HTCR HeartCore Enterprises Inc

HeartCore Enterprises, Inc. (Nasdaq: HTCR) (“HeartCore” or “the Company”), a leading software development company offering Customer Experience Management Platform (“CXM Platform”) and Digital Transformation (“DX”), reported financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 and Recent Operational Highlights

• Partnered with INTRIX, Inc. to license HeartCore’s Content Management System (CMS).
• Executed a deal with Honda Trading Corporation for HeartCore’s task mining software solution, CONTROLIO, a web-based cloud system for employee monitoring and productivity enhancement.
• Presented virtually and held one-on-one meetings at the Sidoti & Co.’s June Virtual Small-Cap Conference.
• Hosted a U.S. Exchange Listing seminar in Tokyo, Japan on June 9, 2023 to a myriad of Japanese companies on the realities of going public on U.S. Exchanges in addition to an overview of its very successful Go IPO consulting service.
• Partnered with Toppan Inc. to strengthen and expand Toppan’s digital marketing business utilizing HeartCore’s Contents Management System, in addition to both companies collaborating on joint business ventures.
• Signed tenth Go IPO consulting service agreement with rYojbaba Inc.
• Second quarter revenue grew 91% compared to same period 2022.
• Year-to-Date revenue grew 180% compared to same period 2022.
• Q2 2023 EPS loss of $0.04 was primarily due to lower consulting services revenue as none of HeartCore’s clients’ pending IPOs were completed in the second quarter.
• YTD 2023 Company remained profitable and expects significant growth in second half 2022.

Management Commentary“This past quarter reflected a period of growth from our enterprise software division, in addition to a time of important back-end movement within our Go IPO segment as our two-pronged growth strategy continues to manifest into full effect,” said CEO Sumitaka Yamamoto. “As evidenced by growth of 102% and successfully hitting profitability within our enterprise software vertical, we continue to garner new customers and capitalize on synergistic opportunities with Sigmaways. Though we didn’t have any Go IPO clients go public in Q2, we have a significant amount of progress being made behind the scenes and expect to see a robust second half of the year and beyond. I am very encouraged by the results we’ve generated year to date and expect an even stronger end to the calendar year.”

Second Quarter 2023 Financial ResultsRevenues increased 91% to $5.1 million compared to $2.7 million in the same period last year. The increase was primarily due to increased revenue from customized software development and services as a result of Sigmaway and its subsidiaries, and an increase from GO IPO consulting services as the Company obtained more IPO Consulting customers in 2023.

Gross profit increased 13% to $1.5 million (gross margin of 30%) from $1.3 million (gross margin of 50%) in the same period last year. The increase was primarily from increased maintenance and support services and customized software development and services, offset by decrease in sales of on-premise software.

Operating expenses remained consistent at $3.0 million from the same period last year. The increase in general and administrative expenses was offset by decreases in selling and research and development expenses.

Net loss was $1.0 million or $(0.04) per diluted share, compared to a net loss of $1.7 million or $(0.09) per diluted share, in the same period last year.

As of June 30, 2023, the Company had cash and cash equivalents of $4.2 million compared to $7.2 million in December 31, 2022.

Six Months 2023 Financial ResultsRevenues increased 180% to $13.8 million compared to $4.9 million in the same period last year. The increase was primarily due to increased revenue from customized software development and services as a result of Sigmaways and its subsidiaries, and an increase from GO IPO consulting services as the Company obtained more IPO Consulting customers in 2023 and received warrants from its customers.

Gross profit increased 180% to $7.1 million (gross margin of 52%) from $2.6 million (gross margin of 52%) in the same period last year. The increase was primarily due to an increase from GO IPO consulting services and customized software development and services.

Operating expenses increased to $6.3 million from $5.8 million in the same period last year. The increase was primarily due to increases in selling and general and administrative expenses, offset by a decrease in research and development expenses.

Net income was about $785,000 or $0.05 per diluted share compared to a net loss of $3.3 million or $(0.18) per diluted share, in the same period last year.

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. Furthermore, HeartCore offers “Go IPO,” a consulting service where it assists private companies with uplisting onto the Nasdaq Stock Market. Additional information about the Company's products and services is available at 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, and 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@gateway-grp.com(949) 574-3860

HeartCore Enterprises, Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
		For the six months ended June 30,								For the three months ended June 30,
		2023				2022				2023				2022
Revenues	$	13,829,523			$	4,946,298			$	5,095,373			$	2,670,297
Cost of revenues		6,688,004				2,392,652				3,586,938				1,337,296
Gross profit		7,141,519				2,553,646				1,508,435				1,333,001
Operating expenses:
Selling expenses		1,056,704				934,754				488,062				728,836
General and administrative expenses		5,133,094				4,319,248				2,447,887				1,850,315
Research and development expenses		119,232				525,487				39,608				417,228
Total operating expenses		6,309,030				5,779,489				2,975,557				2,996,379
Income (loss) from operations		832,489				(3,225,843	)			(1,467,122	)			(1,663,378	)
Other income (expenses):
Changes in fair value of investments in marketable securities		(229,022	)			-				(229,022	)			-
Changes in fair value of investments in warrants		166,107				-				(27,258	)			-
Interest income		50,270				10,549				18,665				9,091
Interest expenses		(82,454	)			(28,861	)			(42,614	)			(17,590	)
Other income		124,001				25,450				109,800				8,777
Other expenses		(36,754	)			(55,224	)			(7,297	)			(31,562	)
Total other expenses		(7,852	)			(48,086	)			(177,726	)			(31,284	)
Income (loss) before income tax provision		824,637				(3,273,929	)			(1,644,848	)			(1,694,662	)
Income tax expense (benefit)		39,446				8,163				(622,002	)			8,979
Net income (loss)		785,191				(3,282,092	)			(1,022,846	)			(1,703,641	)
Less: net loss attributable to non-controlling interest		(185,298	)			-				(111,046	)			-
Net income (loss) attributable to HeartCore Enterprises, Inc.	$	970,489			$	(3,282,092	)		$	(911,800	)		$	(1,703,641	)
Other comprehensive income:
Foreign currency translation adjustment		5,499				299,413				30,533				219,360
Total comprehensive income (loss)		790,690				(2,982,679	)			(992,313	)			(1,484,281	)
Less: comprehensive loss attributable to non-controlling interest		(187,258	)			-				(110,716	)			-
Comprehensive income (loss) attributable to HeartCore Enterprises, Inc.	$	977,948			$	(2,982,679	)		$	(881,597	)		$	(1,484,281	)
Net income (loss) per common share attributable to HeartCore Enterprises, Inc.
Basic	$	0.05			$	(0.18	)		$	(0.04	)		$	(0.09	)
Diluted	$	0.05			$	(0.18	)		$	(0.04	)		$	(0.09	)
Weighted average common shares outstanding
Basic		19,959,333				18,105,698				20,842,690				18,936,829
Diluted		19,959,333				18,105,698				20,842,690				18,936,829

 

HeartCore Enterprises, Inc.
Condensed Consolidated Balance Sheets
		June 30,			December 31,
		2023			2022
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,238,741		$	7,177,326
Accounts receivable		2,812,337			551,064
Investments in marketable securities		1,028,846			-
Prepaid expenses		878,539			538,230
Note receivable		300,000			-
Due from related party		43,782			48,447
Other current assets		79,339			220,070
Total current assets		9,381,584			8,535,137
Non-current assets:
Property and equipment, net		331,389			203,627
Operating lease right-of-use assets		2,275,506			2,644,957
Intangible asset, net		4,834,375			-
Goodwill		3,276,441			-
Long-term investment in warrants		2,917,574			-
Deferred tax assets		238,783			263,339
Security deposits		339,052			244,395
Long-term loan receivable from related party		200,849			246,472
Other non-current assets		69			661
Total non-current assets		14,414,038			3,603,451
Total assets	$	23,795,622		$	12,138,588
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	1,194,222		$	497,742
Accrued payroll and other employee costs		561,698			360,222
Due to related party		4,250			402
Current portion of long-term debts		548,297			697,877
Insurance premium financing		239,785			-
Factoring liability		328,967			-
Operating lease liabilities, current		262,063			291,863
Finance lease liabilities, current		7,386			19,294
Income tax payables		109,625			2,747
Deferred revenue		2,375,063			1,724,519
Other current liabilities		262,267			53,027
Total current liabilities		5,893,623			3,647,693
Non-current liabilities:
Long term debts		1,324,383			1,123,735
Operating lease liabilities, non-current		2,066,343			2,421,054
Finance lease liabilities, non-current		-			459
Deferred tax liabilities		1,353,625			-
Other non-current liabilities		124,936			138,018
Total non-current liabilities		4,869,287			3,683,266
Total liabilities		10,762,910			7,330,959
Shareholders' equity:
Preferred shares ($0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)		-			-
Common shares ($0.0001 par value, 200,000,000 shares authorized; 20,842,690 and 17,649,886 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)		2,083			1,764
Additional paid-in capital		19,258,681			15,014,607
Accumulated deficit		(9,603,090	)		(10,573,579	)
Accumulated other comprehensive income		372,296			364,837
Total HeartCore Enterprises, Inc. shareholders' equity		10,029,970			4,807,629
Non-controlling interest		3,002,742			-
Total shareholders' equity		13,032,712			4,807,629
Total liabilities and shareholders' equity	$	23,795,622		$	12,138,588

HeartCore Enterprises, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
		For the six months ended June 30,
		2023			2022
Cash flows from operating activities
Net income (loss)	$	785,191		$	(3,282,092	)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization expenses		306,097			46,688
Amortization of debt issuance costs		1,316			2,768
Non-cash lease expense		155,301			143,845
Deferred income taxes		(75,240	)		14,167
Stock-based compensation		1,094,393			888,826
Warrants received as noncash consideration		(4,009,335	)		-
Changes in fair value of investments in marketable securities		229,022			-
Changes in fair value of investments in warrants		(166,107	)		-
Changes in assets and liabilities:
Accounts receivable		(596,312	)		(344,779	)
Prepaid expenses		1,245			(266,030	)
Other assets		23,277			(5,516	)
Accounts payable and accrued expenses		(8,359	)		281,567
Accrued payroll and other employee costs		124			175,246
Due to related party		4,214			5,448
Operating lease liabilities		(147,035	)		(148,125	)
Finance lease liabilities		-			(288	)
Income tax payables		106,625			(8,756	)
Deferred revenue		810,639			596,762
Other liabilities		116,382			(193,598	)
Net cash flows used in operating activities		(1,368,562	)		(2,093,867	)
Cash flows from investing activities
Purchases of property and equipment		(180,451	)		(30,963	)
Advance on note receivable		(300,000	)		-
Repayment of loan provided to related party		23,715			21,508
Payment for acquisition of subsidiary, net of cash acquired		(724,910	)		-
Net cash flows used in investing activities		(1,181,646	)		(9,455	)
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		-			(1,336,762	)
Payments for finance leases		(11,243	)		(24,189	)
Proceeds from long-term debt		-			258,087
Repayment of long-term debts		(411,923	)		(469,166	)
Repayment of insurance premium financing		(149,250	)		(167,955	)
Net proceeds from factoring arrangement		328,967			-
Payments for debt issuance costs		(448	)		(1,030	)
Payment for mandatorily redeemable financial interest		-			(430,489	)
Net cash flows provided by (used in) financing activities		(243,897	)		11,651,622
Effect of exchange rate changes		(144,480	)		(221,960	)
Net change in cash and cash equivalents		(2,938,585	)		9,326,340
Cash and cash equivalents - beginning of the period		7,177,326			3,136,839
Cash and cash equivalents - end of the period	$	4,238,741		$	12,463,179
Supplemental cash flow disclosures:
Interest paid	$	40,083		$	28,025
Income taxes paid	$	-		$	3,013
Non-cash investing and financing transactions
Payroll withheld as repayment of loan receivable from employees	$	-		$	12,034
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	$	389,035		$	388,538
Liabilities assumed in connection with purchase of property and equipment	$	2,199		$	9,676
Common shares issued for acquisition of subsidiary	$	3,150,000		$	-
Investments in warrants converted to marketable securities	$	1,257,868		$	-