EpicQuest Education Group International Ltd — FY2023 Form 20-F
Reporting period: Fiscal year ended September 30, 2023; this is an annual report, not a standalone 2023 Q4 report. Financial statements are prepared under U.S. GAAP and audited by ZH CPA, LLC. The auditor’s opinion is unqualified, but the report says FY2022 financial statements were restated to correct errors.
Business context
EpicQuest is a BVI holding company operating through education subsidiaries in the U.S. and Canada, with recruiting activity in China and a new Sri Lanka office. Its offerings include English-language and study-abroad services, student support, and professional training through Davis College, renamed Davis University after year-end. The company reports no variable-interest-entity structure.
Key financial metrics
| Metric (US$ unless stated) | FY2023 | FY2022, restated |
|---|---|---|
| Revenue | $5.712 million | $6.330 million |
| Gross profit / gross margin | $4.210 million / 74% | $4.309 million / 68% |
| Operating loss | $(7.123) million | $(7.165) million |
| Net loss | $(7.173) million | $(6.128) million |
| Net loss per share | $(0.58) | $(0.54) |
| Operating cash flow | $(5.253) million | $(4.614) million |
| Investing cash flow | $(0.878) million | $(0.651) million |
| Cash, cash equivalents and restricted cash at year-end | $5.306 million | $11.443 million |
| Total assets / total liabilities | $19.209 million / $8.275 million | $24.003 million / $6.616 million |
- FY2023 cash and cash equivalents were $4.967 million, plus $0.339 million restricted for Davis’s Department of Education financial-protection requirement. Current assets were $8.711 million and current liabilities $6.880 million.
- Reported liabilities include lease liabilities of $1.131 million in total; the filing does not disclose material conventional borrowings. FY2023 financing cash flow was nil. The company reported no debt defaults.
- English education generated $3.946 million of revenue; professional training generated $1.766 million, primarily following the inclusion of Davis operations. Gross margins were 79% for English education and 62% for professional training.
Material changes and drivers
- Revenue fell 10% year over year: English education revenue declined $2.4 million amid COVID-related disruption to China recruitment, partly offset by $1.8 million of professional-training revenue from Davis.
- Gross margin rose to 74% from 68%, which management attributed mainly to more in-person U.S. English courses and reduced need for online-course delivery in China.
- Net loss widened by about $1.0 million. FY2023 included $2.165 million of stock-based compensation, $1.920 million of which was common-share awards; income-tax expense was $0.289 million, including a valuation allowance related to deferred tax assets.
- Cash declined by $6.138 million during FY2023, reflecting operating cash use and investing outflows, including a $1.250 million share repurchase and $0.188 million purchase of the remaining EduGlobal College interest. Capital expenditures were $14,231.
- The FY2022 restatement corrected the classification of redeemable acquisition shares and deferred-tax accounting. Restated FY2022 net loss was $6.128 million versus $6.236 million previously reported; FY2022 loss per share changed from $0.55 to $0.54.
Outlook, risks and unusual items
- The filing provides no specific financial guidance. Management says it expects to fund working-capital needs and capital expenditures with operating cash and equity financing, while warning that further capital may be needed and may not be available on acceptable terms.
- Management cited student recruitment and retention, competition, seasonality, COVID-related disruption, economic conditions, and changes in Chinese education regulation as material business risks. The company says it believes additional PRC permissions are not required, but has not obtained local counsel’s opinion and cannot assure regulators will agree.
- Management concluded disclosure controls were ineffective and internal control over financial reporting was ineffective at September 30, 2023. Identified material weaknesses were insufficient risk assessment, review and analysis of non-routine transactions, and formal control documentation. No auditor attestation on internal controls was provided.
- After year-end, SouthGilmore agreed to pay the Argentine Football Association $15.0 million for two planned 2024 exhibition matches in China. The filing says $7.5 million was paid in November 2023 and $7.5 million was expected in February 2024; EpicQuest agreed to fund 50% of SouthGilmore’s payments. Additional event costs are also SouthGilmore’s responsibility.
- After year-end, the company sold Ohio land for $875,000 (carrying value $280,000) and raised $0.8 million gross in a private placement of 400,000 shares and warrants. The filing describes the offering as completed December 26, 2023 in one section and consummated January 8, 2024 in another.
- Other developments include a five-year Miami University recruiting agreement effective July 2023; Davis’s approval to offer a four-year business degree and online courses; and Davis enrollment of 102 international students in the first 2023 academic quarter, versus 35 in the comparable 2022 quarter. Miami’s English program had 60 admitted students who had paid by September 30, but only 16 confirmed participants as of January 25, 2024.
- The company reports that it has never paid dividends and does not expect to do so in the foreseeable future. The CEO beneficially owned 59.18% of shares as of January 25, 2024, concentrating voting influence.
Important facts for investors to verify
- Confirm the timing, final terms, net proceeds and share dilution from the $0.8 million private placement, given the differing dates and descriptions in the filing.
- Verify the actual cash paid, remaining obligations, cost overruns, revenue arrangements and expected economics for the $15 million AFA event commitment and related funding agreement.
- Track cash burn, unrestricted liquidity, deferred revenue, prepaid expenses, and whether the company can finance operations without further dilutive issuance.
- Review remediation progress for the disclosed internal-control material weaknesses and monitor future filings for any further restatements or control issues.
- Assess enrollment conversion and retention across Miami, Davis University and EduGlobal, including the gap between paid/admitted and confirmed students.
- Check the assumptions supporting goodwill and intangible-asset values, and the realization of deferred tax assets, given continuing losses and the FY2023 valuation allowance.