What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-31 compared with 2022-03-31 · 46 added, 618 removed, 10 unchanged (99% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

common stock is listed The Nasdaq Capital Market and its stock symbol is “HTCR.”

The closing price of our common stock on

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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.

of March 31, 2022, there were 18,915,943 shares of common stock issued and outstanding, and we had approximately 46 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.

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.

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.

have not paid any cash dividends on our common stock and do not currently anticipate paying cash dividends in the foreseeable future.

1 unchanged sentence

Authorized for Issuance Under Equity Compensation Plans

Board of Directors and stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”) on August 6, 2021.

2021 Plan, 2,400,000 shares of common stock are authorized for issuance to employees, directors and independent contractors (except those

performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction, or promoting

or maintaining a market for the Company’s securities) of the Company or its subsidiary.

The 2021 Plan authorizes equity-based

and cash-based incentives for participants.

As of March 31, 2022, there were 865,500 shares authorized for issuance under the 2021 Plan.

Sales of Unregistered Securities

May 18, 2021, we issued five shares of common stock to Sumitaka Yamamoto, Chief Executive Officer of the Company, for $1.00 per share

for a total subscription of $5.00.

July 16, 2021, pursuant to the terms of a share exchange agreement among the Company, HeartCore Co., the shareholders of HeartCore

(excluding Dentsu Digital Investment Limited) and Sumitaka Yamamoto, as the representative of the shareholders of HeartCore

Co., we issued 15,999,994 shares of our common stock to the shareholders of HeartCore Co.

in exchange for 10,706 shares HeartCore

Co.’s common stock, representing 97.5% of the issued and outstanding capital stock of HeartCore Co.

On February 24, 2022,

the Company purchased 278 shares of HeartCore Co.

from Dentsu Digital for 50,040,000 Japanese Yen (approximately $435,500).

effective February 24, 2022, HeartCore Co.

is a wholly owned subsidiary of the Company.

November 3, 2021, the Company redeemed 484,056 shares of common stock held by Sumitaka Yamamoto, Chief Executive Officer of the Company,

the period from October 27, 2021 through January 13, 2022, the Company issued 400,000 shares of common stock at a purchase price of $2.50

per share (for an aggregate of $1,000,000 of proceeds) to accredited investors in a private placement under Rule 506(b) of Regulation

D of the Securities Act.

December 25, 2021, the Company awarded options to purchase 1,534,500 shares of common stock pursuant to our 2021 Equity Incentive Plan

performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction or promoting

or maintaining a market for the Company’s securities) of the Company or its subsidiary.

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.

December 25, 2021, the Company awarded options to purchase 1,534,500 shares of common stock pursuant to our 2021 Plan

at an exercise price of $2.50 per share to various officers, directors, employees and consultants of the Company.

1 unchanged sentence

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 Equity Incentive Plan and the option award agreements pursuant to which the options were awarded.

above issuances were made pursuant to an exemption from registration as set forth in 506 of Regulation D and/or Section 4(a)(2) of the

Securities Act.

of Equity Securities by the Issuer and Affiliated Purchasers

and conditions of the 2021 Plan and the option award agreements pursuant to which the options were awarded.

On February 9, 2022, the Company

entered into executive employment agreements with five executives and granted 85,820 restricted stock units pursuant to the 2021 Plan.

These common stock vest on each annual anniversary of the date of the employment agreement, in an amount equal to 25% of the applicable

shares of common shares.

August 2, 2022, the Company awarded options to purchase 2,000 shares of common stock pursuant to our 2021 Plan at an

exercise price of $2.94 per share to an employee.

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.

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 stock options will vest 50% on the grant date and February 1, 2024, respectively.

March 22, 2023, the Company granted 671,350 shares of common s hares to the employees and service providers of Sigmaways.

of Equity Securities by the Issuer

On June 1, 2022, the Board of

Directors approved a share repurchase program (“2022 Share Repurchase Program”),

pursuant to which the Company is authorized to repurchase up to $3.5 million of its outstanding common shares.

The timing and amount of

repurchases under the program are determined by the Company’s management based on its evaluation of market conditions and other

This program has no set termination date and may be suspended or discontinued at any time.

During the period from June 1,

2022 through September 30, 2022, the Company repurchased 1,349,390 shares of common shares at an average price of $2.59 per share totaling

approximately $3.5 million (including commissions) under the 2022 Share Repurchase Program.

As of September 30, 2022, the Company has

used up the entire balance authorized under the 2022 Share Repurchase Program.

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.

Agent and Registrar

Company’s transfer agent is Transhare Corporation.

The transfer agent’s address is Bayside Center 1, 17755 US Highway 19

Company’s transfer agent is Transhare Corporation.

The transfer agent’s address is Bayside Center 1, 17755 US Highway 19

N, Suite 140, Clearwater, Florida 33764, and its telephone number is (303) 662-1112.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

statements other than statements of historical fact included in this annual report, including, without limitation, statements under “Management’s

Discussion and Analysis of Financial Condition and Results of Operations”

regarding the Company’s financial position, business

strategy and the plans and objectives of management for future operations, are forward-looking statements.

When used in this annual report,

words such as “anticipate,”

“believe,”

“estimate,”

“expect,”

“intend”

similar expressions, as they relate to us or the Company’s management, identify forward-looking statements.

Such forward-looking

statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s

Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors

detailed in our filings with the SEC.

following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial

statements and the notes thereto contained elsewhere in this annual report.

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”

refer to HeartCore Enterprises, Inc.

and its consolidated subsidiary, HeartCore Co., Ltd.

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.

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.

We also provide education, services and support

to help customers be successful with our CXM Platform.

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.

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

As of December 31, 2021, our sales and marketing organization

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

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

revenue and customer base.

As of December 31, 2021, our combined business units (customer experience management business unit and digital

transformation business unit) had 839 total customers in Japan.

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

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.

Since then, HeartCore Co.

has expanded offerings to help companies manage all forms

of business processes.

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.

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.

the fiscal years ended December 31, 2021 and 2020, we generated revenues of $10,822,514 and $9,026,463, respectively, and reported net

loss of $327,044 and net income of $155,064, respectively, and cash flows from operating activities of $766,300

and $745,748, respectively.

As noted in our consolidated financial statements, as of December 31, 2021, we had an accumulated deficit

of $3,896,113.

Factors that Affect Our Results of Operations

believe the following key factors may affect our financial condition and results of operations:

Ability to Strength Our Competitive Advantages

mission is to be at the forefront of innovation and thought leadership in enterprise business automation, analyzing enterprise users’

desktops and mission-critical systems, and creating end-to-end software that provides business automation based on the results of that

analysis and further simulating the numbers.

We create end-to-end software that provides business automation.

Our customers use our software

across their organizations so that they can run their operations in a more fully automated manner.

Our ability to successfully implement

the automation in our software greatly affects our profitability.

Ability to Expand International Market

maintain a physical sales presence in the Japanese software market.

Using our global go-to-market strategy we believe we have established

a diversified revenue and customer base.

We will continue to develop our global operation.

International expansion over the long term

represents a significant opportunity and we plan to continue to invest in growing our presence internationally, both through expanding

our sales and marketing efforts and leveraging channel and other ecosystem partners.

Ability to Control Costs and Expenses and Improve Our Operating Efficiency

business growth is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities,

secure new contracts with customers and our ability to control costs and expenses to improve our operating efficiency.

Our software costs

(mostly including purchased software license, salaries and welfare, and outsourcing expenses) have a direct impact on our profitability.

Our success is dependent, in part, on our ability to reduce our exposure to increase in those costs through a variety of ways, while

maintaining and improving margins and market share.

In addition, our staffing costs (including salaries and welfare) and administrative

expenses also have a direct impact on our profitability.

Our ability to drive the productivity of our staff and enhance our operating

efficiency affects our profitability.

Ability to Manage and Retain Customer Renewals

ability to manage and retain customer renewals is vital to our expansion of renewals in our customer base and continuous and growing

By achieving and maintaining high retention of customer renewals, we are able to cover most of our expenses from the revenue

generated from such retained customer renewals.

In order to achieve and maintain a high retention of customer renewals, we engage in

the following actions:

(i) we conduct annual surveys of existing customers;

(ii) we conduct Net Promoter Scoring (NPS), whereby we measure

customer loyalty and satisfaction by asking our customers how likely they are to recommend our product and service to others;

we have sales representatives visit important customers to increase customer retention.

Our ability to expand within our customer base

is demonstrated by our net retention rate, which represents the rate of net expansion of annualized renewal run-rate from existing customers

over the last 12 months.

of December 31, 2021, our combined business units (customer experience management business unit and digital transformation business unit)

had 839 total customers in Japan, of which 581, or 69.2%, were paying customers and 24 total customers outside Japan, of which 2, or

1.0%, was a paying customer.

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 digital transformation business unit (RPA

business) was 45%, 52% and 75% as of December 31, 2021, 2020 and 2019, respectively.

The reduction in the net retention rate was due

to a number of small and medium-sized customers cancelling their contracts due to the COVID-19 pandemic.

Notwithstanding, our net retention

rate for our paying customers of our customer experience management business unit (CMS business) was 95%, 95% and 92% as of December

31, 2021, 2020 and 2019, respectively.

Digital transformation business unit (RPA business) sales only accounted for 5.5%, 9.4% and 10.9%

of total sales during the years ended December 31, 2021, 2020 and 2019, respectively.

In light of the high net retention rate among our

combined paying and non-paying customers of our CMS business, 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.

Affecting Our Results of Operations

March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

The pandemic has resulted in the implementation

of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of

Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily

closing businesses.

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.

As of the filing date of this Annual Report on Form 10-K, the extent

of the future impact of COVID-19 is still highly uncertain and cannot be predicted.

Severe or Prolonged Slowdown in the Global and Japan Economy Could Materially and Adversely Affect Our Business and Our Financial Condition

recent years, the economic indicators in Japan have shown mixed signs, and future growth of the Japanese economy is subject to many factors

beyond our control.

The current administration of Prime Minster Fumio Kishida and the former administration of Prime Minister Yoshihide

Suga have introduced policies to combat deflation and promote economic growth.

In addition, the Bank of Japan introduced a plan for quantitative

and qualitative monetary easing in April 2013 and announced a negative interest rate policy in January 2016.

However, the long-term impact

of these policy initiatives on Japan’s economy remains uncertain.

The impact of Brexit on the Japanese economy and on the value

of the Japanese yen against currencies of other countries in which we generate revenue, in both the short and long term, is also uncertain.

In addition, an increase in the consumption tax rate, which took place in April 2014 with a further increase in October 2019, may also

adversely impact the Japanese economy, potentially impacting consumer spending, and advertising spending by businesses.

Any future deterioration

of the Japanese or global economy may result in a decline in consumption that would have a negative impact on demand for our products

and their prices.

of Operations

of Results of Operations for the Fiscal Years Ended December 31, 2021 and 2020

The following table summarizes

our operating results as reflected in our statements of operations during the fiscal years ended December 31, 2021 and 2020, respectively,

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

For the Years ended December 31,

COST OF REVENUE

Operating expenses

Selling expenses

General and administrative expenses

Research and development expenses

Total operating expenses

Income from operations

Other expenses

Income before income tax provision

Income tax expense

Net income (loss)

net income attributable to non-controlling interest

NET INCOME (LOSS) ATTRIBUTABLE TO HEARTCORE ENTERPRISES,

For the Years ended December 31,

Revenue from on-premise software

Revenue from maintenance and support services

Revenue from software as a service (“SaaS”)

Revenue from software development and

other miscellaneous services

Total revenue

Cost of Revenue

Costs of on-premise software

Costs of maintenance and support services

Costs of software as a service (“SaaS”)

Costs of software development and other

miscellaneous services

Total cost of revenue

On-premise software

Maintenance and support services

Software as a service (“SaaS”)

Software development and other miscellaneous

Total gross profit

Our total revenues increased by $1,796,051, or

19.9%, to $10,822,514 for the year ended December 31, 2021 from $9,026,463 for the year ended December 31, 2020.

The increase in our

revenues was attributable to the following reasons:

the revenues from sales of on-premise software by $1,509,681, or

71.9%, to $3,609,442 for the year ended December 31, 2021 from $2,099,761 for the year ended December 31, 2020.

A major customer

renewed its CMS license for $1,157,517.

Some other customers also significantly increased their purchase in 2021, as compared to

the prior year;

our revenue from software

as a service (“SaaS”) increased by $132,310, or 27.3%, to $617,026 for the year ended December 31, 2021 from $484,716 for

the year ended December 31, 2020.

SaaS service can monitor computers’

activities and therefore can assist employers looking over

their staffs’

work load when the employees work remotely.

The demand for SaaS services increased as more and more people get

used to working remotely as the COVID-19 pandemic changed peoples’

working style.

While we retained most of the customers from

prior year, we increased our revenue from task mining products by approximately $124,845.

Cost of Revenue

Our total costs of revenues increased by $626,426,

or 12.5%, to $5,634,737 for the year ended December 31, 2021 from $5,008,311 for the year ended December 31, 2020.

The increase in our

costs was attributable to the following reasons:

(i) the costs of On-premises software increased by $258,808, or 22.6%, to $1,401,907

for the year ended December 31, 2021 from $1,143,099 for the year ended December 31, 2020, in light of the increase in sales;

costs of software development and other miscellaneous services increased by $534,786, or 26.2%, to $2,573,066 for the year ended December

31, 2021 from $2,038,280 for the year ended December 31, 2020, due to unexpected outsources costs associated with the defects in some

CMS projects;

offset by (iii) a decrease in the costs of SaaS by $215,125, or 43.9%, to $275,104 for the year ended December 31, 2021

from $490,229 for the year ended December 31, 2020.

The Company launched a new SaaS product, CXM Cloud, in 2019 and subsequently completed

most of the development of the project in 2020, leaving minority debug expenses in 2021.

Therefore, the development costs were higher

in 2020 than in 2021.

Our total gross profit increased by $1,169,625,

or 29.1%, to $5,187,777 for the year ended December 31, 2021 from $4,018,152 for the year ended December 31, 2020.

The increase in our

gross profit was attributable to the following reasons:

(i) the gross profit from sales of on-premise software increased by 1,250,873,

or 130.8% from 956,662 for the ended December 31, 2020 to $2,207,535 for the year ended December 31, 2021.

The profitability increased

due to the higher volume sales;

(ii) the gross profit from SaaS increased by $347,435, or 6,302.1%, to $341,922 for the year ended December

31, 2021 from a loss of $5,513 for the year ended December 31, 2020, primally due to more of the development costs of the CXM Cloud product

was recorded in the prior year.

For the reasons discussed above, our overall gross

profit margin increased by 3.4% to 47.9% for the year ended December 31, 2021 from 44.5% in the fiscal year 2020.

Operating Expenses

The following table sets forth the breakdown of

our operating expenses for the fiscal years ended December 31, 2021 and 2020:

For the Years ended December 31,

Total revenue

Operating expenses

Selling expenses

General and administrative expenses

Research and development expenses

Total operating expenses

Selling Expenses

Our selling expenses primarily include advertising

expenses, sales commissions, and sales promotion expenses.

For the Years ended December 31,

Selling Expenses

Advertising expenses

Sales commissions

Sales promotion expenses

Total selling expenses

Our selling expenses increased by $54,069, or

22.3%, to $296,778 for the year ended December 31, 2021 from $242,709 in the fiscal year 2020, primarily attributable to (i) an increase

in advertising expenses by $97,972, or 100%, to $195,916 for the year ended December 31, 2021 from $97,944 in the fiscal year 2020.

Japanese economy gradually resumed in 2021 as the COVID-19 pandemic became less severe.

In order to attract customers, the company expensed

$62,261 for seminars, and $43,329 for billboard;

offset by (ii) a decrease in sales commission by $41,832, or 29.5% from $141,621 in

the fiscal year 2020 to $99,789.

Because the Company did not achieve its sales goal in the prior year, the performance-linked bonuses

decreased in the consecutive year.

These above-mentioned factors combined led to

the increase in our selling expenses for the year ended December 31, 2021 as compared to the fiscal year 2020.

As a percentage of revenues,

our selling expenses accounted for 2.7% of our total revenue for the years ended December 31, 2021 and 2020.

and Administrative Expenses

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

for company reorganization and going public, depreciation and amortization expenses, rental expenses, office, utility and other expenses,

bad debt expenses, and travel and entertainment expenses.

the Years ended December 31,

and Administrative Expenses

and professional service fees

utility and other expenses

Listing-related

and entertainment expense

general and administrative expenses

Our general and administrative expenses increased

by $1,115,552 or 34.8%, to $4,321,241 for the year ended December 31, 2021 from $3,205,689 in the fiscal year 2020, primarily attributable

to (i) we incurred listing-related expenses of $867,624 in 2021 to get our stock listed in the Nasdaq Stock Exchange in early 2022;

an increase in travel and entertainment expenses by $78,784, or 151.7%, to $130,735 in the fiscal year ended December 31, 2021 from $51,951

in the fiscal year ended December 31, 2020.

Our officers travelled to the US to meet our legal counsel, underwriter, and prospective

investors to promote our stock and for the matter of going public;

(iii) an increase in salaries and welfare by $321,496, or 16.2%, to

$2,306,544 in the fiscal year ended December 31, 2021 from $1,985,048 in the fiscal year ended December 31, 2020.

In addition to our

average salary increased by 3% in the year December 31, 2021, we hired four more employees in 2021 to support the extension of business;

offset by (iv) our consulting and professional fees decreased by $165,220 or 35.8% for the year ended December 31, 2021 as compared

to the fiscal year 2020, primarily attributable to the termination of sales supporting consultant contracts executed in 2020, due to

ineffectiveness.

The overall increase in our general and administrative

expenses in fiscal year 2021 as compared to fiscal year 2020 reflected the above-mentioned factors combined.

As a percentage of revenues,

general and administrative expenses were 39.9% and 35.5% of our revenue for the fiscal years ended December 31, 2021 and 2020, respectively.

and development expenses

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

the Years ended December 31,

and Development Expenses

research and development expenses

research and development expenses increased by $199,691, or 64.2%, to $510,740 in the fiscal year ended December 31, 2021 from $311,049

in the fiscal year ended December 31, 2020, primarily attributable to (i) an increase in salary and welfare expenses by $32,575 or 64.9%

to $82,739 in the fiscal year ended December 31, 2021 from $50,164 in the fiscal year ended December 31, 2020, as we increased the number

of research and development staffs to speed up our new product development;

(ii) an increase in outsourcing expenses by $167,116, or

64.1%, to $428,001 in the fiscal year ended December 31, 2021 from $260,885 in the fiscal year ended December 31, 2020, as we outsourced

more development activities for efficiency and experience.

overall increase in our research and development expenses in fiscal year 2021 as compared to fiscal year 2020 reflected the above-mentioned

factors combined.

As a percentage of revenues, research and development expenses were 4.7% and 3.4% of our revenue for the fiscal years

ended December 31, 2021 and 2020, respectively.

Expenses, net

Our other income (expenses) primarily includes

interest income generated from bank deposits, interest expenses for bank loans, bonds, and leases, other incomes, and other expenses.

Total other expenses, net, increased by $12,693 or 40.4%, from $31,424 for the year ended December 31,2020 to $44,117 for the year ended December

Provision for Income Taxes

Our provision for income taxes was $341,945

for the year ended December 31, 2021, an increase of $269,728, or 373.5% from $72,217 in fiscal year 2020 primarily due to the increase in deferred tax expense.

Income (Loss)

As a result of the foregoing, we reported a net

loss of $327,044 for the fiscal year ended December 31, 2021, representing a $482,108 or 310.9% decrease from a net income of $155,064

for the fiscal year ended December 31, 2020.

income attributable to non-controlling interest

Before we entered into a stock purchase agreement

with a non-controlling shareholder of HeartCore Co.

in August 2021, we owned 97.35% of the outstanding shares of the operating subsidiary,

HeartCore Co., which located in Japan.

Accordingly, we recorded non-controlling interest income attributable to the non-controlling interest.

The net income attributable to non-controlling interest increased by $7,003 or 170.4% from $4,109 in the fiscal year 2020 to $11,112

for the year ended December 31, 2021.

income (loss) attributable to HeartCore Enterprises, Inc.

As a result of the foregoing, we reported a net

loss attributable to HeartCore Enterprises, Inc.

of $338,156 for the fiscal year ended December 31, 2021, representing a $489,111 or

324.0% decrease from a net income of $150,955 for the fiscal year ended December 31, 2020.

and Capital Resources

of December 31, 2021, we had $3,136,839 in cash as compared to $3,058,175 as of December 31, 2020.

We also had $960,964 in accounts receivable

as of December 31, 2021.

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

provided and accepted by customers.

As of December 31, 2021, our working capital was

In assessing our liquidity, management monitors and analyzes our cash, our ability to generate sufficient revenue in the future,

and our operating and capital expenditure commitments.

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 a net proceeds of $13.7 million, after deducting underwriting discounts,

commissions, and other offering expenses.

We believe that our current cash and cash flows provided by operating activities will be sufficient

to meet our working capital needs in the next 12 months from the date the audited financial statements were issued.

the coming years, we will be looking for other sources, such as raising additional capital by issuing shares of stock, to meet our needs

Even though we face uncertainties in regards to the size and timing of capital-raising, we are confident that we can continue

to meet operational needs solely by utilizing cash flows generated from our operating activities and shareholder working capital funding,

as necessary.

Flows for the Years Ended December 31, 2021 and 2020

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

the Years Ended

cash provided by operating activities

used in investing activities

provided by (used in) financing activities

of exchange rate changes

Net increase in cash and cash equivalents

and cash equivalents, beginning of the year

and cash equivalents, end of the year

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.

was mainly due to the increase in accrued listing-related expense and accrued software development outsourcing expense.

Depreciation expenses

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.

cash provided by operating activities was $745,748 for the year ended December 31, 2020, primarily consisting of the following:

Net income of $155,064

for the fiscal year.

A decrease in accounts

receivable of $237,574.

The decrease was primarily due to our effort to strengthen our credit policy and get rid of bad credit customers

in the current fiscal year.

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

operation, if necessary.

Depreciation expenses

An increase in deferred

revenue of $163,188.

We request upfront payment for service provided over a period of time.

The deferred revenue increased as the

sales increased.

cash used in investing activities amounted to $179,029 for the year ended December 31, 2021, and primarily included the purchase of fixed

assets of $36,153, and the loans provided to related parties of $142,876.

cash used in investing activities amounted to $401,150 for the year ended December 31, 2020, and primarily included the purchase of fixed

assets of $27,170, and the loans provided to related parties of $359,928.

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.

cash provided by financing activities amounted to $2,063,166 for the fiscal year ended December 31, 2020, primarily consisting of proceeds

from issuance of common shares of $932,278 and proceeds from long-term debts of $1,873,536, offset by repayment of long-term debts of

$678,604 and repayment of finance lease obligations (principal) of $52,520.

the period from October 27, 2021 through January 13, 2022, the Company issued 400,000 shares of common stock at a purchase price of $2.50

per share (for an aggregate of $1,000,000 of proceeds) to accredited investors in a private placement under Rule 506(b) of Regulation

D of the Securities Act.

December 25, 2021, the Company awarded options to purchase 1,534,500 shares of common stock pursuant to our 2021 Equity Incentive Plan

at an exercise price of $2.50 per share to various officers, directors, employees and consultants of the Company.

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 Equity Incentive Plan and the option award agreements pursuant to which the options were awarded.

Company’s subsidiary, HeartCore Co., Ltd.

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

operating leases.

HeartCore Co., Ltd.

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

classified as finance leases.

of December 31, 2021, future minimum lease payments under the non-cancelable lease agreements are as follows:

ending December 31,

lease payments

imputed interest

lease liabilities

current portion

lease liabilities

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

of December 31, 2021, future minimum loan payments are as follows:

ending December 31,

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.

The pandemic, which has continued to spread, and the related adverse

public health developments, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely

affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased

market volatility.

It has also disrupted the normal operations of many businesses, including ours.

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.

These measures have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide.

In March 2021, we temporarily closed our offices, including our corporate headquarters, suspended all company-related travel, and all

HeartCore Co.

employees were required to work from home for several months during the height of the pandemic.

We cancelled or shifted

our customer and industry events to virtual-only experiences.

Although we have begun to slowly re-open our offices on a staggered, region-by-region

basis in accordance with local authority guidelines, we may deem it advisable to similarly alter, postpone or cancel entirely additional

customer, employee or industry events in the future.

All of these changes may disrupt the way we operate our business.

In addition, our

management team has, and will likely continue, to spend significant time, attention and resources monitoring the pandemic and seeking

to minimize the risk of the virus and manage its effects on our business and workforce.

we were recently formed, our wholly owned operating subsidiary, HeartCore Co.

has been operating through the pandemic.

operations of HeartCore Co.

have been impacted by a range of external factors related to the pandemic that are not within our

As for existing customers, the pandemic has not affected their use of our software.

As for new customers in the travel,

hotel, airline, railroad, and restaurant industry for the CX division, the pandemic has resulted in a reduction in new orders.

However, as for new customers in the retail and finance industry for the CX division, orders have increased despite the pandemic,

resulting in an overall increase in sales for the CX division of $2,159,372 for the year ended December 31, 2021 as compared to the

year ended December 31, 2020.

As for the impact of the pandemic on the DX division, large companies were forced to change the way

they operate, as employees were forced to work remotely, which increased the demand for our DX software, but due to the delay in the

sales cycle by the pandemic, realization of sales were delayed resulting in reduction of sales of $363,321 for the year ended

December 31, 2021, as compared to the year ended December 31, 2020.

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.

If we are not able to respond to and manage the impact of such events effectively, our business will

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.

Sheet Arrangements

did not have any off-balance sheet arrangements as of December 31, 2021.

Accounting Policies and Estimates

discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements.

financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“U.S.

GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities

and revenue and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to

disclose the reported amounts of revenue and expenses incurred during the financial reporting period.

We continue to evaluate the estimates

and assumptions that we believe to be reasonable under the circumstances.

We rely on these evaluations as the basis for making judgments

about the carrying values of assets and liabilities that are not readily apparent from other sources.

Since the use of estimates is an

integral component of the financial reporting process, actual results could differ from those estimates.

Some of our accounting policies

require higher degrees of judgment than others in their application.

We believe critical accounting policies as disclosed in this annual

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

receivable, net represent the amounts that the Company has an unconditional right to consideration, which are stated at the original

amount less an allowance for doubtful receivables.

The Company reviews the accounts receivable on a periodic basis and makes general

and specific allowances when there is doubt as to the collectability of individual balances.

The Company usually determines the adequacy

of reserves for doubtful accounts based on individual account analysis and historical collection trends.

The Company establishes a provision

for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due.

The allowance is based

on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections.

The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements

of operations and comprehensive income (loss).

Delinquent account balances are written off against the allowance for doubtful

accounts after management has determined that the likelihood of collection is remote.

In circumstances in which the Company receives

payment for accounts receivable that have previously been written off, the Company reverses the allowance and bad debt.

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

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

(i) identify the contract(s)

with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable

consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price

to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance

Revenue amount represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local

government levies.

The Consumption Tax on sales is calculated at 10% of gross sales.

Company currently generates its revenue from the following main sources:

from On-Premise Software

for on-premise software provide the customer with a right to use the software as it exists when made available to the customer.

provides on-premise software in the form of both perpetual licenses and term-based licenses which grant the customers with the right

for a specified term.

Revenue from on-premise licenses is recognized upfront at the point in time when the software is made available

to the customer.

Licenses for on-premise software are typically sold to the customer with maintenance and support services in a bundle.

Revenues under the bundled arrangements are allocated based on the relative standalone selling price (“SSP”) of on-premise

software and maintenance and support service.

The SSP for maintenance and support services is estimated based upon observable transactions

when those services are sold on a standalone basis.

The SSP of on-premise software is typically estimated using the residual approach

as the Company is unable to establish the SSP for on-premise licenses based on observable prices given the same products are sold for

a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is not discernible from past transactions

or other observable evidence.

from Maintenance and Support service

and support services provided with software licenses consist of trouble shooting, technical support and the right to receive unspecified

software updates when and if available during the subscription.

Revenues from maintenance and support services are recognized over time

as such services are performed.

Revenues for consumption-based services are generally recognized as the services are performed and accepted

by the customers.

from Software as a Service (“SaaS”)

Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing

the rights of the software to the customers.

Subscription fees from these applications are recognized over time on a ratable basis over

the customer agreement term beginning on the date the Company’s solution is made available to the customer.

The subscription contracts

are generally one year or less in length.

from Software Development and other Miscellaneous Services

Company provides customers with software development and support service pursuant to their specific requirements, which primarily compose

of consulting, integration, training, custom application, and workflow development.

The Company also provides other miscellaneous services,

such as 3D Space photography.

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

and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers.

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

The Company records a contract asset, which is

included in accounts receivable on the consolidated balance sheets, when revenue is recognized prior to invoicing.

The Company records

deferred revenues on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice.

revenues are reported net of related uncollected deferred revenues in the consolidated balance sheets.

The amount of revenues recognized

during the years ended December 31, 2021 and 2020 that were included in the opening deferred revenues balance was approximately $1.5

million and $1.7 million, respectively.

Company accounts for share-based compensation awards in accordance with ASC 718, “Compensation –

Stock Compensation”.

The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated

statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over

the requisite service period or vesting period.

The Company records forfeitures as they occur.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

is made to pages F-1 through F-6 comprising a portion of this annual report.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity