HeartCore Enterprises, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this annual report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December 31, 2023, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to the existence of the material weakness identified below. ● Lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S GAAP and the Securities and Exchange Commission (“SEC”) reporting and compliance requirements to design, implement and operate key controls over financial reporting process to address complex technical accounting issues and related disclosures in accordance with U.S. GAAP and financial reporting requirements set forth by the SEC. We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 14d-14(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 83 All internal control systems, no matter how well designed, have inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial reporting reliability and financial statement preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to risk that controls become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making the assessment, management used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO – 2013) in Internal Control-Integrated Framework. Based on its assessment, management concluded that, as of December 31, 2023, our Company’s internal control over financial reporting was not effective. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 84 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Officers and Directors The following table sets forth the names and ages of the members of our Board of Directors and our executive officers and the positions held by each. Each director’s term continues until his or her successor is elected or qualified at the next annual meeting, unless such director earlier resigns or is removed. Name Age Positions Sumitaka Yamamoto 58 Chairman of Board, Chief Executive Officer and President Kimio Hosaka 55 Chief Operating Officer and Director Prakash Sadasivam 50 Chief Strategy Officer and Director Hidekazu Miyata 53 Chief Technical Officer Qizhi Gao 42 Chief Financial Officer Keisuke Kuno 48 CX Division Vice President Ferdinand Groenewald 39 Director Heather Neville 52 Director Koji Sato 54 Director Biographical information concerning our directors and executive officers listed above is set forth below. Sumitaka Yamamoto. Mr. Yamamoto has served as our Chairman of the Board of Directors since August 16, 2021 and served as our Chief Executive Officer and President and been a member of our Board of Directors since May 18, 2021. Mr. Yamamoto is also the founder of HeartCore Co. and has served as the Chief Executive Officer and member of the Board of Directors of HeartCore Co. since June 2009. Mr. Yamamoto is a seasoned information technology software programmer. Mr. Yamamoto graduated with a bachelor’s degree in Spanish from Kansai Gaidai University, Tokyo, Japan. Mr. Yamamoto does not hold, and has not previously held, any directorships in any reporting companies. We believe that Mr. Yamamoto is qualified to serve on our Board of Directors due to his experience in all aspects of our business and his ability to provide an insider’s perspective in board discussions about the business and strategic direction of the Company. We believe that his experience gives him unique insights into our opportunities, challenges and operations. Kimio Hosaka. Mr. Hosaka has served as our Chief Operating Officer and been a member of our Board of Directors since May 18, 2021. Mr. Hosaka has served as the Chief Operating Officer and member of the Board of Managers of HeartCore Co. since August 2015. Mr. Hosaka graduated with a bachelor’s degree in physics from Chuo University, Tokyo, Japan. Mr. Hosaka does not hold, and has not previously held, any directorships in any reporting companies. We believe that Mr. Hosaka is qualified to serve on our Board of Directors due to his experience in business and operations matters. Prakash Sadasivam. Mr. Sadasivam has served as our Chief Strategy Officer and been a member of our Board of Directors since February 1, 2023. Mr. Sadasivam is a technology entrepreneur and the founder of Sigmaways. Under his leadership, Sigmaways has grown into a global organization with a diverse team of experts in various technology fields. Mr. Sadasivam completed his undergraduate studies in Computer Science and Engineering from Vellore Institute of Technology in India. He has also completed Management Development for Entrepreneurs from UCLA, Anderson School of Management. He has also been official member of Forbes Technology Council since 2020. Hidekazu Miyata. Mr. Miyata has served as our Chief Technical Officer since June 1, 2021. Mr. Miyata has also served as the head of the DX division of HeartCore Co. from October 1, 2019 to May 31, 2021. Mr. Miyata graduated with a bachelor’s degree in economics from Doshisha University, Japan. Mr. Miyata does not hold, and has not previously held, any directorships in any reporting companies. Qizhi Gao. Mr. Gao has served as our Chief Financial Officer since May 18, 2021. Mr. Gao has also served as the Chief Financial Officer of HeartCore Co. since May 2017. From December 2007 through April 2017, Mr. Gao served as the Group Leader, Finance & Accounting Department at Marubishi Corporation in Tokyo, Japan. Mr. Gao graduated with a bachelor’s degree in computer accounting from Chuo College of Information and Accounting, Japan. Mr. Gao does not hold, and has not previously held, any directorships in any reporting companies. Keisuke Kuno. Mr. Kuno has served as our CX division Vice President since October 1, 2019. Since August 30, 2021, Mr. Kuno has also served as the head of the CX division and member of the Board of Directors of HeartCore Co. Mr. Kuno graduated with a bachelor’s degree in business administration from Hosei University, Tokyo, Japan. Mr. Kuno does not hold, and has not previously held, any directorships in any reporting companies. Ferdinand Groenewald . Mr. Groenewald has been an independent member of our Board of Directors since January 24, 2022. From January 2022 to July 2022, Mr. Groenewald served as the Chief Accounting Officer of Sadot Group, Inc. (f/k/a Muscle Maker, Inc., a Nasdaq listed company). From September 2018 to January 2, 2022, Mr. Groenewald served as the Chief Financial Officer of Muscle Maker, Inc. From January 25, 2018 through May 29, 2018, Mr. Groenewald served as the Vice President of Finance, Principal Financial Officer and Principal Accounting Officer of Muscle Maker, Inc., Muscle Maker Development, LLC and Muscle Maker Corp., LLC. In addition, from October 2017 through May 29, 2018, he served as the controller of Muscle Maker, Inc. Mr. Groenewald is a certified public accountant with significant experience in finance and accounting. From July 2018 through August 2018, he served as senior financial reporting accountant of Wrinkle Gardner & Company, a full service tax, accounting and business consulting firm. From February 2017 to October 2017, Mr. Groenewald served as Senior Financial Accounting Consultant at Pharos Advisors, Inc. serving a broad range of industries. From November 2013 to February 2017, he served as a Senior Staff Accountant at Financial Consulting Strategies, LLC where he provided a broad range of accounting, financial reporting, and pre-auditing services to various industries. From August 2015 to December 2015, Mr. Groenewald served as a Financial Reporting Analyst at Valley National Bank. Mr. Groenewald holds a Bachelor of Science in accounting from the University of South Africa. Mr. Groenewald does not hold, and has not previously held, any directorships in any reporting companies. 85 Heather Neville. Ms. Neville, age 52, has served as Vice President of People Operations (Human Resources) at PlayStation since January 2021. From June 2019 to January 2021, she was Senior Director of People Operations (Human Resources) at StubHub, an eBay Inc. (Nasdaq: EBAY) company, and from 2018 to 2019, Ms. Neville served as Senior Director of Go-to-Market Operations at Adobe Inc. (Nasdaq: ADBE). Prior to that time, she served as Senior Director, North American Business Operations (2017-2018) and Senior Director, Head of HR operations & Chief of Staff (2015-2017) at eBay Inc. She also previously held various positions at Dell Inc. (NYSE: DELL). Ms. Neville earned a Bachelor of Arts from Ecole Superieure de Gestion in Paris, France, and a Master of Business Administration from Paris Graduate School of Management in Paris, France. We believe that Ms. Neville is qualified to serve on our Board of Directors due to her experience in business, financial and public company matters. K oji Sato. Mr. Sato, age 54, is founder and Managing Partner of GIIP Global Advisory, Inc., a multi-country accounting and CFO service business. He has served as Managing Partner since its founding in 2009. Mr. Sato previously served as Senior Financial Officer and fund of funds manager for Japanese investors for AIFAM Inc. and as Senior Consultant at KPMG, LLP and PricewaterhouseCoopers Japan (Chuo-Aoyama Audit Corporation). Mr. Sato received a Masters in Business Administration from University of Southern California, Marshall School of Business, and a B.S. in Social Science from Hitotsubashi University in Tokyo, Japan. We believe that Mr. Sato is qualified to serve on our Board of Directors due to his experience in business, financial and accounting matters. Our Board of Directors elects our executive officers annually by majority vote. Each director’s term continues until his or her successor is elected or qualified at the next annual meeting, unless such director earlier resigns or is removed. Family Relationships There are no family relationships among any of our directors or executive officers. Involvement in Certain Legal Proceedings No executive officer, member of the board of directors or control person of our Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years. Board Leadership Structure and Board’s Role in Risk Oversight We have not separated the positions of Chairman of the Board and Chief Executive Officer. Sumitaka Yamamoto has served as our Chairman of the Board of Directors since August 16, 2021 and Chief Executive Officer since May 18, 2021. We believe that combining the positions of Chairman and Chief Executive Officer allows for focused leadership of our organization which benefits us in our relationships with investors, customers, suppliers, employees and other constituencies. We believe that consolidating the leadership of the Company under Mr. Yamamoto is the appropriate leadership structure for our Company and that any risks inherent in that structure are balanced by the oversight of our other independent directors on our Board. However, no single leadership model is right for all companies and at all times. The Board recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, the Board may periodically review its leadership structure. In addition, our Board holds executive sessions in which only independent directors are present. Our Board is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Our principal source of risk falls into two categories, financial and product commercialization. The audit committee oversees management of financial risks, and our Board regularly reviews information regarding our cash position, liquidity and operations, as well as the risks associated with each. The Board regularly reviews plans, results and potential risks related to our business. The Board is also expected to oversee risk management as it relates to our compensation plans, policies and practices for all employees including executives and directors, particularly whether our compensation programs may create incentives for our employees to take excessive or inappropriate risks which could have a material adverse effect on the Company. 86 Controlled Company and Director Independence The “controlled company” exception to Nasdaq Capital Market’s rules provide that a company of which more than 50% of the voting power is held by an individual, group or another company, a “controlled company,” need not comply with certain requirements of Nasdaq Capital Market’s corporate governance rules. Sumitaka Yamamoto, the Chairman of Board, Chief Executive Officer and President of the Company, beneficially owns 10,607,159 shares of our common stock, which represent approximately 50.9% of the voting power of our outstanding capital stock. As a result, the Company is a “controlled company” under Nasdaq Capital Market corporate governance standards. As a controlled company, the Company does not have to comply with certain corporate governance requirements under Nasdaq Capital Market rules, including the requirements that: ● a majority of the Company’s Board of Directors to consist of “independent directors” as defined by the applicable rules and regulations of Nasdaq Capital Market; ● the compensation of the Company’s executive officers to be determined, or recommended to the Board of Directors for determination, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a Compensation Committee comprised solely of independent directors; and ● that director nominees to be selected, or recommended to the Board of Directors for selection, by independent directors constituting a majority of the independent directors of the Board in a vote in which only independent directors participate or by a nomination committee comprised solely of independent directors. The Company has determined to avail itself of certain of these exemptions. More specifically, the Company does not have a compensation committee or a nominating and corporate governance committee. Therefore, for as long as the Company remains a “controlled company,” the Company will not have the same protections afforded to shareholders of companies that are subject to all of these corporate governance requirements. If at any time the Company ceases to be a “controlled company” under the rules of Nasdaq Capital Market, the Company’s Board of Directors will take all action necessary to comply with the corporate governance rules of Nasdaq Capital Market, including establishing certain committees composed entirely of independent directors, subject to a permitted “phase-in” period. Notwithstanding the Company’s status as a controlled company, the Company will remain subject to the corporate governance standards of Nasdaq Capital Market that require the Company to have an audit committee with at least three independent directors, as well as to be composed entirely of independent directors. The Company’s Board of Directors has affirmatively determined that three of its six directors (Ferdinand Groenewald, Heather Neville, and Koji Sato) are independent directors of the Company within the meaning of Nasdaq Capital Market’s rules. Therefore, a majority of the members of the Board of Director consists of independent directors. Committees of the Board of Directors Audit Committee We have established an audit committee, which consists of three independent directors: Ferdinand Groenewald, Heather Neville and Koji Sato. Mr. Groenewald is the chair of the audit committee. Mr. Groenewald qualifies as an “audit committee financial expert” under SEC rules. Our audit committee adopted a written charter, a copy of which is posted on the Corporate Governance section of our website, at www.heartcore.co.jp. Our audit committee is authorized to: ● approve and retain the independent auditors to conduct the annual audit of our financial statements; ● review the proposed scope and results of the audit; ● review and pre-approve audit and non-audit fees and services; 87 ● review accounting and financial controls with the independent auditors and our financial and accounting staff; ● review and approve transactions between us and our directors, officers and affiliates; ● recognize and prevent prohibited non-audit services; ● establish procedures for complaints received by us regarding accounting matters; and ● oversee internal audit functions, if any. Compensation Committee Because we are a “controlled company” within the meaning of the corporate governance standards of Nasdaq Capital Market, we are not required to, and do not, have a compensation committee. If and when we are no longer a “controlled company”, we will be required to establish a compensation committee. We anticipate that such a compensation committee would consist of three directors who will be “independent” under the rules of the SEC, subject to the permitted “phase-in” period pursuant to the rules of Nasdaq Capital Market. Upon formation of a compensation committee, we would expect to adopt a compensation committee charter defining the committee’s primary duties in a manner consistent with the rules of the SEC and Nasdaq Capital Market standards. Nominating and Corporate Governance Committee Because we are a “controlled company” within the meaning of the corporate governance standards of Nasdaq Capital Market, we are not required to, and do not, have a nominating and corporate governance committee. If and when we are no longer a “controlled company”, we will be required to establish a nominating and corporate governance committee. We anticipate that such a nominating and corporate governance committee would consist of three directors who will be “independent” under the rules of the SEC, subject to the permitted “phase-in” period pursuant to the rules of Nasdaq Capital Market. Upon formation of a nominating and corporate governance committee, we would expect to adopt a nominating and corporate governance committee charter defining the committee’s primary duties in a manner consistent with the rules of the SEC and Nasdaq Capital Market standards. A stockholder may nominate one or more persons for election as a director at an annual meeting of stockholders if the stockholder complies with the notice and information provisions contained in our bylaws. Such notice must be in writing to our company not less than 90 days and not more than 120 days prior to the anniversary date of the preceding year’s annual meeting of stockholders or as otherwise required by requirements of the Exchange Act. In addition, stockholders furnishing such notice must be a holder of record on both (i) the date of delivering such notice and (ii) the record date for the determination of stockholders entitled to vote at such meeting. We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the Board of Directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders. Compensation Committee Interlocks and Insider Participation Because we are a “controlled company” within the meaning of Nasdaq corporate governance standards, we are not required to have, and do not currently have, a compensation committee. None of our executive officers serve on the board of directors or compensation committee of a company that has an executive officer that serves on our board or compensation committee. No member of our board is an executive officer of a company in which one of our executive officers serves as a member of the board of directors or compensation committee of that company. Code of Ethics The Company has adopted a Code of Ethics and Business Conduct that applies to all of its directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, and any person performing similar functions) and employees. The Code of Ethics and Business Conduct is available on our website at www.heartcore.co.jp. 88 We are required to disclose any amendment to, or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions. We intend to use our website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure will be posted to our website within four business days following the date of any such amendment to, or waiver from, a provision of our code of ethics. Delinquent Section 16(a) Reports Under U.S. securities laws, directors, certain officers and persons holding more than 10% of our common stock must report their initial ownership of our common stock and any changes in their ownership to the SEC. The SEC has designated specific due dates for these reports and we must identify in this Report on Form 10-K those persons who did not file these reports when due. Based solely on our review of copies of the reports filed with the SEC and the written representations of our directors and executive officers, we believe that all reporting requirements for fiscal year 2023 were complied with by each person who at any time during the 2023 fiscal year was a director or an executive officer or held more than 10% of our common stock, except for the following: Mr. Sadasivam failed to file a Form 3 and Forms 4 for a series of related transactions on February 1, 2023, February 9, 2023, and March 22, 2023. Ms. Neville failed to file a Form 3 on May 30, 2023. Mr. Sato failed to file a Form 3 on September 29, 2023. All these transactions were timely reported by the Company on a Current Report on Form 8-K. Limitation on Liability and Indemnification of Officers and Directors Our certificate of incorporation provides that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our certificate of incorporation provides that our directors will not be personally liable for monetary damages to us for breaches of their fiduciary duty as directors, except to the extent such exemption from liability or limitation thereof is not permitted by the General Corporation Law of the State of Delaware. On June 1, 2023, the Company entered into a Director Agreement with Heather Neville, and this Director Agreement was converted into an Independent Director Agreement on November 1, 2023. On September 29, 2023 the Company entered into an Independent Director Agreement as well as an Indemnification Agreement with Koji Sato. Previously, Ferdinand Groenewald entered into an indemnification agreement with the Company. Each director agreement and indemnification agreement provides, among other things, for indemnification to the fullest extent permitted by law and our certificate of incorporation and bylaws against any and all expenses, judgments, fines, penalties and amounts paid in settlement of any claim. The indemnification agreements provide for the advancement or payment of all expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our certificate of incorporation and bylaws. Our certificate of incorporation also permits us to maintain insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit such indemnification. We have purchased a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors. These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions. We believe that these provisions and the insurance are necessary to attract and retain talented and experienced officers and directors. Any repeal or amendment of provisions of our certificate of incorporation affecting indemnification rights, whether by our board of directors, stockholders or by changes in applicable law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to provide broader indemnification rights on a retroactive basis, and will not in any way diminish or adversely affect any right or protection existing thereunder with respect to any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 89 ITEM 11. EXECUTIVE COMPENSATION 2023 Summary Compensation Table The following summary compensation table provides information regarding the compensation paid during our fiscal years ended December 31, 2023 and 2022 to certain of our executive officers, who we collectively refer to as our “named executive officers”, or “NEOs”. Name and Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) Non- Equity Incentive Plan Compensation ($) Non- qualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Sumitaka Yamamoto 2023 $ 525,102 — — $ — — — $ — $ 525,102 Chief Executive Officer 2022 $ 508,390 138,803 — $ — — — $ — $ 647,193 Prakash Sadasivam 2023 $ 316,000 — — $ — — — $ — $ 316,000 Chief Strategy Officer and Director 2022 $ — — — $ — — — $ — $ — Kimio Hosaka 2023 $ 159,102 — — $ — — — $ — $ 159,102 Chief Operating Officer and Director 2022 $ 91,969 — — $ — — — $ — $ 91,969 Keisuke Kuno 2023 $ 145,831 — — $ — — — $ — $ 145,831 CX DIV. Vice President 2022 $ 103,535 — — $ — — — $ — $ 103,535 Employment Agreements Executive Employment Agreement with Sumitaka Yamamoto On October 28, 2022, we entered in an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant to the Amendment Agreement, Mr. Yamamoto’s annual salary increased from $381,000 to $450,000, effective November 1, 2022. 90 Executive Employment Agreement with Qizhi Gao On January 10, 2023, we entered in an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant to the Amendment Agreement, Mr. Gao’s annual salary increased from $54,012 to $120,222, effective January 1, 2023. Executive Employment Agreement with Kimio Hosaka On January 10, 2023, we entered in an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant to the Amendment Agreement, Mr. Hosaka’s annual salary increased from $95,459 to $164,770, effective January 1, 2023. Executive Employment Agreement with Hidekazu Miyata On January 10, 2023, we entered in an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant to the Amendment Agreement, Mr. Miyata’s annual salary increased from $75,600 to $112,616, effective January 1, 2023. Executive Employment Agreement with Keisuke Kuno On January 10, 2023, we entered in an Amendment Agreement to the Executive Employment Agreement dated as of February 9, 2022. Pursuant to the Amendment Agreement, Mr. Kuno’s annual salary increased from $109,000 to $152,308, effective January 1, 2023. Employment Agreement with Prakash Sadasivam On February 1, 2023, we entered into an Employment Agreement with Prakash Sadasivam whereby Mr. Sadasivam serves as our Chief Strategy Officer. Mr. Sadasivam’s annual salary is $96,000. Provisions Applicable to All Employment Agreements Each of the Employment Agreements as described above, has an initial term of one year, provided that the term of each agreement will automatically be extended for one or more additional terms of one year each unless either the Company or applicable executive 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). Each of the agreements provide that the applicable executive’s employment with the Company shall be “at will,” meaning that either applicable executive or the Company may terminate the applicable executive’s employment at any time and for any reason, subject to the other provisions of the agreement. Each of the agreements may be terminated by the Company, either with or without “Cause”, or by the applicable executive, either with or without “Good Reason”. 91 For purposes of each agreement, “Cause” means: ● a violation of any material written rule or policy of the Company for which violation any employee may be terminated pursuant to the written policies of the Company reasonably applicable to an executive employee; ● misconduct by the applicable executive to the material detriment of the Company; ● the applicable executive’s conviction (by a court of competent jurisdiction, not subject to further appeal) of, or pleading guilty to, a felony; ● the applicable executive’s gross negligence in the performance of the applicable executive’s duties and responsibilities to the Company as described in this Agreement; or ● the applicable executive’s material failure to perform the applicable executive’s duties and responsibilities to the Company as described in the agreement (other than any such failure resulting from the applicable executive’s incapacity due to physical or mental illness or any such failure subsequent to the applicable executive being delivered a notice of termination without Cause by the Company or delivering a notice of termination for Good Reason to the Company), in either case after written notice from the Board to the applicable executive of the specific nature of such material failure and the applicable executive’s failure to cure such material failure within 10 days following receipt of such notice. For purposes of each agreement, “Good Reason” means: ● at any time following a Change of Control (as defined below), a material diminution by the Company of compensation and benefits (taken as a whole) provided to the applicable executive immediately prior to a Change of Control; ● a reduction in base salary or target or maximum bonus, other than as part of an across-the-board reduction in salaries of management personnel; ● the relocation of the applicable executive’s principal executive office to a location more than 50 miles further from the applicable executive’s principal executive office immediately prior to such relocation; or ● a material breach by the Company of any of the terms and conditions of the agreement which the Company fails to correct within 10 days after the Company receives written notice from the applicable executive of such violation. For purposes of each agreement a “Change of Control” of the Company will be deemed to have occurred if, after the effective date of the applicable agreement, (i) the beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than 50% of the combined voting power of the Company is acquired by any “person” as defined in sections 13(d) and 14(d) of the Exchange Act (other than the Company, any subsidiary of the Company, or any trustee or other fiduciary holding securities under an employee benefit plan of the Company), (ii) the merger or consolidation of the Company with or into another corporation where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any) in substantially the same proportion as their ownership of the Company immediately prior to such merger or consolidation, or (iii) the sale or other disposition of all or substantially all of the Company’s assets to an entity, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned directly or indirectly by shareholders of the Company, immediately prior to the sale or disposition, in substantially the same proportion as their ownership of the Company immediately prior to such sale or disposition. 92 In the event that the Company terminates the term of the applicable agreement or the applicable executive’s employment with Cause, or if the applicable executive terminates their agreement without good reason, then, subject to any other agreements between the company with respect to other equity grants made to such executive: ● the Company will pay to the applicable executive any unpaid base salary and benefits then owed or accrued, and any unreimbursed expenses; ● any unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the Company will immediately be forfeited; and ● all of the parties’ rights and obligations under the 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 agreements. In the event that the Company terminates the term of the applicable agreement or the applicable executive’s employment without Cause, or if the applicable executive terminates their agreement with good reason, then, subject to any other agreements between the company with respect to other equity grants made to such executive: ● the Company will pay to the applicable executive any base salary, bonuses, and benefits then owed or accrued, and any unreimbursed expenses; ● the Company will pay to the applicable executive, in one lump sum, an amount equal to the base salary that would have been paid to the applicable executive for the remainder of the initial term of the applicable agreement (if the termination occurs during the initial term of the applicable agreement) or renewal term of the applicable agreement (if the termination occurs during a renewal term of the applicable agreement); ● any unvested portion of any equity granted to the applicable executive under the applicable 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 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 agreements. In the event of the applicable executive’s death or total disability during the term of the applicable 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 the applicable executive (or the applicable executive’s estate) 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 applicable executive’s target bonus for such year and the portion of such year in which the applicable executive was employed, and reimbursement of expenses pursuant to the terms hereon through the effective date of termination, and any unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the Company will immediately be forfeited as of the termination date. In the event that the term of the applicable agreement is not renewed by either party, any unvested portion of any equity granted to the applicable executive under the applicable agreement or any other agreements with the Company will immediately be forfeited as of the expiration of the term of the applicable agreement without any further action of the parties. If it is determined that any payment provided to the applicable executive under the applicable agreement or otherwise, whether or not in connection with a Change of Control (a “Payment”), would constitute an “excess parachute payment” within the meaning of section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), such that the Payment would be subject to an excise tax under section 4999 of the Code (the “Excise Tax”), the Company will pay to the applicable executive an additional amount (the “Gross-Up Payment”) such that the net amount of the Gross-Up Payment retained by the applicable executive after the payment of any Excise Tax and any federal, state and local income and employment tax on the Gross-Up Payment, shall be equal to the Excise Tax due on the Payment and any interest and penalties in respect of such Excise Tax. 93 During the term of the applicable agreement, the applicable executive is entitled to fringe benefits consistent with the practices of the Company, and to the extent the Company provides similar benefits to the Company’s executive officers, and is entitled to reimbursement for all reasonable and necessary out-of-pocket business, entertainment and travel expenses incurred by the applicable executive in connection with the performance of the applicable executive’s duties hereunder and in accordance with the Company’s expense reimbursement policies and procedures. Each of the agreements provides that, during the term of the applicable agreement, the applicable executive will be entitled to indemnification and insurance coverage for officers’ liability, fiduciary liability and other liabilities arising out of the applicable executive’s position with the Company in any capacity, in an amount not less than the highest amount available to any other executive, and such coverage and protections, with respect to the various liabilities as to which the applicable executive has been customarily indemnified prior to termination of employment, shall continue for at least six years following the end of the term of the applicable agreement. Any indemnification agreement entered into between the Company and the applicable executive shall continue in full force and effect in accordance with its terms following the termination of the applicable. Each of the employment agreements contains customary confidentiality provisions, and customary provisions related to Company ownership of intellectual property conceived or made by the applicable executive in connection with the performance of their duties under the applicable agreement (i.e., a “work-made-for-hire” provision). Each of the agreements contains a non-compete provision which provides that, for the term of the applicable agreement and for a period of two years thereafter, the applicable executive shall not, directly or indirectly: (i) engage in any other business, association or relationship of any kind with any business which provides, in whole or in part, the same or similar services and/or products offered by the which directly or indirectly competes with Company; nor (ii) solicit or accept, or induce any person or entity to reduce goods or services to Company, or in any manner assist others in the solicitation, acceptance, or inducement of, any business transactions with Company’s existing and prospective clients, accounts, suppliers and/or other persons or entities with whom the Company has had business relationships (or whom Company had specifically identified for a prospective business relationship). These restrictions extend to the geographic area in which Company actively conducted business immediately prior to termination of the applicable agreement. Each of the agreements also contains a customary non-solicitation provision, in which the applicable executive agrees that, for the term of the applicable agreement and for a period of three years thereafter, the applicable executive will not, directly or indirectly solicit or discuss with any employee of Company the employment of such Company employee by any other commercial enterprise other than Company, nor recruit, attempt to recruit, hire or attempt to hire any such Company employee on behalf of any commercial enterprise other than Company, provided that this provision does not prohibit the applicable executive from undertaking a general recruitment advertisement provided that the foregoing is not targeted towards any person or entity identified above, or from hiring, employing or engaging any such person or entity who responds to such general recruitment advertisement. Due to the application of various states’ laws, there is no assurance that the non-compete provisions or the non-solicitation provisions as set forth in each of the agreements will be enforced. Each of the agreements contains a “blue pencil” provision that, in the event that a court determines that any of these restrictions are unenforceable, the parties to the agreement agreed that it is their desire that the court substitute an enforceable restriction in place of any restriction deemed unenforceable, and that the substitute restriction be deemed incorporated in the agreement and enforceable against the applicable executive. Each of the agreements contains customary representations and warranties by the applicable executive, relating to the agreement, and any securities of the Company that may be issued to the executive, and contains other customary miscellaneous provisions relating to waivers, assignments, third party rights, survival of provisions following termination, severability, notices, waiver of jury trials and other provisions. Each of the agreements is governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and for all purposes shall be construed in accordance with the laws of such state, without giving effect to the choice of law provisions of such state. Each of the agreements provide that all legal proceedings concerning the applicable agreement will be in the state and federal courts sitting in Santa Clara County, California, provided that each agreement also includes a provision relating to any disputes being settled by arbitration. 94 Award Agreements On February 9, 2022, each of the executives for whom an employment agreement was executed was issued a number of shares of restricted stock pursuant to the Company’s 2021 Equity Incentive Plan. These awards were made pursuant to the form of restricted award agreement which is attached to the 2021 Equity Incentive Plan. Each of the award agreements provides that the shares vest 25% a year, on each annual anniversary of the date of the employment agreement, subject to earlier vesting and forfeiture as described in the employment agreements (as described above). In other words, the grants vest with respect to 25% of the shares on each of February 9, 2023, February 9, 2024, February 9, 2025 and February 9, 2026. The first 25% shares of restricted stock of 21,454 shares were issued on February 16, 2023, and the second 25% shares were issued on February 9, 2024. Name Number of Shares of Restricted Stock Sumitaka Yamamoto 45,720 Qizhi Gao 6,481 Kimio Hosaka 11,455 Hidekazu Miyata 9,072 Keisuke Kuno 13,092 On February 24, 2022, and effective February 22, 2022, the Audit Committee and the Board of Directors approved the payment by the Company of a performance-linked executive bonus in the amount of 18,000,000 Japanese Yen (approximately $138,803), to Sumitaka Yamamoto, the Company’s Chairman of Board, Chief Executive Officer, President and majority stockholder, in consideration of Mr. Yamamoto’s prior performance for the benefit of the Company and its stockholders. Outstanding Equity Awards at Fiscal Year-End The following table sets forth information on outstanding options and stock awards held by the executive officers as of December 31, 2023. Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) Option Expiration Date Number of Shares or Units Of Stock that Have Not Vested (#) Market Value Per Share Of Shares Or Units of Stock That Have Not Vested ($) Sumitaka Yamamoto - - $ - - 34,290 $ 0.638 Keisuke Kuno 37,500 37,500 $ 2.5 12/25/2031 9,819 $ 0.638 Kimio Hosaka 50,000 50,000 $ 2.5 12/25/2031 8,592 $ 0.638 Hidekazu Miyata 25,000 25,000 $ 2.5 12/25/2031 6,804 $ 0.638 Qizhi Gao 25,000 25,000 $ 2.5 12/25/2031 4,861 $ 0.638 Additional Narrative Disclosure Retirement Benefits We have not maintained, and do not currently maintain, a defined benefit pension plan, nonqualified deferred compensation plan, or other retirement benefits. 95 Potential Payments Upon Termination or Change in Control As described under “ Employment Agreements” above, each of the executives with whom the Company has entered into employment agreements are entitled severance if their employment is terminated by the Company without “Cause” or is terminated by the applicable executive with “Good Reason”, in each case as described above. Director Compensation Other than as set forth in the table and described more fully below, we did not pay any compensation or make any equity awards or non-equity awards to any of our non-employee directors during fiscal year 2023. Directors may be reimbursed for travel and other expenses directly related to their activities as directors. Directors who also serve as employees receive no additional compensation for their service as directors. During fiscal year 2023, each of Sumitaka Yamamoto, our Chief Executive Officer, Kimio Hosaka, our Chief Operating Officer, and Prakash Sadasivam, our Chief Strategy Officer, was a member of our board of directors, as well as an employee, and received no additional compensation for their services as a director. See the section titled “Executive Compensation” for more information about the compensation for these individuals for fiscal year 2023. The following table presents the total compensation for each person who served as a non-employee director of the Company during fiscal year 2023. Name Fees Earned or Paid in Cash ($) All Other Compensation ($) Total ($) Takeshi Omoto 40,500 - 40,500 Yoshitomo Yamano 45,295 - 45,295 Yuki Tan 40,500 - 40,500 Yuta Katai 40,500 - 40,500 Ferdinand Groenewald 57,000 - 57,000 Heather Marie Neville 34,000 - 34,000 Koji Sato 13,794 - 13,794 Independent Director Agreements On June 1, 2023, Heather Marie Neville entered into a Director Agreement, and on November 1, 2023, Ms. Neville entered into an Independent Director Agreement. On September 29, 2023, Koji Sato entered into an Independent Director Agreement. Previously, Ferdinand Groenewald entered into the Company’s form of Independent Director Agreement. The Independent Director Agreements provide that each non-employee director will be compensated as follows: ● Each director will be paid the sum of $50,000 annually for director’s service as a director of the Company, to be paid $12,500 each calendar quarter, payable within five business days of the end of each calendar quarter, and with such amount for any partial calendar quarter being appropriately prorated. ● Each director shall be paid $4,000 annually for service as a member of the Audit Committee and an additional sum of $3,000 annually for service as the Chairman of the Audit Committee, with each of these payments to be paid quarterly in equal portions, within five business days of the end of each calendar quarter, and with any amount for any partial calendar quarter being appropriately prorated. The Independent Director Agreements contain additional terms. During the term of the applicable director agreement, the Company will reimburse the applicable director for all reasonable out-of-pocket expenses incurred by the applicable director in attending any in-person meetings, provided that the applicable director complies with the generally applicable policies, practices and procedures of the Company for submission of expense reports, receipts or similar documentation of such expenses. Any reimbursements for allocated expenses (as compared to out-of-pocket expenses of the applicable director in excess of $500) must be approved in advance by the Company. 96 Each of the agreements contains customary confidentiality provisions, and customary provisions related to Company ownership of intellectual property conceived or made by the applicable director in connection with the performance of their duties under the applicable agreement (i.e., a “work-made-for-hire” provision). Each of the agreements provide that, during the term (which continues as long as the applicable director is serving as a director of the Company), the applicable director is be entitled to indemnification and insurance coverage for officers’ liability, fiduciary liability and other liabilities arising out of the applicable director’s position with the Company in any capacity, in an amount not less than the highest amount available to any other director, and such coverage and protections, with respect to the various liabilities as to which the applicable director has been customarily indemnified prior to termination of employment, shall continue for at least six years following the end of the term. Any indemnification agreement entered into between the Company and the applicable director will continue in full force and effect in accordance with its terms following the termination of the applicable agreement. Each of the agreements contains customary representations and warranties by the applicable director, relating to the agreement, and contains other customary miscellaneous provisions relating to waivers, assignments, third party rights, survival of provisions following termination, severability, notices, waiver of jury trials and other provisions. Each of the agreements is governed by and construed and enforced in accordance with the internal laws of the State of Delaware, and for all purposes shall be construed in accordance with the laws of such state, without giving effect to the choice of law provisions of such state. Each of the agreements provide that all legal proceedings concerning the applicable agreement will be in the state and federal courts sitting in Santa Clara County, California, provided that each agreement also includes a provision relating to any disputes being settled by arbitration. 2023 Equity Incentive Plan On August 1, 2023, the Board approved, and proposed for stockholder approval, the 2023 Equity Incentive Plan (the “2023 Plan”). The shareholders approved the 2023 Plan at the Annual Shareholder’s meeting on September 29, 2023. The 2023 Plan provides for various stock-based incentive awards, including incentive stock options (“ISOs”) and non-qualified stock options (“NQSOs”), stock appreciation rights (“SARs”), restricted stock and restricted stock units (“RSUs”), and other equity-based or cash-based awards. The 2023 Plan highlights and the summary of the material features of the 2023 Plan appearing below are qualified in their entirety by reference to the copy of the 2023 Plan attached as Appendix I to the Proxy Statement filed with the SEC on August 18, 2023. Highlights of the 2023 Plan are as follows: ● The Board or a committee of the Board will administer the 2023 Plan. ● The total number of shares of common stock authorized for issuance under the 2023 Plan is 2,000,000 shares, or approximately 9.60% of the common stock outstanding at the time of approval. ● No non-employee director may be granted awards under the 2023 Plan during any calendar year if such awards would exceed a total value of $300,000 (calculated in accordance with the terms of the 2023 Plan). ● The exercise price of options and SARs may not be less than the fair market value of the common stock on the date of grant. ● In addition to other vesting requirements, the administrator may condition the vesting of awards on the achievement of specific performance targets. Material Features of the 2023 Plan Term The 2023 Plan is effective August 1, 2023 and will terminate on August 1, 2033, unless the Board terminates it earlier. Purpose The purpose of the 2023 Plan is to provide a means through with the Company and its subsidiaries may attract and retain key personnel, and to provide a means whereby directors, officer, employees, consultants, and advisors of the Company and its subsidiaries can acquire and maintain an equity interest in the Company, or be paid incentive compensation, thereby strengthening their commitment to the welfare of the Company and its subsidiaries and aligning their interests with those of the Company’s stockholders. Administration Pursuant to the terms of the 2023 Plan, the Board or a committee of the Board shall administer the 2023 Plan. The administrator will have the authority to, among other things, (i) determine fair market value under the 2023 Plan; (ii) select the service providers to whom awards may be granted; (iii) determine the number of shares to be covered by each award granted under the 2023 Plan; (iv) approve forms of award agreements for use under the 2023 Plan; (v) determine the terms and conditions, not inconsistent with the terms of the 2023 Plan, of any award, with such terms and conditions including, but not being limited to, the exercise price, the time or times when awards may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any award or the shares relating thereto, based in each case on such factors as the administrator will determine; (vi) determine whether an award will be settled in shares, cash, other property or in any combination thereof; (vii) construe and interpret the terms of the 2023 Plan and awards granted pursuant to the 2023 Plan; (viii) prescribe, amend and rescind rules and regulations relating to the 2023 Plan, including rules and regulations relating to sub-plans; (ix) modify or amend awards; (x) correct any defect, supply any omission or reconcile any inconsistency in the 2023 Plan or any award agreement and make all other determinations and take such other actions with respect to the 2023 Plan or any award as the administrator may deem advisable to the extent not inconsistent with the provisions of the 2023 Plan or applicable law; and (xi) make all other determinations deemed necessary or advisable for administering the 2023 Plan. The administrator will have the discretion to select particular performance targets in connection with awards under the 2023 Plan. 97 Eligibility Employees, directors and consultants (except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction, or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiaries will be eligible to receive awards under the 2023 Plan. ISOs may only be granted to employees. Grants The administrator may, from time to time, grant awards under the 2023 Plan to one or more eligible participants. All awards will vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the administrator and as set forth in any applicable award agreement, including, without limitation, attainment of performance targets, consistent with the terms of the 2023 Plan. Maximum Shares Available Subject to the provisions of the 2023 Plan, the maximum aggregate number of shares that may be subject to awards and sold under the 2023 Plan is 2,000,000. The shares may be authorized but unissued, or reacquired common stock. If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, RSUs, performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than options or SARs, the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2023 Plan (unless the 2023 Plan has terminated). Adjustments In the event that any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Company’s common stock occurs, the administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2023 Plan, will adjust the number and class of shares of stock that may be delivered under the 2023 Plan and/or the number, class, and price of shares of stock covered by each outstanding award, and the numerical share limits provided in the 2023 Plan. Stock Options The administrator may grant options to purchase shares of common stock under the 2023 Plan to eligible participants for such numbers of shares and having such terms as the administrator designates and consistent with the 2023 Plan. However, ISOs may only be granted to employees of the Company or its subsidiaries. The administrator will also determine the type of option granted (e.g., ISO) or a combination of various types of options. Each option granted under the 2023 Plan will be evidenced by an award agreement. The exercise price for an option may not be less than 100% of the fair market value of the Company’s common stock on the date the option is granted; provided, however, that in the case of an ISO granted to an employee who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any subsidiary, the exercise price will be no less than 110% of the fair market value on the grant date. The term of each option will be stated in the applicable award agreement. In the case of an ISO, the term will be no more than 10 years from the date of grant. In the case of an ISO granted to a participant who, at the time the ISO is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary, the term of the ISO will be five years from the date of grant or such shorter term as may be provided in the award agreement. Stock Appreciation Rights The administrator may grant SARs under the 2023 Plan to eligible participants having such terms as the administrator designates and consistent with the 2023 Plan. Each SAR granted under the 2023 Plan will be evidenced by a SAR agreement. The exercise price for a SAR may not be less than 100% of the fair market value of the Company’s common stock on the date the SAR is granted. 98 Restricted Stock The administrator may grant shares of restricted stock under the 2023 Plan to eligible participants in such amounts and upon such terms as the administrator determines and consistent with the 2023 Plan. Except as provided in the 2023 Plan or as the administrator determines, shares of restricted stock may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable period of restriction. The administrator, in its sole discretion, may impose such other restrictions on shares of restricted stock as it may deem advisable or appropriate. Except as otherwise provided in the 2023 Plan, shares of restricted stock will be released from escrow as soon as practicable after the last day of the period of restriction or at such other time as the administrator may determine. The administrator, in its discretion, may accelerate the time at which any restrictions will lapse or be removed. During the period of restriction, grantees holding shares of restricted stock granted under the 2023 Plan may exercise full voting rights with respect to those shares, unless the administrator determines otherwise. During the period of restriction, grantees holding shares of restricted stock will be entitled to receive all dividends and other distributions paid with respect to such shares, unless the administrator provides otherwise. If any such dividends or distributions are paid in shares of common stock, the shares will be subject to the same restrictions on transferability and forfeitability as the shares of restricted stock with respect to which they were paid. On the date set forth in the award agreement, the restricted stock for which restrictions have not lapsed will revert to the Company and again will become available for grant under the 2023 Plan. Restricted Stock Units The administrator may grant RSUs under the 2023 Plan to eligible participants in such amounts and upon such terms as the administrator determines and consistent with the 2023 Plan. The administrator will set vesting criteria in its discretion, which, depending on the extent to which the criteria are met, will determine the number of RSUs that will be paid out to the grantee. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit, or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the administrator in its discretion. Upon meeting the applicable vesting criteria, the grantee will be entitled to receive a payout as determined by the administrator or as set forth in the applicable award agreement. Notwithstanding the foregoing, at any time after the grant of RSUs, the administrator, in its sole discretion, may reduce or waive any vesting criteria that must be met to receive a payout. Payment of earned RSUs will be made as soon as practicable after the date(s) determined by the administrator and set forth in the award agreement. The administrator, in its sole discretion, may settle earned RSUs in cash, shares of common stock, or a combination of both. Grantees will have no voting rights with respect to shares of common stock represented by RSUs until the date of the issuance of such shares. However, the administrator, in its discretion, may provide in the applicable award agreement that the grantee will be entitled to dividend equivalent rights with respect to the payment of cash dividends on common stock during the period beginning on the date such award is granted and ending, with respect to each share subject to the award, on the earlier of the date the award is settled or the date on which it is terminated. Dividend equivalent rights, if any, shall be paid by crediting the grantee with a cash amount or with additional whole RSUs as of the date of payment of such cash dividends on common stock, as determined by the administrator. The number of additional RSUs (rounded to the nearest whole number), if any, to be credited shall be determined by dividing (a) the amount of cash dividends paid on the dividend payment date with respect to the number of shares of common stock represented by the RSUs previously credited to the grantee by (b) the fair market value per share of common stock on such date. Such cash amount or additional RSUs will be subject to the same terms and conditions and will be settled in the same manner and at the same time as the RSUs originally subject to the RSU award. In the event of a dividend or distribution paid in shares of common stock or other property or any other adjustment made upon a change in the capital structure of the Company as provided in the 2023 Plan, appropriate adjustments will be made in the grantee’s RSU award so that it represents the right to receive upon settlement any and all new, substituted or additional securities or other property (other than regular, periodic cash dividends) to which the grantee would be entitled by reason of the shares of common stock issuable upon settlement of the award, and all such new, substituted or additional securities or other property shall be immediately subject to the same vesting conditions as are applicable to the award. On the date set forth in the award agreement, all unearned RSUs will be forfeited to the Company. 99 Performance Units and Performance Shares Performance awards may be granted to eligible participants at any time and from time to time, as will be determined by the Administrator, in its sole discretion. Each performance unit will have an initial value that is established by the administrator on or before the date of grant. Each performance share will have an initial value equal to the fair market value of a share of common stock on the date of grant. The administrator will set performance objectives or other vesting provisions in its discretion which, depending on the extent to which they are met, will determine the number or value of performance units/shares that will be paid out to the grantees. Each performance award will be evidenced by an award agreement that will specify the performance period, and such other terms and conditions as the administrator, in its sole discretion, will determine. The administrator may set performance objectives based upon the achievement of Company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service), applicable federal or state securities laws, or any other basis determined by the administrator in its discretion (“Performance Goals”). Performance Goals shall be established by the administrator on the basis of targets to be attained (“Performance Targets”) with respect to one or more measures of business or financial performance (each, a “Performance Measure”), subject to the terms of the 2023 Plan. Performance Measures may be based upon one or more of the following, as determined by the administrator: (1) revenue; (2) sales; (3) expenses; (4) operating income; (5) gross margin; (6) operating margin; (7) earnings before any one or more of: stock-based compensation expense, interest, taxes, depreciation and amortization; (8) pre-tax profit; (9) net operating income; (10) net income; (11) economic value added; (12) free cash flow; (13) operating cash flow; (14) balance of cash, cash equivalents and marketable securities; (15) stock price; (16) earnings per share; (17) return on stockholder equity; (18) return on capital; (19) return on assets; (20) return on investment; (21) total stockholder return; (22) employee satisfaction; (23) employee retention; (24) market share; (25) customer satisfaction; (26) product development; (27) research and development expenses; (28) completion of an identified special project; and (29) completion of a joint venture or other corporate transaction. After the applicable performance period has ended, the holder of performance units/shares will be entitled to receive a payout of the number of performance units/shares earned by the participant over the performance period, to be determined as a function of the extent to which the corresponding performance objectives or other vesting provisions have been achieved. After the grant of a performance unit/share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance unit/share. Payment of earned performance units or performance shares will be made as soon as practicable after the expiration of the applicable performance period. The administrator, in its sole discretion, may pay earned performance units/shares in the form of cash, in shares of common stock (which have an aggregate fair market value equal to the value of the earned performance units/shares at the close of the applicable performance period) or in a combination thereof. On the date set forth in the award agreement, all unearned or unvested performance units or performance shares will be forfeited to the Company, and again will be available for grant under the 2023 Plan. Restricted stock and RSUs granted to officers and employees may be granted with the intent that the award satisfy the “Performance-Based Exception” (any such award intended to satisfy the Performance-Based Exception, a “Qualified Performance-Based Award”). The grant, vesting, or payment of a Qualified Performance-Based Award may depend on the degree of achievement of one or more performance goals relative to a pre-established targeted level or levels using one or more performance targets as determined by the administrator (on an absolute or relative (including, without limitation, relative to the performance of one or more other companies or upon comparisons of any of the indicators of performance relative to one or more other companies) basis, any of which may also be expressed as a growth or decline measure relative to an amount or performance for a prior date or period) for the Company on a consolidated basis or for one or more of the Company’s subsidiaries, segments, divisions, or business or operational units, or any combination of the foregoing. The performance period applicable to any performance units or performance shares may not be less than three months nor more than 10 years. To satisfy the Performance-Based Exception, the performance measure(s) applicable to the Qualified Performance-Based Award and specific performance formula, goal or goals (“targets”) must be established and approved by the administrator during the first 90 days of the applicable performance period (and, in the case of performance periods of less than one year, in no event after 25% or more of the performance period has elapsed) and while performance relating to such target(s) remains substantially uncertain within the meaning of Section 162(m) of the Code. Participants shall have no voting rights with respect to shares of common stock represented by performance share awards until the date of the issuance of such shares of common stock, if any. However, the administrator, in its discretion, may provide in the award agreement evidencing any performance share award that the participant shall be entitled to dividend equivalent rights with respect to the payment of cash dividends on common stock during the period beginning on the date the award is granted and ending, with respect to each share subject to the award, on the earlier of the date on which the performance shares are settled or the date on which they are forfeited. Such dividend equivalent rights, if any, shall be credited to the participant either in cash or in the form of additional whole performance shares as of the date of payment of such cash dividends on common stock, as determined by the administrator and as provided in the 2023 Plan. Dividend equivalent rights shall not be paid with respect to performance units. 100 Other Equity-Based Awards and Other Cash-Based Awards The administrator may grant other equity-based awards and other cash-based awards under the 2023 Plan to eligible persons, pursuant to the terms of the 2023 Plan. Amendment and Termination The administrator may amend, alter, suspend or terminate the 2023 Plan. However, the Company will obtain stockholder approval of any amendment to the extent necessary and desirable to comply with applicable laws. Federal Income Tax Effects of the 2023 Plan The federal income tax consequences applicable to the Company in connection with ISOs, NQSOs, SARs, restricted stock, RSUs and performance awards are complex and depend, in large part, on the surrounding facts and circumstances. A participant should consult with his or her tax advisor regarding the taxation of awards under the Plan. Under current federal income tax laws, however, a participant will generally recognize income with respect to grants of stock options, SARs, restricted stock, RSUs and performance awards as described below. Stock Options Stock options may be granted in the form of ISOs or NQSOs. ISOs are eligible for favorable tax treatment under the Code. To meet the Code requirements, the maximum value of ISOs that first become exercisable in any one year (determined as of the dates of grants of the ISOs) is limited to $100,000. Under the Code, persons do not realize compensation income upon the grant of an ISO or NQSO. At the time of exercise of a NQSO, the holder realizes compensation income in the amount of the difference between the grant price and the fair market value of the Company stock on the date of exercise multiplied by the number of shares for which the option is exercised. At the time of exercise of an ISO, no compensation income, however, is recognized but the difference between the grant price and the fair market value of the Company’s common stock on the date of exercise multiplied by the number of shares for which the option is exercised is an item of tax preference which may require the payment of alternative minimum tax. The tax basis for determining capital gain or loss from the sale of stock acquired pursuant to a NQSO is the fair market value of the stock or the date of exercise. If the shares acquired on exercise of an ISO are held for at least two years after grant of the option and one year after exercise, the excess of the amount realized on sale over the exercise price is taxed as capital gains. If the shares acquired on exercise of an ISO are disposed of, including disposition by gift, within two years after grant or one year of exercise, the holder realizes compensation income equal to the excess of the fair market value of shares on the date of exercise over the option price. Additional amounts realized are taxed as capital gains. The Company generally is entitled to a deduction under the Code at the time and equal to the amount of compensation income realized by the holder of an option under the 2023 Plan. Compensation income recognized by the exercise of NQSOs is subject to Federal Insurance Contributions Act (“FICA”) and Medicare taxes when the optionee is an employer and self-employment tax when the optionee is a director. Compensation income realized upon the premature disposition of stock acquired pursuant to an ISO is not subject to FICA and Medicare taxes. SARs and RSUs SARs are taxed on the date of exercise and RSUs are taxed on the date of vesting. A participant is taxed on the amount he or she is paid upon exercise of an SAR or vesting of an RSU. The Company accrues a corresponding deduction. The amount taxed is also subject to FICA and Medicare taxes in the case of an employee and self-employment tax in the case of a director. 101 Restricted Stock Participants recognize as taxable income the fair market value of restricted stock on the date the restriction period ends. The amount taxed is subject to FICA and Medicare taxes in the case of an employee and self-employment tax in the case of a director. The Company is entitled to a corresponding tax deduction at the same time. Dividends paid during the restricted period are taxable compensation/income to the participant and are deductible by the Company. The value of the stock on the date the restriction period ends becomes the participant’s tax basis for determining subsequent capital gain or loss on the sale of the stock. A participant may elect to have the fair market value of restricted stock taxed to him or her at the time of grant. In this event, the participant recognizes no income when the restrictions lapse. The participant’s tax basis in the stock, for determining capital gain or loss upon the subsequent sale of the stock, is the fair market value of the stock on the date of grant. In this event, the Company accrues a tax deduction equal to the amount of income recognized by the participant on the grant date, and the participant does not accrue a tax deduction or benefit in the event the stock is subsequently forfeited. Performance Awards Cash payments pursuant to performance awards are taxable as compensatory income to a participant when it is paid and the Company accrues a corresponding income tax deduction in this amount. The amount taxed is subject to FICA and Medicare taxes. Code Section 162(m) Section 162(m) of the Code limits the deductibility by the Company of compensation paid to the CEO and the other four most highly compensated executives. Section 162(m) of the Code provides an exception to this deduction limitation for certain “qualified performance-based compensation.” Payments or grants under the 2023 Plan are intended to qualify as “qualified performance-based compensation” under the Code and applicable regulations. Code Section 280G and 4999 A 20% excise tax is imposed under Code Section 4999 on participants who receive certain payments in connection with a change of control of the Company and the Company cannot deduct such payments. It is possible that the value of accelerated vesting and lapse of restrictions on 2023 Plan awards could constitute change of control payments and that (i) the value of the acceleration could be subject to the excise tax, (ii) this could cause other Company change of control payments to be subject to the tax, and (iii) in this event, the Company would not be able to deduct these items for income tax purposes. New Plan Benefits As of the Record Date, approximately 80 employees, five non-employee directors and nine consultants are eligible to participate in the 2023 Plan. The benefits or amounts that the Company’s Chief Executive Officer, the other named executive officers, other employees or non-employee directors may receive under the 2023 Plan are not determinable because all benefits or amounts are at the discretion of the administrator. As of December 31, 2023, the Company has not granted any stock-based compensation awards to employees, including officers, or non-employee directors pursuant to the 2023 Plan. 2021 Equity Incentive Plan Overview The Board of Directors and stockholders of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”) on August 6, 2021. Under the 2021 Plan, 2,400,000 shares of common stock are authorized for issuance to employees, directors and independent contractors (except those performing services in connection with the offer or sale of the Company’s securities in a capital raising transaction, or promoting or maintaining a market for the Company’s securities) of the Company or its subsidiary. The 2021 Plan authorizes equity-based and cash-based incentives for participants. There were 4,330 shares available for award as of March 30, 2024 under the 2021 Plan. The purpose of 2021 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this 2021 Plan, in whole or in part. To the extent then required by applicable law or any applicable stock exchange or required under the Internal Revenue Code of 1986, as amended (the “Code”), to preserve the intended tax consequences of the 2021 Plan, or deemed necessary or advisable by the Board, the 2021 Plan and any amendment to the 2021 Plan shall be subject to stockholder approval. Unless earlier terminated by the Board, the 2021 Plan will terminate ten years from the date of adoption. Authorized Shares A total of 2,400,000 shares of the Company’s common stock are authorized for issuance pursuant to the 2021 Plan. Subject to adjustment as provided in the 2021 Plan, the maximum aggregate number of shares that may be issued under the 2021 Plan will be cumulatively increased on January 1, 2022 and on each subsequent January 1, by a number of shares equal to the smaller of (i) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (ii) an amount determined by the Board. 102 Additionally, if any award issued pursuant to the 2021 Plan expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, as provided in the 2021 Plan, or, with respect to restricted stock, restricted stock units (“RSUs”), performance units or performance shares, is forfeited to or repurchased by the Company due to the failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights the forfeited or repurchased shares) which were subject thereto will become available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). With respect to stock appreciation rights, only shares actually issued pursuant to a stock appreciation right will cease to be available under the 2021 Plan; all remaining shares under stock appreciation rights will remain available for future grant or sale under the 2021 Plan (unless the 2021 Plan has terminated). Shares that have actually been issued under the 2021 Plan under any award will not be returned to the 2021 Plan and will not become available for future distribution under the 2021 Plan; provided, however, that if shares issued pursuant to awards of restricted stock, restricted stock units, performance shares or performance units are repurchased by the Company or are forfeited to the Company due to the failure to vest, such shares will become available for future grant under the 2021 Plan. Shares used to pay the exercise price of an award or to satisfy the tax withholdings related to an award will become available for future grant or sale under the 2021 Plan. To the extent an award under the 2021 Plan is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2021 Plan. Notwithstanding the foregoing and, subject to adjustment as provided in the 2021 Plan, the maximum number of shares that may be issued upon the exercise of incentive stock options will equal the aggregate share number stated above, plus, to the extent allowable under Section 422 of the Code and regulations promulgated thereunder, any shares that become available for issuance under the 2021 Plan in accordance with the foregoing. Plan Administration The Board or one or more committees appointed by the Board will administer the 2021 Plan. In addition, if the Company determines it is desirable to qualify transactions under the 2021 Plan as exempt under Rule 16b-3 of the Exchange Act, such transactions will be structured with the intent that they satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of the 2021 Plan, the administrator has the power to administer the 2021 Plan and make all determinations deemed necessary or advisable for administering the 2021 Plan, including the power to determine the fair market value of the Company’s common stock, select the service providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2021 Plan, determine the terms and conditions of awards (including the exercise price, the time or times at which the awards may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto), construe and interpret the terms of the 2021 Plan and awards granted under it, prescribe, amend and rescind rules relating to the 2021 Plan, including creating sub-plans and modify or amend each award, including the discretionary authority to extend the post-termination exercisability period of awards (provided that no option or stock appreciation right will be extended past its original maximum term), and to allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award. The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type which may have a higher or lower exercise price or different terms, awards of a different type or cash, or by which the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants. Eligibility Awards under the 2021 Plan, other than incentive stock options, may be granted to employees (including officers) of the Company or a subsidiary, members of the Company’s Board, or consultants engaged to render bona fide services to the Company or a subsidiary. Incentive stock options may be granted only to employees of the Company or a subsidiary. Stock Options Stock options may be granted under the 2021 Plan. The exercise price of options granted under the 2021 Plan generally must at least be equal to the fair market value of the Company’s common stock on the date of grant. The term of each option will be as stated in the applicable award agreement; provided, however, that the term may be no more than 10 years from the date of grant. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, they may exercise their option for the period of time stated in their option agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the option will remain exercisable for three months following the termination of service. An option may not be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of options. 103 Stock Appreciation Rights Stock appreciation rights may be granted under the 2021 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of the Company’s common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, they may exercise their stock appreciation right for the period of time stated in their stock appreciation right agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 12 months. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for three months following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of the 2021 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of the Company’s common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant. Restricted Stock Restricted stock may be granted under the 2021 Plan. Restricted stock awards are grants of shares of the Company’s common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant and, subject to the provisions of the 2021 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever conditions to vesting it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to the Company); provided, however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to the Company’s right of repurchase or forfeiture. Restricted Stock Units RSUs may be granted under the 2021 Plan. RSUs are bookkeeping entries representing an amount equal to the fair market value of one share of the Company’s common stock. Subject to the provisions of the 2021 Plan, the administrator determines the terms and conditions of RSUs, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may pay earned RSUs in the form of cash, in shares of the Company’s common stock or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any vesting requirements will be deemed satisfied. Performance Units and Performance Shares Performance units and performance shares may be granted under the 2021 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish performance objectives or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number or the value of performance units and performance shares to be paid out to participants. The administrator may set performance objectives based on the achievement of Company-wide, divisional, business unit or individual goals (including continued employment or service), applicable federal or state securities laws or any other basis determined by the administrator in its discretion. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator on or prior to the grant date. Performance shares shall have an initial value equal to the fair market value of the Company’s common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof. 104 Non-Employee Directors The 2021 Plan provides that all non-employee directors will be eligible to receive all types of awards (except for incentive stock options) under the 2021 Plan. The 2021 Plan includes a maximum limit of $750,000 of equity awards that may be granted to a non-employee director in any fiscal year, increased to $1,500,000 in connection with his or her initial service. For purposes of this limitation, the value of equity awards is based on the grant date fair value (determined in accordance with accounting principles generally accepted in the United States). Any equity awards granted to a person for their services as an employee, or for their services as a consultant (other than as a non-employee director), will not count for purposes of the limitation. The maximum limit does not reflect the intended size of any potential compensation or equity awards to the Company’s non-employee directors. Non-transferability of Awards Unless the administrator provides otherwise, the 2021 Plan generally does not allow for the transfer of awards and only the recipient of an award may exercise an award during their lifetime. If the administrator makes an award transferrable, such award will contain such additional terms and conditions as the administrator deems appropriate. Certain Adjustments In the event of certain changes in the Company’s capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2021 Plan, the administrator will adjust the number and class of shares that may be delivered under the 2021 Plan or the number, and price of shares covered by each outstanding award and the numerical share limits set forth in the 2021 Plan. Dissolution or Liquidation In the event of the Company’s proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction. Merger or Change in Control The 2021 Plan provides that in the event of the Company’s merger with or into another corporation or entity or a “change in control” (as defined in the 2021 Plan), each outstanding award will be treated as the administrator determines, including, without limitation, that (i) awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant, that the participant’s awards will terminate upon or immediately prior to the consummation of such merger or change in control; (iii) outstanding awards will vest and become exercisable, realizable or payable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon consummation of such merger or change in control and, to the extent the administrator determines, terminate upon or immediately prior to the effectiveness of such merger or change in control; (iv) (A) the termination of an award in exchange for an amount of cash or property, if any, equal to the amount that would have been attained upon the exercise of such award or realization of the participant’s rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the administrator determines in good faith that no amount would have been attained upon the exercise of such award or realization of the participant’s rights, then such award may be terminated by the Company without payment) or (B) the replacement of such award with other rights or property selected by the administrator in its sole discretion; or (v) any combination of the foregoing. The administrator will not be obligated to treat all awards, all awards a participant holds, or all awards of the same type, similarly. In the event that awards (or portion thereof) are not assumed or substituted for in the event of a merger or change in control, the participant will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, including shares as to which such awards would not otherwise be vested or exercisable, all restrictions on restricted stock and RSUs will lapse and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met, in all cases, unless specifically provided otherwise under the applicable award agreement or other written agreement between the participant and the Company or any of the Company’s subsidiary or parents, as applicable. If an option or stock appreciation right is not assumed or substituted in the event of a merger or change in control, the administrator will notify the participant in writing or electronically that the option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the vested option or stock appreciation right will terminate upon the expiration of such period. 105 For awards granted to an outside director, the outside director will fully vest in and have the right to exercise all of their outstanding options and stock appreciation rights, all restrictions on restricted stock and RSUs will lapse and, for awards with performance-based vesting, unless specifically provided for in the award agreement, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met. Clawback Awards will be subject to any Company clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable laws. The administrator also may specify in an award agreement that the participant’s rights, payments or benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events. The Board may require a participant to forfeit, return or reimburse the Company all or a portion of the award or shares issued under the award, any amounts paid under the award and any payments or proceeds paid or provided upon disposition of the shares issued under the award in order to comply with such clawback policy or applicable laws. Amendment and Termination The administrator has the authority to amend, suspend or terminate the 2021 Plan provided such action does not impair the existing rights of any participant. The 2021 Plan automatically will terminate on August 6, 2031, unless it is terminated sooner. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2023 by: ● each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; ● each of our executive officers and directors that beneficially owns shares of our common stock; and ● all our executive officers and directors as a group. 106 In the table below, percentage ownership is based on 20,842,690 shares of our common stock issued and outstanding as of December 31, 2023. Unless otherwise noted below, the address for each beneficial owner listed on the table is c/o HeartCore Enterprises, Inc., 1-2-33, Higashigotanda, Shinagawa-ku, Tokyo, Japan. We have determined beneficial ownership in accordance with the rules of the SEC. We believe, based on the information furnished to us, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws. Name and Address of Beneficial Owner Number and Nature of Shares Beneficially Owned (1) Percentage of Outstanding Common Stock Directors and Executive Officers: Sumitaka Yamamoto 10,607,159 50.9 % Keisuke Kuno 92,430 ***** Kimio Hosaka 107,124 ***** Prakash Sadasivam 2,500,000 12.0 % Ferdinand Groenewald - - Heather Marie Neville - - Koji Sato - - All executive officers and directors as a group (9 persons) (2) 13,400,381 64.3 % Other 5% Stockholders: Daishin Yasui 2,325,425 11.2 % * less than 1%. (1) The percentages in the table have been calculated based on 20,842,690 shares of our common stock outstanding on December 31, 2023. To calculate a stockholder’s percentage of beneficial ownership, we include in the numerator and denominator the common stock outstanding and all shares of our common stock issuable to that person in the event of the exercise of outstanding options and other derivative securities owned by that person which are exercisable within 60 days of December 31, 2023. Common stock options and derivative securities held by other stockholders are disregarded in this calculation. Therefore, the denominator used in calculating beneficial ownership among our stockholders may differ. Unless we have indicated otherwise, each person named in the table has sole voting power and sole investment power for the shares listed opposite such person’s name. (2) Includes the directors and named executive officers listed above, as well as (i) 72,048 shares beneficially owned by Hidekazu Miyata, our Chief Technical Officer, and (ii) 21,620 shares beneficially owned by Qizhi Gao, our Chief Financial Officer. Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2023, regarding our compensation plans under which equity securities are authorized for issuance: Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted- average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (a) (b) (c) Equity compensation plans approved by security holders 2,395,670 1.65 2,004,330 (1) Equity compensation plans not approved by security holders — — — Total 2,395,670 1.65 2,004,330 (1) This represents shares of common stock issuable pursuant to the 2023 Plan and the 2021 Plan. There were an aggregate 2,004,330 shares available for award under the 2021 and 2023 Plans as of December 31, 2023. 107 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies and Procedures for Related Party Transactions Under Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, to which we or our subsidiary were or are a party, or in which we or our subsidiary were or are a participant, in which the amount involved exceeded or exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities (a “significant shareholder”), or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest. We recognize that transactions between us and any of our directors or executives or with a third party in which one of our officers, directors or significant shareholders has an interest can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of our Company and stockholders. The Audit Committee of the Board of Directors is charged with responsibility for reviewing, approving and overseeing any transaction between the Company and any related person (as defined in Item 404 of Regulation S-K), including the propriety and ethical implications of any such transactions, as reported or disclosed to the Audit Committee by the independent auditors, employees, officers, members of the Board of Directors or otherwise, and to determine whether the terms of the transaction are not less favorable to us than could be obtained from an unaffiliated party. From time to time, we engage in transactions with related parties. The following is a summary of the related party transactions during the fiscal years ended December 31, 2023 and 2022, and any proposed transactions, requiring disclosure pursuant to Item 404 of Regulation S-K. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions. Related Party Transactions As of December 31, 2023 and 2022, the Company has a due to related party balance of $1,476 and $402, respectively, from Sumitaka Yamamoto, the Chief Executive Officer (“CEO”) and major shareholder of the Company. The balance is unsecured, non-interest bearing and due on demand. During the year ended December 31, 2023, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $1,123. During the year ended December 31, 2022, the Company repaid to the related party for operating expenses the related party paid on behalf of the Company in a net amount of $575. As of December 31, 2023 and 2022, the Company has a loan receivable balance of $227,704 and $294,919, respectively, from Heartcore Technology Inc., a company controlled by the CEO of the Company. The loan was made to the related party to support its operation. The balance is unsecured, bears an annual interest of 1.475%, and requires repayments in installments starting from February 2022. During the years ended December 31, 2023 and 2022, the Company received repayments of $45,404 and $44,871, respectively, from this related party. During the period from January 1, 2022 through January 13, 2022, the Company completed a private placement, in which, it issued 30,000 shares of common shares at a purchase price of $2.50 per share to the officers of the Company for an aggregate amount of $75,000. 108 Director Independence The Company’s Board of Directors has affirmatively determined that three of its six directors, Ferdinand Groenewald, Heather Neville, and Koji Sato are independent directors of the Company within the meaning of Nasdaq Capital Market’s rules. We are a “controlled company” under Nasdaq Capital Market rules and are not required to have a majority of independent directors on the Board. See “Management—Controlled Company and Director Independence” for additional information. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The following is a summary of fees paid or to be paid to MaloneBailey, LLP, our independent registered public accounting firm, for the fiscal years ended December 31, 2023 and 2022. Years Ended December 31, 2023 2022 Audit Fees $ 560,000 $ 560,000 Audit Related Fees $ 60,000 $ - Tax Fees $ - $ - All Other Fees $ - $ - Total $ 620,000 $ 560,000 Audit Fees . Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by our independent registered public accounting firm in connection with regulatory filings. The above amounts include interim procedures and audit fees, as well as attendance at Board meetings. 109 Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. Tax Fees . Tax fees consist of fees billed for tax planning services and tax advice. The board of directors must specifically approve all other tax services. All Other Fees . Other services are services provided by the independent registered public accounting firm that do not fall within the established audit, audit-related, and tax services categories. The board of directors preapproves specified other services that do not fall within any of the specified prohibited categories of services. Pre-Approval Policy Since formation of our audit committee, all of the foregoing services were pre-approved by our audit committee. Our audit committee will pre-approve all auditing services and permitted non-audit services to be performed for us by our auditors, including the fees and terms thereof (subject to the de minimis exceptions for non-audit services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit). PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this annual report: (1) Financial Statements See Index to Financial Statements on page F-1. (2) Financial Statements Schedules All financial statements schedules are omitted because they are not applicable or the amounts are immaterial and not required, or the required information is presented in the financial statements and notes thereto beginning on page F-1 of this annual report. (3) Exhibits We hereby file as part of this annual report the exhibits listed in the Exhibit Index immediately before the signature page to this Annual Report on Form 10-K. Exhibits which are incorporated herein by reference can be inspected and copied at the public reference facilities maintained by the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of such material can also be obtained from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or on the SEC website at www.sec.gov. Item 16. Form 10-K Summary Not applicable. 110 HEARTCORE ENTERPRISES, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 206 ) F-2 Consolidated Balance Sheets as of December 31, 2023 and 2022 F-3 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2023 and 2022 F-4 Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Years Ended December 31, 2023 and 2022 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 F-6 Notes to Consolidated Financial Statements F-7 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of HeartCore Enterprises, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of HeartCore Enterprises, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ MaloneBailey, LLP www.malonebailey.com We have served as the Company’s auditor since 2021. Tokyo, Japan April 8, 2024 F- 2 HEARTCORE ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 1,012,479 $ 7,177,326 Accounts receivable 2,623,682 551,064 Investments in marketable securities 642,348 - Investment in equity securities 300,000 - Prepaid expenses 536,865 538,230 Current portion of long-term note receivable 100,000 - Due from related party 44,758 48,447 Other current assets 234,761 220,070 Total current assets 5,494,893 8,535,137 Non-current assets: Property and equipment, net 763,730 203,627 Operating lease right-of-use assets 2,467,889 2,644,957 Intangible asset, net 4,515,625 - Goodwill 3,276,441 - Long-term investment in warrants 2,004,308 - Long-term note receivable 200,000 - Deferred tax assets 369,436 263,339 Security deposits 348,428 244,395 Long-term loan receivable from related party 182,946 246,472 Other non-current assets 71 661 Total non-current assets 14,128,874 3,603,451 Total assets $ 19,623,767 $ 12,138,588 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 1,757,038 $ 497,742 Accrued payroll and other employee costs 723,305 360,222 Due to related party 1,476 402 Short-term debt 135,937 - Current portion of long-term debts 371,783 697,877 Factoring liability 562,767 - Operating lease liabilities, current 396,535 291,863 Finance lease liabilities, current 17,445 19,294 Income tax payables 162,689 2,747 Deferred revenue 2,166,175 1,724,519 Other current liabilities 216,405 53,027 Total current liabilities 6,511,555 3,647,693 Non-current liabilities: Long-term debts 1,770,352 1,123,735 Operating lease liabilities, non-current 2,135,160 2,421,054 Finance lease liabilities, non-current 66,779 459 Deferred tax liabilities 1,264,375 - Other non-current liabilities 208,732 138,018 Total non-current liabilities 5,445,398 3,683,266 Total liabilities 11,956,953 7,330,959 Shareholders’ equity: Preferred shares ($ 0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding as of December 31, 2023 and 2022) - - Common shares ($ 0.0001 par value, 200,000,000 shares authorized; 20,842,690 and 17,649,886 shares issued and outstanding as of December 31, 2023 and 2022, respectively) 2,083 1,764 Additional paid-in capital 19,594,801 15,014,607 Accumulated deficit ( 14,763,469 ) ( 10,573,579 ) Accumulated other comprehensive income 331,881 364,837 Total HeartCore Enterprises, Inc. shareholders’ equity 5,165,296 4,807,629 Non-controlling interest 2,501,518 - Total shareholders’ equity 7,666,814 4,807,629 Total liabilities and shareholders’ equity $ 19,623,767 $ 12,138,588 The accompanying notes are an integral part of these consolidated financial statements. F- 3 HEARTCORE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS 2023 2022 For the Years Ended December 31, 2023 2022 Revenues $ 21,845,830 $ 8,818,312 Cost of revenues 13,778,416 5,467,017 Gross profit 8,067,414 3,351,295 Operating expenses: Selling expenses 1,516,247 2,826,615 General and administrative expenses 9,651,381 6,579,734 Research and development expenses 1,019,141 641,025 Total operating expenses 12,186,769 10,047,374 Loss from operations ( 4,119,355 ) ( 6,696,079 ) Other income (expenses): Changes in fair value of investments in marketable securities ( 615,520 ) - Changes in fair value of investment in warrants ( 501,445 ) - Interest income 70,624 66,963 Interest expenses ( 162,968 ) ( 41,800 ) Government grants 76,612 - Other income 366,283 57,268 Other expenses ( 124,595 ) ( 69,736 ) Total other income (expenses) ( 891,009 ) 12,695 Loss before income tax benefit ( 5,010,364 ) ( 6,683,384 ) Income tax benefit ( 133,664 ) ( 5,918 ) Net loss ( 4,876,700 ) ( 6,677,466 ) Less: net loss attributable to non-controlling interest ( 686,810 ) - Net loss attributable to HeartCore Enterprises, Inc. $ ( 4,189,890 ) $ ( 6,677,466 ) Other comprehensive income (loss): Foreign currency translation adjustment ( 34,628 ) 380,009 Total comprehensive loss ( 4,911,328 ) ( 6,297,457 ) Less: comprehensive loss attributable to non-controlling interest ( 688,482 ) - Comprehensive loss attributable to HeartCore Enterprises, Inc. $ ( 4,222,846 ) $ ( 6,297,457 ) Net loss per common share attributable to HeartCore Enterprises, Inc. Basic $ ( 0.21 ) $ ( 0.37 ) Diluted $ ( 0.21 ) $ ( 0.37 ) Weighted average common shares outstanding Basic 20,404,642 17,922,585 Diluted 20,404,642 17,922,585 The accompanying notes are an integral part of these consolidated financial statements. F- 4 HEARTCORE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Common Shares Additional Treasury Shares Accumulated Other Total HeartCore Enterprises, Inc. Shareholders’ Non- Total Shareholders’ Number of Shares Amount Paid-in Capital Number of Shares Amount Accumulated Deficit Comprehensive Income (Loss) Equity (Deficit) controlling Interest Equity (Deficit) Balance, December 31, 2021 15,546,454 $ 1,554 $ 3,350,779 - $ - $ ( 3,896,113 ) $ ( 15,172 ) $ ( 558,952 ) $ - $ ( 558,952 ) Net loss - - - - - ( 6,677,466 ) - ( 6,677,466 ) - ( 6,677,466 ) Foreign currency translation adjustment - - - - - - 380,009 380,009 - 380,009 Issuance of common shares for cash 3,096,000 310 13,643,969 - - - - 13,644,279 - 13,644,279 Issuance of common shares from exercise of share options 273,489 27 ( 11 ) - - - - 16 - 16 Stock-based compensation 83,333 8 1,519,735 - - - - 1,519,743 - 1,519,743 Repurchase of common shares - - - ( 1,349,390 ) ( 3,500,000 ) - - ( 3,500,000 ) - ( 3,500,000 ) Retirement of treasury shares ( 1,349,390 ) ( 135 ) ( 3,499,865 ) 1,349,390 3,500,000 - - - - - Balance, December 31, 2022 17,649,886 $ 1,764 $ 15,014,607 - $ - $ ( 10,573,579 ) $ 364,837 $ 4,807,629 $ - $ 4,807,629 Balance 17,649,886 $ 1,764 $ 15,014,607 - $ - $ ( 10,573,579 ) $ 364,837 $ 4,807,629 $ - $ 4,807,629 Net loss - - - - - ( 4,189,890 ) - ( 4,189,890 ) ( 686,810 ) ( 4,876,700 ) Foreign currency translation adjustment - - - - - - ( 32,956 ) ( 32,956 ) ( 1,672 ) ( 34,628 ) Issuance of common shares for acquisition of subsidiary 2,500,000 250 3,149,750 - - - - 3,150,000 - 3,150,000 Non-controlling interest arising from acquisition of subsidiary - - - - - - - - 3,190,000 3,190,000 Stock-based compensation 692,804 69 1,430,444 - - - - 1,430,513 - 1,430,513 Balance, December 31, 2023 20,842,690 $ 2,083 $ 19,594,801 - $ - $ ( 14,763,469 ) $ 331,881 $ 5,165,296 $ 2,501,518 $ 7,666,814 Balance 20,842,690 $ 2,083 $ 19,594,801 - $ - $ ( 14,763,469 ) $ 331,881 $ 5,165,296 $ 2,501,518 $ 7,666,814 The accompanying notes are an integral part of these consolidated financial statements. F- 5 HEARTCORE ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 4,876,700 ) $ ( 6,677,466 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expenses 683,019 83,333 Gain on disposal of property and equipment ( 4,514 ) - Amortization of debt issuance costs 3,733 4,546 Non-cash lease expense 346,070 273,836 Loss on termination of lease 76 - Deferred income taxes ( 291,596 ) ( 1,610 ) Stock-based compensation 1,430,513 1,519,743 Warrants received as noncash consideration ( 3,763,621 ) - Changes in fair value of investments in marketable securities 615,520 - Changes in fair value of investment in warrants 501,445 - Changes in assets and liabilities: Accounts receivable ( 338,312 ) 296,835 Prepaid expenses 359,310 62,195 Other assets ( 133,550 ) ( 201,226 ) Accounts payable and accrued expenses 532,790 ( 70,525 ) Accrued payroll and other employee costs 152,101 149,617 Due to related party 1,123 ( 575 ) Operating lease liabilities ( 327,877 ) ( 283,921 ) Finance lease liabilities - ( 440 ) Income tax payables 162,045 ( 6,915 ) Deferred revenue 553,130 239,129 Other liabilities 64,086 ( 195,103 ) 　 Net cash flows used in operating activities ( 4,331,209 ) ( 4,808,547 ) 　 Cash flows from investing activities: Purchases of property and equipment ( 526,260 ) ( 57,071 ) Proceeds from disposal of property and equipment 24,814 - Advances on notes receivable ( 600,000 ) - Repayment of loan provided to related party 45,404 44,871 Payment for acquisition of subsidiary, net of cash acquired ( 724,910 ) - Net cash flows used in investing activities ( 1,780,952 ) ( 12,200 ) 　 Cash flows from financing activities: Proceeds from initial public offering, net of issuance cost - 13,602,554 Proceeds from issuance of common shares prior to initial public offering - 220,572 Repurchase of common shares - ( 3,500,000 ) Payments for finance leases ( 22,422 ) ( 34,465 ) Proceeds from short-term and long-term debts 710,107 258,087 Repayment of long-term debts ( 711,395 ) ( 810,750 ) Repayment of insurance premium financing ( 389,035 ) ( 388,538 ) Net proceeds from factoring arrangement 562,767 - Payments for debt issuance costs ( 13,828 ) ( 1,630 ) Payment for mandatorily redeemable financial interest - ( 430,489 ) 　 Net cash flows provided by financing activities 136,194 8,915,341 　 Effect of exchange rate changes ( 188,880 ) ( 54,107 ) 　 Net change in cash and cash equivalents ( 6,164,847 ) 4,040,487 　 Cash and cash equivalents - beginning of the year 7,177,326 3,136,839 　 Cash and cash equivalents - end of the year $ 1,012,479 $ 7,177,326 　 Supplemental cash flow disclosure: Interest paid $ 85,634 $ 41,848 Income taxes paid $ 91,707 $ 3,013 　 Non-cash investing and financing transactions: Payroll withheld as repayment of loan receivable from employees $ - $ 12,034 Share repurchase liability settled by issuance of common shares $ - $ 16 Deferred offering costs recognized against the proceeds from the offering $ - $ 178,847 Insurance premium financing $ 389,035 $ 388,538 Common shares issued for acquisition of subsidiary $ 3,150,000 $ - Warrants converted to marketable securities $ 1,257,868 $ - Finance lease right-of-use asset obtained in exchange for finance lease liability $ 93,217 $ - Operating lease right-of-use asset obtained in exchange for operating lease liability $ 317,040 $ - Remeasurement of operating lease liability and right-of-use asset due to lease modification $ 30,186 $ - Note receivable converted to investment in equity securities $ 300,000 $ - The accompanying notes are an integral part of these consolidated financial statements. F- 6 HEARTCORE ENTERPRISES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS HeartCore Enterprises, Inc. (“HeartCore USA” or the “Company”), a holding company, was incorporated under the laws of the State of Delaware on May 18, 2021. On July 16, 2021, the Company executed a Share Exchange Agreement with certain shareholders of HeartCore Co., Ltd. (“HeartCore Japan”), a company that was incorporated in Japan on June 12, 2009. Pursuant to the terms of the Share Exchange Agreement, the Company issued 15,999,994 shares of its common shares to the shareholders of HeartCore Japan in exchange for 10,706 shares out of 10,984 shares of common shares issued by HeartCore Japan, representing approximately 97.5 % of HeartCore Japan’s outstanding common shares. On February 24, 2022, the Company purchased the remaining 278 shares of common shares of HeartCore Japan. As a result, HeartCore Japan became a wholly-owned operating subsidiary of the Company. The share exchange on July 16, 2021 has been accounted for as a recapitalization between entities under common control since the same controlling shareholders controlled these two 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 earliest period presented in the accompanying consolidated financial statements. The Company, via its wholly-owned operating subsidiary, HeartCore Japan, is mainly engaged in the business of developing and sales of comprehensive software. Beginning from early 2022, HeartCore USA is engaged in business of providing consulting services to Japanese companies with intention to go public in the United States capital market. On September 6, 2022, HeartCore USA entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51 % of the outstanding shares of Sigmaways, Inc. (“Sigmaways”), a company incorporated under the laws of the State of California in April 2006, and its wholly-owned subsidiaries, Sigmaways B.V. and Sigmaways Technologies Ltd. (“Sigmaways Technologies”). Sigmaways B.V. was incorporated in Netherlands in November 2019. Sigmaways Technologies was incorporated in Canada in August 2020. Sigmaways and its wholly-owned subsidiaries are primarily engaged in the business of developing and sales of software in the United States. The acquisition was closed on February 1, 2023. In January 2023, HeartCore USA incorporated a wholly-owned subsidiary, HeartCore Financial, Inc. (“HeartCore Financial”), under the laws of the State of Delaware. HeartCore Financial is engaged in the business of providing financial consulting services. In February 2023, HeartCore USA incorporated a wholly-owned subsidiary, HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), in Japan. HeartCore Capital Advisors is engaged in the business of providing financial consulting services to Japanese companies. In November 2023, HeartCore Japan established a 51 % owned subsidiary in Vietnam, HeartCore Luvina Vietnam Company Limited (“HeartCore Luvina”), which is engaged in the business of providing software development and other services. HeartCore Luvina had no operation activities during the year ended December 31, 2023. F- 7 On November 17, 2023, HeartCore Japan and HeartCore Capital Advisors entered into a merger agreement to merge the two entities into one with HeartCore Japan being the surviving entity. On January 1, 2024, the merger was completed and HeartCore Capital Advisors transferr ed all of its assets and liabilities to HeartCore Japan. The merger has been accounted for as a recapitalization between entities under common control since the same controlling shareholders controlled the two entities before and after the transaction. HeartCore USA, HeartCore Japan, Sigmaways, Sigmaways B.V., Sigmaways Technologies, HeartCore Financial, HeartCore Capital Advisors and HeartCore Luvina are hereafter referred to as the Company. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Non-controlling Interest The portion of the income applicable to the non-controlling interest in subsidiaries is separately reflected in the consolidated statements of operations and comprehensive loss. Use of Estimates In preparing the consolidated financial statements in conformity U.S. GAAP, the management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for credit losses, useful lives of property and equipment and intangible asset, the impairment of long-lived assets and goodwill, valuation of stock-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and finance leases, valuation of asset retirement obligations, valuation of investment in warrants, revenue recognition and purchase price allocation with respect to business combination. Actual results could differ from those estimates. F- 8 Cash and Cash Equivalents Cash and cash equivalents include cash on hand and deposits in banks that are unrestricted as to withdrawal or use. Accounts Receivable Accounts receivable represent the amounts that the Company has an unconditional right to consideration, which are stated at the original amount less an allowance for credit losses. The Company adopted the Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) on January 1, 2023. The allowance for credit losses reflects the Company’s current estimate of credit losses expected to be incurred over the life of the receivables. The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses including the aging of receivables and aging trends, customer creditworthiness and specific exposures related to particular customers. The Company also monitors other risk factors and forward-looking information, such as country specific risks and economic factors that may affect a customer’s ability to pay in establishing and adjusting its allowance for credit losses. Accounts receivable balances are written off after all collection efforts have ceased. The allowance is recorded against accounts receivable balances, with a corresponding charge recorded in the consolidated statements of operations and comprehensive loss. In circumstances in which the Company receives payment for accounts receivable that have previously been written off, the Company reverses the allowance and credit losses. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line and declining methods over the estimated useful lives, as more details follow: SCHEDULE OF PROPERTY AND EQUIPMENT USEFUL LIVES Depreciation Method Useful Life Leasehold improvements Straight-line method Shorter of estimated useful life or lease term Machinery and equipment Straight-line or declining balance method 2 – 19 years Vehicle Straight-line method 5 years Software Straight-line method 5 years Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful lives of the assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations and comprehensive loss. F- 9 Asset Retirement Obligations Pursuant to the lease agreements for the office space, the Company is responsible to restore these spaces back to its original statute at the time of leaving. The Company recognizes an obligation related to these restorations as asset retirement obligation included in other non-current liabilities in the consolidated balance sheets, in accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) Topic 410, “Asset Retirement Obligation Accounting”. The Company capitalizes the associated asset retirement cost by increasing the carrying amount of the related property and equipment. The following table presents changes in asset retirement obligations: SCHEDULE OF CHANGES IN ASSET RETIREMENT OBLIGATIONS December 31, 2023 December 31, 2022 Beginning balance $ 138,018 $ 155,666 Liabilities incurred 83,821 - Accretion expense 428 459 Foreign currency translation adjustment ( 13,535 ) ( 18,107 ) Ending balance $ 208,732 $ 138,018 Lease – Lessee The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. Lease terms of certain operating leases include the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain. The Company leases office facilities, which are classified as operating leases and leases office equipment and vehicles, which are classified as finance leases in accordance with ASC Topic 842, “Leases”. Under ASC Topic 842, lessees are required to recognize the following for all leases on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current, and operating lease liabilities, non-current, and finance leases are included in property and equipment, net, finance lease liabilities, current, and finance lease liabilities, non-current in the consolidated balance sheets. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The Company has elected the short-term lease exception, and therefore operating lease right-of-use assets and liabilities do not include leases with a lease term of twelve months or less. Software Development Costs Software development costs are expensed as incurred until the point the Company establishes technological feasibility. Technological feasibility is established upon completion of a detailed program design or the completion of a working model. Costs incurred by the Company between establishment of technological feasibility and the point at which the product is ready for general release are capitalized and amortized over the economic life of the related products. The Company’s software development costs incurred subsequent to achieving technological feasibility have not been significant and all software development costs have been expensed as incurred. F- 10 In the years ended December 31, 2023 and 2022, software development costs expensed as incurred amounted to $ 1,019,141 and $ 641,025 , respectively. These software development costs were included in the research and development expenses. Investment in Warrants Investment in warrants represents stock warrants of its consulting service customers. The warrants are measured at fair value and any changes in fair value are recognized in other income (expenses). Investment in warrants is classified as long-term if the warrants are exercisable over one year after the date of receipt. Investments in Marketable Securities Investments in marketable securities represent equity securities registered for public sale with readily determinable fair value. The marketable securities as of December 31, 2023 were obtained through exercise of stock warrants of its consulting service customers and measured at fair value with changes in fair value recognized in other income (expenses). Investment in Equity Securities Investment in equity securities represents investment in a privately held entity that does not have a readily determinable fair value or report net asset value. Investment in equity securities is accounted for using a measurement alternative, under which this investment is measured at cost, adjusted for observable price changes and impairments, with changes recognized in other income (expenses). Investment in equity securities is classified as current asset if the Company plans to dispose of the investment within one year from the date of receipt. Intangible Asset, Net Intangible asset represents the customer relationship acquired from business acquisition of Sigmaways and its subsidiaries. The acquired intangible asset is recognized and measured at fair value at the time of acquisition and is amortized on a straight-line basis over the estimated economic useful life of the respective asset. The estimated useful life of the customer relationship is 8 years . Impairment of Long-Lived Assets Other Than Goodwill Long-lived assets with finite lives, primarily property and equipment, operating lease right-of-use assets and intangible asset, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets during the years ended December 31, 2023 and 2022. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with ASC Topic 350, “Intangibles – Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis. Foreign Currency Translation The functional currency of HeartCore Japan and HeartCore Capital Advisors is the Japanese Yen (“JPY”). The functional currency of HeartCore USA, HeartCore Financial and Sigmaways is the United States Dollar (“US$”). The functional currency of Sigmaways B.V. is the Euro (“EUR”). The functional currency of Sigmaways Technologies is the Canada Dollar (“CAD”). The functional currency of HeartCore Luvina is the Vietnam Dong (“VND”). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statements of operations and comprehensive loss. The reporting currency of the Company is the US$, and the accompanying consolidated financial statements have been expressed in US$. In accordance with ASC Topic 830-30, “Translation of Financial Statements”, assets and liabilities of the Company whose functional currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of financial statements are recorded as a separate component of accumulated other comprehensive income (loss) within the consolidated statements of changes in shareholders’ equity (deficit). Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates: SCHEDULE OF FOREIGN CURRENCY TRANSLATION December 31, 2023 December 31, 2022 Current JPY: US$1 exchange rate 141.83 131.03 Average JPY: US$1 exchange rate 139.81 129.68 Current EUR: US$1 exchange rate 0.91 - Average EUR: US$1 exchange rate 0.92 - Current CAD: US$1 exchange rate 1.34 - Average CAD: US$1 exchange rate 1.35 - Current VND: US$1 exchange rate 24,264.20 - Average VND: US$1 exchange rate 23,825.87 - 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. Revenues 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% of gross sales in Japan and Vietnam, 5% of gross sales in Canada, 21% of gross sales in Netherlands and nil of gross sales in the United States . F- 11 The Company currently generates its revenues from the following main sources: Revenues from On-premise Software Licenses for on-premise software provide the customers with a right to use the software as it exists when made available to the customers. 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 customers. Licenses for on-premise software are typically sold to the customers 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 customers. 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 services 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 revenues 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. F- 12 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 contracts that result in the transfer of control over time, the underlying deliverable in the contracts is owned and controlled by the customers and does not create an asset with an alternative use to the Company. The Company recognizes revenues on rate per hour contracts based on the amount billable to the customers, as the Company has the right to invoice the customers in an amount that directly corresponds with the value to the customers of the Company’s performance to date. 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 normally include both cash and noncash considerations. Cash consideration is paid in installment payments and is recognized in revenues 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 in the consolidated balance sheets, when revenues are recognized prior to invoicing. The Company factors certain accounts receivable upon or after the performance obligation is being met. The Company records deferred revenue in 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 years ended December 31, 2023 and 2022 that were included in the opening deferred revenue balance was approximately $ 1.6 million and $ 1.5 million, respectively. Disaggregation of Revenues The Company disaggregates its revenues from contracts by product/service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenues and cash flows are affected by economic factors. The Company’s disaggregation of revenues by revenue stream for the years ended December 31, 2023 and 2022 is as following: SCHEDULE OF DISAGGREGATION OF REVENUES 2023 2022 For the Years Ended December 31, 2023 2022 Revenues from on-premise software $ 1,586,218 $ 1,860,573 Revenues from maintenance and support services 2,646,148 2,962,325 Revenues from software as a service (“SaaS”) 635,927 500,461 Revenues from software development and other miscellaneous services 1,980,979 2,046,588 Revenues from customized software development and services 8,784,239 - Revenues from consulting services 6,212,319 1,448,365 Total revenues $ 21,845,830 $ 8,818,312 The Company’s disaggregation of revenues by product/service is as following: 2023 2022 For the Years Ended December 31, 2023 2022 Revenues from customer experience management platform $ 5,602,473 $ 5,954,538 Revenues from process mining 399,300 499,724 Revenues from robotic process automation 325,986 394,829 Revenues from task mining 376,682 337,950 Revenues from customized software development and services 8,784,239 - Revenues from consulting services 6,212,319 1,448,365 Revenues from others 144,831 182,906 Total revenues $ 21,845,830 $ 8,818,312 As of December 31, 2023 and 2022, and for the years then ended, substantially all of the long-lived assets (excluding intangible asset) and the majority of revenues generated are attributed to the Company’s operation in Japan. F- 13 Cost of Revenues Cost of revenues primarily consists of salaries and outsourcing expenses (e.g., bonuses, employee benefits, payroll taxes, outsourcing professional fees) for personnel and parties directly involved in the delivery of services and products directly to customers. Cost of revenues also includes royal/license payments to vendors, and hosting and infrastructure costs related to the delivery of the Company’s products and services. Advertising Expenses Advertising expenses consist primarily of costs of promotion and marketing for the Company’s image and products/services, and costs of direct advertising, and are included in selling expenses. The Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with the ASC Topic 720-35, “Advertising Costs”. The advertising expenses were $ 832,491 and $ 1,902,942 for the years ended December 31, 2023 and 2022, respectively. Concentration of Credit Risk Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable, note receivable and other receivable. The Company usually does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable. For the year ended December 31, 2023, customer A, B and C represent 15.1 %, 10.4 % and 10.1 %, respectively, of the Company’s total revenues. For the year ended December 31, 2022, no customer accounts for more than 10% of the Company’s total revenues. For the year ended December 31, 2023, no vendor accounts for more than 10% of the Company’s total purchases. For the year ended December 31, 2022, vendor A, B and C represent 37.5 %, 23.6 % and 20.9 %, respectively, of the Company’s total purchases. Segment Reporting ASC Topic 280, “Segment Reporting”, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Management determined the Company’s operations constitute a single reportable segment in accordance with ASC Topic 280. Comprehensive Income or Loss ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income (loss), as presented in the accompanying consolidated statements of changes in shareholders’ equity (deficit), consists of changes in unrealized gains and losses on foreign currency translation. F- 14 Loss Per Share The Company computes basic and diluted loss per share in accordance with ASC Topic 260, “Earnings per Share”. Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares, common share equivalents and potentially dilutive securities outstanding during the reporting period. Common share equivalents are not included in the calculation of diluted loss per share if their effect would be anti-dilutive. Stock-based Compensation The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statements of operations and comprehensive loss based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period or vesting period. The Company records forfeitures as they occur. Share Repurchase and Retirement of Treasury Shares Common shares repurchased by the Company are held as treasury shares. The Company accounts for treasury shares using the cost method. Under this method, the cost incurred to purchase the shares is recorded in the treasury shares account. At retirement, the common shares account is charged only for the aggregate par value of the shares. The excess of the acquisition cost of treasury shares over the aggregate par value is recorded entirely in additional paid-in capital (up to the amount credited to the additional paid-in capital upon original issuance of the shares). Related Parties and Transactions The Company identifies related parties, and accounts for and discloses related party transactions in accordance with ASC Topic 850, “Related Party Disclosures” and other relevant ASC standards. Parties, which can be an entity or individual, are considered to be related if they have the ability, directly or indirectly, to control the Company or exercise significant influence over the Company in making financial and operational decisions. Entities are also considered to be related if they are subject to common control or common significant influence. Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. Income Taxes Income taxes are accounted for using an asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes”. Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized. The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. F- 15 Under the provisions of ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expenses and penalties are classified in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss. Business Combinations The Company accounts its business combinations using the acquisition method of accounting in accordance with ASC Topic 805. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible asset acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred. Consideration transferred in a business combination is measured at the fair value as of the date of acquisition. Where the consideration in an acquisition includes contingent consideration, and the payment of which depends on the achievement of certain specified conditions post-acquisition, the contingent consideration is recognized and measured at its fair value at the acquisition date and is recorded as a liability. It is subsequently carried at fair value with changes in fair value reflected in earnings. In a business combination achieved in stages, the Company remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the remeasurement gain or loss, if any, is recognized in the consolidated statements of operations and comprehensive loss. Fair value is determined based upon the guidance of ASC Topic 820, “Fair Value Measurements and Disclosures”, and generally are determined using Level 2 inputs and Level 3 inputs. The determination of fair value involves the use of significant judgments and estimates. The Company utilizes the assistance of a third-party valuation appraiser to determine the fair value as of the date of acquisition. Fair Value Measurements The Company performs fair value measurements in accordance with ASC Topic 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value: ● Level 1: quoted prices in active markets for identical assets or liabilities; ● Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or ● Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. As of December 31, 2023 and 2022, the carrying values of current assets, except for investments in marketable securities, and current liabilities approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments. F- 16 Assets measured at fair value on a recurring basis as of December 31, 2023 are summarized below (also see NOTE 6). SCHEDULE OF ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) Fair Value at December 31, 2023 Fair Value Measurements as of December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Unobservable Inputs (Level 3) Fair Value at December 31, 2023 Investments in marketable securities 642,348 - - 642,348 Long-term investment in warrants - - 2,004,308 2,004,308 Recent Accounting Pronouncements New Accounting Pronouncements Recently Adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 was further amended in November 2020 by ASU No. 2020-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). As a result, ASC Topic 326, “Financial Instruments – Credit Losses” is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2020. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As the Company is an “emerging growth company” and elects to apply for the new and revised accounting standards at the effective date for a private company, the Company adopted ASU No. 2016-13 on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. This ASU is expected to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The new guidance is effective for public companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all other entities, it is effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years. The Company elected to adopt ASU No. 2021-08 on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements. New Accounting Pronouncements Not Yet Effective In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU No. 2023-09 is effective for public companies for annual reporting periods beginning after December 15, 2024, on a prospective basis. For all other entities, it is effective for annual reporting periods beginning after December 15, 2025, on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures. F- 17 NOTE 3 – ACCOUNTS RECEIVABLE Accounts receivable consist of the following: SCHEDULE OF ACCOUNTS RECEIVABLE NET December 31, 2023 December 31, 2022 Accounts receivable – non-factored $ 2,060,915 $ 551,064 Accounts receivable – factored with recourse 562,767 - Accounts receivable, gross 2,623,682 551,064 Less: allowance for credit losses - - Accounts receivable $ 2,623,682 $ 551,064 NOTE 4 – PREPAID EXPENSES Prepaid expenses consist of the following: SCHEDULE OF PREPAID EXPENSES December 31, 2023 December 31, 2022 Prepayments to software vendors $ 199,376 $ 162,046 Prepaid marketing and consulting fees 92,546 99,770 Prepaid subscription fees 95,971 113,685 Prepaid insurance premium 72,668 66,023 Others 76,304 96,706 Total $ 536,865 $ 538,230 NOTE 5 – RELATED PARTY TRANSACTIONS As of December 31, 2023 and 2022, the Company has a due to related party balance of $ 1,476 and $ 402 , respectively, from Sumitaka Yamamoto, the Chief Executive Officer (“CEO”) and major shareholder of the Company. The balance is unsecured, non-interest bearing and due on demand. During the year ended December 31, 2023, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $ 1,123 . During the year ended December 31, 2022, the Company repaid to the related party for operating expenses the related party paid on behalf of the Company in a net amount of $ 575 . As of December 31, 2023 and 2022, the Company has a loan receivable balance of $ 227,704 and $ 294,919 , respectively, from Heartcore Technology Inc., a company controlled by the CEO of the Company. The loan was made to the related party to support its operation. The balance is unsecured, bears an annual interest of 1.475 %, and requires repayments in installments starting from February 2022. During the years ended December 31, 2023 and 2022, the Company received repayments of $ 45,404 and $ 44,871 , respectively, from this related party. During the period from January 1, 2022 through January 13, 2022, the Company completed a private placement, in which, it issued 30,000 shares of common shares at a purchase price of $ 2.50 per share to the officers of the Company for an aggregate amount of $ 75,000 . F- 18 NOTE 6 – INVESTMENTS Investment in Equity Securities On May 2, 2023, the Company purchased a $ 300,000 promissory note from a non-related company. The note bears an interest rate of 8 % per annum and matures on the earlier of 1) the date of the closing of capital-raising transactions in the amount of $ 300,000 or more consummated by the promissory note issuer, 2) the date on which the promissory note issuer completes its initial public offering (“IPO”) on the Nasdaq Capital Market or New York Stock Exchange, or 3) 180 days following the note issuance. The interest rate would be 12 % per annum for any amount that is unpaid when due. On July 27, 2023, the Company entered into a note exchange agreement with the promissory note issuer to convert all of the promissory note principal amount and accrued interest into 600,000 shares of common shares of the promissory note issuer. The Company plans to dispose of the common shares after the promissory note issuer completes its IPO, which is expected to occur within a year. Investment in Warrants The Company received warrants from its customers as noncash consideration from consulting services. The warrants are not registered for public sale and are initially measured at fair value at contract inception using the Black-Scholes model and binomial model with the assistance of a third-party valuation appraiser. The following table summarizes the inputs to the models used to estimate the fair value of the warrants received and recognized as consulting services revenues for the years ended December 31, 2023 and 2022: SCHEDULE OF ESTIMATED FAIR VALUE OF WARRANTS FROM CONSULTING SERVICES For the Years Ended December 31, 2023 2022 Stock price $ 3.38 – 439.99 - Exercise price $ 0.01 - Expected volatility 52.57 % – 96.30 % - Time to maturity (in years) 10 - Risk-free interest rate 3.52 % – 4.12 % - The Company’s investment in warrants is measured on a recurring basis and carried on the balance sheets at an estimated fair value at the end of the year. The valuation of investment in warrants is determined using the Black-Scholes model. The following table summarizes the inputs to the model used to estimate the fair value of the investment in warrants as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Stock price $ 496 - Exercise price $ 0.01 - Expected volatility 48.52 % - Time to maturity (in years) 9.25 - Risk-free interest rate 3.88 % - The following table summarizes the Company’s investment in warrants activities for the years ended December 31, 2023 and 2022: SCHEDULE OF INVESTMENT IN WARRANTS ACTIVITY 2023 2022 For the Years Ended December 31, 2023 2022 Fair value of investment in warrants at beginning of the year $ - $ - Warrants received as noncash consideration 3,763,621 - Changes in fair value of investment in warrants ( 501,445 ) - Warrants converted to marketable securities ( 1,257,868 ) - Fair value of investment in warrants at end of the year $ 2,004,308 $ - Investments in Marketable Securities The Company’s investments in marketable securities represent stocks received upon the exercise of warrants described above. They are registered for public sale with readily determinable fair values, and are measured at quoted prices on a recurring basis at the end of the year. The following table summarizes the Company’s investments in marketable securities activities for the years ended December 31, 2023 and 2022: SCHEDULE OF INVESTMENTS IN MARKETABLE SECURITIES 2023 2022 For the Years Ended December 31, 2023 2022 Fair value of investments in marketable securities at beginning of the year $ - $ - Warrants converted to marketable securities 1,257,868 - Changes in fair value of investments in marketable securities ( 615,520 ) - Marketable securities sold - - Fair value of investments in marketable securities at end of the year $ 642,348 $ - F- 19 NOTE 7 – LONG-TERM NOTE RECEIVABLE On September 1, 2023, the Company purchased a $ 300,000 promissory note from a non-related company. The note bears an interest rate of 4 % per annum and matures on September 2, 2026. On the first business day following each annual anniversary of September 1, 2023, the promissory note issuer shall pay to the Company the sum of one-third of the total promissory note amount due and outstanding, including all accrued and unpaid interest as of such time, unless such annual payment has been forgiven by the Company pursuant to certain conditions. The interest rate would be 10 % per annum for any amount that is unpaid when due. NOTE 8 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following: SCHEDULE OF PROPERTY AND EQUIPMENT NET December 31, 2023 December 31, 2022 Leasehold improvements $ 496,810 $ 298,637 Machinery and equipment 706,145 316,827 Vehicle 89,859 106,490 Software 150,633 163,049 Subtotal 1,443,447 885,003 Less: accumulated depreciation ( 679,717 ) ( 681,376 ) Property and equipment, net $ 763,730 $ 203,627 Depreciation expenses are $ 98,644 and $ 83,333 for the years ended December 31, 2023 and 2022, respectively. NOTE 9 – INTANGIBLE ASSET, NET Intangible asset, net is as follows: SCHEDULE OF INTANGIBLE ASSETS December 31, 2023 December 31, 2022 Customer relationship $ 5,100,000 $ - Less: accumulated amortization ( 584,375 ) - Intangible asset, net $ 4,515,625 $ - Amortization expenses are $ 584,375 and nil for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the future estimated amortization cost for intangible asset is as follows: SCHEDULE OF AMORTIZATION INTANGIBLE ASSET Estimated Year Ended December 31, Amortization 2024 $ 637,500 2025 637,500 2026 637,500 2027 637,500 2028 637,500 Thereafter 1,328,125 Total $ 4,515,625 NOTE 10 – LEASES The Company has entered into four leases for its office space, which were classified as operating leases. It has also entered into a lease for office equipment, and two leases for vehicles, one of which was terminated in September 2023, and these leases were classified as finance leases. Right-of-use assets of these finance leases in the amount of $ 85,613 and $ 18,335 are included in property and equipment, net as of December 31, 2023 and 2022, respectively. Operating lease expenses for lease payments are recognized on a straight-line basis over the lease term. Finance lease costs include amortization, which are recognized on a straight-line basis over the expected life of the leased assets, and interest expenses, which are recognized following an effective interest rate method. Leases with initial term of twelve months or less are not recorded in the consolidated balance sheets. F- 20 The components of lease costs are as follows: SCHEDULE OF LEASE COSTS 2023 2022 For the Years Ended December 31, 2023 2022 Finance lease costs Amortization of right-of-use assets $ 19,699 $ 32,211 Interest on lease liabilities 388 440 Total finance lease costs 20,087 32,651 Operating lease costs 388,633 312,356 Short-term lease costs 51,582 - Total lease costs $ 460,302 $ 345,007 The following table presents supplemental information related to the Company’s leases: SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO COMPANY’S LEASES 2023 2022 For the Years Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 388 $ 440 Operating cash flows from operating leases 361,929 322,200 Financing cash flows from finance leases 22,422 34,465 Finance lease right-of-use asset obtained in exchange for finance lease liability 93,217 - Operating lease right-of-use asset obtained in exchange for operating lease liability 317,040 - Remeasurement of operating lease liability and right-of-use asset due to lease modification 30,186 - Weighted average remaining lease term (years) Finance leases 4.7 0.8 Operating leases 7.5 9.1 Weighted-average discount rate (per annum) Finance leases 1.32 % 1.32 % Operating leases 1.34 % 1.32 % As of December 31, 2023, the future maturity of lease liabilities is as follows: SCHEDULE OF FINANCE LEASE AND OPERATING LEASE FUTURE MATURITY OF LEASE LIABILITIES Year Ended December 31, Finance Lease Operating Lease 2024 $ 18,819 $ 427,774 2025 18,555 404,244 2026 18,555 339,188 2027 18,555 292,720 2028 12,370 292,720 Thereafter - 912,521 Total lease payments 86,854 2,669,167 Less: imputed interest ( 2,630 ) ( 137,472 ) Total lease liabilities 84,224 2,531,695 Less: current portion ( 17,445 ) ( 396,535 ) Non-current lease liabilities $ 66,779 $ 2,135,160 Pursuant to the operating lease agreements, the Company made security deposits to the lessors. The security deposits amount to $ 348,428 and $ 244,395 as of December 31, 2023 and 2022, respectively. F- 21 NOTE 11 – FACTORING LIABILITY Sigmaways, the subsidiary acquired by the Company in February 2023, entered into a Factoring and Security Agreement (the “Factoring Agreement”) with The Southern Bank Company, an unrelated factor (the “Factor”), in 2017, for the purpose of factoring certain accounts receivable. Under the terms of the Factoring Agreement, the Company may offer for sale, and the Factor may purchase in its sole discretion, certain accounts receivable of the Company (the “Purchased Receivable”). The Factoring Agreement provided for a maximum of $ 850,000 in Purchased Receivable. Selected accounts receivable is submitted to the Factor, and the Company receives 90 % of the face value of the accounts receivable by wire transfer. Upon payment by the customers, the remainder of the amount due is received from the Factor after deducting certain fees. The Factoring Agreement specifies that eligible accounts receivable is factored with recourse. Under the terms of the recourse provision, the Company is required to reimburse the Factor, upon demand, for Purchased Receivable that is not paid on time by the customers. The performance of all obligations and payments to the Factor is personally guaranteed by Prakash Sadasivam, CEO of Sigmaways and Chief Strategy Officer (“CSO”) of the Company, and secured by all Sigmaways’ now owned and hereafter assets and any sums maintained by the Factor that are identified as payable to the Company. The Factoring Agreement has an initial term of twelve months and automatically renews for successive twelve-month renewal periods unless terminated pursuant to the terms of the Factoring Agreement. The Company may terminate the Factoring Agreement with sixty days’ written notice to the Factor and is subject to certain early termination fee. The Factoring Agreement contained covenants that are customary for accounts receivable-based factoring agreements and also contained provisions relating to events of default that are customary for agreements of this type. As of December 31, 2023, there was $ 562,767 borrowed and outstanding under the Factoring Agreement. There are various fees charged by the Factor, including initial discount purchase fee, factoring fee and interest expense. During the year ended December 31, 2023, the Company recorded $ 67,257 in interest expenses related to the Factoring Agreement. NOTE 12 – INSURANCE PREMIUM FINANCING In January 2023, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $ 389,035 at an annual interest rate of 16.04 % for ten months from February 1, 2023, payable in ten monthly installments of principal and interest. In February 2022, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $ 388,538 at an annual interest rate of 12.80 % for nine months from February 1, 2022, payable in nine monthly installments of principal and interest. As of December 31, 2023 and 2022, the balance of the insurance premium financing was nil. During the years ended December 31, 2023 and 2022, the Company recorded $ 29,171 and $ 21,277 , respectively, in interest expenses related to the insurance premium financing. NOTE 13 – DEBTS Short-term Debt The Company’s short-term debt represents a loan borrowed from a financial institution as follows: SCHEDULE OF SHORT-TERM DEBTS Name of Financial Institution Original Amount Borrowed Loan Duration Annual Interest Rate Balance as of December 31, 2023 Balance as of December 31, 2022 Biz Forward Co., Ltd. JPY 19,280,001 12/26/2023 – 1/31/2024 36.840 % $ 135,937 $ - The loan is secured by accounts receivable of HeartCore Japan in the amount of JPY 23,882,562 . F- 22 Long-term Debts The Company’s long-term debts include bond payable and loans borrowed from banks and financial institutions, which consist of the following: SCHEDULE OF LONG-TERM DEBTS Name of Banks/Financial Institutions Original Amount Borrowed Loan Duration Annual Interest Rate Balance as of December 31, 2023 Balance as of December 31, 2022 Bond payable Corporate bond issued through Resona Bank, Limited JPY 100,000,000 (a)(c) 1/10/2019 – 1/10/2024 0.430 % $ 70,507 $ 228,956 Loans with banks and financial institutions Resona Bank, Limited JPY 50,000,000 (a)(b) 12/29/2017 – 12/29/2024 0.675 % 54,678 113,677 Resona Bank, Limited JPY 10,000,000 (a)(b) 9/30/2020 – 9/30/2027 1.000 % 38,624 52,705 Resona Bank, Limited JPY 40,000,000 (a)(b) 9/30/2020 – 9/30/2027 1.000 % 154,495 210,822 Resona Bank, Limited JPY 20,000,000 (a)(b) 11/13/2020 – 10/31/2027 1.600 % 78,925 107,227 Sumitomo Mitsui Banking Corporation JPY 100,000,000 (a) 12/28/2018 – 6/30/2024 1.475 % 11,612 165,237 Sumitomo Mitsui Banking Corporation JPY 10,000,000 (a)(b) 12/30/2019 – 12/30/2026 1.975 % 31,072 44,532 Sumitomo Mitsui Banking Corporation JPY 10,000,000 (a)(b) 10/4/2023 – 9/30/2028 0.600 % 68,152 - Sumitomo Mitsui Banking Corporation JPY 10,000,000 (a)(b) 10/4/2023 – 9/30/2028 0.000 % 68,152 - The Shoko Chukin Bank, Ltd. JPY 30,000,000 9/28/2018 – 8/31/2023 1.200 % - 34,343 The Shoko Chukin Bank, Ltd. JPY 50,000,000 7/27/2020 – 6/30/2027 1.290 % 183,319 253,377 The Shoko Chukin Bank, Ltd. JPY 30,000,000 7/25/2023 – 6/30/2028 Tokyo Interbank Offered Rate + 1.950 % 197,137 - Japan Finance Corporation JPY 80,000,000 11/17/2020 – 11/30/2027 0.210 % 327,152 442,036 Higashi-Nippon Bank JPY 30,000,000 (a) 3/31/2022 – 3/31/2025 1.400 % 93,070 177,669 Higashi-Nippon Bank JPY 30,000,000 (a)(b) 10/11/2023 – 9/30/2028 1.450 % 204,471 - First Home Bank $ 350,000 (d) 4/18/2019 – 4/18/2029 Wall Street Journal U.S. Prime Rate + 2.750 % 229,007 - U.S. Small Business Administration $ 350,000 (d) 5/30/2020 – 5/30/2050 3.750 % 350,000 - Aggregate outstanding principal balances 2,160,373 1,830,581 Less: unamortized debt issuance costs ( 18,238 ) ( 8,969 ) Less: current portion ( 371,783 ) ( 697,877 ) Non-current portion $ 1,770,352 $ 1,123,735 (a) These debts are guaranteed by Sumitaka Yamamoto, the Company’s CEO and major shareholder. (b) These debts are guaranteed by Tokyo Credit Guarantee Association, and the Company has paid guarantee expenses for these debts. (c) The bond is guaranteed by Resona Bank, Limited. (d) These debts are guaranteed by Prakash Sadasivam, CEO of Sigmaways and CSO of the Company, and secured by all assets of Sigmaways. F- 23 Interest expense for short-term debt and long-term debts was $ 5,150 and $ 61,390 , respectively, for the year ended December 31, 2023. Interest expense for short-term debt and long-term debts was nil and $ 20,523 , respectively, for the year ended December 31, 2022. During the year ended December 31, 2023, the Company entered into amended loan agreements with banks and a financial institution for certain debts. The amended terms mainly include changes of installment payment amount and maturity date. The Company analyzed the amendments under ASC Topic 470 and concluded that the amended debts are not considered substantially different and the transactions are accounted for as debt modifications with no gain or loss recognized. As of December 31, 2023, future minimum payments for long-term debts are as follows: SCHEDULE OF FUTURE MINIMUM PAYMENTS FOR SHORT-TERM DEBT AND LONG-TERM DEBTS Principal Year Ended December 31, Payment 2024 $ 376,639 2025 442,568 2026 393,011 2027 421,900 2028 189,783 Thereafter 336,472 Total $ 2,160,373 NOTE 14 – INCOME TAXES United States HeartCore USA, Sigmaways and HeartCore Financial, incorporated in the United States, are subject to federal income tax at 21 % statutory tax rate with respect to the profit generated from the United States. Netherlands Sigmaways B.V. is a company incorporated in Netherlands in November 2019. The first EUR200,000 of taxable income is subject to a statutory tax rate of 19% and the remaining taxable income is subject to a statutory tax rate of 25.80% . Canada Sigmaways Technologies is a company incorporated in British Columbia in Canada in August 2020. It is subject to income tax on income arising in, or derived from, the tax jurisdiction in British Columbia it operates. The basic federal rate of Part I tax is 38 % of taxable income, 28 % after federal tax abatement. After the general tax reduction, the net federal tax rate is 15 %. The provincial and territorial lower and higher tax rates in British Columbia are 2 % and 12 %, respectively. Vietnam HeartCore Luvina is a company incorporated in Vietnam in November 2023. It is subject to standard income tax rate at 20 % with respect to the taxable income. Japan The Company conducts its major businesses in Japan and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the local tax authority. Income taxes in Japan applicable to the Company are imposed by the national, prefectural and municipal governments, and in the aggregate result in an effective statutory tax rate of approximately 34.59 % for the years ended December 31, 2023 and 2022. For the years ended December 31, 2023 and 2022, the Company’s income tax benefit is as follows: SCHEDULE OF INCOME TAX EXPENSES 2023 2022 For the Years Ended December 31, 2023 2022 Current $ 157,932 $ 2,776 Deferred ( 291,596 ) ( 8,694 ) Income tax benefit $ ( 133,664 ) $ ( 5,918 ) F- 24 A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of operations and comprehensive loss to the Japanese statutory tax rate for the years ended December 31, 2023 and 2022 is as follows: SCHEDULE OF EFFECTIVE INCOME TAX RATES RECONCILIATION 2023 2022 For the Years Ended December 31, 2023 2022 Japanese statutory tax rate 34.59 % 34.59 % Effect of income tax difference under different tax jurisdictions ( 15.14 )% ( 8.45 )% Effect of change in income tax rate for deferred tax assets 0.00 % ( 2.36 )% Effect of expenses not deductible for tax purpose ( 6.74 )% ( 4.98 )% Change in valuation allowance ( 9.64 )% ( 19.25 )% Other adjustments ( 0.40 )% 0.54 % Effective income tax rate 2.67 % 0.09 % The tax effects of temporary differences that give rise to the deferred tax assets and liabilities at December 31, 2023 and 2022 are presented below: SCHEDULE OF DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES December 31, 2023 December 31, 2022 Deferred tax assets Revenue adjustments $ 320,773 $ 72,149 Expense adjustments 163,219 122,044 Research and development – costs capitalized for tax purposes 4,241 55,866 Lease liabilities 901,690 945,230 Asset retirement obligations 72,200 47,741 Fair value change on investment securities 307,709 - Net operating losses carried forward 2,547,886 2,481,989 Total deferred tax assets, gross 4,317,718 3,725,019 Less: valuation allowance ( 3,020,512 ) ( 2,511,846 ) Total deferred tax assets, net $ 1,297,206 $ 1,213,173 Deferred tax liabilities Right-of-use assets $ ( 880,157 ) $ ( 921,233 ) Asset retirement costs ( 47,613 ) ( 28,601 ) Intangible asset acquired through business combination ( 1,264,375 ) - Total deferred tax liabilities $ ( 2,192,145 ) $ ( 949,834 ) Deferred tax assets, net $ 369,436 $ 263,339 Deferred tax liabilities, net $ ( 1,264,375 ) $ - The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company regularly assesses the ability to realize its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, projected future taxable income, and tax planning strategies. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as the Company’s projections for growth. The adjustments of a valuation allowance against deferred tax assets may cause greater volatility in the effective tax rate in the periods in which the valuation allowance is adjusted. F- 25 Uncertain Tax Positions The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2023 and 2022, the management considered the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest or penalties tax for the years ended December 31, 2023 and 2022. The Company does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months from December 31, 2023. The Company’s Japan subsidiaries income tax returns filed for the tax years ending from May 31, 2019 through December 31, 2023 are subject to examination by the relevant taxing authorities. The Company files income tax returns in the U.S. federal and state jurisdictions. The tax years ending from December 31, 2021 through December 31, 2023 generally remain subject to examination by the Internal Revenue Service and various state taxing authorities. The Company is not currently under examination in any jurisdictions. NOTE 15 – STOCK-BASED COMPENSATION Options In May 2016, the Company granted 507 units stock options to its employees each to acquire one share of common shares of HeartCore Japan (an equivalent of approximately 1,494 shares of common shares of HeartCore USA) at JPY 10 (approximately $ 0.09 ) each. All options are exercisable upon issuance with a repurchase provision before the completion of the Company’s initial public offering, which serves as a vesting condition. All employees that were granted these stock options had early exercised their stock options in 2016 prior to the vesting of the related stock options. As of November 3, 2021, 324 units of the options were forfeited, and the CEO of the Company has repurchased and held the shares issued related to the early exercise of such stock options on behalf of the Company. On November 3, 2021, the Company redeemed 484,056 shares (equivalent to 324 shares of common shares of HeartCore Japan) from the CEO of the Company. The consideration received for the remaining early exercised options was recorded by the Company as a share repurchase liability included in other current liabilities in the consolidated balance sheet with JPY 1,830 (approximately $ 16 ) as of December 31, 2021. The shares issued related to the early exercise of the above-mentioned stock options were not considered outstanding as of December 31, 2021. On February 14, 2022, the 183 units of stock options were vested upon the completion of the Company’s initial public offering and the Company recognized stock-based compensation of $ 11,005 during the year ended December 31, 2022. In the same period, the share repurchase liability of $ 16 was settled by issuance of 273,489 shares of common shares (equivalent to 183 shares of common shares of HeartCore Japan) from exercise of stock options. The following table summarizes the Company’s stock option activity for the stock options issued in 2016 for the year ended December 31, 2022: SCHEDULE OF UNVESTED STOCK OPTION Number of Stock Options Issued and unvested as of January 1, 2022 183 Vested and exercised 183 Issued and unvested as of December 31, 2022 - On August 6, 2021, the Board of Directors and stockholders of the Company approved a 2021 Equity Incentive Plan (the “2021 Plan”), under which 2,400,000 shares of common shares are authorized for issuance. On August 2, 2022, the Company awarded options to purchase 2,000 shares of common shares pursuant to the 2021 Plan at an exercise price of $ 2.94 per share to an employee of the Company. The options vest on each annual anniversary of the date of issuance, in an amount equal to 25 % of the applicable shares of common shares, with the expiration date on August 2, 2032 . On August 9, 2022, the Company awarded options to purchase 14,500 shares of common shares at an exercise price of $ 2.48 per share to three prior employees of the Company. The options are fully vested and exercisable on the grant date, with the expiration date on August 9, 2026 . On February 3, 2023, the Company awarded options to purchase 100,000 shares of common shares pursuant to the 2021 Plan at an exercise price of $ 1.17 per share to an employee of the Company. The options vest 50 % on the grant date and February 1, 2024, respectively, with the expiration date on February 3, 2033 . On August 25, 2023, the Company awarded options to purchase 2,000 shares of common shares pursuant to the 2021 Plan at an exercise price of $ 1.10 per share to an employee of the Company. The options vest on each annual anniversary of the date of issuance, in an amount equal to 25 % of the applicable shares of common shares, with the expiration date on August 25, 2033 . On August 1, 2023, the Board of Directors of the Company approved a 2023 Equity Incentive Plan (the “2023 Plan”), under which 2,000,000 shares of common shares are authorized for issuance. No shares were issued pursuant to the 2023 Plan as of December 31, 2023. The following table summarizes the stock options activity and related information for the years ended December 31, 2023 and 2022: SCHEDULE OF STOCK OPTION ACTIVITY Number of Options Weighted Average Exercise Price Weighted Average Remaining Term (Years) Intrinsic Value As of January 1, 2022 1,534,500 $ 2.50 9.99 $ - Granted 16,500 2.54 4.33 - Exercised -         - - - Forfeited ( 84,500 ) 2.50 - - As of December 31, 2022 1,466,500 $ 2.50 8.94 $ - Granted 102,000 1.17 9.11 - Exercised -         - - - Forfeited ( 21,500 ) 2.54 - - As of December 31, 2023 1,547,000 $ 2.41 8.01 $ - Vested and exercisable as of December 31, 2023 779,750 $ 2.41 7.96 $ - F- 26 The Company calculated the fair value of options granted in the years ended December 31, 2023 and 2022 using the Black-Scholes model. The following table summarizes the inputs to the model used to estimate the fair value of the options granted for the years ended December 31, 2023 and 2022: SCHEDULE OF ESTIMATE FAIR VALUE ASSUMPTIONS OF STOCK OPTIONS For the Years Ended December 31, 2023 2022 Expected volatility 54.63 % – 178.13 % 53.45 % – 55.87 % Risk-free interest rate 3.67 % – 4.37 % 2.82 % – 2.97 % Dividend yield 0.00 % 0.00 % Exercise term 5.25 – 6.25 years 4 – 6.25 years The Company recognized stock-based compensation related to options of $ 612,937 and $ 1,097,130 during the years ended December 31, 2023 and 2022, respectively. The outstanding unamortized stock-based compensation related to options was $ 426,673 (which will be recognized through August 2027) as of December 31, 2023. Restricted Stock Units (“RSUs”) On February 9, 2022, the Company entered into executive employment agreements with five executives and granted 85,820 RSUs pursuant to the 2021 Plan. The RSUs vest on each annual anniversary of the date of the employment agreement, in an amount equal to 25 % of the applicable shares of common shares. The fair value of the RSUs at grant date was $ 424,809 . On February 25, 2022, the Company entered into a service agreement with a marketing company to purchase 6-month marketing services and granted 83,333 RSUs. The RSUs were issued and vested on May 15, 2022. The fair value of the RSUs at grant date was $ 224,999 . On March 22, 2023, the Company entered into agreements with employees and service providers of Sigmaways and granted 671,350 RSUs pursuant to the 2021 Plan. The RSUs were fully vested upon issuance. The fair value of the RSUs at grant date was $ 691,491 . The following table summarizes the RSUs activity for the years ended December 31, 2023 and 2022: SCHEDULE OF RESTRICTED STOCK UNITS Number of RSUs Weighted Average Grant Date Fair Value per Share Unvested as of January 1, 2022 - $ - Granted 169,153 3.84 Vested ( 83,333 ) 2.70 Forfeited - - Unvested as of December 31, 2022 85,820 $ 4.95 Granted 671,350 1.03 Vested ( 692,804 ) 1.15 Forfeited - - Unvested as of December 31, 2023 64,366 $ 4.95 The Company recognized stock-based compensation related to RSUs of $ 817,576 and $ 422,613 during the years ended December 31, 2023 and 2022, respectively. The outstanding unamortized stock-based compensation related to RSUs was $ 101,110 (which will be recognized through February 2026) as of December 31, 2023. F- 27 NOTE 16 – SHAREHOLDERS’ EQUITY The Company is authorized to issue 200,000,000 shares of common shares, par value of $ 0.0001 per share, and 20,000,000 shares of preferred shares, par value of $ 0.0001 per share. During the period from January 1, 2022 through January 13, 2022, the Company issued 96,000 shares of common shares at a purchase price of $ 2.50 per share for aggregate net proceeds of $ 220,572 in a private placement, including 30,000 shares of common shares issued to the officers of the Company. On February 14, 2022, the Company completed its initial public offering on the NASDAQ Capital Market under the symbol of “HTCR”. The Company offered 3,000,000 common shares at $ 5.00 per share. Net proceeds raised by the Company from the initial public offering amounted to $ 13,724,167 after deducting underwriting discounts and commissions and other offering expenses. The Company has deferred costs of $ 300,460 directly attributed to the offering, among which $ 178,847 offering costs are paid and deferred as of December 31, 2021. Those costs are charged against the proceeds from the offering. On February 14, 2022, 273,489 shares of common shares are issued from exercise of stock options by settling share repurchase liability of $ 16 (also see NOTE 15). On May 15, 2022, 83,333 shares of restricted shares are issued to a marketing company as compensation for services received (also see NOTE 15). On February 1, 2023, 2,500,000 shares of common shares are issued for the acquisition of 51 % of the outstanding shares of Sigmaways and its subsidiaries with the fair value of $ 3,150,000 (also see NOTE 18). Share Repurchase Program On June 1, 2022, the Board of Directors approved a share repurchase program (“2022 Share Repurchase Program”), pursuant to which the Company is authorized to repurchase up to $ 3.5 million of its outstanding common shares. The timing and amount of repurchases under the program are determined by the Company’s management based on its evaluation of market conditions and other factors. This program has no set termination date and may be suspended or discontinued by at any time. During the period from June 1, 2022 through September 30, 2022, the Company repurchased 1,349,390 shares of common shares at an average price of $ 2.59 per share totaling approximately $ 3.5 million (including commissions) under the 2022 Share Repurchase Program. As of September 30, 2022, the Company has used up the entire balance authorized under the 2022 Share Repurchase Program. On October 18, 2022, the Board of Directors approved to retire all the repurchased shares. As of December 31, 2022, all of the 1,349,390 treasury shares have been retired. As of December 31, 2023 and 2022, there are 20,842,690 and 17,649,886 shares of common shares issued and outstanding, respectively. No preferred shares are issued and outstanding as of December 31, 2023 and 2022. F- 28 NOTE 17 – NET LOSS PER SHARE Basic net loss per share is calculated on the basis of weighted average outstanding common shares. Diluted net loss per share is computed on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs and other dilutive securities. Common shares equivalents are determined by applying the treasury stock method to the assumed conversion of share repurchase liability to common shares related to the early exercised stock options and unvested RSUs, and are not included in the calculation of diluted loss per share if their effect would be anti-dilutive. The computation of basic and diluted net loss per share for the years ended December 31, 2023 and 2022 is as follows: SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE 2023 2022 For the Years Ended December 31, 2023 2022 Net loss per share – basic and diluted Numerator Net loss attributable to HeartCore Enterprises, Inc. common shareholders $ ( 4,189,890 ) $ ( 6,677,466 ) Denominator Weighted average number of common shares outstanding used in calculating net loss per share 20,404,642 17,922,585 Net loss per share - basic and diluted $ ( 0.21 ) $ ( 0.37 ) For the years ended December 31, 2023 and 2022, the weighted average common shares outstanding are the same for basic and diluted net loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect. NOTE 18 – BUSINESS COMBINATION On September 6, 2022, HeartCore USA entered into the Sigmaways Agreement to acquire 51 % of the outstanding shares of Sigmaways, a company incorporated under the laws of the State of California, and its subsidiaries. The Sigmaways Agreement was further amended on December 23, 2022 and February 1, 2023, respectively, and the transaction was closed on February 1, 2023. Sigmaways and its subsidiaries are primarily engaged in the business of developing and sales of software in the United States. The Company aims to expand the business of software development and sales in the United States through this acquisition. The purchase consideration is $ 4,150,000 , consisted of $ 1,000,000 in cash and 2,500,000 shares of common shares of the Company with fair value of $ 3,150,000 at the closing date. The total purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed and non-controlling interest based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. The purchase price is allocated on the acquisition date as follows: SCHEDULE OF BUSINESS PURCHASE PRICE ALLOCATION Amount Current assets $ 2,066,683 Acquired intangible asset 5,100,000 Non-current assets 47,979 Current liabilities ( 1,146,900 ) Deferred tax liabilities ( 1,428,000 ) Non-current liabilities ( 576,203 ) Goodwill 3,276,441 Non-controlling interest ( 3,190,000 ) Total purchase consideration $ 4,150,000 The results of operations, financial position and cash flows of Sigmaways and its subsidiaries have been included in the Company’s consolidated financial statements since the date of acquisition. Sigmaways and its subsidiaries contributed revenues and net loss of $ 8,784,239 and $ 1,401,654 , respectively, to the Company from February 1, 2023 to December 31, 2023. Pro forma results of operations for the business combination have not been presented because they are not material to the consolidated statements of operations and comprehensive loss for the years ended December 31, 2023 and 2022. The Company’s policy is to perform its annual impairment testing on goodwill for its reporting unit on December 31 of each fiscal year or more frequently if events or changes in circumstances indicate that an impairment may exist. The Company did no t recognize any impairment loss on goodwill for the years ended December 31, 2023 and 2022. NOTE 19 - SUBSEQUENT EVENTS In January 2024, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $ 172,689 at an annual interest rate of 13.9 % for eleven months from February 1, 2024, payable in eleven monthly installments of principal and interest. On February 29, 2024, the Company entered into a warrants transfer agreement with a non-related company to sell partial of the warrants it received from a customer as noncash consideration from consulting services for $ 9,000,000 in cash. On April 1, 2024, the Board of Directors of the Company declared a cash dividend of $ 0.02 per share of the Company’s common shares to be paid on May 3, 2024 to shareholders of record as of April 26, 2024. F- 29 EXHIBIT INDEX Exhibit No. Exhibit 3.1 Certificate of Incorporation of HeartCore Enterprises, Inc. (incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form S-1 (File No. 333-261984) filed with the SEC on January 3, 2022). 3.2 Bylaws of HeartCore Enterprises, Inc. (incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form S-1 (File No. 333-261984) filed with the SEC on January 3, 2022). 4.1 Description of Securities (incorporated by reference to Exhibit 4.1 to the registrant’s Amended Annual Report on Form 10-K/A filed with the SEC on October 23, 2023). 10.1 Memorandum to Share Exchange Agreement dated July 15, 2021, among HeartCore Co., Sumitaka. Yamamoto, and Information Services International-Dentsu Ltd. (incorporated by reference to Exhibit 10.1 to the registrant’s Registration Statement on Form S-1 (File No. 333-261984) filed with the SEC on January 3, 2022). 10.2 Share Exchange Agreement dated July 16, 2021, among HeartCore Enterprises, Inc., all shareholders of HeartCore Co., Ltd., and Sumitaka Yamamoto as representative of the shareholders of HeartCore Co., Ltd. (incorporated by reference to Exhibit 10.2 to the registrant’s Registration Statement on Form S-1 (File No. 333-261984) filed with the SEC on January 3, 2022). 10.3 Stock Purchase Agreement dated August 10, 2021, between HeartCore Enterprises, Inc. and Dentsu Digital Investment Limited (incorporated by reference to Exhibit 10.3 to the registrant’s Registration Statement on Form S-1 (File No. 333-261984) filed with the SEC on January 3, 2022). 10.4† HeartCore Enterprises, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the registrant’s Registration Statement on Form S-1 (File No. 333-261984) filed with the SEC on January 3, 2022). 10.5† Employment Agreement, dated February 9, 2022, between the Company and Sumitaka Yamamoto (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2022). 10.6† Employment Agreement, dated February 9, 2022, between the Company and Kimio Hosaka (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2022). 10.7† Employment Agreement, dated February 9, 2022, between the Company and Keisuke Kuno (incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2022). 10.8† Employment Agreement, dated February 9, 2022, between the Company and Qizhi Gao (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2022). 10.9† Employment Agreement, dated February 9, 2022, between the Company and Hidekazu Miyata (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed with the SEC on February 14, 2022). 10.10 Form of Independent Director Agreement between HeartCore Enterprises, Inc. and each independent director (incorporated by reference to Exhibit 10.10 to the registrant’s Registration Statement on Form S-1 (File No. 333-261984) filed with the SEC on January 3, 2022). 10.11 Form of Indemnification Agreement between HeartCore Enterprises, Inc. and each independent director (incorporated by reference to Exhibit 10.11 to the registrant’s Registration Statement on Form S-1 (File No. 333-261984) filed with the SEC on January 3, 2022). 10.12 Consulting and Services Agreement, dated as of March 31, 2022, by and between the registrant and Moveaction Co., Ltd. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on April 6, 2022). 10.13 Common Stock Purchase Warrant issued by Moveaction Co., Ltd. to the registrant. (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on April 6, 2022). 10.14 Consulting and Services Agreement, dated as of April 13, 2022, by and between the registrant and A.L.I. Technologies Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on May 11, 2022). 10.15 Common Stock Purchase Warrant issued by A.L.I. Technologies Inc. to the registrant (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on May 11, 2022). 112 10.16 Consulting and Services Agreement, dated as of May 13, 2022, by and between the registrant and SYLA Holdings Co. Ltd. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on May 25, 2022). 10.17 Common Stock Purchase Warrant issued by SYLA Holdings Co. Ltd. to the registrant (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on May 25, 2022). 10.18 Amendment No. 1 to Consulting and Services Agreement, dated as of August 17, 2022, by and between the registrant and Syla Technologies Co. Ltd. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on August 18, 2022). 10.19 Common Stock Purchase Warrant issued on August 17, 2022 by Syla Technologies Co. Ltd. to the registrant (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on August 18, 2022). 10.20 Share Exchange and Purchase Agreement, dated as of September 6, 2022, by and among the registrant, Sigmaways, Inc. and Prakash Sadasivam (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on September 8, 2022). 10.21 Consulting and Services Agreement, dated as of October 20, 2022, by and between HeartCore Enterprises, Inc. and Metros Development Co., Ltd. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2022). 10.22 Common Stock Purchase Warrant, issued on October 20, 2022, by Metros Development Co., Ltd. in favor of HeartCore Enterprises, Inc. (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2022). 10.23 Consulting and Services Agreement, dated as of October 20, 2022, by and between HeartCore Inc. and Metros Development Co., Ltd. (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2022). 10.24 Common Stock Purchase Warrant, issued on October 20, 2022, by Metros Development Co., Ltd. in favor of HeartCore Inc. (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2022). 10.25 Termination of Consulting and Services Agreement and Warrant, dated as of October 26, 2022, by and between HeartCore Inc. and Metros Development Co., Ltd. (incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2022). 10.26 Amendment No. 1 to Consulting and Services Agreement, dated as of October 26, 2022, by and between HeartCore Enterprises, Inc. and Metros Development Co., Ltd. (incorporated by reference to Exhibit 10.6 to the registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2022). 10.27 Common Stock Purchase Warrant, issued on October 26, 2022, by Metros Development Co., Ltd. in favor of HeartCore Enterprises, Inc. (incorporated by reference to Exhibit 10.7 to the registrant’s Current Report on Form 8-K filed with the SEC on October 26, 2022). 10.28 Amendment No. 1 to Executive Employment Agreement, dated as of October 28, 2022, by and between the registrant and Sumitaka Yamamoto (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on November 4, 2022). 10.29 9th Stock Acquisition Rights Allotment Agreement, dated as of November 9, 2022, by and between the registrant and SYLA Technologies Co., Ltd. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on November 23, 2022). 10.30 Amendment No. 2 to Consulting and Services Agreement, dated as of November 15, 2022, by and between the registrant and SYLA Technologies Co., Ltd. (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on November 23, 2022). 10.31 Consulting and Services Agreement, dated as of November 18, 2022, by and between the registrant and SBC Medical Group, Inc. (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on November 23, 2022). 10.32 Common Stock Purchase Warrant, issued on November 18, 2022, by SBC Medical Group, Inc. in favor of the registrant (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed with the SEC on November 23, 2022). 10.33 Consulting and Services Agreement, dated as of January 11, 2023, by and between the registrant and kk.BloomZ (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on January 17, 2023). 113 10.34 Common Stock Purchase Warrant, issued on January 11, 2023, by kk.BloomZ in favor of the registrant (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on January 17, 2023). 10.35 Amendment No. 2 to Share Exchange and Purchase Agreement, dated as of February 1, 2023, by and among the registrant, Sigmaways, Inc. and Prakash Sadasivam (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on February 6, 2023). 10.36 Common Stock Purchase Warrant, dated February 1, 2023 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on February 6, 2023). 10.37† Employment Agreement, dated February 1, 2023, by and between the registrant and Prakash Sadasivam (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on February 6, 2023). 10.38 Amended and Restated Common Stock Purchase Warrant, dated February 6, 2023 (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K/A (Amendment No. 1) filed with the SEC on February 9, 2023). 10.39 Addendum to Share Exchange and Purchase Agreement, dated as of February 8, 2023, by and among the registrant, Sigmaways, Inc. and Prakash Sadasivam. (incorporated by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K/A (Amendment No. 1) filed with the SEC on February 10, 2023) 10.40 Consulting and Services Agreement, dated as of March 13, 2023, by and between the registrant and Libera Gaming Operations, Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on March 16, 2023). 10.41 Common Stock Purchase Warrant, dated March 13, 2023, issued by Libera Gaming Operations, Inc. to the registrant (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on March 16, 2023). 10.42 Consulting and Services Agreement, dated as of March 13, 2023, by and between the registrant and ICheck Co., Ltd. (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on March 16, 2023). 10.43 Common Stock Purchase Warrant, dated March 13, 2023, issued by ICheck Co., Ltd. to the registrant (incorporated by reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed with the SEC on March 16, 2023). 10.44* Amendment No. 1 to Executive Employment Agreement, dated as of January 10, 2023, by and between the registrant and Hidekazu Miyata. 10.45* Amendment No. 1 to Executive Employment Agreement, dated as of January 10, 2023, by and between the registrant and Keisuke Kuno. 10.46* Amendment No. 1 to Executive Employment Agreement, dated as of January 10, 2023, by and between the registrant and Kimio Hosaka. 10.47 Amendment No. 1 to Executive Employment Agreement, dated as of January 10, 2023, by and between the registrant and Qizhi Gao. 10.48 Service Agreement, dated as of October 2, 2023, by and between the registrant and GATES GROUP Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on October 3, 2023). 10.49 Common Stock Purchase Warrant, dated October 2, 2023, issued by GATES GROUP Inc. to the registrant (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on October 3, 2023). 10.50 At The Market Offering Agreement, dated October 23, 2023, by and between HeartCore Enterprises, Inc. and H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on October 23, 2023). 10.51 Director Agreement, dated June 1, 2023, by and between the registrant and Heather Neville (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on June 5, 2023). 10.52 Indemnification Agreement dated September 29, 2023, by and between the registrant and Koji Sato (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on October 5, 2023). 10.53 Independent Director Agreement dated September 29, 2023, by and between the registrant and Koji Sato (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on October 5, 2023). 10.54* Independent Director Agreement dated November 1, 2023, by and between the registrant and Heather Neville. 21.1* List of Subsidiaries 23.1* Consent of independent registered public accounting firm. 24.1* Power of Attorney (included on the signature page) 31.1* Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended. 31.2* Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended. 32.1** Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS* INLINE XBRL INSTANCE DOCUMENT 101.SCH* INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT 101.CAL* INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT 101.DEF* INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT 101.LAB* INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT 101.PRE* INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith ** Furnished herewith. † Management contracts and compensation plans and arrangements 114 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HEARTCORE ENTERPRISES, INC. Dated: April 8, 2024 By: /s/ Sumitaka Yamamoto Sumitaka Yamamoto Chief Executive Officer and President POWER OF ATTORNEY Each person whose signature appears below hereby appoints Sumitaka Yamamoto and Qizhi Gao, and each of them, as attorneys-in-fact with full power of substitution to execute in the name and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments to the annual report on Form 10-K, which amendments may make such changes in the report as the attorney-in-fact acting deems appropriate and to file any such amendment to the annual report on Form 10-K with the Securities and Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Sumitaka Yamamoto Chairman of Board, Chief Executive Officer and President April 8, 2024 Sumitaka Yamamoto (Principal Executive Officer) /s/ Qizhi Gao Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) April 8, 2024 Qizhi Gao /s/ Kimio Hosaka Director April 8, 2024 Kimio Hosaka /s/ Ferdinand Groenewald Director April 8, 2024 Ferdinand Groenewald /s/ Prakash Sadasivam Director April 8, 2024 Prakash Sadasivam /s/ Heather Neville Director April 8, 2024 Heather Neville /s/ Koji Sato Director April 8, 2024 Koji Sato 115