HeartCore Enterprises, Inc. (“HeartCore” or “the Company”), a leading software development company, today reported financial results for the third quarter ended September 30, 2022.

Third Quarter 2022 and Recent Operational Highlights

  • Grew total number of global enterprise customers to 889 as of September 30, 2022.
  • HeartCore’s Content Management System (“CMS”) led Japan in CMS market share for the seventh straight year according to ITR Corporation, an independent IT consulting and research firm.
  • Signed fourth Go IPO consulting service agreement within a six-month period by engaging Metros Development.
  • Entered into a licensing agreement with Transcosmos Digital Technology Inc. to license its advanced process mining tool, Apromore.
  • Hosted HeartCoreDAY2022, a special event focused on solutions that promote digital transformation through two business lines within HeartCore’s CMS product offering, which help businesses create, manage, and modify web content and Digital Transformation.
  • Executed a deal with GMO MAKESHOP Co. Ltd., to offer its CMS and help augment GMO MAKESHOP’s digital transformation efforts prior to the launch of its Cloud E-Commerce Plan.
  • Signed a definitive agreement to acquire a 51% majority stake in privately held Sigmaways, Inc. (“Sigmaways”), a software engineering service provider delivering IT solutions.

Management Commentary“Even with a softer financial quarter, we are very encouraged by the qualitative progress that is being made across each front of our business, as the advancements being made today are setting us up for success going forward,” said CEO Sumitaka Yamamoto. “As the CMS leader in Japan by market share, we are confident in our ability to further augment our footprint into the U.S. by utilizing Sigmaways’ network, which we expect will add significant revenue in calendar year 2023. By acquiring Sigmaways, we will be able to develop software in-house at a lower cost instead of using outsourcing partners. Furthermore, we plan to cross-sell and upsell HeartCore solutions to our 800+ existing clients by utilizing Sigmaways' development capabilities, whereas before we would rely on our partners to do the development work for us. We have already hit the ground running in jointly conducting business and look forward to completing the acquisition and further enhancing growth opportunities for both entities in 2023.”

“Furthermore, we remain extremely active on the Go IPO consulting end, as we are offering a white glove service to each of our four signed on clients and are continuing to receive significant inbound interest from prospective companies. In particular, with two of our Go IPO clients scheduled to go public over the coming months, we are expected to receive warrants as part of our contract, which would contribute significantly to our bottom line. Looking ahead into calendar year 2023, our goal is to help 10 companies through the Go IPO process and assist each of them reach the objective of becoming a publicly-traded entity.”

Third Quarter 2022 Financial ResultsRevenues were $1.9 million compared to $3.5 million in the same period last year. The decrease in revenues was due to a decrease in sales of on-premise software, and primarily because of an accounting based principle around an important customer that renewed its software license in July 2021. The five-year term customer renewal had its total contract recognized as revenue in the third quarter of 2021. On Yen-based sales, revenues decreased by 24% year-over-year.  

Operating expenses increased to $2.3 million from $1.5 million in the same period last year. The increase was due to an increase in general and administrative expense. In particular, the increase resulted from an increase of hiring for the Go IPO Consulting Service and advertising.

Net loss attributable to HeartCore Enterprises, Inc. was $2.0 million, or $(0.11) per diluted share, compared to a net income attributable to HeartCore Enterprises, Inc. of approximately $186,000 or $0.01 per diluted share, in the same period last year. The net loss was primarily due to an increase in operating expenses and a decrease in revenues.

As of September 30, 2022, the Company had a cash and cash equivalents of $7.8 million compared to $3.1 million as of December 31, 2021.

About HeartCore Enterprises, Inc.Headquartered in Tokyo, Japan, HeartCore Enterprises is a leading software development company offering Software as a Service (SaaS) solutions to enterprise customers in Japan and worldwide. The Company also provides data analytics services that allow enterprise businesses to create tailored web experiences for their clients through best-in-class design. HeartCore's customer experience management platform (CXM Platform) includes marketing, sales, service and content management systems, as well as other tools and integrations, which enable companies to enhance the customer experience and drive engagement. HeartCore also operates a digital transformation business that provides customers with robotics process automation, process mining and task mining to accelerate the digital transformation of enterprises. Additional information about the Company's products and services is available at www.heartcore.co.jp and https://heartcore-enterprises.com/.

Forward-Looking StatementsAll statements other than statements of historical facts included in this press release are forward-looking statements. In some cases, forward-looking statements can be identified by words such as “believe,” “intend,” “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 are discussed in HeartCore’s filings with the Securities and Exchange Commission. Investors should not place any undue reliance on forward-looking statements since they involve known and unknown, uncertainties and other factors which are, in some cases, beyond HeartCore’s control which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects HeartCore’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to operations, results of operations, growth strategy and liquidity. HeartCore assumes no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. The contents of any website referenced in this press release are not incorporated by reference herein.

HeartCore Investor Relations Contact:Gateway Group, Inc.Matt Glover and John YiHTCR@gatewayir.com(949) 574-3860

HeartCore Enterprises, Inc.Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

             
      For the three months ended September 30,
      2022      2021 
      (Unaudited)     (Unaudited)
Revenues   $ 1,872,476     $ 3,470,510  
Cost of revenues     1,543,256       1,786,125  
Gross profit     329,220       1,684,385  
             
Operating expenses:            
Selling expenses     771,496       79,438  
General and administrative expenses     1,513,028       1,202,701  
Research and development expenses     58,275       189,686  
Total operating expenses     2,342,799       1,471,825  
             
Income (loss) from operations     (2,013,579 )     212,560  
             
Other income (expenses):            
Interest income     21,707       1,598  
Interest expense     (10,500 )     (6,695 )
Other income     15,195       1,341  
Other expenses     (2,826 )     (3,933 )
Total other income (expenses)     23,576       (7,689 )
             
Income (loss) before income tax provision     (1,990,003 )     204,871  
             
Income tax expense (benefit)     (19,069 )     13,522  
             
Net income (loss)     (1,970,934 )     191,349  
Less: net income attributable to non-controlling interest     -       5,176  
Net income (loss) attributable to HeartCore Enterprises, Inc.   $ (1,970,934 )   $ 186,173  
             
Other comprehensive income (loss):            
Foreign currency translation adjustment     128,705       (15,309 )
             
Total comprehensive income (loss)     (1,842,229 )     176,040  
Less: comprehensive income attributable to non-controlling interest     -       4,770  
Comprehensive income (loss) attributable to HeartCore Enterprises, Inc.   $ (1,842,229 )   $ 171,270  
             
Net earnings (loss) per common share attributable to HeartCore Enterprises, Inc.            
    Basic   $ (0.11 )   $ 0.01  
    Diluted   $ (0.11 )   $ 0.01  
             
Weighted average common shares outstanding            
    Basic     17,835,027       15,242,454  
    Diluted     17,835,027       15,515,943  
             
             

HeartCore Enterprises, Inc.Condensed Consolidated Balance Sheets

             
      September 30,     December 31,
      2022      2021 
      (unaudited)      
ASSETS
             
Current assets:            
Cash and cash equivalents   $ 7,843,208     $ 3,136,839  
Accounts receivable, net     621,345       960,964  
Prepaid expenses     618,955       444,405  
Due from related party     43,900       50,559  
Loan receivable from employee     -       8,341  
Other current assets     143,999       15,654  
Total current assets     9,271,407       4,616,762  
             
Non-current assets:            
Property and equipment, net     199,329       261,414  
Operating lease right-of-use assets     2,458,485       3,319,749  
Deferred tax assets     242,358       297,990  
Security deposits     221,460       278,237  
Long-term loan receivable from related party     234,316       335,756  
Loan receivable from employee, non-current     -       4,518  
Other non-current assets     2,188       8,737  
Total non-current assets     3,358,136       4,506,401  
             
Total assets   $ 12,629,543     $ 9,123,163  
             
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
             
Current liabilities:            
Accounts payable and accrued expenses   $ 445,752     $ 646,425  
Accrued payroll and other employee costs     245,113       255,082  
Due to related party     3,622       1,110  
Current portion of long-term debts     622,937       849,995  
Insurance premium financing     89,652       -  
Operating lease liabilities, current     264,387       332,277  
Finance lease liabilities, current     19,502       37,459  
Income tax payables     1,867       10,919  
Deferred revenue     1,386,559       1,690,917  
Mandatorily redeemable financial interest     -       447,986  
Other current liabilities     42,475       281,673  
Total current liabilities     3,121,866       4,553,843  
             
Non-current liabilities:            
Long-term debts     1,133,945       1,871,580  
Operating lease liabilities, non-current     2,259,284       3,076,204  
Finance lease liabilities, non-current     3,573       23,861  
Other non-current liabilities     124,963       156,627  
Total non-current liabilities     3,521,765       5,128,272  
             
Total liabilities     6,643,631       9,682,115  
             
Shareholders' equity (deficit):            
Preferred shares ($0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021)     -       -  
Common shares ($0.0001 par value, 200,000,000 shares authorized; 18,999,276 and 15,819,943 shares issued; 17,649,886 and 15,546,454 shares outstanding as of September 30, 2022 and December 31, 2021, respectively)     1,899       1,554  
Additional paid-in capital     18,220,206       3,350,779  
Treasury shares, at cost (1,349,390 and 0 shares as of September 30, 2022 and December 31, 2021, respectively)     (3,500,000 )     -  
Accumulated deficit     (9,149,139 )     (3,896,113 )
Accumulated other comprehensive income (loss)     412,946       (15,172 )
Total shareholders' equity (deficit)     5,985,912       (558,952 )
Total liabilities and shareholders' equity (deficit)   $ 12,629,543     $ 9,123,163  
             
             

HeartCore Enterprises, Inc.Consolidated Statements of Cash Flows

               
      For the nine months ended September 30,
      2022        2021 
      (unaudited)       (unaudited)
Cash flows from operating activities:              
Net income (loss)   $ (5,253,026 )     $ 414,826  
Adjustments to reconcile net income (loss) to net cash              
provided by (used in) operating activities:              
Depreciation expenses     64,398         80,297  
Amortization of debt issuance costs     3,051         4,358  
Non-cash lease expense     207,549         254,848  
Deferred income taxes     (5,843 )       85,004  
Share-based compensation     1,225,477         -  
Changes in assets and liabilities:              
Accounts receivable, net     168,021         (634,711 )
Prepaid expenses     (56,553 )       (177,880 )
Other assets     (142,967 )       34,568  
Accounts payable and accrued expenses     (96,238 )       684,960  
Accrued payroll and other employee costs     59,059         63,126  
Due to related party     3,098         -  
Operating lease liabilities     (213,691 )       (265,984 )
Finance lease liabilities     (370 )       (961 )
Income tax payables     (7,704 )       2,092  
Deferred revenue     45,938         639,643  
Other liabilities     (206,569 )       55,064  
Net cash flows provided by (used in) operating activities     (4,206,370 )       1,239,250  
               
Cash flows from investing activities:              
Purchases of property and equipment     (41,672 )       (24,675 )
Advance and loan provided to related parties     -         (126,390 )
Repayment of loan provided to related party     33,042         -  
Net cash flows used in investing activities     (8,630 )       (151,065 )
               
Cash flows from financing activities:              
Proceeds from initial public offering, net of issuance cost     13,602,554         -  
Proceeds from issuance of common shares prior to initial public offering     220,572         -  
Repurchase of common shares     (3,500,000 )       -  
Payments for finance leases     (29,051 )       (42,941 )
Proceeds from long-term debt     258,087         -  
Repayment of long-term debts     (699,407 )       (770,181 )
Repayment of insurance premium financing     (298,886 )       -  
Payments for debt issuance costs     (1,030 )       (3,033 )
Payment for mandatorily redeemable financial interest     (430,489 )       -  
Net cash flows provided by (used in) financing activities     9,122,350         (816,155 )
               
Effect of exchange rate changes     (200,981 )       (239,423 )
               
Net change in cash and cash equivalents     4,706,369         32,607  
               
Cash and cash equivalents - beginning of the period     3,136,839         3,058,175  
               
Cash and cash equivalents - end of the period   $ 7,843,208       $ 3,090,782  
               
Supplemental cash flow disclosure:              
Interest paid   $ 38,387       $ 22,100  
Income taxes paid   $ 3,013       $ 9,738  
               
Non-cash investing and financing transactions              
Remeasurement of the lease liability and right-of-use asset due to lease modification   $ -       $ 225,983  
Payroll withheld as repayment of loan receivable from employees   $ 12,034       $ 9,399  
Expense paid by related party on behalf of the Company   $ -       $ 107,178  
Reclassification of non-controlling interest to mandatorily redeemable financial interest   $ -       $ 447,986  
Liabilities assumed in connection with purchase of property and equipment   $ 17,731       $ -  
Share repurchase liability settled by issuance of common shares   $ 16       $ -  
Deferred offering costs recognized against the proceeds from the offering   $ 178,847       $ -  
Insurance premium financing   $ 388,538       $ -  
               

 

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