What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-04-09 compared with 2023-03-31 · 392 added, 454 removed, 113 unchanged (88% of the section changed)

11 unchanged sentences

detailed in our filings with the SEC.

The 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” refers to HeartCore Enterprises, Inc.

and its consolidated subsidiaries, including, but not limited to, HeartCore Co., Ltd.

(“HeartCore Co.”), HeartCore Capital

Advisors, Inc.

(“HeartCore Capital Advisors”), HeartCore Financial, Inc.

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” refers to HeartCore Enterprises, Inc.

and its consolidated subsidiaries, including, but not limited to,

HeartCore Co., Ltd.

(“HeartCore Co.”) and its subsidiary, HeartCore Capital Advisors, Inc.

(“HeartCore Capital Advisors”),

HeartCore Financial, Inc.

(“HeartCore Financial”), and Sigmaways, Inc.

(“Sigmaways”).

HeartCore Financial was incorporated in January 2023.

(“Sigmaways”) and its subsidiaries.

Financial was incorporated in January 2023.

HeartCore Capital Advisors was incorporated in February 2023.

The acquisition of Sigmaways was closed in February 2023.

are a leading software development company based in Tokyo, Japan.

The acquisition of Sigmaways

and its subsidiaries was closed in February 2023.

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.

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.

The first business unit, our CX division, includes a customer

experience management business (the “CXM Platform”) that has been in existence for 14 years.

Our CXM Platform includes marketing,

sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers

throughout the customer experience.

We also provide education, services and support to help customers be successful with our CXM Platform.

The second business unit, our

DX division, is a digital transformation business which provides customers with robotics process automation, process mining and task mining

to accelerate the digital transformation of enterprises.

We also have an ongoing technology innovation team to develop software that supports

the narrow needs of large enterprise customers.

We have made significant investments

in our sales and marketing efforts globally.

As of December 31, 2023, our sales and marketing organization was comprised of 16 employees

including our field sales organization, which maintains a physical sales presence in the Japanese software market.

Using our go-to-market

strategy, we believe we have made significant contributions in Japan and have established a diversified revenue and customer base.

of December 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit)

had 949 total customers in Japan, of which 691, or 72.8%, were paying customers, and 24 total customers outside Japan, of which 1, or

0.1%, was a paying customer.

Our 280 non-paying customers were originally paying customers that utilized our paid services but now use

a free version of the CXM Platform.

There is the potential for non-paying customers to become paying customers again if and when they

start utilizing our paid services again.

During 2022, we started the GO

IPO business, which supports Japanese companies listing on Nasdaq and NYSE in the United States.

As of December 31, 2023, we have entered

into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company

a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the

fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.

revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions in Japan.

We were incorporated in the State

of Delaware on May 18, 2021.

We conduct business activities principally through our wholly owned subsidiary, HeartCore Co., a Japanese

corporation, which was established in Japan by Mr.

Sumitaka Yamamoto, our CEO, in 2009.

On September 6, 2022, HeartCore

1 unchanged sentence

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.

2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States.

30, 2023, we have entered into consulting agreements with nine companies to assist

them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranges from $350,000 to $900,000 and

warrants or Japanese acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable

on certain dates at an exercise price of $0.01 per share.

The revenue in the GO IPO business helped to offset the decline in sales in

the CX and DX divisions.

In the first quarter of 2023, we formed HeartCore Financial

and HeartCore Capital Advisors as a part of our Go IPO

consulting business.

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

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

was comprised of 14 employees, including our field sales organization, which maintains a physical sales presence in the Japanese

software market.

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

revenue and customer base.

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

transformation business unit) had 903 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, 2022 and 2021, we generated revenues of $8,818,312 and $10,822,514, respectively, and reported net

loss of $6,677,466 and $327,044, respectively, and cash flows used in operating activities of $4,808,547 and cash flows from operating

activities of $766,300, respectively.

As noted in our consolidated financial statements, as of December 31, 2022, we had an accumulated

deficit of $10,573,579.

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.

shares of Sigmaways, a company incorporated under the laws of the State of California, and its wholly owned subsidiaries.

Sigmaways and

its wholly owned subsidiaries are engaged in the business of developing and sales of software in the United States.

The acquisition was

closed on February 1, 2023.

In the first quarter of 2023,

we formed HeartCore Financial in the U.S.

and HeartCore Capital Advisors in Japan, as a part of our Go IPO consulting business.

fourth quarter of 2023, we formed HeartCore Luvina Vietnam Company Limited in Vietnam, which is engaged in the business of software development.

For the fiscal years ended December

31, 2023 and 2022, we generated revenues of $21,845,830 and $8,818,312, respectively, and reported net loss of $4,876,700 and $6,677,466,

respectively, and cash flows used in operating activities of $4,331,209 and $4,808,547, respectively.

As noted in our consolidated financial

statements, as of December 31, 2023, we had an accumulated deficit of $14,763,469.

Key Factors that Affect Our Results of Operations

We believe the following key factors

may affect our financial condition and results of operations:

Our Ability to Strength Our Competitive Advantages

Our 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

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.

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.

Our Ability to Expand International Market

We 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

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.

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.

Our Ability to Control Costs and Expenses and

Improve Our Operating Efficiency

Our 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

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a free version of the CXM Platform.

Our net retention rate for our paying customers of our customer experience management business unit (CMS business) was 92%,

95% and 95% as of December 31, 2022, 2021 and 2020, respectively.

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.

Our net retention rate for our paying customers of our customer experience management

business unit (CMS business) was 88%, 92%, and 95% as of December 31, 2023, 2022, and 2021, respectively.

There is an insignificant

impact (below 10%) on our net retention rate as to former paying customers of our CMS business utilizing the free version of your CXM

Affecting Our Results of Operations

4 unchanged sentences

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.

The effects of the COVID-19 pandemic are still impacting the global economy as well as our operations.

and extent of this impact depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness

of containment actions.

The lasting effects of the pandemic continue to be unknown.

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

20 unchanged sentences

31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

For the Years Ended December 31,

$ (2,004,202 )

Cost of revenues

the Years Ended December 31,

and administrative expenses

and development expenses

operating expenses

Selling expenses

General and administrative expenses

Research and development expenses

Total operating expenses

Income (loss) from operations

Other income (expenses)

Income (loss) before income tax provision

Income tax expense (benefit)

net income attributable to non-controlling interest

Net loss attributable to HeartCore Enterprises, Inc.

$ (6,677,466 )

Loss from operations

income (expenses)

Loss before income tax benefit

net loss attributable to non-controlling interest

loss attributable to HeartCore Enterprises, Inc.

$ (4,189,890 )

For the Years Ended December 31,

Revenue from on-premise software

$ (6,677,466 )

Revenue from maintenance and support services

Revenue from software as a service (“SaaS”)

Revenue from software development and other miscellaneous services

Revenue from consulting service

Total revenues

Cost of revenues

Costs of on-premise software

Costs of maintenance and support services

Costs of software as a service (“SaaS”)

the Years Ended December 31,

from on-premise software

from maintenance and support services

from software as a service (“SaaS”)

from software development and other miscellaneous services

from customized software development and services

from consulting services

of on-premise software

of maintenance and support services

of software as a service (“SaaS”)

Costs of software development and other miscellaneous services

Costs of consulting service

Total cost of revenues

On-premise software

Maintenance and support services

Software as a service (“SaaS”)

Software development and other miscellaneous services

Consulting service

Total gross profit

$ (1,836,482 )

total revenues decreased by $2,004,202, or 18.5%, to $8,818,312 for the year ended December 31, 2022 from $10,822,514 for the year

ended December 31, 2021.

The decrease in our revenues was attributable to (i) the decrease of

$1,748,869 in revenue from sales of on-premise software, because an important customer that purchased a CXM 5-year use license in

2016 renewed their CXM 5-year use license again in 2021 for $1,157,517, and no such large amount license sales revenue in 2022;

(ii) the decrease

of $932,540 in revenue from software development and other miscellaneous services, as the CMS constructions decreased with the slump

in CMS license orders;

(iii) the ongoing depreciation of Japanese Yen in 2022 contributed to our revenue decrease;

offset by (iv)

the revenue of $1,448,365 from newly established consulting services in 2022.

total costs of revenues slightly decrease by $167,720, or 3.0%, to $5,467,017 for the year ended December 31, 2022 from $5,634,737 for

the year ended December 31, 2021, in light of the decrease in sales of on-promise software and

software development, but less proportionally due to fixed software maintenance fee, offset by the costs related to the consulting services .

total gross profit decreased by $1,836,482, or 35.4%, to $3,351,295 for the year ended December 31, 2022 from $5,187,777 for the

year ended December 31, 2021.

The decrease in our gross profit was attributable to the decrease in the gross profit from sales of

on-premise software and related maintenance and development services, offset by the gross profit from newly established consulting services in

the reasons discussed above, our overall gross profit margin decreased by 9.9% to 38.0% for the year ended December 31, 2022

from 47.9% in the fiscal year 2021.

Costs of customized software development and services

of consulting services

cost of revenues

and support services

as a service (“SaaS”)

Software development and other miscellaneous

Customized software development and services

Our total revenues increased by $13,027,518, or 147.7%,

to $21,845,830 for the year ended December 31, 2023 from $8,818,312 for the year ended December 31, 2022, mainly

attributable to (i) the increased revenue of $4,763,954 from GO IPO consulting services as the Company obtained more IPO consulting customers

in 2023 and received warrants from its customers as noncash consideration from consulting services;

(ii) the increased revenue of $8,784,239

from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023;

by (iii) the decrease of $274,355 in revenue from sales of on-premise software, primarily due to the weak performance of a significant

distributor and approximately 8% depreciation of Yen in the current period;

decrease of $316,177 in revenue from maintenance and support services, as some clients canceled their maintenance service contracts,

and approximately 8% depreciation of Yen.

Cost of Revenues

Our total costs of revenues increased by $8,311,399,

or 152.0%, to $13,778,416 for the year ended December 31, 2023 from $5,467,017 for the year ended December 31, 2022, in

light of the increase in sales in GO IPO consulting services and customized software development and services, offset by the overall decrease

in software development and other services, because the Company conducted several complex software development projects to meet customer

requirements in 2022, while no such projects in 2023.

The decrease was also caused by approximately 8% depreciation of Yen.

Our total gross profit increased by $4,716,119, or

140.7%, to $8,067,414 for the year ended December 31, 2023 from $3,351,295 for the year ended December 31, 2022, mainly

attributable to (i) an increased gross profit of $1,564,347 from customized software development and services as a result of acquisition

of Sigmaways and its subsidiaries on February 1, 2023;

(ii) an increased gross profit of $3,661,179 from GO IPO consulting services, as

we recognized revenue from the warrants of the customers upon customers’ IPO effectiveness in current year, while no corresponding

cost for such revenue recognized;

offset by (iii) a decrease of $621,591 in sale of on-premises software due to lower volume in sale and

higher costs to purchase valuable licenses in the current period.

the reasons discussed above, our overall gross profit margin decreased by 1.1% to 36.9% for the year ended December 31, 2023 from 38.0%

in the fiscal year 2022.

following table sets forth the breakdown of our operating expenses for the fiscal years ended December 31, 2023 and 2022:

For the Years Ended December 31,

Total revenues

$ (2,004,202 )

the Years Ended December 31,

and administrative expenses

and development expenses

operating expenses

Selling expenses

General and administrative expenses

Research and development expenses

Total operating expenses

selling expenses primarily include advertising expenses, sales commissions, sales promotion expenses, and stock-based compensation.

For the Years Ended December 31,

the Years Ended December 31,

promotion expenses

selling expenses

Advertising expenses

Sales commissions

Sales promotion expenses

Stock-based compensation

Total selling expenses

selling expenses increased by $2,529,837, or 852.4%, to $2,826,615 for the year ended December 31, 2022 from $296,778 in the fiscal

year 2021, primarily attributable to (i) an increase in advertising expenses by $1,707,026, or 871.3%, to $1,902,942 for the year

ended December 31, 2022 from $195,916 in the fiscal year 2021, because the U.S.

parent company

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

going public in the U.S.

in early 2022, and to promot e

newly established consulting services in Japan.

We also increased selling activities to expand

the software business in Japan, such as attending software exhibitions ;

an increase of $784,859 in stock-based compensation, as our sales staffs were awarded options to purchase the Company’s common

Our selling expenses decreased by $1,310,368, or 46.4%,

to $1,516,247 for the year ended December 31, 2023 from $2,826,615 in the fiscal year 2022, primarily attributable to

a decrease of $1,070,451 in advertising expenses, as the Company spent heavily on investor relations and public relations in the U.S.

immediately after listing in Nasdaq in early 2022, and a decrease of $223,770 in stock-based compensation, as the Company granted stock

options to certain sales staff in 2022, who were promoted to executive management in 2023, therefore the corresponding stock-based compensation

was classified to general and administrative expenses.

a percentage of revenues, our selling expenses accounted for 6.9% and 32.0% of our total revenues for the years ended December 31, 2023

1 unchanged sentence

and Administrative Expenses

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

expense, rent expense, office, utility and other expenses, bad debt expense, travel and entertainment expense,

and stock-based compensation.

For the Years Ended December 31,

Our general and administrative expenses primarily

consist of employee salaries and welfare expenses, consulting and professional service fees, depreciation and amortization expenses, rent

expense, office, utility and other expenses, travel and entertainment expenses, and stock-based compensation.

the Years Ended December 31,

and administrative expenses

and welfare expenses

and professional service fees

and amortization expenses

utility and other expenses

and entertainment expenses

general and administrative expenses

Salaries and welfare

Consulting and professional service fees

Depreciation expense

Office, utility and other expenses

Bad debt expense

Travel and entertainment expense

Stock-based compensation

Total general and administrative expenses

general and administrative expenses increased by $2,258,493 or 52.3%, to $6,579,734 for the year ended December 31, 2022 from

$4,321,241 in the fiscal year 2021, primarily attributable to (i) an increase of $465,267 in consulting and professional fees, as we

incurred more audit fees, legal fees, and filing fees to satisfy the SEC filing requirements as we got listed in the Nasdaq in

February 2022, and customer referral and attraction related expenses related to newly established GO IPO consulting services;

(ii) an increase of $618,003 in salaries and welfare, as all our employees received significant salary raise in February 2022, and

newly employed staffs for US operation;

(iii) an increase of $609,411 in stock-based compensation, as the Company awarded options to

the employees in 2022;

(iv) an increase of $538,995 in office, utility and other expenses, mainly because we entered into D&O

insurance policy and incurred insurance expense in 2022.

Our general and administrative expenses increased

by $3,071,647 or 46.7%, to $9,651,381 for the year ended December 31, 2023 from $6,579,734 in the fiscal year 2022, primarily attributable

to (i) an increase of $1,608,202 in salaries and welfare expenses due to increased remuneration

for executive officers and additional staff employed by Sigmaways and its subsidiaries;

(ii) an increase of $589,797 in depreciation and

amortization expenses, an increase of 669,372 in office, utility and other expenses, and an increase of $118,665 in rent expense, mostly

due to the acquisition of Sigmaways and its subsidiaries as well as the overall business expansion;

and (iii) an increase of $135,607

in stock-based compensation, as certain sales staff were promoted to executive management, and their stock-based compensation was reclassified

from selling expenses in 2022 to general and administrative expenses in 2023.

a percentage of revenues, general and administrative expenses were 44.2% and 74.6% of our revenues for the fiscal years ended December

1 unchanged sentence

and Development Expenses

research and development expenses primarily consist of employee salaries and welfare, outsourcing expenses, and stock-based compensation.

For the Years Ended December 31,

research and development expenses primarily consist of employee salaries and welfare expenses, outsourcing expenses, and stock-based

compensation.

the Years Ended December 31,

and development expenses

and welfare expenses

research and development expenses

Salaries and welfare

Outsourcing expenses

Stock-based compensation

Total research and development expenses

research and development expenses increased by $130,285, or 25.5%, to $641,025 in the fiscal year ended December 31, 2022 from $510,740

in the fiscal year ended December 31, 2021, primarily attributable to an increase in outsourcing

expenses relating to development of a high quality 12K VR camera and related data compression system .

Our research and development expenses increased by

$378,116 or 59.0%, to $1,019,141 in the fiscal year ended December 31, 2023 from $641,025 in the fiscal year ended December 31, 2022,

primarily attributable to an increase of $357,247 in outsourcing expenses relating to the development

of new CMS management screen features in the current period and additional R&D expenses incurred by Sigmaways to support its customized

software development and services .

a percentage of revenues, research and development expenses were 4.7% and 7.3% of our revenues for the fiscal years ended December 31,

1 unchanged sentence

Income (Expenses), Net

other income (expenses) primarily includes interest income generated from bank deposits, interest expense for bank loans, bonds, and

leases, other income, and other expenses.

Total other income (expenses), net, increased by $56,812 or -128.8%, from other expenses, net,

$44,117 for the year ended December 31, 2021 to other income, net, $12,695 for the year ended December 31, 2022, primarily attributable

to an increase of interest income of $60,008, due to the increase in cash balance deposited in

bank and the interest rate increased significantly in the fiscal year ended December 31, 2022.

Tax Expense (Benefit)

tax benefit was $5,918 for the year ended December 31, 2022, a decrease of $347,863, or 101.7% from income tax expense of $341,945 in

the fiscal year 2021, primarily due to the increase in net loss before tax and decrease in deferred tax expense in

Our other income (expenses) primarily includes changes

in fair value of investments in marketable securities, changes in fair value of investment in warrants, interest income generated from

bank deposits, interest expense for bank loans, bonds, and leases, government grants, other income, and other expenses.

Total other expenses,

net, increased by $903,704 or 7,118.6%, from other income, net, of $12,695 for the year ended December 31, 2022 to other expenses, net,

of $891,009 for the year ended December 31, 2023, primarily attributable to an increase of $615,520

in loss on fair value changes in investments in marketable securities and an increase of $501,445 in loss on fair value changes in investment

in warrants, offset by an increase of $309,015 in other income, primarily due to the penalty payment that we received from certain customers

in the current period.

Income Tax Benefit

Income tax benefit was $133,664 for the year ended

December 31, 2023, an increase of $127,746, or 2,158.6% from income tax benefit of $5,918 in the fiscal year 2022, primarily due to the

increase in deferred income tax benefit brought by the amortization of intangible asset acquired as a result

of Sigmaways during the current year.

As a result of the foregoing, we reported a net loss

of $4,876,700 for the fiscal year ended December 31, 2023, representing a $1,800,766 or 27.0% decrease from a net loss of $6,677,466 for

the fiscal year ended December 31, 2022.

a result of the foregoing, we reported a net loss of $6,677,466 for the fiscal year ended December 31, 2022, representing a $6,350,422

or 1,941.8% increase from a net loss of $327,044 for the fiscal year ended December 31, 2021.

Income attributable to Non-controlling Interest

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

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

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

in the year ended December 31, 2021 .

On August 10, 2021, the Company and Dentsu Digital Investment Limited (“Dentsu Digital”),

a non-controlling shareholder of HeartCore Japan, entered into a stock purchase agreement, pursuant to which the Company has agreed to

purchase the 278 shares of HeartCore Japan held by Dentsu Digital in accordance with certain terms and conditions in the stock purchase

agreement for JPY50,040,000 on the earlier of the (i) the date the SEC declares effective a registration statement on Form S-1, for a

firm commitment underwritten initial public offering of common shares, filed by the Company with the SEC or (ii) December 20, 2022.

Company has determined such shares to be a mandatorily redeemable financial instrument and is recorded as a liability of JPY50,040,000 (approximately

$448,000) in the consolidated balance sheet as of December 31, 2021.

The Company did not recognize any net

income attributable to non-controlling interest since then.

Accordingly, we did not record non-controlling interest income in

the year ended December 31, 2022.

Loss attributable to HeartCore Enterprises, Inc.

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

of $6,677,466 for the fiscal year ended

December 31, 2022, representing a $6,339,310 or 1,874.7% increase from a net loss of $338,156 for the fiscal year ended December 31,

and Capital Resources

of December 31, 2022, we had $7,177,326 in cash as compared to $3,136,839 as of December 31, 2021.

Net Loss Attributable to Non-controlling Interest

owned 51% equity ownership interest of Sigmaways and its subsidiaries as of December 31, 2023.

Accordingly, we recorded net loss attributable

to the non-controlling interest of $686,810 in the year ended December 31, 2023 .

Net Loss Attributable to HeartCore Enterprises,

As a result of the foregoing, we reported a net loss

attributable to HeartCore Enterprises, Inc.

of $4,189,890 for the fiscal year ended December 31, 2023, representing a $2,487,576 or 37.3%

decrease from a net loss of $6,677,466 for the fiscal year ended December 31, 2022.

Liquidity and Capital Resources

As of December 31, 2023, we had $1,012,479 in cash

as compared to $7,177,326 as of December 31, 2022.

We also had $2,623,682 in accounts receivable as of December 31, 2023.

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

and services provided and accepted by customers.

of December 31, 2022, our working capital was $4,887,444.

In assessing our liquidity, management monitors and analyzes our cash, our

ability to generate sufficient revenues in the future, and our operating and capital expenditure commitments.

receivable primarily include balance due from customers for our on-premise software sold and services provided and accepted by customers,

as well as amounts billable to the customers for customized software development and services.

of December 31, 2023, our working capital deficit was $1,016,662.

In assessing our liquidity, management monitors and analyzes our cash,

our ability to generate sufficient revenues in the future, and our operating and capital expenditure commitments.

Flows for the Years Ended December 31, 2023 and 2022

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

For the Years Ended

Net cash provided by (used in) operating activities

the Years Ended

cash used in operating activities

$ (4,331,209 )

Net cash used in investing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of the year

Cash and cash equivalents, end of the year

$ (4,808,547 )

cash used in investing activities

cash provided by financing activities

of exchange rate changes

change in cash and cash equivalents

and cash equivalents, beginning of the year

and cash equivalents, end of the year

cash used in operating activities was $4,331,209 for the year ended December 31, 2023, primarily consisting of the following:

Net loss of $6,677,466

for the fiscal year.

A decrease of $283,921

in operating lease liabilities, due to the rent payment made.

Offset by non-cash lease

expense of $273,836.

Offset by stock-based compensation

of $1,519,743, as we granted equity rewards to our employees in 2022.

Offset by a decrease in

accounts receivable of $296,835.

The decrease was primarily due to the decrease in our sales 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.

Offset by an increase in

deferred revenue of $239,129.

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

The deferred revenue increased

as a result of newly established consultant services in 2022.

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.

The increase was mainly due to the increase in accrued listing-related expense and accrued

software development outsourcing expense.

Depreciation expenses of

An increase in deferred

revenue of $304,536.

loss of $4,876,700 for the fiscal year.

Warrants received as non-cash consideration of $3,763,621 as our IPO consulting customers completed the IPO during the current period.

An increase in accounts receivable of $338,312.

The increase was primarily

due to the increase in our sales generated by our newly acquired subsidiary, Sigmaways .

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

decrease of $327,877 in operating lease liabilities, due to the rent payment made.

by stock-based compensation of $1,430,513, as we granted equity rewards to our employees and service providers in 2023.

Offset by a loss of $615,520 from the changes in fair value of investments

in marketable securities.

Offset by a loss of $501,445 from

the changes in fair value of investment in warrants.

by depreciation and amortization expenses of $683,019, mainly because we acquired Sigmaways

and its subsidiaries on February 1, 2023, and recognized amortization expense for the intangible asset identified through the acquisition .

by an increase of $532,790 in accounts payable and accrued expenses as we incurred more operating

expenses due to the expansion of our business .

Offset by an increase in deferred revenue of $553,130, due to the upfront payment received for IPO consulting

services while most IPO customer were not declared IPO effective as of the balance sheet date.

by non-cash lease expense of $346,070.

cash used in operating activities was $4,808,547 for the year ended December 31, 2022, primarily consisting of the following:

loss of $6,677,466 for the fiscal year.

decrease of $283,921 in operating lease liabilities, due to the rent payment made .

by non-cash lease expense of $273,836.

by stock-based compensation of $1,519,743, as we granted equity rewards to our employees

by a decrease in accounts receivable of $296,835.

The decrease was primarily due to the decrease in our sales in the current fiscal

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

by an increase in deferred revenue of $239,129.

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 $12,200 for the year ended December 31, 2022, and included the purchases of fixed assets

of $57,071, offset by the repayment of $44,871 of loan provided to related party.

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

fixed assets of $36,153, and advance and loan provided to related parties of $142,876.

revenue increased as a result of newly established consultant services in 2022 .

cash used in investing activities amounted to $1,780,952 for the year ended December 31, 2023, primarily

consisted of (i) payment for acquisition of Sigmaways and its subsidiaries, net of cash acquired, of $724,910;

(ii) advances on notes

receivable of $600,000;

and (iii) purchases of property and equipment of $ 526,260 .

cash used in investing activities amounted to $12,200 for the year ended December 31, 2022, primarily consisted of the purchases of fixed

assets of $57,071, offset by the repayment of $44,871 of loan provided to related party .

cash provided by financing activities amounted to $136,194 for the fiscal year ended December 31, 2023, primarily

consisted of proceeds of $710,107 from short-term and long-term debts, and net proceeds of $562,767 from factoring arrangement,

offset by repayment of $711,395 for long-term debts, and repayment of 389,035 for insurance premium financing.

cash provided by financing activities amounted to $8,915,341 for the fiscal year ended December 31, 2022, primarily consisting of proceeds

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of $3,500,000, repayment of long-term debts of $810,750, and repayment of insurance premium financing of $388,538.

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.

Company’s subsidiary, HeartCore Co., Ltd.

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

operating leases.

HeartCore Co., Ltd.

also entered into two leases for office equipment, one of which was terminated in June 2022, and

a lease for a vehicle, and these leases were classified as finance leases.

Company has entered into four leases for its office space, which

were classified as operating leases.

It has also entered

into a lease for office equipment, and two leases for vehicles, one

of which was terminated in September 2023, and these

leases were classified as finance leases.

of December 31, 2023, future minimum lease payments under the non-cancelable lease agreements are as follows:

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Non-current lease liabilities

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

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

Year Ended December 31,

In December 2019, a novel coronavirus disease (“COVID-19”)

was reported to have surfaced in Wuhan, China, and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.

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.

For example, many cities, counties, states, and even

countries have imposed or may impose a wide range of restrictions on the physical movement of our employees, partners and customers to

limit the spread of the pandemic, including physical distancing, travel bans and restrictions, closure of non-essential business, quarantines,

work-from-home directives, shelter-in-place orders, and limitations on public gatherings.

These measures have caused, and are continuing

to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide.

In March 2020, 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.

Company’s debts included short-term debt and long-term debts borrowed from banks and other financial institutions.

of December 31, 2023, future minimum payments for long-term debts are as follows:

Ended 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 2020, 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.

Although our company has been in existence for less

than two years, our wholly owned operating subsidiary, HeartCore Co.

operated throughout the pandemic and continues to operate after the

HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and post-pandemic that are

beyond our control.

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.

Although our company has been

in existence for less than three years, our wholly owned operating subsidiary, HeartCore Co.

operated throughout the pandemic and continues

to operate after the pandemic.

HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and

post-pandemic that are beyond our control.

For existing customers, the pandemic had no impact on the use of our software;

for new customers in the travel, hotel,

airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders.

However, although the

pandemic is coming to an end, it will take some time before the economy is fully normalized.

This results in even lower sales in 2022

than in 2021.

Regarding the impact of the pandemic on the DX sector, demand for our DX software increased as large companies were forced

to change their work patterns, forcing employees to work remotely.

In 2022, after the pandemic, a number of employees left the company,

forcing the company to downsize its operations and resulted in a decline in sales.

During 2022, we started the GO IPO business, which

supports Japanese companies to list on Nasdaq and NYSE in the United States.

As of March 30, 2023, we have entered into consulting agreements

with nine companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranges

from $350,000 to $900,000 and warrants or Japanese acquisition rights to purchase one to four percent of the fully-diluted share capital

of such companies that is exercisable on certain dates at an exercise price of $0.01 per share.

The revenue in the GO IPO business helped

to offset the decline in sales in the CX and DX divisions.

The duration and extent of the impact from the pandemic

depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus,

the extent and effectiveness of containment actions and the disruption caused by such actions, the effectiveness of vaccines and other

treatments for COVID-19, and the impact of these and other factors on our employees, customers, partners and vendors.

If we are not able

to respond to and manage the impact of such events effectively, our business will be harmed.

To the extent the pandemic adversely affects our

business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors”

section, including, in particular, risks related to our dependence on customer renewals, the addition of new customers and increased

revenue from existing customer, risks that our operating results could be negatively affected by changes in the sizes or types of businesses

that purchase our platform and the risk that weakened global economic conditions may harm our industry, business and results of operations.

for new customers

in the travel, hotel, airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders.

Although the effects of the pandemic are decreasing, we feel it will take additional time before the economy is fully normalized.

the Japanese yen was weakening, so that sales in dollar terms in 2023 were slightly lower than in 2022.

Regarding the impact

of the pandemic on the DX sector, demand for our DX software increased as large companies were forced to change their work patterns, forcing

employees to work remotely.

During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE

in the United States.

As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their

IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants

or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on

certain dates at an exercise price of $0.01 or JPY1 per share.

The revenue in the GO IPO business helped to offset the decline in sales

in the CX and DX divisions in Japan.

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, 2023.

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.

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 in this annual report reflect the

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

receivable 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 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 recognizes 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 are calculated at 10% and nil of gross sales in Japan and in the U.S., respectively.

Company currently generates its revenues 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 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.

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 recognizes revenue at a point in time when control is transferred to the customers

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

from Consulting Service

Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the

contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial

public offering and supporting the listing process.

The consulting service contracts are generally less than one year in length.

Revenues from consulting services are recognized over the period of the contract by reference to progress toward complete

satisfaction of that performance obligation.

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

revenue is reported net of related uncollected deferred revenue in the consolidated balance sheets.

The amount of revenues recognized

during the years ended December 31, 2022 and 2021 that were included in the opening deferred revenue balance was approximately $1.5 million

and $1.5 million, respectively.

Accounting Estimates

Our discussion and analysis of our financial condition

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

These financial statements are prepared in accordance

with the generally accepted accounting principles in the United States (“U.S.

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

Our accounting

policies are discussed in detail in the footnotes to our consolidated financial statements included in this Annual Report on Form 10-K

for the year ended December 31, 2023.

However, we consider our critical accounting policies to be those related to revenue recognition and business combination.

accounting estimates include the estimates used in the purchase price allocation of the Company’s business combination.

account for business combination using the acquisition method, which requires management to estimate the fair value of the tangible

assets, liabilities, identifiable intangible asset and non-controlling interest, and to properly allocate purchase price

consideration to the individual assets acquired, liabilities assumed and non-controlling interest.

Goodwill is measured as the

excess amount of consideration transferred.

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 acquired.

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.

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 includes 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 combination is a critical accounting estimate because it requires estimates and judgement as to expectations for

future cash flows of the Company;

future cash flows of the acquired business, and the allocation of those cash flows to

identifiable intangible asset, in determining the fair value for assets and liabilities.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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 7. Management’s Discussion and Analysis