HeartCore Enterprises, Inc.
For the period ended Dec 31, 2024. Filed Mar 31, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 31, 2025
HTCR$1.51-11.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-04-09.
0001493152-24-013979
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-31.
0001213900-25-025791
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 100 previous paragraphs and 100 current paragraphs.
51 unchanged; 25 reworded; 24 added; 24 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 11 previous and 20 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (24)
Current report
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 transferred 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.
Current report
In April 2024, HeartCore Financial incorporated a branch office, HeartCore Financial, Inc. – Japan Branch Office, in Japan.
Current report
Our total revenues increased by $8,561,399, or 39.2%, to $30,407,229 for the year ended December 31, 2024 from $21,845,830 for the year ended December 31, 2023, mainly attributable to (i) the increased revenue of $8,524,455 from GO IPO consulting services as two of the Company’s GO IPO consulting customers successfully listed on the Nasdaq in the fiscal year 2024 and the Company recognized revenues from noncash consideration in the form of warrants and ordinary shares from the consulting services customers of $13.5 million, while only $3.8 million of revenue recognized from noncash consideration in the form of warrants in the fiscal year 2023; and (ii) an increase of $1,114,551 in on-premise software revenue as we entered into multiple long-term license contracts with relatively large contract price and revenue amount in the fiscal year 2024; and offset by (iii) a decrease of $929,954 in revenue from customized software development and services due to intense market competition and we obtained fewer customer orders in the fiscal year 2024.
Current report
Our total costs of revenues decreased by $1,199,057, or 8.7%, to $12,579,359 for the year ended December 31, 2024 from $13,778,416 for the year ended December 31, 2023, mainly attributable to (i) a decrease of $1,085,192 in the cost of GO IPO consulting services in line with the decrease in revenues of GO IPO consulting services by excluding the amount recognized from noncash consideration; and (ii) a decrease of $332,033 in cost ofmaintenance and support servicesas we gradually used internal resources to provide the services in 2024, which was less costly when compared with using outsourcing resources.
Current report
Our total gross profit increased by $9,760,456, or 121.0%, to $17,827,870 for the year ended December 31, 2024 from $8,067,414 for the year ended December 31, 2023, mainly attributable to an increase in gross profit of $9,609,647 from GO IPO consulting services, as we recognized greater revenues from noncash consideration from IPO customers upon their IPO effectiveness with no associated costs in the fiscal year 2024 than that recognized in 2023.
Current report
Our selling expenses decreased by $260,879, or 17.2%, to $1,255,368 for the year ended December 31, 2024 from $1,516,247 in the fiscal year 2023, primarily attributable to (i) a decrease of $359,359 in advertising expenses due to less advertising activities in the current year, (ii) a decrease of $416,476 in stock-based compensation, as the Company granted restricted common stocks which immediately vested upon issuance and stock options to employees of Sigmaways in 2023, and there was no such amount restricted common stocks and stock options granted in the current year, the decrease is also contributed by the graded vesting method of stock options for those issued in previous years, which generally more stock-based compensation will recognize in the early stage, offset by (iii) the increase of $464,963 in sales salaries, commissions and welfare as the Company shifted marketing strategy in the fiscal year 2024.
Current report
Our general and administrative expenses decreased by $1,027,794 or 10.6%, to $8,628,587 for the year ended December 31, 2024 from $9,651,381 in the fiscal year 2023, primarily attributable to (i) a decrease of $825,248 in salaries and welfare expenses due decrease in numbers of directors, change in bonus structures, and dissolution of HeartCore Capital Advisors in the fiscal year 2024; (ii) a decrease of $558,041 in stock-based compensation, as the Company granted restricted common stocks which immediately vested upon issuance and stock options to employees of Sigmaways in 2023, and there was no such amount restricted common stocks and stock options granted in the current year, the decrease is also contributed by the graded vesting method of stock options for those issued in previous years, which generally more stock-based compensation will recognize in the early stage; offset by (iii) an increase of $479,668 in consulting and professional service fees, primarily because the Company newly engaged public relations related activities in 2024 to enhance compliance and regulation information, while no such activities occurred in previous year.
Current report
Impairment of Intangible Asset
Current report
Our intangible asset represents the customer relationship acquired from business acquisition of Sigmaways and its subsidiaries. As of December 31, 2024, we accessed the value of such intangible asset become zero by engaging a third-party valuation appraiser, accordingly, we recorded an impairment of intangible asset of $3,878,125, excluding an amortization expense of $637,500 in the year ended December 31, 2024.
Current report
Impairment of Goodwill
Current report
Our goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in business acquisition of Sigmaways and its subsidiaries. As of December 31, 2024, we evaluated the fair value of the reporting unit of Sigmaways and its subsidiaries and estimated the value of goodwill become zero by engaging a third-party valuation appraiser, accordingly, we recorded an impairment of goodwill of $3,276,441 in the year ended December 31, 2024.
Current report
Income tax benefit was $136,822 for the year ended December 31, 2024, a slight increase of $3,158, or 2.4% from income tax benefit of $133,664 in the fiscal year 2023.
Current report
Net cash provided by investing activities amounted to $6,349,204 for the year ended December 31, 2024, primarily consisted of (i) net proceeds of $5,640,000 from sale of warrants, and (ii) net proceeds of $749,546 from sale of marketable securities.
Current report
Net cash used in financing activities amounted to $318,646 for the year ended December 31, 2024, primarily consisted of (i) dividends distribution of $834,566; (ii) repayment of $554,553 for short-term and long-term debts; (iii) net repayment of $390,373 for factoring arrangement, and (iv) proceeds of $1,423,342 from issuance of common stocks.
Current report
The Company has entered into operating leases for office space with terms ranging from two to fifteen years, and finance leases for office equipment and vehicle with terms of five years.
Current report
Debts
Current report
Critical Accounting Policies and Estimates
Current report
Revenue Recognition
Current report
We generate revenues from the following main sources: on-premise software sales, maintenance and support services, software as a service (“SaaS”), software development and other miscellaneous services, customized software development and services andconsulting services. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, we allocate the total transaction price to each performance obligation based on its relative standalone selling price.
Current report
Revenue is recognized when control of the goods and services provided are transferred to our customers and in an amount that reflects the consideration we expect to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when we satisfy the performance obligations.
Current report
We satisfy our performance obligations for maintenance and support services, software as a service (“SaaS”), customized software development and services and consulting services over time as the related services are provided. We satisfy our performance obligations for on-premise software sales and software development and other miscellaneous services at point in time.
Current report
We provide 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 primarily 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. We assess 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.
Current report
Impairment of Intangible Asset and Goodwill
Current report
We review our intangible asset for impairment and perform a goodwill impairment assessment on an annual basis through a qualitative or quantitative assessment and when events and circumstances indicate that the estimated fair value of a reporting unit may no longer exceed its carrying value. The process of evaluating the potential impairment of intangible asset and goodwill is subjective because it requires the use of estimates and assumptions in determining a reporting unit’s fair value, as well as the fair value of the intangible asset. We calculate the fair values by using the income approach, through the discounted cash flow method and multi-period excess earnings method, based on the present value of future discounted cash flows, which requires us to use estimates and judgments about the future cash flows of the reporting unit, primarily including forecasted revenue and revenue growth rates, weighted average cost of capital, and forecasted operating cash flows. We believe the accounting estimate for impairment of intangible asset and reporting unit are critical accounting estimates because our estimates of fair values of intangible asset and reporting unit are based upon assumptions that are highly subjective, but which are inherently uncertain and, as a result, actual results may differ from estimates.
Removed paragraphs (24)
Previous report
COVID-19 Affecting Our Results of Operations
Previous report
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The pandemic has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing businesses. The effects of the COVID-19 pandemic are still impacting the global economy as well as our operations. The duration and extent of this impact depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions. The lasting effects of the pandemic continue to be unknown. As of the filing date of this Annual Report on Form 10-K, the extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted.
Previous report
Our total revenues increased by $13,027,518, or 147.7%, to $21,845,830 for the year ended December 31, 2023 from $8,818,312 for the year ended December 31, 2022, mainly attributable to (i) the increased revenue of $4,763,954 from GO IPO consulting services as the Company obtained more IPO consulting customers in 2023 and received warrants from its customers as noncash consideration from consulting services; (ii) the increased revenue of $8,784,239 from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023; offset by (iii) the decrease of $274,355 in revenue from sales of on-premise software, primarily due to the weak performance of a significant distributor andapproximately 8% depreciation of Yenin the current period; and (iv) the decrease of $316,177 in revenue from maintenance and support services, as some clients canceled their maintenance service contracts, and approximately 8% depreciation of Yen.
Previous report
Our total costs of revenues increased by $8,311,399, or 152.0%, to $13,778,416 for the year ended December 31, 2023 from $5,467,017 for the year ended December 31, 2022, in light of the increase in sales in GO IPO consulting services and customized software development and services, offset by the overall decrease in software development and other services, because the Company conducted several complex software development projects to meet customer requirements in 2022, while no such projects in 2023. The decrease was also caused by approximately 8% depreciation of Yen.
Previous report
Our total gross profit increased by $4,716,119, or 140.7%, to $8,067,414 for the year ended December 31, 2023 from $3,351,295 for the year ended December 31, 2022, mainly attributable to (i) an increased gross profit of $1,564,347 from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023; (ii) an increased gross profit of $3,661,179 from GO IPO consulting services, as we recognized revenue from the warrants of the customers upon customers’ IPO effectiveness in current year, while no corresponding cost for such revenue recognized; offset by (iii) a decrease of $621,591 in sale of on-premises software due to lower volume in sale and higher costs to purchase valuable licenses in the current period.
Previous report
Our selling expenses decreased by $1,310,368, or 46.4%, to $1,516,247 for the year ended December 31, 2023 from $2,826,615 in the fiscal year 2022, primarily attributableto a decrease of $1,070,451 in advertising expenses, as the Company spent heavily on investor relations and public relations in the U.S. immediately after listing in Nasdaq in early 2022, and a decrease of $223,770 in stock-based compensation, as the Company granted stock options to certain sales staff in 2022, who were promoted to executive management in 2023, therefore the corresponding stock-based compensation was classified to general and administrative expenses.
Previous report
Our general and administrative expenses increased by $3,071,647 or 46.7%, to $9,651,381 for the year ended December 31, 2023 from $6,579,734 in the fiscal year 2022, primarily attributable to(i) an increase of $1,608,202 in salaries and welfare expenses due to increased remuneration for executive officers and additional staff employed by Sigmaways and its subsidiaries; (ii) an increase of $589,797 in depreciation and amortization expenses, an increase of 669,372 in office, utility and other expenses, and an increase of $118,665 in rent expense, mostly due to the acquisition of Sigmaways and its subsidiaries as well as the overall business expansion; and (iii) an increase of $135,607 in stock-based compensation, as certain sales staff were promoted to executive management, and their stock-based compensation was reclassified from selling expenses in 2022 to general and administrative expenses in 2023.
Previous report
Income tax benefit was $133,664 for the year ended December 31, 2023, an increase of $127,746, or 2,158.6% from income tax benefit of $5,918 in the fiscal year 2022, primarily due to the increase in deferred income tax benefit brought by the amortization of intangible asset acquired as a result of Sigmaways during the current year.
Previous report
Net cash used in investing activities amounted to $12,200 for the year ended December 31, 2022, primarily consisted of the purchases of fixed assets of $57,071, offset by the repayment of $44,871 of loan provided to related party.
Previous report
Net cash provided by financing activities amounted to $8,915,341 for the fiscal year ended December 31, 2022, primarily consisting of proceeds of $13,823,126 from the initial public offering and issuance of common shares prior to the initial public offering, proceeds of $258,087 from long-term debt, offset by payment for mandatorily redeemable financial interest of $430,489, payment for repurchase of common shares of $3,500,000, repayment of long-term debts of $810,750, and repayment of insurance premium financing of $388,538.
Previous report
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.
Previous report
*** Debt***s
Previous report
COVID-19
Previous report
In December 2019, a novel coronavirus disease (“COVID-19”) was reported to have surfaced in Wuhan, China, and on March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. The pandemic, which has continued to spread, and the related adverse public health developments, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. It has also disrupted the normal operations of many businesses, including ours.
Previous report
For example, many cities, counties, states, and even countries have imposed or may impose a wide range of restrictions on the physical movement of our employees, partners and customers to limit the spread of the pandemic, including physical distancing, travel bans and restrictions, closure of non-essential business, quarantines, work-from-home directives, shelter-in-place orders, and limitations on public gatherings. These measures have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide. In March 2020, we temporarily closed our offices, including our corporate headquarters, suspended all company-related travel, and all HeartCore Co. employees were required to work from home for several months during the height of the pandemic. We cancelled or shifted our customer and industry events to virtual-only experiences. Although we have begun to slowly re-open our offices on a staggered, region-by-region basis in accordance with local authority guidelines, we may deem it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events in the future. All of these changes may disrupt the way we operate our business. In addition, our management team has, and will likely continue, to spend significant time, attention and resources monitoring the pandemic and seeking to minimize the risk of the virus and manage its effects on our business and workforce.
Previous report
Although our company has been in existence for less than three years, our wholly owned operating subsidiary, HeartCore Co. operated throughout the pandemic and continues to operate after the pandemic. HeartCore Co.’s business is affected by a variety of external factors related to the pandemic and post-pandemic that are beyond our control. For existing customers, the pandemic had no impact on the use of our software; for new customers in the travel, hotel, airline, rail, and food service industries in the CX division, the pandemic resulted in a decrease in new orders. Although the effects of the pandemic are decreasing, we feel it will take additional time before the economy is fully normalized. In addition, the Japanese yen was weakening, so that sales in dollar terms in 2023 were slightly lower than in 2022. Regarding the impact of the pandemic on the DX sector, demand for our DX software increased as large companies were forced to change their work patterns, forcing employees to work remotely. During 2022, we started the GO IPO business, which supports Japanese companies to list on Nasdaq and NYSE in the United States. As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share. The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions in Japan.
Previous report
The duration and extent of the impact from the pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions and the disruption caused by such actions, the effectiveness of vaccines and other treatments for COVID-19, and the impact of these and other factors on our employees, customers, partners and vendors. If we are not able to respond to and manage the impact of such events effectively, our business will be harmed.
Previous report
To the extent the pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section, including, in particular, risks related to our dependence on customer renewals, the addition of new customers and increased revenue from existing customer, risks that our operating results could be negatively affected by changes in the sizes or types of businesses that purchase our platform and the risk that weakened global economic conditions may harm our industry, business and results of operations.
Previous report
Critical Accounting Estimates
Previous report
Our accounting policies are discussed in detail in the footnotes to our consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2023. However, we consider our critical accounting policies to be those related to revenue recognition and business combination.
Previous report
Our critical accounting estimates include the estimates used in the purchase price allocation of the Company’s business combination.
Previous report
Business Combination
Previous report
We account for business combination using the acquisition method, which requires management to estimate the fair value of the tangible assets, liabilities, identifiable intangible asset and non-controlling interest, and to properly allocate purchase price consideration to the individual assets acquired, liabilities assumed and non-controlling interest. Goodwill is measured as the excess amount of consideration transferred. The allocation of the purchase price utilizes significant estimates and assumptions in determining the fair values of identifiable assets acquired, liabilities assumed and non-controlling interest, especially with respect to intangible asset acquired. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset and are reviewed by consulting with third-party valuation appraisers. The purchase price allocation for business acquisitions contains uncertainties because it requires management’s judgment.
Previous report
The accounting for business combination is a critical accounting estimate because it requires estimates and judgement as to expectations for future cash flows of the Company; future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible asset, in determining the fair value for assets and liabilities.
Reworded paragraphs (25)
Previous wording
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this annual report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. References herein to “we,” “us” or the “Company” refers to HeartCore Enterprises, Inc. and its consolidated subsidiaries, including, but not limited to, HeartCore Co., Ltd. (“HeartCore Co.”) and its subsidiary, HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), HeartCore Financial, Inc. (“HeartCore Financial”), and Sigmaways, Inc. (“Sigmaways”) and its subsidiaries. HeartCore Financial was incorporated in January 2023. HeartCore Capital Advisors was incorporated in February 2023. The acquisition of Sigmaways and its subsidiaries was closed in February 2023.
Current wording
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this annual report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. References herein to “we,” “us” or the “Company” refers to HeartCore Enterprises, Inc. and its consolidated subsidiaries, including HeartCore Co., Ltd. (“HeartCore Co.”), HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), HeartCore Financial, Inc. (“HeartCore Financial”) and its branch office in Japan, HeartCore Luvina Vietnam Company Limited (“HeartCore Luvina”), and Sigmaways, Inc. (“Sigmaways”) and its subsidiaries. HeartCore Capital Advisors was merged into HeartCore Japan in January 2024. HeartCore Luvina was incorporated in the fourth quarter 2023 and started to operate in February 2024.
Previous wording
We are a leading software development company based in Tokyo, Japan. We provide software through two business units. The first business unit, our CX division, includes a customer experience management business (the “CXM Platform”) that has been in existence for 14 years. Our CXM Platform includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience. We also provide education, services and support to help customers be successful with our CXM Platform.
Current wording
We are a leading software development company based in Tokyo, Japan. We provide software through two business units. The first business unit, our CX division, includes a customer experience management business (the “CXM Platform”) that has been in existence for 15 years. Our CXM Platform includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience. We also provide education, services and support to help customers be successful with our CXM Platform.
Previous wording
We have made significant investments in our sales and marketing efforts globally. As of December 31, 2023, our sales and marketing organization was comprised of 16 employees including our field sales organization, which maintains a physical sales presence in the Japanese software market. Using our go-to-market strategy, we believe we have made significant contributions in Japan and have established a diversified revenue and customer base. As of December 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 949 total customers in Japan, of which 691, or 72.8%, were paying customers, and 24 total customers outside Japan, of which 1, or 0.1%, was a paying customer. Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. There is the potential for non-paying customers to become paying customers again if and when they start utilizing our paid services again.
Current wording
We have made significant investments in our sales and marketing efforts globally. As of December 31, 2024, our sales and marketing organization was comprised of 12 employees including our field sales organization, which maintains a physical sales presence in the Japanese software market. Using our go-to-market strategy, we believe we have made significant contributions in Japan and have established a diversified revenue and customer base. As of December 31, 2024, our combined business units (customer experience management business unit and digital transformation business unit) had 982 total customers in Japan, of which 724, or 73.7%, were paying customers, and 26 total customers outside Japan, of which 1, or 0.1%, was a paying customer. Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. There is the potential for non-paying customers to become paying customers again if and when they start utilizing our paid services again.
Previous wording
During 2022, we started the GO IPO business, which supports Japanese companies listing on Nasdaq and NYSE in the United States. As of December 31, 2023, we have entered into consulting agreements with eleven companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase one to four percent of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share. The revenue in the GO IPO business helped to offset the decline in sales in the CX and DX divisions in Japan.
Current wording
During 2022, we started the GO IPO business, which supports Japanese companies listing on Nasdaq and NYSE in the United States. As of December 31, 2024, we have entered into consulting agreements with 14 companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee that ranges from $380,000 to $900,000 and warrants or stock acquisition rights to purchase 1% to 4% of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share.
Previous wording
In the first quarter of 2023, we formed HeartCore Financial in the U.S. and HeartCore Capital Advisors in Japan, as a part of our Go IPO consulting business. In the fourth quarter of 2023, we formed HeartCore Luvina Vietnam Company Limited in Vietnam, which is engaged in the business of software development.
Current wording
In the first quarter of 2023, we formed HeartCore Financial in the U.S. and HeartCore Capital Advisors as part of our Go IPO consulting business. In the fourth quarter of 2023, we formed HeartCore Luvina in Vietnam, which is engaged in the business of software development.
Previous wording
For the fiscal years ended December 31, 2023 and 2022, we generated revenues of $21,845,830 and $8,818,312, respectively, and reported net loss of $4,876,700 and $6,677,466, respectively, and cash flows used in operating activities of $4,331,209 and $4,808,547, respectively. As noted in our consolidated financial statements, as of December 31, 2023, we had an accumulated deficit of $14,763,469.
Current wording
For the fiscal years ended December 31, 2024 and 2023, we generated revenues of $30,407,229 and $21,845,830, respectively, and reported net loss of $5,212,900 and $4,876,700, respectively, and cash flows used in operating activities of $4,774,971 and $4,331,209, respectively. As noted in our consolidated financial statements, as of December 31, 2024, we had an accumulated deficit of $16,244,843.
Previous wording
As of December 31, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 949 total customers in Japan, of which 691, or 72.8%, were paying customers and 24 total customers outside Japan, of which 1, or 0.1%, was a paying customer. Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. Our net retention rate for our paying customers of our customer experience management business unit (CMS business) was 88%, 92%, and 95% as of December 31, 2023, 2022, and 2021, respectively. There is an insignificant impact (below 10%) on our net retention rate as to former paying customers of our CMS business utilizing the free version of your CXM Platform.
Current wording
As of December 31, 2024, our combined business units (customer experience management business unit and digital transformation business unit) had 982 total customers in Japan, of which 724, or 73.7%, were paying customers and 26 total customers outside Japan, of which 1, or 0.1%, was a paying customer. Our 280 non-paying customers were originally paying customers that utilized our paid services but now use a free version of the CXM Platform. Our net retention rate for our paying customers of our customer experience management business unit (CMS business) was 95%, 88%, and 92% as of December 31, 2024, 2023, and 2022, respectively. There is an insignificant impact (below 10%) on our net retention rate as to former paying customers of our CMS business utilizing the free version of your CXM Platform.
Previous wording
In recent years, the economic indicators in Japan have shown mixed signs, and future growth of the Japanese economy is subject to many factors beyond our control. The current administration of Prime Minster Fumio Kishida and the former administration of Prime Minister Yoshihide Suga have introduced policies to combat deflation and promote economic growth. In addition, the Bank of Japan introduced a plan for quantitative and qualitative monetary easing in April 2013 and announced a negative interest rate policy in January 2016. However, the long-term impact of these policy initiatives on Japan’s economy remains uncertain. The impact of Brexit on the Japanese economy and on the value of the Japanese yen against currencies of other countries in which we generate revenue, in both the short and long term, is also uncertain. In addition, an increase in the consumption tax rate, which took place in April 2014 with a further increase in October 2019, may also adversely impact the Japanese economy, potentially impacting consumer spending, and advertising spending by businesses. Any future deterioration of the Japanese or global economy may result in a decline in consumption that would have a negative impact on demand for our products and their prices.
Current wording
In recent years, the economic indicators in Japan have shown mixed signs, and future growth of the Japanese economy is subject to many factors beyond our control. The current administration of Prime Minster Shigeru Ishiba and the former administration of Prime Minister Fumio Kishida have introduced policies to combat deflation and promote economic growth. In addition, the Bank of Japan introduced a plan for quantitative and qualitative monetary easing in April 2013 and announced a negative interest rate policy in January 2016. However, the long-term impact of these policy initiatives on Japan’s economy remains uncertain. The impact of Brexit on the Japanese economy and on the value of the Japanese yen against currencies of other countries in which we generate revenue, in both the short and long term, is also uncertain. In addition, an increase in the consumption tax rate, which took place in April 2014 with a further increase in October 2019, may also adversely impact the Japanese economy, potentially impacting consumer spending, and advertising spending by businesses. Any future deterioration of the Japanese or global economy may result in a decline in consumption that would have a negative impact on demand for our products and their prices.
Previous wording
The following table summarizes our operating results as reflected in our statements of operations during the fiscal years ended December 31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
Current wording
The following table summarizes our operating results as reflected in our statements of operations for the fiscal years ended December 31, 2024 and 2023, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
Previous wording
For the reasons discussed above, our overall gross profit margin decreased by 1.1% to 36.9% for the year ended December 31, 2023 from 38.0% in the fiscal year 2022.
Current wording
For the reasons discussed above, our overall gross profit margin increased by 21.7% to 58.6% for the year ended December 31, 2024 from 36.9% in the fiscal year 2023.
Previous wording
Our selling expenses primarily include advertising expenses, sales commissions, sales promotion expenses, and stock-based compensation.
Current wording
Our selling expenses primarily include advertising expenses, sales salaries, commissions, and welfare, sales promotion expenses, referral expense, and stock-based compensation.
Previous wording
As a percentage of revenues, our selling expenses accounted for 6.9% and 32.0% of our total revenues for the years ended December 31, 2023 and 2022, respectively.
Current wording
As a percentage of revenues, our selling expenses accounted for 4.1% and 6.9% of our total revenues for the years ended December 31, 2024 and 2023, respectively.
Previous wording
As a percentage of revenues, general and administrative expenses were 44.2% and 74.6% of our revenues for the fiscal years ended December 31, 2023 and 2022, respectively.
Current wording
As a percentage of revenues, general and administrative expenses were 28.4% and 44.2% of our revenues for the fiscal years ended December 31, 2024 and 2023, respectively.
Previous wording
Our research and development expenses increased by $378,116 or 59.0%, to $1,019,141 in the fiscal year ended December 31, 2023 from $641,025 in the fiscal year ended December 31, 2022, primarily attributable toan increase of $357,247 in outsourcing expenses relating to the development of new CMS management screen features in the current period and additional R&D expenses incurred by Sigmaways to support its customized software development and services.
Current wording
Our research and development expenses decreased by $289,557 or 28.4%, to $729,584 in the year ended December 31, 2024 from $1,019,141 in the year ended December 31, 2023, primarily attributable toa decrease of $603,367 in outsourcing expenses relating to the development of new CMS management screen features, which stared in 2023 and about to completed in the current year; and offset by an increase of $371,748 in salaries and welfare expenses for the employees assigned to the development of a new product, Global CMS, started in 2024.
Previous wording
As a percentage of revenues, research and development expenses were 4.7% and 7.3% of our revenues for the fiscal years ended December 31, 2023 and 2022, respectively.
Current wording
As a percentage of revenues, research and development expenses were 2.4% and 4.7% of our revenues for the fiscal years ended December 31, 2024 and 2023, respectively.
Previous wording
Our other income (expenses) primarily includes changes in fair value of investments in marketable securities, changes in fair value of investment in warrants, interest income generated from bank deposits, interest expense for bank loans, bonds, and leases, government grants, other income, and other expenses. Total other expenses, net, increased by $903,704 or 7,118.6%, from other income, net, of $12,695 for the year ended December 31, 2022 to other expenses, net, of $891,009 for the year ended December 31, 2023, primarily attributable to an increase of $615,520 in loss on fair value changes in investments in marketable securities and an increase of $501,445 in loss on fair value changes in investment in warrants, offset by an increase of $309,015 in other income, primarily due to the penalty payment that we received from certain customers in the current period.
Current wording
Our other income (expenses) primarily includes changes in fair value of investments in marketable securities, changes in fair value of investment in warrants, loss on sale of warrants, interest income generated from bank deposits, interest expenses for bank loans and bonds, government grants, impairment of investment in equity securities, loss on forgiveness of note receivable, other income, and other expenses. Total other expenses, net, increased by $4,523,478 or 507.7%, from other expenses, net, of $891,009 for the year ended December 31, 2023 to other expenses, net, of $5,414,487 for the year ended December 31, 2024, primarily attributable to an increase of $1,796,865 in loss on fair value changes in investments in marketable securities, an increase of $3,970,628 in loss on sale of warrants, and an increase of $300,000 in impairment of investment in equity securities, offset by an increase of $2,159,144 in gain on fair value changes in investment in warrants.
Previous wording
As a result of the foregoing, we reported a net loss of $4,876,700 for the fiscal year ended December 31, 2023, representing a $1,800,766 or 27.0% decrease from a net loss of $6,677,466 for the fiscal year ended December 31, 2022.
Current wording
As a result of the foregoing, we reported a net loss of $5,212,900 for the fiscal year ended December 31, 2024, representing a $336,200 or 6.9% increase from a net loss of $4,876,700 for the fiscal year ended December 31, 2023.
Previous wording
Net Loss Attributable to Non-controlling Interest
Current wording
Net Loss Attributable to Non-controlling Interests
Previous wording
We owned 51% equity ownership interest of Sigmaways and its subsidiaries as of December 31, 2023. Accordingly, we recorded net loss attributable to the non-controlling interest of $686,810 in the year ended December 31, 2023.
Current wording
We owned 51% equity interest of Sigmaways and its subsidiaries and 51% equity interest of HeartCore Luvina as of December 31, 2024. Accordingly, we recorded net loss attributable to the non-controlling interests of $3,731,526 and $686,810 in the year ended December 31, 2024 and 2023, respectively.
Previous wording
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $4,189,890 for the fiscal year ended December 31, 2023, representing a $2,487,576 or 37.3% decrease from a net loss of $6,677,466 for the fiscal year ended December 31, 2022.
Current wording
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $1,481,374 for the fiscal year ended December 31, 2024, representing a $2,708,516 or 64.6% decrease from a net loss attributable to HeartCore Enterprise, Inc. of $4,189,890 for the fiscal year ended December 31, 2023.
Previous wording
As of December 31, 2023, we had $1,012,479 in cash as compared to $7,177,326 as of December 31, 2022. We also had $2,623,682 in accounts receivable as of December 31, 2023. Our accounts receivable primarily include balance due from customers for our on-premise software sold and services provided and accepted by customers, as well as amounts billable to the customers for customized software development and services.
Current wording
As of December 31, 2024, we had $2,121,089 in cash and cash equivalents as compared to $1,012,479 as of December 31, 2023. We also had $1,950,050 in accounts receivable as of December 31, 2024. Our accounts receivable primarily include balance due from customers for our on-premise software sold and services provided and accepted by customers, as well as amounts billable to the customers for customized software development and services.
Previous wording
As of December 31, 2023, our working capital deficit was $1,016,662. In assessing our liquidity, management monitors and analyzes our cash, our ability to generate sufficient revenues in the future, and our operating and capital expenditure commitments.
Current wording
As of December 31, 2024, our working capital was $1,995,643. In assessing our liquidity, management monitors and analyzes our cash, our ability to generate sufficient revenues in the future, and our operating and capital expenditure commitments.
Previous wording
Net cash used in operating activities was $4,808,547 for the year ended December 31, 2022, primarily consisting of the following:
Current wording
Net cash used in operating activities was $4,774,971 for the year ended December 31, 2024, primarily consisting of the following:
Previous wording
The Company’s debts included short-term debt and long-term debts borrowed from banks and other financial institutions.
Current wording
The Company’s debts included long-term debts borrowed from banks and financial institutions.
Previous wording
The fair value of the intangible asset is estimated using the income approach using the multi-period excess earnings method. Management applies significant judgement related to this fair value method, which includes the selection of an expected EBITDA margin assumption for the forecast period, and discount rate assumptions. These significant assumptions are based on company specific information and projections, which are not observable in the market (except for the discount rate assumption) and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions.
Current wording
The valuation of noncash consideration in the form of warrants of the customers are estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses and are reviewed by consulting with third-party valuation appraisers. The fair value of the warrants received from the customers are estimated using the Black-Scholes model and binomial model. In connection with assessing the stock price as one of the inputs to the valuation model, income approach, through the discounted cash flow method, and market approach, through the guideline company method, are used in the valuation process. Management applies significant judgement related to these valuation models and approaches, such as future cash flows estimate, discount rate assumption, selection of comparable companies, and etc. These significant assumptions are based on company specific information and projections, which may not be observable in the market, and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions. We believe the accounting estimate for revenue recognition in connection with the valuation of the warrants received by the Company as part of the consideration for consulting services is a critical accounting estimate because it requires estimates and judgement as to expectations that are highly subjective, but which are inherently uncertain and, as a result, actual results may differ from estimates.