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___.
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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
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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
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Indicate
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
| ☒ | Smaller reporting company | ||||
| Emerging growth company |
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with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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As of November 13, 2023, 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 | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4. | Controls and Procedures | 17 |
| PART II – OTHER INFORMATION | 17 | |
| Item 1. | Legal Proceedings | 17 |
| Item 1A. | Risk Factors | 17 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
| Item 3. | Defaults Upon Senior Securities | 17 |
| Item 4. | Mine Safety Disclosures | 17 |
| Item 5. | Other Information | 17 |
| Item 6. | Exhibits | 18 |
| Signatures | 19 | |
| 2 |
Item 1. Financial Statements.
HEARTCORE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Investments in marketable securities | ||||||||
| Prepaid expenses | ||||||||
| Note receivable | ||||||||
| Current portion of long-term note receivable | ||||||||
| Due from related party | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible asset, net | ||||||||
| Goodwill | ||||||||
| Long-term investments in warrants | ||||||||
| Long-term note receivable | ||||||||
| Deferred tax assets | ||||||||
| Security deposits | ||||||||
| Long-term loan receivable from related party | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| 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 | ||||||||
| Factoring liability | ||||||||
| Operating lease liabilities, current | ||||||||
| Finance lease liabilities, current | ||||||||
| Income tax payables | ||||||||
| Deferred revenue | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Long-term debts | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Finance lease liabilities, non-current | ||||||||
| Deferred tax liabilities | ||||||||
| Other non-current liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred shares ($ par value, shares authorized, shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively) | ||||||||
| Common shares ($ par value, shares authorized; and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total HeartCore Enterprises, Inc. shareholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-1 |
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Changes in fair value of investments in marketable securities | ( | ) | ( | ) | ||||||||||||
| Changes in fair value of investments in warrants | ( | ) | ( | ) | ||||||||||||
| Interest income | ||||||||||||||||
| Interest expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other income (expenses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income tax provision | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to HeartCore Enterprises, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: comprehensive loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss attributable to HeartCore Enterprises, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net 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.
| F-2 |
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
| 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 | ( |
) | - | |||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( |
) | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Repurchase of common shares | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Balance, June 30, 2022 | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Repurchase of common shares | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Common Shares | Additional | Accumulated Other | Total HeartCore Enterprises, Inc. | Non- | Total | |||||||||||||||||||||||||||
| Number
of Shares |
Amount | Paid-in |
Accumulated Deficit |
Comprehensive Income |
Shareholders’ Equity |
controlling Interest |
Shareholders’ Equity |
|||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( |
) | $ | |
$ | $ | $ | ||||||||||||||||||||||
| Net income (loss) | - | ( |
) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
| Issuance of common shares for acquisition of subsidiary | ||||||||||||||||||||||||||||||||
| Non-controlling interests arising from acquisition of subsidiary | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( |
) | ||||||||||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ( |
) | ||||||||||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-3 |
HEARTCORE ENTERPRISES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expenses | ||||||||
| Gain on disposal of property and equipment | ( | ) | ||||||
| Amortization of debt issuance costs | ||||||||
| Non-cash lease expense | ||||||||
| Loss on termination of lease | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Stock-based compensation | ||||||||
| Warrants received as noncash consideration | ( | ) | ||||||
| Changes in fair value of investments in marketable securities | ||||||||
| Changes in fair value of investments in warrants | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| 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 used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of property and equipment | ||||||||
| Advances on note receivable | ( | ) | ||||||
| Repayment of loan provided to related party | ||||||||
| Payment for acquisition of subsidiary, net of cash acquired | ( | ) | ||||||
| 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 | ( | ) | ( | ) | ||||
| Net proceeds from factoring arrangement | ||||||||
| 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 | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Common shares issued for acquisition of subsidiary | $ | $ | ||||||
| Investments in warrants converted to marketable securities | $ | $ | ||||||
| Finance lease right-of-use asset obtained in exchange for finance lease liability | $ | $ | ||||||
| Operating lease right-of-use asset obtained in exchange for operating lease liability | $ | $ | ||||||
| Remeasurement of operating lease liability and right-of-use asset due to lease modification | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| F-4 |
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. Beginning from early 2022, HeartCore USA is engaged in business of providing consulting services to Japanese companies with intention to go public in the United States capital market.
On September 6, 2022, HeartCore USA entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire % of the outstanding shares of Sigmaways, Inc. (“Sigmaways”), a company incorporated under the laws of the State of California in April 2006, and its wholly-owned subsidiaries, Sigmaways B.V. and Sigmaways Technologies Ltd. (“Sigmaways Technologies”). Sigmaways B.V. was incorporated in Netherlands in November 2019. Sigmaways Technologies was incorporated in Canada in August 2020. Sigmaways and its wholly-owned subsidiaries are primarily engaged in the business of developing and sales of software in the United States. The acquisition was closed on February 1, 2023.
In January 2023, HeartCore USA incorporated a wholly-owned subsidiary, HeartCore Financial, Inc. (“HeartCore Financial”), under the laws of the State of Delaware. HeartCore Financial is engaged in the business of providing financial consulting services.
In February 2023, HeartCore USA incorporated a wholly-owned subsidiary, HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), in Japan. HeartCore Capital Advisors is engaged in the business of providing financial consulting services to Japanese companies.
HeartCore USA, HeartCore Japan, Sigmaways, Sigmaways B.V., Sigmaways Technologies, HeartCore Financial and HeartCore Capital Advisors are hereafter referred to as the Company.
| F-5 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 subsidiaries. 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2022.
Use of Estimates
In preparing the unaudited 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 unaudited consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for credit losses, useful lives of property and equipment, the impairment of long-lived assets and goodwill, valuation of stock-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and financing leases, valuation of asset retirement obligations, valuation of investments in warrants, revenue recognition and purchase price allocation with respect to business combination. 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 unaudited 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 unaudited consolidated financial statements.
| F-6 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED 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 the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) Topic 410, “Asset Retirement Obligation Accounting”. The Company capitalizes the associated asset retirement cost by increasing the carrying amount of the related property and equipment. The following table presents changes in asset retirement obligations:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Liabilities incurred | ||||||||
| 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.
In
the nine months ended September 30, 2023 and 2022, software development costs expensed as incurred amounted to $
Investments in Warrants
Investments in warrants represent stock warrants of its consulting service customers and are not registered for public sale. The warrants are measured at fair value and any changes in fair value are recognized in other income (expenses). Investments in warrants are classified as long-term if the warrants are exercisable over one year after the date of receipt.
Investments in Marketable Securities
Investments in marketable securities represent equity securities registered for public sale with readily determinable fair value. The marketable securities as of September 30, 2023 were obtained through exercise of stock warrants of its consulting service customers and measured at fair value with changes in fair value recognized in other income (expenses).
Intangible Asset, Net
Intangible
asset represents the customer relationship acquired from business acquisition of Sigmaways and its subsidiaries. The acquired intangible
asset is recognized and measured at fair value at the time of acquisition and is amortized on a straight-line basis over the estimated
economic useful life of the respective assets. The estimated useful life of the customer relationship is
Impairment of Long-Lived Assets Other Than Goodwill
Long-lived
assets with finite lives, primarily property and equipment, operating lease right-of-use assets and intangible asset, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated
cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed
to be impaired and written down to its fair value. There were
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with ASC Topic 350, “Intangibles – Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
Foreign Currency Translation
The functional currency of HeartCore Japan and HeartCore Capital Advisors is the Japanese Yen (“JPY”). The functional currency of HeartCore USA, HeartCore Financial and Sigmaways is the United States Dollar (“US$”). The functional currency of Sigmaways B.V. is the Euro (“EUR”). The functional currency of Sigmaways Technologies is the Canada Dollar (“CAD”). Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the unaudited consolidated statements of operations.
| F-7 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The reporting currency of the Company is the US$, 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 unaudited statements of changes in shareholders’ equity (deficit).
Revenue Recognition
The Company recognizes revenues under ASC Topic 606, “Revenue from Contracts with customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of value-added taxes and applicable local government levies.
The Company currently generates its revenues from the following main sources:
Revenues 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. Revenues from on-premise licenses are 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.
Revenues from Maintenance and Support Services
Maintenance and support services provided with software licenses consist of trouble shooting, technical support and the right to receive unspecified software updates when and if available during the subscription. Revenues from maintenance and support services are recognized over time as such services are performed. Revenues for consumption-based services are generally recognized as the services are performed and accepted by the customers.
Revenues from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. The subscription contracts are generally one year or less in length.
| F-8 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Revenues from Software Development and Other Miscellaneous Services
The Company provides customers with software development and support services pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes 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.
Revenues from Customized Software Development and Services
The Company’s customized software development and services revenues primarily include revenues from providing software development solutions and other support services to its customers. The contract pricing is at stated billing rates per hour. These contracts are generally short-term in nature and not longer than one year in duration. For services provided under the contract that result in the transfer of control over time, the underlying deliverable in the contract is owned and controlled by the customer and does not create an asset with an alternative use to the Company. The Company recognizes revenue on rate per hour contracts based on the amount billable to the customer, as the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date.
Revenues from Consulting Services
The Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting service contracts are generally less than one year in length and normally include both cash and noncash consideration. Cash consideration is paid in installment payments and is recognized in revenue over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is in the form of warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. The Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved.
The
timing of revenue recognition may differ from the timing of invoicing to the customers. The Company has determined that its contracts
do not include a significant financing component. The Company records a contract asset, which is included in accounts receivable on the
consolidated balance sheets, when revenue is recognized prior to invoicing. The Company factors certain accounts receivable upon or after
the performance obligation is being met. The Company records deferred revenue on the consolidated balance sheets when revenues are recognized
subsequent to cash collection for an invoice. Deferred revenue is reported net of related uncollected deferred revenue in the consolidated
balance sheets. The amount of revenues recognized during the nine months ended September 30, 2023 and 2022 that were included in the
opening deferred revenues balance was approximately $
Disaggregation of Revenues
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 revenues and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the three and nine months ended September 30, 2023 and 2022 is as following:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues from on-premise software | $ | $ | $ | $ | ||||||||||||
| Revenues from maintenance and support services | ||||||||||||||||
| Revenues from software as a service (“SaaS”) | ||||||||||||||||
| Revenues from software development and other miscellaneous services | ||||||||||||||||
| Revenues from customized software development and services | ||||||||||||||||
| Revenues from consulting services | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
| F-9 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s disaggregation of revenues by product/service is as following:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues from customer experience management platform | $ | $ | $ | $ | ||||||||||||
| Revenues from process mining | ||||||||||||||||
| Revenues from robotic process automation | ||||||||||||||||
| Revenues from task mining | ||||||||||||||||
| Revenues from customized software development and services | ||||||||||||||||
| Revenues from consulting services | ||||||||||||||||
| Revenues from others | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
As of September 30, 2023 and 2022, and for the periods then ended, substantially all of the long-lived assets (excluding intangible asset) and the majority of revenues generated were 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 usually does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For
the nine months ended September 30, 2023, customer B and C represent
For
the nine months ended September 30, 2023, vendor D, B, A and E represent
Stock-based Compensation
The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the unaudited 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.
| F-10 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Business Combinations
The Company accounts its business combinations using the acquisition method of accounting in accordance with ASC Topic 805. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible asset acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred.
Consideration transferred in a business combination is measured at the fair value as of the date of acquisition. Where the consideration in an acquisition includes contingent consideration, and the payment of which depends on the achievement of certain specified conditions post-acquisition, the contingent consideration is recognized and measured at its fair value at the acquisition date and is recorded as a liability. It is subsequently carried at fair value with changes in fair value reflected in earnings.
In a business combination achieved in stages, the Company remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the remeasurement gain or loss, if any, is recognized in the unaudited consolidated statements of operations and comprehensive loss.
Fair value is determined based upon the guidance of ASC Topic 820, “Fair Value Measurements and Disclosures,” and generally are determined using Level 2 inputs and Level 3 inputs. The determination of fair value involves the use of significant judgments and estimates. The Company utilizes the assistance of a third-party valuation appraiser to determine the fair value as of the date of acquisition.
Fair Value Measurements
The Company performs fair value measurements in accordance with ASC Topic 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:
| ● | Level 1: quoted prices in active markets for identical assets or liabilities; | |
| ● | Level 2: inputs other than Level 1 that are observable, either directly or indirectly; or | |
| ● | Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities. |
As of September 30, 2023 and December 31, 2022, the carrying values of current assets, except for investments in marketable securities, and current liabilities approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments.
Investments in Warrants
The Company received warrants from its customers as noncash consideration from consulting services. The warrants are not registered for public sale and are measured at fair value at contract inception. The Company’s investments in warrants are measured on a recurring basis and carried on the balance sheet at an estimated fair value at the end of the period. The valuation of investments in warrants was determined using a Black-Scholes model of value based upon the stock price, exercise price, expected volatility, time to maturity, and a risk-free interest rate for the term of the warrants exercise. Such valuations are classified within Level 3 of the fair value hierarchy.
The following table summarizes the Company’s investments in warrants activity for the nine months ended September 30, 2023 and 2022:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Fair value of investments in warrants at beginning of the period | $ | $ | ||||||
| Warrants received as noncash consideration | ||||||||
| Changes in fair value of investments in warrants | ( | ) | ||||||
| Investments in warrants converted to marketable securities | ( | ) | ||||||
| Fair value of investments in warrants at end of the period | $ | $ | ||||||
Investments in Marketable Securities
The Company’s investments in marketable securities registered for public sale with readily determinable fair value are measured at quoted prices on a recurring basis at the end of the period. Marketable securities are classified within Level 1 of the fair value hierarchy.
The following table summarizes the Company’s investments in marketable securities activity for the nine months ended September 30, 2023 and 2022:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Fair value of investments in marketable securities at beginning of the period | $ | $ | ||||||
| Investments in warrants converted to marketable securities | ||||||||
| Changes in fair value of investments in marketable securities | ( | ) | ||||||
| Marketable securities sold | ||||||||
| Fair value of investments in marketable securities at end of the period | $ | $ | ||||||
| F-11 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 was further amended in November 2020 by ASU No. 2020-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). As a result, ASC Topic 326, “Financial Instruments – Credit Losses” is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2020. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As the Company is an “emerging growth company” and elects to apply for the new and revised accounting standards at the effective date for a private company, the Company adopted ASU No. 2016-13 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. This ASU is expected to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2021-08 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited consolidated financial statements.
New Accounting Pronouncements Not Yet Effective
The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s unaudited consolidated financial statements.
NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts receivable – non-factored | $ | $ | ||||||
| Accounts receivable – factored with recourse | ||||||||
| Accounts receivable, gross | ||||||||
| Less: allowance for credit losses | ||||||||
| Accounts receivable | $ | $ | ||||||
NOTE 4 — PREPAID EXPENSES
Prepaid expenses consist of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Prepayments to software vendors | $ | $ | ||||||
| Prepaid marketing and consulting fees | ||||||||
| Prepaid subscription fees | ||||||||
| Prepaid insurance premium | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
| F-12 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — NOTE RECEIVABLE AND LONG-TERM NOTE RECEIVABLE
On
May 2, 2023, the Company purchased a $
On
September 1, 2023, the Company purchased a $
NOTE 6 — RELATED PARTY TRANSACTIONS
As
of September 30, 2023 and December 31, 2022, the Company has a due to related party balance of $
As
of September 30, 2023 and December 31, 2022, the Company has a loan receivable balance of $
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 7 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Vehicle | ||||||||
| Software | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expenses were $
NOTE 8 — INTANGIBLE ASSET, NET
Intangible asset, net is as follows:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Customer relationship | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ||||||
| Intangible asset, net | $ | $ | ||||||
Amortization
expenses were $
As of September 30, 2023, the future estimated amortization cost for intangible asset is as follows:
| Estimated | |||||
| Year Ended December 31, | Amortization | ||||
| Remaining of 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
| F-13 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 — LEASES
The
Company has entered into four 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 two leases for vehicles, one of which was terminated in September
2023, and these leases were classified as finance leases. Right-of-use assets of these finance leases in the amount of $
Operating lease expenses for lease payments are recognized on a straight-line basis over the lease term. Finance lease costs include amortization, which are recognized on a straight-line basis over the expected life of the leased assets, and interest expenses, which are recognized following an effective interest rate method. Leases with initial term of twelve months or less are not recorded on the consolidated balance sheets.
The components of lease costs are as follows:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Finance lease costs | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total finance lease costs | ||||||||
| Operating lease costs | ||||||||
| Total lease costs | $ | $ | ||||||
| F-14 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents supplemental information related to the Company’s leases:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| 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 | ||||||||
| Finance lease right-of-use asset obtained in exchange for finance lease liability | ||||||||
| Operating lease right-of-use asset obtained in exchange for operating lease liability | ||||||||
| Remeasurement of operating lease liability and right-of-use asset due to lease modification | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Finance leases | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate (per annum) | ||||||||
| Finance leases | % | % | ||||||
| Operating leases | % | % | ||||||
As of September 30, 2023, the future maturity of lease liabilities is as follows:
| Year Ended December 31, | Finance Lease | Operating Lease | ||||||
| Remaining of 2023 | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 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 $
| F-15 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 — FACTORING LIABILITY
Sigmaways,
the newly acquired subsidiary of the Company, entered into a Factoring and Security Agreement (the “Factoring Agreement”)
with The Southern Bank Company, an unrelated factor (the “Factor”), in 2017, for the purpose of factoring certain accounts
receivable. Under the terms of the Factoring Agreement, the Company may offer for sale, and the Factor may purchase in its sole discretion,
certain accounts receivable of the Company (the “Purchased Receivable”). The Factoring Agreement provided for a maximum of
$
Selected
accounts receivable is submitted to the Factor, and the Company receives
The Factoring Agreement specifies that eligible accounts receivable is factored with recourse. Under the terms of the recourse provision, the Company is required to reimburse the Factor, upon demand, for Purchased Receivable that is not paid on time by the customers. The performance of all obligations and payments to the Factor is personally guaranteed by Prakash Sadasivam, CEO of Sigmaways and Chief Strategy Officer (“CSO”) of the Company, and secured by all Sigmaways’ now owned and hereafter assets and any sums maintained by the Factor that are identified as payable to the Company.
The Factoring Agreement has an initial term of twelve months and automatically renews for successive twelve-month renewal periods unless terminated pursuant to the terms of the Factoring Agreement. The Company may terminate the Factoring Agreement with sixty days’ written notice to the Factor and is subject to certain early termination fee.
The Factoring Agreement contained covenants that are customary for accounts receivable-based factoring agreements and also contained provisions relating to events of default that are customary for agreements of this type.
As
of September 30, 2023, there was $
NOTE 11 — INSURANCE PREMIUM FINANCING
In
January 2023, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $
In
February 2022, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $
As
of September 30, 2023 and December 31, 2022, the balance of the insurance premium financing was $
| F-16 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 — 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 | Loan Duration | Annual Interest Rate | Balance as of September 30, 2023 | Balance as of December 31, 2022 | |||||||||||||||||
| Bond payable | ||||||||||||||||||||||
| Corporate bond issued through Resona Bank, Limited | JPY | (a)(c) | % | $ | $ | |||||||||||||||||
| Loans with banks and other financial institutions | ||||||||||||||||||||||
| Resona Bank, Limited | JPY | (a)(b) | % | |||||||||||||||||||
| Resona Bank, Limited | JPY | (a)(b) | % | |||||||||||||||||||
| Resona Bank, Limited | JPY | (a)(b) | % | |||||||||||||||||||
| Resona Bank, Limited | JPY | (a)(b) | % | |||||||||||||||||||
| Sumitomo Mitsui Banking Corporation | JPY | (a) | % | |||||||||||||||||||
| Sumitomo Mitsui Banking Corporation | JPY | (a)(b) | % | |||||||||||||||||||
| The Shoko Chukin Bank, Ltd. | JPY | % | ||||||||||||||||||||
| The Shoko Chukin Bank, Ltd. | JPY | % | ||||||||||||||||||||
| The Shoko Chukin Bank, Ltd. | JPY | Tokyo Interbank Offered Rate + | % | |||||||||||||||||||
| Japan Finance Corporation | JPY | % | ||||||||||||||||||||
| Higashi-Nippon Bank | JPY | (a) | % | |||||||||||||||||||
| First Home Bank | $ | (d) | Wall Street Journal U.S. Prime Rate + | % | ||||||||||||||||||
| U.S. Small Business Administration | $ | (d) | % | |||||||||||||||||||
| Aggregate outstanding principal balances | ||||||||||||||||||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||||||||||||||||
| Less: current portion | ( | ) | ( | ) | ||||||||||||||||||
| Non-current portion | $ | $ | ||||||||||||||||||||
| (a) | |
| (b) | |
| (c) | |
| (d) |
Interest
expense for long-term debts was $
As of September 30, 2023, future minimum loan payments are as follows:
| Loan | |||||
| Year Ended December 31, | Payment | ||||
| Remaining of 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
| F-17 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 — INCOME TAXES
United States
HeartCore
USA, Sigmaways and HeartCore Financial, incorporated in the United States, are subject to federal income tax at
Netherlands
Canada
Sigmaways
Technologies is a company incorporated in British Columbia in Canada in August 2020. It is subject to income tax on income arising in,
or derived from, the tax jurisdiction in British Columbia it operates. The basic federal rate of Part I tax is
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 tax rate
of approximately
For the nine months ended September 30, 2023 and 2022, the Company’s income tax expense (benefit) are as follows:
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Current | $ | $ | ( | ) | ||||
| Deferred | ( | ) | ( | ) | ||||
| Income tax expense (benefit) | $ | $ | ( | ) | ||||
The
effective tax rate was (
| F-18 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 (approximately $) each. All options are exercisable upon issuance with a repurchase provision before the completion of the Company’s initial public offering, which serves as a vesting condition. All employees that were granted these stock options had early exercised their stock options in 2016 prior to the vesting of the related stock options. As of November 3, 2021, 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 was recorded by the Company as a share repurchase liability included
in other current liabilities in the consolidated balance sheet with JPY
Number of Stock Options |
||||
| Issued and unvested as of January 1, 2022 | ||||
| Vested and exercised | ||||
| Issued and unvested as of September 30, 2022 | ||||
On August 6, 2021, the Board of Directors and stockholders of the Company approved a 2021 Equity Incentive Plan (the “2021 Plan”), under which shares of common shares are authorized for issuance. On December 25, 2021, the Company awarded options to purchase shares of common shares pursuant to the 2021 Plan 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 .
On August 2, 2022, the Company awarded options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The options vest on each annual anniversary of the date of issuance, in an amount equal to % of the applicable shares of common shares, with the expiration date on .
On August 9, 2022, the Company awarded options to purchase shares of common shares at an exercise price of $ per share to three prior employees of the Company. The options are fully vested and exercisable on the grant date, with the expiration date on .
On February 3, 2023, the Company awarded options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The options vest % on the grant date and February 1, 2024, respectively, with the expiration date on .
On August 25, 2023, the Company awarded options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The options vest on each annual anniversary of the date of issuance, in an amount equal to % of the applicable shares of common shares, with the expiration date on .
On August 1, 2023, the Board of Directors and stockholders of the Company approved a 2023 Equity Incentive Plan (the “2023 Plan”), under which shares of common shares are authorized for issuance. No shares were issued pursuant to the 2023 Plan as of September 30, 2023.
| F-19 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining
| Intrinsic Value | ||||||||||||||
| As of January 1, 2022 | $ | $ | |||||||||||||||
| Granted | - | ||||||||||||||||
| Exercised | - | - | |||||||||||||||
| Forfeited | ( | ) | 2.50 | - | - | ||||||||||||
| As of September 30, 2022 | $ | $ | |||||||||||||||
| As of January 1, 2023 | $ | $ | |||||||||||||||
| Granted | - | ||||||||||||||||
| Exercised | - | - | |||||||||||||||
| Forfeited | ( | ) | 2.50 | - | - | ||||||||||||
| As of September 30, 2023 | $ | $ | |||||||||||||||
| Vested and exercisable as of September 30, 2023 | $ | $ | |||||||||||||||
The Company calculated the fair value of options granted in the nine months ended September 30, 2023 using the Black-Scholes model. Significant assumptions used in the valuation include expected volatility, risk-free interest rate, dividend yield and expected exercise term.
For the three and nine months ended September 30, 2023, the Company recognized stock-based compensation related to options of $ and $, respectively. For the three and nine months ended September 30, 2022, the Company recognized stock-based compensation related to options of $ and $, respectively. The outstanding unamortized stock-based compensation related to options was $ (which will be recognized through August 2027) as of September 30, 2023.
Restricted Stock Units (“RSUs”)
On February 9, 2022, the Company entered into executive employment agreements with five executives and granted RSUs pursuant to the 2021 Plan. The RSUs vest on each annual anniversary of the date of the employment agreement, in an amount equal to % 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 $.
On March 22, 2023, the Company entered into agreements with employees and service providers of Sigmaways and granted RSUs pursuant to the 2021 Plan. The RSUs were fully vested upon issuance. The fair value of the RSUs at grant date was $.
The following table summarizes the RSUs activity for the nine months ended September 30, 2023 and 2022:
| Number of RSUs | Weighted Average Grant Date Fair Value per Share | |||||||
| Unvested as of January 1, 2022 | $ | |||||||
| Granted | | |||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested as of September 30, 2022 | $ | |||||||
| Unvested as of January 1, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Unvested as of September 30, 2023 | $ | |||||||
For the three and nine months ended September 30, 2023, the Company recognized stock-based compensation related to RSUs of $ and $, respectively. For the three and nine months ended September 30, 2022, the Company recognized stock-based compensation related to RSUs of $ and $, respectively. The outstanding unamortized stock-based compensation related to RSUs was $ (which will be recognized through February 2026) as of September 30, 2023.
| F-20 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – SHAREHOLDERS’ EQUITY
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 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 $
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 14).
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 September 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 September 30, 2022, the Company has used up the entire balance authorized under the 2022 Share Repurchase Program.
On February 1, 2023, shares of common shares were issued for the acquisition of % of the outstanding shares of Sigmaways and its subsidiaries with fair value of $ (also see NOTE 17).
As of September 30, 2023 and December 31, 2022, there were and shares of common shares issued and outstanding, respectively.
preferred shares were issued and outstanding as of September 30, 2023 and December 31, 2022.
Basic net loss per share is calculated on the basis of weighted average outstanding common shares. Diluted net loss per share is computed on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs and other dilutive securities. Common shares equivalents are determined by applying the treasury stock method to the assumed conversion of share repurchase liability to common shares related to the early exercised stock options and unvested RSUs, and are not included in the calculation of diluted loss per share if their effect would be anti-dilutive.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss per share - basic and diluted: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net loss attributable to HeartCore Enterprises, Inc. common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares outstanding used in calculating net loss per share | ||||||||||||||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
For the three and nine months ended September 30, 2023 and 2022, the weighted average common shares outstanding are the same for basic and diluted net loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.
| F-21 |
HEARTCORE
ENTERPRISES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – BUSINESS COMBINATION
On
September 6, 2022, HeartCore USA entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire
The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities and non-controlling interest based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Amounts recorded in the business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
The purchase price was allocated on the acquisition date as follows:
| Amount | ||||
| Current assets | $ | |||
| Acquired intangible asset | ||||
| Non-current assets | ||||
| Current liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Non-current liabilities | ( | ) | ||
| Goodwill | ||||
| Non-controlling interest | ( | ) | ||
| Total purchase consideration | $ | |||
The
results of operations, financial position and cash flows of Sigmaways and its subsidiaries have been included in the Company’s
unaudited consolidated financial statements since the date of acquisition. Sigmaways and its subsidiaries contributed revenues and net
loss of $
Pro forma results of operations for the business combination have not been presented because they are not material to the unaudited consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022.
The Company’s policy is to perform its annual impairment testing on goodwill for its reporting unit on December 31 of each fiscal year or more frequently if events or changes in circumstances indicate that an impairment may exist. The Company did not recognize any impairment loss on goodwill during the nine months ended September 30, 2023.
NOTE 18 - SUBSEQUENT EVENTS
On
October 4, 2023, the Company obtained a five-year term loan in the amount of JPY
On
October 4, 2023, the Company obtained a five-year term loan in the amount of JPY
On
October 5, 2023, the Company obtained a five-year term loan in the amount of JPY
| F-22 |
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, 2022, 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 Quarterly Report on Form 10-Q 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.
On September 6, 2022, the Company entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51% of the outstanding shares of Sigmaways, Inc. (“Sigmaways”), a company incorporated under the laws of the State of California and engaged in the business of developing and sales of software in the United States. The acquisition closed on February 1, 2023.
During 2022, we started the GO IPO consulting business, which supports Japanese companies seeking to list on Nasdaq and NYSE in the United States. As of November 13, 2023, we have entered into consulting agreements with 11 companies to assist them in their IPO process, whereby we are entitled to receive from each company a consulting fee ranging from $350,000 to $900,000 and warrants or Japanese acquisition rights to purchase 1% to 4% of the fully-diluted share capital of such companies that is exercisable on certain dates at an exercise price of $0.01 or JPY1 per share. The revenue from the GO IPO business helped to offset the decline in sales in the CX and DX divisions. In the first quarter of 2023, we formed HeartCore Financial, Inc. and HeartCore Capital Advisors, Inc. as a part of our Go IPO consulting business.
| 3 |
We have made significant investments in our sales and marketing efforts globally. As of September 30, 2023, our sales and marketing organization was comprised of 16 employees, including our field sales organization, which maintains a physical sales presence in the Japanese software market. Using our go-to-market strategy, we believe we have made significant contributions in Japan and have established a diversified revenue and customer base. As of September 30, 2023, our combined business units (customer experience management business unit and digital transformation business unit) had 937 total customers in Japan.
Recent Developments
GATES GROUP Inc. Service Agreement
On October 2, 2023 (the “GATES Effective Date”), the Company entered into a Service Agreement (the “GATES Agreement”) by and between the Company and GATES GROUP Inc., a Japanese corporation (“GATES”). Pursuant to the terms of the GATES Agreement, GATES engaged the Company, on an exclusive basis, to render the following services for GATES (collectively, the “GATES Services”):
(i) Phase 1:
| ● | Suggesting to hire human resources, if the Company deems necessary; |
| ● | Suggesting to convert financial statements from Japanese tax law basis to Japanese generally accepted accounting principles, if the Company deems necessary; |
| ● | Suggesting to remove problematic accounting account, if the Company deems necessary; |
| ● | Suggesting to translate accounting documents (i.e., financial statement, general ledger, journal entry), if the Company deems necessary; |
| ● | Suggesting to develop growth strategy after public listing; |
| ● | Suggesting to consider the listing structure, if the Company deems necessary. |
(ii) Phase 2:
| ● | Suggesting for the selection and negotiation of terms for a law firm, underwriter and auditing firm for GATES, if the Company deems necessary; |
| ● | Suggesting for the preparation of documentation for internal controls required for an initial public offering or de-SPAC transaction by GATES; |
| ● | Suggesting for converting GATES’ financial statement based on United States generally accounting principles (US GAAP), if the Company deems necessary; |
| ● | Translation of documents into English which the Company agrees to translate; |
| ● | Attending and, if requested by GATES and the Company deems necessary, leading, GATES’ meetings regarding the initial public offering; |
| ● | Suggesting GATES with support services related to GATES’ Nasdaq listing; |
| ● | Suggesting the preparation of Form S-1 or Form F-1, Form S-4 or Form F-4 filings, if the Company deems necessary; |
| ● | Support for investor relations activities, if the Company deems necessary; |
| ● | Suggesting for preparing of investor presentation/deck and executive summary of GATES’ operation, if the Company deems necessary; and |
(iii) Phase 3:
| ● | Support for investor relations activities, if the Company deems necessary. |
In providing the GATES Services, the Company will not render legal advice or perform accounting services, and will not act as an investment advisor or broker/dealer. Pursuant to the terms of the GATES Agreement, the parties agreed that the Company will not provide the following services, among others: negotiation of the sale of GATES’ securities; participation in discussions between GATES and potential investors; assisting in structuring any transactions involving the sale of GATES’ securities; pre-screening of potential investors; due diligence activities; nor providing advice relating to valuation of or financial advisability of any investments in GATES.
| 4 |
In exchange for providing the GATES Services for Phase 1 and Phase 2, GATES will pay to the Company $600,000 (the “Services Fee”) as follows:
| ● | 10% of the Services Fee on the GATES Effective Date; |
| ● | 50% of the Services Fee four months after the GATES Effective Date; |
| ● | 20% of the Services Fee six months after the GATES Effective Date; and |
| ● | 20% of the Services Fee eight months after the GATES Effective Date. |
For Phase 3, in return for GATES’ Nasdaq listing, GATES will issue and the Company will be entitled to receive, a warrant to acquire a number of shares of capital stock of the entity designated by the Company from GATES and its affiliated company becoming a publicly traded company. The total amount of such shares will be an amount equal to 3% of the fully diluted share capital of GATES as of the GATES Effective Date (subject to adjustment as set forth in the GATES Agreement).
The term of the GATES Agreement will continue until the earlier of (i) three years from the GATES Effective Date; and (ii) two years later from the date on which the stock of GATES or any successor or resulting entity in the contemplated initial public offering of GATES’ stock in the U.S. or a merger or other similar transaction with a special purpose acquisition company, or other transaction pursuant to which GATES or its affiliated company becomes a public traded company in the U.S. The term of the GATES Agreement may be renewed upon the mutual written agreement of the parties to the GATES Agreement.
The GATES Agreement may be terminated by either party upon one month’s written notice to the other party, with the payment set forth in the GATES Agreement. However, if either party engages in anti-social force activities, the other party will terminate the GATES Agreement without written notice immediately, and the other party will pay the compensation as set forth in the GATES Agreement.
GATES Warrant
On October 2, 2023, GATES issued to the Company a common stock purchase warrant (the “GATES Warrant”) to purchase 16 shares of GATES capital stock, subject to adjustment as set forth in the GATES Warrant. Pursuant to the terms of the GATES Warrant, the Company may, at any time (i) on or after the earlier of the date that either (a) GATES completes its first listing on any tier of the Nasdaq Stock Market, the new York Stock Exchange or the NYSE American; (b) GATES consummates a merger or other transaction with a special purpose acquisition company (“SPAC”) wherein GATES becomes a subsidiary of the SPAC; or (c) GATES consummates any other GATES Fundamental Transaction (as defined in the GATES Warrant) (the “GATES Trigger Date”); and (ii) on or prior to the close of business on the tenth anniversary of the GATES Trigger Date, exercise the GATES Warrant to purchase 16 shares of GATES’ capital stock (subject to adjustment as provided in the GATES Warrant), which represents 3% of Gates’ issued and outstanding common stock as of the issuance date of the GATES Warrant, for an exercise price per share of $0.01, subject to adjustment as provided in the GATES Warrant. The number of shares for which the GATES Warrant will be exercisable will be automatically adjusted on the GATES Trigger Date to be 3% of the fully diluted number and class of shares of capital stock of GATES as of the GATES Trigger Date, following completion of the transactions which caused the GATES Trigger Date to be achieved. The GATES Warrant contains a 9.99% equity blocker.
Termination of May 2023 ATM Offering
On October 12, 2023, the Company delivered written notice to Sutter Securities, Inc. (“Sutter”) that the Company was terminating the Common Stock Sales Agreement, dated May 29, 2023, by and between the Company and Sutter (the “Sales Agreement”), in accordance with its terms, which termination will be effective on October 22, 2023.
Pursuant to the Sales Agreement, the Company filed a prospectus supplement on May 31, 2023 (the “May 2023 ATM Prospectus Supplement”) pursuant to which it may offer and sell, from time to time, shares of its common stock having an aggregate offering price of up to $4,205,067 through Sutter as the sales agent (the “May 2023 ATM Offering”). The Company did not sell any shares of common stock under the May 2023 Prospectus Supplement. The Company terminated the May 2023 ATM Prospectus Supplement and the May 2023 ATM Offering immediately following October 22, 2023, the effective date of the termination of the Sales Agreement.
| 5 |
October 2023 ATM Offering
On October 23, 2023, the Company entered into the At The Market Offering Agreement (the “October 2023 ATM Agreement”) by and between the Company and H.C. Wainwright & Co., LLC (the “Manager”), as sales agent. Pursuant to the prospectus supplement and accompanying base prospectus relating to the offering of the Shares (as hereinafter defined), and under terms of the October 2023 ATM Agreement and the prospectus supplement and the accompanying base prospectus, filed on October 23, 2023, the Company may, from time to time, in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act issue and sell through or to the Manager, up to a maximum aggregate amount of $1,988,229 of shares of the Company’s common stock (the “Shares”). The issuance and sale of the Shares to or through the Manager from time to time will be effectuated pursuant to the Company’s effective shelf registration statement on Form S-3, as amended (File No. 333-270503), which was declared effective by the SEC on April 12, 2023 (the “Registration Statement”), and the related prospectus supplement and accompanying base prospectus relating to the offering of the Shares.
Pursuant to the terms of the October 2023 ATM Agreement, the Company may issue and sell the Shares from time to time through the Manager, acting as sales agent or principal, and the Manager agrees to use its commercially reasonable efforts to sell, the Shares on the following terms: (i) the Shares will be sold on a daily basis or otherwise as agreed to by the Company and the Manager on any day that (a) is a day on which the Nasdaq Capital Market is open for trading, (b) the Company has instructed the Manager to make such sales, and (c) the Company has satisfied its obligations as set forth in the October 2023 ATM Agreement. The Company will designate the maximum amount of the Shares to be sold by the Manager daily, if any (subject to the limitations set forth in the October 2023 ATM Agreement) and the minimum price per Share at which such Shares, if any, may be sold. The Company has no obligation to sell, and the Manager is not obligated to buy or sell, any of the Shares under the October 2023 ATM Agreement and may at any time suspend offers under the October 2023 ATM Agreement or terminate the October 2023 ATM Agreement. The offering of the Shares pursuant to the prospectus supplement and the accompanying base prospectus will terminate upon the earlier of (i) the sale of the Shares pursuant to such prospectus supplement and accompanying base prospectus having an aggregate sales price of $1,988,229, and (ii) the termination by the Company or the Manager of the October 2023 ATM Agreement pursuant to its terms.
The Manager may sell Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act. The Manager may also sell Shares in privately negotiated transactions, with the Company’s prior written approval, if so provided in the “Plan of Distribution” section of the prospectus supplement or a supplement thereto or in a new prospectus supplement disclosing the terms of such privately negotiated transaction.
Unless otherwise agreed between the Company and the Manager, settlement for sales of the Shares will occur on the second trading day (and on and after May 28, 2024, on the first trading day or any such shorter settlement cycle as may be in effect under Rule 15c6-1 promulgated under the Exchange Act, from time to time) following the date on which any sales are made. Sales of the Shares will be settled through the facilities of The Depository Trust Company or by such other means as the Company and the Manager may agree. There is no arrangement for funds to be received in an escrow, trust or similar arrangement.
The Company will pay the Manager a cash commission of 4.0% of the gross sales price of the Shares sold by the Manager pursuant to the October 2023 ATM Agreement; provided, however, that such compensation will not apply when the Manager acts as principal, in which case the Company may sell Shares to the Manager as principal at a price agreed upon at the relevant applicable time and pursuant to a separate agreement the Company will enter into with the Manager setting forth the applicable terms. Pursuant to the terms of the October 2023 ATM Agreement, the Company also agreed to reimburse the Manager for reasonable fees and expenses of the Manager’s counsel, not to exceed $75,000, and additional amounts for due diligence update sessions conducted in connection with each such date the Company files its Quarterly Reports on Form 10-Q or its Annual Report on Form 10-K, as applicable.
| 6 |
The Company has the right, by giving written notice as specified in the October 2023 ATM Agreement, to terminate the October 2023 ATM Agreement in its sole discretion at any time upon 10 business days’ prior written notice. The Manager has the right, by giving written notice as specified in the October 2023 ATM Agreement, to terminate the provisions of the October 2023 ATM Agreement relating to the solicitation of offers to purchase the Shares in its sole discretion at any time.
The October 2023 ATM Agreement contains certain covenants, representations and warranties customary for an agreement of this type. The Company agreed to provide indemnification and contribution to the Manager against certain liabilities, including liabilities under the Securities Act.
Nasdaq Notice Regarding Minimum Bid Price Requirement
On October 26, 2023, the Company received written notice (the “Bid Price Notice”) from the Nasdaq Listing Qualification Department (the “Nasdaq Staff”) indicating that the Company is not in compliance with the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”) for continued listing on the Nasdaq Capital Market. The notification of noncompliance has no immediate effect on the listing or trading of the Company’s common stock on the Nasdaq Capital Market under the symbol “HTCR,” and the Company is currently monitoring the closing bid price of its common stock and evaluating its alternatives, if appropriate, to resolve the deficiency and regain compliance with this rule.
The Nasdaq Listing Rules require listed securities to maintain a minimum bid price of $1.00 per share and, based upon the closing bid price for the last 30 consecutive business days, the Company no longer meets this requirement. The Bid Price Notice indicated that the Company will be provided 180 calendar days, or until April 23, 2024, in which to regain compliance. If at any time during this period the closing bid price of the Company’s common stock is at least $1.00 per share for a minimum of 10 consecutive business days, the Nasdaq Staff will provide the Company with written confirmation of compliance and the matter will be closed.
Alternatively, if the Company fails to regain compliance with Rule 5550(a)(2) prior to the expiration of the 180 calendar day period, but meets the continued listing requirement for market value of publicly held shares and all of the other applicable standards for initial listing on the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and provides written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary, then the Company may be granted an additional 180 calendar days to regain compliance with Rule 5550(a)(2).
There can be no assurance that the Company will be able to regain compliance with the Minimum Bid Price Requirement, even if it maintains compliance with the other listing requirements. The Company is considering actions that it may take in response to the Bid Price Notice in order to regain compliance with the continued listing requirements, but no decisions regarding a response have been made at this time.
Financial Overview
For the three months ended September 30, 2023 and 2022, we generated revenues of $4,688,908 and $1,872,476, respectively, and reported net loss of $2,541,133 and $1,970,934, respectively.
For the nine months ended September 30, 2023 and 2022, we generated revenues of $18,518,431 and $6,818,774, respectively, and reported net loss of $1,755,942 and $5,253,026, respectively, and cash flows used in operating activities of $2,457,661 and $4,206,370, respectively.
As of September 30, 2023, we had an accumulated deficit of $11,910,310.
| 7 |
Results of Operations
Comparison of Results of Operations for the Three Months Ended September 30, 2023 and 2022
The following table summarizes our operating results as reflected in our unaudited statements of operations for the three months ended September 30, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
| For the Three Months Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| % of | % of | % of | ||||||||||||||||||||||
| Amount | Revenues | Amount | Revenues | Amount | Revenues | |||||||||||||||||||
| Revenues | $ | 4,688,908 | 100.0 | % | $ | 1,872,476 | 100.0 | % | $ | 2,816,432 | 150.4 | % | ||||||||||||
| Cost of Revenues | 3,860,241 | 82.3 | % | 1,543,256 | 82.4 | % | 2,316,985 | 150.1 | % | |||||||||||||||
| Gross Profit | 828,667 | 17.7 | % | 329,220 | 17.6 | % | 499,447 | 151.7 | % | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 274,043 | 5.9 | % | 771,496 | 41.2 | % | (497,453 | ) | -64.5 | % | ||||||||||||||
| General and administrative expenses | 2,172,298 | 46.3 | % | 1,513,028 | 80.8 | % | 659,270 | 43.6 | % | |||||||||||||||
| Research and development expenses | 170,071 | 3.6 | % | 58,275 | 3.1 | % | 111,796 | 191.8 | % | |||||||||||||||
| Total operating expenses | 2,616,412 | 55.8 | % | 2,342,799 | 125.1 | % | 273,613 | 11.7 | % | |||||||||||||||
| Loss from operations | (1,787,745 | ) | -38.1 | % | (2,013,579 | ) | -107.5 | % | 225,834 | -11.2 | % | |||||||||||||
| Other income (expenses) | (733,975 | ) | -15.7 | % | 23,576 | 1.2 | % | (757,551 | ) | -3,213.2 | % | |||||||||||||
| Loss before income tax provision | (2,521,720 | ) | -53.8 | % | (1,990,003 | ) | -106.3 | % | (531,717 | ) | 26.7 | % | ||||||||||||
| Income tax expense (benefit) | 19,413 | 0.4 | % | (19,069 | ) | -1.0 | % | 38,482 | -201.8 | % | ||||||||||||||
| Net loss | (2,541,133 | ) | -54.2 | % | (1,970,934 | ) | -105.3 | % | (570,199 | ) | 28.9 | % | ||||||||||||
| Less: net loss attributable to non-controlling interest | (233,913 | ) | -5.0 | % | - | - | (233,913 | ) | -100.0 | % | ||||||||||||||
| Net loss attributable to HeartCore Enterprises, Inc. | $ | (2,307,220 | ) | -49.2 | % | $ | (1,970,934 | ) | 105.3 | % | $ | (336,286 | ) | 17.1 | % | |||||||||
Revenues
Our total revenues increased by $2,816,432, or 150.4%, to $4,688,908 for the three months ended September 30, 2023 from $1,872,476 for the three months ended September 30, 2022, mainly attributable to (i) increased revenue of $2,405,907 from customized software development and services as a result of the acquisition of Sigmaways and its subsidiaries on February 1, 2023; (ii) increased revenue of $138,290 from GO IPO consulting services, as the Company obtained more IPO consulting customers in 2023.
Cost of Revenues
Our total cost of revenues increased by $2,316,985, or 150.1%, to $3,860,241 for the three months ended September 30, 2023 from $1,543,256 for the three months ended September 30, 2022, in light of the increase in sales in GO IPO consulting services and customized software development and services.
| 8 |
Gross Profit
Our total gross profit increased by $499,447, or 151.7%, to $828,667 for the three months ended September 30, 2023 from $329,220 for the three months ended September 30, 2022, mainly attributable to (i) the increased gross profit of $113,685 from maintenance and support services, as we terminated some subcontractors in supporting service, as part of our effect to reduce costs; (ii) the increased gross profit of $220,792 from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023; (iii) the increased gross profit of $135,404 from GO IPO consulting services in light of the increase in sale. Our overall gross profit margin increased slightly by 0.1% to 17.7% for the three months ended September 30, 2023, from 17.6% for the three months ended September 30, 2022.
Selling Expenses
Our selling expenses decreased by $497,453, or 64.5%, to $274,043 for the three months ended September 30, 2023 from $771,496 for the three months ended September 30, 2022, primarily attributable to a decrease of $561,559 in advertising expense, as the Company spent heavily on IR and PR in the U.S. immediately after listing in Nasdaq in early 2022; offset by an increase of $80,291 in stock-based compensation for sales staff.
As a percentage of revenues, our selling expenses accounted for 5.9% and 41.2% of our total revenues for the three months ended September 30, 2023 and 2022, respectively.
General and Administrative Expenses
Our general and administrative expenses increased by $659,720, or 43.6%, to $2,172,298 for the three months ended September 30, 2023 from $1,513,028 for the three months ended September 30, 2022, primarily attributable to (i) an increase of $663,156 in salaries and welfare due to a company-wide wage increase and additional staff employed by Sigmaways and its subsidiaries; (ii) an increase of $169,154 in depreciation and amortization expenses, and an increase of $70,952 in rent expenses, mostly due to the acquisition of Sigmaways and its subsidiaries as well as the overall business expansion; offset by (iii) a decrease of $257,475 in stock-based compensation as the Company awarded options and RSUs to employees and service providers in early 2022 when the Company finished going public.
As a percentage of revenues, general and administrative expenses were 46.3% and 80.8% of our revenues for the three months ended September 30, 2023 and 2022, respectively.
Research and Development Expenses
Our research and development expenses increased by $111,796, or 191.8%, to $170,071 for the three months ended September 30, 2023 from $58,275 for the three months ended September 30, 2022, primarily attributable to the increase in outsourcing expenses relating to the development of new CMS management screen features in the current period.
As a percentage of revenues, research and development expenses were 3.6% and 3.1% of our revenues for the three months ended September 30, 2023 and 2022, respectively.
Other Income (Expenses)
Our other income (expenses) primarily include changes in fair value of investments in marketable securities, changes in fair value of investments in warrants, interest income generated from bank deposits, interest expense for bank loans and bonds, other income, and other expenses. Our other income decreased by $757,551, or 3,213.2%, from other income of $23,576 in the three months ended September 30, 2022 to other expenses of $733,975 in the three months ended September 30, 2023, primarily attributable to a decrease of $271,740 in changes in fair value of investments in marketable securities and a decrease of $460,672 in changes in fair value of investments in warrants, offset by an increase of $37,445 in other income, primarily attributable to the CMS development subsidy granted by the Japanese government.
Income Tax Expense (Benefit)
Our income tax expense was $19,413 in the three months ended September 30, 2023, as compared to the income tax benefit of $19,069 in the three months ended September 30, 2022, as one of the newly incorporated subsidiaries generated net income before income tax in the current period while no entity generated taxable income in the prior period.
| 9 |
Net Loss
As a result of the foregoing, we reported a net loss of $2,541,133 for the three months ended September 30, 2023, representing a $570,199, or 28.9%, increase from a net loss of $1,970,934 for the three months ended September 30, 2022.
Net Loss Attributable to Non-controlling Interest
We owned 51% equity ownership interest of Sigmaways and its subsidiaries as of September 30, 2023. Accordingly, we recorded net loss attributable to the non-controlling interest of $233,913 in the three months ended September 30, 2023.
Net Loss Attributable to HeartCore Enterprises, Inc.
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $2,307,220 for the three months ended September 30, 2023, representing a $336,286, or 17.1%, increase from $1,970,934 for the three months ended September 30, 2022.
Comparison of Results of Operations for the Nine Months Ended September 30, 2023 and 2022
The following table summarizes our operating results as reflected in our unaudited statements of operations during the nine months ended September 30, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
| For the Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| % of | % of | % of | ||||||||||||||||||||||
| Amount | Revenues | Amount | Revenues | Amount | Revenues | |||||||||||||||||||
| Revenues | $ | 18,518,431 | 100.0 | % | $ | 6,818,774 | 100.0 | % | $ | 11,699,657 | 171.6 | % | ||||||||||||
| Cost of Revenues | 10,548,245 | 57.0 | % | 3,935,908 | 57.7 | % | 6,612,337 | 168.0 | % | |||||||||||||||
| Gross Profit | 7,970,186 | 43.0 | % | 2,882,866 | 42.3 | % | 5,087,320 | 176.5 | % | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 1,330,747 | 7.2 | % | 1,706,250 | 25.0 | % | (375,503 | ) | -22.0 | % | ||||||||||||||
| General and administrative expenses | 7,305,392 | 39.4 | % | 5,832,276 | 85.5 | % | 1,473,116 | 25.3 | % | |||||||||||||||
| Research and development expenses | 289,303 | 1.6 | % | 583,762 | 8.6 | % | (294,459 | ) | -50.4 | % | ||||||||||||||
| Total operating expenses | 8,925,442 | 48.2 | % | 8,122,288 | 119.1 | % | 803,154 | 9.9 | % | |||||||||||||||
| Loss from operations | (955,256 | ) | -5.2 | % | (5,239,422 | ) | -76.8 | % | 4,284,166 | -81.8 | % | |||||||||||||
| Other expenses | (741,827 | ) | -4.0 | % | (24,510 | ) | -0.4 | % | (717,317 | ) | 2,926.6 | % | ||||||||||||
| Loss before income tax provision | (1,697,083 | ) | -9.2 | % | (5,263,932 | ) | -77.2 | % | 3,566,849 | -67.8 | % | |||||||||||||
| Income tax expense (benefit) | 58,859 | 0.3 | % | (10,906 | ) | -0.2 | % | 69,765 | -639.7 | % | ||||||||||||||
| Net loss | (1,755,942 | ) | -9.5 | % | (5,253,026 | ) | -77.0 | % | 3,497,084 | -66.6 | % | |||||||||||||
| Less: net loss attributable to non-controlling interest | (419,211 | ) | -2.3 | % | - | - | (419,211 | ) | -100.0 | % | ||||||||||||||
| Net loss attributable to HeartCore Enterprises, Inc. | $ | (1,336,731 | ) | -7.2 | % | $ | (5,253,026 | ) | -77.0 | % | $ | 3,916,295 | -74.6 | % | ||||||||||
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Revenues
Our total revenues increased by $11,699,657, or 171.6%, to $18,518,431 for the nine months ended September 30, 2023 from $6,818,774 for the nine months ended September 30, 2022, mainly attributable to (i) the increased revenue of $5,520,129 from GO IPO consulting services as the Company obtained more IPO consulting customers in 2023 and received warrants from its customers as noncash consideration from consulting services; (ii) the increased revenue of $6,332,479 from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023; offset by (iii) the decreased revenue of $317,418 in revenue from sales of on-premise software, primarily due to the weak perform of a significant distributor in the current period.
Cost of Revenues
Our total cost of revenues increased by $6,612,337, or 168.0%, to $10,548,245 for the nine months ended September 30, 2023 from $3,935,908 for the nine months ended September 30, 2022, in light of the increase in sales in GO IPO consulting services and customized software development and services.
Gross Profit
Our total gross profit increased by $5,087,320, or 176.5%, to $7,970,186 for the nine months ended September 30, 2023 from $2,882,866 for the nine months ended September 30, 2022, mainly attributable to (i) the increased gross profit of $4,418,239 from GO IPO consulting services as the Company obtained more IPO consulting customers in 2023 and received warrants from its customers as noncash consideration from consulting services; (ii) the increased gross profit of $930,399 from customized software development and services as a result of acquisition of Sigmaways and its subsidiaries on February 1, 2023; offset by (iii) the decreased gross profit of $1,003,681 from sales of on-premise software due to the overall market competition. Our overall gross profit margin was 43.0% and 42.3% for the nine months ended September 30, 2023 and 2022, respectively.
Selling Expenses
Our selling expenses decreased by $375,503 or 22.0%, to $1,330,747 for the nine months ended September 30, 2023 from $1,706,250 for the nine months ended September 30, 2022, primarily attributable to a decrease of $902,271 in advertising expenses, as the Company spent heavily on IR and PR in the U.S. immediately after listing in Nasdaq in early 2022, offset by an increase of $483,669 in stock-based compensation for sales staff.
As a percentage of revenues, our selling expenses accounted for 7.2% and 25.0% of our total revenues for the nine months ended September 30, 2023 and 2022, respectively.
General and Administrative Expenses
Our general and administrative expenses increased by $1,473,116, or 25.3%, to $7,305,392 for the nine months ended September 30, 2023 from $5,832,276 for the nine months ended September 30, 2022, primarily attributable to (i) an increase of $1,240,015 in salaries and welfare, an increase of $297,951 in office, utility and other expenses, an increase of $419,800 in depreciation and amortization expenses, and an increase of $186,759 in rent expenses, mostly due to the acquisition of Sigmaways and its subsidiaries, as well as the overall business expansion; offset by (ii) a decrease of $242,877 in listing-related expenses as we finished the process of going public in early 2022; and (iii) a decrease of $538,997 in stock-based compensation as the Company awarded options and RSUs to employees and service providers in early 2022 when the Company finished going public.
As a percentage of revenues, general and administrative expenses were 39.4% and 85.5% of our revenues for the nine months ended September 30, 2023 and 2022, respectively.
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Research and Development Expenses
Our research and development expenses decreased by $294,459, or 50.4%, to $289,303 for the nine months ended September 30, 2023 from $583,762 for the nine months ended September 30, 2022, primarily attributable to the decrease of $328,402 in outsourcing expenses relating to the development of a high quality 12K VR camera and related data compression system, which was completed in June 2022, offset by an increase of $59,104 in stock-based compensation for research and development staff.
As a percentage of revenues, research and development expenses were 1.6% and 8.6% of our revenues for the nine months ended September 30, 2023 and 2022, respectively.
Other Expenses
Our other expenses primarily include changes in fair value of investments in marketable securities and changes in fair value of investments in warrants, interest income generated from bank deposits, interest expense for bank loans and bonds, other income, and other expenses. Our other expenses increased by $717,317, or 2,926.6%, to $741,827 in the nine months ended September 30, 2023 from $24,510 in the nine months ended September 30, 2022, primarily attributable to (i) a decrease of $294,565 in changes in fair value of investments in warrants; (ii) a decrease of $500,762 in changes in fair value of investments in marketable securities; offset by (iii) an increase of $135,996 in other income, primarily attributable to the CMS development subsidy granted by the Japanese government.
Income Tax Expense (Benefit)
Our income tax expense was $58,859 in the nine months ended September 30, 2023, as compared to tax benefit of $10,906 in the nine months ended September 30, 2022, mainly due to one of our newly incorporated subsidiaries generated net income before income tax during the nine months ended September 30, 2023 while all entities suffered from taxable loss in the prior period.
Net Loss
As a result of the foregoing, we reported a net loss of $1,755,942 for the nine months ended September 30, 2023, representing a $3,497,084, or 66.6%, decrease from a net loss of $5,253,026 for the nine months ended September 30, 2022.
Net Loss Attributable to Non-controlling Interest
We owned 51% equity ownership interest of Sigmaways and its subsidiaries as of September 30, 2023. Accordingly, we recorded a net loss attributable to the non-controlling interest of $419,211 in the nine months ended September 30, 2023.
Net Loss Attributable to HeartCore Enterprises, Inc.
As a result of the foregoing, we reported a net loss attributable to HeartCore Enterprises, Inc. of $1,336,731 for the nine months ended September 30, 2023, representing a $3,916,295, or 74.6%, decrease from $5,253,026 for the nine months ended September 30, 2022.
Liquidity and Capital Resources
As of September 30, 2023, we had $2,199,565 in cash, as compared to $7,177,326 as of December 31, 2022. As of September 30, 2023, our working capital was $1,095,609, as compared to $4,887,444 as of December 31, 2022. We also had $2,562,239 in accounts receivable as of September 30, 2023. Our accounts receivable primarily includes balance due from customers for our on-premise software sold and services provided to and accepted by customers, as well as Sigmaways’s accounts receivable related to customized software development and services.
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The following table sets forth summary of our cash flows for the periods indicated:
| For
the Nine Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Net cash flows used in operating activities | $ | (2,457,661 | ) | $ | (4,206,370 | ) | ||
| Net cash flows used in investing activities | (1,781,810 | ) | (8,630 | ) | ||||
| Net cash flows provided by (used in) financing activities | (432,051 | ) | 9,122,350 | |||||
| Effect of exchange rate changes | (306,239 | ) | (200,981 | ) | ||||
| Net change in cash and cash equivalents | (4,977,761 | ) | 4,706,369 | |||||
| Cash and cash equivalents, beginning of the period | 7,177,326 | 3,136,839 | ||||||
| Cash and cash equivalents, end of the period | $ | 2,199,565 | $ | 7,843,208 | ||||
Operating Activities
Net cash flows used in operating activities was $2,457,661 for the nine months ended September 30, 2023, as compared to $4,206,370 net cash flows used in operating activities for the nine months ended September 30, 2022, primarily consisting of the following:
| ● | Net loss of $1,755,942 for the nine months ended September 30, 2023. | |
| ● | Warrants received as non-cash consideration of $4,009,335 as two of our IPO consulting customers completed the IPO during the current period. | |
| ● | An increase of $322,583 in accounts receivable in light of the increase in revenues. | |
| ● | Offset by an increase of $200,256 in deferred revenue, due to the upfront payment received for long-term service contracts. | |
| ● | Offset by stock-based compensation of $1,267,699 for the nine months ended September 30, 2023, as we granted equity rewards to our employees and service providers in the current period. | |
| ● | Offset by depreciation and amortization expenses of $495,200, mainly because we acquired Sigmaways and its subsidiaries on February 1, 2023 and recognized amortization expense for the intangible asset identified through the acquisition. | |
| ● | Offset by the loss from changes in fair value of investments in marketable securities of $500,762 due to the decrease in customers’ stock price from the warrant exercise date to the balance sheet date. | |
| ● | Offset by the loss from changes in fair value of investments in warrants of $294,565 as we recognized investments in warrants and remeasured the fair value at the period end. | |
| ● | Offset by an increase of $597,247 in accounts payable and accrued expenses as we incurred more operating expenses due to business. | |
| ● | Offset by non-cash lease expense of $254,876 due to the amortization or operating lease right-of-use assets as time passed. |
Investing Activities
Net cash flows used in investing activities amounted to $1,781,810 for the nine months ended September 30, 2023, as compared to net cash flows used in investing activities of $8,630 for the nine months ended September 30, 2022. Net cash flows used in investing activities for the nine months ended September 30, 2023 primarily consisted of (i) payment for acquisition of Sigmaways and its subsidiaries, net of cash acquired, of $724,910; (ii) advances on notes receivable of $600,000; and (iii) purchases of property and equipment of $516,658.
Financing Activities
Net cash flows used in financing activities amounted to $432,051 for the nine months ended September 30, 2023, as compared to net cash flows provided by financing activities of $9,122,350 for the nine months ended September 30, 2022. Net cash flows used in financing activities primarily consisted of repayment of $584,779 for long-term debts, and repayment of $266,756 for insurance premium financing, offset by the net proceeds of $217,250 from the factoring arrangement and proceeds of $219,427 from long-term debt.
| 13 |
Contractual Obligations
Lease commitment
The Company has entered into four 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 two leases for vehicles, one of which was terminated in September 2023, and these leases were classified as finance leases.
As of September 30, 2023, future minimum lease payments under the non-cancellable lease agreements are as follows:
| Year Ended December 31, | Finance Leases | Operating Leases | ||||||
| Remaining of 2023 | $ | 4,649 | $ | 101,255 | ||||
| 2024 | 17,844 | 388,730 | ||||||
| 2025 | 17,593 | 383,300 | ||||||
| 2026 | 17,593 | 321,614 | ||||||
| 2027 | 17,593 | 277,553 | ||||||
| Thereafter | 13,195 | 1,142,795 | ||||||
| Total lease payments | 88,467 | 2,615,247 | ||||||
| Less: imputed interest | (2,856 | ) | (136,089 | ) | ||||
| Total lease liabilities | 85,611 | 2,479,158 | ||||||
| Less: current portion | (17,076 | ) | (365,241 | ) | ||||
| Non-current lease liabilities | $ | 68,535 | $ | 2,113,917 | ||||
Long-Term Debts
The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions.
As of September 30, 2023, future minimum loan payments are as follows:
| Loan | ||||
| Year Ended December 31, | Payment | |||
| Remaining of 2023 | $ | 146,763 | ||
| 2024 | 462,065 | |||
| 2025 | 305,291 | |||
| 2026 | 293,302 | |||
| 2027 | 262,017 | |||
| Thereafter | 413,626 | |||
| Total | $ | 1,883,064 | ||
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2023.
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 revenues and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period. We continue to evaluate the estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed herein reflect the more significant judgments and estimates used in preparation of our unaudited consolidated financial statements.
| 14 |
Business Combinations
We account for business combinations using the acquisition method, which requires management to estimate the fair value of the tangible assets, liabilities, identifiable intangible asset and non-controlling interest, and to properly allocate purchase price consideration to the individual assets acquired, liabilities assumed and non-controlling interest. Goodwill is measured as the excess amount of consideration transferred. The allocation of the purchase price utilizes significant estimates and assumptions in determining the fair values of identifiable assets acquired, liabilities assumed and non-controlling interest, especially with respect to intangible asset. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset and are reviewed by consulting with third-party valuation appraisers. The purchase price allocation for business acquisitions contains uncertainties because it requires management’s judgment.
The fair value of the intangible asset is estimated using the income approach using the multi-period excess earnings method. Management applies significant judgement related to this fair value method, which included the selection of an expected EBITDA margin assumption for the forecast period, and discount rate assumptions. These significant assumptions are based on company specific information and projections, which are not observable in the market (except for the discount rate assumption) and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions.
The accounting for business combinations is a critical accounting estimate because it requires estimates and judgement in assessing the future cash flows of the acquired business, the fair value of non-controlling interest, and the allocation of the future cash flows to identifiable intangible assets, in determining the fair value for assets and liabilities.
Revenue Recognition
The Company recognizes revenues under ASC Topic 606, “Revenue from Contracts with customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of value-added taxes and applicable local government levies.
The Company currently generates its revenues from the following main sources:
Revenues 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. Revenues from on-premise licenses are 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.
Revenues from Maintenance and Support Services
Maintenance and support services provided with software licenses consist of trouble shooting, technical support and the right to receive unspecified software updates when and if available during the subscription. Revenues from maintenance and support services are recognized over time as such services are performed. Revenues for consumption-based services are generally recognized as the services are performed and accepted by the customers.
| 15 |
Revenues from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. The subscription contracts are generally one year or less in length.
Revenues from Software Development and Other Miscellaneous Services
The Company provides customers with software development and support services pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes 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.
Revenues from Customized Software Development and Services
The Company’s customized software development and services revenues primarily include revenues from providing software development solutions and other support services to its customers. The contract pricing is at stated billing rates per hour. These contracts are generally short-term in nature and not longer than one year in duration. For services provided under the contract that result in the transfer of control over time, the underlying deliverable in the contracts is owned and controlled by the customer and does not create an asset with an alternative use to the Company. The Company recognizes revenue on rate per hour contracts based on the amount billable to the customer, as the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date.
Revenues from Consulting Services
The Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting service contracts are generally less than one year in length and normally include both cash and noncash consideration. Cash consideration is paid in installment payments and is recognized in revenue over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is in the form of warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. The Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved.
The timing of revenue recognition may differ from the timing of invoicing to the customers. The Company has determined that its contracts do not include a significant financing component. The Company records a contract asset, which is included in accounts receivable on the consolidated balance sheets, when revenue is recognized prior to invoicing. The Company factors certain accounts receivable upon or after the performance obligation is being met. The Company records deferred revenue on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice. Deferred revenue is reported net of related uncollected deferred revenue in the consolidated balance sheets. The amount of revenues recognized during the nine months ended September 30, 2023 and 2022 that were included in the opening deferred revenues balance was approximately $1.5 million and $1.2 million, respectively.
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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 September 30, 2023. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2023, 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, 2022, as filed with the Securities and Exchange Commission on March 31, 2023, as the same may be amended from time to time.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control 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 September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control 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, 2022, as updated from time to time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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.
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ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
| 18 |
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: November 13, 2023 | By: | /s/ Sumitaka Yamamoto |
| Sumitaka Yamamoto | ||
Chief Executive Officer and President (principal executive officer) | ||
| Dated: November 13, 2023 | By: | /s/ Qizhi Gao |
| Qizhi Gao | ||
Chief Financial Officer (principal financial officer and principal accounting officer) | ||
| 19 |
Exhibit 31.1
CERTIFICATIONS
I, Sumitaka Yamamoto, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2023 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: November 13, 2023 | 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 September 30, 2023 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: November 13, 2023 | 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 September 30, 2023, 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: November 13, 2023 | /s/ Sumitaka Yamamoto |
| Sumitaka Yamamoto | |
| Chief Executive Officer and President (principal executive officer) | |
| Date: November 13, 2023 | /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 |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| 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 | 20,842,690 | 17,649,886 |
| Common stock, shares outstanding | 20,842,690 | 17,649,886 |
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Statement [Abstract] | ||||
| Revenues | $ 4,688,908 | $ 1,872,476 | $ 18,518,431 | $ 6,818,774 |
| Cost of revenues | 3,860,241 | 1,543,256 | 10,548,245 | 3,935,908 |
| Gross profit | 828,667 | 329,220 | 7,970,186 | 2,882,866 |
| Operating expenses: | ||||
| Selling expenses | 274,043 | 771,496 | 1,330,747 | 1,706,250 |
| General and administrative expenses | 2,172,298 | 1,513,028 | 7,305,392 | 5,832,276 |
| Research and development expenses | 170,071 | 58,275 | 289,303 | 583,762 |
| Total operating expenses | 2,616,412 | 2,342,799 | 8,925,442 | 8,122,288 |
| Loss from operations | (1,787,745) | (2,013,579) | (955,256) | (5,239,422) |
| Other income (expenses): | ||||
| Changes in fair value of investments in marketable securities | (271,740) | (500,762) | ||
| Changes in fair value of investments in warrants | (460,672) | (294,565) | ||
| Interest income | 14,363 | 21,707 | 64,633 | 32,256 |
| Interest expenses | (42,619) | (10,500) | (125,073) | (39,361) |
| Other income | 52,640 | 15,195 | 176,641 | 40,645 |
| Other expenses | (25,947) | (2,826) | (62,701) | (58,050) |
| Total other income (expenses) | (733,975) | 23,576 | (741,827) | (24,510) |
| Loss before income tax provision | (2,521,720) | (1,990,003) | (1,697,083) | (5,263,932) |
| Income tax expense (benefit) | 19,413 | (19,069) | 58,859 | (10,906) |
| Net loss | (2,541,133) | (1,970,934) | (1,755,942) | (5,253,026) |
| Less: net loss attributable to non-controlling interest | (233,913) | (419,211) | ||
| Net loss attributable to HeartCore Enterprises, Inc. | (2,307,220) | (1,970,934) | (1,336,731) | (5,253,026) |
| Other comprehensive income (loss): | ||||
| Foreign currency translation adjustment | (90,743) | 128,705 | (85,244) | 428,118 |
| Total comprehensive loss | (2,631,876) | (1,842,229) | (1,841,186) | (4,824,908) |
| Less: comprehensive loss attributable to non-controlling interest | (235,094) | (422,352) | ||
| Comprehensive loss attributable to HeartCore Enterprises, Inc. | $ (2,396,782) | $ (1,842,229) | $ (1,418,834) | $ (4,824,908) |
| Net loss per common share attributable to HeartCore Enterprises, Inc. | ||||
| Basic | $ (0.11) | $ (0.11) | $ (0.07) | $ (0.29) |
| Diluted | $ (0.11) | $ (0.11) | $ (0.07) | $ (0.29) |
| Weighted average common shares outstanding | ||||
| Basic | 20,842,690 | 17,835,027 | 20,257,020 | 18,014,483 |
| Diluted | 20,842,690 | 17,835,027 | 20,257,020 | 18,014,483 |
Consolidated Statements of Changes in Shareholders' Equity (Deficit) (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Treasury Stock, Common [Member] |
Retained Earnings [Member] |
AOCI Attributable to Parent [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2021 | $ 1,554 | $ 3,350,779 | $ (3,896,113) | $ (15,172) | $ (558,952) | |||
| 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 | |||||||
| Stock-based compensation | 422,164 | 422,164 | ||||||
| Balance at Mar. 31, 2022 | $ 1,891 | 17,416,901 | (5,474,564) | 64,881 | 12,009,109 | |||
| Balance, shares at Mar. 31, 2022 | 18,915,943 | |||||||
| Balance at Dec. 31, 2021 | $ 1,554 | 3,350,779 | (3,896,113) | (15,172) | (558,952) | |||
| Balance, shares at Dec. 31, 2021 | 15,546,454 | |||||||
| Net loss | $ (5,253,026) | |||||||
| Issuance of common shares from exercise of share options, shares | ||||||||
| Stock-based compensation, shares | 16,500 | |||||||
| Balance at Sep. 30, 2022 | $ 1,899 | 18,220,206 | $ (3,500,000) | (9,149,139) | 412,946 | $ 5,985,912 | ||
| Balance, shares at Sep. 30, 2022 | 18,999,276 | (1,349,390) | ||||||
| Balance at Mar. 31, 2022 | $ 1,891 | 17,416,901 | (5,474,564) | 64,881 | 12,009,109 | |||
| 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 | ||||||
| Stock-based compensation | $ 8 | 466,654 | 466,662 | |||||
| Stock-based compensation, shares | 83,333 | |||||||
| Repurchase of common shares | $ (1,336,762) | (1,336,762) | ||||||
| Repurchase of common shares, shares | (558,809) | |||||||
| Balance at Jun. 30, 2022 | $ 1,899 | 17,883,555 | $ (1,336,762) | (7,178,205) | 284,241 | 9,654,728 | ||
| Balance, shares at Jun. 30, 2022 | 18,999,276 | (558,809) | ||||||
| Net loss | (1,970,934) | (1,970,934) | ||||||
| Foreign currency translation adjustment | 128,705 | 128,705 | ||||||
| Stock-based compensation | 336,651 | 336,651 | ||||||
| Repurchase of common shares | $ (2,163,238) | (2,163,238) | ||||||
| Repurchase of common shares, shares | (790,581) | |||||||
| Balance at Sep. 30, 2022 | $ 1,899 | 18,220,206 | $ (3,500,000) | (9,149,139) | 412,946 | 5,985,912 | ||
| Balance, shares at Sep. 30, 2022 | 18,999,276 | (1,349,390) | ||||||
| Balance at Dec. 31, 2022 | $ 1,764 | 15,014,607 | (10,573,579) | 364,837 | 4,807,629 | 4,807,629 | ||
| Balance, shares at Dec. 31, 2022 | 17,649,886 | |||||||
| Net loss | 1,882,289 | 1,882,289 | (74,252) | 1,808,037 | ||||
| Foreign currency translation adjustment | (22,744) | (22,744) | (2,290) | (25,034) | ||||
| Stock-based compensation | $ 69 | 915,159 | 915,228 | 915,228 | ||||
| Stock-based compensation, shares | 692,804 | |||||||
| Issuance of common shares for acquisition of subsidiary | $ 250 | 3,149,750 | 3,150,000 | 3,150,000 | ||||
| Issuance of common shares for acquisition of subsidiary, shares | 2,500,000 | |||||||
| Non-controlling interests arising from acquisition of subsidiary | 3,190,000 | 3,190,000 | ||||||
| Balance at Mar. 31, 2023 | $ 2,083 | 19,079,516 | (8,691,290) | 342,093 | 10,732,402 | 3,113,458 | 13,845,860 | |
| Balance, shares at Mar. 31, 2023 | 20,842,690 | |||||||
| Balance at Dec. 31, 2022 | $ 1,764 | 15,014,607 | (10,573,579) | 364,837 | 4,807,629 | 4,807,629 | ||
| Balance, shares at Dec. 31, 2022 | 17,649,886 | |||||||
| Net loss | $ (1,755,942) | |||||||
| Issuance of common shares from exercise of share options, shares | ||||||||
| Stock-based compensation, shares | 102,000 | |||||||
| Balance at Sep. 30, 2023 | $ 2,083 | 19,431,987 | (11,910,310) | 282,734 | 7,806,494 | 2,767,648 | $ 10,574,142 | |
| Balance, shares at Sep. 30, 2023 | 20,842,690 | |||||||
| Balance at Mar. 31, 2023 | $ 2,083 | 19,079,516 | (8,691,290) | 342,093 | 10,732,402 | 3,113,458 | 13,845,860 | |
| Balance, shares at Mar. 31, 2023 | 20,842,690 | |||||||
| Net loss | (911,800) | (911,800) | (111,046) | (1,022,846) | ||||
| Foreign currency translation adjustment | 30,203 | 30,203 | 330 | 30,533 | ||||
| Stock-based compensation | 179,165 | 179,165 | 179,165 | |||||
| Balance at Jun. 30, 2023 | $ 2,083 | 19,258,681 | (9,603,090) | 372,296 | 10,029,970 | 3,002,742 | 13,032,712 | |
| Balance, shares at Jun. 30, 2023 | 20,842,690 | |||||||
| Net loss | (2,307,220) | (2,307,220) | (233,913) | (2,541,133) | ||||
| Foreign currency translation adjustment | (89,562) | (89,562) | (1,181) | (90,743) | ||||
| Stock-based compensation | 173,306 | 173,306 | 173,306 | |||||
| Balance at Sep. 30, 2023 | $ 2,083 | $ 19,431,987 | $ (11,910,310) | $ 282,734 | $ 7,806,494 | $ 2,767,648 | $ 10,574,142 | |
| Balance, shares at Sep. 30, 2023 | 20,842,690 |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| 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. Beginning from early 2022, HeartCore USA is engaged in business of providing consulting services to Japanese companies with intention to go public in the United States capital market.
On September 6, 2022, HeartCore USA entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire % of the outstanding shares of Sigmaways, Inc. (“Sigmaways”), a company incorporated under the laws of the State of California in April 2006, and its wholly-owned subsidiaries, Sigmaways B.V. and Sigmaways Technologies Ltd. (“Sigmaways Technologies”). Sigmaways B.V. was incorporated in Netherlands in November 2019. Sigmaways Technologies was incorporated in Canada in August 2020. Sigmaways and its wholly-owned subsidiaries are primarily engaged in the business of developing and sales of software in the United States. The acquisition was closed on February 1, 2023.
In January 2023, HeartCore USA incorporated a wholly-owned subsidiary, HeartCore Financial, Inc. (“HeartCore Financial”), under the laws of the State of Delaware. HeartCore Financial is engaged in the business of providing financial consulting services.
In February 2023, HeartCore USA incorporated a wholly-owned subsidiary, HeartCore Capital Advisors, Inc. (“HeartCore Capital Advisors”), in Japan. HeartCore Capital Advisors is engaged in the business of providing financial consulting services to Japanese companies.
HeartCore USA, HeartCore Japan, Sigmaways, Sigmaways B.V., Sigmaways Technologies, HeartCore Financial and HeartCore Capital Advisors are hereafter referred to as the Company.
HEARTCORE
ENTERPRISES, INC.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| 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 subsidiaries. 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2022.
Use of Estimates
In preparing the unaudited 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 unaudited consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for credit losses, useful lives of property and equipment, the impairment of long-lived assets and goodwill, valuation of stock-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and financing leases, valuation of asset retirement obligations, valuation of investments in warrants, revenue recognition and purchase price allocation with respect to business combination. 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 unaudited 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 unaudited consolidated financial statements.
HEARTCORE
ENTERPRISES, INC.
Asset Retirement Obligations
Pursuant to the lease agreements for the office space, the Company is responsible to restore these spaces back to its original statute at the time of leaving. The Company recognizes an obligation related to these restorations as asset retirement obligation included in other non-current liabilities in the consolidated balance sheets, in accordance with the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) Topic 410, “Asset Retirement Obligation Accounting”. The Company capitalizes the associated asset retirement cost by increasing the carrying amount of the related property and equipment. The following table presents changes in asset retirement obligations:
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 nine months ended September 30, 2023 and 2022, software development costs expensed as incurred amounted to $289,303 and $583,762, respectively. These software development costs were included in the research and development expenses.
Investments in Warrants
Investments in warrants represent stock warrants of its consulting service customers and are not registered for public sale. The warrants are measured at fair value and any changes in fair value are recognized in other income (expenses). Investments in warrants are classified as long-term if the warrants are exercisable over one year after the date of receipt.
Investments in Marketable Securities
Investments in marketable securities represent equity securities registered for public sale with readily determinable fair value. The marketable securities as of September 30, 2023 were obtained through exercise of stock warrants of its consulting service customers and measured at fair value with changes in fair value recognized in other income (expenses).
Intangible Asset, Net
Intangible asset represents the customer relationship acquired from business acquisition of Sigmaways and its subsidiaries. The acquired intangible asset is recognized and measured at fair value at the time of acquisition and is amortized on a straight-line basis over the estimated economic useful life of the respective assets. The estimated useful life of the customer relationship is 8 years.
Impairment of Long-Lived Assets Other Than Goodwill
Long-lived assets with finite lives, primarily property and equipment, operating lease right-of-use assets and intangible asset, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets during the nine months ended September 30, 2023 and 2022.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with ASC Topic 350, “Intangibles – Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
Foreign Currency Translation
The functional currency of HeartCore Japan and HeartCore Capital Advisors is the Japanese Yen (“JPY”). The functional currency of HeartCore USA, HeartCore Financial and Sigmaways is the United States Dollar (“US$”). The functional currency of Sigmaways B.V. is the Euro (“EUR”). The functional currency of Sigmaways Technologies is the Canada Dollar (“CAD”). 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 unaudited consolidated statements of operations.
HEARTCORE
ENTERPRISES, INC.
The reporting currency of the Company is the 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 unaudited statements of changes in shareholders’ equity (deficit).
Revenue Recognition
The Company recognizes revenues under ASC Topic 606, “Revenue from Contracts with customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of value-added taxes and applicable local government levies.
The Company currently generates its revenues from the following main sources:
Revenues 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. Revenues from on-premise licenses are 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.
Revenues from Maintenance and Support Services
Maintenance and support services provided with software licenses consist of trouble shooting, technical support and the right to receive unspecified software updates when and if available during the subscription. Revenues from maintenance and support services are recognized over time as such services are performed. Revenues for consumption-based services are generally recognized as the services are performed and accepted by the customers.
Revenues from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. The subscription contracts are generally one year or less in length.
HEARTCORE
ENTERPRISES, INC.
Revenues from Software Development and Other Miscellaneous Services
The Company provides customers with software development and support services pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes 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.
Revenues from Customized Software Development and Services
The Company’s customized software development and services revenues primarily include revenues from providing software development solutions and other support services to its customers. The contract pricing is at stated billing rates per hour. These contracts are generally short-term in nature and not longer than one year in duration. For services provided under the contract that result in the transfer of control over time, the underlying deliverable in the contract is owned and controlled by the customer and does not create an asset with an alternative use to the Company. The Company recognizes revenue on rate per hour contracts based on the amount billable to the customer, as the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date.
Revenues from Consulting Services
The Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting service contracts are generally less than one year in length and normally include both cash and noncash consideration. Cash consideration is paid in installment payments and is recognized in revenue over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is in the form of warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. The Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved.
The timing of revenue recognition may differ from the timing of invoicing to the customers. The Company has determined that its contracts do not include a significant financing component. The Company records a contract asset, which is included in accounts receivable on the consolidated balance sheets, when revenue is recognized prior to invoicing. The Company factors certain accounts receivable upon or after the performance obligation is being met. The Company records deferred revenue on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice. Deferred revenue is reported net of related uncollected deferred revenue in the consolidated balance sheets. The amount of revenues recognized during the nine months ended September 30, 2023 and 2022 that were included in the opening deferred revenues balance was approximately $1.5 million and $1.2 million, respectively.
Disaggregation of Revenues
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 revenues and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the three and nine months ended September 30, 2023 and 2022 is as following:
HEARTCORE
ENTERPRISES, INC.
The Company’s disaggregation of revenues by product/service is as following:
As of September 30, 2023 and 2022, and for the periods then ended, substantially all of the long-lived assets (excluding intangible asset) and the majority of revenues generated were 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 usually does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For the nine months ended September 30, 2023, customer B and C represent 14.2% and 13.6%, respectively, of the Company’s total revenues. For the nine months ended September 30, 2022, customer A represents 10.0% of the Company’s total revenues.
For the nine months ended September 30, 2023, vendor D, B, A and E represent 26.4%, 26.2%, 22.1% and 15.9%, respectively, of the Company’s total purchases. For the nine months ended September 30, 2022, vendor A, B, C and D represent 25.9%, 19.7%, 16.3% and 15.5%, respectively, of the Company’s total purchases.
Stock-based Compensation
The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the unaudited 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.
HEARTCORE
ENTERPRISES, INC.
Business Combinations
The Company accounts its business combinations using the acquisition method of accounting in accordance with ASC Topic 805. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible asset acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred.
Consideration transferred in a business combination is measured at the fair value as of the date of acquisition. Where the consideration in an acquisition includes contingent consideration, and the payment of which depends on the achievement of certain specified conditions post-acquisition, the contingent consideration is recognized and measured at its fair value at the acquisition date and is recorded as a liability. It is subsequently carried at fair value with changes in fair value reflected in earnings.
In a business combination achieved in stages, the Company remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the remeasurement gain or loss, if any, is recognized in the unaudited consolidated statements of operations and comprehensive loss.
Fair value is determined based upon the guidance of ASC Topic 820, “Fair Value Measurements and Disclosures,” and generally are determined using Level 2 inputs and Level 3 inputs. The determination of fair value involves the use of significant judgments and estimates. The Company utilizes the assistance of a third-party valuation appraiser to determine the fair value as of the date of acquisition.
Fair Value Measurements
The Company performs fair value measurements in accordance with ASC Topic 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:
As of September 30, 2023 and December 31, 2022, the carrying values of current assets, except for investments in marketable securities, and current liabilities approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments.
Investments in Warrants
The Company received warrants from its customers as noncash consideration from consulting services. The warrants are not registered for public sale and are measured at fair value at contract inception. The Company’s investments in warrants are measured on a recurring basis and carried on the balance sheet at an estimated fair value at the end of the period. The valuation of investments in warrants was determined using a Black-Scholes model of value based upon the stock price, exercise price, expected volatility, time to maturity, and a risk-free interest rate for the term of the warrants exercise. Such valuations are classified within Level 3 of the fair value hierarchy.
The following table summarizes the Company’s investments in warrants activity for the nine months ended September 30, 2023 and 2022:
Investments in Marketable Securities
The Company’s investments in marketable securities registered for public sale with readily determinable fair value are measured at quoted prices on a recurring basis at the end of the period. Marketable securities are classified within Level 1 of the fair value hierarchy.
The following table summarizes the Company’s investments in marketable securities activity for the nine months ended September 30, 2023 and 2022:
HEARTCORE
ENTERPRISES, INC.
Recent Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 was further amended in November 2020 by ASU No. 2020-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). As a result, ASC Topic 326, “Financial Instruments – Credit Losses” is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2020. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As the Company is an “emerging growth company” and elects to apply for the new and revised accounting standards at the effective date for a private company, the Company adopted ASU No. 2016-13 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. This ASU is expected to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2021-08 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited consolidated financial statements.
New Accounting Pronouncements Not Yet Effective
The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s unaudited consolidated financial statements.
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ACCOUNTS RECEIVABLE |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTS RECEIVABLE | NOTE 3 — ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
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PREPAID EXPENSES |
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| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PREPAID EXPENSES | NOTE 4 — PREPAID EXPENSES
Prepaid expenses consist of the following:
HEARTCORE
ENTERPRISES, INC.
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NOTE RECEIVABLE AND LONG-TERM NOTE RECEIVABLE |
9 Months Ended |
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Sep. 30, 2023 | |
| Receivables [Abstract] | |
| NOTE RECEIVABLE AND LONG-TERM NOTE RECEIVABLE | NOTE 5 — NOTE RECEIVABLE AND LONG-TERM NOTE RECEIVABLE
On May 2, 2023, the Company purchased a $300,000 promissory note from a non-related company. The note bears an interest rate of 8% per annum and matures on the earlier of 1) the date of the closing of capital-raising transactions in the amount of $300,000 or more consummated by the promissory note issuer, 2) the date on which the promissory note issuer completes its initial public offering (“IPO”) on the Nasdaq Capital Market or New York Stock Exchange, or 3) 180 days following the note issuance. The interest rate would be 12% per annum for any amount that is unpaid when due. On July 27, 2023, the Company entered into a note exchange agreement with the promissory note issuer pursuant to which all of the promissory note principal amount and accrued interest owed to the Company shall be converted into and exchanged for shares of common shares of the promissory note issuer upon the effectiveness of its IPO. The promissory note issuer has not completed the IPO as of September 30, 2023.
On September 1, 2023, the Company purchased a $300,000 promissory note from a non-related company. The note bears an interest rate of 4% per annum and matures on September 2, 2026. On the first business day following each annual anniversary of September 1, 2023, the promissory note issuer shall pay to the Company the sum of one-third of the total promissory note amount due and outstanding, including all accrued and unpaid interest as of such time, unless such annual payment has been forgiven by the Company pursuant to certain conditions. The interest rate would be 10% per annum for any amount that is unpaid when due.
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RELATED PARTY TRANSACTIONS |
9 Months Ended |
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Sep. 30, 2023 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 6 — RELATED PARTY TRANSACTIONS
As of September 30, 2023 and December 31, 2022, the Company has a due to related party balance of $7,859 and $402, respectively, from Sumitaka Yamamoto, the Chief Executive Officer (“CEO”) and major shareholder of the Company. The balance is unsecured, non-interest bearing and due on demand. During the nine months ended September 30, 2023, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $7,562. During the nine months ended September 30, 2022, the related party paid operating expenses on behalf of the Company and received the payments in a net amount of $3,098.
As of September 30, 2023 and December 31, 2022, the Company has a loan receivable balance of $226,515 and $294,919, respectively, from Heartcore Technology Inc., a company controlled by the CEO of the Company. The loan was made to the related party to support its operation. The balance is unsecured, bears an annual interest of 1.475%, and requires repayments in installments starting from February 2022. During the nine months ended September 30, 2023 and 2022, the Company received repayments of $34,823 and $33,042, respectively, from this related party.
During the period from January 1, 2022 through January 13, 2022, the Company completed a private placement, in which it issued shares of common shares at a purchase price of $ per share to the officers of the Company for an aggregate amount of $75,000.
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PROPERTY AND EQUIPMENT, NET |
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| PROPERTY AND EQUIPMENT, NET | NOTE 7 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
Depreciation expenses were $70,200 and $64,398 for the nine months ended September 30, 2023 and 2022, respectively.
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INTANGIBLE ASSET, NET |
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| INTANGIBLE ASSET, NET | NOTE 8 — INTANGIBLE ASSET, NET
Intangible asset, net is as follows:
Amortization expenses were $425,000 and for the nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023, the future estimated amortization cost for intangible asset is as follows:
HEARTCORE
ENTERPRISES, INC.
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LEASES |
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| LEASES | NOTE 9 — LEASES
The Company has entered into four 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 two leases for vehicles, one of which was terminated in September 2023, and these leases were classified as finance leases. Right-of-use assets of these finance leases in the amount of $85,591 and $18,335 are included in property and equipment, net as of September 30, 2023 and December 31, 2022, respectively.
Operating lease expenses for lease payments are recognized on a straight-line basis over the lease term. Finance lease costs include amortization, which are recognized on a straight-line basis over the expected life of the leased assets, and interest expenses, which are recognized following an effective interest rate method. Leases with initial term of twelve months or less are not recorded on the consolidated balance sheets.
The components of lease costs are as follows:
HEARTCORE
ENTERPRISES, INC.
The following table presents supplemental information related to the Company’s leases:
As of September 30, 2023, 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 $338,220 and $244,395 as of September 30, 2023 and December 31, 2022, respectively.
HEARTCORE
ENTERPRISES, INC.
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FACTORING LIABILITY |
9 Months Ended |
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Sep. 30, 2023 | |
| Factoring Liability | |
| FACTORING LIABILITY | NOTE 10 — FACTORING LIABILITY
Sigmaways, the newly acquired subsidiary of the Company, entered into a Factoring and Security Agreement (the “Factoring Agreement”) with The Southern Bank Company, an unrelated factor (the “Factor”), in 2017, for the purpose of factoring certain accounts receivable. Under the terms of the Factoring Agreement, the Company may offer for sale, and the Factor may purchase in its sole discretion, certain accounts receivable of the Company (the “Purchased Receivable”). The Factoring Agreement provided for a maximum of $850,000 in Purchased Receivable.
Selected accounts receivable is submitted to the Factor, and the Company receives 90% of the face value of the accounts receivable by wire transfer. Upon payment by the customers, the remainder of the amount due is received from the Factor after deducting certain fees.
The Factoring Agreement specifies that eligible accounts receivable is factored with recourse. Under the terms of the recourse provision, the Company is required to reimburse the Factor, upon demand, for Purchased Receivable that is not paid on time by the customers. The performance of all obligations and payments to the Factor is personally guaranteed by Prakash Sadasivam, CEO of Sigmaways and Chief Strategy Officer (“CSO”) of the Company, and secured by all Sigmaways’ now owned and hereafter assets and any sums maintained by the Factor that are identified as payable to the Company.
The Factoring Agreement has an initial term of twelve months and automatically renews for successive twelve-month renewal periods unless terminated pursuant to the terms of the Factoring Agreement. The Company may terminate the Factoring Agreement with sixty days’ written notice to the Factor and is subject to certain early termination fee.
The Factoring Agreement contained covenants that are customary for accounts receivable-based factoring agreements and also contained provisions relating to events of default that are customary for agreements of this type.
As of September 30, 2023, there was $217,250 borrowed and outstanding under the Factoring Agreement. There are various fees charged by the Factor, including initial discount purchase fee, factoring fee and interest expense. During the nine months ended September 30, 2023, the Company recorded $54,790 in interest expense related to the Factoring Agreement.
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INSURANCE PREMIUM FINANCING |
9 Months Ended |
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Sep. 30, 2023 | |
| Insurance [Abstract] | |
| INSURANCE PREMIUM FINANCING | NOTE 11 — INSURANCE PREMIUM FINANCING
In January 2023, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $389,035 at an annual interest rate of 16.04% for ten months from February 1, 2023, payable in ten monthly installments of principal and interest.
In February 2022, the Company entered into an insurance premium financing agreement with BankDirect Capital Finance for $388,538 at an annual interest rate of 12.80% for nine months from February 1, 2022, payable in nine monthly installments of principal and interest.
As of September 30, 2023 and December 31, 2022, the balance of the insurance premium financing was $122,279 and , respectively. During the nine months ended September 30, 2023 and 2022, the interest incurred was $25,988 and $19,859, respectively.
HEARTCORE
ENTERPRISES, INC.
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LONG-TERM DEBTS |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LONG-TERM DEBTS | NOTE 12 — 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:
Interest expense for long-term debts was $44,295 and $19,502 for the nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023, future minimum loan payments are as follows:
HEARTCORE
ENTERPRISES, INC.
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INCOME TAXES |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INCOME TAXES | NOTE 13 — INCOME TAXES
United States
HeartCore USA, Sigmaways and HeartCore Financial, incorporated in the United States, are subject to federal income tax at 21% statutory tax rate with respect to the profit generated from the United States.
Netherlands
Sigmaways B.V. is a company incorporated in Amsterdam in Netherlands in November 2019. The first EUR200,000 of taxable income will be taxed at 19% and the remaining taxable income will be taxed at statutory tax rate of 25.80%.
Canada
Sigmaways Technologies is a company incorporated in British Columbia in Canada in August 2020. It is subject to income tax on income arising in, or derived from, the tax jurisdiction in British Columbia it operates. The basic federal rate of Part I tax is 38% of taxable income, 28% after federal tax abatement. After the general tax reduction, the net federal tax rate is 15%. The provincial and territorial lower and higher tax rates in British Columbia are 2% and 12%, respectively.
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 tax rate of approximately 34.59% for the nine months ended September 30, 2023 and 2022.
For the nine months ended September 30, 2023 and 2022, the Company’s income tax expense (benefit) are as follows:
The effective tax rate was (3.47)% and 0.21% for the nine months ended September 30, 2023 and 2022, respectively.
HEARTCORE
ENTERPRISES, INC.
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STOCK-BASED COMPENSATION |
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| 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 (approximately $) each. All options are exercisable upon issuance with a repurchase provision before the completion of the Company’s initial public offering, which serves as a vesting condition. All employees that were granted these stock options had early exercised their stock options in 2016 prior to the vesting of the related stock options. As of November 3, 2021, 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 was recorded by the Company as a share repurchase liability included in other current liabilities in the consolidated balance sheet 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 stock-based compensation of $ during the nine months ended September 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 August 6, 2021, the Board of Directors and stockholders of the Company approved a 2021 Equity Incentive Plan (the “2021 Plan”), under which shares of common shares are authorized for issuance. On December 25, 2021, the Company awarded options to purchase shares of common shares pursuant to the 2021 Plan 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 .
On August 2, 2022, the Company awarded options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The options vest on each annual anniversary of the date of issuance, in an amount equal to % of the applicable shares of common shares, with the expiration date on .
On August 9, 2022, the Company awarded options to purchase shares of common shares at an exercise price of $ per share to three prior employees of the Company. The options are fully vested and exercisable on the grant date, with the expiration date on .
On February 3, 2023, the Company awarded options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The options vest % on the grant date and February 1, 2024, respectively, with the expiration date on .
On August 25, 2023, the Company awarded options to purchase shares of common shares pursuant to the 2021 Plan at an exercise price of $ per share to an employee of the Company. The options vest on each annual anniversary of the date of issuance, in an amount equal to % of the applicable shares of common shares, with the expiration date on .
On August 1, 2023, the Board of Directors and stockholders of the Company approved a 2023 Equity Incentive Plan (the “2023 Plan”), under which shares of common shares are authorized for issuance. No shares were issued pursuant to the 2023 Plan as of September 30, 2023.
HEARTCORE
ENTERPRISES, INC.
The Company calculated the fair value of options granted in the nine months ended September 30, 2023 using the Black-Scholes model. Significant assumptions used in the valuation include expected volatility, risk-free interest rate, dividend yield and expected exercise term.
For the three and nine months ended September 30, 2023, the Company recognized stock-based compensation related to options of $ and $, respectively. For the three and nine months ended September 30, 2022, the Company recognized stock-based compensation related to options of $ and $, respectively. The outstanding unamortized stock-based compensation related to options was $ (which will be recognized through August 2027) as of September 30, 2023.
Restricted Stock Units (“RSUs”)
On February 9, 2022, the Company entered into executive employment agreements with five executives and granted RSUs pursuant to the 2021 Plan. The RSUs vest on each annual anniversary of the date of the employment agreement, in an amount equal to % 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 $.
On March 22, 2023, the Company entered into agreements with employees and service providers of Sigmaways and granted RSUs pursuant to the 2021 Plan. The RSUs were fully vested upon issuance. The fair value of the RSUs at grant date was $.
The following table summarizes the RSUs activity for the nine months ended September 30, 2023 and 2022:
For the three and nine months ended September 30, 2023, the Company recognized stock-based compensation related to RSUs of $ and $, respectively. For the three and nine months ended September 30, 2022, the Company recognized stock-based compensation related to RSUs of $ and $, respectively. The outstanding unamortized stock-based compensation related to RSUs was $ (which will be recognized through February 2026) as of September 30, 2023.
HEARTCORE
ENTERPRISES, INC.
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SHAREHOLDERS’ EQUITY |
9 Months Ended |
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Sep. 30, 2023 | |
| Equity [Abstract] | |
| SHAREHOLDERS’ EQUITY | NOTE 15 – SHAREHOLDERS’ EQUITY
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 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 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 14).
On May 15, 2022, shares of restricted shares were issued to a marketing company as compensation of services received (also see NOTE 14).
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 September 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 September 30, 2022, the Company has used up the entire balance authorized under the 2022 Share Repurchase Program.
On February 1, 2023, shares of common shares were issued for the acquisition of % of the outstanding shares of Sigmaways and its subsidiaries with fair value of $ (also see NOTE 17).
As of September 30, 2023 and December 31, 2022, there were and shares of common shares issued and outstanding, respectively.
preferred shares were issued and outstanding as of September 30, 2023 and December 31, 2022.
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NET LOSS PER SHARE |
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| Net loss per common share attributable to HeartCore Enterprises, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NET LOSS PER SHARE |
Basic net loss per share is calculated on the basis of weighted average outstanding common shares. Diluted net loss per share is computed on the basis of basic weighted average outstanding common shares adjusted for the dilutive effect of stock options, RSUs and other dilutive securities. Common shares equivalents are determined by applying the treasury stock method to the assumed conversion of share repurchase liability to common shares related to the early exercised stock options and unvested RSUs, and are not included in the calculation of diluted loss per share if their effect would be anti-dilutive.
For the three and nine months ended September 30, 2023 and 2022, the weighted average common shares outstanding are the same for basic and diluted net loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.
HEARTCORE
ENTERPRISES, INC.
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BUSINESS COMBINATION |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| BUSINESS COMBINATION | NOTE 17 – BUSINESS COMBINATION
On September 6, 2022, HeartCore USA entered into a share exchange and purchase agreement (“Sigmaways Agreement”) to acquire 51% of the outstanding shares of Sigmaways, Inc. (“Sigmaways”), a company incorporated under the laws of the State of California, and its subsidiaries. The Sigmaways Agreement was further amended on December 23, 2022 and February 1, 2023, respectively, and the transaction was closed on February 1, 2023. Sigmaways and its subsidiaries are primarily engaged in the business of developing and sales of software in the United States. The Company aimed to expand the business of software development and sales in the United States through this acquisition. The purchase consideration was $4,150,000, consisted of $1,000,000 in cash and shares of common shares of the Company with fair value of $3,150,000 at the closing date.
The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities and non-controlling interest based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Amounts recorded in the business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
The purchase price was allocated on the acquisition date as follows:
The results of operations, financial position and cash flows of Sigmaways and its subsidiaries have been included in the Company’s unaudited consolidated financial statements since the date of acquisition. Sigmaways and its subsidiaries contributed revenues and net loss of $6,332,479 and $855,532, respectively, to the Company from February 1, 2023 to September 30, 2023.
Pro forma results of operations for the business combination have not been presented because they are not material to the unaudited consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022.
The Company’s policy is to perform its annual impairment testing on goodwill for its reporting unit on December 31 of each fiscal year or more frequently if events or changes in circumstances indicate that an impairment may exist. The Company did not recognize any impairment loss on goodwill during the nine months ended September 30, 2023.
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SUBSEQUENT EVENTS |
9 Months Ended |
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Sep. 30, 2023 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | NOTE 18 - SUBSEQUENT EVENTS
On October 4, 2023, the Company obtained a five-year term loan in the amount of JPY10,000,000 (approximately $73,000) from the Sumitomo Mitsui Banking Corporation, with an interest rate of 0.2% per annum starting in November 2026. The loan is co-guaranteed by Sumitaka Yamamoto, the Company’s CEO and major shareholder, and Tokyo Credit Guarantee Association.
On October 4, 2023, the Company obtained a five-year term loan in the amount of JPY10,000,000 (approximately $73,000) from the Sumitomo Mitsui Banking Corporation, with an interest rate of 0.6% per annum. The loan is co-guaranteed by Sumitaka Yamamoto, the Company’s CEO and major shareholder, and Tokyo Credit Guarantee Association.
On October 5, 2023, the Company obtained a five-year term loan in the amount of JPY30,000,000 (approximately $219,000) from the Higashi-Nippon Bank, with an interest rate of 1.45% per annum. The loan is co-guaranteed by Sumitaka Yamamoto, the Company’s CEO and major shareholder, and Tokyo Credit Guarantee Association. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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| 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 subsidiaries. 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2022.
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| Use of Estimates | Use of Estimates
In preparing the unaudited 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 unaudited consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for credit losses, useful lives of property and equipment, the impairment of long-lived assets and goodwill, valuation of stock-based compensation, valuation allowance of deferred tax assets, implicit interest rate of operating and financing leases, valuation of asset retirement obligations, valuation of investments in warrants, revenue recognition and purchase price allocation with respect to business combination. Actual results could differ from those estimates.
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| 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 unaudited 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 unaudited consolidated financial statements.
HEARTCORE
ENTERPRISES, INC.
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| 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 the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) Topic 410, “Asset Retirement Obligation Accounting”. The Company capitalizes the associated asset retirement cost by increasing the carrying amount of the related property and equipment. The following table presents changes in asset retirement obligations:
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| 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 nine months ended September 30, 2023 and 2022, software development costs expensed as incurred amounted to $289,303 and $583,762, respectively. These software development costs were included in the research and development expenses.
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| Investments in Warrants | Investments in Warrants
Investments in warrants represent stock warrants of its consulting service customers and are not registered for public sale. The warrants are measured at fair value and any changes in fair value are recognized in other income (expenses). Investments in warrants are classified as long-term if the warrants are exercisable over one year after the date of receipt.
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| Investments in Marketable Securities | Investments in Marketable Securities
Investments in marketable securities represent equity securities registered for public sale with readily determinable fair value. The marketable securities as of September 30, 2023 were obtained through exercise of stock warrants of its consulting service customers and measured at fair value with changes in fair value recognized in other income (expenses).
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| Intangible Asset, Net | Intangible Asset, Net
Intangible asset represents the customer relationship acquired from business acquisition of Sigmaways and its subsidiaries. The acquired intangible asset is recognized and measured at fair value at the time of acquisition and is amortized on a straight-line basis over the estimated economic useful life of the respective assets. The estimated useful life of the customer relationship is 8 years.
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| Impairment of Long-Lived Assets Other Than Goodwill | Impairment of Long-Lived Assets Other Than Goodwill
Long-lived assets with finite lives, primarily property and equipment, operating lease right-of-use assets and intangible asset, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets during the nine months ended September 30, 2023 and 2022.
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| Goodwill | Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired in a business combination. In accordance with ASC Topic 350, “Intangibles – Goodwill and Others”, goodwill is subject to at least an annual assessment for impairment or more frequently if events or changes in circumstances indicate that an impairment may exist, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
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| Foreign Currency Translation | Foreign Currency Translation
The functional currency of HeartCore Japan and HeartCore Capital Advisors is the Japanese Yen (“JPY”). The functional currency of HeartCore USA, HeartCore Financial and Sigmaways is the United States Dollar (“US$”). The functional currency of Sigmaways B.V. is the Euro (“EUR”). The functional currency of Sigmaways Technologies is the Canada Dollar (“CAD”). 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 unaudited consolidated statements of operations.
HEARTCORE
ENTERPRISES, INC.
The reporting currency of the Company is the 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 unaudited statements of changes in shareholders’ equity (deficit).
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| Revenue Recognition | Revenue Recognition
The Company recognizes revenues under ASC Topic 606, “Revenue from Contracts with customers”.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. Revenue amount represents the invoiced value, net of value-added taxes and applicable local government levies.
The Company currently generates its revenues from the following main sources:
Revenues 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. Revenues from on-premise licenses are 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.
Revenues from Maintenance and Support Services
Maintenance and support services provided with software licenses consist of trouble shooting, technical support and the right to receive unspecified software updates when and if available during the subscription. Revenues from maintenance and support services are recognized over time as such services are performed. Revenues for consumption-based services are generally recognized as the services are performed and accepted by the customers.
Revenues from Software as a Service (“SaaS”)
The Company’s software is available for use as hosted application arrangements under subscription fee agreements without licensing the rights of the software to the customers. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company’s solution is made available to the customer. The subscription contracts are generally one year or less in length.
HEARTCORE
ENTERPRISES, INC.
Revenues from Software Development and Other Miscellaneous Services
The Company provides customers with software development and support services pursuant to their specific requirements, which primarily compose of consulting, integration, training, custom application, and workflow development. The Company also provides other miscellaneous services, such as 3D Space photography. The Company generally recognizes 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.
Revenues from Customized Software Development and Services
The Company’s customized software development and services revenues primarily include revenues from providing software development solutions and other support services to its customers. The contract pricing is at stated billing rates per hour. These contracts are generally short-term in nature and not longer than one year in duration. For services provided under the contract that result in the transfer of control over time, the underlying deliverable in the contract is owned and controlled by the customer and does not create an asset with an alternative use to the Company. The Company recognizes revenue on rate per hour contracts based on the amount billable to the customer, as the Company has the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company’s performance to date.
Revenues from Consulting Services
The Company provides public listing related consulting services to customers pursuant to the specific requirements prescribed in the contracts, which primarily include communicating with intermediary parties, preparing required documents related to the initial public offering and supporting the listing process. The consulting service contracts are generally less than one year in length and normally include both cash and noncash consideration. Cash consideration is paid in installment payments and is recognized in revenue over the period of the contract by reference to progress toward complete satisfaction of that performance obligation. Noncash consideration is in the form of warrants of the customers and is measured at fair value at contract inception. Noncash consideration that is variable for reasons other than only the form of the consideration is included in the transaction price, but is subject to the constraint on variable consideration. The Company assesses the estimated amount of the variable noncash consideration at contract inception and subsequently, to determine when and to what extent it is probable that a significant reversal in the amount of cumulative revenues recognized will not occur once the uncertainty associated with the variable consideration is subsequently resolved. Only when the significant revenues reversal is concluded probable of not occurring can variable consideration be included in revenues. Based on evaluation of likelihood and magnitude of a reversal in applying the constraint, the variable noncash consideration is recognized in revenues until the underlying uncertainties have been resolved.
The timing of revenue recognition may differ from the timing of invoicing to the customers. The Company has determined that its contracts do not include a significant financing component. The Company records a contract asset, which is included in accounts receivable on the consolidated balance sheets, when revenue is recognized prior to invoicing. The Company factors certain accounts receivable upon or after the performance obligation is being met. The Company records deferred revenue on the consolidated balance sheets when revenues are recognized subsequent to cash collection for an invoice. Deferred revenue is reported net of related uncollected deferred revenue in the consolidated balance sheets. The amount of revenues recognized during the nine months ended September 30, 2023 and 2022 that were included in the opening deferred revenues balance was approximately $1.5 million and $1.2 million, respectively.
Disaggregation of Revenues
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 revenues and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the three and nine months ended September 30, 2023 and 2022 is as following:
HEARTCORE
ENTERPRISES, INC.
The Company’s disaggregation of revenues by product/service is as following:
As of September 30, 2023 and 2022, and for the periods then ended, substantially all of the long-lived assets (excluding intangible asset) and the majority of revenues generated were attributed to the Company’s operation in Japan.
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| 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 usually does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
For the nine months ended September 30, 2023, customer B and C represent 14.2% and 13.6%, respectively, of the Company’s total revenues. For the nine months ended September 30, 2022, customer A represents 10.0% of the Company’s total revenues.
For the nine months ended September 30, 2023, vendor D, B, A and E represent 26.4%, 26.2%, 22.1% and 15.9%, respectively, of the Company’s total purchases. For the nine months ended September 30, 2022, vendor A, B, C and D represent 25.9%, 19.7%, 16.3% and 15.5%, respectively, of the Company’s total purchases.
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| Stock-based Compensation | Stock-based Compensation
The Company accounts for stock-based compensation awards in accordance with ASC Topic 718, “Compensation – Stock Compensation”. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the unaudited 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.
HEARTCORE
ENTERPRISES, INC.
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| Business Combinations | Business Combinations
The Company accounts its business combinations using the acquisition method of accounting in accordance with ASC Topic 805. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible asset acquired and non-controlling interest, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses are expensed as incurred.
Consideration transferred in a business combination is measured at the fair value as of the date of acquisition. Where the consideration in an acquisition includes contingent consideration, and the payment of which depends on the achievement of certain specified conditions post-acquisition, the contingent consideration is recognized and measured at its fair value at the acquisition date and is recorded as a liability. It is subsequently carried at fair value with changes in fair value reflected in earnings.
In a business combination achieved in stages, the Company remeasures the previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the remeasurement gain or loss, if any, is recognized in the unaudited consolidated statements of operations and comprehensive loss.
Fair value is determined based upon the guidance of ASC Topic 820, “Fair Value Measurements and Disclosures,” and generally are determined using Level 2 inputs and Level 3 inputs. The determination of fair value involves the use of significant judgments and estimates. The Company utilizes the assistance of a third-party valuation appraiser to determine the fair value as of the date of acquisition.
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| Fair Value Measurements | Fair Value Measurements
The Company performs fair value measurements in accordance with ASC Topic 820. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or a liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:
As of September 30, 2023 and December 31, 2022, the carrying values of current assets, except for investments in marketable securities, and current liabilities approximated their fair values reported in the consolidated balance sheets due to the short-term maturities of these instruments.
Investments in Warrants
The Company received warrants from its customers as noncash consideration from consulting services. The warrants are not registered for public sale and are measured at fair value at contract inception. The Company’s investments in warrants are measured on a recurring basis and carried on the balance sheet at an estimated fair value at the end of the period. The valuation of investments in warrants was determined using a Black-Scholes model of value based upon the stock price, exercise price, expected volatility, time to maturity, and a risk-free interest rate for the term of the warrants exercise. Such valuations are classified within Level 3 of the fair value hierarchy.
The following table summarizes the Company’s investments in warrants activity for the nine months ended September 30, 2023 and 2022:
Investments in Marketable Securities
The Company’s investments in marketable securities registered for public sale with readily determinable fair value are measured at quoted prices on a recurring basis at the end of the period. Marketable securities are classified within Level 1 of the fair value hierarchy.
The following table summarizes the Company’s investments in marketable securities activity for the nine months ended September 30, 2023 and 2022:
HEARTCORE
ENTERPRISES, INC.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 was further amended in November 2020 by ASU No. 2020-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). As a result, ASC Topic 326, “Financial Instruments – Credit Losses” is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2020. For all other entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. As the Company is an “emerging growth company” and elects to apply for the new and revised accounting standards at the effective date for a private company, the Company adopted ASU No. 2016-13 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. This ASU is expected to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU No. 2021-08 on January 1, 2023 and the adoption did not have a material impact on the Company’s unaudited consolidated financial statements.
New Accounting Pronouncements Not Yet Effective
The Company has reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a material impact on the Company’s unaudited consolidated financial statements. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF CHANGES IN ASSET RETIREMENT OBLIGATIONS |
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| SCHEDULE OF DISAGGREGATION OF REVENUES |
HEARTCORE
ENTERPRISES, INC.
The Company’s disaggregation of revenues by product/service is as following:
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| SCHEDULE OF INVESTMENTS IN MARKETABLE SECURITIES | The following table summarizes the Company’s investments in warrants activity for the nine months ended September 30, 2023 and 2022:
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| Marketable Securities [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INVESTMENTS IN MARKETABLE SECURITIES | The following table summarizes the Company’s investments in marketable securities activity for the nine months ended September 30, 2023 and 2022:
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ACCOUNTS RECEIVABLE (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF ACCOUNTS RECEIVABLE NET | Accounts receivable consists of the following:
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PREPAID EXPENSES (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PREPAID EXPENSES | Prepaid expenses consist of the following:
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PROPERTY AND EQUIPMENT, NET (Tables) |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF PROPERTY AND EQUIPMENT NET | Property and equipment, net consist of the following:
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INTANGIBLE ASSET, NET (Tables) |
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| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INTANGIBLE ASSETS | Intangible asset, net is as follows:
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| SCHEDULE OF AMORTIZATION INTANGIBLE ASSET | As of September 30, 2023, the future estimated amortization cost for intangible asset is as follows:
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LEASES (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF LEASE COSTS | The components of lease costs are as follows:
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| SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO THE COMPANY’S LEASES | The following table presents supplemental information related to the Company’s leases:
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| SCHEDULE OF FINANCE LEASE AND OPERATING LEASE FUTURE MATURITY OF LEASE LIABILITIES | As of September 30, 2023, the future maturity of lease liabilities is as follows:
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LONG-TERM DEBTS (Tables) |
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| 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:
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| SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS | As of September 30, 2023, future minimum loan payments are as follows:
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INCOME TAXES (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INCOME TAX EXPENSES | For the nine months ended September 30, 2023 and 2022, the Company’s income tax expense (benefit) are as follows:
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STOCK-BASED COMPENSATION (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF UNVESTED STOCK OPTION |
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| SCHEDULE OF STOCK OPTION ACTIVITY |
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| SCHEDULE OF RESTRICTED STOCK UNITS | The following table summarizes the RSUs activity for the nine months ended September 30, 2023 and 2022:
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NET LOSS PER SHARE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss per common share attributable to HeartCore Enterprises, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE |
|
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BUSINESS COMBINATION (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF BUSINESS PURCHASE PRICE ALLOCATION | The purchase price was allocated on the acquisition date as follows:
|
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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 |
Sep. 06, 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] | HeartCore Japan [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 | |||
| Ownership percentage | 97.50% | |||||
| Share Exchange and Purchase Agreement [Member] | Sigmaways Inc [Member] | ||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||
| Business acquisition percentage of voting interest acquired | 51.00% |
SCHEDULE OF CHANGES IN ASSET RETIREMENT OBLIGATIONS (Details) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| Accounting Policies [Abstract] | ||
| Beginning balance | $ 138,018 | $ 155,666 |
| Liabilities incurred | 83,821 | |
| Accretion expense | 328 | 459 |
| Foreign currency translation adjustment | (24,350) | (18,107) |
| Ending balance | $ 197,817 | $ 138,018 |
SCHEDULE OF INVESTMENTS IN WARRANTS (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Accounting Policies [Abstract] | ||
| Fair value of investments in warrants at beginning of the period | ||
| Warrants received as noncash consideration | 4,009,335 | |
| Changes in fair value of investments in warrants | (294,565) | |
| Investments in warrants converted to marketable securities | (1,257,868) | |
| Fair value of investments in warrants at end of the period | $ 2,456,902 | |
SCHEDULE OF INVESTMENTS IN MARKETABLE SECURITIES (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Fair value of investments in warrants at beginning of the period | ||
| Investments in warrants converted to marketable securities | (1,257,868) | |
| Changes in fair value of investments in marketable securities | (294,565) | |
| Fair value of investments in warrants at end of the period | 2,456,902 | |
| Marketable Securities [Member] | ||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Fair value of investments in warrants at beginning of the period | ||
| Investments in warrants converted to marketable securities | 1,257,868 | |
| Changes in fair value of investments in marketable securities | (500,762) | |
| Marketable securities sold | ||
| Fair value of investments in warrants at end of the period | $ 757,106 | |
SCHEDULE OF ACCOUNTS RECEIVABLE NET (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
| Accounts receivable, gross | $ 2,562,239 | $ 551,064 |
| Less: allowance for credit losses | ||
| Accounts receivable | 2,562,239 | 551,064 |
| Nonfactored [Member] | ||
| Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
| Accounts receivable, gross | 2,344,989 | 551,064 |
| Factored With Recourse [Member] | ||
| Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
| Accounts receivable, gross | $ 217,250 |
SCHEDULE OF PREPAID EXPENSES (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Prepayments to software vendors | $ 185,540 | $ 162,046 |
| Prepaid marketing and consulting fees | 102,839 | 99,770 |
| Prepaid subscription fees | 83,207 | 113,685 |
| Prepaid insurance premium | 208,385 | 66,023 |
| Others | 103,356 | 96,706 |
| Total | $ 683,327 | $ 538,230 |
NOTE RECEIVABLE AND LONG-TERM NOTE RECEIVABLE (Details Narrative) - USD ($) |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 01, 2023 |
Jul. 27, 2023 |
May 02, 2023 |
Sep. 30, 2023 |
|
| Note Exchange Agreement [Member] | ||||
| Short-Term Debt [Line Items] | ||||
| Debt conversion shares issued | 600,000 | |||
| Promissory Note [Member] | ||||
| Short-Term Debt [Line Items] | ||||
| Receivables | $ 300,000 | $ 300,000 | ||
| Receivables interest rate | 4.00% | 8.00% | ||
| Debt instrument maturity description | the date of the closing of capital-raising transactions in the amount of $300,000 or more consummated by the promissory note issuer, 2) the date on which the promissory note issuer completes its initial public offering (“IPO”) on the Nasdaq Capital Market or New York Stock Exchange | |||
| Interest rate | 10.00% | 12.00% |
SCHEDULE OF PROPERTY AND EQUIPMENT NET (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | $ 1,372,444 | $ 885,003 |
| Less: accumulated depreciation | (619,504) | (681,376) |
| Property and equipment, net | 752,940 | 203,627 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | 471,069 | 298,637 |
| Machinery and Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | 673,435 | 316,827 |
| Vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | 85,111 | 106,490 |
| Software and Software Development Costs [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Subtotal | $ 142,829 | $ 163,049 |
PROPERTY AND EQUIPMENT, NET (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expenses | $ 70,200 | $ 64,398 |
SCHEDULE OF INTANGIBLE ASSETS (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Customer relationship | $ 5,100,000 | |
| Less: accumulated amortization | (425,000) | |
| Intangible asset, net | $ 4,675,000 |
SCHEDULE OF AMORTIZATION INTANGIBLE ASSET (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Remaining of 2023 | $ 159,375 | |
| 2024 | 637,500 | |
| 2025 | 637,500 | |
| 2026 | 637,500 | |
| 2027 | 637,500 | |
| Thereafter | 1,965,625 | |
| Intangible asset, net | $ 4,675,000 |
INTANGIBLE ASSET, NET (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||
| Amortization expense | $ 425,000 | |
SCHEDULE OF LEASE COSTS (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Leases | ||
| Amortization of right-of-use assets | $ 15,215 | $ 26,825 |
| Interest on lease liabilities | 98 | 370 |
| Total finance lease costs | 15,313 | 27,195 |
| Operating lease costs | 286,934 | 244,688 |
| Total lease costs | $ 302,247 | $ 271,883 |
SCHEDULE OF SUPPLEMENTAL INFORMATION RELATED TO THE COMPANY’S LEASES (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Leases | ||
| Operating cash flows from finance leases | $ 98 | $ 370 |
| Operating cash flows from operating leases | 257,277 | 243,108 |
| Financing cash flows from finance leases | 16,537 | 29,051 |
| Finance lease right-of-use asset obtained in exchange for finance lease liability | 93,117 | |
| Operating lease right-of-use asset obtained in exchange for operating lease liability | 317,040 | |
| Remeasurement of operating lease liability and right-of-use asset due to lease modification | $ 12,579 | |
| Weighted average remaining lease term (years) Finance leases | 5 years | 1 year 1 month 6 days |
| Weighted average remaining lease term (years) Operating leases | 7 years 8 months 12 days | 9 years 4 months 24 days |
| Weighted-average discount rate: (per annum) Finance leases | 1.32% | 1.32% |
| Weighted-average discount rate: (per annum) Operating leases | 1.33% | 1.32% |
SCHEDULE OF FINANCE LEASE AND OPERATING LEASE FUTURE MATURITY OF LEASE LIABILITIES (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Finance Lease, Liability [Abstract] | ||
| Remaining of 2023 | $ 4,649 | |
| 2024 | 17,844 | |
| 2025 | 17,593 | |
| 2026 | 17,593 | |
| 2027 | 17,593 | |
| Thereafter | 13,195 | |
| Total lease payment | 88,467 | |
| Less: imputed interest | (2,856) | |
| Total lease liabilities | 85,611 | |
| Less: current portion | (17,076) | $ (19,294) |
| Non-current lease liabilities | 68,535 | 459 |
| Operating Lease, Liability [Abstract] | ||
| Remaining of 2023 | 101,255 | |
| 2024 | 388,730 | |
| 2025 | 383,300 | |
| 2026 | 321,614 | |
| 2027 | 277,553 | |
| Thereafter | 1,142,795 | |
| Total lease payment | 2,615,247 | |
| Less: imputed interest | (136,089) | |
| Total lease liabilities | 2,479,158 | |
| Less: current portion | (365,241) | (291,863) |
| Non-current lease liabilities | $ 2,113,917 | $ 2,421,054 |
LEASES (Details Narrative) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Impairment Effects on Earnings Per Share [Line Items] | ||
| Security deposits | $ 338,220 | $ 244,395 |
| Property, Plant and Equipment [Member] | ||
| Impairment Effects on Earnings Per Share [Line Items] | ||
| Finance lease right of use asset | $ 85,591 | $ 18,335 |
FACTORING LIABILITY (Details Narrative) - Factoring Agreement [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2023
USD ($)
| |
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
| Accounts receivable purchase | $ 850,000 |
| Percentage of face value of accounts receivable received by wire transfer | 90.00% |
| Total amount outstanding as per agreementr | $ 217,250 |
| Interest expense | $ 54,790 |
INSURANCE PREMIUM FINANCING (Details Narrative) - USD ($) |
9 Months Ended | ||||
|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Feb. 28, 2023 |
Dec. 31, 2022 |
Feb. 28, 2022 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Insurance premium financing | $ 122,279 | ||||
| Insurance interest incurred | $ 25,988 | $ 19,859 | |||
| Insurance Premium Financing Agreement [Member] | Bank Direct Capital Finance [Member] | |||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||||
| Insurance premium financing | $ 389,035 | $ 388,538 | |||
| Interest rate percentage | 16.04% | 12.80% | |||
SCHEDULE OF FUTURE MINIMUM LOAN PAYMENTS (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| Remaining of 2023 | $ 146,763 | |
| 2024 | 462,065 | |
| 2025 | 305,291 | |
| 2026 | 293,302 | |
| 2027 | 262,017 | |
| Thereafter | 413,626 | |
| Total | $ 1,883,064 | $ 1,830,581 |
LONG-TERM DEBTS (Details Narrative) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Debt Disclosure [Abstract] | ||
| Interest expense for long-term debts | $ 44,295 | $ 19,502 |
SCHEDULE OF INCOME TAX EXPENSES (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Income Tax Disclosure [Abstract] | ||||
| Current | $ 168,549 | $ (2,108) | ||
| Deferred | (109,690) | (8,798) | ||
| Income tax expense (benefit) | $ 19,413 | $ (19,069) | $ 58,859 | $ (10,906) |
INCOME TAXES (Details Narrative) |
9 Months Ended | ||
|---|---|---|---|
Jan. 01, 2010 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Operating Loss Carryforwards [Line Items] | |||
| Income tax examination, description | Sigmaways B.V. is a company incorporated in Amsterdam in Netherlands in November 2019. The first EUR200,000 of taxable income will be taxed at 19% and the remaining taxable income will be taxed at statutory tax rate of 25.80% | ||
| Effective tax rate | (3.47%) | 0.21% | |
| Domestic Tax Authority [Member] | |||
| Operating Loss Carryforwards [Line Items] | |||
| Effective statutory rate | 21.00% | ||
| Foreign Tax Authority [Member] | |||
| Operating Loss Carryforwards [Line Items] | |||
| Effective statutory rate | 15.00% | 34.59% | 34.59% |
| Taxable income, rate | 38.00% | ||
| Federal tax abatement, after | 28.00% | ||
| Foreign Tax Authority [Member] | Minimum [Member] | |||
| Operating Loss Carryforwards [Line Items] | |||
| Effective statutory rate | 2.00% | ||
| Foreign Tax Authority [Member] | Maximum [Member] | |||
| Operating Loss Carryforwards [Line Items] | |||
| Effective statutory rate | 12.00% | ||
SCHEDULE OF UNVESTED STOCK OPTION (Details) - Equity Option [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
shares
| |
| Offsetting Assets [Line Items] | |
| Issued and unvested as of January 1, 2022 | 183 |
| Vested and exercised | 183 |
| Issued and unvested as of September 30, 2022 |
SCHEDULE OF STOCK OPTION ACTIVITY (Details) - USD ($) |
9 Months Ended | ||
|---|---|---|---|
Feb. 14, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Share-Based Payment Arrangement [Abstract] | |||
| Number of Options balance | 1,466,500 | 1,534,500 | |
| Weighted Average Exercise Price, balance | $ 2.50 | $ 2.50 | |
| Weighted Average Remaining Term (Years) | 8 years 11 months 8 days | 9 years 11 months 26 days | |
| Intrinsic Value | |||
| Number of Options, Granted | 102,000 | 16,500 | |
| Weighted Average Exercise Price, Granted | $ 1.17 | $ 2.54 | |
| Weighted Average Remaining Term (Years), Granted | 9 years 4 months 9 days | 4 years 7 months 2 days | |
| Number of Options, Exercised | 273,489 | ||
| Weighted Average Exercise Price, Exercised | $ (0) | ||
| Number of Options, Forfeited | (9,500) | (39,500) | |
| Weighted Average Exercise Price, Forfeited | |||
| Number of Options, balance | 1,559,000 | 1,511,500 | |
| Weighted Average Exercise Price, balance | $ 2.41 | $ 2.50 | |
| Weighted Average Remaining Term (Years) | 8 years 3 months 7 days | 9 years 2 months 8 days | |
| Intrinsic Value | |||
| Number of Options, Vested and exercisable, balance | 425,125 | ||
| Weighted Average Exercise Price, Vested and exercisable, balance | $ 2.34 | ||
| Weighted Average Remaining Term (Years), Vested and exercisable, balance | 8 years 2 months 8 days | ||
| Intrinsic Value | |||
SCHEDULE OF RESTRICTED STOCK UNITS (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Number of Restricted Stock Units, Unvested balance | 85,820 | |
| Weighted Average Grant Date Fair Value per Share, balance | $ 4.95 | |
| Number of Restricted Stock Units, Granted | 671,350 | 169,153 |
| Weighted Average Grant Date Fair Value per Share, Granted | $ 1.03 | $ 3.84 |
| Number of Restricted Stock Units, Vested | (692,805) | (83,333) |
| Weighted Average Grant Date Fair Value per Share, Vested | $ 1.15 | $ 2.70 |
| Number of Restricted Stock Units, Forfeited | ||
| Weighted Average Grant Date Fair Value per Share, Forfeited | ||
| Number of Restricted Stock Units, Unvested balance | 64,365 | 85,820 |
| Weighted Average Grant Date Fair Value per Share, balance | $ 4.95 | $ 4.95 |
STOCK-BASED COMPENSATION (Details Narrative) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Aug. 25, 2023
$ / shares
shares
|
Mar. 22, 2023
USD ($)
shares
|
Feb. 03, 2023
$ / shares
shares
|
Aug. 09, 2022
$ / shares
shares
|
Aug. 02, 2022
$ / shares
shares
|
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
|
Sep. 30, 2023
USD ($)
|
Mar. 31, 2023
shares
|
Sep. 30, 2022
USD ($)
|
Jun. 30, 2022
shares
|
Sep. 30, 2023
USD ($)
$ / shares
shares
|
Sep. 30, 2022
USD ($)
$ / shares
shares
|
Aug. 01, 2023
shares
|
Jan. 13, 2022
$ / shares
|
Dec. 31, 2021
USD ($)
|
Dec. 31, 2021
JPY (¥)
|
Aug. 06, 2021
shares
|
May 31, 2016
¥ / shares
|
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Options granted | 102,000 | 16,500 | ||||||||||||||||||||||
| Shares issued price per share | $ / shares | $ 2.50 | |||||||||||||||||||||||
| Number of option forfeited | 9,500 | 39,500 | ||||||||||||||||||||||
| Option exercise price per share | $ / shares | $ (0) | |||||||||||||||||||||||
| Restricted Stock Units (RSUs) [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Allocated share base compensation | $ | $ 29,000 | $ 55,768 | $ 788,577 | $ 366,844 | ||||||||||||||||||||
| Unamortized share based compensation | $ | 130,110 | 130,110 | ||||||||||||||||||||||
| Service Agreement [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Number of restricted stock issued | 671,350 | 83,333 | 83,333 | |||||||||||||||||||||
| RSUs grant date fair value | $ | $ 691,491 | $ 224,999 | ||||||||||||||||||||||
| Equity Option [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Number of options vested | 183 | |||||||||||||||||||||||
| Allocated share base compensation | $ | 144,306 | $ 280,883 | 479,122 | $ 858,633 | ||||||||||||||||||||
| Unamortized share based compensation | $ | $ 578,075 | $ 578,075 | ||||||||||||||||||||||
| 2021 Equity Incentive Plan [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Share based compensation authorized | 2,400,000 | |||||||||||||||||||||||
| 2023 Equity Incentive Plan [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Share based compensation authorized | 2,000,000 | |||||||||||||||||||||||
| Common Stock [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Options granted | 692,804 | 83,333 | ||||||||||||||||||||||
| Number of shares issued in acquisition | 2,500,000 | |||||||||||||||||||||||
| HeartCore Japan [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Options granted | 484,056 | |||||||||||||||||||||||
| Other current liabilities | $ 16 | ¥ 1,830 | ||||||||||||||||||||||
| Number of options vested | 183 | |||||||||||||||||||||||
| HeartCore Japan [Member] | Common Stock [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Repurchase liability, shares | $ | $ 16 | |||||||||||||||||||||||
| Repurchase liability, value | 273,489 | |||||||||||||||||||||||
| HeartCore Japan [Member] | IPO [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Number of options vested | 183 | |||||||||||||||||||||||
| Allocated share base compensation | $ | $ 11,005 | |||||||||||||||||||||||
| Employees [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Options granted | 2,000 | |||||||||||||||||||||||
| Shares issued price per share | $ / shares | $ 2.94 | |||||||||||||||||||||||
| Percentage of shares expected to be vested | 25.00% | 50.00% | 25.00% | |||||||||||||||||||||
| Expiration date | Aug. 25, 2033 | Feb. 03, 2033 | Aug. 02, 2032 | |||||||||||||||||||||
| Employees [Member] | HeartCore Japan [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 | ||||||||||||||||||||||
| Options granted | 324 | |||||||||||||||||||||||
| Chief Executive Officer [Member] | HeartCore Japan [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Number of option forfeited | 324 | |||||||||||||||||||||||
| Officers, Directors, Employees and Consultants [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Option to purchase common stock | 1,534,500 | |||||||||||||||||||||||
| Option exercise price per share | $ / shares | $ 2.50 | |||||||||||||||||||||||
| Percentage of shares expected to be vested | 25.00% | |||||||||||||||||||||||
| Expiration date | Dec. 25, 2031 | |||||||||||||||||||||||
| Three Prior Employees [Member] | ||||||||||||||||||||||||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||||||||||||||||||||||||
| Options granted | 2,000 | 100,000 | 14,500 | |||||||||||||||||||||
| Shares issued price per share | $ / shares | $ 1.10 | $ 1.17 | $ 2.48 | |||||||||||||||||||||
| Expiration date | Aug. 09, 2026 | |||||||||||||||||||||||
| Five Executives [Member] | 2021 Equity Incentive Plan [Member] | Executive Employment Agreements [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 | |||||||||||||||||||||||
SHAREHOLDERS’ EQUITY (Details Narrative) - USD ($) |
3 Months Ended | 4 Months Ended | 9 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 22, 2023 |
Feb. 01, 2023 |
May 15, 2022 |
Feb. 25, 2022 |
Feb. 14, 2022 |
Jan. 13, 2022 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Mar. 31, 2022 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
Jun. 01, 2022 |
Dec. 31, 2021 |
|
| Subsidiary, Sale of Stock [Line Items] | |||||||||||||||
| Common stock, shares authorized | 200,000,000 | 200,000,000 | |||||||||||||
| Common stock, par value | $ 0.0001 | $ 0.0001 | |||||||||||||
| Preferred stock, shares authorized | 20,000,000 | 20,000,000 | |||||||||||||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 | |||||||||||||
| Issuance of common shares for cash, shares | 96,000 | ||||||||||||||
| Shares 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 Repurchased During Period, Value | $ 2,163,238 | $ 1,336,762 | |||||||||||||
| Common stock, shares issued | 20,842,690 | 17,649,886 | |||||||||||||
| Common stock, shares outstanding | 20,842,690 | 17,649,886 | |||||||||||||
| Preferred stock, shares issued | 0 | 0 | |||||||||||||
| Preferred stock, shares outstanding | 0 | 0 | |||||||||||||
| Common Stock [Member] | |||||||||||||||
| Subsidiary, Sale of Stock [Line Items] | |||||||||||||||
| Issuance of common shares for cash, shares | 3,096,000 | ||||||||||||||
| Common stock issued from exercise of stock option | 273,489 | ||||||||||||||
| Common stock issued from exercise of stock option, shares | $ 27 | ||||||||||||||
| Stock Repurchased During Period, Value | |||||||||||||||
| 2022 Share Repurchase Program [Member] | |||||||||||||||
| Subsidiary, Sale of Stock [Line Items] | |||||||||||||||
| Repurchase | $ 3,500,000 | ||||||||||||||
| 2022 Share Repurchase Program [Member] | Common Stock [Member] | |||||||||||||||
| Subsidiary, Sale of Stock [Line Items] | |||||||||||||||
| Shares Issued, Price Per Share | $ 2.59 | $ 2.59 | $ 2.59 | ||||||||||||
| Stock Repurchased During Period, Shares | 1,349,390 | ||||||||||||||
| Stock Repurchased During Period, Value | $ 3,500,000 | ||||||||||||||
| 2022 Share Repurchase Program [Member] | Common Stock [Member] | Sigmaways [Member] | |||||||||||||||
| Subsidiary, Sale of Stock [Line Items] | |||||||||||||||
| Ownership percent | 51.00% | ||||||||||||||
| 2022 Share Repurchase Program [Member] | Common Stock [Member] | Sigmaways [Member] | |||||||||||||||
| Subsidiary, Sale of Stock [Line Items] | |||||||||||||||
| Share issued | 2,500,000 | ||||||||||||||
| Share issued, value | $ 3,150,000 | ||||||||||||||
| Service Agreement [Member] | |||||||||||||||
| Subsidiary, Sale of Stock [Line Items] | |||||||||||||||
| Number of restricted stock issued | 671,350 | 83,333 | 83,333 | ||||||||||||
| 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 | ||||||||||||||
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Net loss per common share attributable to HeartCore Enterprises, Inc. | ||||
| Net loss attributable to HeartCore Enterprises, Inc. common shareholders | $ (2,307,220) | $ (1,970,934) | $ (1,336,731) | $ (5,253,026) |
| Weighted average common shares outstanding - basic | 20,842,690 | 17,835,027 | 20,257,020 | 18,014,483 |
| Weighted average common shares outstanding - diluted | 20,842,690 | 17,835,027 | 20,257,020 | 18,014,483 |
| Net income (loss) per share - basic | $ (0.11) | $ (0.11) | $ (0.07) | $ (0.29) |
| Net income (loss) per share - diluted | $ (0.11) | $ (0.11) | $ (0.07) | $ (0.29) |
SCHEDULE OF BUSINESS PURCHASE PRICE ALLOCATION (Details) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
Sep. 06, 2022 |
|---|---|---|---|
| Business Combination and Asset Acquisition [Abstract] | |||
| Current assets | $ 2,066,683 | ||
| Acquired intangible asset | 5,100,000 | ||
| Non-current assets | 47,979 | ||
| Current liabilities | (1,146,900) | ||
| Deferred tax liabilities | (1,428,000) | ||
| Non-current liabilities | (576,203) | ||
| Goodwill | $ 3,276,441 | 3,276,441 | |
| Non-controlling interest | (3,190,000) | ||
| Total purchase consideration | $ 4,150,000 |
BUSINESS COMBINATION (Details Narrative) - USD ($) |
8 Months Ended | |
|---|---|---|
Sep. 06, 2022 |
Sep. 30, 2023 |
|
| Business Acquisition [Line Items] | ||
| Revenue | $ 6,332,479 | |
| Net loss | $ 855,532 | |
| Purchase Agreement [Member] | Sigmaways [Member] | ||
| Business Acquisition [Line Items] | ||
| Purchase combination consideration | $ 41,500 | |
| Purchase consideration, cost | $ 10,000 | |
| Acquisition, shares | 25,000 | |
| Debt instrument, fair value | $ 31,500 | |
| Purchase Agreement [Member] | Sigamaways Inc [Member] | ||
| Business Acquisition [Line Items] | ||
| Business acquisition percentage of voting interests acquired | 51.00% |
SUBSEQUENT EVENTS (Details Narrative) |
Oct. 05, 2023
USD ($)
|
Oct. 05, 2023
JPY (¥)
|
Oct. 04, 2023
USD ($)
|
Oct. 04, 2023
JPY (¥)
|
Sep. 30, 2023
USD ($)
|
Dec. 31, 2022
USD ($)
|
|---|---|---|---|---|---|---|
| Subsequent Event [Line Items] | ||||||
| Debt conversion original debt amount | $ 1,883,064 | $ 1,830,581 | ||||
| The Shoko Chukin Bank, Ltd. [Member] | ||||||
| Subsequent Event [Line Items] | ||||||
| Debt conversion original debt amount | 34,343 | |||||
| Debt conversion interest rate | 1.20% | |||||
| The Shoko Chukin Bank, Ltd. [Member] | Subsequent Event [Member] | Five Year Term Loan One [Member] | ||||||
| Subsequent Event [Line Items] | ||||||
| Debt conversion original debt amount | $ 73,000 | ¥ 10,000,000 | ||||
| Debt conversion interest rate | 20.00% | 20.00% | ||||
| The Shoko Chukin Bank, Ltd. [Member] | Subsequent Event [Member] | Five Year Term Loan Two [Member] | ||||||
| Subsequent Event [Line Items] | ||||||
| Debt conversion original debt amount | $ 73,000 | ¥ 10,000,000 | ||||
| Debt conversion interest rate | 60.00% | 60.00% | ||||
| Higashi Nippon Bank [Member] | ||||||
| Subsequent Event [Line Items] | ||||||
| Debt conversion original debt amount | $ 105,094 | $ 177,669 | ||||
| Debt conversion interest rate | 1.40% | |||||
| Higashi Nippon Bank [Member] | Subsequent Event [Member] | Five Year Term Loan Three [Member] | ||||||
| Subsequent Event [Line Items] | ||||||
| Debt conversion original debt amount | $ 219,000 | ¥ 30,000,000 | ||||
| Debt conversion interest rate | 145.00% | 145.00% |
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