HeartCore Reports Fourth Quarter and Full Year 2022 Financial Results
NEW YORK and TOKYO, March 30, 2023 (GLOBE NEWSWIRE) — HeartCore Enterprises, Inc. (“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 fourth quarter and full year ended December 31, 2022.
Fourth Quarter 2022 and Recent Operational Highlights
- Grew total number of global enterprise customers to 903 as of December 31, 2022.
- Established HeartCore Capital Advisors, Inc., a subsidiary that will execute Go IPO and provide professional consulting services to Japanese companies seeking to list on a major U.S. exchange.
- Partnered with Works Applications and AIM Consulting to improve their respective digital auditing solutions through its DX suite of offerings.
- Signed eighth and ninth Go IPO clients by engaging Libera Gaming Operations and ICheck Co.
- Acquired a 51% majority stake in Sigmaways Inc., a software engineering service provider delivering IT solutions.
- Signed sixth and seventh Go IPO consulting service agreement by engaging Genesis Healthcare Co., and kk.BloomZ.
- Announced that HeartCore’s Content Management System (“CMS”) was introduced by Subaru Group to its centralized management platform for approximately 100 Subaru websites.
- Partnered with Spirit Advisors, a boutique advisory firm that bridges Japanese companies with U.S. capital markets, to augment HeartCore’s Go IPO Service.
- Signed fifth Go IPO consulting service agreement by engaging SBC Medical Group.
- Signed fourth Go IPO consulting service agreement 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.
Management Commentary
“This past year was a period of preparation, as we strategically planted the seeds through milestone events that have poised our organization towards a successful trajectory,” said CEO Sumitaka Yamamoto. “In addition to running our core enterprise software business, we launched Go IPO at the start of 2022 and have already garnered nine clients, completed the acquisition of Sigmaways which strengthens our software capabilities and expands our operations into the U.S., and built up a robust pipeline across all segments of our business. With one of our Go IPO clients, SBC Medical Group Holdings, recently being valued at $1.2 billion, we expect to receive warrants with an approximate value of $32.4 million. This case study serves as a prime example of our team reaping the fruits of our labor from the strategic decisions and investments we’ve made; we are hopeful this segment of our business will continue to be a key growth driver.
“Despite the optically lower financials of our top line, which primarily result from the depreciation of the yen-dollar conversion, I am encouraged by our team’s ability to sustain operations in this pivotal period of strategic investments and preparation. We’ve entered our first full year as a publicly traded company on the Nasdaq on a high note and expect 2023 to be an inflection point for HeartCore.”
Fourth Quarter 2022 Financial Results
Revenues were $2.0 million compared to $2.4 million in the same period last year. The decrease in revenues was due to lower sales of on-premise software and the effects of turbulence within the broader Japanese economy.
Operating expenses increased to $1.9 million from $1.6 million last year. The increase was due to a rise in general and administrative expense, specifically from an increase of hiring for the Go IPO consulting service in addition to advertising.
Net loss was $1.4 million, or $0.08 per diluted share, compared to net loss of approximately $742,000 or $0.05 per diluted share last year. The increase in net loss was primarily due to an increase in operating expenses and a decrease in revenues.
Full Year 2022 Financial Results
Revenues were $8.8 million compared to $10.8 million last year. The decrease in revenues was primarily due to a large, five-year CXM contract being renewed in 2021 and the ongoing depreciation of the Japanese Yen, which were offset by revenues of $1.4 million from the newly established consulting services in 2022.
Operating expenses increased to $10.0 million from $5.1 million last year. The increase was primarily due to an increase in selling and general & administrative expenses, which stem from the Company’s public offering in February 2022, costs associated with the Go IPO consulting service, in addition to the incremental costs from the acquisition of Sigmaways.
Net loss was $6.7 million, or $0.37 per diluted share, compared to net loss of approximately $327,000 or $0.02 per diluted share last year. The increase in net loss was primarily due to the increase in operating expenses.
As of December 31, 2022, the Company had cash and cash equivalents of $7.2 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. 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 www.heartcore.co.jp and https://heartcore-enterprises.com/.
Forward-Looking Statements
All 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 Yi
HTCR@gatewayir.com
(949) 574-3860
HeartCore Enterprises, Inc.
Condensed Consolidated Statements of Operations
| For the year ended December 31, | For the year ended December 31, | ||||||
| 2022 | 2021 | ||||||
| Revenues | $ | 8,818,312 | $ | 10,822,514 | |||
| Cost of revenues | 5,467,017 | 5,634,737 | |||||
| Gross profit | 3,351,295 | 5,187,777 | |||||
| Operating expenses: | |||||||
| Selling expenses | 2,826,615 | 296,778 | |||||
| General and administrative expenses | 6,579,734 | 4,321,241 | |||||
| Research and development expenses | 641,025 | 510,740 | |||||
| Total operating expenses | 10,047,374 | 5,128,759 | |||||
| Income (loss) from operations | (6,696,079 | ) | 59,018 | ||||
| Other income (expenses): | |||||||
| Interest income | 66,963 | 6,955 | |||||
| Interest expense | (41,800 | ) | (43,240 | ) | |||
| Other income | 57,268 | 30,614 | |||||
| Other expenses | (69,736 | ) | (38,446 | ) | |||
| Total other income (expenses) | 12,695 | (44,117 | ) | ||||
| Income (loss) before income tax provision | (6,683,384 | ) | 14,901 | ||||
| Income tax expense (benefit) | (5,918 | ) | 341,945 | ||||
| Net loss | (6,677,466 | ) | (327,044 | ) | |||
| Less: net income attributable to non-controlling interest | – | 11,112 | |||||
| Net loss attributable to HeartCore Enterprises, Inc. | $ | (6,677,466 | ) | $ | (338,156 | ) | |
| Other comprehensive income: | |||||||
| Foreign currency translation adjustment | 380,009 | 123,529 | |||||
| Total comprehensive loss | (6,297,457 | ) | (203,515 | ) | |||
| Less: comprehensive income attributable to non-controlling interest | – | 12,923 | |||||
| Comprehensive loss attributable to HeartCore Enterprises, Inc. | $ | (6,297,457 | ) | $ | (216,438 | ) | |
| Net loss per common share attributable to HeartCore Enterprises, Inc. | |||||||
| Basic | $ | (0.37 | ) | $ | (0.02 | ) | |
| Diluted | $ | (0.37 | ) | $ | (0.02 | ) | |
| Weighted average common shares outstanding | |||||||
| Basic | 17,922,585 | 15,242,454 | |||||
| Diluted | 17,922,585 | 15,242,454 | |||||
HeartCore Enterprises, Inc.
Condensed Consolidated Balance Sheets
| December 31, | December 31, | ||||||
| 2022 | 2021 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 7,177,326 | $ | 3,136,839 | |||
| Accounts receivable, net | 551,064 | 960,964 | |||||
| Prepaid expenses | 538,230 | 444,405 | |||||
| Due from related party | 48,447 | 50,559 | |||||
| Loan receivable from employee | – | 8,341 | |||||
| Other current assets | 220,070 | 15,654 | |||||
| Total current assets | 8,535,137 | 4,616,762 | |||||
| Non-current assets: | |||||||
| Property and equipment, net | 203,627 | 261,414 | |||||
| Operating lease right-of-use assets | 2,644,957 | 3,319,749 | |||||
| Deferred tax assets | 263,339 | 297,990 | |||||
| Security deposits | 244,395 | 278,237 | |||||
| Long-term loan receivable from related party | 246,472 | 335,756 | |||||
| Loan receivable from employee, non-current | – | 4,518 | |||||
| Other non-current assets | 661 | 8,737 | |||||
| Total non-current assets | 3,603,451 | 4,506,401 | |||||
| Total assets | $ | 12,138,588 | $ | 9,123,163 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued expenses | $ | 497,742 | $ | 646,425 | |||
| Accrued payroll and other employee costs | 360,222 | 255,082 | |||||
| Due to related party | 402 | 1,110 | |||||
| Current portion of long-term debts | 697,877 | 849,995 | |||||
| Operating lease liabilities, current | 291,863 | 332,277 | |||||
| Finance lease liabilities, current | 19,294 | 37,459 | |||||
| Income tax payables | 2,747 | 10,919 | |||||
| Deferred revenue | 1,724,519 | 1,690,917 | |||||
| Mandatorily redeemable financial interest | – | 447,986 | |||||
| Other current liabilities | 53,027 | 281,673 | |||||
| Total current liabilities | 3,647,693 | 4,553,843 | |||||
| Non-current liabilities: | |||||||
| Long-term debts | 1,123,735 | 1,871,580 | |||||
| Operating lease liabilities, non-current | 2,421,054 | 3,076,204 | |||||
| Finance lease liabilities, non-current | 459 | 23,861 | |||||
| Other non-current liabilities | 138,018 | 156,627 | |||||
| Total non-current liabilities | 3,683,266 | 5,128,272 | |||||
| Total liabilities | 7,330,959 | 9,682,115 | |||||
| Shareholders’ equity (deficit): | |||||||
| Preferred shares ($0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding as of December 31, 2022 and 2021) | – | – | |||||
| Common shares ($0.0001 par value, 200,000,000 shares authorized; 17,649,886 and 15,819,943 shares issued; 17,649,886 and 15,546,454 shares outstanding as of December 31, 2022 and 2021, respectively) | 1,764 | 1,554 | |||||
| Additional paid-in capital | 15,014,607 | 3,350,779 | |||||
| Accumulated deficit | (10,573,579 | ) | (3,896,113 | ) | |||
| Accumulated other comprehensive income (loss) | 364,837 | (15,172 | ) | ||||
| Total shareholders’ equity (deficit) | 4,807,629 | (558,952 | ) | ||||
| Total liabilities and shareholders’ equity (deficit) | $ | 12,138,588 | $ | 9,123,163 | |||
HeartCore Enterprises, Inc.
Consolidated Statements of Cash Flows
| For the year ended December 31, | For the year ended December 31, | ||||||
| 2022 | 2021 | ||||||
| Cash flows from operating activities: | |||||||
| Net loss | $ | (6,677,466 | ) | $ | (327,044 | ) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
| Depreciation expenses | 83,333 | 105,394 | |||||
| Amortization of debt issuance costs | 4,546 | 6,865 | |||||
| Non-cash lease expense | 273,836 | 332,207 | |||||
| Deferred income taxes | (1,610 | ) | 329,829 | ||||
| Share-based compensation | 1,519,743 | 18,787 | |||||
| Gain on shares redemption | – | (27 | ) | ||||
| Changes in assets and liabilities: | |||||||
| Accounts receivable, net | 296,835 | (341,112 | ) | ||||
| Prepaid expenses | 62,195 | (81,473 | ) | ||||
| Other assets | (201,226 | ) | 52,005 | ||||
| Accounts payable and accrued expenses | (70,525 | ) | 553,009 | ||||
| Accrued payroll and other employee costs | 149,617 | 39,241 | |||||
| Due to related party | (575 | ) | – | ||||
| Operating lease liabilities | (283,921 | ) | (346,136 | ) | |||
| Finance lease liabilities | (440 | ) | (1,182 | ) | |||
| Income tax payables | (6,915 | ) | 1,898 | ||||
| Deferred revenue | 239,129 | 304,536 | |||||
| Other liabilities | (195,103 | ) | 119,503 | ||||
| Net cash flows provided by (used in) operating activities | (4,808,547 | ) | 766,300 | ||||
| Cash flows from investing activities: | |||||||
| Purchases of property and equipment | (57,071 | ) | (36,153 | ) | |||
| Advance and loan provided to related parties | – | (142,876 | ) | ||||
| Repayment of loan provided to related party | 44,871 | – | |||||
| Net cash flows used in investing activities | (12,200 | ) | (179,029 | ) | |||
| 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 | 677,945 | |||||
| Repurchase of common shares | (3,500,000 | ) | – | ||||
| Payments for finance leases | (34,465 | ) | (53,640 | ) | |||
| Proceeds from long-term debt | 258,087 | – | |||||
| Repayment of long-term debts | (810,750 | ) | (878,625 | ) | |||
| Repayment of insurance premium financing | (388,538 | ) | – | ||||
| Payments for debt issuance costs | (1,630 | ) | (3,033 | ) | |||
| Payment for mandatorily redeemable financial interest | (430,489 | ) | – | ||||
| Net cash flows provided by (used in) financing activities | 8,915,341 | (257,353 | ) | ||||
| Effect of exchange rate changes | (54,107 | ) | (251,254 | ) | |||
| Net change in cash and cash equivalents | 4,040,487 | 78,664 | |||||
| Cash and cash equivalents – beginning of the year | 3,136,839 | 3,058,175 | |||||
| Cash and cash equivalents – end of the year | $ | 7,177,326 | $ | 3,136,839 | |||
| Supplemental cash flow disclosure: | |||||||
| Interest paid | $ | 41,848 | $ | 25,081 | |||
| Income taxes paid | $ | 3,013 | $ | 9,623 | |||
| 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 | $ | 10,948 | |||
| Expenses paid by related parties on behalf of the Company | $ | – | $ | 125,054 | |||
| Reclassification of non-controlling interest to mandatorily redeemable financial interest | $ | – | $ | 447,986 | |||
| 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 | $ | – | |||
| Retirement of treasury shares | $ | 3,500,000 | $ | – | |||
