HeartCore Enterprises, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe harbor for forward-looking statements made by or on behalf of HeartCore Enterprises, Inc. (the “Company”). The Company and its representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission (“SEC”) and in our reports and presentations to stockholders or potential stockholders. In some cases, forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions. Such forward-looking statements include risks and uncertainties and there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and uncertainties can be found in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as the same may be updated from time to time, including in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q. Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this report are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based. Business 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. 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. 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. On September 6, 2022, HeartCore Enterprises, Inc. (the “Company”) 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. During 2022, we started the GO IPO consulting business, which supports Japanese companies seeking to list on Nasdaq and NYSE in the United States. As of May 22, 2023, we have entered into consulting agreements with ten companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranging from $350,000 to $900,000 and warrants or Japanese acquisition rights to purchase 1% to 4% of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 per share. The revenue from 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, Inc. and HeartCore Capital Advisors, Inc. as a part of our Go IPO consulting business. 3 We have made significant investments in our sales and marketing efforts globally. As of March 31, 2023, 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 March 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 916 total customers in Japan. We 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 Chairman of the Board, CEO, President and major shareholder, in 2009 and acquired by us in July 2021. HeartCore Co. started out 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. 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. 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. Recent Developments BloomZ Consulting Agreement On January 11, 2023 (the “BloomZ Effective Date”), the Company entered into a Consulting and Services Agreement (the “BloomZ Consulting Agreement”) by and between the Company and kk.BloomZ, a Japanese corporation (“BloomZ”). Pursuant to the terms of the BloomZ Consulting Agreement, the Company agreed to provide BloomZ certain services, including the following (collectively, the “BloomZ Services”): (i) Assistance with the selection and negotiation of terms for a law firm, underwriter and auditing firm for BloomZ; 4 (ii) Assisting in the preparation of documentation for internal controls required for an initial public offering of de-SPAC or other Fundamental Transaction (as defined in the BloomZ Consulting Agreement) by BloomZ; (iii) Providing support services to remove problematic accounting accounts upon listing; (iv) Translation of requested documents into English; (v) Attend and, if requested by BloomZ, lead meetings with BloomZ’s management and employees; (vi) Provide BloomZ with support services related to BloomZ’s NASDAQ listing; (vii) Conversion of accounting data from Japanese standards to U.S. GAAP; (viii) Services to remove problematic accounting accounts upon listing; (ix) Support for the BloomZ’s negotiations with the audit firm; (x) Assist in the preparation of S-1 or F-1 filings; (xi) Creation of English web page; and (xii) Preparing an investor presentation/deck and executive summary of BloomZ’s operations. In providing the BloomZ Services, the Company will not render legal advice or perform accounting services, and will not act as an investment advisor or broker/dealer. Pursuant to the terms of the BloomZ Consulting Agreement, the parties agreed that the Company will not provide the following services, among others: negotiation of the sale of BloomZ’s securities; participation in discussions between BloomZ and potential investors; assisting in structuring any transactions involving the sale of BloomZ’s securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in BloomZ. Pursuant to the terms of the BloomZ Consulting Agreement, BloomZ agreed to compensate the Company as follows in return for the provision of the BloomZ Services during the eight-month term: (a) $500,000, to be paid as follows: (i) $200,000 on the BloomZ Effective Date; (ii) $150,000 on the three-month anniversary of the BloomZ Effective Date; and (iii) $150,000 on the six-month anniversary of the BloomZ Effective Date; and (b) Issuance by BloomZ to the Company of a warrant (the “BloomZ Warrant”), deemed fully earned and vested as of the BloomZ Effective Date, to acquire a number of shares of capital stock of BloomZ, to initially be equal to 4% of the fully diluted share capital of BloomZ as of the BloomZ Effective Date, subject to adjustment as set forth in the BloomZ Consulting Agreement. For any services performed by the Company beyond the BloomZ Term (as hereinafter defined), BloomZ will compensate the Company for BloomZ Services at the rate of $150 per hour, based on the hours spent by personnel of the Company. The term of the BloomZ Consulting Agreement will continue until eight months after the Effective Date, unless sooner terminated in accordance with the terms of the BloomZ Consulting Agreement (the “BloomZ Term”). The BloomZ Consulting Agreement may be terminated at any time by either party upon notice to the other party. BloomZ Warrant As provided in the BloomZ Consulting Agreement, on the BloomZ Effective Date, BloomZ issued the BloomZ Warrant to the Company. Pursuant to the terms of the BloomZ Warrant, the Company may, at any time on or after the date (the “BloomZ IPO Date”) that BloomZ completes its first initial public offering of stock in the U.S. resulting in any class of BloomZ’s stock being listed for trading on any tier of the Nasdaq Stock Market, the New York Stock Exchange or the NYSE American, or BloomZ consummates a merger or other transaction with a special purpose acquisition company (“SPAC”) wherein BloomZ becomes a subsidiary of the SPAC, or BloomZ undertakes any other Fundamental Transaction (the “IPO”) and on or prior to the close of business on the tenth anniversary of the BloomZ IPO Date, exercise the BloomZ Warrant to purchase 4% of the fully diluted share capital of BloomZ as of the BloomZ IPO Date for an exercise price per share of $0.01, subject to adjustment as provided in the BloomZ Warrant. The number of shares for which the BloomZ Warrant will be exercisable will be automatically adjusted on the IPO Date to be 4% of the fully diluted number and class of shares of capital stock of BloomZ as of the BloomZ IPO Date that are listed for trading. The BloomZ Warrant contains a 9.99% equity blocker. 5 Executive Employment Agreements As previously disclosed, the Company entered into an Executive Employment Agreement (each, an “Employment Agreement” and collectively, the “Employment Agreements”), dated as of February 9, 2022, by and between the Company and each of Qizhi Gao, the Company’s Chief Financial Officer; Kimio Hosaka, the Company’s Chief Operating Officer and a member of the Company’s Board of Directors; Keisuke Kuno, the Company’s CX Division Vice President; and Hidekazu Miyata, the Company’s Chief Technical Officer. On January 10, 2023, the Company entered into Amendment No. 1 to each of the Employment Agreements (each, an “Amendment” and collectively, the “Amendments”). Pursuant to the terms of each of the Amendments, the executives’ annual base salaries were increased as follows, effective January 1, 2023: Executive Prior Base Salary New Base Salary Qizhi Gao $ 54,012 $ 120,222 Kimio Hosaka $ 95,459 $ 164,770 Keisuke Kuno $ 109,100 $ 152,308 Hidekazu Miyata $ 75,600 $ 112,616 Except as set forth in each Amendment, each of the Employment Agreements remained in full force and effect. Amendment No. 2 to Sigmaways Agreement As previously disclosed, on September 6, 2022, the Company entered into that certain Share Exchange and Purchase Agreement (the “Sigmaways Agreement”), dated as of September 6, 2022, as thereafter amended, by and among the Company, Sigmaways, Inc. (“Sigmaways”) and Prakash Sadasivam. On February 1, 2023, the Company, Sigmaways and Mr. Sadasivam entered into Amendment No. 2 (“Amendment No. 2”) to the Sigmaways Agreement. Pursuant to the terms of Amendment No. 2, among other things, the Company agreed, in exchange for the Sigmaways shares, to (i) issue to Mr. Sadasivam 2,000,000 shares of the Company’s common stock, (ii) pay to Mr. Sadasivam $1,000,000 (the “Cash Purchase Price”); and (iii) issue to Mr. Sadasivam a common stock purchase warrant to acquire 1,900,000 shares of the Company’s common stock (the “Sigmaways Warrant”). In addition, the Company agreed that following closing, it would deposit $2,000,000 into a dedicated account, which amount will be used to expand Sigmaways’ business. The Sigmaways Warrant issued pursuant to the Sigmaways Agreement was exercisable until February 12, 2025, at an exercise price of $1.17 per share, subject to adjustment as set forth in the Sigmaways Warrant. The Sigmaways Warrant contained a 9.99% equity blocker. Amended and Restated Warrant On February 6, 2023, subsequent to the closing of the Acquisition, the parties to the Sigmaways Agreement determined that there was an error in the Sigmaways Agreement and in the Sigmaways Warrant issued pursuant to the terms of the Sigmaways Agreement. As executed, among other things, the Sigmaways Agreement incorrectly provided that the Company would issue to Mr. Sadasivam a warrant to acquire 1,900,000 shares of the Company’s common stock. The parties had agreed, however, that the Company would issue to Mr. Sadasivam a warrant to acquire 737,500 shares of the Company’s common stock. Accordingly, in order to correct the error, on February 6, 2023, the Company issued to Mr. Sadasivam an amended and restated warrant (the “Amended and Restated Warrant”) that reflected the correct number of shares (737,500) underlying the warrant, and Mr. Sadasivam agreed and accepted the Amended and Restated Warrant. The Amended and Restated Warrant is exercisable until February 12, 2025, at an exercise price of $1.17 per share, subject to adjustment as set forth in the Amended and Restated Warrant. The Amended and Restated Warrant contains a 9.99% equity blocker. Sigmaways Addendum On February 8, 2023, the parties to the Sigmaways Agreement entered into an addendum to the Sigmaways Agreement pursuant to which the parties acknowledged and agreed that (i) the references in the Sigmaways Agreement to a warrant to acquire 1,900,000 shares of common stock was in error, and (ii) the warrant was intended to be for 737,500 shares of common stock. Except as set forth in the Addendum, the terms of the Sigmaways Agreement remain in full force and effect. 6 Closing of Sigmaways Acquisition On February 1, 2023, the acquisition of 51% of Sigmaways’ outstanding shares by the Company (the “Acquisition”) closed. In exchange for the 229,500 shares of Sigmaways stock acquired by the Company from Mr. Sadasivam, the Company (i) issued to Mr. Sadasivam 2,500,000 shares of the Company’s common stock; (ii) paid to Mr. Sadasivam cash consideration of $1,000,000. At the closing, two persons designated by the Company were named to Sigmaways’ Board of Directors, and the sole other member of the Sigmaways Board of Directors is Mr. Sadasivam. Following the closing, there were 20,149,886 shares of the Company’s common stock outstanding. On February 1, 2023, Mr. Sadasivam was appointed to serve as the Company’s Chief Strategy Officer. In addition, on February 1, 2023, the Board expanded the size of the Board from seven persons to eight persons, and named Mr. Sadasivam to serve as a member of the Board, to fill the vacancy created by the increase in the size of the Board. On February 1, 2023, the Company and Mr. Sadasivam entered into an Employment Agreement (the “Sadasivam Employment Agreement”). The Sadasivam Employment Agreement provides that he will serve as the Company’s Chief Strategy Officer, and that he will be paid an annual salary of $96,000. In addition, on each annual anniversary of the effective date of the Sadasivam Employment Agreement during the term, the Company will issue to Mr. Sadasivam a number of shares of common stock equal to (i) 30% of the base salary as of such date, divided by (ii) the volume weighted average closing of the Company’s common stock for the five trading days immediately preceding such date. Mr. Sadasivam is also eligible to receive discretionary bonuses as determined by the Board. The Sadasivam Employment Agreement has an initial term of one year, provided that the term of the agreement will automatically be extended for one or more additional terms of one year each unless either the Company or Mr. Sadasivam provides notice to the other of their desire to not so renew the initial term or renewal term (as applicable) at least 30 days prior to the expiration of then-current initial term or renewal term (as applicable). The Sadasivam Employment Agreement provides that the employment with the Company shall be “at will,” meaning that either Mr. Sadasivam or the Company may terminate employment at any time and for any reason, subject to the other provisions of the Sadasivam Employment Agreement. The Sadasivam Employment Agreement may be terminated by the Company, either with or without “Cause” (as defined in the Sadasivam Employment Agreement), or by Mr. Sadasivam, either with or without “Good Reason” (as defined in the Sadasivam Employment Agreement). In the event that the Company terminates the term of the Sadasivam Employment Agreement or employment with Cause, or if Mr. Sadasivam terminates his Sadasivam Employment Agreement without Good Reason, then, subject to any other relevant agreements: ○ the Company will pay to Mr. Sadasivam any unpaid base salary and benefits then owed or accrued, and any unreimbursed expenses; ○ any unvested portion of any equity granted to Mr. Sadasivam under the Sadasivam Employment Agreement or any other agreements with the Company will immediately be forfeited; and ○ all of the parties’ rights and obligations under the Sadasivam Employment Agreement will cease, other than those rights or obligations which arose prior to the termination date or in connection with such termination, and subject to the survival provisions of the Sadasivam Employment Agreement. 7 In the event that the Company terminates the term of the Sadasivam Employment Agreement or employment without Cause, or if Mr. Sadasivam terminates the Sadasivam Employment Agreement with Good Reason, then, subject to any other relevant agreements: ○ the Company will pay to Mr. Sadasivam any base salary, bonuses, and benefits then owed or accrued, and any unreimbursed expenses; ○ the Company will pay to Mr. Sadasivam, in one lump sum, an amount equal to the base salary that would have been paid to Mr. Sadasivam for the remainder of the initial term of the Sadasivam Employment Agreement (if the termination occurs during the initial term of the Sadasivam Employment Agreement) or renewal term of the Sadasivam Employment Agreement (if the termination occurs during a renewal term of the Sadasivam Employment Agreement); ○ any unvested portion of any equity granted to Mr. Sadasivam under the Sadasivam Employment Agreement or any other agreements with the Company will, to the extent not already vested, be deemed automatically vested; and ○ all of the parties’ rights and obligations under the Sadasivam Employment Agreement will cease, other than those rights or obligations which arose prior to the termination date or in connection with such termination, and subject to the survival provisions of the Sadasivam Employment Agreement. In the event of Mr. Sadasivam’s death or total disability during the term of the Sadasivam Employment Agreement, the term of the applicable agreement and the applicable executive’s employment shall terminate on the date of death or total disability. In the event of such termination, the Company’s sole obligations hereunder to Mr. Sadasivam shall be for unpaid base salary, accrued but unpaid bonus and benefits (then owed or accrued and owed in the future), a pro-rata bonus for the year of termination based on the target bonus for such year and the portion of such year in which Mr. Sadasivam was employed, and reimbursement of expenses pursuant to the terms hereon through the effective date of termination, and any unvested portion of any equity grant will immediately be forfeited as of the termination date. In the event that the term of the Sadasivam Employment Agreement is not renewed by either party, any unvested portion of any equity granted will immediately be forfeited as of the expiration of the term of the Sadasivam Employment Agreement without any further action of the parties. The Sadasivam Employment Agreement contains customary representations and warranties. Libera Gaming Operations, Inc. Consulting Agreement On March 13, 2023 (the “Libera Effective Date”), the Company entered into a Consulting and Services Agreement (the “Libera Consulting Agreement”) by and between the Company and Libera Gaming Operations, Inc., a Japanese corporation (“Libera”). Pursuant to the terms of the Libera Consulting Agreement, the Company agreed to provide Libera certain services, including the following (collectively, the “Libera Services”): (i) Assistance with the selection and negotiation of terms for a law firm, underwriter and auditing firm for Libera; (ii) Assisting in the preparation of documentation for internal controls required for an initial public offering of de-SPAC or other Libera Fundamental Transaction (as defined in the Libera Consulting Agreement) by Libera; (iii) Providing support services to remove problematic accounting accounts upon listing; (iv) Translation of requested documents into English; (v) Attend and, if requested by Libera, lead meetings with Libera’s management and employees; (vi) Provide Libera with support services related to Libera’s NASDAQ listing; (vii) Conversion of accounting data from Japanese standards to U.S. GAAP; (viii) Services to remove problematic accounting accounts upon listing; (ix) Support for Libera’s negotiations with the audit firm; (x) Assist in the preparation of S-1 or F-1 filings; (xi) Creation of English web page; and (xii) Preparing an investor presentation/deck and executive summary of Libera’s operations. 8 In providing the Libera Services, the Company will not render legal advice or perform accounting services, and will not act as an investment advisor or broker/dealer. Pursuant to the terms of the Libera Consulting Agreement, the parties agreed that the Company will not provide the following services, among others: negotiation of the sale of Libera’s securities; participation in discussions between Libera and potential investors; assisting in structuring any transactions involving the sale of Libera’s securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in Libera. Pursuant to the terms of the Libera Consulting Agreement, Libera agreed to compensate the Company as follows in return for the provision of the Libera Services during the eight-month term: (a) $600,000, to be paid as follows: (i) $300,000 on the Libera Effective Date; (ii) $150,000 on the three-month anniversary of the Libera Effective Date; and (iii) $150,000 on the date that Libera first files a Form S-1, Form F-1, Form S-4, Form F-4 or any similar or replacement form with the SEC with respect to any transaction which is reasonably expected to result in the Libera Trigger Date (as defined in the Libera Warrant); and (b) Issuance by Libera to the Company of a warrant (the “Libera Warrant”), deemed fully earned and vested as of the Libera Effective Date, to acquire a number of shares of capital stock of Libera, to initially be equal to 3% of the fully diluted share capital of Libera as of the Libera Effective Date, subject to adjustment as set forth in the Libera Consulting Agreement and the Libera Warrant. For any services performed by the Company beyond the Libera Term (as hereinafter defined), Libera will compensate the Company for Libera Services at the rate of $150 per hour, based on the hours spent by personnel of the Company. The term of the Libera Consulting Agreement will continue until eight months after the Libera Effective Date, unless sooner terminated in accordance with the terms of the Libera Consulting Agreement (the “Libera Term”). The Libera Consulting Agreement may be terminated at any time by either party upon notice to the other party. Libera Warrant As provided in the Libera Consulting Agreement, on the Libera Effective Date, Libera issued the Libera Warrant to the Company. Pursuant to the terms of the Libera Warrant, the Company may, at any time (i) on or after the earlier of the date that either (a) Libera completes its first initial public offering of stock in the U.S. resulting in any class of Libera’s stock being listed for trading on any tier of Nasdaq, NYSE or the NYSE American; (b) Libera consummates a merger or other transaction with a SPAC wherein Libera becomes a subsidiary of the SPAC; or (c) Libera undertakes any other Libera Fundamental Transaction (the “Libera Trigger Date”); and (ii) on or prior to the close of business on the tenth anniversary of the Libera Trigger Date, exercise the Libera Warrant to purchase 2,970 shares of Libera’s common stock, which represents 3% of Libera’s issued and outstanding common stock as of the Libera Trigger Date, for an exercise price per share of $0.01, subject to adjustment as provided in the Libera Warrant. The number of shares for which the Libera Warrant will be exercisable will be automatically adjusted on the Libera Trigger Date to be 3% of the fully diluted number and class of shares of capital stock of Libera as of the Libera Trigger Date, following completion of the transactions which caused the Libera Trigger Date to be achieved. The Libera Warrant contains a 9.99% equity blocker. ICheck Co., Ltd. Consulting Agreement On March 13, 2023 (the “ICheck Effective Date”), the Company entered into a Consulting and Services Agreement (the “ICheck Consulting Agreement”) by and between the Company and ICheck Co., Ltd., a Japanese corporation (“ICheck”). Pursuant to the terms of the ICheck Consulting Agreement, the Company agreed to provide ICheck certain services, including the following (collectively, the “ICheck Services”): (i) Assistance with the selection and negotiation of terms for a law firm, underwriter and auditing firm for ICheck; (ii) Assisting in the preparation of documentation for internal controls required for an initial public offering of de-SPAC or other ICheck Fundamental Transaction (as defined in the ICheck Consulting Agreement) by ICheck; (iii) Providing support services to remove problematic accounting accounts upon listing; (iv) Translation of requested documents into English; (v) Attend and, if requested by ICheck, lead meetings with ICheck’s management and employees; (vi) Provide ICheck with support services related to ICheck’s NASDAQ listing; (vii) Conversion of accounting data from Japanese standards to U.S. GAAP; (viii) Services to remove problematic accounting accounts upon listing; (ix) Support for ICheck’s negotiations with the audit firm; (x) Assist in the preparation of S-1 or F-1 filings; (xi) Creation of English web page; and (xii) Preparing an investor presentation/deck and executive summary of ICheck’s operations. 9 In providing the ICheck Services, the Company will not render legal advice or perform accounting services, and will not act as an investment advisor or broker/dealer. Pursuant to the terms of the ICheck Consulting Agreement, the parties agreed that the Company will not provide the following services, among others: negotiation of the sale of ICheck’s securities; participation in discussions between ICheck and potential investors; assisting in structuring any transactions involving the sale of ICheck’s securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in ICheck. Pursuant to the terms of the ICheck Consulting Agreement, ICheck agreed to compensate the Company as follows in return for the provision of the ICheck Services during the nine-month term: (c) $600,000, to be paid as follows: (i) $300,000 on the ICheck Effective Date; (ii) $150,000 on the three-month anniversary of the ICheck Effective Date; and (iii) $150,000 on the date that ICheck first files a Form S-1, Form F-1, Form S-4, Form F-4 or any similar or replacement form with the SEC with respect to any transaction which is reasonably expected to result in the ICheck Trigger Date (as defined in the ICheck Warrant); and (d) Issuance by ICheck to the Company of a warrant (the “ICheck Warrant”), deemed fully earned and vested as of the ICheck Effective Date, to acquire a number of shares of capital stock of ICheck, to initially be equal to 3% of the fully diluted share capital of ICheck as of the ICheck Effective Date, subject to adjustment as set forth in the ICheck Consulting Agreement and the ICheck Warrant. For any services performed by the Company beyond the ICheck Term (as hereinafter defined), ICheck will compensate the Company for ICheck Services at the rate of $150 per hour, based on the hours spent by personnel of the Company. The term of the ICheck Consulting Agreement will continue until nine months after the ICheck Effective Date, unless sooner terminated in accordance with the terms of the ICheck Consulting Agreement (the “ICheck Term”). The ICheck Consulting Agreement may be terminated at any time by either party upon notice to the other party. ICheck Warrant As provided in the ICheck Consulting Agreement, on the ICheck Effective Date, ICheck issued the ICheck Warrant to the Company. Pursuant to the terms of the ICheck Warrant, the Company may, at any time (i) on or after the earlier of the date that either (a) ICheck completes its first initial public offering of stock in the U.S. resulting in any class of ICheck’s stock being listed for trading on any tier of Nasdaq, NYSE or the NYSE American; (b) ICheck consummates a merger or other transaction with a SPAC wherein ICheck becomes a subsidiary of the SPAC; or (c) ICheck undertakes any other ICheck Fundamental Transaction (the “ICheck Trigger Date”); and (ii) on or prior to the close of business on the tenth anniversary of the ICheck Trigger Date, exercise the ICheck Warrant to purchase 39,446 shares of ICheck’s common stock, which represents 3% of ICheck’s issued and outstanding common stock as of the ICheck Trigger Date, for an exercise price per share of $0.01, subject to adjustment as provided in the ICheck Warrant. The number of shares for which the ICheck Warrant will be exercisable will be automatically adjusted on the ICheck Trigger Date to be 3% of the fully diluted number and class of shares of capital stock of ICheck as of the ICheck Trigger Date, following completion of the transactions which caused the ICheck Trigger Date to be achieved. The ICheck Warrant contains a 9.99% equity blocker. Warrant Exchange and Termination Agreement On March 22, 2023, the Company entered into a Warrant Exchange and Termination Agreement pursuant to which Mr. Sadasivam agreed to transfer the Amended and Restated Warrant to the Company in exchange for the issuance by the Company to Mr. Sadasivam of 500,000 shares of the Company’s common stock. On March 22, 2023, the Company issued 500,000 shares of the Company’s common stock to Mr. Sadasivam. As a result, the Amended and Restated Warrant is terminated, null and void, and of no further force or effect. 10 rYojbaba Inc. Consulting Agreement On April 4, 2023 (the “rYojbaba Effective Date”), the Company entered into a Consulting and Services Agreement (the “rYojbaba Consulting Agreement”) by and between the Company and rYojbaba Inc., a Japanese corporation (“rYojbaba”). Pursuant to the terms of the rYojbaba Consulting Agreement, the Company agreed to provide rYojbaba certain services, including the following (collectively, the “rYojbaba Services”): (i) Assistance with the selection and negotiation of terms for a law firm, underwriter and auditing firm for rYojbaba; (ii) Assisting in the preparation of documentation for internal controls required for an initial public offering of de-SPAC or other rYojbaba Fundamental Transaction (as defined in the rYojbaba Consulting Agreement) by rYojbaba; (iii) Providing support services to remove problematic accounting accounts upon listing; (iv) Translation of requested documents into English; (v) Attend and, if requested by rYojbaba, lead meetings with rYojbaba’s management and employees; (vi) Provide rYojbaba with support services related to rYojbaba’s NASDAQ listing; (vii) Conversion of accounting data from Japanese standards to U.S. GAAP; (viii) Support for rYojbaba’s negotiations with the audit firm; (ix) Assist in the preparation of S-1 or F-1 filings; (x) Creation of English web page; and (xi) Preparing an investor presentation/deck and executive summary of rYojbaba’s operations. In providing the rYojbaba Services, the Company will not render legal advice or perform accounting services, and will not act as an investment advisor or broker/dealer. Pursuant to the terms of the rYojbaba Consulting Agreement, the parties agreed that the Company will not provide the following services, among others: negotiation of the sale of rYojbaba’s securities; participation in discussions between rYojbaba and potential investors; assisting in structuring any transactions involving the sale of rYojbaba’s securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in rYojbaba. Pursuant to the terms of the rYojbaba Consulting Agreement, rYojbaba agreed to compensate the Company as follows in return for the provision of the rYojbaba Services during the eight-month term: (a) $500,000, to be paid as follows: (i) $200,000 on the rYojbaba Effective Date; (ii) $150,000 on the three-month anniversary of the rYojbaba Effective Date; and (iii) $150,000 on the date that rYojbaba first files a Form S-1, Form F-1, Form S-4, Form F-4 or any similar or replacement form with the SEC with respect to any transaction which is reasonably expected to result in the rYojbaba Trigger Date (as defined in the rYojbaba Warrant); and (b) Issuance by rYojbaba to the Company of a warrant (the “rYojbaba Warrant”), deemed fully earned and vested as of the rYojbaba Effective Date, to acquire a number of shares of capital stock of rYojbaba, to initially be equal to 3% of the fully diluted share capital of rYojbaba as of the rYojbaba Effective Date, subject to adjustment as set forth in the rYojbaba Consulting Agreement and the rYojbaba Warrant. For any services performed by the Company beyond the rYojbaba Term (as hereinafter defined), rYojbaba will compensate the Company for rYojbaba Services at the rate of $150 per hour, based on the hours spent by personnel of the Company. The term of the rYojbaba Consulting Agreement will continue until eight months after the rYojbaba Effective Date, unless sooner terminated in accordance with the terms of the rYojbaba Consulting Agreement (the “rYojbaba Term”). The rYojbaba Consulting Agreement may be terminated at any time by either party upon notice to the other party. 11 rYojbaba Warrant As provided in the rYojbaba Consulting Agreement, on the rYojbaba Effective Date, rYojbaba issued the rYojbaba Warrant to the Company. Pursuant to the terms of the rYojbaba Warrant, the Company may, at any time (i) on or after the earlier of the date that either (a) rYojbaba completes its first initial public offering of stock in the U.S. resulting in any class of rYojbaba’s stock being listed for trading on any tier of Nasdaq, the NYSE or the NYSE American; (b) rYojbaba consummates a merger or other transaction with a SPAC wherein rYojbaba becomes a subsidiary of the SPAC; or (c) rYojbaba undertakes any other rYojbaba Fundamental Transaction (the “rYojbaba Trigger Date”); and (ii) on or prior to the close of business on the tenth anniversary of the rYojbaba Trigger Date, exercise the rYojbaba Warrant to purchase 3,000 shares of rYojbaba’s common stock, which represents 3% of rYojbaba’s issued and outstanding common stock as of the rYojbaba Trigger Date, for an exercise price per share of $0.01, subject to adjustment as provided in the rYojbaba Warrant. The number of shares for which the rYojbaba Warrant will be exercisable will be automatically adjusted on the rYojbaba Trigger Date to be 3% of the fully diluted number and class of shares of capital stock of rYojbaba as of the rYojbaba Trigger Date, following completion of the transactions which caused the rYojbaba Trigger Date to be achieved. The rYojbaba Warrant contains a 9.99% equity blocker. ZEROSPO Note Purchase Agreement On May 2, 2023, the Company entered into that certain Note Purchase Agreement by and between the Company and ZEROSPO. Pursuant to the terms of the Note Purchase Agreement, ZEROSPO agreed to issue and sell to the Company, and the Company agreed to purchase, a promissory note in the principal amount of $300,000 (the “ZEROSPO Note”). Pursuant to the terms of the ZEROSPO Note, ZEROSPO agreed to pay to the Company $300,000 and to pay interest on the outstanding principal amount at the rate of 8% per annum. To the extent not earlier paid, the principal amount and all accrued interest will be due and payable on the ZEROSPO Maturity Date (as hereinafter defined) or earlier in the event of an event of default as provided in the ZEROSPO Note. The “ZEROSPO Maturity Date” means the earlier of: (i) The date of the closing of capital-raising transactions consummated by ZEROSPO via the issuance of any debt securities or equity securities of ZEROSPO or any of its affiliates which results in gross proceeds to ZEROSPO or any of its affiliates of $300,000 or more; (ii) The date on which ZEROSPO completes a transaction pursuant to which its ordinary shares are listed for trading on The Nasdaq Capital Market, or any related exchange, including the NASDAQ Global Market, or on the New York Stock Exchange or any related securities exchange, including the NYSE American; and (iii) The date which is 180 days following May 2, 2023. ZEROSPO may, at its sole option, prepay the ZEROSPO Note and any accrued interest thereunder in whole or in part at any time. In the event that any amount due under the ZEROSPO Note is not paid as and when due, such amounts will accrue interest at the rate of 12% per year, simple interest, non-compounding, until paid. Financial Overview For the three months ended March 31, 2023 and 2022, we generated revenues of $8,734,150 and $2,276,001, respectively, and reported net income of $1,808,037 and net loss of $1,578,451, respectively, and cash flows used in operating activities of $1,048,059 and $2,393,853, respectively. As noted in our unaudited consolidated financial statements, as of March 31, 2023, we had an accumulated deficit of $8,691,290. Results of Operations Comparison of Results of Operations for the Three Months ended March 31, 2023 and 2022 The following table summarizes our operating results as reflected in our statements of operations during the three months ended March 31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods. For the Three Months Ended March 31, 2023 2022 Variance % of % of % of Amount Revenues Amount Revenues Amount Revenues Revenues $ 8,734,150 100.0 % $ 2,276,001 100.0 % $ 6,458,149 283.7 % Cost of Revenues 3,101,066 35.5 % 1,055,356 46.4 % 2,045,710 193.8 % Gross Profit 5,633,084 64.5 % 1,220,645 53.6 % 4,412,439 361.5 % Operating expenses: Selling expenses 568,642 6.5 % 205,918 9.0 % 362,724 176.1 % General and administrative expenses 2,685,207 30.8 % 2,468,933 108.5 % 216,274 8.8 % Research and development expenses 79,624 0.9 % 108,259 4.8 % (28,635 ) -26.5 % Total operating expenses 3,333,473 38.2 % 2,783,110 122.3 % 550,363 19.8 % Income (loss) from operations 2,299,611 26.3 % (1,562,465 ) -68.7 % 3,862,076 -247.2 % Other income (expenses) 169,874 2.0 % (16,802 ) -0.7 % 186,676 -1,111.0 % Income (loss) before income tax provision 2,469,485 28.3 % (1,579,267 ) -69.4 % 4,048,752 -256.4 % Income tax expense (benefit) 661,448 7.6 % (816 ) 0.0 % 662,264 -81,159.8 % Net income (loss) 1,808,037 20.7 % (1,578,451 ) -69.4 % 3,386,488 -214.5 % Less: net loss attributable to non-controlling interest (74,252 ) -0.9 % - - (74,252 ) -100.0 % Net income (loss) attributable to HeartCore Enterprises, Inc. $ 1,882,289 21.6 % $ (1,578,451 ) -69.4 % $ 3,460,740 -219.2 % 12 Revenues Our total revenues increased by $6,458,149, or 283.7%, to $8,734,150 for the three months ended March 31, 2023 from $2,276,001 for the three months ended March 31, 2022, mainly attributable to (i) the increased revenue of $5,192,751 from GO IPO consulting services; (ii) the increased revenue of $1,631,619 from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023; offset by (iii) the decreased revenue of $444,680 in revenue from sales of on-premise software, primarily due to the loss of a significant CMS customer in the current period. Cost of Revenues Our total costs of revenues increased by $2,045,710, or 193.8%, to $3,101,066 for the three months ended March 31, 2023 from $1,055,356 for the three months ended March 31, 2022, in light of the increase in sales in GO IPO consulting services and customized software development and services, offset by the decrease in the costs related to maintenance and support services. Gross Profit Our total gross profit increased by $4,412,439, or 361.5%, to $5,633,084 for the three months ended March 31, 2023 from $1,220,645 for the three months ended March 31, 2022, mainly attributable to (i) the increased gross profit of $4,518,938 from GO IPO consulting services; (ii) the increased gross profit of $223,876 from customized software development and services; offset by (iii) the decreased gross profit of $526,939 from sales of on-premise software . O ur overall gross profit margin increased by 10.9% to 64.5% for the three months ended March 31, 2023, from 53.6% for the three months ended March 31, 2022. Selling Expenses Our selling expenses increased by $362,724, or 176.1%, to $568,642 for the three months ended March 31, 2023 from $205,918 for the three months ended March 31, 2022, primarily attributable to an increase of $321,376 in stock-based compensation for sales staff. As a percentage of revenues, our selling expenses accounted for 6.5% and 9.0% of our total revenues for the three months ended March 31, 2023 and 2022 , respectively. General and Administrative Expenses Our general and administrative expenses increased by $216,274, or 8.8%, to $2,685,207 for the three months ended March 31, 2023 from $2,468,933 for the three months ended March 31, 2022, primarily attributable to (i) an increase of $102,357 in stock-based compensation as the Company awarded options and RSUs to employees and service providers in 2023; (ii) an increase of $196,667 in office, utility and other expenses, an increase of $96,104 in depreciation and amortization expenses, and an increase of $50,682 in rent expenses, mostly due to the acquisition of Sigmaways and its subsidiaries; offset by (iii) a decrease of $283,468 in listing-related expenses as we finished the process of going public in early 2022. As a percentage of revenues, general and administrative expenses were 30.8% and 108.5% of our revenues for the three months ended March 31, 2023 and 2022, respectively. 13 Research and Development Expenses Our research and development expenses decreased by $28,635, or 26.5%, to $79,624 for the three months ended March 31, 2023 from $108,259 for the three months ended March 31, 2022, primarily attributable to the decrease in outsourcing expenses relating to the development of a high quality 12K VR camera and related data compression system, which was completed in June 2022. As a percentage of revenues, research and development expenses were 0.9% and 4.8% of our revenues for the three months ended March 31, 2023 and 2022, respectively . Other Income (Expenses), Net Our other income (expenses) primarily includes changes in fair value of investments in warrants, interest income generated from bank deposits, interest expense for bank loans and bonds, other income, and other expenses. Our other income (expenses), net increased by $186,676, or -1, 111.0%, to other income, net of $169,874 in the three months ended March 31, 2023 from other expense s , net of $16,802 in the three months ended March 31, 2022, primarily attributable to the increase of $193,365 in the changes in fair value of investments in warrants . Income Tax Expense (Benefit) Our income tax expense was $661,448 in the three months ended March 31, 2023, as compared to the income tax benefit of $816 in the three months ended March 31, 2022, mainly due to the net income before income tax of $2,469,485 in the current period, as compared to a net loss before income tax of $1,579,267 in the prior period. Net Income (Loss) As a result of the foregoing, we reported a net income of $1,808,037 for the three months ended March 31, 2023, representing a $3,386,488, or -214.5%, increase from a net loss of $1,578,451 for the three months ended March 31, 2022. Net Loss Attributable to Non-controlling Interest We owned 51% equity ownership interest of Sigmaways as of March 31, 2023. Accordingly, we recorded net loss attributable to the non-controlling interest of $74,252 in the three months ended March 31, 2023 . Net Income (Loss) Attributable to HeartCore Enterprises, Inc. As a result of the foregoing, we reported a net income attributable to HeartCore Enterprises, Inc. of $1,882,289 for the three months ended March 31, 2023, representing a $3,460,740, or - 219.2%, increase from a net loss attributable to HeartCore Enterprises, Inc. of $1,578,451 for the three months ended March 31, 2022 . Liquidity and Capital Resources As of March 31, 2023, we had $5,209,915 in cash, as compared to $7,177,326 as of December 31, 2022. As of March 31, 2023, our working capital was $3,540,983 as compared to $4,887,444 as of December 31, 2022. We also had $2,380,128 in accounts receivable as of March 31, 2023. Our accounts receivable primarily include balance due from customers for our on-premise software sold and services provided to and accepted by customers. The following table sets forth summary of our cash flows for the periods indicated: For the Three Months Ended March 31, 2023 2022 Net cash used in operating activities $ (1,048,059 ) $ (2,393,853 ) Net cash used in investing activities (722,364 ) (35,281 ) Net cash provided by (used in) financing activities (134,296 ) 13,284,474 Effect of exchange rate changes (62,692 ) (78,293 ) Net change in cash and cash equivalents (1,967,411 ) 10,777,047 Cash and cash equivalents, beginning of the period 7,177,326 3,136,839 Cash and cash equivalents, end of the period $ 5,209,915 $ 13,913,886 14 Operating Activities Net cash used in operating activities was $1,048,059 for the three months ended March 31, 2023, as compared to the amount of $2,393,853 net cash used in operating activities for the three months ended March 31, 2022, primarily consisting of the following: ● Net income of $1,808,037 for the three months ended March 31, 2023. ● Changes in fair value of investments in warrants of $193,365 and an increase of $4,009,335 in warrants received as noncash consideration as two of our IPO consulting customers completed the IPO during the current period and we recognized investments in warrants and remeasured the fair value at the period end. ● A decrease of $178,733 in accrued payroll and other employee costs due to payment made for bonus during the three months ended March 31, 2023. ● A decrease of $167,873 in deferred revenue, due to amortization of upfront payment received for long-term service contracts. ● Offset by stock-based compensation of $915,228 for the three months ended March 31, 2023, as we granted equity rewards to our employees and service providers in 2023. ● Offset by an increase of $678,725 in income tax payables as we generated more taxable income in the current period. Investing Activities Net cash used in investing activities amounted to $722,364 for the three months ended March 31, 2023, as compared to net cash used in investing activities amounted to $35,281 for the three months ended March 31, 2023, primarily consisting of net payment of $724,910 for acquisition of subsidiary, net of cash acquired . Financing Activities Net cash used in financing activities amounted to $134,296 for the three months ended March 31, 2023, as compared to net cash provided by financing activities amounted to $13,284,474 for the three months ended March 31, 2022, primarily consisting of repayment of $265,255 for long-term debts, and repayment of $36,517 for insurance premium financing, offset by the net proceeds of $173,582 from factoring arrangement. Contractual Obligations Lease commitment The Company has entered into three leases for its office space, which were classified as operating leases. It has also entered into two leases for office equipment, one of which was terminated in June 2022, and a lease for a vehicle, and these leases were classified as finance leases. As of March 31, 2023, future minimum lease payments under the non-cancelable lease agreements are as follows: Year Ended December 31, Finance Leases Operating Leases Remaining of 2023 $ 13,433 $ 243,039 2024 281 310,891 2025 - 310,891 2026 - 310,891 2027 - 310,891 Thereafter - 1,280,060 Total lease payments 13,714 2,766,663 Less: imputed interest (51 ) (164,422 ) Total lease liabilities 13,663 2,602,241 Less: current portion 13,663 288,081 Non-current lease liabilities $ - $ 2,314,160 15 Long-Term Debts The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions. As of March 31, 2023, future minimum loan payments are as follows: Loan Year Ended December 31, Payment Remaining of 2023 $ 464,705 2024 467,708 2025 291,088 2026 276,692 2027 241,046 Thereafter 398,006 Total $ 2,139,245 Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of March 31, 2023. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements. These 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 revenues and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenues 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 herein reflect the more significant judgments and estimates used in preparation of our unaudited consolidated financial statements. Business Combinations We account for business combinations 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. The allocation of the purchase price utilizes significant estimates and assumptions in determining the fair values of identifiable assets acquired, liabilities assumed and non-controlling interest, especially with respect to intangible asset. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset and are reviewed by consulting with third-party valuation appraisers. The purchase price allocation for business acquisitions contains uncertainties because it requires management’s judgment. The fair value of the intangible asset is estimated using the income approach using the multi-period excess earnings method. Management applies significant judgement related to this fair value method, which included the selection of an expected EBITDA margin assumption for the forecast period, and discount rate assumptions. These significant assumptions are based on company specific information and projections, which are not observable in the market (except for the discount rate assumption) and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions. The accounting for business combinations is a critical accounting estimate because it requires estimates and judgement in assessing the future cash flows of the acquired business, the fair value of non-controlling interest, and the allocation of the future cash flows to identifiable intangible assets, in determining the fair value for assets and liabilities. 16 Revenue Recognition The Company recognizes revenues under ASC Topic 606, “Revenue from Contracts with customers”. To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of value-added taxes and applicable local government levies. The Company currently generates its revenues from the following main sources: Revenues from On-Premise Software Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. The Company provides on-premise software in the form of both perpetual licenses and term-based licenses which grant the customers with the right for a specified term. Revenues from on-premise licenses are recognized upfront at the point in time when the software is made available to the 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 prices (“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. Revenues from Maintenance and Support Services Maintenance and support services provided with software licenses consist of trouble shooting, technical support and the right to receive unspecified software updates when and if available during the subscription. Revenues from maintenance and support services are recognized over time as such services are performed. Revenues for consumption-based services are generally recognized as the services are performed and accepted by the customers. Revenues from Software as a Service (“SaaS”) The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer 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. Revenues from Software Development and Other Miscellaneous Services The 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 recognizes revenue at a point in time when control is transferred to the customers and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers. Revenues from Customized Software Development and Services The Company’s customized software development and services revenues primarily include revenues from providing software development solutions and other support services to its customers. The contract pricing is at stated billing rates per hour. These contracts are generally short-term in nature and not longer than one year in duration. For services provided under the contract that result in the transfer of control over time, the underlying deliverable in the contracts is owned and controlled by the customer and does not create an asset with an alternative use to the Company. The Company recognizes revenue on rate per hour contracts based on the amount billable to the customer, as the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date. 17 Revenues from Consulting Services The Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting service contracts are generally less than one year in length and normally include both cash and noncash consideration. Cash consideration is paid in installment payments and is recognized in revenue over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is in the form of warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. The Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved. The timing of revenue recognition may differ from the timing of invoicing to the customers. The Company has determined that its contracts do not include a significant financing component. 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 factors certain accounts receivable upon or after the performance obligation is being met. The Company records deferred revenue on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice. Deferred revenue is reported net of related uncollected deferred revenue in the consolidated balance sheets. The amount of revenues recognized during the three months ended March 31, 2023 and 2022 that were included in the opening deferred revenues balance was approximately $0.9 million and $0.8 million, respectively. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.