(ii) Assisting in the preparation of documentation for internal controls
required for an initial public offering or de-SPAC by ALI;
(iii) Providing support services to remove problematic accounting accounts upon
listing;
(iv) Translation of requested documents into English;
(v) Attend and, if requested by ALI, lead meetings with ALI’s management team
(xii) Preparing an investor presentation/deck and executive summary of ALI’s
Pursuant to the terms of the ALI Consulting Agreement, ALI agreed to compensate the Company as follows in return for the provision of Services:
(b) Issuance by ALI to the Company of a warrant to acquire a number of shares of
capital stock of ALI, to initially be equal to 1% of the fully diluted share
capital of ALI as of April 13, 2022, subject to adjustment as set forth in
Pursuant to the terms of the SYLA Consulting Agreement, SYLA agreed to compensate the Company as follows in return for the provision of Services:
(a) $500,000, to be paid as follows: (i) $200,000 on the effective date of the
SYLA Consulting Agreement; (ii) $150,000 on the three-month anniversary of
the effective date of the SYLA Consulting Agreement; and (iii) $150,000 on
(b) Issuance by SYLA to the Company of a warrant, deemed fully earned and vested
as of the effective date of the SYLA Consulting Agreement, to acquire a
number of shares of capital stock of SYLA, to initially be equal to 2% of
the fully diluted share capital of SYLA as of the effective date of the SYLA
Consulting Agreement, subject to adjustment as set forth in the warrant.
Going forward, we expect that we will offer services substantially similar to the Services to other third parties, as well.
Comparison of Results of Operations for the Three Months ended June 30, 2022 and 2021
The following table summarizes our operating results as reflected in our statements of income during the three months ended June 30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase (or decrease) during such periods.
Research and development expenses 417,228 15.6 % 80,025 2.8 % 337,203
10,924 0.4 % (10,924 ) -100.0 %
NET INCOME (LOSS) ATTRIBUTABLE TO HEARTCORE ENTERPRISES, INC. $ (1,703,641 ) -63.8 % $ 400,790 14.0 % $ (2,104,431 ) -525.1 %
(i) the revenues from sales of on-premise software decreased by $416,076, or
36.7%, to $716,532 for the three months ended June 30, 2022 from $1,132,608
for the three months ended June 30, 2021, mainly attributable to the
concentration of sales of CMS licenses in May 2021;
(ii) our revenue from maintenance and support services decreased by $163,275, or
18.3%, to $727,277 for the three months ended June 30, 2022 from $890,552
for the three months ended June 30, 2021. In addition to terminations of
CMS major maintenance contracts, sales decreased due to the ongoing
depreciation of Japanese Yen;
(iii) Offset by our newly generated revenue of $448,355 from consulting services
provided to three Japan-based companies, which intend to go public in the
(i) the increase of $175,194 in the costs of newly established consulting
services;
(ii) the costs of software development and other miscellaneous services
increased by $104,541, or 20.4%, to $616,461 for the three months ended
June 30, 2022 from $511,920 for the three months ended June 30, 2021. The
Company incurred high subcontracting costs for projects and defect handling
in the current period;
(iii) offset by the costs of SaaS decreased by $90,343, or 77.6%, to $26,144 for
the three months ended June 30, 2022 from $116,487 for the three months
ended June 30, 2021. The Company incurred expenses for process mining
product menu Japanese language additions and manual maintenance in June
Our operating expenses primarily include selling expenses, general and administrative expenses, and research and development expenses.
Our selling expenses primarily include advertising expenses, sale commissions, and sales promotion expenses.
As a percentage of revenues, our selling expenses accounted for 27.3% and 3.5% of our total revenue for the three months ended June 30, 2022 and 2021, respectively.
General and Administrative Expenses
Our general and administrative expenses increased by $829,473 or 81.3%, to $1,850,315 in the three months ended June 30, 2022 from $1,020,842 in the three months ended June 30, 2021, primarily attributable to:
(i) our office, utility and other expenses increased by $146,359 or 154.7%, to
parent company’s office expenses, and D&O indemnity insurance premiums of
the parent company;
(ii) our consulting and professional fees increased by $241,548 or 2,850.1%, to
$250,023 in the three months ended June 30, 2022 from $8,475 in the three
months ended June 30, 2021, primarily due to the increase in consulting and
legal fees related to maintaining as a public company and stock promotion;
(iii) an increase in salaries and welfare by $235,262, or 45.2%, to $755,300 in
the three months ended June 30, 2022 from $520,038 in the three months
ended June 30, 2021, primarily due to the salaries paid to the parent
company’s newly hired U.S. employees;
(iv) an increase in share-based compensation of $466,662, or 100.0%, to $466,662
Research and Development Expenses
Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.
Net Income attributable to Non-controlling Interest
On February 24, 2022, the Company purchased 278 shares of HeartCore Co from Dentsu Digital for JPY50,040,000 (approximately $435,500 when paid). As a result, HeartCore Co became a wholly owned subsidiary of the Company. Accordingly, we did not record non-controlling interest income in the three months ended June 30, 2022.
Net Income (Loss) attributable to HeartCore Enterprises, Inc.
Comparison of Results of Operations for the Six Months ended June 30, 2022 and 2021
5,936 0.1 % (5,936 ) -100.0 %
NET INCOME (LOSS) ATTRIBUTABLE TO HEARTCORE ENTERPRISES, INC. $ (3,282,092 ) -66.4 % $ 217,541 4.4 % $ (3,499,633 ) -1,608.7 %
Our total revenues decreased by $29,203, or 0.6%, to $4,946,298 for the six months ended June 30, 2022 from $4,975,501 for the six months ended June 30, 2021. The decrease in our revenues was attributable to the following reasons:
(i) our revenue from maintenance and support services decreased by $260,151, or
14.2%, to $1,572,616 for the six months ended June 30, 2022 from $1,832,767
for the six months ended June 30, 2021. In addition to terminations of CMS
major maintenance contracts, sales decreased due to the ongoing
depreciation of Japanese yen. The depreciation amounted to approximately
from $1,468,998 for the six months ended June 30, 2021, because we did not
retain new software development clients in the current period, in addition
to the ongoing depreciation of Japanese yen;
(iii) Offset by our newly generated revenue of $448,355 from consulting services
provided to three Japan-based companies, which intend to go public in the
(i) the costs of on-premises software decreased by $95,989, or 20.1%, to
$381,552 for the six months ended June 30, 2022 from $477,541 for the six
months ended June 30, 2021. In addition to the depreciation of the yen, CMS
license costs were fixed monthly and not proportional to sales. On the
other hands, the sales deceased in the six months ended June 30, 2022 for
process mining products, the costs of which were proportional to sales,
resulting in a decrease in cost of sales;
(ii) the costs of SaaS decreased by $134,960, or 58.2%, to $97,068 for the six
months ended June 30, 2022 from $232,028 for the six months ended June 30,
2021. There were specialized supporting employees and subcontractors for
CXM Cloud (SaaS) in the first two quarters of 2021. As the product entered
into a mature phase and operations became stable in 2022, specialized
supporting employees and subcontractors were no longer needed, and the
costs decreased accordingly;
(iii) the costs of software development and other miscellaneous services
decreased by $117,767, or 9.9%, to $1,072,175 for the six months ended June
30, 2022 from $1,189,942 for the six months ended June 30, 2021, in light
of the decrease in sales as mentioned above;
(iv) Offset by the increase of $175,194 in the costs of newly established
Our operating expenses primarily include selling expenses, general and administrative expenses, and research and development expenses.
Our selling expenses primarily include advertising expenses, sales commissions, and sales promotion expenses.
As a percentage of revenues, our selling expenses accounted for 18.9% and 3.0% of our total revenue for the six months ended June 30, 2022 and 2021, respectively.
General and Administrative Expenses
Our general and administrative expenses increased by $2,535,658 or 142.2%, to $4,319,248 in the six months ended June 30, 2022 from $1,783,590 in the six months ended June 30, 2021, primarily attributable to:
(i) our office, utility and other expenses increased by $267,986 or 152.1%, to
parent company’s office expenses, and D&O indemnity insurance premiums of
the parent company;
(ii) our consulting and professional fees increased by $654,261 or 585.0%, to
$766,095 in the six months ended June 30, 2022 from $111,834 in the six
months ended June 30, 2021, primarily due to the increase in consulting and
legal fees related to going public and stock promotion;
(iii) an increase in salaries and welfare by $619,650, or 61.9%, to $1,621,507 in
the six months ended June 30, 2022 from $1,001,857 in the six months ended
June 30, 2021, primarily due to the salaries paid to the parent company’s
newly hired U.S. employees. In addition, the company paid approximately
$150,000 in executive bonuses in the first quarter 2022;
(iv) an increase in share-based compensation of $888,826, or 100%, to $888,826
in the six months ended June 30, 2022 from nil in the six months ended June
30, 2021, primarily due to the amortization of fair value of stock options
Research and Development Expenses
Our research and development expenses primarily consist of employee salaries and welfare, and outsourcing expenses.
Net Income attributable to Non-controlling Interest
On February 24, 2022, the Company purchased 278 shares of HeartCore Co from Dentsu Digital for JPY50,040,000 (approximately $435,500 when paid). As a result, HeartCore Co became a wholly owned subsidiary of the Company. Accordingly, we did not record non-controlling interest income in the six months ended June 30, 2022.
Net Income (Loss) attributable to HeartCore Enterprises, Inc.
Liquidity and Capital Resources
Net cash provided by (used in) operating activities $ (2,093,867 ) $ 347,911 Net cash used in investing activities
Net cash used in operating activities was $2,093,867 for the six months ended June 30, 2022, primarily consisting of the following:
? Net loss of $3,282,092 for the six months ended June 30, 2022.
? An increase in accounts receivable of $344,779. The increase was primarily due
to the increase in our sales in the current period. The collected accounts
receivable is available cash, which can be used as working capital for our
business operation, if necessary.
? An increase in prepaid expense of $266,030, primarily due to the increase in
the prepayment to an IR provider of $400,000.
? Offset by an increase in accounts payable and accrued expenses of $281,567,
primarily attributable to the payoff the accrued expenses related to the IPO.
? Offset by an increase of deferred revenue of $596,762, primarily due to the
completion of software development project.
? Offset by share-based compensation of $888,826.
Net cash provided by operating activities was $347,911 for the six months ended June 30, 2021, primarily consisting of the following:
? Net income of $223,477 for the six months ended June 30, 2021.
? An increase of deferred revenue of $621,707, primarily due to the upfront
payment received for software development projects.
? An increase in accounts payable and accrued expenses of $128,308, primarily
attributable to the increase in accrued expenses related to the IPO.
? Non-cash lease expense of 171,935.
? Offset by an increase in accounts receivable of $570,886. The increase was
primarily due to the increase in sales. The collected accounts receivable is
available cash, which can be used as working capital for our business
operation, if necessary.
? Offset by an increase in prepaid expense of $282,508, primarily due to the
Net cash used in investing activities amounted to $9,455 for the six months ended June 30, 2022, primarily included the purchase of fixed assets of $30,963, offset by repayment of loan provided to a related party of $21,508.
As of June 30, 2022, future minimum lease payments under the non-cancelable lease agreements are as follows:
Non-current lease liabilities $ 9,279 $ 2,467,546
The Company’s long-term debts included bond payable and loans borrowed from banks and other financial institutions.
As of June 30, 2022, future minimum loan payments are as follows:
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2022.
Critical Accounting Policies and Estimates
The Company recognizes revenue under the ASC Topic 606, “Revenue from Contracts with customers”.
The Company currently generates its revenue from the following main sources:
Revenue from On-Premise Software
Revenue from Maintenance and Support service
Revenue from Software as a Service (“SaaS”)
Revenue from Software Development and other Miscellaneous Services
Revenue from Consulting Service
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