UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______, 20___, to _____, 20___.
Commission
File Number
(Exact Name of Registrant as Specified in its Charter)
| (State
or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) |
(Address of Principal Executive Offices) (Zip Code)
(
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each Exchange on which Registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 9, 2022, there were shares of outstanding common stock, par value $0.0001 per share, of the registrant.
HeartCore Enterprises, Inc.
Contents
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36 |
| Item 4. | Controls and Procedures | 36 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 36 |
| Item 1A. | Risk Factors | 36 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 36 |
| Item 3. | Defaults Upon Senior Securities | 36 |
| Item 4. | Mine Safety Disclosures | 36 |
| Item 5. | Other Information | 36 |
| Item 6. | Exhibits | 37 |
| Signatures | 38 | |
| 2 |
Item 1. Financial Statements.
HEARTCORE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses | ||||||||
| Due from related party | ||||||||
| Loan receivable from employee | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax assets | ||||||||
| Security deposits | ||||||||
| Long-term loan receivable from related party | ||||||||
| Loan receivable from employee, non-current | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued payroll and other employee costs | ||||||||
| Due to related party | ||||||||
| Current portion of long-term debts | ||||||||
| Insurance premium financing | ||||||||
| Operating lease liabilities, current | ||||||||
| Finance lease liabilities, current | ||||||||
| Income tax payables | ||||||||
| Deferred revenue | ||||||||
| Mandatorily redeemable financial interest | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Long-term debts | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Finance lease liabilities, non-current | ||||||||
| Other non-current liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities: | ||||||||
| Shareholders’ equity (deficit): | ||||||||
| Preferred shares ($ par value, shares authorized, shares issued and outstanding as of June 30, 2022 and December 31, 2021) | ||||||||
| Common shares ($ par value, shares authorized; and shares issued; and shares outstanding as of June 30, 2022 and December 31, 2021, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Treasury shares, at cost ( and shares as of June 30, 2022 and December 31, 2021, respectively) | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total shareholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and shareholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Income (loss) before income tax provision | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: net income attributable to non-controlling interest | ||||||||||||||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||||||
| Total comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Less: comprehensive income attributable to non-controlling interest | ||||||||||||||||
| Comprehensive income (loss) attributable to HeartCore Enterprises, Inc. | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net earnings (loss) per common share attributable to HeartCore Enterprises, Inc.* | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average common shares outstanding* | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 4 |
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
| Common shares* | Additional | Accumulated other | Total HeartCore Enterprises, Inc. | Non- | Total | |||||||||||||||||||||||||||
| Number of shares | Amount | paid-in capital* | Accumulated deficit | comprehensive loss | shareholders’ deficit | controlling interest | shareholders’ deficit | |||||||||||||||||||||||||
| Balance, December 31, 2020* | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance, March 31, 2021* | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance, June 30, 2021* | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| * |
| Common shares | Additional | Treasury shares | Accumulated other | Total shareholders’ | ||||||||||||||||||||||||||||
| Number of shares | Amount | paid-in capital | Number of shares | Amount | Accumulated deficit | comprehensive income (loss) | equity (deficit) | |||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||
| Issuance of common shares for cash | - | |||||||||||||||||||||||||||||||
| Issuance of common shares from exercise of share options | ( | ) | - | |||||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | - | ( | ) | |||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||||||
| Repurchase of common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Depreciation expenses | ||||||||
| Amortization of debt issuance costs | ||||||||
| Non-cash lease expense | ||||||||
| Deferred income taxes | ||||||||
| Share-based compensation | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Accrued payroll and other employee costs | ||||||||
| Due to related party | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Finance lease liabilities | ( | ) | ( | ) | ||||
| Income tax payables | ( | ) | ||||||
| Deferred revenue | ||||||||
| Other liabilities | ( | ) | ||||||
| Net cash flows provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Advance and loan provided to related parties | ( | ) | ||||||
| Repayment of loan provided to related party | ||||||||
| Net cash flows used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from initial public offering, net of issuance cost | ||||||||
| Proceeds from issuance of common shares prior to initial public offering | ||||||||
| Repurchase of common shares | ( | ) | ||||||
| Payments for finance leases | ( | ) | ( | ) | ||||
| Proceeds from long-term debt | ||||||||
| Repayment of long-term debts | ( | ) | ( | ) | ||||
| Repayment of insurance premium financing | ( | ) | ||||||
| Payments for debt issuance costs | ( | ) | ( | ) | ||||
| Payment for mandatorily redeemable financial interest | ( | ) | ||||||
| Net cash flows provided by (used in) financing activities | ( | ) | ||||||
| Effect of exchange rate changes | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents - beginning of the period | ||||||||
| Cash and cash equivalents - end of the period | $ | $ | ||||||
| Supplemental cash flow disclosure: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions | ||||||||
| Payroll withheld as repayment of loan receivable from employees | $ | $ | ||||||
| Expense paid by related party on behalf of the Company | $ | $ | ||||||
| Liabilities assumed in connection with purchase of property and equipment | $ | $ | ||||||
| Share repurchase liability settled by issuance of common shares | $ | $ | ||||||
| Deferred offering costs recognized against the proceeds from the offering | $ | $ | ||||||
| Insurance premium financing | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 6 |
HEARTCORE ENTERPRISES, INC.
NOTES TO UNAUDITED 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 shares of its common shares to the shareholders of HeartCore Japan in exchange for shares out of shares of common shares issued by HeartCore Japan, representing approximately of HeartCore Japan’s outstanding common shares. On February 24, 2022, the Company purchased the remaining 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 unaudited 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. HeartCore USA and HeartCore Japan are hereafter referred to as the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiary. Prior to February 24, 2022, ownership interest of non-controlling party is presented as mandatorily redeemable financial interest or non-controlling interest as applicable. All significant intercompany accounts and transactions have been eliminated.
These unaudited interim consolidated financial statements do not include all of the information and disclosure required by the U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments consisting of normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2021.
| 7 |
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 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 doubtful accounts, useful lives of property and equipment, the impairment of long-lived assets, valuation of share-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and financing leases, valuation of asset retirement obligations and revenue recognition. Actual results could differ from those estimates.
COVID-19
While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown. The Company may experience customer losses, including due to bankruptcy or customers ceasing operations, which may result in delays in collections or an inability to collect accounts receivable from these customers. The extent to which COVID-19 may continue to impact the Company’s financial condition, results of operations, or liquidity continues to remain uncertain, and as of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or an adjustment to the carrying value of the Company’s assets or liabilities. These estimates may change, as new events occur and additional information is obtained, which will be recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements.
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 Accounting Standards Codification (“ASC”) 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:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Accretion expense | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
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.
| 8 |
In
the six months ended June 30, 2022 and 2021, software development costs expensed as incurred amounted to $
Impairment of Long-Lived Assets
Long-lived
assets with finite lives, primarily property and equipment, 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
Foreign Currency Translation
The Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. 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 statements of operations.
The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying unaudited consolidated financial statements have been expressed in US$. 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 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:
| June 30, 2022 | June 30, 2021 | |||||||
| Current JPY: US$1 exchange rate | ||||||||
| Average JPY: US$1 exchange rate | ||||||||
Revenue Recognition
The Company recognizes revenue under ASC Topic 606, “Revenue from Contracts with customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local government levies. The Consumption Tax on sales is calculated at 10% of gross sales.
| 9 |
The Company currently generates its revenue from the following main sources:
Revenue from On-Premise Software
Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. The Company provides on-premise software in the form of both perpetual licenses and term-based licenses which grant the customers with the right for a specified term. Revenue from on-premise licenses is recognized upfront at the point in time when the software is made available to the customer. Licenses for on-premise software are typically sold to the customer with maintenance and support services in a bundle. Revenues under the bundled arrangements are allocated based on the relative standalone selling prices (“SSP”) of on-premise software and maintenance and support service. The SSP for maintenance and support services is estimated based upon observable transactions when those services are sold on a standalone basis. The SSP of on-premise software is typically estimated using the residual approach as the Company is unable to establish the SSP for on-premise licenses based on observable prices given the same products are sold for a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is not discernible from past transactions or other observable evidence.
Revenue from Maintenance and Support service
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.
Revenue from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. The subscription contracts are generally one year or less in length.
Revenue from Software Development and other Miscellaneous Services
The Company provides customers with software development and support service pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes revenue at a point in time when control is transferred to the customers and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers.
Revenue from Consulting Service
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 and supporting the listing process. Revenues from consulting services are recognized over time as such services are performed. The consulting service contracts are generally less than one year in length.
The
timing of revenue recognition may differ from the timing of invoicing to the customers. The Company records a contract asset, which is
included in accounts receivable on the consolidated balance sheets, when revenue is recognized prior to invoicing. The Company records
deferred revenues on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice. Deferred
revenues are reported net of related uncollected deferred revenues in the consolidated balance sheets. The amount of revenues recognized
during the six months ended June 30, 2022 and 2021 that were included in the opening deferred revenues balance was approximately $
| 10 |
Disaggregation of Revenue
The Company disaggregates its revenues from contracts by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues by type for the three and six months ended June 30, 2022 and 2021 is as following:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue from On-Premise Software | $ | $ | $ | $ | ||||||||||||
| Revenue from Maintenance and Support Service | ||||||||||||||||
| Revenue from Software as a Service (“SaaS”) | ||||||||||||||||
| Revenue from Software Development and other Miscellaneous Services | ||||||||||||||||
| Revenue from Consulting Service | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
The Company’s disaggregation of revenues by product/service is as following:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue from Customer Experience Management Platform | $ | $ | $ | $ | ||||||||||||
| Revenue from Process Mining | ||||||||||||||||
| Revenue from Robotic Process Automation | ||||||||||||||||
| Revenue from Task Mining | ||||||||||||||||
| Revenue from Consulting Service | ||||||||||||||||
| Revenue from Others | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
As of June 30, 2022 and 2021, and for the period then ended, all long-lived assets and the predominant portion of the revenue generated are attributed to the Company’s operation in Japan.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company 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 six months ended June 30, 2022, customer A and B represents
For
the six months ended June 30, 2022, vendor A and B represents
| 11 |
The Company accounts for share-based compensation awards in accordance with ASC 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 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.
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ||||||||
| Accounts receivable, net | $ | $ | ||||||
NOTE 4 — PREPAID EXPENSES
Prepaid expenses consist of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Prepayments to software vendors | $ | $ | ||||||
| Prepaid selling expenses | ||||||||
| Prepaid subscription fees | ||||||||
| Deferred offering expenses | ||||||||
| Prepaid insurance premium | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
Deferred offering expenses, consisting of legal fees and road show expenses relating to the Company’s planned initial public offering, are capitalized and recorded on the balance sheet. The deferred offering expenses were reclassified to shareholders’ equity and recorded against the proceeds received upon the closing of our initial public offering on February 14, 2022.
NOTE 5 — RELATED PARTY TRANSACTIONS
As
of June 30, 2022 and December 31, 2021, the Company has a due to related party balance of $
| 12 |
As
of June 30, 2022 and December 31, 2021, the Company has a loan receivable balance of $
In
June 2020, Suzuyo Shinwart Corporation became an over
During
the period from January 1, 2022 through January 13, 2022, the Company completed a private placement, in which, it issued shares
of common shares at a purchase price of $ per share to the officers of the Company for an aggregate amount of $
NOTE 6 — PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Leasehold improvement | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Vehicle | ||||||||
| Software | ||||||||
| Subtotal | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense was $
NOTE 7 — LEASES
The
Company has entered into two leases for its office space, which were classified as operating leases. It has also entered into two leases
for office equipment, one of which was terminated in June 2022, and a lease for a vehicle, and these leases were
classified as finance leases. Right-of-use assets of these finance leases in the amount of $
| 13 |
The components of lease costs are as follows:
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Finance lease costs | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total finance lease costs | ||||||||
| Operating lease costs | ||||||||
| Total lease costs | $ | $ | ||||||
The following table presents supplemental information related to the Company’s leases:
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from finance leases | $ | $ | ||||||
| Operating cash flows from operating leases | ||||||||
| Financing cash flows from finance leases | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Finance leases | ||||||||
| Operating leases | ||||||||
| Weighted-average discount rate: (per annum) | ||||||||
| Finance leases | % | % | ||||||
| Operating leases | % | % | ||||||
As of June 30, 2022, the future maturity of lease liabilities is as follows:
| Year ending December 31, | Finance leases | Operating leases | ||||||
| Remaining of 2022 | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total lease liabilities | ||||||||
| Less: current portion | ||||||||
| Non-current lease liabilities | $ | $ | ||||||
Pursuant
to the operating lease agreements, the Company made security deposits to the lessors. The security deposits amounted to $
| 14 |
NOTE 8 — LONG-TERM DEBTS
The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions, which consist of the following:
| Name of Financial Institutions | Original Amount Borrowed (JPY) | Loan Duration | Annual Interest Rate | Balance as of June 30, 2022 | Balance as of December 31, 2021 | |||||||||||||
| Bond payable | ||||||||||||||||||
| Corporate bond issued through Resona Bank | (a)(b) | % | $ | $ | ||||||||||||||
| Loans with banks and other financial institutions | ||||||||||||||||||
| Resona Bank, Limited. | (a) | % | ||||||||||||||||
| Resona Bank, Limited. | (a)(b) | % | ||||||||||||||||
| Resona Bank, Limited. | (a)(b) | % | ||||||||||||||||
| Resona Bank, Limited. | (a)(b) | % | ||||||||||||||||
| Resona Bank, Limited. | (a)(b) | % | ||||||||||||||||
| Sumitomo Mitsui Banking Corporation | % | |||||||||||||||||
| Sumitomo Mitsui Banking Corporation | (b) | % | ||||||||||||||||
| The Shoko Chukin Bank, Ltd. | % | |||||||||||||||||
| The Shoko Chukin Bank, Ltd. | % | |||||||||||||||||
| Japan Finance Corporation | % | |||||||||||||||||
| Japan Finance Corporation | % | |||||||||||||||||
| Higashi-Nippon Bank | (a) | % | ||||||||||||||||
| Aggregate outstanding principal balances | ||||||||||||||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||||||||||||
| Less: current portion | ( | ) | ( | ) | ||||||||||||||
| Non-current portion | $ | $ | ||||||||||||||||
| (a) | ||
| (b) |
In March 2022, the Company entered into a loan agreement with Higashi-Nippon Bank with a term of three years payable monthly. The loan is guaranteed by Sumitaka Yamamoto, the Company’s CEO and major shareholder.
Interest
expense for long-term debts was $
| 15 |
As of June 30, 2022, future minimum loan payments are as follows:
| Year ending December 31, | Loan | |||
| Payment | ||||
| Remaining of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
NOTE 9 — INSURANCE PREMIUM FINANCING
In
February 2022, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $
NOTE 10 — INCOME TAXES
United States (U.S.)
HeartCore
USA is a holding company registered in the State of Delaware incorporated in May 2021. The U.S. federal income tax rate is
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 resulted in an effective statutory rate of approximately
For the six months ended June 30, 2022 and 2021, the Company’s income tax expenses are as follows:
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Current | $ | ( | ) | $ | ( | ) | ||
| Deferred | ||||||||
| Income tax expense | $ | $ | ||||||
The
effective tax rate was (
| 16 |
Options
In May 2016, the Company granted units stock options to its employees each to acquire one share of common shares of HeartCore Japan (an equivalent of approximately shares of common shares of HeartCore USA) at JPY each (approximately $). 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, 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 shares (equivalent to 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 JPY
| Number of stock options | ||||
| Issued and unvested as of January 1, 2021 | ||||
| Forfeited | ||||
| Issued and unvested as of June 30, 2021 | ||||
| Issued and unvested as of January 1, 2022 | ||||
| Vested and exercised | ||||
| Exercisable as of June 30, 2022 | ||||
On December 25, 2021, the Company awarded options to purchase shares of common shares at an exercise price of $ 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 of the applicable shares of common shares, with the expiration date on .
| Number of Options/ Warrants | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | Intrinsic Value | |||||||||||||
| As of January 1, 2022 | $ | $ | ||||||||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Forfeited | - | - | ||||||||||||||
| As of June 30, 2022 | $ | $ | ||||||||||||||
| Vested and exercisable as of June 30, 2022 | - | - | ||||||||||||||
| 17 |
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 $ and $, respectively. For the three and six months ended June 30, 2021, share-based compensation related to the options was . The outstanding unamortized share-based compensation related to options was $ (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 | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested as of June 30, 2022 | $ | |||||||
On February 9, 2022, the Company entered into executive employment agreements with five executives and granted 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 % of the applicable shares of common shares. The fair value of the RSUs at grant date was $.
On February 25, 2022, the Company entered into a service agreement with a marketing company to purchase 6-month marketing services and granted RSUs. The RSUs were issued and vested on May 15, 2022. The fair value of the RSUs at grant date was $.
For the three and six months ended June 30, 2022, the Company recognized RSU-related share-based compensation of $ and $, respectively. The outstanding unamortized share-based compensation related to RSUs was $ (which will through February 2026) as of June 30, 2022.
NOTE 12 – SHAREHOLDERS’ EQUITY (DEFICIT)
The Company was authorized to issue shares of common shares, par value of $ per share, and shares of preferred shares, par value of $ per share.
During
the period from January 1, 2022 through January 13, 2022, the Company issued shares of common shares at a purchase price of $
per share for an aggregate net proceeds of $
On
February 14, 2022, the Company completed its initial public offering on the NASDAQ Capital Market under the symbol of “HTCR”.
The Company offered common shares at $ per share. Net proceeds raised by the Company from the initial public offering amounted
to $
| 18 |
On
February 14, 2022, shares of common shares were issued from exercise of stock options by settling share repurchase liability
of $
On May 15, 2022, shares of restricted shares were issued to a marketing company as compensation of services received (also see NOTE 11).
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 $ 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 June 30, 2022, the Company repurchased shares of common shares at an average price of $ per share totaling approximately $ million (including commissions) under the 2022 Share Repurchase Program. As of June 30, 2022, approximately $ million remained available under the 2022 Share Repurchase Program.
As of June 30, 2022 and December 31, 2021, there were and shares, respectively, of common shares issued; and and shares, respectively, of common shares outstanding.
preferred shares were issued and outstanding as of June 30, 2022 and December 31, 2021.
NOTE 13 – MANDATORILY REDEEMABLE FINANCIAL INTEREST
On
August 10, 2021, the Company and Dentsu Digital Investment Limited (“Dentsu Digital”), a non-controlling shareholder of HeartCore
Japan, entered into a stock purchase agreement, pursuant to which the Company has agreed to purchase the shares of HeartCore Japan
held by Dentsu Digital in accordance with certain terms and conditions in the stock purchase agreement for JPY
| 19 |
Basic earnings (loss) per share is calculated on the basis of weighted-average outstanding common shares. Diluted earnings (loss) per share is computed on the basis of basic weighted-average outstanding common shares adjusted for the dilutive effect of stock options, restricted stock unit awards and other dilutive securities.
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Earnings (loss) per share – basic Numerator: | ||||||||||||||||
| Allocation of net income (loss) attributable to HeartCore Enterprises, Inc.’s common shareholders used in calculating earnings (loss) per common share — basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net income (loss) attributable to common shareholders | ( | ) | $ | ( | ) | $ | ||||||||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares outstanding used in calculating basic earnings (loss) per share | ||||||||||||||||
| Denominator used for earnings (loss) per share | ||||||||||||||||
| Earnings (loss) per share — basic | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| 20 |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Earnings (loss) per share – diluted Numerator: | ||||||||||||||||
| Allocation of net income (loss) attributable to HeartCore Enterprises, Inc.’s common shareholders used in calculating earnings (loss) per common share — diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net income (loss) attributable to common shareholders | ( | ) | ( | ) | ||||||||||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares outstanding used in calculating diluted earnings (loss) per share | ||||||||||||||||
| Conversion of share repurchase liability to common shares* | ||||||||||||||||
| Denominator used for earnings (loss) per share | ||||||||||||||||
| Earnings (loss) per share — diluted | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| * |
For the three and six months ended June 30, 2022, the weighted average shares outstanding are the same for basic and diluted loss per share calculations, as the inclusion of common shares equivalents of would have an anti-dilutive effect.
NOTE 15 - SUBSEQUENT EVENTS
During the period from July 1, 2022 through August 9, 2022, the Company paid approximately $million (including commissions) in connection with the repurchase of shares of its common shares under the 2022 Share Repurchase Program. As of the filing date of this report, approximately $million remained available under the 2022 Share Repurchase Program.
| 21 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), provide a safe harbor for forward-looking statements made by or on behalf of HeartCore Enterprises, Inc. (the “Company”). The Company and its representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission (“SEC”) and in our reports and presentations to stockholders or potential stockholders. In some cases, forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions. Such forward-looking statements include risks and uncertainties and there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and uncertainties can be found in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as the same may be updated from time to time, including in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q.
Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material effect on the future financial performance of the Company. The forward-looking statements in this report are made on the basis of management’s assumptions and analyses, as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances.
Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q and the information incorporated by reference in this report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
Business Overview
We are a leading software development company based in Tokyo, Japan. We provide software through two business units. The first business unit includes a customer experience management business that has been in existence for 12 years. Our customer experience management platform (the “CXM Platform”) includes marketing, sales, service and content management systems, as well as other tools and integrations, that enable companies to attract and engage customers throughout the customer experience. We also provide education, services and support to help customers be successful with our CXM Platform.
The second business unit is a digital transformation business which provides customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises. We also have an ongoing technology innovation team to develop software that supports the narrow needs of large enterprise customers.
We have made significant investments in our sales and marketing efforts globally. As of June 30, 2022, 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 June 30, 2022, our combined business units (customer experience management business unit and digital transformation business unit) had a total of 877 customers in Japan.
We were incorporated in the State of Delaware on May 18, 2021. We conduct business activities principally through our wholly-owned subsidiary, HeartCore Co., Ltd., a Japanese corporation (“HeartCore Co”), which was established in Japan by Mr. Sumitaka Yamamoto, our CEO, in 2009. We acquired 97.5% of the equity interest of HeartCore Co in July 2021 and acquired the remaining interest in February 2022. HeartCore Co started out with helping companies effectively managing content with its powerful content management system. Since then, HeartCore Co has expanded offerings to help companies manage all forms of business processes.
| 22 |
The acquisition of HeartCore Co in July 2021 was accounted for as a recapitalization among entities under common control since the same controlling shareholders controlled all these entities before and after the transaction. The consolidation of the Company and its subsidiary has been accounted for at historical cost and prepared on the basis as if the transaction had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements.
Recent Developments
A.L.I. Consulting Agreement
On April 13, 2022, the Company entered into a Consulting and Services Agreement (the “ALI Consulting Agreement”) by and between the Company and A.L.I. Technologies Inc. (“ALI”). Pursuant to the terms of the ALI Consulting Agreement, the Company agreed to provide certain consulting services, including the following (collectively, the “Services”):
| (i) | Assistance with the selection and negotiation of terms for a law firm, underwriter and auditing firm for ALI; | |
| (ii) | Assisting in the preparation of documentation for internal controls required for an initial public offering or de-SPAC by ALI; | |
| (iii) | Providing support services to remove problematic accounting accounts upon listing; | |
| (iv) | Translation of requested documents into English; | |
| (v) | Attend and, if requested by ALI, lead meetings with ALI’s management team and employees; | |
| (vi) | Provide ALI with support services related to ALI’s NASDAQ listing; | |
| (vii) | Conversion of accounting data from Japanese standards to US GAAP; | |
| (viii) | Services to remove problematic accounting accounts upon listing; | |
| (ix) | Support for the ALI’s negotiations with the audit firm; | |
| (x) | Assist in the preparation of S-1 or S-4 filings; | |
| (xi) | Creation of English language website; and | |
| (xii) | Preparing an investor presentation/deck and executive summary of ALI’s business and operations. |
In providing the Services, the Company will not perform accounting services, and will not act as an investment advisor or broker/dealer. Pursuant to the terms of the ALI Consulting Agreement, the parties agreed that the Company will not provide the following services, among others: negotiation of the sale of ALI’s securities; participation in discussions between ALI and potential investors; assisting in structuring any transactions involving the sale of ALI’s securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in ALI.
Pursuant to the terms of the ALI Consulting Agreement, ALI agreed to compensate the Company as follows in return for the provision of Services:
| (a) | $400,000, to be paid as follows: (i) $200,000 on April 13, 2022; (ii) $100,000 on the three-month anniversary of April 13, 2022; and (iii) $100,000 on the six-month anniversary of April 13, 2022; and | |
| (b) | Issuance by ALI to the Company of a warrant to acquire a number of shares of capital stock of ALI, to initially be equal to 1% of the fully diluted share capital of ALI as of April 13, 2022, subject to adjustment as set forth in the warrant. |
The ALI Consulting Agreement has a term of six months, which shall expire unless renewed upon mutual written agreement of the parties. For any services performed by the Company beyond the initial term, ALI will compensate the Company for Services at the rate of $150 per hour.
As provided in the ALI Consulting Agreement, on April 13, 2022, ALI issued to the Company the warrant. Pursuant to the terms of the warrant, the Company may, at any time on or after the date that ALI completes its first initial public offering of stock in the United States resulting in any class of ALI’s stock being listed for trading on any tier of the Nasdaq Stock Market, the New York Stock Exchange or the NYSE American (the “IPO Date”) and on or prior to the close of business on the tenth anniversary of the IPO Date, exercise the warrant to purchase 1% of the fully diluted share capital of ALI as of April 13, 2022 for an exercise price per share of $0.01, subject to adjustment as provided in the warrant. The number of shares for which the warrant will be exercisable will be automatically adjusted on the IPO Date to be 1% of the fully diluted number and class of shares of capital stock of ALI as of the IPO Date that are listed for trading. The warrant contains a 9.99% equity blocker.
| 23 |
SYLA Consulting Agreement
On May 13, 2022, the Company entered into a Consulting and Services Agreement (the “SYLA Consulting Agreement”) by and between the Company and SYLA Holdings Co. Ltd. (“SYLA”). Pursuant to the terms of the SYLA Consulting Agreement, the Company agreed to provide SYLA certain services, including the Services.
In providing the Services, the Company will not perform accounting services, and will not act as an investment advisor or broker/dealer. Pursuant to the terms of the SYLA Consulting Agreement, the parties agreed that the Company will not provide the following services, among others: negotiation of the sale of SYLA’s securities; participation in discussions between SYLA and potential investors; assisting in structuring any transactions involving the sale of SYLA’s securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in SYLA.
Pursuant to the terms of the SYLA Consulting Agreement, SYLA agreed to compensate the Company as follows in return for the provision of Services:
| (a) | $500,000, to be paid as follows: (i) $200,000 on the effective date of the SYLA Consulting Agreement; (ii) $150,000 on the three-month anniversary of the effective date of the SYLA Consulting Agreement; and (iii) $150,000 on the six-month anniversary of the SYLA Consulting Agreement; and | |
| (b) | Issuance by SYLA to the Company of a warrant, deemed fully earned and vested as of the effective date of the SYLA Consulting Agreement, to acquire a number of shares of capital stock of SYLA, to initially be equal to 2% of the fully diluted share capital of SYLA as of the effective date of the SYLA Consulting Agreement, subject to adjustment as set forth in the warrant. |
The SYLA Consulting Agreement’s initial term of six months will expire unless renewed upon mutual written agreement of the parties. For any services performed by the Company beyond the initial term, SYLA will compensate the Company for Services at the rate of $150 per hour, based on the hours spent by personnel of the Company.
As provided in the SYLA Consulting Agreement, on the Effective Date, SYLA issued the warrant to the Company. Pursuant to the terms of the warrant, the Company may, at any time on or after the date the IPO Date and on or prior to the close of business on the tenth anniversary of the IPO Date, exercise the warrant to purchase 2% of the fully diluted share capital of SYLA as of the effective date of the SYLA Consulting Agreement for an exercise price per share of $0.01, subject to adjustment as provided in the warrant. The number of shares for which the warrant will be exercisable will be automatically adjusted on the IPO Date to be 2% of the fully diluted number and class of shares of capital stock of SYLA as of the IPO Date that are listed for trading. The warrant contains a 9.99% equity blocker.
Going forward, we expect that we will offer services substantially similar to the Services to other third parties, as well.
Stock Repurchase Program
The Company’s Board of Directors (the “Board”) authorized a share repurchase program, pursuant to which the Company may repurchase up to $3.5 million of its outstanding shares of common stock. The Board authorized the Company to purchase its common stock from time to time on a discretionary basis through open market purchases, privately negotiated transactions or other means, including trading plans intended to qualify under Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in accordance with applicable federal securities laws and other applicable legal requirements. The Company expects to fund these repurchases through existing cash balances. Decisions regarding the amount and the timing of purchases under the program will be influenced by the Company’s cash on hand, cash flows from operations, general market conditions and other factors. HeartCore is not obligated to acquire any particular amount of its common stock. This program has no set termination date and may be suspended or discontinued by the Board at any time.
| 24 |
Financial Overview
For the three months ended June 30, 2022 and 2021, we generated revenues of $2,670,297 and $2,865,192, respectively, and reported net losses of $1,703,641 and net income of $411,714, respectively. For the six months ended June 30, 2022 and 2021, we generated revenues of $4,946,298 and $4,975,501, respectively, and reported net losses of $3,282,092 and net income of $223,477, respectively, and cash out flow used in operating activities of $2,093,867 and cash in flow provided by operating activities of $347,683, respectively. As noted in our unaudited consolidated financial statements, as of June 30, 2022, we had an accumulated deficit of $7,178,205.
Results of Operations
Comparison of Results of Operations for the Three Months ended June 30, 2022 and 2021
The following table summarizes our operating results as reflected in our statements of income during the three months ended June 30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
| For the Three Months ended June 30, | ||||||||||||||||||||||||
| 2022 | 2021 | Variance | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | revenue | Amount | revenue | Amount | % of | |||||||||||||||||||
| REVENUES | $ | 2,670,297 | 100.0 | % | $ | 2,865,192 | 100.0 | % | $ | (194,895 | ) | -6.8 | % | |||||||||||
| COST OF REVENUES | 1,337,296 | 50.1 | % | 1,175,387 | 41.0 | % | 161,909 | 13.8 | % | |||||||||||||||
| GROSS PROFIT | 1,333,001 | 49.9 | % | 1,689,805 | 59.0 | % | (356,804 | ) | -21.1 | % | ||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | 728,836 | 27.3 | % | 101,124 | 3.5 | % | 627,712 | 620.7 | % | |||||||||||||||
| General and administrative expenses | 1,850,315 | 69.3 | % | 1,020,842 | 35.7 | % | 829,473 | 81.3 | % | |||||||||||||||
| Research and development expenses | 417,228 | 15.6 | % | 80,025 | 2.8 | % | 337,203 | 421.4 | % | |||||||||||||||
| Total operating expenses | 2,996,379 | 112.2 | % | 1,201,991 | 42.0 | % | 1,794,388 | 149.3 | % | |||||||||||||||
| Income (loss) from operations | (1,663,378 | ) | -62.3 | % | 487,814 | 17.0 | % | (2,151,192 | ) | -441.0 | % | |||||||||||||
| Other income (expenses) | (31,284 | ) | -1.2 | % | 126 | 0.0 | % | (31,410 | ) | -24,928.6 | % | |||||||||||||
| Income (loss) before income tax provision | (1,694,662 | ) | -63.5 | % | 487,940 | 17.0 | % | (2,182,602 | ) | -447.3 | % | |||||||||||||
| Income taxes expense | 8,979 | 0.3 | % | 76,226 | 2.6 | % | (67,247 | ) | -88.2 | % | ||||||||||||||
| Net income (loss) | (1,703,641 | ) | -63.8 | % | 411,714 | 14.4 | % | (2,115,355 | ) | -513.8 | % | |||||||||||||
| Less: net income attributable to non-controlling interest | - | - | 10,924 | 0.4 | % | (10,924 | ) | -100.0 | % | |||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO HEARTCORE ENTERPRISES, INC. | $ | (1,703,641 | ) | -63.8 | % | $ | 400,790 | 14.0 | % | $ | (2,104,431 | ) | -525.1 | % | ||||||||||
Revenues
Our total revenues decreased by $194,895, or 6.8%, to $2,670,297 for the three months ended June 30, 2022 from $2,865,192 for the three months ended June 30, 2021. The decrease in our revenues was attributable to the following reasons:
| (i) | the revenues from sales of on-premise software decreased by $416,076, or 36.7%, to $716,532 for the three months ended June 30, 2022 from $1,132,608 for the three months ended June 30, 2021, mainly attributable to the concentration of sales of CMS licenses in May 2021; | |
| (ii) | our revenue from maintenance and support services decreased by $163,275, or 18.3%, to $727,277 for the three months ended June 30, 2022 from $890,552 for the three months ended June 30, 2021. In addition to terminations of CMS major maintenance contracts, sales decreased due to the ongoing depreciation of Japanese Yen; | |
| (iii) | Offset by our newly generated revenue of $448,355 from consulting services provided to three Japan-based companies, which intend to go public in the US capital markets. |
| 25 |
Cost of Revenues
Our total costs of revenues increased by $161,909, or 13.8%, to $1,337,296 for the three months ended June 30, 2022 from $1,175,387 for the three months ended June 30, 2021. The increase in our costs was attributable to the following reasons:
| (i) | the increase of $175,194 in the costs of newly established consulting services; | |
| (ii) | the costs of software development and other miscellaneous services increased by $104,541, or 20.4%, to $616,461 for the three months ended June 30, 2022 from $511,920 for the three months ended June 30, 2021. The Company incurred high subcontracting costs for projects and defect handling in the current period; | |
| (iii) | offset by the costs of SaaS decreased by $90,343, or 77.6%, to $26,144 for the three months ended June 30, 2022 from $116,487 for the three months ended June 30, 2021. The Company incurred expenses for process mining product menu Japanese language additions and manual maintenance in June 2021; |
Gross Profit
Our total gross profit decreased by $356,804, or 21.1%, to $1,333,001 for the three months ended June 30, 2022 from $1,689,805 for the three months ended June 30, 2021. Our overall gross profit margin decreased by 9.1% to 49.9% in the three months ended June 30, 2022 from 59.0% in the three months ended June 30, 2021.
Operating Expenses
Our operating expenses primarily include selling expenses, general and administrative expenses, and research and development expenses.
Selling Expenses
Our selling expenses primarily include advertising expenses, sale commissions, and sales promotion expenses.
Our selling expenses increased by $627,712, or 620.7%, to $728,836 in the three months ended June 30, 2022 from $101,124 in the three months ended June 30, 2021, primarily attributable to an increase in advertising expenses by $650,690, or 1,428.1%, to $696,252 in the three months ended June 30, 2022 from $45,562 in the three months ended June 30, 2021. The U.S. parent company launched advertising activities to increase its visibility in the U.S. after the Company going public in the U.S. In addition, the Company increased advertising expenses for its newly established consulting services in Japan.
As a percentage of revenues, our selling expenses accounted for 27.3% and 3.5% of our total revenue for the three months ended June 30, 2022 and 2021, respectively.
General and Administrative Expenses
Our general and administrative expenses primarily consist of employee salaries and welfare, consulting and professional service fees incurred for maintaining the Company as a public company, depreciation and amortization expenses, rental expenses, office, utility and other expenses, listing-related expenses, travel and entertainment expenses, and share-based compensation expense.
| 26 |
Our general and administrative expenses increased by $829,473 or 81.3%, to $1,850,315 in the three months ended June 30, 2022 from $1,020,842 in the three months ended June 30, 2021, primarily attributable to:
| (i) | our office, utility and other expenses increased by $146,359 or 154.7%, to $240,953 in the three months ended June 30, 2022 from $94,594 in the three months ended June 30, 2021, primarily due to the increase in the U.S. parent company’s office expenses, and D&O indemnity insurance premiums of the parent company; | |
| (ii) | our consulting and professional fees increased by $241,548 or 2,850.1%, to $250,023 in the three months ended June 30, 2022 from $8,475 in the three months ended June 30, 2021, primarily due to the increase in consulting and legal fees related to maintaining as a public company and stock promotion; | |
| (iii) | an increase in salaries and welfare by $235,262, or 45.2%, to $755,300 in the three months ended June 30, 2022 from $520,038 in the three months ended June 30, 2021, primarily due to the salaries paid to the parent company’s newly hired U.S. employees; | |
| (iv) | an increase in share-based compensation of $466,662, or 100.0%, to $466,662 in the three months ended June 30, 2022 from nil in the three months ended June 30, 2021, primarily due to the amortization of fair value of stock options and restricted stock units granted. |
The overall increase in our general and administrative expenses in three months ended June 30, 2022 as compared to the three months ended June 30, 2021 reflected the above-mentioned factors combined. As a percentage of revenues, general and administrative expenses were 69.3% and 35.6% of our revenue for the three months ended June 30, 2022 and 2021, respectively.
Research and Development Expenses
Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.
Our research and development expenses increased by $337,203 or 421.4%, to $417,228 in the three months ended June 30, 2022 from $80,025 in the three months ended June 30, 2021, primarily attributable to an increase in outsourcing expenses by $323,308, or 403.5%, to $403,441 in the three months ended June 30, 2022 from $80,133 in the three months ended June 30, 2021, as we outsourced certain development activities for more efficiency and experience, relating to development of a high quality 12K VR camera and related data compression system.
The overall increase in our research and development expenses in the three months ended June 30, 2022 as compared to the three months ended June 30, 2021 reflected the above-mentioned factors combined. As a percentage of revenues, research and development expenses were 15.6% and 2.8% of our revenue for the three months ended June 30, 2022 and 2021, respectively.
Other Income (Expenses), net
Our other income (expenses) primarily includes interest income generated from bank deposits and loan to a related-party, interest expenses for bank loans, bonds, and leases, other incomes, and other expenses. Total other expenses, net, increased by $31,410, from other income, net of $126 in the three months ended June 30, 2021 to other expense, net of $31,284 in the three months ended June 30, 2022.
Income Tax Expense
Our income taxes expense was $8,979 in the three months ended June 30, 2022, as compared to the income taxes expense of $76,226 in the three months ended June 30, 2021, mainly due to the decrease in deferred tax expense.
Net Income (Loss)
As a result of the foregoing, we reported a net loss of $1,703,641 for the three months ended June 30, 2022, representing a $2,115,355 or 513.8% increase from a net income of $411,714 for the three months ended June 30, 2021.
| 27 |
Net Income attributable to Non-controlling Interest
We own 97.35% of the outstanding shares of the operation subsidiary, HeartCore Co, which located in Japan, as of June 30, 2021. Accordingly, we recorded net income attributable to the non-controlling interest. The net income attributable to non-controlling interest was $10,924 in the three months ended June 30, 2021.
On August 10, 2021, the Company and Dentsu Digital Investment Limited (“Dentsu Digital”), a non-controlling shareholder of HeartCore Japan, entered into a stock purchase agreement, pursuant to which the Company has agreed to purchase the 278 shares of HeartCore Japan held by Dentsu Digital in accordance with certain terms and conditions in the stock purchase agreement for JPY50,040,000 on the earlier of the (i) the date the SEC declares effective a registration statement on Form S-1, for a firm commitment underwritten initial public offering of common shares, filed by the Company with the SEC or (ii) December 20, 2022.
On February 24, 2022, the Company purchased 278 shares of HeartCore Co from Dentsu Digital for JPY50,040,000 (approximately $435,500 when paid). As a result, HeartCore Co became a wholly owned subsidiary of the Company. Accordingly, we did not record non-controlling interest income in the three months ended June 30, 2022.
Net Income (Loss) attributable to HeartCore Enterprises, Inc.
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $1,703,641 for the three months ended June 30, 2022, representing a $2,104,431 or 525.1% increase from a net income attributable to HeartCore Enterprises, Inc. of $400,790 for the three months ended June 30, 2021.
Comparison of Results of Operations for the Six Months ended June 30, 2022 and 2021
The following table summarizes our operating results as reflected in our unaudited statements of operations during the six months ended June 30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
| For the Six Months ended June 30, | ||||||||||||||||||||||||
| 2022 | 2021 | Variance | ||||||||||||||||||||||
| % of | % of | |||||||||||||||||||||||
| Amount | revenue | Amount | revenue | Amount | % of | |||||||||||||||||||
| REVENUES | $ | 4,946,298 | 100.0 | % | $ | 4,975,501 | 100.0 | % | $ | (29,203 | ) | -0.6 | % | |||||||||||
| COST OF REVENUES | 2,392,652 | 48.4 | % | 2,583,019 | 51.9 | % | (190,367 | ) | -7.4 | % | ||||||||||||||
| GROSS PROFIT | 2,553,646 | 51.6 | % | 2,392,482 | 48.1 | % | 161,164 | 6.7 | % | |||||||||||||||
| Operating expenses | ||||||||||||||||||||||||
| Selling expenses | 934,754 | 18.9 | % | 147,465 | 3.0 | % | 787,289 | 533.9 | % | |||||||||||||||
| General and administrative expenses | 4,319,248 | 87.3 | % | 1,783,590 | 35.8 | % | 2,535,658 | 142.2 | % | |||||||||||||||
| Research and development expenses | 525,487 | 10.6 | % | 132,171 | 2.7 | % | 393,316 | 297.6 | % | |||||||||||||||
| Total operating expenses | 5,779,489 | 116.8 | % | 2,063,226 | 41.5 | % | 3,716,263 | 180.1 | % | |||||||||||||||
| Income (Loss) from operations | (3,225,843 | ) | -65.2 | % | 329,256 | 6.6 | % | (3,555,099 | ) | -1,079.7 | % | |||||||||||||
| Other expenses, net | (48,086 | ) | -1.0 | % | (21,864 | ) | -0.4 | % | (26,222 | ) | 119.9 | % | ||||||||||||
| Income (Loss) before income tax provision | (3,273,929 | ) | -66.2 | % | 307,392 | 6.2 | % | (3,581,321 | ) | -1,165.1 | % | |||||||||||||
| Income taxes expense | 8,163 | 0.2 | % | 83,915 | 1.7 | % | (75,752 | ) | -90.3 | % | ||||||||||||||
| Net income (loss) | (3,282,092 | ) | -66.4 | % | 223,477 | 4.5 | % | (3,505,569 | ) | -1,568.6 | % | |||||||||||||
| Less: net income attributable to non-controlling interest | - | - | % | 5,936 | 0.1 | % | (5,936 | ) | -100.0 | % | ||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO HEARTCORE ENTERPRISES, INC. | $ | (3,282,092 | ) | -66.4 | % | $ | 217,541 | 4.4 | % | $ | (3,499,633 | ) | -1,608.7 | % | ||||||||||
| 28 |
Revenues
Our total revenues decreased by $29,203, or 0.6%, to $4,946,298 for the six months ended June 30, 2022 from $4,975,501 for the six months ended June 30, 2021. The decrease in our revenues was attributable to the following reasons:
| (i) | our revenue from maintenance and support services decreased by $260,151, or 14.2%, to $1,572,616 for the six months ended June 30, 2022 from $1,832,767 for the six months ended June 30, 2021. In addition to terminations of CMS major maintenance contracts, sales decreased due to the ongoing depreciation of Japanese yen. The depreciation amounted to approximately 14.1% from $1.00 to 107.74 Yen in the six months ended June 30, 2021 to $1.00 to 122.98 Yen in the six months ended June 30, 2022; | |
| (ii) | our revenue from software development and other services decreased by $291,708, or 19.9%, to $1,177,290 for the six months ended June 30, 2022 from $1,468,998 for the six months ended June 30, 2021, because we did not retain new software development clients in the current period, in addition to the ongoing depreciation of Japanese yen; | |
| (iii) | Offset by our newly generated revenue of $448,355 from consulting services provided to three Japan-based companies, which intend to go public in the US capital markets. |
Cost of Revenues
Our total costs of revenues decreased by $190,367, or 7.4%, to $2,392,652 for the six months ended June 30, 2022 from $2,583,019 for the six months ended June 30, 2021. The decrease in our costs was attributable to the following reasons:
| (i) | the costs of on-premises software decreased by $95,989, or 20.1%, to $381,552 for the six months ended June 30, 2022 from $477,541 for the six months ended June 30, 2021. In addition to the depreciation of the yen, CMS license costs were fixed monthly and not proportional to sales. On the other hands, the sales deceased in the six months ended June 30, 2022 for process mining products, the costs of which were proportional to sales, resulting in a decrease in cost of sales; | |
| (ii) | the costs of SaaS decreased by $134,960, or 58.2%, to $97,068 for the six months ended June 30, 2022 from $232,028 for the six months ended June 30, 2021. There were specialized supporting employees and subcontractors for CXM Cloud (SaaS) in the first two quarters of 2021. As the product entered into a mature phase and operations became stable in 2022, specialized supporting employees and subcontractors were no longer needed, and the costs decreased accordingly; | |
| (iii) | the costs of software development and other miscellaneous services decreased by $117,767, or 9.9%, to $1,072,175 for the six months ended June 30, 2022 from $1,189,942 for the six months ended June 30, 2021, in light of the decrease in sales as mentioned above; | |
| (iv) | Offset by the increase of $175,194 in the costs of newly established consulting services. |
Gross Profit
Our total gross profit increased by $161,164, or 6.7%, to $2,553,646 for the six months ended June 30, 2022 from $2,392,482 for the six months ended June 30, 2021. Our overall gross profit margin increased by 3.5% to 51.6% in the six months ended June 30, 2022 from 48.1% in the six months ended June 30, 2021.
Operating Expenses
Our operating expenses primarily include selling expenses, general and administrative expenses, and research and development expenses.
| 29 |
Selling Expenses
Our selling expenses primarily include advertising expenses, sales commissions, and sales promotion expenses.
Our selling expenses increased by $787,289, or 533.9%, to $934,754 in the six months ended June 30, 2022 from $147,465 in the six months ended June 30, 2021, primarily attributable to an increase in advertising expenses by $807,960, or 1,072.1%, to 883,322 in the six months ended June 30, 2022 from $75,362 in the six months ended June 30, 2021. The U.S. parent company launched advertising activities to increase its visibility in the U.S. after the Company going public in the U.S. In addition, the Company increased advertising expenses for its newly established consulting services in Japan.
As a percentage of revenues, our selling expenses accounted for 18.9% and 3.0% of our total revenue for the six months ended June 30, 2022 and 2021, respectively.
General and Administrative Expenses
Our general and administrative expenses primarily consist of employee salaries and welfare, consulting and professional service fees incurred for company reorganization and going public, depreciation and amortization expenses, rental expenses, office, utility and other expenses, listing-related expenses, travel and entertainment expenses, and share-based compensation expense.
Our general and administrative expenses increased by $2,535,658 or 142.2%, to $4,319,248 in the six months ended June 30, 2022 from $1,783,590 in the six months ended June 30, 2021, primarily attributable to:
| (i) | our office, utility and other expenses increased by $267,986 or 152.1%, to $444,210 in the six months ended June 30, 2022 from $176,224 in the six months ended June 30, 2021, primarily due to the increase in the U.S. parent company’s office expenses, and D&O indemnity insurance premiums of the parent company; | |
| (ii) | our consulting and professional fees increased by $654,261 or 585.0%, to $766,095 in the six months ended June 30, 2022 from $111,834 in the six months ended June 30, 2021, primarily due to the increase in consulting and legal fees related to going public and stock promotion; | |
| (iii) | an increase in salaries and welfare by $619,650, or 61.9%, to $1,621,507 in the six months ended June 30, 2022 from $1,001,857 in the six months ended June 30, 2021, primarily due to the salaries paid to the parent company’s newly hired U.S. employees. In addition, the company paid approximately $150,000 in executive bonuses in the first quarter 2022; | |
| (iv) | an increase in share-based compensation of $888,826, or 100%, to $888,826 in the six months ended June 30, 2022 from nil in the six months ended June 30, 2021, primarily due to the amortization of fair value of stock options and restricted stock units granted. |
The overall increase in our general and administrative expenses in six months ended June 30, 2022 as compared to the six months ended June 30, 2021 reflected the above-mentioned factors combined. As a percentage of revenues, general and administrative expenses were 87.3% and 35.8% of our revenue for the six months ended June 30, 2022 and 2021, respectively.
Research and Development Expenses
Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.
Our research and development expenses increased by $393,316 or 297.6%, to $525,487 in the six months ended June 30, 2022 from $132,171 in the six months ended June 30, 2021, primarily attributable to an increase in outsourcing expenses by $380,610, or 303.1%, to $506,191 in the six months ended June 30, 2022 from $125,581 in the six months ended June 30, 2021, as we outsourced certain development activities for more efficiency and experience, relating to CMS UI renewal and development of a high quality 12K VR camera and related data compression system in the six months ended June 30, 2022.
| 30 |
The overall increase in our research and development expenses in the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 reflected the above-mentioned factors combined. As a percentage of revenues, research and development expenses were 10.6% and 2.7% of our revenue for the six months ended June 30, 2022 and 2021, respectively.
Other Expenses, net
Our other income (expenses) primarily includes interest income generated from bank deposits and loan to a related-party, interest expenses for bank loans, bonds, and leases, other incomes, and other expenses. Total other expenses, net, increased by $26,222 or 119.9%, from $21,864 in the six months ended June 30, 2021 to $48,086 in the six months ended June 30, 2022.
Income Tax Expense
Our income taxes expense was $8,163 in the six months ended June 30, 2022, as compared to the income taxes expense of $83,915 in the six months ended June 30, 2021, mainly due to the decrease in deferred tax expense.
Net Income (Loss)
As a result of the foregoing, we reported a net loss of $3,282,092 for the six months ended June 30, 2022, representing a $3,505,569 or 1,568.6% decrease from a net income of $223,477 for the six months ended June 30, 2021.
Net Income attributable to Non-controlling Interest
We own 97.35% of the outstanding shares of the operation subsidiary, HeartCore Co, which located in Japan, as of June 30, 2021. Accordingly, we recorded net income attributable to the non-controlling interest. The net income attributable to non-controlling interest was $5,936 in the six months ended June 30, 2021.
On August 10, 2021, the Company and Dentsu Digital Investment Limited (“Dentsu Digital”), a non-controlling shareholder of HeartCore Japan, entered into a stock purchase agreement, pursuant to which the Company has agreed to purchase the 278 shares of HeartCore Japan held by Dentsu Digital in accordance with certain terms and conditions in the stock purchase agreement for JPY50,040,000 on the earlier of the (i) the date the SEC declares effective a registration statement on Form S-1, for a firm commitment underwritten initial public offering of common shares, filed by the Company with the SEC or (ii) December 20, 2022.
On February 24, 2022, the Company purchased 278 shares of HeartCore Co from Dentsu Digital for JPY50,040,000 (approximately $435,500 when paid). As a result, HeartCore Co became a wholly owned subsidiary of the Company. Accordingly, we did not record non-controlling interest income in the six months ended June 30, 2022.
Net Income (Loss) attributable to HeartCore Enterprises, Inc.
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $3,282,092 for the six months ended June 30, 2022, representing a $3,499,633 or 1,608.7% increase from a net income attributable to HeartCore Enterprises, Inc. of $217,541 for the six months ended June 30, 2021.
| 31 |
Liquidity and Capital Resources
As of June 30, 2022, we had $12,463,179 in cash as compared to $3,136,839 as of December 31, 2021. As of June 30, 2022, our working capital was $10,003,897 as compared to $62,919 as of December 31, 2021. We also had $1,119,990 in accounts receivable as of June 30, 2022. Our accounts receivable primarily include balance due from customers for our on-premises software sold and services provided to and accepted by customers.
The following table sets forth summary of our cash flows for the periods indicated:
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash provided by (used in) operating activities | $ | (2,093,867 | ) | $ | 347,911 | |||
| Net cash used in investing activities | (9,455 | ) | (103,692 | ) | ||||
| Net cash provided by (used in) financing activities | 11,651,622 | (534,211 | ) | |||||
| Effect of exchange rate changes | (221,960 | ) | (149,784 | ) | ||||
| Net increase in cash and cash equivalents | 9,326,340 | (439,776 | ) | |||||
| Cash and cash equivalents, beginning of the period | 3,136,839 | 3,058,175 | ||||||
| Cash and cash equivalents, end of the period | $ | 12,463,179 | $ | 2,618,399 | ||||
Operating Activities
Net cash used in operating activities was $2,093,867 for the six months ended June 30, 2022, primarily consisting of the following:
| ● | Net loss of $3,282,092 for the six months ended June 30, 2022. | |
| ● | An increase in accounts receivable of $344,779. The increase was primarily due to the increase in our sales in the current period. The collected accounts receivable is available cash, which can be used as working capital for our business operation, if necessary. | |
| ● | An increase in prepaid expense of $266,030, primarily due to the increase in the prepayment to an IR provider of $400,000. | |
| ● | Offset by an increase in accounts payable and accrued expenses of $281,567, primarily attributable to the payoff the accrued expenses related to the IPO. | |
| ● | Offset by an increase of deferred revenue of $596,762, primarily due to the completion of software development project. | |
| ● | Offset by share-based compensation of $888,826. |
| 32 |
Net cash provided by operating activities was $347,911 for the six months ended June 30, 2021, primarily consisting of the following:
| ● | Net income of $223,477 for the six months ended June 30, 2021. | |
| ● | An increase of deferred revenue of $621,707, primarily due to the upfront payment received for software development projects. | |
| ● | An increase in accounts payable and accrued expenses of $128,308, primarily attributable to the increase in accrued expenses related to the IPO. | |
| ● | Non-cash lease expense of 171,935. | |
| ● | Offset by an increase in accounts receivable of $570,886. The increase was primarily due to the increase in sales. The collected accounts receivable is available cash, which can be used as working capital for our business operation, if necessary. | |
| ● | Offset by an increase in prepaid expense of $282,508, primarily due to the increase in the prepayments to software venders. |
Investing Activities
Net cash used in investing activities amounted to $9,455 for the six months ended June 30, 2022, primarily included the purchase of fixed assets of $30,963, offset by repayment of loan provided to a related party of $21,508.
Net cash used in investing activities amounted to $103,692 for the six months ended June 30, 2021, primarily included the purchase of fixed assets of $19,894 and the loans provided to related parties of $83,798.
Financing Activities
Net cash provided by financing activities amounted to $11,651,622 for the six months ended June 30, 2022, primarily consisting of total proceeds of $13,823,126 from the initial public offering and issuance of common shares prior to the initial public offering, and offset by payment for mandatorily redeemable financial interest of $430,489, payment for repurchase of common stocks of $1,336,762, and repayment of long-term debts of $469,166.
Net cash used in financing activities amounted to $534,211 for the six months ended June 30, 2021, primarily consisting of repayment of long-term debts of $503,230 and payments for finance leases of $29,561.
Contractual obligations
Lease commitment
The Company has entered into two leases for its office space, which were classified as operating leases. It has also entered into two leases for office equipment, one of which was terminated in June 2022, and a lease for a vehicle, and these leases were classified as finance leases.
| 33 |
As of June 30, 2022, future minimum lease payments under the non-cancelable lease agreements are as follows:
| Year ending December 31, | Finance leases | Operating leases | ||||||
| Remaining of 2022 | $ | 11,140 | $ | 152,511 | ||||
| 2023 | 18,750 | 305,021 | ||||||
| 2024 | 276 | 305,021 | ||||||
| 2025 | - | 305,021 | ||||||
| 2026 | - | 305,021 | ||||||
| Thereafter | - | 1,560,912 | ||||||
| Total lease payments | 30,166 | 2,933,507 | ||||||
| Less: imputed interest | (170 | ) | (185,172 | ) | ||||
| Total lease liabilities | 29,996 | 2,748,335 | ||||||
| Less: current portion | 20,717 | 280,789 | ||||||
| Non-current lease liabilities | $ | 9,279 | $ | 2,467,546 | ||||
Long Term Debt
The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions.
As of June 30, 2022, future minimum loan payments are as follows:
| Loan | ||||
| Year ending December 31, | Payment | |||
| Remaining of 2022 | $ | 348,542 | ||
| 2023 | 687,055 | |||
| 2024 | 425,972 | |||
| 2025 | 244,391 | |||
| 2026 | 222,372 | |||
| Thereafter | 182,468 | |||
| Total | $ | 2,110,800 | ||
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2022.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements. These financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenue and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenue and expenses incurred during the financial reporting period. We continue to evaluate the estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed herein reflect the more significant judgments and estimates used in preparation of our unaudited consolidated financial statements.
| 34 |
Revenue Recognition
The Company recognizes revenue under the ASC Topic 606, “Revenue from Contracts with customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local government levies. The Consumption Tax on sales is calculated at 10% of gross sales.
The Company currently generates its revenue from the following main sources:
Revenue from On-Premise Software
Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. The Company provides on-premise software in the form of both perpetual licenses and term-based licenses which grant the customers with the right for a specified term. Revenue from on-premise licenses is recognized upfront at the point in time when the software is made available to the customer. Licenses for on-premise software are typically sold to the customer with maintenance and support services in a bundle. Revenues under the bundled arrangements are allocated based on the relative standalone selling prices (“SSP”) of on-premise software and maintenance and support service. The SSP for maintenance and support services is estimated based upon observable transactions when those services are sold on a standalone basis. The SSP of on-premise software is typically estimated using the residual approach as the Company is unable to establish the SSP for on-premise licenses based on observable prices given the same products are sold for a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is not discernible from past transactions or other observable evidence.
Revenue from Maintenance and Support service
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.
Revenue from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. The subscription contracts are generally one year or less in length.
Revenue from Software Development and other Miscellaneous Services
The Company provides customers with software development and support service pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes revenue at a point in time when control is transferred to the customers and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers.
Revenue from Consulting Service
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 and supporting the listing process. Revenues from consulting services are recognized over time as such services are performed. The consulting service contracts are generally less than one year in length.
The timing of revenue recognition may differ from the timing of invoicing to the customers. The Company records a contract asset, which is included in accounts receivable on the consolidated balance sheets, when revenue is recognized prior to invoicing. The Company records deferred revenues on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice. Deferred revenues are reported net of related uncollected deferred revenues in the consolidated balance sheets. The amount of revenues recognized during the six months ended June 30, 2022 and 2021 that were included in the opening deferred revenues balance was approximately $1.1 million and $1.2 million, respectively.
| 35 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2022. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2022, the Company’s disclosure controls and procedures were not effective, for the same reason as previously disclosed under Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission on March 31, 2022.
Changes in Internal Controls Over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. To the knowledge of our management, there are no legal proceedings currently pending against us which we believe would have a material effect on our business, financial position or results of operations and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
ITEM 1A. RISK FACTORS
As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as updated from time to time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information regarding repurchases of common shares made during the three months ended June 30, 2022:
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or Programs (1) | Approximate dollar value of shares that may yet be purchased under plans or programs | ||||||||||||
| April 1, 2022 to April 30, 2022 | - | $ | - | - | $ | - | ||||||||||
| May 1, 2022 to May 31, 2022 | - | - | - | - | ||||||||||||
| June 1, 2022 to June 30, 2022 | 558,809 | 2.39 | 558,809 | 2,163,238 | ||||||||||||
| Total | 558,809 | $ | 2.39 | 558,809 | $ | 2,163,238 | ||||||||||
| (1) | The stock repurchase program approved by the Board of Directors on June 1, 2022, authorized the repurchase of up to $3.5 million of our outstanding common shares from time to time on the open market or in privately negotiated transactions permitted by securities laws and other legal requirements. This program has no set termination date and may be suspended or discontinued by the Board at any time. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults in any material payments during the covered period.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
(a) None.
(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K.
| 36 |
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
| 37 |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| HEARTCORE ENTERPRISES, INC. | ||
| Dated: August 12, 2022 | By: | /s/ Sumitaka Yamamoto |
| Sumitaka Yamamoto | ||
| Chief Executive Officer and President (principal executive officer) | ||
| Dated: August 12, 2022 | By: | /s/ Qizhi Gao |
| Qizhi Gao | ||
| Chief Financial Officer (principal financial officer and principal accounting officer) | ||
| 38 |
Exhibit 31.1
CERTIFICATIONS
I, Sumitaka Yamamoto, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2022 of HeartCore Enterprises, Inc.; and |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; and |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 12, 2022 | By: | /s/ Sumitaka Yamamoto |
| Sumitaka Yamamoto | ||
| Chief Executive Officer and President (principal executive officer) |
Exhibit 31.2
CERTIFICATIONS
I, Qizhi Gao, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2022 of HeartCore Enterprises, Inc.; and |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; and |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; and |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 12, 2022 | By: | /s/ Qizhi Gao |
| Qizhi Gao | ||
| Chief Financial Officer (principal financial officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of HeartCore Enterprises, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sumitaka Yamamoto, Chief Executive Officer and President of the Company, and I, Qizhi Gao, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| Date: August 12, 2022 | /s/ Sumitaka Yamamoto |
Sumitaka Yamamoto Chief Executive Officer and President (principal executive officer) | |
| Date: August 12, 2022 | /s/ Qizhi Gao |
Qizhi Gao Chief Financial Officer (principal financial officer) |
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 20,000,000 | 20,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 200,000,000 | 200,000,000 |
| Common stock, shares issued | 18,999,276 | 15,819,943 |
| Common stock, shares outstanding | 18,440,467 | 15,546,454 |
| Treasury Stock, Common, Shares | 558,809 | 0 |
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|||
| Income Statement [Abstract] | ||||||
| Revenues | $ 2,670,297 | $ 2,865,192 | $ 4,946,298 | $ 4,975,501 | ||
| Cost of revenues | 1,337,296 | 1,175,387 | 2,392,652 | 2,583,019 | ||
| Gross profit | 1,333,001 | 1,689,805 | 2,553,646 | 2,392,482 | ||
| Operating expenses: | ||||||
| Selling expenses | 728,836 | 101,124 | 934,754 | 147,465 | ||
| General and administrative expenses | 1,850,315 | 1,020,842 | 4,319,248 | 1,783,590 | ||
| Research and development expenses | 417,228 | 80,025 | 525,487 | 132,171 | ||
| Total operating expenses | 2,996,379 | 1,201,991 | 5,779,489 | 2,063,226 | ||
| Income (loss) from operations | (1,663,378) | 487,814 | (3,225,843) | 329,256 | ||
| Other income (expenses): | ||||||
| Interest income | 9,091 | 3,726 | 10,549 | 3,848 | ||
| Interest expense | (17,590) | (12,404) | (28,861) | (23,232) | ||
| Other income | 8,777 | 14,207 | 25,450 | 15,195 | ||
| Other expenses | (31,562) | (5,403) | (55,224) | (17,675) | ||
| Total other income (expenses) | (31,284) | 126 | (48,086) | (21,864) | ||
| Income (loss) before income tax provision | (1,694,662) | 487,940 | (3,273,929) | 307,392 | ||
| Income tax expense | 8,979 | 76,226 | 8,163 | 83,915 | ||
| Net income (loss) | (1,703,641) | 411,714 | (3,282,092) | 223,477 | ||
| Less: net income attributable to non-controlling interest | 10,924 | 5,936 | ||||
| Net income (loss) attributable to HeartCore Enterprises, Inc. | (1,703,641) | 400,790 | (3,282,092) | 217,541 | ||
| Other comprehensive income (loss): | ||||||
| Foreign currency translation adjustment | 219,360 | (13,848) | 299,413 | 83,674 | ||
| Total comprehensive income (loss) | (1,484,281) | 397,866 | (2,982,679) | 307,151 | ||
| Less: comprehensive income attributable to non-controlling interest | 10,557 | 8,153 | ||||
| Comprehensive income (loss) attributable to HeartCore Enterprises, Inc. | $ (1,484,281) | $ 387,309 | $ (2,982,679) | $ 298,998 | ||
| Net earnings (loss) per common share attributable to HeartCore Enterprises, Inc. | ||||||
| Basic | [1] | $ (0.09) | $ 0.03 | $ (0.18) | $ 0.01 | |
| Diluted | [1] | $ (0.09) | $ 0.03 | $ (0.18) | $ 0.01 | |
| Weighted average common shares outstanding | ||||||
| Basic | [1] | 18,936,829 | 15,242,454 | 18,105,698 | 15,242,454 | |
| Diluted | [1] | 18,936,829 | 15,515,943 | 18,105,698 | 15,515,943 | |
| ||||||
Consolidated Statements of Changes in Shareholders' Equity (Deficit) (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Treasury Stock [Member] |
Retained Earnings [Member] |
AOCI Attributable to Parent [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
Total |
||
|---|---|---|---|---|---|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2020 | [1] | $ 1,524 | $ 2,735,315 | $ (3,557,957) | $ (136,890) | $ (958,008) | $ 353,825 | $ (604,183) | ||
| Beginning balance, shares at Dec. 31, 2020 | [1] | 15,242,454 | ||||||||
| Net loss | (183,249) | (183,249) | (4,988) | (188,237) | ||||||
| Foreign currency translation adjustment | 94,938 | 94,938 | 2,584 | 97,522 | ||||||
| Ending balance, value at Mar. 31, 2021 | [1] | $ 1,524 | 2,735,315 | (3,741,206) | (41,952) | (1,046,319) | 351,421 | (694,898) | ||
| Ending balance, shares at Mar. 31, 2021 | [1] | 15,242,454 | ||||||||
| Beginning balance, value at Dec. 31, 2020 | [1] | $ 1,524 | 2,735,315 | (3,557,957) | (136,890) | (958,008) | 353,825 | (604,183) | ||
| Beginning balance, shares at Dec. 31, 2020 | [1] | 15,242,454 | ||||||||
| Net loss | 223,477 | |||||||||
| Ending balance, value at Jun. 30, 2021 | [1] | $ 1,524 | 2,735,315 | (3,340,416) | (55,433) | (659,010) | 361,978 | (297,032) | ||
| Ending balance, shares at Jun. 30, 2021 | [1] | 15,242,454 | ||||||||
| Beginning balance, value at Mar. 31, 2021 | [1] | $ 1,524 | 2,735,315 | (3,741,206) | (41,952) | (1,046,319) | 351,421 | (694,898) | ||
| Beginning balance, shares at Mar. 31, 2021 | [1] | 15,242,454 | ||||||||
| Net loss | 400,790 | 400,790 | 10,924 | 411,714 | ||||||
| Foreign currency translation adjustment | (13,481) | (13,481) | (367) | (13,848) | ||||||
| Ending balance, value at Jun. 30, 2021 | [1] | $ 1,524 | 2,735,315 | (3,340,416) | (55,433) | $ (659,010) | $ 361,978 | (297,032) | ||
| Ending balance, shares at Jun. 30, 2021 | [1] | 15,242,454 | ||||||||
| Beginning balance, value at Dec. 31, 2021 | $ 1,554 | 3,350,779 | (3,896,113) | (15,172) | (558,952) | |||||
| Beginning balance, shares at Dec. 31, 2021 | 15,546,454 | |||||||||
| Net loss | (1,578,451) | (1,578,451) | ||||||||
| Foreign currency translation adjustment | 80,053 | 80,053 | ||||||||
| Issuance of common shares for cash | $ 310 | 13,643,969 | 13,644,279 | |||||||
| Issuance of common shares for cash, shares | 3,096,000 | |||||||||
| Issuance of common shares from exercise of share options | $ 27 | (11) | 16 | |||||||
| Issuance of common shares from exercise of share options, shares | 273,489 | |||||||||
| Share-based compensation | 422,164 | 422,164 | ||||||||
| Share-based compensation, shares | ||||||||||
| Ending balance, value at Mar. 31, 2022 | $ 1,891 | 17,416,901 | (5,474,564) | 64,881 | 12,009,109 | |||||
| Ending balance, shares at Mar. 31, 2022 | 18,915,943 | |||||||||
| Beginning balance, value at Dec. 31, 2021 | $ 1,554 | 3,350,779 | (3,896,113) | (15,172) | (558,952) | |||||
| Beginning balance, shares at Dec. 31, 2021 | 15,546,454 | |||||||||
| Net loss | $ (3,282,092) | |||||||||
| Issuance of common shares from exercise of share options, shares | ||||||||||
| Share-based compensation, shares | ||||||||||
| Ending balance, value at Jun. 30, 2022 | $ 1,899 | 17,883,555 | $ (1,336,762) | (7,178,205) | 284,241 | $ 9,654,728 | ||||
| Ending balance, shares at Jun. 30, 2022 | 18,999,276 | (558,809) | ||||||||
| Beginning balance, value at Mar. 31, 2022 | $ 1,891 | 17,416,901 | (5,474,564) | 64,881 | 12,009,109 | |||||
| Beginning balance, shares at Mar. 31, 2022 | 18,915,943 | |||||||||
| Net loss | (1,703,641) | (1,703,641) | ||||||||
| Foreign currency translation adjustment | 219,360 | 219,360 | ||||||||
| Share-based compensation | $ 8 | 466,654 | 466,662 | |||||||
| Share-based compensation, shares | 83,333 | |||||||||
| Repurchase of common shares | $ (1,336,762) | (1,336,762) | ||||||||
| Repurchase of common shares, shares | (558,809) | |||||||||
| Ending balance, value at Jun. 30, 2022 | $ 1,899 | $ 17,883,555 | $ (1,336,762) | $ (7,178,205) | $ 284,241 | $ 9,654,728 | ||||
| Ending balance, shares at Jun. 30, 2022 | 18,999,276 | (558,809) | ||||||||
| ||||||||||
ORGANIZATION AND DESCRIPTION OF BUSINESS |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION AND DESCRIPTION OF BUSINESS | 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 shares of its common shares to the shareholders of HeartCore Japan in exchange for shares out of shares of common shares issued by HeartCore Japan, representing approximately of HeartCore Japan’s outstanding common shares. On February 24, 2022, the Company purchased the remaining 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 unaudited 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. HeartCore USA and HeartCore Japan are hereafter referred to as the Company.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiary. Prior to February 24, 2022, ownership interest of non-controlling party is presented as mandatorily redeemable financial interest or non-controlling interest as applicable. All significant intercompany accounts and transactions have been eliminated.
These unaudited interim consolidated financial statements do not include all of the information and disclosure required by the U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments consisting of normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2021.
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 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 doubtful accounts, useful lives of property and equipment, the impairment of long-lived assets, valuation of share-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and financing leases, valuation of asset retirement obligations and revenue recognition. Actual results could differ from those estimates.
COVID-19
While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown. The Company may experience customer losses, including due to bankruptcy or customers ceasing operations, which may result in delays in collections or an inability to collect accounts receivable from these customers. The extent to which COVID-19 may continue to impact the Company’s financial condition, results of operations, or liquidity continues to remain uncertain, and as of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or an adjustment to the carrying value of the Company’s assets or liabilities. These estimates may change, as new events occur and additional information is obtained, which will be recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements.
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 Accounting Standards Codification (“ASC”) 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:
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.
In the six months ended June 30, 2022 and 2021, software development costs expensed as incurred amounted to $525,487 and $132,171, respectively. These software development costs were included in the research and development expenses.
Impairment of Long-Lived Assets
Long-lived assets with finite lives, primarily property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets during the six months ended June 30, 2022 and 2021.
Foreign Currency Translation
The Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.
The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying unaudited 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 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:
Revenue Recognition
The Company recognizes revenue under ASC Topic 606, “Revenue from Contracts with customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local government levies. The Consumption Tax on sales is calculated at 10% of gross sales.
The Company currently generates its revenue from the following main sources:
Revenue from On-Premise Software
Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. The Company provides on-premise software in the form of both perpetual licenses and term-based licenses which grant the customers with the right for a specified term. Revenue from on-premise licenses is recognized upfront at the point in time when the software is made available to the customer. Licenses for on-premise software are typically sold to the customer with maintenance and support services in a bundle. Revenues under the bundled arrangements are allocated based on the relative standalone selling prices (“SSP”) of on-premise software and maintenance and support service. The SSP for maintenance and support services is estimated based upon observable transactions when those services are sold on a standalone basis. The SSP of on-premise software is typically estimated using the residual approach as the Company is unable to establish the SSP for on-premise licenses based on observable prices given the same products are sold for a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is not discernible from past transactions or other observable evidence.
Revenue from Maintenance and Support service
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.
Revenue from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. The subscription contracts are generally one year or less in length.
Revenue from Software Development and other Miscellaneous Services
The Company provides customers with software development and support service pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes revenue at a point in time when control is transferred to the customers and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers.
Revenue from Consulting Service
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 and supporting the listing process. Revenues from consulting services are recognized over time as such services are performed. The consulting service contracts are generally less than one year in length.
The timing of revenue recognition may differ from the timing of invoicing to the customers. The Company records a contract asset, which is included in accounts receivable on the consolidated balance sheets, when revenue is recognized prior to invoicing. The Company records deferred revenues on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice. Deferred revenues are reported net of related uncollected deferred revenues in the consolidated balance sheets. The amount of revenues recognized during the six months ended June 30, 2022 and 2021 that were included in the opening deferred revenues balance was approximately $1.1 million and $1.2 million, respectively.
Disaggregation of Revenue
The Company disaggregates its revenues from contracts by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues by type for the three and six months ended June 30, 2022 and 2021 is as following:
The Company’s disaggregation of revenues by product/service is as following:
As of June 30, 2022 and 2021, and for the period then ended, all long-lived assets and the predominant portion of the revenue generated are attributed to the Company’s operation in Japan.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company 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 six months ended June 30, 2022, customer A and B represents 12.9% and 10.4%, respectively, of the Company’s total revenues. For the six months ended June 30, 2021, customer B and C represents 11.5% and 12.7%, respectively, of the Company’s total revenues.
For the six months ended June 30, 2022, vendor A and B represents 44.5% and 29.8%, respectively, of the Company’s total purchases. For the six months ended June 30, 2021, vendor A, B, and C represents 40.2%, 36.3%, and 14.1%, respectively, of the Company’s total purchases.
The Company accounts for share-based compensation awards in accordance with ASC 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 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.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS RECEIVABLE, NET |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS RECEIVABLE, NET | NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||
PREPAID EXPENSES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PREPAID EXPENSES | NOTE 4 — PREPAID EXPENSES
Prepaid expenses consist of the following:
Deferred offering expenses, consisting of legal fees and road show expenses relating to the Company’s planned initial public offering, are capitalized and recorded on the balance sheet. The deferred offering expenses were reclassified to shareholders’ equity and recorded against the proceeds received upon the closing of our initial public offering on February 14, 2022.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RELATED PARTY TRANSACTIONS |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 5 — RELATED PARTY TRANSACTIONS
As of June 30, 2022 and December 31, 2021, the Company has a due to related party balance of $5,885 and $1,110, respectively, from Sumitaka Yamamoto, the CEO and major shareholder of the Company. The balance is unsecured, non-interest bearing and due on demand. During the six months ended June 30, 2022, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $5,448. During the six months ended June 30, 2021, the Company advanced $26,603 to this related party, and the related party paid expenses of $25,482 on behalf of the Company.
As of June 30, 2022 and December 31, 2021, the Company has a loan receivable balance of $307,231 and $386,315, 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 six months ended June 30, 2022 and 2021, the Company loaned and $57,195, respectively, to this related party, and the related party paid expenses of and $14,197, respectively, on behalf of the Company. During the six months ended June 30, 2022 and 2021, the Company received repayments of $21,508 and , respectively, from this related party.
In June 2020, Suzuyo Shinwart Corporation became an over 10% shareholder of the Company. During the six months ended June 30, 2021, the Company has revenue from this related party of $146,083 from software sales and incurred cost with this related party of $338,029 for software development services provided. As of June 30, 2021, the Company has deferred revenue with this related party of $57,593. In July 2021, Suzuyo Shinwart Corporation sold all its shares of the Company to the Company’s CEO and ceased to be the Company’s related party.
During the period from January 1, 2022 through January 13, 2022, the Company completed a private placement, in which, it issued shares of common shares at a purchase price of $ per share to the officers of the Company for an aggregate amount of $75,000.
|
PROPERTY AND EQUIPMENT, NET |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PROPERTY AND EQUIPMENT, NET | NOTE 6 — PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
Depreciation expense was $46,688 and $55,458 for the six months ended June 30, 2022 and 2021, respectively.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LEASES | NOTE 7 — LEASES
The Company has entered into two leases for its office space, which were classified as operating leases. It has also entered into two leases for office equipment, one of which was terminated in June 2022, and a lease for a vehicle, and these leases were classified as finance leases. Right-of-use assets of these finance leases in the amount of $28,487 and $57,167 are included in property and equipment as of June 30, 2022 and December 31, 2021, respectively.
The components of lease costs are as follows:
The following table presents supplemental information related to the Company’s leases:
As of June 30, 2022, the future maturity of lease liabilities is as follows:
Pursuant to the operating lease agreements, the Company made security deposits to the lessors. The security deposits amounted to $235,274 and $278,237 as of June 30, 2022 and December 31, 2021, respectively.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBTS |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LONG-TERM DEBTS | NOTE 8 — LONG-TERM DEBTS
The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions, which consist of the following:
In March 2022, the Company entered into a loan agreement with Higashi-Nippon Bank with a term of three years payable monthly. The loan is guaranteed by Sumitaka Yamamoto, the Company’s CEO and major shareholder.
Interest expense for long-term debts was $14,676 and $23,232 for the six months ended June 30, 2022 and 2021, respectively.
As of June 30, 2022, future minimum loan payments are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INSURANCE PREMIUM FINANCING |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Insurance [Abstract] | |
| INSURANCE PREMIUM FINANCING | NOTE 9 — INSURANCE PREMIUM FINANCING
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 June 30, 2022, the balance of the insurance premium financing was $220,583. During the six months ended June 30, 2022, the interest incurred was $14,185.
|
INCOME TAXES |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES | NOTE 10 — INCOME TAXES
United States (U.S.)
HeartCore USA is a holding company registered in the State of Delaware incorporated in May 2021. The U.S. federal income tax rate is 21%. No provision for income taxes in the U.S. has been made as the Company has no U.S. taxable income for the six months ended June 30, 2022 and 2021.
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 resulted in an effective statutory rate of approximately 30.62% for the six months ended June 30, 2022 and 2021.
For the six months ended June 30, 2022 and 2021, the Company’s income tax expenses are as follows:
The effective tax rate was (0.25)% and 27.30% for the six months ended June 30, 2022 and 2021, respectively.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK BASED COMPENSATION |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK BASED COMPENSATION |
Options
In May 2016, the Company granted units stock options to its employees each to acquire one share of common shares of HeartCore Japan (an equivalent of approximately shares of common shares of HeartCore USA) at JPY each (approximately $). 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, 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 shares (equivalent to 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 units of stock options were vested upon the completion of the Company’s initial public offering and the Company recognized share-based compensation of $ during the six months ended June 30, 2022. In the same period, the share repurchase liability of $16 was settled by issuance of shares of common shares (equivalent to shares of common shares of HeartCore Japan) from exercise of stock options.
On December 25, 2021, the Company awarded options to purchase shares of common shares at an exercise price of $ 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 of the applicable shares of common shares, with the expiration date on .
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 $ and $, respectively. For the three and six months ended June 30, 2021, share-based compensation related to the options was . The outstanding unamortized share-based compensation related to options was $ (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:
On February 9, 2022, the Company entered into executive employment agreements with five executives and granted 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 % of the applicable shares of common shares. The fair value of the RSUs at grant date was $.
On February 25, 2022, the Company entered into a service agreement with a marketing company to purchase 6-month marketing services and granted RSUs. The RSUs were issued and vested on May 15, 2022. The fair value of the RSUs at grant date was $.
For the three and six months ended June 30, 2022, the Company recognized RSU-related share-based compensation of $ and $, respectively. The outstanding unamortized share-based compensation related to RSUs was $ (which will through February 2026) as of June 30, 2022.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS’ EQUITY (DEFICIT) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Equity [Abstract] | |
| SHAREHOLDERS’ EQUITY (DEFICIT) | NOTE 12 – SHAREHOLDERS’ EQUITY (DEFICIT)
The Company was authorized to issue shares of common shares, par value of $ per share, and shares of preferred shares, par value of $ per share.
During the period from January 1, 2022 through January 13, 2022, the Company issued shares of common shares at a purchase price of $ per share for an aggregate net proceeds of $220,572 in a private placement, including 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 common shares at $ 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 were paid and deferred as of December 31, 2021. Those costs were also charged against the proceeds from the offering.
On February 14, 2022, shares of common shares were issued from exercise of stock options by settling share repurchase liability of $16 (also see NOTE 11).
On May 15, 2022, shares of restricted shares were issued to a marketing company as compensation of services received (also see NOTE 11).
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 $ 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 June 30, 2022, the Company repurchased shares of common shares at an average price of $ per share totaling approximately $ million (including commissions) under the 2022 Share Repurchase Program. As of June 30, 2022, approximately $ million remained available under the 2022 Share Repurchase Program.
As of June 30, 2022 and December 31, 2021, there were and shares, respectively, of common shares issued; and and shares, respectively, of common shares outstanding.
preferred shares were issued and outstanding as of June 30, 2022 and December 31, 2021.
|
MANDATORILY REDEEMABLE FINANCIAL INTEREST |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Mandatorily Redeemable Financial Interest | |
| MANDATORILY REDEEMABLE FINANCIAL INTEREST | NOTE 13 – MANDATORILY REDEEMABLE FINANCIAL INTEREST
On August 10, 2021, the Company and Dentsu Digital Investment Limited (“Dentsu Digital”), a non-controlling shareholder of HeartCore Japan, entered into a stock purchase agreement, pursuant to which the Company has agreed to purchase the shares of HeartCore Japan held by Dentsu Digital in accordance with certain terms and conditions in the stock purchase agreement for JPY50,040,000 on the earlier of the (i) the date the SEC declares effective a registration statement on Form S-1, for a firm commitment underwritten initial public offering of common shares, filed by the Company with the SEC or (ii) December 20, 2022. The Company has determined such shares to be a mandatorily redeemable financial instrument and is recorded as a liability of JPY50,040,000 (approximately $448,000) in the consolidated balance sheet as of December 31, 2021. On February 24, 2022, the Company purchased the shares of HeartCore Japan from Dentsu Digital for JPY50,040,000 (approximately $430,000). As a result, HeartCore Japan became a wholly-owned subsidiary of the Company.
|
EARNINGS (LOSS) PER SHARE |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) per common share attributable to HeartCore Enterprises, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS (LOSS) PER SHARE |
Basic earnings (loss) per share is calculated on the basis of weighted-average outstanding common shares. Diluted earnings (loss) per share is computed on the basis of basic weighted-average outstanding common shares adjusted for the dilutive effect of stock options, restricted stock unit awards and other dilutive securities.
For the three and six months ended June 30, 2022, the weighted average shares outstanding are the same for basic and diluted loss per share calculations, as the inclusion of common shares equivalents of would have an anti-dilutive effect.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUBSEQUENT EVENTS |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 15 - SUBSEQUENT EVENTS
During the period from July 1, 2022 through August 9, 2022, the Company paid approximately $million (including commissions) in connection with the repurchase of shares of its common shares under the 2022 Share Repurchase Program. As of the filing date of this report, approximately $million remained available under the 2022 Share Repurchase Program. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiary. Prior to February 24, 2022, ownership interest of non-controlling party is presented as mandatorily redeemable financial interest or non-controlling interest as applicable. All significant intercompany accounts and transactions have been eliminated.
These unaudited interim consolidated financial statements do not include all of the information and disclosure required by the U.S. GAAP for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments consisting of normal recurring nature considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2021.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Use of Estimates | 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 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 doubtful accounts, useful lives of property and equipment, the impairment of long-lived assets, valuation of share-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and financing leases, valuation of asset retirement obligations and revenue recognition. Actual results could differ from those estimates.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COVID-19 | COVID-19
While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the lasting effects of the pandemic continue to be unknown. The Company may experience customer losses, including due to bankruptcy or customers ceasing operations, which may result in delays in collections or an inability to collect accounts receivable from these customers. The extent to which COVID-19 may continue to impact the Company’s financial condition, results of operations, or liquidity continues to remain uncertain, and as of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or an adjustment to the carrying value of the Company’s assets or liabilities. These estimates may change, as new events occur and additional information is obtained, which will be recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset Retirement Obligations | 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 Accounting Standards Codification (“ASC”) 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:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Software Development Costs | 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.
In the six months ended June 30, 2022 and 2021, software development costs expensed as incurred amounted to $525,487 and $132,171, respectively. These software development costs were included in the research and development expenses.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impairment of Long-Lived Assets | Impairment of Long-Lived Assets
Long-lived assets with finite lives, primarily property and equipment, 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 six months ended June 30, 2022 and 2021.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translation | Foreign Currency Translation
The Company maintains its books and record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of the economic environment in which its operation is conducted. 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 statements of operations.
The reporting currency of the Company is the United States Dollars (“US$”), and the accompanying unaudited 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 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:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue Recognition | Revenue Recognition
The Company recognizes revenue under ASC Topic 606, “Revenue from Contracts with customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of a value-added tax (“Consumption Tax”) and applicable local government levies. The Consumption Tax on sales is calculated at 10% of gross sales.
The Company currently generates its revenue from the following main sources:
Revenue from On-Premise Software
Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. The Company provides on-premise software in the form of both perpetual licenses and term-based licenses which grant the customers with the right for a specified term. Revenue from on-premise licenses is recognized upfront at the point in time when the software is made available to the customer. Licenses for on-premise software are typically sold to the customer with maintenance and support services in a bundle. Revenues under the bundled arrangements are allocated based on the relative standalone selling prices (“SSP”) of on-premise software and maintenance and support service. The SSP for maintenance and support services is estimated based upon observable transactions when those services are sold on a standalone basis. The SSP of on-premise software is typically estimated using the residual approach as the Company is unable to establish the SSP for on-premise licenses based on observable prices given the same products are sold for a broad range of amounts (that is, the selling price is highly variable) and a representative SSP is not discernible from past transactions or other observable evidence.
Revenue from Maintenance and Support service
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.
Revenue from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. The subscription contracts are generally one year or less in length.
Revenue from Software Development and other Miscellaneous Services
The Company provides customers with software development and support service pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes revenue at a point in time when control is transferred to the customers and the Company is entitled to the payment, which is when the promised services are delivered and accepted by the customers.
Revenue from Consulting Service
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 and supporting the listing process. Revenues from consulting services are recognized over time as such services are performed. The consulting service contracts are generally less than one year in length.
The timing of revenue recognition may differ from the timing of invoicing to the customers. The Company records a contract asset, which is included in accounts receivable on the consolidated balance sheets, when revenue is recognized prior to invoicing. The Company records deferred revenues on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice. Deferred revenues are reported net of related uncollected deferred revenues in the consolidated balance sheets. The amount of revenues recognized during the six months ended June 30, 2022 and 2021 that were included in the opening deferred revenues balance was approximately $1.1 million and $1.2 million, respectively.
Disaggregation of Revenue
The Company disaggregates its revenues from contracts by service types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues by type for the three and six months ended June 30, 2022 and 2021 is as following:
The Company’s disaggregation of revenues by product/service is as following:
As of June 30, 2022 and 2021, and for the period then ended, all long-lived assets and the predominant portion of the revenue generated are attributed to the Company’s operation in Japan.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Concentration of Credit Risk | Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company 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 six months ended June 30, 2022, customer A and B represents 12.9% and 10.4%, respectively, of the Company’s total revenues. For the six months ended June 30, 2021, customer B and C represents 11.5% and 12.7%, respectively, of the Company’s total revenues.
For the six months ended June 30, 2022, vendor A and B represents 44.5% and 29.8%, respectively, of the Company’s total purchases. For the six months ended June 30, 2021, vendor A, B, and C represents 40.2%, 36.3%, and 14.1%, respectively, of the Company’s total purchases.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Compensation |
The Company accounts for share-based compensation awards in accordance with ASC 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 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. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CHANGES IN ASSET RETIREMENT OBLIGATIONS |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FOREIGN CURRENCY TRANSLATION | Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DISAGGREGATION OF REVENUES |
The Company’s disaggregation of revenues by product/service is as following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS RECEIVABLE, NET (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCOUNTS RECEIVABLE NET | Accounts receivable consists of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||
PREPAID EXPENSES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PREPAID EXPENSES | Prepaid expenses consist of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT NET | Property and equipment consist of the following:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF LEASE COSTS | The components of lease costs are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO THE COMPANY'S LEASES | The following table presents supplemental information related to the Company’s leases:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FINANCE LEASE AND OPERATING LEASE FUTURE MATURITY OF LEASE LIABILITIES | As of June 30, 2022, the future maturity of lease liabilities is as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBTS (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF LONG-TERM DEBTS | The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions, which consist of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS | As of June 30, 2022, future minimum loan payments are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INCOME TAX EXPENSES | For the six months ended June 30, 2022 and 2021, the Company’s income tax expenses are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK BASED COMPENSATION (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF UNVESTED STOCK OPTION |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK OPTION ACTIVITY |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF RESTRICTED STOCK UNITS | The following table summarizes the RSUs activity for the six months ended June 30, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS (LOSS) PER SHARE (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) per common share attributable to HeartCore Enterprises, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ORGANIZATION AND DESCRIPTION OF BUSINESS (Details Narrative) - shares |
3 Months Ended | ||||
|---|---|---|---|---|---|
Feb. 24, 2022 |
Jan. 13, 2022 |
Jul. 16, 2021 |
Jul. 15, 2021 |
Mar. 31, 2022 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Stock issued during period, shares | 96,000 | ||||
| Common Stock [Member] | |||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Stock issued during period, shares | 3,096,000 | ||||
| Share Exchange Agreement [Member] | Stockholder [Member] | Common Stock [Member] | |||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Stock issued during period, shares | 15,999,994 | ||||
| Stock issued during period, exchange shares | 278 | 10,706 | 10,984 | ||
| Share Exchange Agreement [Member] | Stockholder [Member] | Common Stock [Member] | Heart Core Japan [Member] | |||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Ownership percentage | 97.50% |
SCHEDULE OF CHANGES IN ASSET RETIREMENT OBLIGATIONS (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Accounting Policies [Abstract] | ||
| Beginning balance | $ 155,666 | $ 173,043 |
| Accretion expense | 242 | 730 |
| Foreign currency translation adjustment | (23,260) | (18,107) |
| Ending balance | $ 132,648 | $ 155,666 |
SCHEDULE OF FOREIGN CURRENCY TRANSLATION (Details) |
Jun. 30, 2022 |
Jun. 30, 2021 |
|---|---|---|
| Current JPY US 1 Exchange Rate [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Foreign currency exchange rate, translation | 136.11 | 110.74 |
| Average JPY US 1 Exchange Rate [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Foreign currency exchange rate, translation | 122.98 | 107.74 |
SCHEDULE OF ACCOUNTS RECEIVABLE NET (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Credit Loss [Abstract] | ||
| Accounts receivable | $ 1,119,990 | $ 960,964 |
| Less: allowance for doubtful accounts | ||
| Accounts receivable, net | $ 1,119,990 | $ 960,964 |
SCHEDULE OF PREPAID EXPENSES (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Prepayments to software vendors | $ 151,852 | $ 157,060 |
| Prepaid selling expenses | 262,417 | |
| Prepaid subscription fees | 48,077 | 53,413 |
| Deferred offering expenses | 180,630 | |
| Prepaid insurance premium | 329,709 | 18,252 |
| Others | 60,215 | 35,050 |
| Total | $ 852,270 | $ 444,405 |
SCHEDULE OF PROPERTY AND EQUIPMENT NET (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | $ 829,912 | $ 943,245 |
| Accumulated depreciation | (618,732) | (681,831) |
| Property and equipment, net | 211,180 | 261,414 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | 279,549 | 320,257 |
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | 290,884 | 316,126 |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | 102,515 | 121,235 |
| Software and Software Development Costs [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | $ 156,964 | $ 185,627 |
PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 46,688 | $ 55,458 |
SCHEDULE OF LEASE COSTS (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Leases | ||
| Amortization of right-of-use assets | $ 21,972 | $ 26,883 |
| Interest on lease liabilities | 288 | 689 |
| Total finance lease costs | 22,260 | 27,572 |
| Operating lease costs | 164,513 | 199,318 |
| Total lease costs | $ 186,773 | $ 226,890 |
SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO THE COMPANY'S LEASES (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Leases | ||
| Operating cash flows from finance leases | $ 288 | $ 689 |
| Operating cash flows from operating leases | 168,793 | 204,296 |
| Financing cash flows from finance leases | $ 24,189 | $ 29,561 |
| Weighted average remaining lease term (years) Finance leases | 1 year 3 months 18 days | 1 year 10 months 24 days |
| Weighted average remaining lease term (years) Operating leases | 9 years 7 months 6 days | 10 years 7 months 6 days |
| Weighted-average discount rate: (per annum) Finance leases | 1.32% | 1.32% |
| Weighted-average discount rate: (per annum) Operating leases | 1.32% | 1.32% |
SCHEDULE OF FINANCE LEASE AND OPERATING LEASE FUTURE MATURITY OF LEASE LIABILITIES (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Finance Lease, Liability [Abstract] | ||
| Remaining of 2022 | $ 11,140 | |
| 2023 | 18,750 | |
| 2024 | 276 | |
| 2025 | ||
| 2026 | ||
| Thereafter | ||
| Total lease payment | 30,166 | |
| Less: imputed interest | (170) | |
| Total lease liabilities | 29,996 | |
| Less: current portion | 20,717 | $ 37,459 |
| Non-current lease liabilities | 9,279 | 23,861 |
| Operating Lease, Liability [Abstract] | ||
| Remaining of 2022 | 152,511 | |
| 2023 | 305,021 | |
| 2024 | 305,021 | |
| 2025 | 305,021 | |
| 2026 | 305,021 | |
| Thereafter | 1,560,912 | |
| Total lease payment | 2,933,507 | |
| Less: imputed interest | (185,172) | |
| Total lease liabilities | 2,748,335 | |
| Less: current portion | 280,789 | 332,277 |
| Non-current lease liabilities | $ 2,467,546 | $ 3,076,204 |
LEASES (Details Narrative) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Impairment Effects on Earnings Per Share [Line Items] | ||
| Security deposits | $ 235,274 | $ 278,237 |
| Property, Plant and Equipment [Member] | ||
| Impairment Effects on Earnings Per Share [Line Items] | ||
| Finance lease right-of-use assets | $ 28,487 | $ 57,167 |
SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| Remaining of 2022 | $ 348,542 | |
| 2023 | 687,055 | |
| 2024 | 425,972 | |
| 2025 | 244,391 | |
| 2026 | 222,372 | |
| Thereafter | 182,468 | |
| Total | $ 2,110,800 | $ 2,736,908 |
LONG-TERM DEBTS (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Debt Disclosure [Abstract] | ||
| Interest expense for long-term debts | $ 14,676 | $ 23,232 |
INSURANCE PREMIUM FINANCING (Details Narrative) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Jun. 30, 2022 |
Feb. 28, 2022 |
Dec. 31, 2021 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Insurance premium financing | $ 220,583 | ||
| Insurance interest incurred | $ 14,185 | ||
| Insurance Premium Financing Agreement [Member] | Bank Direct Capital Finance to Borrow [Member] | |||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Insurance premium financing | $ 388,538 | ||
| Annual interest rate | 12.80% |
SCHEDULE OF INCOME TAX EXPENSES (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Income Tax Disclosure [Abstract] | ||||
| Current | $ (1,464) | $ (7,117) | ||
| Deferred | 9,627 | 91,032 | ||
| Income tax expense | $ 8,979 | $ 76,226 | $ 8,163 | $ 83,915 |
INCOME TAXES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Operating Loss Carryforwards [Line Items] | ||||
| Provision for income taxes | $ 8,979 | $ 76,226 | $ 8,163 | $ 83,915 |
| Effective tax rate | 0.25% | 27.30% | ||
| Domestic Tax Authority [Member] | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Effective statutory rate | 21.00% | |||
| Provision for income taxes | $ 0 | $ 0 | ||
| Foreign Tax Authority [Member] | ||||
| Operating Loss Carryforwards [Line Items] | ||||
| Effective statutory rate | 30.62% | 30.62% | ||
SCHEDULE OF UNVESTED STOCK OPTION (Details) - shares |
6 Months Ended | ||
|---|---|---|---|
Feb. 14, 2022 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Offsetting Assets [Line Items] | |||
| Vested and exercised | 183 | ||
| Equity Option [Member] | |||
| Offsetting Assets [Line Items] | |||
| Issued and unvested as of January 1, 2022 | 183 | 194 | |
| Forfeited | 11 | ||
| Vested and exercised | 183 | ||
| Exercisable as of June 30, 2022 | 183 | ||
SCHEDULE OF STOCK OPTION ACTIVITY (Details) - USD ($) |
6 Months Ended | 12 Months Ended | |
|---|---|---|---|
Feb. 14, 2022 |
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Share-Based Payment Arrangement [Abstract] | |||
| Number of options, beginning balance | 1,534,500 | ||
| Weighted average exercise price, beginning balance | $ 2.5 | ||
| Weighted average remaining contractual term (Years) | 9 years 5 months 26 days | 9 years 11 months 26 days | |
| Stock option intrinsic value, beginning shares | |||
| Number of options, Granted | |||
| Weighted average exercise price, Granted | |||
| Number of options, Exercised | 273,489 | ||
| Weighted average exercise price, Exercised | |||
| Number of options, Forfeited | |||
| Weighted average exercise price, Forfeited | |||
| Number of options, ending balance | 1,534,500 | 1,534,500 | |
| Weighted average exercise price, ending balance | $ 2.5 | $ 2.5 | |
| Stock option intrinsic value, ending balance | |||
| Number of options, Vested and exercisable | |||
| Weighted average exercise price, Vested and exercisable |
SCHEDULE OF RESTRICTED STOCK UNITS (Details) - Restricted Stock Units (RSUs) [Member] |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
$ / shares
shares
| |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Number of options, Unvested Beginning balance | shares | |
| Weighted average grant date fair value Beginning balance | $ / shares | |
| Number of options, Unvested, Granted | shares | 169,153 |
| Weighted average grant date fair value, Granted | $ / shares | $ 3.84 |
| Number of options, Unvested, Vested | shares | (83,333) |
| Weighted average grant date fair value Vested | $ / shares | $ 2.70 |
| Number of options, Unvested, Forfeited | shares | |
| Weighted average grant date fair value, Forfeited | $ / shares | |
| Number of options, Unvested, Ending balance | shares | 85,820 |
| Weighted average grant date fair value, Ending balance | $ / shares | $ 4.95 |
STOCK BASED COMPENSATION (Details Narrative) |
1 Months Ended | 3 Months Ended | 6 Months Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
May 15, 2022
shares
|
Feb. 25, 2022
USD ($)
shares
|
Feb. 14, 2022
shares
|
Feb. 09, 2022
USD ($)
shares
|
Dec. 25, 2021
$ / shares
shares
|
Nov. 03, 2021
shares
|
May 31, 2016
$ / shares
shares
|
Jun. 30, 2022
USD ($)
shares
|
Mar. 31, 2022
shares
|
Jun. 30, 2021
USD ($)
|
Jun. 30, 2022
USD ($)
shares
|
Jun. 30, 2021
USD ($)
shares
|
Jan. 13, 2022
$ / shares
|
Dec. 31, 2021
USD ($)
|
Dec. 31, 2021
JPY (¥)
|
May 31, 2016
¥ / shares
|
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Options granted | ||||||||||||||||
| Shares issued price per share | $ / shares | $ 2.50 | |||||||||||||||
| Number of option forfeited | ||||||||||||||||
| Other current liabilities | $ | $ 65,547 | $ 65,547 | $ 281,673 | |||||||||||||
| Number of options vested. | 183 | |||||||||||||||
| Number of restricted stock issued | 83,333 | |||||||||||||||
| Restricted Stock Units (RSUs) [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Allocated share base compensation | $ | 181,724 | 311,076 | ||||||||||||||
| Unamortized share based compensation | $ | 338,732 | $ 338,732 | ||||||||||||||
| Equity Option [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Number of options vested. | 183 | |||||||||||||||
| Allocated share base compensation | $ | 284,938 | $ 577,750 | ||||||||||||||
| Unamortized share based compensation | $ | $ 1,608,803 | 1,608,803 | ||||||||||||||
| IPO [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Number of options vested. | 183 | |||||||||||||||
| Allocated share base compensation | $ | 11,005 | |||||||||||||||
| Common Stock [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Options granted | 83,333 | |||||||||||||||
| Repurchase liability, shares | $ | $ 16 | |||||||||||||||
| Repurchase liability, value | 273,489 | |||||||||||||||
| HeartCore Co Ltd [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Number of option forfeited | 324 | |||||||||||||||
| Number of shares redeemed | 484,056 | |||||||||||||||
| Other current liabilities | $ 16 | ¥ 1,830 | ||||||||||||||
| HeartCore Co Ltd [Member] | Common Stock [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Number of shares redeemed | 324 | |||||||||||||||
| Employee [Member] | HeartCore Co Ltd [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Options granted | 507 | |||||||||||||||
| Number of shares issued in acquisition | 1,494 | |||||||||||||||
| Shares issued price per share | (per share) | $ 0.09 | ¥ 10 | ||||||||||||||
| Officers Directors Employees And Consultants [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Options granted | 1,534,500 | |||||||||||||||
| Shares issued price per share | $ / shares | $ 2.50 | |||||||||||||||
| Percentage of shares expected to be vested | 25.00% | |||||||||||||||
| Expiration date | Dec. 25, 2031 | |||||||||||||||
| Five Executives [Member] | Executive Employment Agreements [Member] | 2021 Equity Incentive Plan [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Percentage of shares expected to be vested | 25.00% | |||||||||||||||
| Number of restricted stock issued | 85,820 | |||||||||||||||
| RSUs grant date fair value | $ | $ 424,809 | |||||||||||||||
| Third Party [Member] | Service Agreement [Member] | ||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||
| Number of restricted stock issued | 83,333 | |||||||||||||||
| RSUs grant date fair value | $ | $ 224,999 | |||||||||||||||
SHAREHOLDERS’ EQUITY (DEFICIT) (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
May 15, 2022 |
Feb. 14, 2022 |
Jan. 13, 2022 |
Jun. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 02, 2022 |
Dec. 31, 2021 |
|
| Subsidiary, Sale of Stock [Line Items] | ||||||||||
| Common stock, shares authorized | 200,000,000 | 200,000,000 | 200,000,000 | 200,000,000 | ||||||
| Common stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | ||||||
| Preferred stock, shares authorized | 20,000,000 | 20,000,000 | 20,000,000 | 20,000,000 | ||||||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 | $ 0.0001 | $ 0.0001 | ||||||
| Issuance of common shares for cash, shares | 96,000 | |||||||||
| Share issued price per share | $ 2.50 | |||||||||
| Proceeds from issuance of private placement | $ 220,572 | |||||||||
| Proceeds from issuance initial public offering | $ 13,602,554 | |||||||||
| Debt Issuance Costs, Net | $ 300,460 | |||||||||
| Deferred cost recognized | $ 178,847 | |||||||||
| Common stock issued from exercise of stock option | 273,489 | |||||||||
| Common stock issued from exercise of stock option, shares | $ 16 | $ 16 | ||||||||
| Stock issued during the period restricted shares | 83,333 | |||||||||
| Stock repurchase value | $ 1,336,762 | |||||||||
| Common stock, shares issued | 18,999,276 | 18,999,276 | 18,999,276 | 15,819,943 | ||||||
| Common stock, shares outstanding | 18,440,467 | 18,440,467 | 18,440,467 | 15,546,454 | ||||||
| Preferred stock, shares issued | 0 | 0 | 0 | 0 | ||||||
| Preferred stock, shares outstanding | 0 | 0 | 0 | 0 | ||||||
| 2022 Share Repurchase Program [Member] | ||||||||||
| Subsidiary, Sale of Stock [Line Items] | ||||||||||
| Share issued price per share | $ 2.39 | $ 2.39 | $ 2.39 | |||||||
| Stock repurchase program authorized amount | $ 3,500,000 | |||||||||
| Stock repurchase shares | 558,809 | |||||||||
| Stock repurchase value | $ 1,300,000 | |||||||||
| Stock repurchase program, remaining authorized repurchase amount | $ 2,200,000 | $ 2,200,000 | $ 2,200,000 | |||||||
| IPO [Member] | ||||||||||
| Subsidiary, Sale of Stock [Line Items] | ||||||||||
| Issuance of common shares for cash, shares | 3,000,000 | |||||||||
| Share Price | $ 5.00 | |||||||||
| Proceeds from issuance initial public offering | $ 13,724,167 | |||||||||
| Officer [Member] | ||||||||||
| Subsidiary, Sale of Stock [Line Items] | ||||||||||
| Issuance of common shares for cash, shares | 30,000 | |||||||||
MANDATORILY REDEEMABLE FINANCIAL INTEREST (Details Narrative) - Dentsu Digital Investment Limited [Member] - Stock Purchase Agreement [Member] |
Feb. 24, 2022
USD ($)
shares
|
Feb. 24, 2022
JPY (¥)
shares
|
Aug. 10, 2021
JPY (¥)
shares
|
Dec. 31, 2021
USD ($)
|
Dec. 31, 2021
JPY (¥)
|
|---|---|---|---|---|---|
| Number of shares purchased in transaction, shares | 278 | 278 | 278 | ||
| Number of shares purchased in transaction | $ 430,000 | ¥ 50,040,000 | ¥ 50,040,000 | ||
| Redeemable liability | $ 448,000 | ¥ 50,040,000 |
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|||||
| Earnings (loss) per share – basic Numerator: | ||||||||
| Allocation of net income (loss) attributable to HeartCore Enterprises, Inc.’s common shareholders used in calculating earnings (loss) per common share — basic | $ (1,703,641) | $ 400,790 | $ (3,282,092) | $ 217,541 | ||||
| Net income (loss) attributable to common shareholders | $ (1,703,641) | $ 400,790 | $ (3,282,092) | $ 217,541 | ||||
| Weighted average number of common shares outstanding used in calculating basic earnings (loss) per share | [1] | 18,936,829 | 15,242,454 | 18,105,698 | 15,242,454 | |||
| Denominator used for earnings (loss) per share | 18,936,829 | 15,242,454 | 18,105,698 | 15,242,454 | ||||
| Earnings (loss) per share — basic | [1] | $ (0.09) | $ 0.03 | $ (0.18) | $ 0.01 | |||
| Earnings (loss) per share – diluted Numerator: | ||||||||
| Allocation of net income (loss) attributable to HeartCore Enterprises, Inc.’s common shareholders used in calculating earnings (loss) per common share — diluted | $ (1,703,641) | $ 400,790 | $ (3,282,092) | $ 217,541 | ||||
| Net income (loss) attributable to common shareholders | $ (1,703,641) | $ 400,790 | $ (3,282,092) | $ 217,541 | ||||
| Weighted average number of common shares outstanding used in calculating diluted earnings (loss) per share | 18,936,829 | 15,242,454 | 18,105,698 | 15,242,454 | ||||
| Conversion of share repurchase liability to common shares | [2] | 273,489 | 273,489 | |||||
| Denominator used for earnings (loss) per share | [1] | 18,936,829 | 15,515,943 | 18,105,698 | 15,515,943 | |||
| Earnings (loss) per share — diluted | [1] | $ (0.09) | $ 0.03 | $ (0.18) | $ 0.01 | |||
| ||||||||
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (Details) (Parenthetical) |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
shares
| |
| Common Stock [Member] | |
| Number of shares converted | 1,494 |
EARNINGS (LOSS) PER SHARE (Details Narrative) |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
shares
| |
| Net earnings (loss) per common share attributable to HeartCore Enterprises, Inc. | |
| Weighted average shares outstanding | 1,620,320 |
SUBSEQUENT EVENTS (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | |
|---|---|---|---|
Aug. 09, 2022 |
Jun. 30, 2022 |
Jun. 30, 2022 |
|
| Subsequent Event [Line Items] | |||
| Stock Repurchased During Period, Value | $ 1,336,762 | ||
| 2022 Share Repurchase Program [Member] | |||
| Subsequent Event [Line Items] | |||
| Stock Repurchased During Period, Value | $ 1,300,000 | ||
| Stock Repurchased During Period, Shares | 558,809 | ||
| Stock Repurchase Program, Remaining Authorized Repurchase Amount | $ 2,200,000 | $ 2,200,000 | |
| Subsequent Event [Member] | 2022 Share Repurchase Program [Member] | |||
| Subsequent Event [Line Items] | |||
| Stock Repurchased During Period, Value | $ 1,900,000 | ||
| Stock Repurchased During Period, Shares | 651,251 | ||
| Stock Repurchase Program, Remaining Authorized Repurchase Amount | $ 300,000 | ||
B
MU5_KAT6SKJ7([$UEL2!!$"Y*D5>SRW-[[;:^/%>;ML@K>5NC9E.6HG[Y+ OU
M=#'#L^V%[_G#JC47%I?G:_$@[V3[8WU;ZV^+G98L+V75Y*I"M5Q>S*[PV36G
MY@8K\9]:O]FG=?.W(M&7JOBOWG6KBYF\0QE*Y^N_SZ^?/%
M[5_BRP>QO/IX??7A:G%Q?2