HeartCore Reports Third Quarter 2023 Financial Results

Los Altos, California, UNITED STATES

NEW YORK and TOKYO, Nov. 13, 2023 (GLOBE NEWSWIRE) -- HeartCore Enterprises, Inc. (Nasdaq: HTCR) (“HeartCore” or “the Company”), a leading enterprise software and consulting services company based in Tokyo, reported financial results for the third quarter ended September 30, 2023.

Third Quarter 2023 and Recent Operational Highlights

  • Q3 2023 Revenue of $4.7 million, 150% higher than Q3 2022.
  • Enterprise software revenue doubled compared to Q3 2022.
  • Consulting services revenues were only approximately $612,000, as client IPOs have been moved to Q4 2023.
  • Year-to-Date 2023 revenue of $18.5 million, 172% higher than Q3 2022.
  • Year-to-Date 2023 Net Loss of $1.8 million, or $(0.07) per share.
  • Launched its digital experience platform, Daishiwake platform into the U.S. and Japanese markets.
  • Awarded top market share (15%) in Japan for its CMS platform for eight consecutive years.
  • Signed eleventh Go IPO contract with GATES GROUP Inc. 
  • Hired the New York-based sales team of Sabatini Global, further augmenting the Company’s headcount in the U.S.
  • Hosted Nasdaq Listing Guidance seminar for Japanese companies as part of the Company’s Go IPO business development efforts.
  • Engaged licensing agreement with Marushin Corporation for CONTROLIO software.
  • Partnered with INTRIX, Inc. to license HeartCore’s Content Management System (CMS).

Management Commentary
“HeartCore’s transformation continued in the third quarter, as we made progress across all facets of our business operations,” said CEO Sumitaka Kanno Yamamoto. “In October, our Content Management System (CMS) platform was awarded as the solution with top market share in Japan for the eighth consecutive year by ITR Corporation, an independent IT consulting research firm. As the market leader in Japan, we are now focused on growing our global footprint. Our acquisition of Sigmaways and the hiring of the New York-based sales team of Sabatini Global provides talented individuals and new technologies to expand our business in the dynamic U.S. market.

“The second and third quarters of 2023 did not turn out exactly like we expected for our consulting service clients, as the IPO market was turbulent, and markets were faced with rising interest rates and economic uncertainty. During the first nine months of 2023, we generated $6.4 million in revenue, primarily from valuation of warrants from our GO IPO consulting services business. Nearly all of that, over $5 million, occurred in the first quarter 2023 when two of our clients launched their IPOs. We have entered into consulting agreements with 11 companies to assist them in their IPO process. With two of them across the finish line and three more companies slated to IPO soon, we anticipate this segment of the business to be a vital growth engine for our organization that will drive significant revenue growth and add value to our balance sheet in the coming quarters.”

Third Quarter 2023 Financial Results
Revenues increased 150.4% to $4.7 million compared to $1.9 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 the acquisition of Sigmaways and its subsidiaries, and an increase from Go IPO consulting services as the Company obtained more IPO consulting customers in 2023.

Gross profit increased 151.7% to $0.8 million from $0.3 million in the same period last year. The increase was primarily from increased maintenance and support services, customized software development and services, and Go IPO consulting services.

Operating expenses increased to $2.6 million from $2.3 million in the same period last year. The increase was primarily due to general and administrative expenses and research and development expenses, slightly offset by decreases in selling expenses.

Net loss was $2.5 million or $(0.11) per diluted share, compared to a net loss of $2.0 million or $(0.11) per diluted share, in the same period last year.

As of September 30, 2023, the Company had cash and cash equivalents of $2.2 million compared to $7.2 million in December 31, 2022.

Nine Months 2023 Financial Results
Revenues increased 171.6% to $18.5 million compared to $6.8 million in the same period last year. The increase was primarily due to an increase in Go IPO consulting service revenues and received warrants from customers, and an increase from customized software development and services as a result of Sigmaways and its subsidiaries.

Gross profit increased 176.5% to $8.0 million from $2.9 million in the same period last year. The increase was primarily due to an increase in Go IPO consulting service revenues and received warrants from customers, and an increase from customized software development and services as a result of Sigmaways and its subsidiaries.

Operating expenses increased to $8.9 million from $8.1 million in the same period last year. The increase was primarily due to increases in general and administrative expenses, offset by a decrease in selling expense, and research and development expenses.

Net loss was about $1.8 million or $(0.07) per diluted share compared to a net loss of $5.3 million or $(0.29) per diluted share, in the same period last year.

About HeartCore Enterprises, Inc.
Headquartered in Tokyo, Japan, HeartCore Enterprises is a leading enterprise software and consulting services company. HeartCore offers 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. HeartCore’s GO IPOSM consulting services helps Japanese-based companies go public in the U.S. Additional information about the Company's products and services is available at 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 “believed,” “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
(949) 574-3860

 HeartCore Enterprises, Inc.
 Unaudited Consolidated Statements of Operations and Comprehensive Loss
   For the nine months ended September 30,   For the three months ended September 30,
   2023   2022   2023   2022 
 Revenues$18,518,431  $6,818,774  $4,688,908  $1,872,476 
 Cost of revenues 10,548,245   3,935,908   3,860,241   1,543,256 
 Gross profit 7,970,186   2,882,866   828,667   329,220 
 Operating expenses:           
 Selling expenses 1,330,747   1,706,250   274,043   771,496 
 General and administrative expenses 7,305,392   5,832,276   2,172,298   1,513,028 
 Research and development expenses 289,303   583,762   170,071   58,275 
 Total operating expenses 8,925,442   8,122,288   2,616,412   2,342,799 
 Loss from operations (955,256)  (5,239,422)  (1,787,745)  (2,013,579)
 Other income (expenses):           
 Changes in fair value of investments in marketable securities (500,762)  -   (271,740)  - 
 Changes in fair value of investments in warrants (294,565)  -   (460,672)  - 
 Interest income 64,633   32,256   14,363   21,707 
 Interest expenses (125,073)  (39,361)  (42,619)  (10,500)
 Other income 176,641   40,645   52,640   15,195 
 Other expenses (62,701)  (58,050)  (25,947)  (2,826)
 Total other income (expenses) (741,827)  (24,510)  (733,975)  23,576 
 Loss before income tax provision (1,697,083)  (5,263,932)  (2,521,720)  (1,990,003)
 Income tax expense (benefit) 58,859   (10,906)  19,413   (19,069)
 Net loss (1,755,942)  (5,253,026)  (2,541,133)  (1,970,934)
 Less: net loss attributable to non-controlling interest (419,211)  -   (233,913)  - 
 Net loss attributable to HeartCore Enterprises, Inc.$(1,336,731) $(5,253,026) $(2,307,220) $(1,970,934)
 Other comprehensive income (loss):           
 Foreign currency translation adjustment (85,244)  428,118   (90,743)  128,705 
 Total comprehensive loss (1,841,186)  (4,824,908)  (2,631,876)  (1,842,229)
 Less: comprehensive loss attributable to non-controlling interest (422,352)  -   (235,094)  - 
 Comprehensive loss attributable to HeartCore Enterprises, Inc.$(1,418,834) $(4,824,908) $(2,396,782) $(1,842,229)
 Net loss per common share attributable to HeartCore Enterprises, Inc.          
 Basic$(0.07) $(0.29) $(0.11) $(0.11)
 Diluted$(0.07) $(0.29) $(0.11) $(0.11)
 Weighted average common shares outstanding           
 Basic 20,257,020   18,014,483   20,842,690   17,835,027 
 Diluted 20,257,020   18,014,483   20,842,690   17,835,027 

HeartCore Enterprises, Inc.
Consolidated Balance Sheets
  September 30, December 31,
  2023  2022 
Current assets:    
Cash and cash equivalents$2,199,565 $7,177,326 
Accounts receivable 2,562,239  551,064 
Investments in marketable securities 757,106  - 
Prepaid expenses 683,327  538,230 
Note receivable 300,000  - 
Current portion of long-term note receivable 100,000  - 
Due from related party 42,439  48,447 
Other current assets 111,326  220,070 
Total current assets 6,756,002  8,535,137 
Non-current assets:    
Property and equipment, net 752,940  203,627 
Operating lease right-of-use assets 2,413,814  2,644,957 
Intangible asset, net 4,675,000  - 
Goodwill 3,276,441  - 
Long-term investments in warrants 2,456,902  - 
Long-term note receivable 200,000  - 
Deferred tax assets 222,172  263,339 
Security deposits 338,220  244,395 
Long-term loan receivable from related party 184,076  246,472 
Other non-current assets 67  661 
Total non-current assets 14,519,632  3,603,451 
Total assets$21,275,634 $12,138,588 
Current liabilities:    
Accounts payable and accrued expenses$1,779,953 $497,742 
Accrued payroll and other employee costs 558,394  360,222 
Due to related party 7,859  402 
Current portion of long-term debts 525,440  697,877 
Insurance premium financing 122,279  - 
Factoring liability 217,250  - 
Operating lease liabilities, current 365,241  291,863 
Finance lease liabilities, current 17,076  19,294 
Income tax payables 103,935  2,747 
Deferred revenue 1,740,877  1,724,519 
Other current liabilities 222,089  53,027 
Total current liabilities 5,660,393  3,647,693 
Non-current liabilities:    
Long-term debts 1,351,830  1,123,735 
Operating lease liabilities, non-current 2,113,917  2,421,054 
Finance lease liabilities, non-current 68,535  459 
Deferred tax liabilities 1,309,000  - 
Other non-current liabilities 197,817  138,018 
Total non-current liabilities 5,041,099  3,683,266 
Total liabilities 10,701,492  7,330,959 
Shareholders' equity:    
Preferred shares ($0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding as of September 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 September 30, 2023 and December 31, 2022, respectively) 2,083  1,764 
Additional paid-in capital 19,431,987  15,014,607 
Accumulated deficit (11,910,310) (10,573,579)
Accumulated other comprehensive income 282,734  364,837 
Total HeartCore Enterprises, Inc. shareholders' equity 7,806,494  4,807,629 
Non-controlling interest 2,767,648  - 
Total shareholders' equity 10,574,142  4,807,629 
Total liabilities and shareholders' equity$21,275,634 $12,138,588 

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$(1,755,942)$(5,253,026)
Adjustments to reconcile net loss to net cash    
used in operating activities:    
Depreciation and amortization expenses 495,200  64,398 
Gain on disposal of property and equipment (4,737) - 
Amortization of debt issuance costs 2,257  3,051 
Non-cash lease expense 254,876  207,549 
Loss on termination of lease 76  - 
Deferred income taxes (109,690) (5,843)
Stock-based compensation 1,267,699  1,225,477 
Warrants received as noncash consideration (4,009,335) - 
Changes in fair value of investments in marketable securities 500,762  - 
Changes in fair value of investments in warrants 294,565  - 
Changes in assets and liabilities:    
Accounts receivable (322,583) 168,021 
Prepaid expenses 187,269  (56,553)
Other assets (23,982) (142,967)
Accounts payable and accrued expenses 597,247  (96,238)
Accrued payroll and other employee costs 7,471  59,059 
Due to related party 7,562  3,098 
Operating lease liabilities (231,499) (213,691)
Finance lease liabilities -  (370)
Income tax payables 101,058  (7,704)
Deferred revenue 200,256  45,938 
Other liabilities 83,809  (206,569)
Net cash flows used in operating activities (2,457,661) (4,206,370)
Cash flows from investing activities    
Purchases of property and equipment (516,658) (41,672)
Proceeds from disposal of property and equipment 24,935  - 
Advances on note receivable (600,000) - 
Repayment of loan provided to related party 34,823  33,042 
Payment for acquisition of subsidiary, net of cash acquired (724,910) - 
Net cash flows used in investing activities (1,781,810) (8,630)
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 (16,537) (29,051)
Proceeds from long-term debt 219,427  258,087 
Repayment of long-term debts (584,779) (699,407)
Repayment of insurance premium financing (266,756) (298,886)
Net proceeds from factoring arrangement 217,250  - 
Payments for debt issuance costs (656) (1,030)
Payment for mandatorily redeemable financial interest -  (430,489)
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 
Supplemental cash flow disclosures:    
Interest paid$59,290 $38,387 
Income taxes paid$91,657 $3,013 
Non-cash investing and financing transactions    
Payroll withheld as repayment of loan receivable from employees$- $12,034 
Liabilities assumed in connection with purchase of property and equipment$9,602 $17,731 
Share repurchase liability settled by issuance of common shares$- $16 
Operating lease right-of-use asset obtained in exchange for operating lease liability$317,040 $- 
Finance lease right-of-use asset obtained in exchange for finance lease liability$93,117 $- 
Remeasurement of operating lease liability and right-of-use asset due to lease modification 12,579  - 
Deferred offering costs recognized against the proceeds from the offering$- $178,847 
Insurance premium financing$389,035 $388,538 
Common shares issued for acquisition of subsidiary$3,150,000 $- 
Investments in warrants converted to marketable securities$1,257,868 $-