Corporation The Dai-ichi Life Insurance Richo Nippon Steel Corporation Technology Telecommunications Other NTT Data NTT Docomo TOYOTA NEC Softbank HONDA Roland KDDI NNK Canon JAL ANA JR East 19 These customers are representative of the Company’s overall customer base, but that are also particularly well-known customers and often appear in the Company’s case studies.
As of December 31, 2022, we held two domain names in the United States and in foreign jurisdictions. We continually review our development efforts to assess and identify the existence and patentability of new intellectual property.
As of December 31, 2023, we held two domain names, one registered in the United States and one registered in foreign jurisdictions. We continually review our development efforts to assess and identify the existence and patentability of new intellectual property.
We will continue to leverage our inbound go-to-market approach, freemium pricing strategy and our network of solutions partners to keep growing our business. 22 Increase Revenue from Existing Customers . With 903 total customers from our combined business units in Japan as of December 31, 2022, we believe we have a significant opportunity to increase revenue from our existing customers.
We will continue to leverage our inbound go-to-market approach, freemium pricing strategy and our network of solutions partners to keep growing our business. 23 Increase Revenue from Existing Customers . With 949 total customers from our combined business units in Japan as of December 31, 2023, we believe we have a significant opportunity to increase revenue from our existing customers.
During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.
During 2022, we started the GO IPO business, which supports Japanese companies listing on Nasdaq and NYSE in the United States.
As of March 30, 2023, we have entered into consulting agreements with nine companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranges from $350,000 to $900,000 and warrants or Japanese acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 per share.
As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.
As of March 30, 2023, we have entered into consulting agreements with nine companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranges from $350,000 to $900,000 and warrants or Japanese acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 per share.
As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.
As of December 31, 2022 and 2021, the Company has a loan receivable balance of $294,919 and $386,315, respectively, from Heartcore Technology Inc., a company controlled by the CEO of the Company. The loan was made to the related party to support its operation.
As of December 31, 2023 and 2022, the Company has a loan receivable balance of $227,704 and $294,919, respectively, from Heartcore Technology Inc., a company controlled by the CEO of the Company. The loan was made to the related party to support its operation.
We believe there is a significant opportunity to expand use of our software in the top 25 countries as measured by gross domestic product. As of December 31, 2022, sales to customers located in such countries represented 100% of our total annualized renewal run-rate.
We believe there is a significant opportunity to expand use of our software in the top 25 countries as measured by gross domestic product. As of December 31, 2023, sales to customers located in such countries represented 100% of our total revenues.
As of December 31, 2022, customers located in the United States represented 0% of our total annualized renewal run-rate. Opportunistically Pursue Strategic Acquisitions . We will evaluate acquisition opportunities that we believe will be complementary to our existing software, enhance our technology, and increase the value proposition we deliver to our customers.
As of December 31, 2023, customers located in the United States represented 40.21% of our total revenues. Opportunistically Pursue Strategic Acquisitions . We will evaluate acquisition opportunities that we believe will be complementary to our existing software, enhance our technology, and increase the value proposition we deliver to our customers.
Healthcare / Pharmaceuticals Takeda Pharmaceutical Company GE Healthcare Kobayashi Pharmaceutical Sysmex Corporation, Insurance Aflac Sumitomo Life Insurance Tokio Marine Holdings, Inc.
Healthcare / Pharmaceuticals Insurance Manufacturing Takeda Pharmaceutical Company Aflac Hitachi GE Healthcare Sumitomo Life Insurance Toshiba Kobayashi Pharmaceutical Tokio Marine Holdings, Inc.
On February 24, 2022, the Company purchased 278 shares of HeartCore Co. from Dentsu Digital for 50,040,000 Japanese Yen (approximately $435,500). As a result, effective February 24, 2022, HeartCore Co. is a wholly owned subsidiary of the Company.
On February 24, 2022, the Company purchased 278 shares of HeartCore Co. from Dentsu Digital for 50,040,000 Japanese Yen (approximately $435,500).
The balance is unsecured, non-interest bearing and due on demand. During the year ended December 31, 2022, the Company repaid to the related party for operating expenses the related party paid on behalf of the Company in a net amount of $575.
The balance is unsecured, non-interest bearing and due on demand. During the year ended December 31, 2023, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $1,123.
As a result, effective February 24, 2022, HeartCore Co. is a wholly owned subsidiary of the Company. 29 Recent Developments Related Party Transactions As of December 31, 2022 and 2021, the Company has a due to related party balance of $402 and $1,110, respectively, from Sumitaka Yamamoto, the CEO and major shareholder of the Company.
As a result, effective February 24, 2022, HeartCore Co. is a wholly owned subsidiary of the Company. 30 Recent Developments Related Party Transactions As of December 31, 2023 and 2022, the Company had a due to related party balance of $1,476 and $402, respectively, from Sumitaka Yamamoto, the Chief Executive Officer (“CEO”) and major shareholder of the Company.
Our culture is built on the firm belief that personal and professional growth is just as important as business growth. We believe the best people do not only fit our culture, they further it. ● Diversity, Inclusion, and Belonging. We have launched various initiatives to further our goal of being a more diverse, inclusive, and equitable workplace.
We believe the best people do not only fit our culture, they further it. ● Diversity, Inclusion, and Belonging. We have launched various initiatives to further our goal of being a more diverse, inclusive, and equitable workplace.
As of December 31, 2022, our combined business units (customer experience management business unit and digital transformation business unit) had 903 total customers in Japan, of which 645, or 71.4%, were paying customers, and 24 total customers outside Japan, of which 2, or 0.2%, was a paying customer.
As of December 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 949 total customers in Japan, of which 691, or 72.8%, were paying customers, and 24 total customers outside Japan, of which 1, or 0.1%, was a paying customer.
As of December 31, 2022, our combined business units (customer experience management business unit and digital transformation business unit) had 903 total customers in Japan, of which 645, or 71.4%, were paying customers and 24 total customers outside Japan, of which 2, or 0.2%, was a paying customer.
As of December 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 949 total customers in Japan, of which 691, or 72.8%, were paying customers and 24 total customers outside Japan, of which 1, or 0.1%, was a paying customer.
Redemption On November 3, 2021, the Company redeemed 484,056 shares issued of HeartCore Enterprises, Inc. from the CEO of the Company for $1 in total for the shares related to the early exercise of stock options the CEO held on behalf of the Company.
As a result, effective February 24, 2022, HeartCore Co. is a wholly owned subsidiary of the Company. 31 Redemption On November 3, 2021, the Company redeemed 484,056 shares issued of HeartCore Enterprises, Inc. from the CEO of the Company for $1 in total for the shares related to the early exercise of stock options the CEO held on behalf of the Company.
Solutions partners and customers referred to us by our solutions partners represented approximately 50% of our total customers as of December 31, 2022, and approximately 64% of our total revenue for the year ended December 31, 2022.
Solutions partners and customers referred to us by our solutions partners represented approximately 62% of our customers in Japan, and approximately 52% of our revenue in Japan for the year ended December 31, 2023.
This lease has an original term ending in September 2023 with automatic two-year renewal option. Terms of the office lease provide for a base rent payment of $25,309 per month and a share of sales taxes of $2,531 per month.
This lease has an original term ending in August 2024 with automatic annual renewal option. Terms of the Okinawa office lease provide for a base rent payment of $1,270 per month and a share of sales taxes of $127 per month.
HeartCore Capital Advisors was incorporated in February 2023. The acquisition of Sigmaways was closed in February 2023. Overview We are a leading software development company based in Tokyo, Japan. We provide software through two business units. The first business unit includes a customer experience management business that has been in existence for 12 years.
HeartCore Capital Advisors was incorporated in February 2023. The acquisition of Sigmaways and its subsidiaries was closed in February 2023. Overview We are a leading software development company based in Tokyo, Japan. We provide software through two business units.
For existing customers, the pandemic had no impact on the use of our software; for new customers in the travel, hotel, airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders. However, although the pandemic is coming to an end, it will take some time before the economy is fully normalized.
For existing customers, the pandemic had no impact on the use of our software; for new customers in the travel, hotel, airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders.
The second business unit is a digital transformation business which provides customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises. We also have an ongoing technology innovation team to develop software that supports the narrow needs of large enterprise customers. We have made significant investments in our sales and marketing efforts globally.
We also have an ongoing technology innovation team to develop software that supports the narrow needs of large enterprise customers. We have made significant investments in our sales and marketing efforts globally.
Our common stock began trading on the Nasdaq Capital Market on February 10, 2022, under the symbol “HTCR”. Boustead Securities, LLC acted as the sole managing underwriter and bookrunner for the offering.
Our common stock began trading on the Nasdaq Capital Market on February 10, 2022, under the symbol “HTCR”. Boustead Securities, LLC acted as the sole managing underwriter and bookrunner for the offering. At the Market Offering On October 23, 2023, we entered into the At The Market Offering Agreement with H.C. Wainwright & Co., LLC (the “Manager”), as sales agent.
On September 6, 2022, HeartCore Enterprises , Inc. entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51% of the outstanding shares of Sigmaways, a company incorporated under the laws of the State of California and is engaged in the business of developing and sales of software in the United States .
As a result, effective February 24, 2022, HeartCore Co. is a wholly owned subsidiary of the Company. On September 6, 2022, HeartCore Enterprises, Inc. entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51% of the outstanding shares of Sigmaways, a company incorporated under the laws of the State of California , and its wholly owned subsidiaries.
Yamamoto entered into a memorandum regarding share exchange agreement (the “Memorandum”) with Information Services International-Dentsu Ltd. (“ISI-Dentsu”), a shareholder of HeartCore Co., which became a stockholder of the Company pursuant to the share exchange agreement.
(“ISI-Dentsu”), a shareholder of HeartCore Co., which became a stockholder of the Company pursuant to the share exchange agreement.
The balance is unsecured, bears an annual interest of 1.475%, and requires repayments in installments starting from February 2022. During the year ended December 31, 2021, the Company loaned $55,212 to this related party, and the related party paid expenses of $13,704 on behalf of the Company.
The balance is unsecured, bears an annual interest of 1.475%, and requires repayments in installments starting from February 2022. During the years ended December 31, 2023 and 2022, the Company received repayments of $45,404 and $44,871, respectively, from this related party.
Our company culture and our people are not just human resources priorities but critical business priorities. As a result, we consistently focus on how we can continue to help employees grow, both personally and professionally. Since 2009, we have expanded beyond our Japanese headquarters to several offices globally and have built a large remote community.
As a result, we consistently focus on how we can continue to help employees grow, both personally and professionally. Since 2009, we have expanded beyond our Japanese headquarters to several offices globally and have built a large remote community. Currently, we are operating primarily from our office in Japan. As of December 31, 2023, we had 99 full-time employees.
This results in even lower sales in 2022 than in 2021. Regarding the impact of the pandemic on the DX sector, demand for our DX software increased as large companies were forced to change their work patterns, forcing employees to work remotely.
Regarding the impact of the pandemic on the DX sector, demand for our DX software increased as large companies were forced to change their work patterns, forcing employees to work remotely. During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.
Our CXM Platform includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience. We also provide education, services and support to help customers be successful with our CXM Platform.
The first business unit, our CX division, includes a customer experience management business (the “CXM Platform”) that has been in existence for 14 years. Our CXM Platform includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience.
On March 22, 2023, the Company granted 671,350 shares of common shares to the employees and service providers of Sigmaways. 30 Initial Public Offering On February 14, 2022, we closed our initial public offering of 3,000,000 shares of common stock at a public offering price of $5.00 per share, for aggregate gross proceeds of $15.0 million, before deducting underwriting discounts, commissions, and other offering expenses.
The options vest on each annual anniversary of the date of issuance, in an amount equal to 25% of the applicable shares of common stock, subject to the terms and conditions of the 2021 Plan and the option award agreements pursuant to which the options were awarded. 32 Initial Public Offering On February 14, 2022, we closed our initial public offering of 3,000,000 shares of common stock at a public offering price of $5.00 per share, for aggregate gross proceeds of $15.0 million, before deducting underwriting discounts, commissions, and other offering expenses.
The acquisition was closed on February 1, 2023. In the first quarter of 2023, we formed HeartCore Financial and HeartCore Capital Advisors as a part of our Go IPO consulting business. Memorandum to Share Exchange Agreement - Information Services International-Dentsu Ltd. On July 15, 2021, the Company, HeartCore Co. and Mr.
In the fourth quarter of 2023, we formed HeartCore Luvina Vietnam Company Limited in Vietnam, which is engaged in the business of software development. Memorandum to Share Exchange Agreement - Information Services International-Dentsu Ltd. On July 15, 2021, the Company, HeartCore Co. and Mr. Yamamoto entered into a memorandum regarding share exchange agreement (the “Memorandum”) with Information Services International-Dentsu Ltd.
We also have an office at 2-4-35, Mekaru, Naha-city, Okinawa, Japan, where we lease approximately 890 rentable square feet of office space from an unaffiliated third party. This lease has an original term ending in August 2023 with automatic annual renewal option.
Properties Our corporate headquarters are located at 1-2-33, Higashigotanda, Shinagawa-ku, Tokyo, Japan, where we lease approximately 7,863 rentable square feet of office space from an unaffiliated third party. This lease has an original term ending in September 2025 with automatic two-year renewal option.
During the year ended December 31, 2021, the Company advanced $87,664 to this related party, and the related party paid expenses of $111,350 on behalf of the Company.
During the year ended December 31, 2022, the Company repaid to the related party for operating expenses the related party paid on behalf of the Company in a net amount of $575.
On October 18, 2022, the Board of Directors approved to retire all the repurchased shares. As of December 31, 2022, all of the 1,349,390 treasury shares have been retired. Properties Our corporate headquarters are located at 1-2-33, Higashigotanda, Shinagawa-ku, Tokyo, Japan, where we lease approximately 7,863 rentable square feet of office space from an unaffiliated third party.
On October 18, 2022, the Board of Directors approved to retire all the repurchased shares. As of December 31, 2022, all of the 1,349,390 treasury shares have been retired.
Currently, we are operating primarily from our office in Japan. As of December 31, 2022, we had 49 full-time employees. None of our employees is represented by a union. We consider our relations with our employees to be good. ● Culture and Values.
None of our employees is represented by a union. We consider our relations with our employees to be good. ● Culture and Values. Our culture is built on the firm belief that personal and professional growth is just as important as business growth.
Removed
On September 6, 2022, HeartCore Enterprises, Inc. entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51% of the outstanding shares of Sigmaways, a company incorporated under the laws of the State of California and is engaged in the business of developing and sales of software in the United States. The acquisition closed on February 1, 2023.
Added
We also provide education, services and support to help customers be successful with our CXM Platform. The second business unit, our DX division, is a digital transformation business which provides customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises.
Removed
In 2022, after the pandemic, a number of employees left the company, forcing the company to downsize its operations and resulted in a decline in sales. During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.
Added
In the fourth quarter of 2023, we formed HeartCore Luvina Vietnam Company Limited in Vietnam, which is engaged in the business of software development. In February 2023, we acquired 51% of the outstanding shares of Sigmaways and its wholly-owned subsidiaries, which are primarily engaged in the business of developing and sales of software in the United States.
Removed
As a result, effective February 24, 2022, HeartCore Co. is a wholly owned subsidiary of the Company.
Added
Go IPO Consulting Services Since we concluded our initial public offering and listed on the Nasdaq Capital Market in February 2022, we have been offering “Go IPO” consulting services to a number of private Japanese companies where we assist such private Japanese companies and/or their affiliates (“issuers”) with their initial public offerings in the United States as well as their simultaneous listings onto the Nasdaq Stock Market, the New York Stock Exchange or the NYSE American.
Removed
As of December 31, 2020, Sumitaka Yamamoto held 467,622 shares issued with repurchase provision in relation to the stock options the Company granted in May 2016 that he repurchased on behalf of the Company.
Added
More specifically, these consulting services (collectively, “Services”) include the following: ● Assisting with introductions to law firms, underwriters and auditing firms, in order that clients can make their selections, at their sole discretion; ● Provision of process mining and task mining licenses for internal audit and internal control; ● Assisting in the preparation of documentation for internal controls required for an initial public offering and simultaneous listing on the Nasdaq Stock Market, the New York Stock Exchange or the NYSE American; ● Providing support services to remove problematic accounting accounts upon listing support; ● Translation of requested documents into English; ● Attend and, if requested by the other party, lead, meetings of management and employees; ● Provide support services related to the Nasdaq, the New York Stock Exchange or the NYSE American listing; ● Conversion of accounting data from Japanese standards to U.S.
Removed
On November 3, 2021, the Company redeemed 484,056 shares that Sumitaka Yamamoto held on behalf of the Company for $1 and settled the share repurchase payable to him of $28, resulting in a gain on shares redemption of $27.
Added
GAAP; ● Assist in the preparation of S-1 or F-1 filings; ● Creation of English web page; and ● Preparing an investor presentation/deck and executive summary of the operations. 17 In providing the Services, we do not perform accounting services, and do not act as an investment advisor or broker/dealer.
Removed
During the year ended December 31, 2022, the Company received repayments of $44,871 from this related party. In June 2020, Suzuyo Shinwart Corporation became an over 10% shareholder of the Company. In July 2021, Suzuyo Shinwart Corporation sold all its shares of the Company to the Company’s CEO and ceased to be the Company’s related party.
Added
Pursuant to the terms of the consulting agreements with the issuers, the parties agree that we will not provide the following services, among others: negotiation of the sale of the issuers’ securities; participation in discussions between the issuers and potential investors; assisting in structuring any transactions involving the sale of the issuers’ securities; pre-screening of potential investors; due diligence activities; and providing advice relating to valuation of or financial advisability of any investments in the issuers.
Removed
During the period from January 1, 2021 to July 12, 2021, when Suzuyo Shinwart Corporation was a related party of the Company, the Company has revenues from this related party of $157,791 from software sales and incurred cost with this related party of $332,669 for software development services provided.
Added
Additionally, we do not take part in the selection of, or negotiation of terms with, law firms, underwriters or audit firms. Such selection and negotiation is the sole responsibility of the client.
Added
Pursuant to the terms of the consulting agreements with the issuers, the issuers agree to compensate us as follows in return for the provision of Services during the initial term of the consulting agreements: (a) A cash fee payable in installment payments; and (b) Issuance by issuers to us of a warrants or stock acquisition rights to acquire a number of shares of capital stock of the issuer, to initially be equal to a designated percentage of the fully diluted share capital of the issuer, subject to adjustment as set forth in the warrants or stock acquisition rights.
Added
Although the effects of the pandemic are decreasing, we feel it will take additional time before the economy is fully normalized. In addition, the Japanese yen was weakening, so that sales in dollar terms in 2023 were slightly lower than in 2022.
Added
As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.
Added
Sigmaways and its wholly owned subsidiaries are engaged in the business of developing and sales of software in the United States . The acquisition was closed on February 1, 2023. In the first quarter of 2023, we formed HeartCore Financial in the U.S. and HeartCore Capital Advisors in Japan, as a part of our Go IPO consulting business.

… 17 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

48 edited+14 added−2 removed410 unchanged
Biggest changeIf our investments are greater than we initially anticipate or if our customer growth or sales in these markets do not meet our expectations or justify the cost of the initial investments, our results of operations and financial condition may be adverse affected. General Risks Failure to comply with laws and regulations could harm our business.
Biggest changeIf our investments are greater than we initially anticipate or if our customer growth or sales in these markets do not meet our expectations or justify the cost of the initial investments, our results of operations and financial condition may be adverse affected. 47 Risks Related to Our GO IPO Consulting Services We provide consulting services and ultimately do not control our client’s abilities to go public in the United States or secure a listing on American stock exchanges.
Our future international operations and future initiatives will involve a variety of risks, including: ● difficulties in maintaining our company culture with a dispersed and distant workforce; ● more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information; ● the timing of our sales with our international clients and related revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for these clients; ● unexpected changes in regulatory requirements, taxes or trade laws; ● differing labor regulations where labor laws are generally more advantageous to employees as compared to Japan, including deemed hourly wage and overtime regulations in these locations; ● challenges inherent in efficiently managing an increased number of employees, including remote employees, over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; 43 ● difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; ● currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future; ● global economic uncertainty caused by global political events; ● limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; ● limited or insufficient intellectual property protection; ● political instability or terrorist activities; ● likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S.
Our future international operations and future initiatives will involve a variety of risks, including: ● difficulties in maintaining our company culture with a dispersed and distant workforce; ● more stringent regulations relating to data security and the unauthorized use of, or access to, commercial and personal information; ● the timing of our sales with our international clients and related revenue recognition is difficult to predict because of the length and unpredictability of the sales cycle for these clients; ● unexpected changes in regulatory requirements, taxes or trade laws; ● differing labor regulations where labor laws are generally more advantageous to employees as compared to Japan, including deemed hourly wage and overtime regulations in these locations; ● challenges inherent in efficiently managing an increased number of employees, including remote employees, over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs; ● difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems and regulatory systems; ● currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future; ● global economic uncertainty caused by global political events; ● limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries; ● limited or insufficient intellectual property protection; ● political instability or terrorist activities; ● likelihood of potential or actual violations of domestic and international anticorruption laws, such as the U.S.
Compliance with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue; ● The standards that private entities use to regulate the use of email have in the past interfered with, and may in the future interfere with, the effectiveness of our software and our ability to conduct business; ● Existing federal, state and foreign laws regulate Internet tracking software, the senders of commercial emails and text messages, website owners and other activities, and could impact the use of our software and potentially subject us to regulatory enforcement or private litigation; ● We are subject to governmental export controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws; ● Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition; ● We may be unable to generate sufficient cash flow to satisfy our significant debt service obligations, which could have a material adverse effect on our business, financial condition and results of operations; 34 ● Despite our level of indebtedness, we and our subsidiary may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities.
Compliance with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue; ● The standards that private entities use to regulate the use of email have in the past interfered with, and may in the future interfere with, the effectiveness of our software and our ability to conduct business; ● Existing federal, state and foreign laws regulate Internet tracking software, the senders of commercial emails and text messages, website owners and other activities, and could impact the use of our software and potentially subject us to regulatory enforcement or private litigation; ● We are subject to governmental export controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws; ● Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition; ● We may be unable to generate sufficient cash flow to satisfy our significant debt service obligations, which could have a material adverse effect on our business, financial condition and results of operations; ● Despite our level of indebtedness, we and our subsidiary may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities.
In addition to the other risks described in this Annual Report on Form 10-K, factors that may affect our quarterly operating results include the following: ● changes in spending on marketing, task and process mining, content management, customer experience management, and robotic process automation software by our current or prospective customers; ● pricing our software subscriptions effectively so that we are able to attract and retain customers without compromising our profitability; ● attracting new customers for our marketing, sales, customer service, and content management software, increasing our existing customers’ use of our software and providing our customers with excellent customer support; ● customer renewal rates and the amounts for which agreements are renewed; ● global awareness of our thought leadership and brand; ● changes in the competitive dynamics of our market, including consolidation among competitors or customers and the introduction of new products or product enhancements; 40 ● changes to the commission plans, quotas and other compensation-related metrics for our sales representatives; ● the amount and timing of payment for operating expenses, particularly research and development, sales and marketing expenses and employee benefit expenses; ● the amount and timing of costs associated with recruiting, training and integrating new employees while maintaining our company culture; ● our ability to manage our existing business and future growth, including increases in the number of customers on our software and the introduction and adoption of our software in new markets outside of the United States; ● unforeseen costs and expenses related to the expansion of our business, operations and infrastructure, including disruptions in our hosting network infrastructure and privacy and data security; ● foreign currency exchange rate fluctuations; and ● general economic and political conditions in our domestic and international markets.
In addition to the other risks described in this Annual Report on Form 10-K, factors that may affect our quarterly operating results include the following: ● changes in spending on marketing, task and process mining, content management, customer experience management, and robotic process automation software by our current or prospective customers; ● pricing our software subscriptions effectively so that we are able to attract and retain customers without compromising our profitability; ● attracting new customers for our marketing, sales, customer service, and content management software, increasing our existing customers’ use of our software and providing our customers with excellent customer support; ● customer renewal rates and the amounts for which agreements are renewed; ● global awareness of our thought leadership and brand; ● changes in the competitive dynamics of our market, including consolidation among competitors or customers and the introduction of new products or product enhancements; 43 ● changes to the commission plans, quotas and other compensation-related metrics for our sales representatives; ● the amount and timing of payment for operating expenses, particularly research and development, sales and marketing expenses and employee benefit expenses; ● the amount and timing of costs associated with recruiting, training and integrating new employees while maintaining our company culture; ● our ability to manage our existing business and future growth, including increases in the number of customers on our software and the introduction and adoption of our software in new markets outside of the United States; ● unforeseen costs and expenses related to the expansion of our business, operations and infrastructure, including disruptions in our hosting network infrastructure and privacy and data security; ● foreign currency exchange rate fluctuations; and ● general economic and political conditions in our domestic and international markets.
If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately; ● Failure to effectively develop and expand our digital marketing, task and process mining, content management, customer experience management, and robotic process automation capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our software; ● The rate of growth of our business depends on the continued participation and level of service of our third-party partners; ● We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance; ● If we fail to maintain our inbound thought leadership position, our business may suffer; ● If we fail to further enhance our brand and maintain our existing strong brand awareness, our ability to expand our customer base will be impaired and our financial condition may suffer; ● If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our software may become less competitive; ● If we fail to offer high-quality customer support, our business and reputation may suffer; ● We may not be able to scale our business quickly enough to meet our customers’ growing needs and if we are not able to grow efficiently, our operating results could be harmed; 33 ● Our ability to introduce new products and features is dependent on adequate research and development resources.
If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or address competitive challenges adequately; ● Failure to effectively develop and expand our digital marketing, task and process mining, content management, customer experience management, and robotic process automation capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our software; ● The rate of growth of our business depends on the continued participation and level of service of our third-party partners; ● We may experience quarterly fluctuations in our operating results due to a number of factors, which makes our future results difficult to predict and could cause our operating results to fall below expectations or our guidance; ● If we fail to maintain our inbound thought leadership position, our business may suffer; ● If we fail to further enhance our brand and maintain our existing strong brand awareness, our ability to expand our customer base will be impaired and our financial condition may suffer; ● If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our software may become less competitive; ● If we fail to offer high-quality customer support, our business and reputation may suffer; ● We may not be able to scale our business quickly enough to meet our customers’ growing needs and if we are not able to grow efficiently, our operating results could be harmed; 36 ● Our ability to introduce new products and features is dependent on adequate research and development resources.
Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, the following: ● actual or anticipated changes or fluctuations in our results of operations; ● the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; ● announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships, or capital commitments; ● industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC; ● rumors and market speculation involving us or other companies in our industry; ● price and volume fluctuations in the overall stock market from time to time; ● changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; ● the expiration of market stand-off or contractual lock-up agreements and sales of shares of our common stock by us or our stockholders; ● failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors; ● actual or anticipated developments in our business, or our competitors’ businesses, or the competitive landscape generally; ● litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; 59 ● developments or disputes concerning our intellectual property rights, our products, or third-party proprietary rights; ● announced or completed acquisitions of businesses or technologies by us or our competitors; ● new laws or regulations or new interpretations of existing laws or regulations applicable to our business; ● any major changes in our management or our board of directors, particularly with respect to Mr.
Factors that could cause fluctuations in the market price of our common stock include, but are not limited to, the following: ● actual or anticipated changes or fluctuations in our results of operations; ● the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections; ● announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships, or capital commitments; ● industry or financial analyst or investor reaction to our press releases, other public announcements, and filings with the SEC; ● rumors and market speculation involving us or other companies in our industry; ● price and volume fluctuations in the overall stock market from time to time; ● changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; ● the expiration of market stand-off or contractual lock-up agreements and sales of shares of our common stock by us or our stockholders; ● failure of industry or financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors; ● actual or anticipated developments in our business, or our competitors’ businesses, or the competitive landscape generally; ● litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; 63 ● developments or disputes concerning our intellectual property rights, our products, or third-party proprietary rights; ● announced or completed acquisitions of businesses or technologies by us or our competitors; ● new laws or regulations or new interpretations of existing laws or regulations applicable to our business; ● any major changes in our management or our board of directors, particularly with respect to Mr.
These provisions include: ● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; ● limiting the liability of, and providing indemnification to, our directors and officers; 64 ● providing that a special meeting of the stockholders may only be called by a majority of the board of directors; ● providing that directors may be removed prior to the expiration of their terms by the affirmative vote of the holders of not less than 2/3 of the voting power of the issued and outstanding stock entitled to vote; and ● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
These provisions include: ● no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; ● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; ● the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; ● limiting the liability of, and providing indemnification to, our directors and officers; 68 ● providing that a special meeting of the stockholders may only be called by a majority of the board of directors; ● providing that directors may be removed prior to the expiration of their terms by the affirmative vote of the holders of not less than 2/3 of the voting power of the issued and outstanding stock entitled to vote; and ● advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
If our acquisitions do not ultimately yield expected returns, we may be required to make charges to our operating results based on our impairment assessment process, which could harm our results of operations. Because our long-term growth strategy involves further expansion of our sales to customers outside Japan, our business will be susceptible to risks associated with international operations.
If our acquisitions do not ultimately yield expected returns, we may be required to make charges to our operating results based on our impairment assessment process, which could harm our results of operations. 46 Because our long-term growth strategy involves further expansion of our sales to customers outside Japan, our business will be susceptible to risks associated with international operations.
You could lose all or a significant portion of your investment due to any of these risks and uncertainties. 32 Below is a summary of material risks, uncertainties and other factors that could have a material effect on the Company and its operations: ● Our industry and the markets in which we operate are highly competitive and increased competitive pressures could reduce our share of the markets we serve and adversely affect our business, financial position, results of operations and cash flows; ● We are a holding company and depend upon our subsidiary for our cash flows; ● We may require additional funding for our growth plans, and such funding may result in a dilution of your investment; ● We currently are a “controlled company” within the meaning of Nasdaq Capital Market rules and the rules of the SEC and, as a result, qualify for exemptions from certain corporate governance requirements.
You could lose all or a significant portion of your investment due to any of these risks and uncertainties. 35 Below is a summary of material risks, uncertainties and other factors that could have a material effect on the Company and its operations: ● Our industry and the markets in which we operate are highly competitive and increased competitive pressures could reduce our share of the markets we serve and adversely affect our business, financial position, results of operations and cash flows; ● We are a holding company and depend upon our subsidiary for our cash flows; ● We may require additional funding for our growth plans, and such funding may result in a dilution of your investment; ● We currently are a “controlled company” within the meaning of Nasdaq Capital Market rules and the rules of the SEC and, as a result, qualify for exemptions from certain corporate governance requirements.
The Company held approximately $4.7 million cash deposits at Signature Bridge Bank, N.A. as of March 12, 2023. Normal banking activities resumed on Monday, March 13, 2023. Risks Related to Our Business and Strategy We are a holding company and depend upon our subsidiary for our cash flows. We are a holding company.
The Company held approximately $4.7 million cash deposits at Signature Bridge Bank, N.A. as of March 12, 2023. Normal banking activities resumed on Monday, March 13, 2023. 37 Risks Related to Our Business and Strategy We are a holding company and depend upon our subsidiary for our cash flows. We are a holding company.
Additionally, during the ongoing pandemic, and potentially beyond as remote work and resource access expand, there is an increased risk that we may experience cybersecurity-related events such as COVID-19 themed phishing attacks, exploitation of any cybersecurity flaws that may exist, an increase in the number cybersecurity threats or attacks, and other security challenges as a result of most of our employees and our service providers continuing to work remotely from non-corporate managed networks. 50 If we were to experience a cyberattack and suffer interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other disruptions.
Additionally, during the ongoing pandemic, and potentially beyond as remote work and resource access expand, there is an increased risk that we may experience cybersecurity-related events such as COVID-19 themed phishing attacks, exploitation of any cybersecurity flaws that may exist, an increase in the number cybersecurity threats or attacks, and other security challenges as a result of most of our employees and our service providers continuing to work remotely from non-corporate managed networks. 54 If we were to experience a cyberattack and suffer interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other disruptions.
Additionally, any party who brings an action, and the party against whom such action is brought under Section 7.4 of our bylaws, which could include, but is not limited to former and current shareholders, Company directors, officers, affiliates, legal counsel, expert witnesses and other parties, would be able to recover fees under this provision. 46 In the event you initiate or assert a claim against us, in accordance with the dispute resolution provisions contained in our Bylaws, and you do not, in a judgment prevail, you will be obligated to reimburse us for all reasonable costs and expenses incurred in connection with such claim, including, but not limited to, reasonable attorney’s fees and expenses and costs of appeal, if any.
Additionally, any party who brings an action, and the party against whom such action is brought under Section 7.4 of our bylaws, which could include, but is not limited to former and current shareholders, Company directors, officers, affiliates, legal counsel, expert witnesses and other parties, would be able to recover fees under this provision. 50 In the event you initiate or assert a claim against us, in accordance with the dispute resolution provisions contained in our Bylaws, and you do not, in a judgment prevail, you will be obligated to reimburse us for all reasonable costs and expenses incurred in connection with such claim, including, but not limited to, reasonable attorney’s fees and expenses and costs of appeal, if any.
The costs associated with product outages, any material defects or errors in our software or other performance problems may be substantial and could materially adversely affect our operating results. 48 In addition, third-party apps and features on our software may not meet the same quality standards that we apply to our own development efforts and, to the extent they contain bugs, vulnerabilities or defects, they may create disruptions in our customers’ use of our products, lead to data loss, unauthorized access to customer data, damage our brand and reputation and affect the continued use of our products, any of which could harm our business, results of operations and financial condition.
The costs associated with product outages, any material defects or errors in our software or other performance problems may be substantial and could materially adversely affect our operating results. 52 In addition, third-party apps and features on our software may not meet the same quality standards that we apply to our own development efforts and, to the extent they contain bugs, vulnerabilities or defects, they may create disruptions in our customers’ use of our products, lead to data loss, unauthorized access to customer data, damage our brand and reputation and affect the continued use of our products, any of which could harm our business, results of operations and financial condition.
If we experience any of these effects in connection with future growth, if our new employees perform poorly, or if we are unsuccessful in recruiting, hiring, training, managing and integrating these new employees, or retaining these or our existing employees, it could materially impair our ability to attract new customers, retain existing customers and expand their use of our software, all of which would materially and adversely affect our business, financial condition and results of operations. 39 In addition, to manage the expected continued growth of our head count, operations and geographic expansion, we will need to continue to improve our information technology infrastructure, operational, financial and management systems and procedures.
If we experience any of these effects in connection with future growth, if our new employees perform poorly, or if we are unsuccessful in recruiting, hiring, training, managing and integrating these new employees, or retaining these or our existing employees, it could materially impair our ability to attract new customers, retain existing customers and expand their use of our software, all of which would materially and adversely affect our business, financial condition and results of operations. 42 In addition, to manage the expected continued growth of our head count, operations and geographic expansion, we will need to continue to improve our information technology infrastructure, operational, financial and management systems and procedures.
If our cross-selling efforts are unsuccessful or if our existing customers do not expand their use of our software or adopt additional offerings and features, our operating results may suffer. Our subscription renewal rates may decrease, and any decrease could harm our future revenue and operating results.
If our cross-selling efforts are unsuccessful or if our existing customers do not expand their use of our software or adopt additional offerings and features, our operating results may suffer. 40 Our subscription renewal rates may decrease, and any decrease could harm our future revenue and operating results.
This results in even lower sales in 2022 than in 2021. Regarding the impact of the pandemic on the DX sector, demand for our DX software increased as large companies were forced to change their work patterns, forcing employees to work remotely.
This results in even lower sales in 2022 than in Regarding the impact of the pandemic on the DX sector, demand for our DX software increased as large companies were forced to change their work patterns, forcing employees to work remotely.
The HFCA Act states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares of common stock from being traded on a national securities exchange or in the over the counter trading market in the United States. 36 On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act.
The HFCA Act states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares of common stock from being traded on a national securities exchange or in the over the counter trading market in the United States. 39 On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act.
If we were found to be in violation of any of these laws or regulations as a result of government enforcement or private litigation, we could be subjected to civil and criminal sanctions, including both monetary fines and injunctive action that could force us to change our business practices, all of which could adversely affect our financial performance and significantly harm our reputation and our business. 57 We are subject to governmental export controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
If we were found to be in violation of any of these laws or regulations as a result of government enforcement or private litigation, we could be subjected to civil and criminal sanctions, including both monetary fines and injunctive action that could force us to change our business practices, all of which could adversely affect our financial performance and significantly harm our reputation and our business. 61 We are subject to governmental export controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiary or assert that benefits of tax treaties are not available to us or our subsidiary, any of which could have a material impact on us and the results of our operations. 58 Related to Ownership of Our Common Stock There can be no assurance that we will be able to comply with Nasdaq Capital Market’s continued listing standards.
In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiary or assert that benefits of tax treaties are not available to us or our subsidiary, any of which could have a material impact on us and the results of our operations. 62 Related to Ownership of Our Common Stock There can be no assurance that we will be able to comply with Nasdaq Capital Market’s continued listing standards.
As a result, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest. 45 The certificate of incorporation and bylaws provides that state or federal court located within the state of Delaware will be the sole and exclusive forum for substantially all disputes between us and our shareholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
As a result, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest. 49 The certificate of incorporation and bylaws provides that state or federal court located within the state of Delaware will be the sole and exclusive forum for substantially all disputes between us and our shareholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
It has also disrupted the normal operations of many businesses, including ours. 35 For example, many cities, counties, states, and even countries have imposed or may impose a wide range of restrictions on the physical movement of our employees, partners and customers to limit the spread of the pandemic, including physical distancing, travel bans and restrictions, closure of non-essential business, quarantines, work-from-home directives, shelter-in-place orders, and limitations on public gatherings.
It has also disrupted the normal operations of many businesses, including ours. 38 For example, many cities, counties, states, and even countries have imposed or may impose a wide range of restrictions on the physical movement of our employees, partners and customers to limit the spread of the pandemic, including physical distancing, travel bans and restrictions, closure of non-essential business, quarantines, work-from-home directives, shelter-in-place orders, and limitations on public gatherings.
For example, some of our customers or potential customers who do business in the European Union may require their vendors to host all personal data within the European Union and may decide to do business with one of our competitors who hosts personal data within the European Union instead of doing business with us. 54 The regulatory framework governing the collection, processing, storage, use and sharing of certain information, particularly financial and other personal information, is rapidly evolving and is likely to continue to be subject to uncertainty and varying interpretations.
For example, some of our customers or potential customers who do business in the European Union may require their vendors to host all personal data within the European Union and may decide to do business with one of our competitors who hosts personal data within the European Union instead of doing business with us. 58 The regulatory framework governing the collection, processing, storage, use and sharing of certain information, particularly financial and other personal information, is rapidly evolving and is likely to continue to be subject to uncertainty and varying interpretations.
We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors, which could make it more difficult for our stockholders to sell their shares. 63 We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.
We also will have other “scaled” disclosure requirements that are less comprehensive than issuers that are not smaller reporting companies which could make our common stock less attractive to potential investors, which could make it more difficult for our stockholders to sell their shares. 67 We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives.
Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies. 53 In addition, on March 2, 2021, Virginia enacted the Consumer Data Protection Act (the “CDPA”), which become effective on January 1, 2023.
Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies. 57 In addition, on March 2, 2021, Virginia enacted the Consumer Data Protection Act (the “CDPA”), which become effective on January 1, 2023.
If there are changes in the mix of businesses that purchase our software or the mix of the product plans purchased by our customers, our gross margins could decrease and our operating results could be adversely affected. 42 We may acquire or invest in other companies or technologies in the future, which could divert management’s attention, fail to meet our expectations, result in additional dilution to our stockholders, increase expenses, disrupt our operations or harm our operating results.
If there are changes in the mix of businesses that purchase our software or the mix of the product plans purchased by our customers, our gross margins could decrease and our operating results could be adversely affected. 45 We may acquire or invest in other companies or technologies in the future, which could divert management’s attention, fail to meet our expectations, result in additional dilution to our stockholders, increase expenses, disrupt our operations or harm our operating results.
If such claims are successful, or if we are required to indemnify or defend our customers from these or other claims, these matters could be disruptive to our business and management and have a material adverse effect on our business, operating results and financial condition. 51 If we fail to adequately protect our proprietary rights, in Japan and abroad, our competitive position could be impaired and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.
If such claims are successful, or if we are required to indemnify or defend our customers from these or other claims, these matters could be disruptive to our business and management and have a material adverse effect on our business, operating results and financial condition. 55 If we fail to adequately protect our proprietary rights, in Japan and abroad, our competitive position could be impaired and we may lose valuable assets, experience reduced revenue and incur costly litigation to protect our rights.
Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition and require us to devote additional research and development resources to change our products. 52 Risks Related to Government Regulation We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and our actual or perceived failure to comply with such obligations could harm our business.
Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition and require us to devote additional research and development resources to change our products. 56 Risks Related to Government Regulation We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security, and our actual or perceived failure to comply with such obligations could harm our business.
If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed. 47 Risks Related to Our Technical Operations Infrastructure and Dependence on Third Parties Interruptions or delays in service from our third-party data center providers could impair our ability to deliver our software to our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.
If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed. 51 Risks Related to Our Technical Operations Infrastructure and Dependence on Third Parties Interruptions or delays in service from our third-party data center providers could impair our ability to deliver our software to our customers, resulting in customer dissatisfaction, damage to our reputation, loss of customers, limited growth and reduction in revenue.
If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile. 62 If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and have an adverse effect on the value of our securities.
If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the price of our securities may be more volatile. 66 If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and have an adverse effect on the value of our securities.
Technical mistakes in complying with the detailed DMCA take-down procedures could subject us to liability for copyright infringement. 55 ● The Communications Decency Act of 1996 (the “CDA”) generally protects online service providers, such as us, from liability for certain activities of their customers, such as the posting of defamatory or obscene content, unless the online service provider is participating in the unlawful conduct.
Technical mistakes in complying with the detailed DMCA take-down procedures could subject us to liability for copyright infringement. 59 ● The Communications Decency Act of 1996 (the “CDA”) generally protects online service providers, such as us, from liability for certain activities of their customers, such as the posting of defamatory or obscene content, unless the online service provider is participating in the unlawful conduct.
In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. 44 We are exposed to fluctuations in currency exchange rates.
In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. 48 We are exposed to fluctuations in currency exchange rates.
If we are unable to maintain our pricing due to competitive pressures, our margins will be reduced and our operating results will be negatively affected. 38 Our competitors include: ● task and process mining vendors; ● email marketing software vendors; ● content management system providers; ● customer experience management system\ providers; ● robotic process automation vendors; ● cloud-based marketing automation providers; ● large-scale enterprise suites; ● customer service software providers; and ● Customer experience management systems.
If we are unable to maintain our pricing due to competitive pressures, our margins will be reduced and our operating results will be negatively affected. 41 Our competitors include: ● task and process mining vendors; ● email marketing software vendors; ● content management system providers; ● customer experience management system\ providers; ● robotic process automation vendors; ● cloud-based marketing automation providers; ● large-scale enterprise suites; ● customer service software providers; and ● Customer experience management systems.
If a company’s internet protocol addresses are listed by a blacklisting entity, emails sent from those addresses may be blocked if they are sent to any internet domain or internet address that subscribes to the blacklisting entity’s service or purchases its blacklist. 56 From time to time, some of our internet protocol addresses may become listed with one or more blacklisting entities due to the messaging practices of our customers.
If a company’s internet protocol addresses are listed by a blacklisting entity, emails sent from those addresses may be blocked if they are sent to any internet domain or internet address that subscribes to the blacklisting entity’s service or purchases its blacklist. 60 From time to time, some of our internet protocol addresses may become listed with one or more blacklisting entities due to the messaging practices of our customers.
Although our company has been in existence for less than two years, our wholly owned operating subsidiary, HeartCore Co. operated throughout the pandemic and continues to operate after the pandemic. HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and post-pandemic that are beyond our control.
Although our company has been in existence for less than three years, our wholly owned operating subsidiary, HeartCore Co. operated throughout the pandemic and continues to operate after the pandemic. HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and post-pandemic that are beyond our control.
We can give no assurance at what time, if ever, our common stock will not be classified as a “penny stock” in the future. 61 If the benefits of any proposed acquisition do not meet the expectations of investors, stockholders or financial analysts, the market price of our common stock may decline.
We can give no assurance at what time, if ever, our common stock will not be classified as a “penny stock” in the future. 65 If the benefits of any proposed acquisition do not meet the expectations of investors, stockholders or financial analysts, the market price of our common stock may decline.
We also rely on the availability and accuracy of this data, and any changes in the availability or accuracy of such data could adversely impact our business and results of operations and harm our reputation and brand. 49 Privacy concerns and end users’ acceptance of Internet behavior tracking may limit the applicability, use and adoption of our software.
We also rely on the availability and accuracy of this data, and any changes in the availability or accuracy of such data could adversely impact our business and results of operations and harm our reputation and brand. . 53 Privacy concerns and end users’ acceptance of Internet behavior tracking may limit the applicability, use and adoption of our software.
Our ability to grow is also subject to the risk of future disruptive technologies. 41 If we fail to offer high-quality customer support, our business and reputation may suffer. High-quality education, training and customer support are important for the successful marketing, sale and use of our software and for the renewal of existing customers.
Our ability to grow is also subject to the risk of future disruptive technologies. 44 If we fail to offer high-quality customer support, our business and reputation may suffer. High-quality education, training and customer support are important for the successful marketing, sale and use of our software and for the renewal of existing customers.
Our financial statements contained in this Annual Report on Form 10-K have been audited by MaloneBailey, LLP, an independent registered public accounting firm that is headquartered in the United States with offices in Beijing and Shenzhen, China.
Our financial statements contained in this Annual Report on Form 10-K have been audited by MaloneBailey, LLP, an independent registered public accounting firm that is headquartered in the United States with offices in Beijing and Shenzhen, China, and Tokyo, Japan.
In 2022, after the pandemic, a number of employees left the company, forcing the company to downsize its operations and resulted in a decline in sales. During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.
In 2022, after the pandemic, a number of employees left the company, forcing the company to downsize its operations and resulting in a decline in sales. During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions.
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions in Japan.
See “Dividend Policy.” Our common stock may be subject to the “penny stock” rules in the future. It may be more difficult to resell securities classified as “penny stock.” Our common stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price below $5.00) in the future.
It may be more difficult to resell securities classified as “penny stock.” Our common stock may be subject to “penny stock” rules (generally defined as non-exchange traded stock with a per-share price below $5.00) in the future.
If the voting power of our capital stock continues to be highly concentrated, it may prevent you and other minority stockholders from influencing significant corporate decisions and may result in conflicts of interest. Sumitaka Yamamoto, our Chief Executive Officer, controls approximately 52.8% of the voting power of our outstanding common stock. As a result, Mr.
If the voting power of our capital stock continues to be highly concentrated, it may prevent you and other minority stockholders from influencing significant corporate decisions and may result in conflicts of interest. Sumitaka Yamamoto, our Chief Executive Officer, controls approximately 50.9% of the voting power of our outstanding common stock. As a result, Mr.
As of March 30, 2023, we have entered into consulting agreements with nine companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranges from $350,000 to $900,000 and warrants or Japanese acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 per share.
As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fees ranging from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.
As of March 31, 2023, Sumitaka Yamamoto, our Chief Executive Officer, beneficially owned an aggregate of 10,995,969 shares of our common stock, which represents 52.8% of the voting power of our outstanding common stock.
As of December 31, 2023, Sumitaka Yamamoto, our Chief Executive Officer, beneficially owned an aggregate of 10,607,159 shares of our common stock, which represents 50.9% of the voting power of our outstanding common stock.
In addition, this concentration of voting power may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders. See “Executive Compensation” and “Description of Securities.” 60 We have never paid dividends on our common stock and have no plans to do so in the future.
In addition, this concentration of voting power may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders. See “Executive Compensation” and “Description of Securities.” 64 Our common stock may be subject to the “penny stock” rules in the future.
For existing customers, the pandemic had no impact on the use of our software; for new customers in the travel, hotel, airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders. However, although the pandemic is coming to an end, it will take some time before the economy is fully normalized.
For existing customers, the pandemic had no impact on the use of our software; for new customers in the travel, hotel, airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders.
If we were to experience significant downturns in subscription sales and renewal rates, our reported financial results might not reflect such downturns until future periods. 37 If we do not accurately predict subscription renewal rates or otherwise fail to forecast our revenue accurately, or if we fail to match our expenditures with corresponding revenue, our operating results could be adversely affected.
If we do not accurately predict subscription renewal rates or otherwise fail to forecast our revenue accurately, or if we fail to match our expenditures with corresponding revenue, our operating results could be adversely affected.
A decline in new or renewed subscriptions in any period may not be immediately reflected in our reported financial results for that period, but may result in a decline in our revenue in future quarters.
A decline in new or renewed subscriptions in any period may not be immediately reflected in our reported financial results for that period, but may result in a decline in our revenue in future quarters. If we were to experience significant downturns in subscription sales and renewal rates, our reported financial results might not reflect such downturns until future periods.
Removed
Holders of shares of our common stock are entitled to receive such dividends as may be declared by our board of directors. To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future.
Added
Although the effects of the pandemic are decreasing, we feel it will take additional time before the economy is fully normalized.
Removed
We intend to retain future earnings, if any, to provide funds for operations of our business. Therefore, any return investors in our common stock may have will be in the form of appreciation, if any, in the market value of their shares of common stock.
Added
In providing our consulting Services, we do not perform accounting services, and do not act as an investment advisor or broker/dealer.
Added
Pursuant to the terms of the consulting agreements with the issuers, the parties agree that we will not provide the following services, among others: negotiation of the sale of the issuers’ securities; participation in discussions between the issuers and potential investors; assisting in structuring any transactions involving the sale of the issuers’ securities; pre-screening of potential investors; due diligence activities; and providing advice relating to valuation of or financial advisability of any investments in the issuers.
Added
Additionally, we do not take part in the selection of, or negotiation of terms with, law firms, underwriters or audit firms. Such selection and negotiation is the sole responsibility of the client. Our GO IPO clients may rely on advice from their third party advisors, including law firms and underwriters.
Added
Any of these third party advisors may advise our GO IPO clients on strategies that could delay or even terminate their ability to go public in the United States or secure a listing on an American stock exchange.
Added
The ability of our client to go public in the United States or secure a listing on an American stock exchange is subject to our client’s ability to execute their business plan and attract investors. Ultimately, market conditions could also create delays or terminate our client’s plans.
Added
The value of the equity rights we receive from our GO IPO clients could be volatile, lose value, and even become worthless. We do not control the management or strategies of our GO IPO client companies.
Added
The value of our equity rights received from our consulting Services is tied to the market value of the client and will likely be volatile.
Added
Among other factors the following occurrences, which is not an exhaustive list, could reduce the value of our equity rights or even cause our equity rights to become worthless: ● If a client company changes management or strategies; ● If a client company is engaged in material litigation; ● If a client company cannot develop a liquid market for their shares underlying our equity rights; ● If a client company cannot satisfy a listing requirement to be listed on an exchange; ● If the market value of the equity rights is too low; ● If the client company cannot secure market makers; ● If the client company cannot meet the rules and requirements mandated by the exchanges and markets; ● If the client company suffers a business downturn, through their fault or caused by a material partner or events that affect the market in general; and/or ● If the market conditions do not provide an opportunity to capitalize on the equity rights.
Added
Our GO IPO business assists companies in navigating the initial public offering process in the US markets. We do not provide investment, accounting, or legal advice. If state or federal regulatory agency determined our Company provided legal or investment advice in violation of existing law, there could be a material adverse effect on our business operations and stock value.
Added
Our GO IPO services assist companies in improving their internal systems, planning, and readiness to take their company through the IPO process. We also assist with introductions to third party professional advisors such as law firms, investment bankers, and auditors, in order that clients can make their selections, at their sole discretion.
Added
We are not an Investment Company under the Investment Company Act of 1940 (the “1940 Act”). The 1940 Act has restrictions that could make it impractical for us to continue our business as contemplated. Our GO IPO services providing consulting services and are not in the business of investing, reinvesting or trading in securities.
Added
An entity will generally be deemed an “investment company” under Section 3(a)(1) of the Investment Company Act of 1940, as amended (the “1940 Act”) if: (a) it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities, or (b) absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
Added
We conduct our operations so that we will not be deemed an investment company. General Risks Failure to comply with laws and regulations could harm our business.

Item 2. Properties

Properties — owned and leased real estate

3 edited+3 added−0 removed0 unchanged
Biggest changeThis lease has an original term ending in August 2023 with automatic annual renewal option. Terms of the Okinawa office lease provide for a base rent payment of $1,370 per month and a share of sales taxes of $137 per month. We believe that these facilities are adequate for our current and near-term future needs.
Biggest changeThis lease has an original term ending in August 2024 with automatic annual renewal option. Terms of the Okinawa office lease provide for a base rent payment of $1,270 per month and a share of sales taxes of $127 per month. We believe that these facilities are adequate for our current and near-term future needs.
ITEM 2. PROPERTIES Our corporate headquarters are located at 1-2-33, Higashigotanda, Shinagawa-ku, Tokyo, Japan, where we lease approximately 7,863 rentable square feet of office space from an unaffiliated third party. This lease has an original term ending in September 2023 with an automatic two-year renewal option.
ITEM 2. PROPERTIES Our corporate headquarters are located at 1-2-33, Higashigotanda, Shinagawa-ku, Tokyo, Japan, where we lease approximately 7,863 rentable square feet of office space from an unaffiliated third party. This lease has an original term ending in September 2025 with an automatic two-year renewal option.
Terms of the office lease provide for a base rent payment of $25,309 per month and a share of sales taxes of $2,531 per month. We also have an office at 2-4-35, Mekaru, Naha-city, Okinawa, Japan, where we lease approximately 890 rentable square feet of office space from an unaffiliated third party.
Terms of the office lease provide for a base rent payment of $23,475 per month and a share of sales taxes of $2,348 per month. We also have an office at 2-4-35, Mekaru, Naha-city, Okinawa, Japan, where we lease approximately 890 rentable square feet of office space from an unaffiliated third party.
Added
The office of HeartCore Capital Advisors, Inc. are located at 3-2-5 Kasumigaseki, Chiyoda-ku, Tokyo, Japan, where we lease approximately 1,379 rentable square feet of office space from an unaffiliated third party. This lease has lease term ending in June 2026.
Added
Terms of the office lease provide for a base rent payment of $9,428 per month and a share of sales taxes of $943 per month.
Added
The office of Sigmaways, Inc. are located at 39737 Paseo Padre PKWY, Suite C1 Fremont, CA, the United States, where we lease approximately 765 square feet of office space from an unaffiliated third party with lease term ending in December 2024. Terms of the office lease provide for a base rent payment of $1,810 per month.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

0 edited+1 added−0 removed3 unchanged
Added
MINE SAFETY DISCLOSURES Not applicable. 69 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+3 added−0 removed10 unchanged
Biggest changeThe number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries. Dividends We have not paid any cash dividends on our common stock and do not currently anticipate paying cash dividends in the foreseeable future.
Biggest changeHolders As of December 31, 2023, there were 20,842,690 shares of common stock issued and outstanding, and we had approximately 38 holders of record of our common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
The options vest on each annual anniversary of the date of issuance, in an amount equal to 25% of the applicable shares of common stock, subject to the terms and conditions of the 2021 Plan and the option award agreements pursuant to which the options were awarded. 66 On February 3, 2023, the Company granted stock options to an employee to purchase 100,000 common shares at an exercise price of $1.17 per share throughout a period of ten years from the grant date.
The options vest on each annual anniversary of the date of issuance, in an amount equal to 25% of the applicable shares of common stock, subject to the terms and conditions of the 2021 Plan and the option award agreements pursuant to which the options were awarded. 70 On February 3, 2023, the Company granted stock options to an employee to purchase 100,000 common shares at an exercise price of $1.17 per share throughout a period of ten years from the grant date.
The 2021 Plan authorizes equity-based and cash-based incentives for participants. As of March 30, 2022, there were 6,330 shares authorized for issuance under the 2021 Plan.
The 2021 Plan authorizes equity-based and cash-based incentives for participants. As of December 31, 2023, there were 4,330 shares authorized for issuance under the 2021 Plan.
The stock options will vest 50% on the grant date and February 1, 2024, respectively. On March 22, 2023, the Company granted 671,350 shares of common s hares to the employees and service providers of Sigmaways.
The stock options will vest 50% on the grant date and February 1, 2024, respectively. On March 22, 2023, the Company granted 671,350 shares of common shares to the employees and service providers of Sigmaways. On August 1, 2023, the Board approved, and proposed for stockholder approval, the 2023 Equity Incentive Plan (the “2023 Plan”).
We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Securities Authorized for Issuance Under Equity Compensation Plans Our Board of Directors and stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”) on August 6, 2021.
Dividends We have not paid any cash dividends on our common stock and we planned to pay dividends on May 3, 2024. Securities Authorized for Issuance Under Equity Compensation Plans Our Board of Directors and stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”) on August 6, 2021.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed The Nasdaq Capital Market and its stock symbol is “HTCR.” The closing price of our common stock on Nasdaq on March 30, 2023 was $1.00. 65 Holders As of March 31, 2023, there were 20,842,690 shares of common stock issued and outstanding, and we had approximately 56 holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed The Nasdaq Capital Market and its stock symbol is “HTCR.” The closing price of our common stock on Nasdaq on April 5, 2024 was $0.96.
Added
The shareholders approved the 2023 Plan at the Annual Shareholder’s meeting on September 29, 2023. The 2023 Plan provides for various stock-based incentive awards, including incentive stock options (“ISOs”) and non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”), and other equity-based or cash-based awards.
Added
As of December 31, 2023, the Company has not granted any stock-based compensation awards to employees, including officers, or non-employee directors pursuant to the 2023 Plan. On August 25, 2023, the Company awarded options to purchase 2,000 shares of common stock pursuant to our 2021 Plan at an exercise price of $1.10 per share to an employee.
Added
The options vest on each annual anniversary of the date of issuance, in an amount equal to 25% of the applicable shares of common stock, subject to the terms and conditions of the 2021 Plan and the option award agreements pursuant to which the options were awarded.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 6. Reserved 67 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 67 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 80 Item 8. Financial Statements and Supplementary Data 80 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 80 Item 9A. Controls and Procedures 80 Item 9B.
Biggest changeItem 6. Reserved 71 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 71 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 83 Item 8. Financial Statements and Supplementary Data 83 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 83 Item 9A. Controls and Procedures 83 Item 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

45 edited+22 added−39 removed30 unchanged
Biggest changeFor the Years Ended December 31, 2022 2021 Variance % of % of Amount Revenues Amount Revenues Amount % of Revenues $ 8,818,312 100.0 % $ 10,822,514 100.0 % $ (2,004,202 ) -18.5 % Cost of revenues 5,467,017 62.0 % 5,634,737 52.1 % (167,720 ) -3.0 % Gross profit 3,351,295 38.0 % 5,187,777 47.9 % (1,836,482 ) -35.4 % Operating expenses: Selling expenses 2,826,615 32.0 % 296,778 2.7 % 2,529,837 852.4 % General and administrative expenses 6,579,734 74.6 % 4,321,241 39.9 % 2,258,493 52.3 % Research and development expenses 641,025 7.3 % 510,740 4.7 % 130,285 25.5 % Total operating expenses 10,047,374 113.9 % 5,128,759 47.3 % 4,918,615 95.9 % Income (loss) from operations (6,696,079 ) -75.9 % 59,018 0.6 % (6,755,097 ) -11,445.8 % Other income (expenses) 12,695 0.1 % (44,117 ) -0.4 % 56,812 -128.8 % Income (loss) before income tax provision (6,683,384 ) -75.8 % 14,901 0.2 % (6,698,285 ) -44,951.9 % Income tax expense (benefit) (5,918 ) -0.1 % 341,945 3.2 % (347,863 ) -101.7 % Net loss (6,677,466 ) -75.7 % (327,044 ) -3.0 % (6,350,422 ) 1,941.8 % Less: net income attributable to non-controlling interest - - 11,112 0.1 % (11,112 ) -100.0 % Net loss attributable to HeartCore Enterprises, Inc. $ (6,677,466 ) -75.7 % $ (338,156 ) -3.1 % $ (6,339,310 ) 1,874.7 % 70 For the Years Ended December 31, 2022 2021 Variance % of % of Amount Total Revenues Amount Total Revenues Amount % of Revenues Revenue from on-premise software $ 1,860,573 21.1 % $ 3,609,442 33.4 % $ (1,748,869 ) -48.5 % Revenue from maintenance and support services 2,962,325 33.6 % 3,616,918 33.4 % (654,593 ) -18.1 % Revenue from software as a service (“SaaS”) 500,461 5.7 % 617,026 5.7 % (116,565 ) -18.9 % Revenue from software development and other miscellaneous services 2,046,588 23.2 % 2,979,128 27.5 % (932,540 ) -31.3 % Revenue from consulting service 1,448,365 16.4 % - - 1,448,365 100.0 % Total revenues 8,818,312 100.0 % 10,822,514 100.0 % (2,004,202 ) -18.5 % Cost of revenues Costs of on-premise software 1,138,533 12.9 % 1,401,907 13.0 % (263,374 ) -18.8 % Costs of maintenance and support services 1,159,418 13.2 % 1,384,660 12.8 % (225,242 ) -16.3 % Costs of software as a service (“SaaS”) 241,756 2.7 % 275,104 2.5 % (33,348 ) -12.1 % Costs of software development and other miscellaneous services 2,003,127 22.7 % 2,573,066 23.8 % (569,939 ) -22.2 % Costs of consulting service 924,183 10.5 % - - 924,183 100.00 % Total cost of revenues 5,467,017 62.0 % 5,634,737 52.1 % (167,720 ) -3.0 % Gross profit On-premise software 722,040 8.2 % 2,207,535 20.3 % (1,485,495 ) -67.3 % Maintenance and support services 1,802,907 20.5 % 2,232,258 20.6 % (429,351 ) -19.2 % Software as a service (“SaaS”) 258,705 2.9 % 341,922 3.2 % (83,217 ) -24.3 % Software development and other miscellaneous services 43,461 0.5 % 406,062 3.8 % (362,601 ) -89.3 % Consulting service 524,182 5.9 % - - 524,182 100.0 % Total gross profit $ 3,351,295 38.0 % $ 5,187,777 47.9 % $ (1,836,482 ) -35.4 % Revenues Our total revenues decreased by $2,004,202, or 18.5%, to $8,818,312 for the year ended December 31, 2022 from $10,822,514 for the year ended December 31, 2021.
Biggest changeFor the Years Ended December 31, 2023 2022 Variance % of % of Amount Revenues Amount Revenues Amount % Revenues $ 21,845,830 100.0 % $ 8,818,312 100.0 % $ 13,027,518 147.7 % Cost of revenues 13,778,416 63.1 % 5,467,017 62.0 % 8,311,399 152.0 % Gross profit 8,067,414 36.9 % 3,351,295 38.0 % 4,716,119 140.7 % Operating expenses: Selling expenses 1,516,247 6.9 % 2,826,615 32.0 % (1,310,368 ) -46.4 % General and administrative expenses 9,651,381 44.2 % 6,579,734 74.6 % 3,071,647 46.7 % Research and development expenses 1,019,141 4.7 % 641,025 7.3 % 378,116 59.0 % Total operating expenses 12,186,769 55.8 % 10,047,374 113.9 % 2,139,395 21.3 % Loss from operations (4,119,355 ) -18.9 % (6,696,079 ) -75.9 % 2,576,724 -38.5 % Other income (expenses) (891,009 ) -4.0 % 12,695 0.1 % (903,704 ) -7,118.6 % Loss before income tax benefit (5,010,364 ) -22.9 % (6,683,384 ) -75.8 % 1,673,020 -25.0 % Income tax benefit (133,664 ) -0.6 % (5,918 ) -0.1 % (127,746 ) 2,158.6 % Net loss (4,876,700 ) -22.3 % (6,677,466 ) -75.7 % 1,800,766 -27.0 % Less: net loss attributable to non-controlling interest (686,810 ) -3.1 % - - (686,810 ) - 100.0 % Net loss attributable to HeartCore Enterprises, Inc. $ (4,189,890 ) -19.2 % $ (6,677,466 ) -75.7 % $ 2,487,576 -37.3 % For the Years Ended December 31, 2023 2022 Variance Amount % Amount % Amount % Revenues Revenues from on-premise software $ 1,586,218 7.3 % $ 1,860,573 21.1 % $ (274,355 ) -14.7 % Revenues from maintenance and support services 2,646,148 12.1 % 2,962,325 33.6 % (316,177 ) -10.7 % Revenues from software as a service (“SaaS”) 635,927 2.9 % 500,461 5.7 % 135,466 27.1 % Revenues from software development and other miscellaneous services 1,980,979 9.1 % 2,046,588 23.2 % (65,609 ) -3.2 % Revenues from customized software development and services 8,784,239 40.2 % - - 8,784,239 100.0 % Revenues from consulting services 6,212,319 28.4 % 1,448,365 16.4 % 4,763,954 328.9 % Total revenues 21,845,830 100.0 % 8,818,312 100.0 % 13,027,518 147.7 % Cost of revenues Costs of on-premise software 1,485,769 10.8 % 1,138,533 20.9 % 347,236 30.5 % Costs of maintenance and support services 1,024,059 7.4 % 1,159,418 21.2 % (135,359 ) -11.7 % Costs of software as a service (“SaaS”) 366,277 2.7 % 241,756 4.4 % 124,521 51.5 % Costs of software development and other miscellaneous services 1,655,461 12.0 % 2,003,127 36.6 % (347,666 ) -17.4 % Costs of customized software development and services 7,219,892 52.4 % - - 7,219,892 100.0 % Costs of consulting services 2,026,958 14.7 % 924,183 16.9 % 1,102,775 119.3 % Total cost of revenues 13,778,416 100 % 5,467,017 100.0 % 8,311,399 152.0 % Gross profit On-premise software 100,449 1 .3 % 722,040 21.5 % (621,591 ) -86.1 % Maintenance and support services 1,622,089 20.2 % 1,802,907 53.8 % (180,818 ) -10.0 % Software as a service (“SaaS”) 269,650 3.3 % 258,705 7.7 % 10,945 4.2 % Software development and other miscellaneous services 325,518 4.0 % 43,461 1.3 % 282,057 649.0 % Customized software development and services 1,564,347 19.4 % - - 1,564,347 100.0 % Consulting services 4,185,361 51.8 % 524,182 15.7 % 3,661,179 698.5 % Total gross profit $ 8,067,414 100.0 % $ 3,351,295 100.0 % $ 4,716,119 140.7 % 74 Revenues Our total revenues increased by $13,027,518, or 147.7%, to $21,845,830 for the year ended December 31, 2023 from $8,818,312 for the year ended December 31, 2022, mainly attributable to (i) the increased revenue of $4,763,954 from GO IPO consulting services as the Company obtained more IPO consulting customers in 2023 and received warrants from its customers as noncash consideration from consulting services; (ii) the increased revenue of $8,784,239 from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023; offset by (iii) the decrease of $274,355 in revenue from sales of on-premise software, primarily due to the weak performance of a significant distributor and approximately 8% depreciation of Yen in the current period; and (iv) the decrease of $316,177 in revenue from maintenance and support services, as some clients canceled their maintenance service contracts, and approximately 8% depreciation of Yen.
Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. References herein to “we,” “us” or the “Company” refers to HeartCore Enterprises, Inc. and its consolidated subsidiaries, including, but not limited to, HeartCore Co., Ltd. (“HeartCore Co.”), HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), HeartCore Financial, Inc.
Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. References herein to “we,” “us” or the “Company” refers to HeartCore Enterprises, Inc. and its consolidated subsidiaries, including, but not limited to, HeartCore Co., Ltd. (“HeartCore Co.”) and its subsidiary, HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), HeartCore Financial, Inc.
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“U.S.
Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“U.S.
Although our company has been in existence for less than two years, our wholly owned operating subsidiary, HeartCore Co. operated throughout the pandemic and continues to operate after the pandemic. HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and post-pandemic that are beyond our control.
Although our company has been in existence for less than three years, our wholly owned operating subsidiary, HeartCore Co. operated throughout the pandemic and continues to operate after the pandemic. HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and post-pandemic that are beyond our control.
There is an insignificant impact (below 5%) on our net retention rate as to former paying customers of our CMS business utilizing the free version of your CXM Platform. COVID-19 Affecting Our Results of Operations On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.
There is an insignificant impact (below 10%) on our net retention rate as to former paying customers of our CMS business utilizing the free version of your CXM Platform. COVID-19 Affecting Our Results of Operations On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.
To the extent the pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section, including, in particular, risks related to our dependence on customer renewals, the addition of new customers and increased revenue from existing customer, risks that our operating results could be negatively affected by changes in the sizes or types of businesses that purchase our platform and the risk that weakened global economic conditions may harm our industry, business and results of operations. 77 Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of December 31, 2022.
To the extent the pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section, including, in particular, risks related to our dependence on customer renewals, the addition of new customers and increased revenue from existing customer, risks that our operating results could be negatively affected by changes in the sizes or types of businesses that purchase our platform and the risk that weakened global economic conditions may harm our industry, business and results of operations. 81 Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of December 31, 2023.
We also provide education, services and support to help customers be successful with our CXM Platform. The second business unit is a digital transformation business which provides customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises.
We also provide education, services and support to help customers be successful with our CXM Platform. The second business unit, our DX division, is a digital transformation business which provides customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises.
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions.
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions in Japan.
Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. Our net retention rate for our paying customers of our customer experience management business unit (CMS business) was 92%, 95% and 95% as of December 31, 2022, 2021 and 2020, respectively.
Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. Our net retention rate for our paying customers of our customer experience management business unit (CMS business) was 88%, 92%, and 95% as of December 31, 2023, 2022, and 2021, respectively.
Our ability to drive the productivity of our staff and enhance our operating efficiency affects our profitability. 68 Our Ability to Manage and Retain Customer Renewals Our ability to manage and retain customer renewals is vital to our expansion of renewals in our customer base and continuous and growing revenue.
Our ability to drive the productivity of our staff and enhance our operating efficiency affects our profitability. 72 Our Ability to Manage and Retain Customer Renewals Our ability to manage and retain customer renewals is vital to our expansion of renewals in our customer base and continuous and growing revenue.
(HeartCore Financial”), and Sigmaways, Inc. (“Sigmaways”). HeartCore Financial was incorporated in January 2023. HeartCore Capital Advisors was incorporated in February 2023. The acquisition of Sigmaways was closed in February 2023. Business Overview We are a leading software development company based in Tokyo, Japan. We provide software through two business units.
(“HeartCore Financial”), and Sigmaways, Inc. (“Sigmaways”) and its subsidiaries. HeartCore Financial was incorporated in January 2023. HeartCore Capital Advisors was incorporated in February 2023. The acquisition of Sigmaways and its subsidiaries was closed in February 2023. Business Overview We are a leading software development company based in Tokyo, Japan. We provide software through two business units.
In addition, an increase in the number of competitors may have an impact on the business. 69 Results of Operations Comparison of Results of Operations for the Fiscal Years Ended December 31, 2022 and 2021 The following table summarizes our operating results as reflected in our statements of operations during the fiscal years ended December 31, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
In addition, an increase in the number of competitors may have an impact on the business. 73 Results of Operations Comparison of Results of Operations for the Fiscal Years Ended December 31, 2023 and 2022 The following table summarizes our operating results as reflected in our statements of operations during the fiscal years ended December 31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
As of December 31, 2022, our sales and marketing organization was comprised of 14 employees, including our field sales organization, which maintains a physical sales presence in the Japanese software market. 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 December 31, 2023, 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 market. Using our go-to-market strategy, we believe we have made significant contributions in Japan and have established a diversified revenue and customer base.
Investing Activities Net cash used in investing activities amounted to $12,200 for the year ended December 31, 2022, and included the purchases of fixed assets of $57,071, offset by the repayment of $44,871 of loan provided to related party.
Net cash used in investing activities amounted to $12,200 for the year ended December 31, 2022, primarily consisted of the purchases of fixed assets of $57,071, offset by the repayment of $44,871 of loan provided to related party .
The first business unit includes a customer experience management business that has been in existence for 12 years. Our customer experience management platform (the “CXM Platform”) includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience.
The first business unit, our CX division, includes a customer experience management business (the “CXM Platform”) that has been in existence for 14 years. Our CXM Platform includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience.
During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.
During 2022, we started the GO IPO business, which supports Japanese companies listing on Nasdaq and NYSE in the United States.
As a percentage of revenues, general and administrative expenses were 74.6% and 39.9% of our revenues for the fiscal years ended December 31, 2022 and 2021, respectively. Research and Development Expenses Our research and development expenses primarily consist of employee salaries and welfare, outsourcing expenses, and stock-based compensation.
As a percentage of revenues, general and administrative expenses were 44.2% and 74.6% of our revenues for the fiscal years ended December 31, 2023 and 2022, respectively. Research and Development Expenses Our research and development expenses primarily consist of employee salaries and welfare expenses, outsourcing expenses, and stock-based compensation.
As of March 30, 2023, we have entered into consulting agreements with nine companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranges from $350,000 to $900,000 and warrants or Japanese acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 per share.
As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.
As of March 30, 2023, we have entered into consulting agreements with nine companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranges from $350,000 to $900,000 and warrants or Japanese acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 per share.
As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.
As a percentage of revenues, our selling expenses accounted for 32.0% and 2.7% of our total revenues for the years ended December 31, 2022 and 2021, respectively. 72 General and Administrative Expenses Our general and administrative expenses primarily consist of employee salaries and welfare, consulting and professional service fees, depreciation expense, rent expense, office, utility and other expenses, bad debt expense, travel and entertainment expense, and stock-based compensation.
As a percentage of revenues, our selling expenses accounted for 6.9% and 32.0% of our total revenues for the years ended December 31, 2023 and 2022, respectively. 76 General and Administrative Expenses Our general and administrative expenses primarily consist of employee salaries and welfare expenses, consulting and professional service fees, depreciation and amortization expenses, rent expense, office, utility and other expenses, travel and entertainment expenses, and stock-based compensation.
Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application.
Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies reflect the more significant judgments and estimates used in preparation of our consolidated financial statements.
As a percentage of revenues, research and development expenses were 7.3% and 4.7% of our revenues for the fiscal years ended December 31, 2022 and 2021, respectively. 73 Other Income (Expenses), Net Our other income (expenses) primarily includes interest income generated from bank deposits, interest expense for bank loans, bonds, and leases, other income, and other expenses.
As a percentage of revenues, research and development expenses were 4.7% and 7.3% of our revenues for the fiscal years ended December 31, 2023 and 2022, respectively. 77 Other Income (Expenses), Net Our other income (expenses) primarily includes changes in fair value of investments in marketable securities, changes in fair value of investment in warrants, interest income generated from bank deposits, interest expense for bank loans, bonds, and leases, government grants, other income, and other expenses.
As of December 31, 2022, our combined business units (customer experience management business unit and digital transformation business unit) had 903 total customers in Japan, of which 645, or 71.4%, were paying customers and 24 total customers outside Japan, of which 2, or 0.2%, was a paying customer.
As of December 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 949 total customers in Japan, of which 691, or 72.8%, were paying customers, and 24 total customers outside Japan, of which 1, or 0.1%, was a paying customer.
While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown.
The effects of the COVID-19 pandemic are still impacting the global economy as well as our operations. The duration and extent of this impact depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions. The lasting effects of the pandemic continue to be unknown.
We also have an ongoing technology innovation team to develop software that supports the narrow needs of large enterprise customers.
We also have an ongoing technology innovation team to develop software that supports the narrow needs of large enterprise customers. We have made significant investments in our sales and marketing efforts globally.
Financing Activities Net cash provided by financing activities amounted to $8,915,341 for the fiscal year ended December 31, 2022, primarily consisting of proceeds of $13,823,126 from the initial public offering and issuance of common shares prior to the initial public offering, proceeds of $258,087 from long-term debt, offset by payment for mandatorily redeemable financial interest of $430,489, payment for repurchase of common shares of $3,500,000, repayment of long-term debts of $810,750, and repayment of insurance premium financing of $388,538. 75 Net cash used in financing activities amounted to $257,353 for the fiscal year ended December 31, 2021, primarily consisting of repayment of long-term debts of $878,625 and repayment of finance lease obligations (principal) of $53,640, offset by proceeds from issuance of common shares of $677,945.
Financing Activities Net cash provided by financing activities amounted to $136,194 for the fiscal year ended December 31, 2023, primarily consisted of proceeds of $710,107 from short-term and long-term debts, and net proceeds of $562,767 from factoring arrangement, offset by repayment of $711,395 for long-term debts, and repayment of 389,035 for insurance premium financing. 79 Net cash provided by financing activities amounted to $8,915,341 for the fiscal year ended December 31, 2022, primarily consisting of proceeds of $13,823,126 from the initial public offering and issuance of common shares prior to the initial public offering, proceeds of $258,087 from long-term debt, offset by payment for mandatorily redeemable financial interest of $430,489, payment for repurchase of common shares of $3,500,000, repayment of long-term debts of $810,750, and repayment of insurance premium financing of $388,538.
For existing customers, the pandemic had no impact on the use of our software; for new customers in the travel, hotel, airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders. However, although the pandemic is coming to an end, it will take some time before the economy is fully normalized.
For existing customers, the pandemic had no impact on the use of our software; for new customers in the travel, hotel, airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders.
Contractual Obligations Lease Commitment The 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, one of which was terminated in June 2022, and a lease for a vehicle, and these leases were classified as finance leases.
Contractual Obligations Lease Commitment The Company has entered into four leases for its office space, which were classified as operating leases. It has also entered into a lease for office equipment, and two leases for vehicles, one of which was terminated in September 2023, and these leases were classified as finance leases.
As of December 31, 2022, future minimum loan payments are as follows: Loan Year Ended December 31, Payment 2023 $ 713,692 2024 442,486 2025 253,866 2026 230,993 2027 189,544 Thereafter - Total $ 1,830,581 COVID-19 In December 2019, a novel coronavirus disease (“COVID-19”) was reported to have surfaced in Wuhan, China, and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.
As of December 31, 2023, future minimum payments for long-term debts are as follows: Loan Year Ended December 31, Payment 2024 $ 376,639 2025 442,568 2026 393,011 2027 421,900 2028 189,783 Thereafter 336,472 Total $ 2,1 60 ,3 73 COVID-19 In December 2019, a novel coronavirus disease (“COVID-19”) was reported to have surfaced in Wuhan, China, and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $6,677,466 for the fiscal year ended December 31, 2022, representing a $6,339,310 or 1,874.7% increase from a net loss of $338,156 for the fiscal year ended December 31, 2021.
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $4,189,890 for the fiscal year ended December 31, 2023, representing a $2,487,576 or 37.3% decrease from a net loss of $6,677,466 for the fiscal year ended December 31, 2022.
On September 6, 2022, HeartCore Enterprises, Inc. entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51% of the outstanding shares of Sigmaways, a company incorporated under the laws of the State of California and is engaged in the business of developing and sales of software in the United States. The acquisition closed on February 1, 2023.
Sumitaka Yamamoto, our CEO, in 2009. On September 6, 2022, HeartCore Enterprises, Inc. entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51% of the outstanding shares of Sigmaways, a company incorporated under the laws of the State of California, and its wholly owned subsidiaries.
Net Loss As a result of the foregoing, we reported a net loss of $6,677,466 for the fiscal year ended December 31, 2022, representing a $6,350,422 or 1,941.8% increase from a net loss of $327,044 for the fiscal year ended December 31, 2021.
Net Loss As a result of the foregoing, we reported a net loss of $4,876,700 for the fiscal year ended December 31, 2023, representing a $1,800,766 or 27.0% decrease from a net loss of $6,677,466 for the fiscal year ended December 31, 2022.
This results in even lower sales in 2022 than in 2021. Regarding the impact of the pandemic on the DX sector, demand for our DX software increased as large companies were forced to change their work patterns, forcing employees to work remotely.
Regarding the impact of the pandemic on the DX sector, demand for our DX software increased as large companies were forced to change their work patterns, forcing employees to work remotely. During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.
For the reasons discussed above, our overall gross profit margin decreased by 9.9% to 38.0% for the year ended December 31, 2022 from 47.9% in the fiscal year 2021. 71 Operating Expenses The following table sets forth the breakdown of our operating expenses for the fiscal years ended December 31, 2022 and 2021: For the Years Ended December 31, 2022 2021 Variance % of % of Amount Revenues Amount Revenues Amount % of Total revenues $ 8,818,312 100.0 % $ 10,822,514 100.0 % $ (2,004,202 ) -18.5 % Operating expenses: Selling expenses 2,826,615 32.0 % 296,778 2.7 % 2,529,837 852.4 % General and administrative expenses 6,579,734 74.6 % 4,321,241 39.9 % 2,258,493 52.3 % Research and development expenses 641,025 7.3 % 510,740 4.7 % 130,285 25.5 % Total operating expenses $ 10,047,374 113.9 % $ 5,128,759 47.3 % $ 4,918,615 95.9 % Selling Expenses Our selling expenses primarily include advertising expenses, sales commissions, sales promotion expenses, and stock-based compensation.
For the reasons discussed above, our overall gross profit margin decreased by 1.1% to 36.9% for the year ended December 31, 2023 from 38.0% in the fiscal year 2022. 75 Operating Expenses The following table sets forth the breakdown of our operating expenses for the fiscal years ended December 31, 2023 and 2022: For the Years Ended December 31, 2023 2022 Variance % of % of Amount Revenues Amount Revenues Amount % of Total revenues $ 21,845,830 100.0 % $ 8,818,312 100.0 % $ 13,027,518 147.7 % Operating expenses: Selling expenses 1,516,247 6.9 % 2,826,615 32.0 % (1,310,368 ) -46.4 % General and administrative expenses 9,651,381 44.2 % 6,579,734 74.6 % 3,071,647 46.7 % Research and development expenses 1,019,141 4.7 % 641,025 7.3 % 378,116 59.0 % Total operating expenses $ 12,186,769 55.8 % $ 10,047,374 113.9 % $ 2,139,395 21.3 % Selling Expenses Our selling expenses primarily include advertising expenses, sales commissions, sales promotion expenses, and stock-based compensation.
In assessing our liquidity, management monitors and analyzes our cash, our ability to generate sufficient revenues in the future, and our operating and capital expenditure commitments. 74 Cash Flows for the Years Ended December 31, 2022 and 2021 The following table sets forth summary of our cash flows for the periods indicated: For the Years Ended December 31, 2022 2021 Net cash provided by (used in) operating activities $ (4,808,547 ) $ 766,300 Net cash used in investing activities (12,200 ) (179,029 ) Net cash provided by (used in) financing activities 8,915,341 (257,353 ) Effect of exchange rate changes (54,107 ) (251,254 ) Net increase in cash and cash equivalents 4,040,487 78,664 Cash and cash equivalents, beginning of the year 3,136,839 3,058,175 Cash and cash equivalents, end of the year $ 7,177,326 $ 3,136,839 Operating Activities Net cash used in operating activities was $4,808,547 for the year ended December 31, 2022, primarily consisting of the following: ● Net loss of $6,677,466 for the fiscal year. ● A decrease of $283,921 in operating lease liabilities, due to the rent payment made. ● Offset by non-cash lease expense of $273,836. ● Offset by stock-based compensation of $1,519,743, as we granted equity rewards to our employees in 2022. ● Offset by a decrease in accounts receivable of $296,835.
In assessing our liquidity, management monitors and analyzes our cash, our ability to generate sufficient revenues in the future, and our operating and capital expenditure commitments. 78 Cash Flows for the Years Ended December 31, 2023 and 2022 The following table sets forth summary of our cash flows for the periods indicated: For the Years Ended December 31, 2023 2022 Net cash used in operating activities $ (4,331,209 ) $ (4,808,547 ) Net cash used in investing activities (1,780,952 ) (12,200 ) Net cash provided by financing activities 136,194 8,915,341 Effect of exchange rate changes (188,880 ) (54,107 ) Net change in cash and cash equivalents (6,164,847 ) 4,040,487 Cash and cash equivalents, beginning of the year 7,177,326 3,136,839 Cash and cash equivalents, end of the year $ 1,012,479 $ 7,177,326 Operating Activities Net cash used in operating activities was $4,331,209 for the year ended December 31, 2023, primarily consisting of the following: ● Net loss of $4,876,700 for the fiscal year. ● Warrants received as non-cash consideration of $3,763,621 as our IPO consulting customers completed the IPO during the current period. ● An increase in accounts receivable of $338,312.
For the fiscal years ended December 31, 2022 and 2021, we generated revenues of $8,818,312 and $10,822,514, respectively, and reported net loss of $6,677,466 and $327,044, respectively, and cash flows used in operating activities of $4,808,547 and cash flows from operating activities of $766,300, respectively.
For the fiscal years ended December 31, 2023 and 2022, we generated revenues of $21,845,830 and $8,818,312, respectively, and reported net loss of $4,876,700 and $6,677,466, respectively, and cash flows used in operating activities of $4,331,209 and $4,808,547, respectively. As noted in our consolidated financial statements, as of December 31, 2023, we had an accumulated deficit of $14,763,469.
Accordingly, we did not record non-controlling interest income in the year ended December 31, 2022. Net Loss attributable to HeartCore Enterprises, Inc.
Net Loss Attributable to Non-controlling Interest We owned 51% equity ownership interest of Sigmaways and its subsidiaries as of December 31, 2023. Accordingly, we recorded net loss attributable to the non-controlling interest of $686,810 in the year ended December 31, 2023 . Net Loss Attributable to HeartCore Enterprises, Inc.
As of December 31, 2022, our combined business units (customer experience management business unit and digital transformation business unit) had 903 total customers in Japan. We were incorporated in the State of Delaware on May 18, 2021.
As of December 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 949 total customers in Japan, of which 691, or 72.8%, were paying customers and 24 total customers outside Japan, of which 1, or 0.1%, was a paying customer.
Liquidity and Capital Resources As of December 31, 2022, we had $7,177,326 in cash as compared to $3,136,839 as of December 31, 2021. We also had $551,064 in accounts receivable as of December 31, 2022. Our accounts receivable primarily include balance due from customers for our on-premise software sold and services provided and accepted by customers.
Our accounts receivable primarily include balance due from customers for our on-premise software sold and services provided and accepted by customers, as well as amounts billable to the customers for customized software development and services. As of December 31, 2023, our working capital deficit was $1,016,662.
For the Years Ended December 31, 2022 2021 Variance Amount % of Amount % of Amount % of Research and development expenses Salaries and welfare $ 29,681 4.6 % $ 82,739 16.2 % $ (53,058 ) -64.1 % Outsourcing expenses 601,583 93.9 % 428,001 83.8 % 173,582 40.6 % Stock-based compensation 9,761 1.5 % - - 9,761 100.0 % Total research and development expenses $ 641,025 100.0 % $ 510,740 100.0 % $ 130,285 25.5 % Our research and development expenses increased by $130,285, or 25.5%, to $641,025 in the fiscal year ended December 31, 2022 from $510,740 in the fiscal year ended December 31, 2021, primarily attributable to an increase in outsourcing expenses relating to development of a high quality 12K VR camera and related data compression system .
For the Years Ended December 31, 2023 2022 Variance Amount % of Amount % of Amount % of Research and development expenses Salaries and welfare expenses $ - - $ 29,681 4.6 % $ (29,681 ) -100.0 % Outsourcing expenses 958,830 94.1 % 601,583 93.9 % 357,247 59.4 % Stock-based compensation 60,311 5.9 % 9,761 1.5 % 50,550 517.9 % Total research and development expenses $ 1,019,141 100.0 % $ 641,025 100.0 % $ 378,116 59.0 % Our research and development expenses increased by $378,116 or 59.0%, to $1,019,141 in the fiscal year ended December 31, 2023 from $641,025 in the fiscal year ended December 31, 2022, primarily attributable to an increase of $357,247 in outsourcing expenses relating to the development of new CMS management screen features in the current period and additional R&D expenses incurred by Sigmaways to support its customized software development and services .
As of December 31, 2022, future minimum lease payments under the non-cancelable lease agreements are as follows: Year Ended December 31, Finance Leases Operating Leases 2023 $ 19,476 $ 316,847 2024 286 316,847 2025 - 316,847 2026 - 316,847 2027 - 316,847 Thereafter - 1,304,581 Total lease payments 19,762 2,888,816 Less: imputed interest (9 ) (175,899 ) Total lease liabilities 19,753 2,712,917 Less: current portion 19,294 291,863 Non-current lease liabilities $ 459 $ 2,421,054 76 Long-Term Debt s The Company’s long-term debts included bonds payable and loans borrowed from banks and other financial institutions.
As of December 31, 2023, future minimum lease payments under the non-cancelable lease agreements are as follows: Year Ended December 31, Finance Leases Operating Leases 2024 $ 18,819 $ 427,774 2025 18,555 404,244 2026 18,555 339,188 2027 18,555 292,720 2028 12,370 292,720 Thereafter - 912,521 Total lease payments 86,854 2,669,167 Less: imputed interest (2,630 ) (137,472 ) Total lease liabilities 84,224 2,531,695 Less: current portion (17,445 ) (396,535 ) Non-current lease liabilities $ 66,779 $ 2,135,160 80 Debt s The Company’s debts included short-term debt and long-term debts borrowed from banks and other financial institutions.
Income Tax Expense (Benefit) Income tax benefit was $5,918 for the year ended December 31, 2022, a decrease of $347,863, or 101.7% from income tax expense of $341,945 in the fiscal year 2021, primarily due to the increase in net loss before tax and decrease in deferred tax expense in the fiscal year ended December 31, 2022.
Income Tax Benefit Income tax benefit was $133,664 for the year ended December 31, 2023, an increase of $127,746, or 2,158.6% from income tax benefit of $5,918 in the fiscal year 2022, primarily due to the increase in deferred income tax benefit brought by the amortization of intangible asset acquired as a result of Sigmaways during the current year.
Cost of Revenues Our total costs of revenues slightly decrease by $167,720, or 3.0%, to $5,467,017 for the year ended December 31, 2022 from $5,634,737 for the year ended December 31, 2021, in light of the decrease in sales of on-promise software and software development, but less proportionally due to fixed software maintenance fee, offset by the costs related to the consulting services .
Cost of Revenues Our total costs of revenues increased by $8,311,399, or 152.0%, to $13,778,416 for the year ended December 31, 2023 from $5,467,017 for the year ended December 31, 2022, in light of the increase in sales in GO IPO consulting services and customized software development and services, offset by the overall decrease in software development and other services, because the Company conducted several complex software development projects to meet customer requirements in 2022, while no such projects in 2023.
For the Years Ended December 31, 2022 2021 Variance Amount % of Amount % of Amount % of Selling expenses Advertising expenses $ 1,902,942 67.3 % $ 195,916 66.0 % $ 1,707,026 871.3 % Sales commissions 122,797 4.3 % 99,789 33.6 % 23,008 23.1 % Sales promotion expenses 16,017 0.6 % 1,073 0.4 % 14,944 1,392.7 % Stock-based compensation 784,859 27.8 % - - 784,859 100.0 % Total selling expenses $ 2,826,615 100.0 % $ 296,778 100.0 % $ 2,529,837 852.4 % Our selling expenses increased by $2,529,837, or 852.4%, to $2,826,615 for the year ended December 31, 2022 from $296,778 in the fiscal year 2021, primarily attributable to (i) an increase in advertising expenses by $1,707,026, or 871.3%, to $1,902,942 for the year ended December 31, 2022 from $195,916 in the fiscal year 2021, because the U.S. parent company launched advertising activities to increase its visibility in the U.S after the Company going public in the U.S. in early 2022, and to promot e newly established consulting services in Japan.
For the Years Ended December 31, 2023 2022 Variance Amount % of Amount % of Amount % of Selling expenses Advertising expenses $ 832,491 54.9 % $ 1,902,942 67.3 % $ (1,070,451 ) -56.3 % Sales commissions 119,736 7.9 % 122,797 4.3 % (3,061 ) -2.5 % Sales promotion expenses 2,931 0.2 % 16,017 0.6 % (13,086 ) -81.7 % Stock-based compensation 561,089 37.0 % 784,859 27.8 % (223,770 ) -28.5 % Total selling expenses $ 1,516,247 100.0 % $ 2,826,615 100.0 % $ (1,310,368 ) -46.4 % Our selling expenses decreased by $1,310,368, or 46.4%, to $1,516,247 for the year ended December 31, 2023 from $2,826,615 in the fiscal year 2022, primarily attributable to a decrease of $1,070,451 in advertising expenses, as the Company spent heavily on investor relations and public relations in the U.S. immediately after listing in Nasdaq in early 2022, and a decrease of $223,770 in stock-based compensation, as the Company granted stock options to certain sales staff in 2022, who were promoted to executive management in 2023, therefore the corresponding stock-based compensation was classified to general and administrative expenses.
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions. In the first quarter of 2023, we formed HeartCore Financial and HeartCore Capital Advisors as a part of our Go IPO consulting business. 67 We have made significant investments in our sales and marketing efforts globally.
Sigmaways and its wholly owned subsidiaries are engaged in the business of developing and sales of software in the United States. The acquisition was closed on February 1, 2023. In the first quarter of 2023, we formed HeartCore Financial in the U.S. and HeartCore Capital Advisors in Japan, as a part of our Go IPO consulting business.
Removed
We conduct business activities principally through our majority-owned subsidiary, HeartCore Co., Ltd., a Japanese corporation (“HeartCore Co.”), which was established in Japan by Mr. Sumitaka Yamamoto, our CEO, in 2009 and acquired by us in July 2021. HeartCore Co. started out with helping companies effectively managing content with its powerful content management system.
Added
Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. There is the potential for non-paying customers to become paying customers again if and when they start utilizing our paid services again.
Removed
Since then, HeartCore Co. has expanded offerings to help companies manage all forms of business processes. The acquisition of HeartCore Co. 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.
Added
The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions in Japan. 71 We were incorporated in the State of Delaware on May 18, 2021. We conduct business activities principally through our wholly owned subsidiary, HeartCore Co., a Japanese corporation, which was established in Japan by Mr.
Removed
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.
Added
In the fourth quarter of 2023, we formed HeartCore Luvina Vietnam Company Limited in Vietnam, which is engaged in the business of software development.
Removed
As noted in our consolidated financial statements, as of December 31, 2022, we had an accumulated deficit of $10,573,579.
Added
The decrease was also caused by approximately 8% depreciation of Yen.
Removed
The decrease in our revenues was attributable to (i) the decrease of $1,748,869 in revenue from sales of on-premise software, because an important customer that purchased a CXM 5-year use license in 2016 renewed their CXM 5-year use license again in 2021 for $1,157,517, and no such large amount license sales revenue in 2022; (ii) the decrease of $932,540 in revenue from software development and other miscellaneous services, as the CMS constructions decreased with the slump in CMS license orders; (iii) the ongoing depreciation of Japanese Yen in 2022 contributed to our revenue decrease; offset by (iv) the revenue of $1,448,365 from newly established consulting services in 2022.
Added
Gross Profit Our total gross profit increased by $4,716,119, or 140.7%, to $8,067,414 for the year ended December 31, 2023 from $3,351,295 for the year ended December 31, 2022, mainly attributable to (i) an increased gross profit of $1,564,347 from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023; (ii) an increased gross profit of $3,661,179 from GO IPO consulting services, as we recognized revenue from the warrants of the customers upon customers’ IPO effectiveness in current year, while no corresponding cost for such revenue recognized; offset by (iii) a decrease of $621,591 in sale of on-premises software due to lower volume in sale and higher costs to purchase valuable licenses in the current period.
Removed
Gross Profit Our total gross profit decreased by $1,836,482, or 35.4%, to $3,351,295 for the year ended December 31, 2022 from $5,187,777 for the year ended December 31, 2021.
Added
For the Years Ended December 31, 2023 2022 Variance Amount % of Amount % of Amount % of General and administrative expenses Salaries and welfare expenses $ 4,532,749 47.0 % $ 2,924,547 44.4 % $ 1,608,202 55.0 % Consulting and professional service fees 1,520,176 15.8 % 1,629,622 24.8 % (109,446 ) -6.7 % Depreciation and amortization expenses 666,721 6.9 % 76,924 1.2 % 589,797 766.7 % Rent expense 302,844 3.1 % 184,179 2.8 % 118,665 64.4 % Office, utility and other expenses 1,505,981 15.6 % 836,609 12.7 % 669,372 80.0 % Travel and entertainment expenses 359,105 3.7 % 299,655 4.6 % 59,450 19.8 % Stock-based compensation 763,805 7.9 % 628,198 9.5 % 135,607 21.6 % Total general and administrative expenses $ 9,651,381 100.0 % $ 6,579,734 100.0 % $ 3,071,647 46.7 % Our general and administrative expenses increased by $3,071,647 or 46.7%, to $9,651,381 for the year ended December 31, 2023 from $6,579,734 in the fiscal year 2022, primarily attributable to (i) an increase of $1,608,202 in salaries and welfare expenses due to increased remuneration for executive officers and additional staff employed by Sigmaways and its subsidiaries; (ii) an increase of $589,797 in depreciation and amortization expenses, an increase of 669,372 in office, utility and other expenses, and an increase of $118,665 in rent expense, mostly due to the acquisition of Sigmaways and its subsidiaries as well as the overall business expansion; and (iii) an increase of $135,607 in stock-based compensation, as certain sales staff were promoted to executive management, and their stock-based compensation was reclassified from selling expenses in 2022 to general and administrative expenses in 2023.
Removed
The decrease in our gross profit was attributable to the decrease in the gross profit from sales of on-premise software and related maintenance and development services, offset by the gross profit from newly established consulting services in 2022 .
Added
Total other expenses, net, increased by $903,704 or 7,118.6%, from other income, net, of $12,695 for the year ended December 31, 2022 to other expenses, net, of $891,009 for the year ended December 31, 2023, primarily attributable to an increase of $615,520 in loss on fair value changes in investments in marketable securities and an increase of $501,445 in loss on fair value changes in investment in warrants, offset by an increase of $309,015 in other income, primarily due to the penalty payment that we received from certain customers in the current period.
Removed
We also increased selling activities to expand the software business in Japan, such as attending software exhibitions ; (ii) an increase of $784,859 in stock-based compensation, as our sales staffs were awarded options to purchase the Company’s common stock.
Added
Liquidity and Capital Resources As of December 31, 2023, we had $1,012,479 in cash as compared to $7,177,326 as of December 31, 2022. We also had $2,623,682 in accounts receivable as of December 31, 2023.
Removed
For the Years Ended December 31, 2022 2021 Variance Amount % of Amount % of Amount % of General and administrative expenses Salaries and welfare $ 2,924,547 44.4 % $ 2,306,544 53.4 % $ 618,003 26.8 % Consulting and professional service fees 1,629,622 24.8 % 1,164,355 26.9 % 465,267 40.0 % Depreciation expense 76,924 1.2 % 102,409 2.4 % (25,485 ) -24.9 % Rent expense 184,179 2.8 % 219,918 5.1 % (35,739 ) -16.3 % Office, utility and other expenses 836,609 12.7 % 297,614 6.9 % 538,995 181.1 % Bad debt expense - - 80,879 1.9 % (80,879 ) -100.0 % Travel and entertainment expense 299,655 4.6 % 130,735 3.0 % 168,920 129.2 % Stock-based compensation 628,198 9.5 % 18,787 0.4 % 609,411 100.0 % Total general and administrative expenses $ 6,579,734 100.0 % $ 4,321,241 100.0 % $ 2,258,493 52.3 % Our general and administrative expenses increased by $2,258,493 or 52.3%, to $6,579,734 for the year ended December 31, 2022 from $4,321,241 in the fiscal year 2021, primarily attributable to (i) an increase of $465,267 in consulting and professional fees, as we incurred more audit fees, legal fees, and filing fees to satisfy the SEC filing requirements as we got listed in the Nasdaq in February 2022, and customer referral and attraction related expenses related to newly established GO IPO consulting services; (ii) an increase of $618,003 in salaries and welfare, as all our employees received significant salary raise in February 2022, and newly employed staffs for US operation; (iii) an increase of $609,411 in stock-based compensation, as the Company awarded options to the employees in 2022; (iv) an increase of $538,995 in office, utility and other expenses, mainly because we entered into D&O insurance policy and incurred insurance expense in 2022.
Added
The increase was primarily due to the increase in our sales generated by our newly acquired subsidiary, Sigmaways .
Removed
Total other income (expenses), net, increased by $56,812 or -128.8%, from other expenses, net, $44,117 for the year ended December 31, 2021 to other income, net, $12,695 for the year ended December 31, 2022, primarily attributable to an increase of interest income of $60,008, due to the increase in cash balance deposited in bank and the interest rate increased significantly in the fiscal year ended December 31, 2022.
Added
The collected accounts receivable is available cash, which can be used as working capital for our business operation, if necessary. ● A decrease of $327,877 in operating lease liabilities, due to the rent payment made. ● Offset by stock-based compensation of $1,430,513, as we granted equity rewards to our employees and service providers in 2023. ● Offset by a loss of $615,520 from the changes in fair value of investments in marketable securities. ● Offset by a loss of $501,445 from the changes in fair value of investment in warrants. ● Offset by depreciation and amortization expenses of $683,019, mainly because we acquired Sigmaways and its subsidiaries on February 1, 2023, and recognized amortization expense for the intangible asset identified through the acquisition . ● Offset by an increase of $532,790 in accounts payable and accrued expenses as we incurred more operating expenses due to the expansion of our business . ● Offset by an increase in deferred revenue of $553,130, due to the upfront payment received for IPO consulting services while most IPO customer were not declared IPO effective as of the balance sheet date. ● Offset by non-cash lease expense of $346,070.
Removed
Net Income attributable to Non-controlling Interest We owned 97.35% of the outstanding shares of the operation subsidiary, HeartCore Co, which located in Japan, as of December 31, 2021. Accordingly, we recorded net income attributable to the non-controlling interest. The net income attributable to non-controlling interest was $11,112 in the year ended December 31, 2021 .
Added
Net cash used in operating activities was $4,808,547 for the year ended December 31, 2022, primarily consisting of the following: ● Net loss of $6,677,466 for the fiscal year. ● A decrease of $283,921 in operating lease liabilities, due to the rent payment made . ● Offset by non-cash lease expense of $273,836. ● Offset by stock-based compensation of $1,519,743, as we granted equity rewards to our employees in 2022. ● Offset by a decrease in accounts receivable of $296,835.
Removed
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.
Added
The deferred revenue increased as a result of newly established consultant services in 2022 .
Removed
The Company has determined such shares to be a mandatorily redeemable financial instrument and is recorded as a liability of JPY50,040,000 (approximately $448,000) in the consolidated balance sheet as of December 31, 2021. The Company did not recognize any net income attributable to non-controlling interest since then.
Added
Investing Activities Net cash used in investing activities amounted to $1,780,952 for the year ended December 31, 2023, primarily consisted of (i) payment for acquisition of Sigmaways and its subsidiaries, net of cash acquired, of $724,910; (ii) advances on notes receivable of $600,000; and (iii) purchases of property and equipment of $ 526,260 .
Removed
As of December 31, 2022, our working capital was $4,887,444.
Added
Although the effects of the pandemic are decreasing, we feel it will take additional time before the economy is fully normalized. In addition, the Japanese yen was weakening, so that sales in dollar terms in 2023 were slightly lower than in 2022.
Removed
The deferred revenue increased as a result of newly established consultant services in 2022. Net cash provided by operating activities was $766,300 for the year ended December 31, 2021, primarily consisting of the following: ● Net loss of $327,044 for the fiscal year. ● An increase in accounts payable and accrued expenses of $553,009.
Added
Our accounting policies are discussed in detail in the footnotes to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2023. However, we consider our critical accounting policies to be those related to revenue recognition and business combination.
Removed
The increase was mainly due to the increase in accrued listing-related expense and accrued software development outsourcing expense. ● Depreciation expenses of $105,394. ● An increase in deferred revenue of $304,536. We request upfront payment for service provided over a period of time. The deferred revenue increased as the sales increased.
Added
Our critical accounting estimates include the estimates used in the purchase price allocation of the Company’s business combination.
Removed
Net cash used in investing activities amounted to $179,029 for the year ended December 31, 2021, and included the purchases of fixed assets of $36,153, and advance and loan provided to related parties of $142,876.
Added
Business Combination We account for business combination using the acquisition method, which requires management to estimate the fair value of the tangible assets, liabilities, identifiable intangible asset and non-controlling interest, and to properly allocate purchase price consideration to the individual assets acquired, liabilities assumed and non-controlling interest. Goodwill is measured as the excess amount of consideration transferred.
Removed
In 2022, after the pandemic, a number of employees left the company, forcing the company to downsize its operations and resulted in a decline in sales. During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.

… 26 more changes not shown on this page.

Other HTCR 10-K year-over-year comparisons