STOCK BASED COMPENSATION

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

STOCK BASED COMPENSATION

NOTE 11 – 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 JPY10 each (approximately $0.09). 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 June 30, 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 were recorded by the Company as a share repurchase liability included in other current liabilities in the consolidated balance sheets with JPY1,830 (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 share-based compensation of $11,005 during the six months ended June 30, 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 summarized the Company’s stock options activity for the stock option issued in 2016 for the six months ended June 30, 2022 and 2021:

	Number of stock options
Issued and unvested as of January 1, 2021		194
Forfeited		11
Issued and unvested as of June 30, 2021		183
Issued and unvested as of January 1, 2022		183
Vested and exercised		183
Exercisable as of June 30, 2022		-

On December 25, 2021, the Company awarded options to purchase 1,534,500 shares of common shares at an exercise price of $2.50 per share to various officers, directors, employees and consultants of the Company. The options vest on each annual anniversary of the date of issuance, in an amount equal to 25% of the applicable shares of common shares, with the expiration date on December 25, 2031.

The following table summarizes the share options activity and related information for the six months ended June 30, 2022:

	Number of Options/ Warrants		Weighted Average Exercise Price		Weighted Average Remaining Term (Years)		Intrinsic Value
As of January 1, 2022		1,534,500	$	2.5		9.99	$	-
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
As of June 30, 2022		1,534,500	$	2.5		9.49	$	-
Vested and exercisable as of June 30, 2022		-		-		-		-

Options granted historically were valued using the binomial model with the assistance of an independent valuation specialist. Significant assumptions used in the valuation include expected volatility, risk-free interest rate, dividend yield and expected exercise term.

For the three and six months ended June 30, 2022, share-based compensation related to the options totaled $284,938 and $577,750, respectively. For the three and six months ended June 30, 2021, share-based compensation related to the options was nil. The outstanding unamortized share-based compensation related to options was $1,608,803 (which will be recognized through December 2025) as of June 30, 2022.

Restricted Stock Units (“RSUs”)

The following table summarizes the RSUs activity for the six months ended June 30, 2022:

	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 June 30, 2022		85,820		$	4.95

On February 9, 2022, the Company entered into executive employment agreements with five executives and granted 85,820 RSUs pursuant to the 2021 Equity Incentive 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.

For the three and six months ended June 30, 2022, the Company recognized RSU-related share-based compensation of $181,724 and $311,076, respectively. The outstanding unamortized share-based compensation related to RSUs was $338,732 (which will through February 2026) as of June 30, 2022.