UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark one)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2022.2023.

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report ____________

For the transition period from ____________to ____________

Commission file number 001-40280

EpicQuest Education Group International Limited

(Exact name of the Registrant as specified in its charter)

British Virgin Islands 

(Jurisdiction of incorporation or organization)

1209 N. University Blvd., Middletown OH, 45042

Telephone: +1(513)649-8350

(Address of principal executive offices)

Jianbo Zhang, CEO

1209 N. University Blvd., Middletown OH, 45042

Telephone: +1(513)649-8350 

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class Trading symbol(s) Name of each exchange on which
registered
Common Shares, $0.0016 par
value per share
 EEIQ The Nasdaq Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

On December 31, 2022,September 30, 2023, the issuer had 11,439,20611,998,173 shares outstanding.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐             No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐             No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒             No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒             No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and emerging growth company” in Rule 12b-2 of the Exchange Act.

☐ Large Accelerated filer☐ Accelerated filer☒ Non-accelerated filer

Emerging growth company ☒ 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

US GAAPInternational Financial Reporting Standards as issued by the International Accounting Standards Board☐ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17            ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐             No ☒

 

 

Table of Contents

  Page
 PART I1
   
ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS1
   
ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE1
   
ITEM 3.KEY INFORMATION1
   
ITEM 4.INFORMATION ON THE COMPANY19
   
ITEM 4A.UNRESOLVED STAFF COMMENTS3031
   
ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS3031
   
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES3840
   
ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS46
ITEM 8.FINANCIAL INFORMATION47
ITEM 9.THE OFFER AND LISTING48
   
ITEM 10.8.ADDITIONALFINANCIAL INFORMATION4950
   
ITEM 11.9.QUANTITATIVETHE OFFER AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKLISTING5551
   
ITEM 12.10.ADDITIONAL INFORMATION51
ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK57
ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES5557
   
 PART II5658
   
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES5658
   
ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS56
ITEM 15.CONTROLS AND PROCEDURES56
ITEM 16.RESERVED58
   
ITEM 16A.15.AUDIT COMMITTEE FINANCIAL EXPERT58
ITEM 16B.CODE OF ETHICS58
ITEM 16C.PRINCIPAL ACCOUNTANT FEESCONTROLS AND SERVICES58
ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.58
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS58
ITEM 16F.CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANTPROCEDURES59
   
ITEM 16G.16.CORPORATE GOVERNANCE59
ITEM 16HMINE SAFETY DISCLOSURE59
ITEM 16IDISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.59
PART IIIRESERVED60
   
ITEM 17.16A.AUDIT COMMITTEE FINANCIAL STATEMENTSEXPERT60
   
ITEM 18.16B.FINANCIAL STATEMENTSCODE OF ETHICS60
   
ITEM 19.16C.EXHIBITSPRINCIPAL ACCOUNTANT FEES AND SERVICES60
ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.60
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS60
ITEM 16F.CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT60
ITEM 16G.CORPORATE GOVERNANCE61
ITEM 16HMINE SAFETY DISCLOSURE61
ITEM 16IDISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.61
PART III62
ITEM 17.FINANCIAL STATEMENTS62
ITEM 18.FINANCIAL STATEMENTS62
ITEM 19.EXHIBITS62

i

 

CERTAIN INFORMATION

In this Annual Report on Form 20-F (the “Annual Report”), unless otherwise indicated, “we,” “us,” “our,” “EpicQuest Education,” “EpicQuest,” and “Company” refers to EpicQuest Education Group International Limited, a British Virgin Islands (“BVI”) company, and its subsidiaries, including Quest Holdings International LLC, an Ohio limited liability company;company (“QHI”); Quest International Education Center LLC, an Ohio limited liability company;company (“QIE”); Ameri-Can Education Group Corp., an Ohio corporation; Studentcorporation (“Ameri-Can”); Study Up Center LLC, an Ohio limited liability company (“SUPC”); Gilmore INV LLC, an Ohio limited liability company (“Gilmore”); SouthGilmore LLC, an Ohio limited liability company (“SouthGilmore”); Richmond Institute of Language Inc., a Canadian company, andd.b.a. EduGlobal College (“RIL” or “EduGlobal College”); Highrim Holding International Limited, a Canadian company.company (“HHI”); and Skyward Holding International Limited, a Canadian company (“Skyward”).

Unless the context indicates otherwise, all references to “China” or “PRC” refer to the People’s Republic of China. All references to “provincial-level regions” or “regions” include provinces as well as autonomous regions and directly controlled municipalities in China, which have an administrative status equal to provinces, including Beijing.

All references to “Renminbi,” “RMB” or “yuan” are to the legal currency of the People’s Republic of China, and all references to “U.S. dollars,” “dollars,” “$” are to the legal currency of the United States. This Report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. We make no representation that the Renminbi or U.S. dollar amounts referred to in this Report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On September 30, 2022,2023, the buying rate announced by the Federal Reserve Statistical Release was RMB 7.11357.2960 to $1.00. 

FORWARD-LOOKING STATEMENTS

This Report contains “forward-looking statements” that represent our beliefs, projections and predictions about future events. All statements other than statements of historical fact are “forward-looking statements” including any projections of earnings, revenue or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words such as “may”, “will”, “should”, “could”, “would”, “predicts”, “potential”, “continue”, “expects”, “anticipates”, “future”, “intends”, “plans”, “believes”, “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements.

These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based on the success of our business.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors discussed under the headings “Risk Factors”, “Operating and Financial Review and Prospects,” “Information on the Company” and elsewhere in this Annual Report.

This Annual Report should be read in conjunction with our audited financial statements and the accompanying notes thereto, which are included in Item 18 of this Annual Report.

ii

 

PART I

PART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not required.

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not required.

ITEM 2.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not required.

Not required.

ITEM 3.KEY INFORMATION

ITEM 3. KEY INFORMATION

A. [Reserved][Reserved]

B.

B. Capitalization and Indebtedness

Not required.

C. Reasons for the Offer and Use of Proceeds

C.Reasons for the Offer and Use of Proceeds

Not required.

D. Risk factors

Not required.

D.Risk factors

You should carefully consider the following risk factors, together with all of the other information included in this Annual Report. 

Risks Related to Our Business

Although historically we have generated net income, we cannot assure you that we will continue on the profitability path going forward.

We have generated revenues of $6,330,428$5,712,480 and $5,341,850,$6,330,428, and had net (loss) of $(6,265,055)$(7,173,125) and $(1,084,313)$(6,128,442) for the fiscal years ended September 30, 20222023 and 2021,2022, respectively. We expect that both our revenues and our operating expenses will continue to increase as we expand our business. If we are not able to increase revenue and/or manage operating expenses in line with revenue forecasts, we may not be able to achieve profitability. Any significant failure to realize anticipated revenue growth from our new and existing lines of business and/or manage operating expenses in line with revenue forecasts, could result in continued operating losses. As such, we cannot assure you that we will maintain profitability.

If we are not able to continue to attract students to retain our services, our business and prospects will be materially and adversely affected.

The success of our business depends primarily on the number of student members enrolled. Therefore, our ability to continue to attract students is critical to the continued success and growth of our business. This in turn will depend on several factors, including our ability to develop new services and enhance existing ones to respond to changes in market trends and student demands, manage our growth while maintaining consistent and high education quality, broaden our relationships with strategic partners and market our services effectively to a broader base of prospective students. If we are unable to continue to attract students, our net revenues may decline, which may have a material adverse effect on our business, financial condition and results of operations.

1


 

Our results of operations may fluctuate significantly and may not fully reflect the underlying performance of our business.

Our results of operations, including our operating revenue, expenses and other key metrics, may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results for any one quarter are not necessarily an indication of future performance. Our financial results may fluctuate due to a variety of factors, some of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in our operating results may adversely affect the price of our shares. Factors that may cause fluctuations in our quarterly results include:

our ability to attract new customers, maintain relationships with existing customers, and expand into new markets;
the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;

general economic, industry and market conditions in China; and
our emphasis on customer experience instead of near-term growth.

If we fail to attract more students to participate in our activities, our operations and financial condition will be materially adversely affected.

The success of our business depends primarily on the number of students who participate each year. Therefore, our ability to continue to attract students is critical to our continued success and growth. We rely heavily on our relationships with provincial and local governments, schools, principals and teachers to promote and encourage participation in our programs to parents, teachers and students. We must create an innovative theme to attract the interest of the participants. In addition, parental support is critical for student participation. If we are unable to continue to attract parents and students to participate, not only will our revenues decline in this business line, but our brand will be harmed, which may have a material adverse effect on our business, financial condition and results of operations.

Our operations may be affected by the potential ImpactThe continuing effects of the COVID-19 pandemic.pandemic and its impact are highly unpredictable and could be significant, and could harm our business, financial condition, and operating results.

Beginning in late 2019, there were reports of the COVID-19 (coronavirus) outbreak originating in China, prompting government-imposed quarantines, suspension of in-person attendance of academic programs, cessation of certain travel and business closures. Following this outbreak, in February 2020, the Company’s Beijing office was temporarily shut down and employees worked remotely. In March 2020, the Company gradually resumed its operations. It is presently unknown whether and to what precise extent the Company’s operations may be affected if the pandemic persists for an extended period of time. The Company may incur significant delays, reductions in revenue and increases in expenses relating to such events outside of its control. In addition, the outbreak precludes the Company personnel from visiting its potential customers, which may adversely affect the Company’s ability to generate new sales. The Company expects that the impact of the COVIS-19 outbreak on the United States and world economies will have a material adverse effect on the demand for international travel and obtaining education in the US. During the early stages of the outbreak, we determined to movemoved all our marketing activities into a virtual or online format. Since January 2020, we held more than 70 online promotional and training sessions, including business training with partners, school life broadcast activities, etc. We increased the number and variety of online activities including online guidance classes and online service training sessions, so as to maintain potential student interest and student enrollment rates. However, due toAdditionally, during the early stages of the COVID-19 pandemic, most of the programs at Miami University have beenwere delayed or postponed,postponed. As of September 30, 2022, 80 students who had been admitted to the English Language Program at the MUMiami University Regional Campuses, paid full tuition fees as compared to 136 students for the same period in the previous year, but a total of 89 students, including those admitted in 2022 and some from the previous year, arrived in Ohio, US at the Miami University campus for the beginning of the Fall 2022 term. . TheWhen a new wave of COVID-19 outbreak appears to be under control or nearly sopandemic occurred in China. Wuhan city,China starting in November 2022, our recruiting activities for the epicenterspring and summer semesters of the outbreak, has been reopened. As have2022-23 academic year were again significantly affected. After maintaining online promotion activities and hosting a limited number of in-person marketing activities, the Chinese markets and economy. Chinese high schoolsCompany resumed classes andits normal recruiting activities in mid-April. Once the school functions are fully or close to fully restored,February 2023, and we expect to attractattracted new students to enrollwho enrolled in the studiesstudy abroad programs.programs in the Fall 2023 semester, which started late August 2023. We expect that the Beijing office will maintain some online promotion activities and will host in-person marketing activities.


Parents’ and students’ interest in such travel and education abroad opportunities may be adversely affected by these events. Anythe COVID-19 pandemic and allfuture pandemics. Our business, operations and financial performance have been, and may continue to be, affected by the macroeconomic impacts resulting from COVID-19, and as a result, our revenue growth rate and expenses as a percentage of our revenues in future periods may differ significantly from our historical rates, and our future operating results may fall below expectations. The extent to which our business will continue to be affected will depend on a variety of factors, many of which are outside of our control, including the persistence of the foregoing could have a material adverse impactpandemic, impacts on economic activity, and the Company’s business, operating results andpossibility of recession or continued financial condition.market instability. We currently believe that our financial resources will be adequate to sustain the Company’s operations through the outbreak. However, in the event that we do need to raise capital in the future, the outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.

2

China regulates education services extensively and we may be subject to government actions if our programs do not comply with PRC laws.

Violation of PRC laws, rules or regulations pertaining to education and related activities may result in penalties, including fines. We endeavor to comply with such requirements by requesting relevant documents from our program participants. However, we cannot assure you that violations or alleged violations of such requirements will not occur with respect to our operations. If the relevant PRC governmental agencies determine that our programs violate any applicable laws, rules or regulations, we could be subject to penalties. While we have and continue to engage in strategies to mitigate this risk by diversifying our marketing efforts and focusing on Southeast Asian markets, there is no assurance that such efforts will be successful in mitigating such risks faced by the Company.

Recent regulatory developments in China may subject us to additional regulatory review and disclosure requirement, or expose us to government interference, all of which could materially and adversely affect our business and the value of our securities.

We may need to adjust our business operations in the future to comply with PRC laws regulating our industry and our business operations. However, such efforts may not be completed in a liability-free manner or at all. We cannot guarantee that we will not be subject to PRC regulatory inspection and/or review relating to cybersecurity, especially when there remains significant uncertainty as to the scope and manner of the regulatory enforcement. If we become subject to regulatory inspection and/or review by PRC authorities, or are required by them to take any specific actions, it could cause disruptions to our operations, result in negative publicity regarding our company, and divert our managerial and financial resources. We may also be subject to fines or other penalties, which could materially and adversely affect our business, financial condition, and results of operations.

The Chinese government may intervene or influence the operations at any time or may exert more control over offerings conducted overseas and foreign investment in China-based issuers, which could result in a material change in the operations and/or the value of the securities we are registering for sale. Additionally, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

Substantially all of our revenue is currently derived in China and, historically, a portion of our operations have been conducted in China through QHI.Quest Holding International LLC (QHI). Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China, especially the government policies of PRC government. The PRC government has significant oversight and authority to exert influence on the ability of a China-based company to conduct the business. It regulates and may intervene or influence the operations at any time, which could result in a material adverse change in the operations and/or the value of the securities we are registering for sale. Implementation of any industry-wide regulations directly targeting our business operations could cause our securities to significantly decline in value or become worthless. Also, the PRC government has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and any uncertainties or negative publicity regarding such actions could also materially and adversely affect the business, prospects, financial condition, reputation, and the trading price of our shares, which may cause our securities to significantly decline in value or be worthless. Therefore, investors in our company face potential uncertainty from the actions taken by the PRC government.


Moreover, the significant oversight of the PRC government could also be reflected from the uncertainties arising from the legal system in China. The laws and regulations of the PRC can change quickly without sufficient notice in advance, which makes it difficult for us to predict which kind of laws and regulations will come into force in the future and how it will influence our company and operations. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.

3

The PRC government has significant influence over companies with operations in China by enforcing existing rules and regulation, adopting new ones, or changing relevant industrial policies in a manner that may materially increase our compliance cost, change relevant industry landscape or otherwise cause significant changes to our business operations in China, which could result in material and adverse changes in our operations and cause the value of our securities to significantly decline or be worthless.

Our customers have historically been located within China. The PRC government has significant influence over operations in China by any company by allocating resources, providing preferential treatment to particular industries or companies, or imposing industry-wide policies on certain industries. The PRC government may also amend or enforce existing rules and regulation, or adopt ones, which could materially increase our compliance cost, change the relevant industry landscape, or cause significant changes to our business operations in China. In addition, the PRC regulatory system is based in part on government policies and internal guidance, some of which are not published on a timely basis, or at all, and some of which may even have a retroactive effect. We may not be aware of all non-compliance incidents at all times, and we may face regulatory investigation, fines and other penalties as a consequence. As a result of the changes in the industrial policies of the PRC government, including the amendment to and/or enforcement of the related laws and regulations, companies with operations in China, including us, and the industries in which we operate, face significant compliance and operational risks and uncertainties. For example, on July 24, 2021, Chinese state media, including Xinhua News Agency and China Central Television, announced a broad set of reforms targeting private education companies providing after-school tutoring services and prohibiting foreign investments in institutions providing such after-school tutoring services. As a result, the market value of certain U.S. listed companies with China-based operations in the affected sectors declined substantially. As of the date of this Report, we are not aware of any similar regulations that may be adopted to significantly curtail our business operations in China. However, if such other adverse regulations or policies are adopted in China, our operations in China will be materially and adversely affected, which may significantly disrupt our operations and adversely affect our business.

We may be subject to anti-monopoly concerns as a result of our doing business in China.

Article 3 of Anti-Monopoly Law of the People’s Republic of China (the “Anti-Monopoly Law”) prohibits “monopolistic practices,” which include: a) the conclusion of monopoly agreements between operators; b) the abuse of dominant market position by operators; and c) concentration of undertakings which has or may have the effect of eliminating or restricting market competition. Also, according to Article 19 of the Anti-Monopoly Law, the operator(s) will be assumed to have a dominant market position if it has following situation: a) an operator has 50% or higher market share in a relevant market; b) two operators have 66% or higher market share in a relevant market; or c) three operators have 75% or higher market share in a relevant market. We do not believe we have engaged in any monopolistic practices in China, and that recent statements and regulatory actions by the Chinese government do not impact our ability to conduct business, accept foreign investments, or list on an U.S. or other foreign stock exchange. However, there can be no assurance that regulators in China will not promulgate new laws and regulations or adopt new series of regulatory actions which may require us to meet new requirements on the issues mentioned above.


Rules and regulations in China can change quickly with little advance notice, creating substantial uncertainty. Changes in the PRC legal system may adversely affect our business and operation.

Our customers have historically been located in the PRC and therefore we are subject to the laws and regulations of the PRC. The PRC legal system is based on the written statutes and involves a unified, multilevel legislative system. The National People’s Congress (the “NPC”) and its Standing Committee exercise the state power to make laws. The NPC enacts and amends basic laws pertaining to criminal offences, civil affairs, state organs and other matters. The Standing Committee enacts and amends all laws except for basic laws that should be enacted by the NPC. When the NPC is not in session, its Standing Committee may partially supplement and revise laws enacted by the NPC, provided that the changes do not contravene the laws’ basic principles. Generally, the PRC laws will go through specific legislative procedures before being promulgated. The legislative authority may propose a bill and then the bill shall be deliberated three times before being voted. However, administrative regulations are formulated by the State Council which reports them to the NPC. The administration regulations are often promulgated with little advance notice, which results in a lack of predictability, and substantial uncertainty. Moreover, the uncertainties may fundamentally impact the development of one or more specific industries and in extreme cases result in the termination of certain businesses. For example, the Opinions on Further Easing the Burden of Excessive Homework and After-School Tutoring for Students Undergoing Compulsory Education, known as “double reduction” education policy, was promulgated by General Office of the CPC Central Committee and General Office of the State Council on July 24, 2021. The “double reduction” education policy comes into effective immediately and has posed a significant impact on the education and training industries, as well as those China-based companies listed in the United States. The resulting unpredictable could materially and adversely affects the market value and the operation of the businesses affected.

4

Furthermore, the PRC administrative authorities and courts have the power to interpret and implement or enforce statutory rules and contractual terms at their reasonable discretion which makes the business environment much more complicated and unpredictable. It is difficult to predict the outcome of the administrative and court proceedings. The uncertainties may affect our assessments of the relevance of legal requirements, and our business decisions. Such uncertainties may result in substantial operating expenses and costs. Should there be any investigations, arbitrations or litigation with respect to our alleged non-compliance with statutory rules and contractual terms, the management team could be distracted from our primary business considerations, and therefore such a circumstance could materially and adversely affect our business and results of operations. We cannot predict future developments relating to the laws, regulations and rules in the PRC. We may be required to procure additional permits, authorizations and approvals for our operations, which we may not be able to obtain. Our failure to obtain such permits, authorizations and approvals may materially and adversely affect our business, financial condition and the results of operations.

Neither we, nor our subsidiaries, have received any permits, authorizations and approvals from any governmental agency, as we do not believe our operations require any such permissions or approvals. There can be no assurance, however, that regulators in China will not take a contrary view or will not subsequently require us to undergo the approval procedures and subject us to penalties for non-compliance. The foregoing statements are based on our management’s belief and we have determined not to seek an opinion of local counsel to verify our management’s belief. We made this decision based on the types of activities we conduct in China, which do not believe raises any issues under Chinese law. Notwithstanding the foregoing, we, our subsidiaries, and investors in our securities would be materially harmed if (i) we do not receive or maintain such permissions or approvals, (ii) we inadvertently conclude that such permissions or approvals are not required, or (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future.

To the extent cash in the business is in the PRC or a PRC entity, the funds may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of our Company, or our subsidiaries, by the PRC government to transfer cash.

The PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. If, in the future, we maintain cash in the PRC, shortages in foreign currencies may restrict our ability to pay dividends or other payments, or otherwise satisfy any foreign currency denominated obligations, if any. Approval from appropriate government authorities is required if Renminbi is converted into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions and if this occurs in the future, we may not be able to pay dividends in foreign currencies to our shareholders.


As a result of the above, to the extent cash in the business is in the PRC or a PRC entity, such funds or assets may not be available to fund operations or for other use outside of the PRC, due to interventions in or the imposition of restrictions and limitations on the ability of us, or our subsidiaries, by the competent government to the transfer of cash.

 

5

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

Our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole. China’s economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. The PRC government has implemented measures since the late 1970’s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, which are generally viewed as a positive development for foreign business investment. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC economic growth through allocating resources, controlling payments of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies. For example, as a result of China’s current nationwide anti-corruption campaign, public school spending has become strictly regulated. To comply with the expenditure control policies of the Chinese government, many public universities temporarily reduced their self-taught education spending in 2017. This caused the demand for our courses in 2017 to decrease. If our clients continue to reduce their demand for our services due to the policies of the Chinese government, this could adversely impact our business, financial condition and operating results.

While China’s economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing. Some of the governmental measures may benefit the overall Chinese economy but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. Any stimulus measures designed to boost the Chinese economy may contribute to higher inflation, which could adversely affect our results of operations and financial condition. For example, certain operating costs and expenses, such as employee compensation and office operating expenses, may increase as a result of higher inflation. In addition, the PRC government has implemented in the past certain measures to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our businesses, financial condition and results of operations.

Our business, financial condition and results of operations may be adversely affected by a downturn in the global or Chinese economy.

Because our student enrollment may depend on our students’ and potential students’ and their parents’ levels of disposable income, perceived job prospects and willingness to spend, our business and prospects may be affected by economic conditions in China or globally. The global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went into recession; theand since 2020 the world economy has been facing the challenges ofrelated to the global COVID-19 pandemic.pandemic, including supply chain challenges and inflationary pressures. The recovery from the lows of 2008 and 2009 was uneven and is continuously facing new challenges, including the escalation of the European sovereign debt crisis since 2011 and the slowdown of the Chinese economy in 2012. In addition, the global recovery from the lows in 2020 and the COVID-19 pandemic remain slow and inconsistent. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. A decline in the economic prospects in the mechanics and other industries could alter current or prospective students’ spending priorities and the recruiting demand from workers in these areas. We cannot assure you that education spending in general or with respect to our course offerings in particular will increase, or not decrease, from current levels. Therefore, a slowdown in China’s economy or the global economy may lead to a reduction in demand for mechanics or other training covered by our courses, which could materially and adversely affect our financial condition and results of operations.


The Company’s operations and performance depend significantly on global and regional economic and geopolitical conditions. Changes in U.S.-China trade policies, and a number of other economic and geopolitical factors both in China and abroad could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. Such factors may include, without limitation:

instability in political or economic conditions, including but not limited to inflation, recession, foreign currency exchange restrictions and devaluations, restrictive governmental controls on transportation, visas issued to citizens of other countries, the movement and repatriation of earnings and capital, and actual or anticipated military or political conflicts, particularly in emerging markets;

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intergovernmental conflicts or actions, including but not limited to armed conflict, trade wars, retaliatory tariffs, and acts of terrorism or war; and
interruptions to the Company’s business with its largest customers, distributors and suppliers resulting from but not limited to, strikes, financial instabilities, computer malfunctions or cybersecurity incidents, inventory excesses, natural disasters or other disasters such as fires, floods, earthquakes, hurricanes or explosions.

We could be adversely affected by political tensions between the United States and China.

Political tensions between the United States and China have escalated due to, among other things, the COVID-19 outbreak, the PRC National People’s Congress’ passage of the Hong Kong National Security Law, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC, as well as the executive orders could have adverse effect on our operations. Rising political tensions could reduce levels of trade, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, prospects, financial condition and results of operations. Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. If any such deliberations were to materialize, the resulting legislation may have a material and adverse impact on the stock performance of China-based issuers listed in the United States. We cannot assure you that, if the political tension between the United States and China intensifies and further regulations affecting our business are passed, our business will not be materially and adversely affected.

Some students may decide not to continue engaging our courses for a number of reasons, including a perceived lack of improvement in their performance in specific courses, a change in requirements or general dissatisfaction with our programs, which may adversely affect our business, financial condition, results of operations and reputation.

The success of our business depends in large part on our ability to retain our students by delivering a satisfactory learning experience and improving their performance. If students feel that we are not providing them the experience they are seeking, they may choose not to renew. Student satisfaction with our programs may decline for a number of reasons, many of which may not reflect the effectiveness and efficiency of our services. If students’ performances decline as a result of their own study habits, they may not refer other students to us, which could materially adversely affect our business.


Failure to protect the confidential information of our customers against security breaches could damage our reputation and brand and substantially harm our business and results of operations.

Maintaining security for the storage and transmission of confidential information on our system, such as student names, personal information and billing addresses, is essential to maintaining student confidence. We have adopted security policies and measures to protect our proprietary data and student information. However, advances in technology, the expertise of hackers, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information. Such individuals or entities obtaining our clients’ confidential or private information may further engage in various other illegal activities using such information. Any negative publicity regarding our safety or privacy protection mechanisms and policies, and any claims asserted against us or fines imposed upon us as a result of actual or perceived failures, could have a material and adverse effect on our public image, reputation, financial condition and results of operations.

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If we fail to strengthen and protect our brands, our operations and the financial situation will be materially affected.

We believe that our brand is synonymous with achievement, creativity, self-esteem and accomplishment throughout the PRC. It is critical that we maintain and protect our brand and our image, as we continue to launch new programs, projects and acquire new businesses. As we launch new business lines, and seek to increase visibility in our current business lines, the use of several marketing tools, sponsorship and support from traditional advertisers, schools and government officials will be important to our success. A number of factors could prevent us from successfully promoting our brand, including student and parent dissatisfaction with our services, the failure of our marketing tools and strategies to attract new students. If we are unable to maintain and enhance the brand or utilize marketing tools in a cost-effective manner, our revenues and profitability may suffer. If we are unable to further enhance our brand recognition and increase awareness of our services, or if we incur excessive sales and marketing expenses, our business and results of operations may be materially and adversely affected.

We may not be able to implement our growth strategy and future plans successfully.

Our growth strategy includes increasing sales, leveraging our brand, and acquiring companies that have services, products or technologies that extend or complement our existing business. While we currently have not identified any specific target companies, the process to undertake a growth strategy like ours, is time-consuming and costly. We expect to expend significant resources and there is no guarantee that we will successfully execute our plans. Failure to manage expansion effectively may affect our success in executing our business plan and may adversely affect our business, financial condition and results of operations. We may not realize the anticipated benefits of any or all of our strategies, or may not realize them in the time frame expected. In addition, future acquisitions may require us to issue additional equity securities, spend our cash, or incur debt, and amortization expenses related to intangible assets or write-offs of goodwill, any of which could adversely affect our results of operations.

We face significant competition and if we fail to compete effectively, we may lose our market share and our profitability may be adversely affected.

The education sector in China is rapidly evolving, highly fragmented and competitive, and we expect competition in this sector to persist and intensify. We face competition and competition is particularly intense in some of the key geographic markets in which we operate. We also face competition from companies that focus on one area of our business and are able to devote all of their resources to that business line. These companies may be able to more quickly adapt to changing technology, student preferences and market conditions in these markets than we can. These companies may, therefore, have a competitive advantage over us with respect to these business areas. The increasing use of the Internet and advances in Internet and computer-related technologies are eliminating geographic and cost-entry barriers to providing educational services and products. As a result, many international companies that offer online test preparation and language training courses may decide to expand their presence in China or to try to penetrate the Chinese market. Many of these international companies have strong education brands, and students and parents in China may be attracted to the offerings based in the country that the student wishes to study in or in which the selected language is widely spoken. In addition, many Chinese and smaller companies are able to use the Internet to quickly and cost-effectively offer their services and products to a large number of students with less capital expenditure than previously required. Competition could result in loss of market share and revenues, lower profit margins and limit our future growth. A number of our current and potential future competitors may have greater financial and other resources than we have. In addition, many US universities and colleges marketing in China also represent our competition. These competitors may be able to devote greater resources than we can to the development, promotion and sale of their services and products, and respond more quickly than we can to changes in student needs, market needs or new technologies. As a result, our net revenues and profitability may decrease. We cannot assure you that we will be able to compete successfully against current or future competitors. If we are unable to maintain our competitive position or otherwise respond to competitive pressures effectively, we may lose our market share and our profitability may be materially adversely affected.


Our success depends, to a large extent, on the skill and experience of our management in the education business. If any member of our senior management leaves, or if we fail to recruit suitable replacements, our operation and financial situation will be adversely affected.

Our success depends in large part on the continued employment of our senior management and key personnel who can effectively identify, build and expand relationships that are critical for us, operate our business, as well as our ability to attract and retain skilled employees. Competition for highly skilled management, technical, research and development and other employees is intense in the education industry in the PRC and we may not be able to attract or retain highly qualified personnel in the future. If any of our employees leave, and we fail to effectively manage a transition to new personnel, or if we fail to attract and retain qualified and experienced professionals on acceptable terms, our business, financial conditions and results of operations could be adversely affected. Our success also depends on our having highly trained sales and marketing personnel to support and promote our current products as well as new service and product launches. We will need to continue to hire additional personnel as our business grows. A shortage in the number of people with these skills or our failure to attract them to our company could impede our ability to increase revenues from our existing products and services, ensure full compliance with applicable federal and state regulations, launch new product offerings and would have an adverse effect on our business and financial results.

 

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We may not be able to adequately protect our intellectual property, which could cause us to be less competitive.

Our trademarks, trade names, and other intellectual property rights are important to our success. In connection with our business, we have registered one domain name in the PRC. We maintain confidentiality of applicant information by encrypting all such information and storing it on third-party servers, with controlled access to any such confidential information by our personnel. Unauthorized use of any of our intellectual property may adversely affect our business and reputation. We rely on trade secrets and confidentiality agreements with our employees, consultants and others to protect our intellectual property rights. Nevertheless, it may be possible for third parties to obtain and use our intellectual property without authorization, or use logos or trade names similar to ours. The unauthorized use of intellectual property is widespread in China, and enforcement of intellectual property rights by Chinese regulatory agencies is inconsistent. Moreover, litigation may be necessary in the future to enforce our intellectual property rights. Future litigation could result in substantial costs and diversion of our management’s attention and resources and could disrupt our business. If we are unable to enforce our intellectual property rights, it could have a material adverse effect on our financial condition and results of operations. Given the relative unpredictability of China’s legal system and potential difficulties enforcing a court judgment in China, we may be unable to halt the unauthorized use of our intellectual property through litigation. Failure to adequately protect our intellectual property could materially adversely affect our competitive position, our ability to attract students and our results of operations.

Our operations are subject to seasonality.

Our programs, which are our primary source of revenues, are seasonal. We tend to experience an increase in revenue from these lines in the second half of the year. As a result, we generally record higher revenue in the second half as compared to the first half of each calendar year. Any adverse change in the trends in spending patterns and other factors, conditions or events in the PRC, may affect our operational results.

We may need additional capital, and financing may not be available on terms acceptable to us, or at all.

Although our current cash and cash equivalents, anticipated cash flows from operating activities will be sufficient to meet our anticipated working capital requirements and capital expenditures in the common course of business for at least 12 months, there is a risk that we may need additional cash resources in the future to fund our growth plans or if we experience adverse changes in business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for new investments, acquisitions, capital expenditures or similar actions. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. The issuance and sale of additional equity would result in further dilution to our shareholders.

default and foreclosure on our assets if our operating revenue is insufficient to repay debt obligations;


acceleration of obligations to repay the indebtedness (or other outstanding indebtedness), even if we make all principal and interest payments when due, if we breach any covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;

 

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diverting a substantial portion of cash flow to pay principal and interest on such debt, which would reduce the funds available for expenses, capital expenditures, acquisitions and other general corporate purposes; and
creating potential limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate.

The occurrence of any of these risks could adversely affect our operations or financial condition.

We are subject to changing laws, rules and regulations in the U.S. and other jurisdictions regarding regulatory matters, corporate governance and public disclosure that will increase both our costs and the risks associated with non-compliance.

We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.

Our business is subject to risks related to lawsuits and other claims brought by our clients or business partners. If the outcomes of these proceedings are adverse to us, it could have a material adverse effect on our business, results of operations and financial condition.

We are subject to lawsuits and other claims in the common course of our business. We are currently not involved in any lawsuits with our customers. However, claims arising out of actual or alleged violations of law could be asserted against us by individuals, companies, governmental or other entities in civil, administrative or criminal investigations and proceedings. These claims could be asserted under a variety of laws and regulations, including but not limited to contract laws, consumer protection laws or regulations, intellectual property laws, environmental laws, and labor and employment laws. These actions could expose us to adverse publicity and to monetary damages, fines and penalties, as well as suspension or revocation of licenses or permits to conduct business. Even if we eventually prevail in these matters, we could incur significant legal fees or suffer reputational harm, which could have a material adverse effect on our business and results of operations as well as our future growth and prospects. While all of students enrolled in university academic programs are required to maintain health insurance coverage, we may be subject to claims by students and/or their parents if and to the extent they decide to assert claims against us relating to, among other things, their stay at our dorms and use of our catering services. If such claims are asserted and successfully litigated, our operations and financial condition may be materially affected by the adverse outcome of any such litigation.

Our management team members, individually and together, own a large percentage of our outstanding stock and could significantly influence the outcome of our corporate matters.

As of December 31, 2022,2023, Messrs. Zhang and Wu hold approximately 60.64%59.18% and 5.81%8.12% of our outstanding shares, respectively. As a result, together, and individually they will be able to exercise significant influence over all matters that require us to obtain shareholder approval, including the election of directors to our board and approval of significant corporate transactions that we may consider, such as a merger or other sale of our company or its assets. This concentration of ownership in our shares by such individual or their affiliates will limit the other shareholders’ ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.

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If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price of our shares.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.

As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In addition, an independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 20-F following the date on which we cease to qualify as an emerging growth company if we become an accelerated filer or large accelerated filer. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

If we are unable to maintain adequate internal controls or fail to correct deficiencies in our controls noted by our management or our independent registered public accounting firm, our business and operating results could be adversely affected, we could fail to meet our obligations to report our operating results accurately and completely.

We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a material adverse effect on the market price of our shares.

Lack of experience of our management team as officers of a publicly-tradedpublicly traded company may hinder our ability to comply with the Sarbanes-Oxley Act.

It may be time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the Sarbanes-Oxley Act’s internal controls requirements, we may not be able to obtain the independent registered public accounting firm certifications that the Sarbanes-Oxley Act requires publicly-tradedpublicly traded companies to obtain.

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Risks Relating to Our Corporate Structure

We will likely not pay dividends in the foreseeable future.

Dividend policy is subject to the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements and other factors. There is no assurance that our Board of Directors will declare dividends even if we are profitable. Under BVI law, we may only pay dividends if we are solvent before and after the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the common course of business; and the value of assets of our Company will not be less than the sum of our total liabilities.

 

As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.

Our corporate affairs will beis governed by our memorandum and articles of association, the BVI Business Companies Act, 2004 (as amended), referred to below as the “BVI Act”, and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are governed by the BVI Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from the common law of England and the wider Commonwealth, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are largely codified in the BVI Act, but are potentially not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of all of the above, holders of our shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company.

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.

Shareholders of British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States Shareholders of a British Virgin Islands company could, however, bring a derivative action in the British Virgin Islands courts, and there is a clear statutory right to commence such derivative claims under Section 184C of the BVI Act. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

The laws of the British Virgin Islands may provide less protection for minority shareholders than those under U.S. law, so minority shareholders may have less recourse than they would under U.S. law if the shareholders are dissatisfied with the conduct of our affairs.

Under the laws of the British Virgin Islands, the rights of minority shareholders are protected by provisions of the BVI Act dealing with shareholder remedies and other remedies available under common law (in tort or contractual remedies). The principal protection under statutory law is that shareholders may bring an action to enforce the constitutional documents of the company (i.e. the memorandum and articles of association) as shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association of the company. A shareholder may also bring an action under statute if he feels that the affairs of the company have been or will be carried out in a manner that is unfairly prejudicial or discriminating or oppressive to him. The BVI Act also provides for certain other protections for minority shareholders, including in respect of investigation of the company and inspection of the company books and records. There are also common law rights for the protection of shareholders that may be invoked, largely dependent on English common law, since the common law of the British Virgin Islands for business companies is limited.

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Risks Related to Our Securities

 

Our common shares are listed on the Nasdaq Capital Market; if our financial condition deteriorates, we may not meet continued listing standards on the Nasdaq Capital Market.

 

The Nasdaq Capital Market also requires companies to fulfill specific requirements in order for their shares to continue to be listed. If our shares are delisted from the Nasdaq Capital Market at some later date, our shareholders could find it difficult to sell our shares. In addition, if our common shares are delisted from the Nasdaq Capital Market at some later date, we may apply to have our common shares quoted on the Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the Nasdaq Capital Market. In addition, if our common shares are not so listed or are delisted at some later date, our common shares may be subject to the “penny stock” regulations. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our common shares might decline. If our common shares are delisted from the Nasdaq Capital Market at some later date or become subject to the penny stock regulations, it is likely that the price of our shares would decline and that our shareholders would find it difficult to sell their shares.

 

We could be delisted if it is determined that the Public Company Accounting Oversight Board is unable to inspect or investigate our auditor completely.

Our independent registered public accounting firm that issues the audit report included in this Report on Form 20-F, as an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and applicable professional standards. Our independent registered public accounting firm is currently subject to PCAOB inspections on a regular basis. However, if it is determined in the future that the PCAOB is unable to inspect or investigate our auditor completely, or if our future audit reports are prepared by auditors that are not completely inspected by the PCAOB, our shares may be delisted or trading in our ordinary shares may be prohibited under the Holding Foreign Companies Accountable Act, or HFCAA.

The lack of PCAOB inspections of audit work in foreign countries prevents the PCAOB from regularly evaluating auditors’ audits and their quality control procedures. As a result, investors would be deprived of the benefits of PCAOB inspections. To tackle this problem, the HFCAA, was enacted on December 18, 2020. In essence, the HFCAA requires the SEC to prohibit securities of any foreign companies from being listed on U.S. securities exchanges or traded “over-the-counter” if a company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which was signed into law on December 29, 2022, and decreases the number of “non-inspection years” from three years to two years, and thus reduces the time before securities may be prohibited from trading or delisted. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA. On December 2, 2021, the SEC issued amendments to finalize the interim final rules previously adopted in March 2021 to implement the submission and disclosure requirements in the HFCAA. On December 16, 2021, the PCAOB issued a report relaying to the SEC its determinations that PCAOB is unable to inspect or investigate completely registered public accounting firms in mainland China and Hong Kong due to positions taken by Chinese authorities. On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the PRC, which sets out specific arrangements on conducting inspections and investigations by both sides over relevant audit firms within the jurisdiction of both sides, including the audit firms based in mainland China and Hong Kong. This agreement marked an important step towards resolving the audit oversight issue that concern mutual interests, and sets forth arrangements for both sides to cooperate in conducting inspections and investigations of relevant audit firms, and specifies the purpose, scope and approach of cooperation, as well as the use of information and protection of specific types of data.

 

Our independent registered public accounting firm is based in the United States and not subject to such determinations announced by the PCAOB on December 16, 2021. On December 15, 2022, the PCAOB announced that it has secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and was effectively reversing its previous determination report to the contrary.

 

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If, notwithstanding the foregoing, it is determined that the PCAOB is unable to inspect or investigate completely our auditor because of a position taken by an authority in a foreign jurisdiction, the trading in our shares would be prohibited, and as a result, Nasdaq may determine to delist our shares. Delisting of our shares would force holders of our shares to sell their shares. The market price of our shares could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions upon, as well as negative investor sentiment towards, companies with significant business in China that are listed in the United States, regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance.

The market price for our shares may be volatile.

The trading prices of our common shares is volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of internet or other companies based in China that have listed their securities in the United States in recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial decline in their trading prices. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our common shares, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to timetime-to-time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material adverse effect on the market price of our shares. In addition to the above factors, the price and trading volume of our common shares may be highly volatile due to multiple factors, including the following:

regulatory developments affecting us, our users, or our industry;
regulatory uncertainties with regard to our variable interest entity arrangements;
announcements of studies and reports relating to our service offerings or those of our competitors;
actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;
changes in financial estimates by securities research analysts;
announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments;

additions to or departures of our senior management;
detrimental negative publicity about us, our management or our industry;
fluctuations of exchange rates between the RMB and the U.S. dollar;
release or expiry of lock-up or other transfer restrictions on our outstanding common shares; and
sales or perceived potential sales of additional common shares.

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We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.

We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime. As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. While we may determine, on our own accord, to provide the results of our operations on a quarterly basis, and since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

As the rights of shareholders under BVI law differ from those under U.S. law, you may have fewer protections as a shareholder.

Our corporate affairs will beare governed by our memorandum and articles of association, the BVI Business Companies Act, 2004, as amended (the “BVI Act”), and the common law of the BVI. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under BVI law are governed by the BVI Act and the common law of the BVI. The common law of the BVI is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from the common law of England and the wider Commonwealth, which has persuasive, but not binding, authority on a court in the BVI. The rights of our shareholders and the fiduciary responsibilities of our directors under BVI law are largely codified in the BVI Act but are potentially not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the BVI has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of all of the above, holders of our common shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company.

Shareholders of BVI companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. Shareholders of a BVI company could, however, bring a derivative action in the BVI courts, and there is a clear statutory right to commence such derivative claims under Section 184C of the BVI Act. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The BVI courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the BVI, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the BVI of judgments obtained in the United States, although the courts of the BVI will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. The BVI Act offers some limited protection of minority shareholders. The principal protection under statutory law is that shareholders may apply to the BVI court for an order directing the company or its director(s) to comply with, or restraining the company or a director from engaging in conduct that contravenes, the BVI Act. Under the BVI Act, the minority shareholders have a statutory right to bring a derivative action in the name of and on behalf of the company in circumstances where a company has a cause of action against its directors. This remedy is available at the discretion of the BVI court. A shareholder may also bring an action against the company for breach of duty owed to him as a member. A shareholder who considers that the affairs of the company have been, are being or likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, likely to be oppressive, unfairly discriminatory, or unfairly prejudicial to him in that capacity, may apply to the BVI court for an order to remedy the situation.

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There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the Board of Directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to BVI law and the constituent documents of the company. As such, if those who control the company have persistently disregarded the requirements of company law, then the courts may grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe or are about to infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of a special or extracommonextraordinary majority of shareholders. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.

Under the laws of the BVI, the rights of minority shareholders are protected by provisions of the BVI Act dealing with shareholder remedies and other remedies available under common law (in tort or contractual remedies). The principal protection under statutory law is that shareholders may bring an action to enforce the constitutional documents of the company (i.e. the Memorandum and Articles of Association) as shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the Memorandum and Articles of Association of the company. A shareholder may also bring an action under statute if he feels that the affairs of the company have been or will be carried out in a manner that is unfairly prejudicial or discriminating or oppressive to him. The BVI Act also provides for certain other protections for minority shareholders, including in respect of investigation of the company and inspection of the company books and records. There are also common law rights for the protection of shareholders that may be invoked, largely dependent on English common law, since the common law of the BVI for business companies is limited.

We may not be able to pay any dividends on our common shares in the future due to BVI law.

Under BVI law, we may only pay dividends to our shareholders if the value of our assets exceeds our liabilities and we are able to pay our debts as they become due. We cannot give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. Future dividends, if any, will be at the discretion of our Board of Directors, and will depend upon our results of operations, cash flows, financial condition, payment to us of cash dividends by our subsidiaries, capital needs, future prospects and other factors that our directors may deem appropriate.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

The determination of our status as a foreign private issuer is made annually on the last business day of our most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on March 31, 2023.2024. We would lose our foreign private issuer status if (1) a majority of our outstanding voting securities are directly or indirectly held of record by U.S. residents, and (2) a majority of our shareholders or a majority of our directors or management are U.S. citizens or residents, a majority of our assets are located in the United States, or our business is administered principally in the United States. If we were to lose our foreign private issuer status, the regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. We may also be required to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers, which would involve additional costs.


We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.

Our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and, if required, our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

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As an “emerging growth company” under the Jumpstart Our Business Startups Act, or JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of:

the last day of the fiscal year during which we have total annual gross revenues of $1.235 billion or more;
the last day of the fiscal year following the fifth anniversary of our IPO;
the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or
the date on which we are deemed a “large accelerated issuer”filer” as defined under the federal securities laws.

For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of our IPO. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the trading price of our common shares may be more volatile. In addition, our costs of operating as a public company may increase when we cease to be an emerging growth company.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our common shares.

We do not expect to be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. Furthermore, this is a factual determination that must be made annually after the close of each taxable year. If we are a PFIC for any taxable year during which a U.S. holder holds our common shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our common shares and trading volume could decline.

The trading market for our common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the market price for our common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our common shares to decline.


Our principal shareholders have substantial influence over our company. Their interests may not be aligned with the interests of our other shareholders, and they could prevent or cause a change of control or other transactions.

Our executive officers and directors, together with our existing shareholders, could have a significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations, the election of directors and other significant corporate actions. In cases where their interests are aligned and they vote together, these shareholders will also have the power to prevent or cause a change in control. Without the consent of some or all of these shareholders, we may be prevented from entering into transactions that could be beneficial to us or our minority shareholders. In addition, our directors and officers could violate their fiduciary duties by diverting business opportunities from us to themselves or others. The interests of our largest shareholders may differ from the interests of our other shareholders. The concentration in the ownership of our common shares may cause a material decline in the value of our common shares.

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As a company incorporated in the British Virgin Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with Nasdaq corporate governance listing standards.

As a company incorporated in the BVI that is expected to beand listed on the Nasdaq Capital Market, we are subject to Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the BVI, which is our home country, may differ significantly from Nasdaq corporate governance listing standards. Currently, we do not plan to rely on the home country practice with respect to our corporate governance, except that we have elected to be exempt from the requirement under Nasdaq Listing Rule 5635 to obtain shareholder approval for the issuance of 20% or more of our outstanding common shares. Nasdaq Listing Rule 5635 requires each issuer to obtain shareholder approval prior to certain dilutive events, including a transaction other than a public offering involving the sale of 20% or more of the issuer’s common shares outstanding prior to the transaction for less than the greater of book or market value of the stock..stock. If we choose to follow any additional home country practices in the future, our shareholders may be afforded less protection than they otherwise would enjoy under Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

Because we are a foreign private issuer under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC;
the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;
the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and
the selective disclosure rules by issuers of material non-public information under Regulation FD.

We will beare required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the Nasdaq Capital Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will beis less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

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ITEM 4.

ITEM 4. INFORMATION ON THE COMPANY

A.History and Development of the Company

A. History and Development of the Company

EpicQuest Education Group International Limited (EpicQuest), formerly named Elite Education Group International Limited, is a holding company registered and incorporated in the British Virgin Islands (BVI) on December 13, 2017. The name change was effective on August 31, 2022.

As a wholly-owned subsidiary of EpicQuest, Quest Holding International LLC (QHI) was incorporated in 2012 in Ohio to facilitate study abroad and post-study services for Chinese students in the United States.

Quest International Education Center LLC (QIE) was set up on January 13, 2017 in Ohio, and is a wholly-owned subsidiary of EpicQuest.

Highrim Holding International Limited (HHI) was set up in July of 2021 in Canada, and it is also a wholly-owned subsidiary of EpicQuest. It acquired 80% of the ownership of Richmond Institute of Languages (d.b.a. EduGlobal College) located in Vancouver, British Columbia, Canada in January 2022. As a wholly owned subsidiary of HHI, StudyUpStudy Up Center LLC (SUPC) was set up on April 27, 2022, in Ohio to coordinate and administer university and college student support services, provide academic guidance and advice for international students, and assist them in selecting and applying to educational institutions and completing the application process. As a wholly owned subsidiary of HHI, Skyward Holding International Limited (Skyward) was set up in June of 2023 in Canada. Skyward serves as the holding company of our Sri Lanka recruiting office, which opened on September of 2023, and focuses on recruiting students in Southeast Asia and the Middle East regions.

 

Ameri-Can Education Group Corp., an Ohio corporation, is 70% owned by EpicQuest, which ownership was acquired in December 2021.

In March 2021, we completed our initial public offering in which we offered and sold an aggregate of 781,343 units, each unit consisting of one common share, one Series A warrant and one Series B warrant, at a public offering price of $8.00 per unit. The Series A warrants permit the holder to purchase one common share at an exercise price of $5.00 and expire after 5 years. The Series B warrants permit the holder to purchase one common share at an exercise price of $10.00 and expire after 5 years, and contain an exchange feature that will permit the holder to exchange the warrant into shares of common shares on a one-for-one basis any time commencing the earlier of 15 days from the warrant issuance date or the time when $10 million of volume is traded in the common shares if the volume weighted average price of common shares on any trading day on or after the date of issuance fails to exceed the exercise price of the Series B warrants.

On November 24, 2021, the Company entered into: (i) a stock purchase agreement with Ameri-Can Education Group Corp. (“Ameri-Can”)(Ameri-Can), and the holders (the “Sellers”) of shares of capital stock of Ameri-Can (the “Stock Purchase Agreement”), and (ii) a subscription agreement with Ameri-Can (the “Subscription Agreement”). Pursuant to the Stock Purchase Agreement and Subscription Agreement, which were consummated on November 26, 2021, the Company acquired 70% of the equity of Ameri-Can and 77.78% of the voting equity of Ameri-Can for an aggregate purchase price of: (i) $1.25 million in cash and the issuance of 201,613 common shares of the Company (the “Purchaser Shares”) to the Sellers; and (ii) $2.5 million in cash to Ameri-Can. Of the remaining 30% of the equity Ameri-Can not held by the Company, 10% is held by one Seller and represents non-voting and non-dilutable equity. Each Seller receiving Purchaser Shares agreed that for a period of six months from the closing date, such Seller’s Purchaser Shares may not be offered, pledged, sold, or otherwise transferred or disposed of, directly or indirectly. Prior to the expiration of the foregoing six-month period, each such Seller agreed to enter into a sales plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, to sell the Purchaser Shares at a price of not less than $6.20 (subject to adjustment for any share splits, share dividends, or similar events) per Purchaser Share. On the one-year anniversary of the closing date, the Company agreed to repurchase any Purchaser Shares not sold at a price of $6.20 (subject to adjustment for any share splits, share dividends, or similar events) per Purchaser Share. A share-repurchase agreement was signed on November 24, 2022, so that suchthe shares would bewere bought back by EpicQuest at a price of $6.20.


Ameri-Can’s primary asset is convertible debt with Davis College, Inc., which operates Davis College (“Davis”) in Toledo, Ohio, pursuant to which Ameri-Can had the right to convert its convertible debt security into 100% of the shares of Davis College, Inc. Effective on December 1, 2022, the change of control was completed and the convertible debt was converted to 100% ownership of Davis College Inc. held by Ameri-Can. In November of 2023, the conversion of Davis College to Davis University was approved by regulatory authorities. This new designation reflects the breadth of Davis University’s academic programs including current and planned four-year degree programs which offer students a wide range of avenues to pursue different levels of education.

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On January 15, 2022, EpicQuest’s wholly-owned subsidiary, HHI, entered into agreements with Canada EduGlobal Holdings Inc. (“EduGlobal”EduGlobal Holdings”) and Richmond Institute of Languages Inc. d.b.a. EduGlobal College (EduGlobal College), pursuant to which it acquired 80% of the issued and outstanding shares of EduGlobal College from Global.EduGlobal Holdings. The initial purchase price for EduGlobal College was C$1.0 million (US$0.8 million), and the Company assumed up to C$200,000 (US$160,000) in certain liabilities of the college. In addition, the Company agreed to invest an additional C$3.0 million (US$2.4 million) over a two-year period in EduGlobal College to be used for the enhancement of its educational programs, increased student enrollment and general campus improvements. Further, on the three-year anniversary of the agreements, if EduGlobal College has not achieved certain financial and student enrollment metrics, the Company has the right to sell its 80% equity position back to GlobalEduGlobal Holdings for C$1.0 million (US$0.8 million) plus the sum of its investments in the college, up to an additional C$3.0 million (US$2.4 million). On March 31, 2023, pursuant to a purchase agreement by and between HHI, EduGlobal Holdings, EduGlobal College and Sylvester Chen, dated that same date, HHI acquired the remaining 20% of the issued and outstanding shares of EduGlobal College from EduGlobal Holdings for a purchase price of C$250,000 (US$187,505). As a result of acquiring the remaining 20% of the issued and outstanding shares of EduGlobal College, EduGlobal College is now 100% owned by HHI.

In 2023, EpicQuest established a wholly owned subsidiary, Gilmore INV LLC (Gilmore), in Ohio, for the purposes of kinesiology and recreation education programs to be offered by both of EpicQuest’s owned and operated institutions, Davis University and EduGlobal College. Another entity SouthGilmore LLC (SouthGilmore) was also formed in 2023 to organize sports-related entertainment projects. SouthGilmore is 40% owned by Gilmore, with EpicQuest Education maintaining control of its Board of Directors and heading its management team.

Our capital expenditure amounted to approximately $51,410$14,231 and $618,529$51,410 for the years ended September 30, 20222023 and 2021,2022, respectively. The capital expenditures were primarily used for purchases of property and equipment.

On January 8, 2024, the Company consummated pursuant to a Securities Purchase Agreement (the “January Purchase Agreement”) an offering with certain accredited investors for the sale by the Company of (i) 400,000 ordinary shares of the Company, par value $0.0016 per share (“ordinary shares”) and (ii) warrants to purchase up to an aggregate of 400,000 ordinary shares (the “January Warrants”), in a private placement offering. The combined purchase price of one ordinary share and accompanying January Warrant was $2.00. Subject to certain ownership limitations, the January Warrants are exercisable upon issuance. Each January Warrant is exercisable into one ordinary share at a price per share of $2.00 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth anniversary of the date of issuance. The gross proceeds to the Company from the private placement was $0.8 million, before deducting offering expenses, and excluding the proceeds, if any, from the exercise of the January Warrants. The Company intends to use the net proceeds from this offering for general corporate purposes.

Pursuant to the January Purchase Agreement, the Company agreed to file as soon as practicable (and in any event within 30 calendar days of the date of January Purchase Agreement) a resale registration statement (the “Resale Registration Statement”) with the Securities and Exchange Commission (the “Commission”) covering all ordinary shares sold to investors and the ordinary shares issuable upon exercise of the Warrants, and to cause the Resale Registration Statement to become effective by March 1, 2024, or April 1, 2024 assuming a review of the Resale Registration Statement by the Commission. The ordinary shares, the January Warrants, and the ordinary shares issuable upon exercise of the January Warrants were sold and issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 506 of Regulation D promulgated under the Securities Act as sales to accredited investors.


We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed with the SEC, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. SEC maintains a website (http://www.sec.gov), which contains reports, proxy and information statements, and other information regarding us that are filed electronically with the SEC.

B.Business Overview

B. Business Overview

Overview

EpicQuest Education Group International Limited (EpicQuest) is a holding company registered and incorporated in the British Virgin Islands (BVI) on December 13, 2017. As a wholly-owned subsidiary of EpicQuest, Quest Holding International LLC (QHI) was incorporated in 2012 in Ohio to facilitate study abroad and post-study services for Chinese students in the United States. Quest International Education Center LLC (QIE) was set up on January 13, 2017 in Ohio, and is a wholly-owned subsidiary of QHI. Gilmore INV LLC (Gilmore) was formed in 2023 and is a wholly-owned subsidiary of EpicQuest. SouthGilmore LLC (SouthGilmore) is 40% owned by Gilmore, with EpicQuest Education maintaining control of SouthGilmore’s Board of Directors and heading its management team. Highrim Holding International Limited (HHI) was set up in July of 2021 in Canada, and it is also a wholly-owned subsidiary of EpicQuest. StudyUpStudy Up Center LLC (SUC)(SUPC) was set up in April 2022 in Ohio, and it is a wholly-owned subsidiary of HHI.

Skyward International Holding Limited (Skyward) was formed in June of 2023, and is a wholly-owned subsidiary of HHI. Skyward also serves as the holding company of the Company’s Sri Lanka recruiting office opened in September of 2023.

We are not a Chinese operating company but a British Virgin Islands holding company with operations conducted by our subsidiaries. Investors in our securities will be purchasing securities in EpicQuest Education Group International Limited, a British Virgin Islands, and not in any of our subsidiaries. We do not utilize any variable interest entities.

We have agreements with the Regional Campuses of Miami University of Ohio, one of the oldest public universities in the country, to offer our services to Chinese students interested in studying in the United States. Located in southwestern Ohio and established in 1809, Miami University has 7 colleges, 5 different campuses, and the campus population of approximately 25,000. Known as a “public Ivy,” the university offers more than 120 undergraduate, 60 graduate and 13 Ph.D. degrees. Currently, our agreements with theMiami University have extended to the Middletown and Hamilton campuses. After two years of online courses, a total of 89our students camereturned to Ohio U.S. for in-person classes at the Miami University Regional Campuses. This wasCampuses starting in August 2022.

On May 24, 2023, Quest Holding International LLC (QHI), a wholly owned subsidiary of EpicQuest, entered into a Memorandum of Agreement with Miami University (the “Miami Agreement”). The Miami Agreement sets forth the first time this program welcomedterms pursuant to which QHI is to recruit international students from China since March 2020.residing outside of the United States for admission to the Miami University English Language Center at the Miami University Regional Campuses. The Miami Agreement has a five-year term, as compared to the previous three-year term agreements with Miami University. The Miami Agreement was effective as of July 1, 2023, and will terminate in accordance with its terms on June 30, 2028.

As a key part of our strategic growth plan, we acquired a controlling stake in Ameri-Can Education Group Corp. (“Ameri-Can”)(Ameri-Can), which, as of December 2022, owns Davis College (now Davis University), a two-year career-training college. It represents a key strategic growth initiative that expands our business model to being an operator of a college that provides career-training programs as well as a ‘transfer pathway’ to top universities for students to pursue Bachelors’ degrees. We believe that Davis College offers immediate synergies with our existing operations as well as significant long-term growth opportunities in the US,U.S., the foundation of our global expansion strategy. Davis College has arrangements with 7 international universities to offer students a variety of pathways toward completing their Bachelor’s degrees. In recent months, Davis College has established non-binding Memorandums of Understanding with several global institutions. Among these institutions are the International College of Business and Technology (ICBT Campus) of Sri Lanka, Isabela State University of the Philippines, PSB Academy of Singapore, and Anhui Business College of China.

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In June of 2023, Davis College was approved by the Higher Learning Commission (HLC) to offer a four-year Bachelor of Science in Business degree. The HLC is an independent corporation and is one of seven regional accreditors in the U.S. that accredits degree-granting post-secondary educational institutions in order to help assure the quality of higher education. Effective November 18, 2023, the conversion of Davis College to Davis University was approved by regulatory authorities. This new designation reflects the breadth of Davis University’s academic programs including current and planned four-year degree programs which offer students a wide range of avenues to pursue different levels of education. On September 12, 2023, the HLC approved Davis for all of its education courses and programs that are offered online. HLC indicated that since Davis met the threshold requirement for online education, it does not need to seek further online education approvals from HLC.

As of September 30, 2023, Davis has enrolled 102 international students for the first academic quarter of 2023 (from August 21, 2023, to November 3, 2023). This compares with 35 international students that were enrolled at Davis in this same academic quarter in 2022, and 18 international students that were enrolled in this same academic quarter in 2021. The substantial increase in international enrollment for the first academic quarter of 2023 includes 50 international students through an agreement with Chongqing Technology and Business Institute and 42 international students through the Company’s foundational programs in China. On July 1, 2023, Davis entered into an agreement with Beijing New Oriental Vision Overseas Consulting Co., Ltd. (“New Oriental Consulting”) whereby New Oriental Consulting will act as a non-exclusive recruiting agent for Davis for a period of three years. New Oriental Consulting is the largest recruitment agent for students in China and recruits for colleges and universities in the U.S. and around the world. On August 10, 2023, Davis entered into an agreement with Peking University School of Education for a two-year continuing education and training program. During the first two years of this program, Davis students take course work on the main campus of Peking University; the remainder of the course work is to be taken at the Davis campus in Toledo, Ohio, leading to the attainment of degrees. The education program with Peking University, a preeminent university in China, began on September 1, 2023, with an enrollment to be capped at 50 Davis students. Peking University is regarded as one of the largest and highest ranked universities in China.

On January 15, 2022, EpicQuest’s wholly-owned subsidiary, HHI, entered into agreements with Canada EduGlobal Holdings Inc. (“EduGlobal”)(EduGlobal Holdings) and Richmond Institute of Languages Inc. d.b.a. EduGlobal College (EduGlobal College), pursuant to which it acquired 80% of the issued and outstanding shares of EduGlobal College from Global.EduGlobal Holdings. This acquisition provided us with an opportunity to further develop EduGlobal’s innovative educational programs of English proficiency training and academic programming that was student-centric and were among the highest in academic quality. EduGlobal previously signed an Academic Articulation Agreement (the “Agreement”) with Algoma University (“Algoma”). The Agreement establishes a seamless pathway for EduGlobal students who have successfully completed its International Undergraduate Pathways Program (iUPP) and the English for Academic Purposes (EAP) Program to complete baccalaureate degrees and graduate certificates at Algoma’s campuses in Brampton and Sault Ste. Marie. The Agreement is an important element of the Company’s strategic plan; EpicQuest is intent upon exploring additional opportunities to expand into the Canadian education market. On March 31, 2023, HHI acquired the 20% remaining equity of EduGlobal College from EduGlobal Holdings. The acquisition price of the remaining 20% of the equity in EduGlobal was C$250,000 (US$186,131). This acquisition of the 20% of the remaining equity in EduGlobal resulted in EduGlobal College being 100% owned by HHI. EduGlobal College (“EduGlobal”) has signed a Memorandum of Understanding and Articulation Agreement with Corpus Christi College, located in Vancouver, Canada, and an Articulation Agreement with Academy of Learning, which has learning campuses throughout Canada. The agreements provide for ongoing collaborations between EduGlobal and the two institutions of higher learning.

As a wholly owned subsidiary of HHI, Skyward was set up in June of 2023 in Canada. Skyward serves as the holding company of our Sri Lanka recruiting office which opened on September of 2023 and focuses on the recruiting students in Southeast Asia and the Middle East regions.

In 2023, EpicQuest established a wholly owned subsidiary, Gilmore INV LLC (Gilmore), in Ohio, for the purposes of organizing sport-related exhibition matches, and kinesiology and recreation education programs to be offered by both of EpicQuest’s owned and operated institutions, Davis University and EduGlobal College. Another entity SouthGilmore LLC (SouthGilmore) was formed in 2023 to organize sports-related entertainment projects such as exhibition matches. SouthGilmore is 40% owned by Gilmore, with EpicQuest Education maintaining control of its Board of Directors and heading its management team.

On November 23, 2023, SouthGilmore entered into a contract (the “AFA Agreement”) with the Argentine Football Association (the “AFA”) pursuant to which the parties agreed that the Argentina Men’s National Soccer Team to play two exhibition matches in China. The two international friendly matches will take place between March 18-26, 2024 between the Argentine men’s national soccer team and similar opponents in China. Pursuant to the Agreement, SouthGilmore agreed to pay the AFA a total of $15.0 million, of which $7.5 million was paid in connection with the execution of the Agreement, and $7.5 million will be paid in February 2024. In addition, pursuant to the Agreement, SouthGilmore agreed to assume the costs and obligations related to stadium charges, security, ticketing and all other matters generally related to the organization of the games. The Company has agreed to fund 50% of the payments due from SouthGilmore to the AFA pursuant to the Agreement.

We entered into an agreement with The Education Group (London) Ltd whereby we agreed to recruit students from China for admission to the University of the West of Scotland. We have also been operating as a recruiting agent for admission to Coventry University for the 2021-2022 academic year.


QHI develops specific education goals and plans for each student enrolled in our program and provides a safe and structured environment and support services so that students can focus most of their attention on academic studies.

QHI’s mission is to provide our students with a reliable and comprehensive support system to fulfill their dreams of studying abroad. It strives to accomplish that by offering students and parents a one-stop destination for international study needs. QHI maintains an office in the United States and works with a business partner in the PRC. Our U.S. office is mainly responsible for providing study abroad and post-study services, which include, among others, student dormitory management, academic guidance, international student services, student catering services, student transfer application services, internship and employment guidance. QHI’s business partner in China is Renda Financial Education Technology Co., Ltd. (Renda), which is located in Beijing. Its main business includes development and cooperation of the Chinese study market, language testing, student application, visa service, pre-departure training, pick-up arrangements, or any other accommodation arrangements as may be required.

QHI focuses on all stages of the study abroad process and aims to provide the best services available to ensure that every student successfully completes the university application, and travel and settlement processes. It accomplishes this by offering a one-stop solution for these needs.

The PRC office coordinates the pre-attendance service needs of our customers while our United States office coordinates and provides the actual study abroad and post-study services.

Such pre-attendance services coordinated by our PRC office with no charge include information support and counseling services for students and parents. In addition, we provide the following services:

Language Test Training Counseling – we provide International English Proficiency Test (ITEP) counseling, registration, test placement and test scores for students with no or poor language skillsskills;

Admission application – our professional personnel reviews and provides feedback on student application materialsmaterials;

Visa Counseling - our personnel provide visa counseling and guidance services for the student applicantsapplicants;

Pre-departure guidance – we offer logistical and organizational support for the student applicants prior to their departure to the educational institutionsinstitutions; and

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Accommodation arrangements – we pick-up and drop-off the students at the point of arrival.

 

The services after arrival include, among others:

 

 

Pick-up service with no charge – upon arrival, our U.S. office opens and maintains a 24-hour hotline to coordinate with Miami University for pick-up and ensures that each student arrives at and settles in dormitories safelysafely;

 

Welcome service with no charge – we coordinate with Miami University whose staff members offer a two-week orientationorientation;

  

 Dormitory services - our dormitory administrators are on duty 24 hours per day and 7 days per week (these facilities are not owned, maintained, operated or are part of Miami University).;

 

 Catering services – we maintain a Chinese restaurant consisting of Chinese chefs and culinary staff near student dormitories to offer several meals a day to our studentsstudents;

 

 Academic guidance – with the help of professionally retained tutors, we offer academic guidance to help students choose and plan their career developmentdevelopment;

 

 Internship services – we arrange for various types of internships and social practice activities throughout the academic calendar to help students with their future employment, educational and social prospects; we believe these services also help to develop their problem solving skills, workplace and emotional intelligence trainingtraining; and

 

 Shuttle bus services – our staff offer shuttle bus services to cater to students’ needs.

 

Industry and Market Background

 

With the development of the PRC international study market, the Chinese government and foreign universities have increasingly directed more attention to the PRC education market, with high school students and their parents being the primary target of such interest and becoming the main force in the international study market. Both students and their parents focus on locating high-quality, low risk ways of studying abroad to realize return on their educational investments. While many of our competitors offer quick preparation schemes, many students continue their language studies in foreign language schools for a few months before going abroad to begin their undergraduate studies. Similarly, many preparatory programs also promise that students will graduate after only three years abroad. These preparatory programs are situated in public universities, mainly in the form of one-year university preparatory courses, 2 + 2 year cooperation projects and 3 + 2 year undergraduate continuing courses. Consistent with industry demands, the study abroad project types have been changing continuously in the past 10 years, from 3 + 2 to 2 + 3, and then to the final year of university preparatory course. After substantial analysis of attendance and participation rates, it became apparent that the scale of one-year preparatory course in the market has been too small which made it difficult to recruit students. In fact, it appears that one-year preparatory courses available in the market have not delivered on cost saving promises; on the contrary, it prolonged the study abroad periods.


QHI signed a training agreement with universities in China starting at the end of 2018, and arranged all the 30-credit courses for freshmen of Miami University to be completed in China. With domestic universities and professors of Miami University being brought together, students can experience being taught by foreign university professors at home and get course credits from Miami University, while attending intensive English courses. The cost of students studying at home is only one-third of the tuition fee of Miami University, so both the time and the cost of studying abroad are in line with the needs of parents and students.

 

The Miami University of Ohio is an American top 100 university which is very popular with Chinese students. However, many Chinese students do not have the chance to enter the university because of their poor language performance. Starting in 2015, QHI worked with Miami University to establish an English Language Center (ELC) on the Middletown campus. At the same time, QHI set up nearby dormitory areas and restaurants for ELC students (these facilities are not owned, maintained, operated or are part of Miami University). QHI is the only admission institution for students from China on the Miami University Middletown and Hamilton Campus. Since 2013, QHI has accumulated a significant number of market resources and enrollment channels.

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Our Strategies

 

We strive to improve the quality of our project offerings, provide our customers with the most suitable options to pursue their studies abroad, and ultimately to establish an internationally recognized education brand. We have designed our management systems to pursue and secure an enduring competitive advantage in the marketplace for education services by securing stable market positioning and channels, and configuring a highly efficient sales system.

 

More importantly, a vital component of EpicQuest’s strategic growth plan is to become increasingly involved with international collaborations in order to leverage their distinct academic programming and unique culture of learning. The Company is intent upon offering enhanced globalized learning to its students as well as pathway programs to achieve advanced university degrees. A vital component of the Company’s growth plan is to build cross-border relationships and to make strategic acquisitions around the globe to establish EpicQuest as a truly international service provider of higher learning. In November 2022, the Company expanded its international growth strategy with its signing of a non-binding Memorandum of Understanding (“MOU”) with ICBT Campus of Sri Lanka (“ICBT”). The MOU articulates specific partnership programs and collaboration activities between Davis College and EduGlobal College, the Company’s two colleges in which it has controlling interests, and ICBT. With this MOU, EpicQuest is continuing to implement our strategic growth plan to enter international educational markets. We intend to develop numerous collaborative programs with renowned higher education institutions where we can achieve meaningful opportunities to enhance our students’ educational experience. InDuring this time, we intend to open additional projects in new markets, including Vietnam, Hong Kong, and other countries and regions, mainly for self-built private international schools, including but not limited to the meantime, we are also looking intohigh school and colleges, and to establish cooperation with local well-known universities. On September 4, 2023, the potential of establishing an operating hubCompany opened a recruiting office in Sri Lanka to facilitate our expansion into theserve as its main hub to attract students from Southeast Asia marketand the Middle East for its owned and operated colleges, Davis College (now Davis University) and EduGlobal College. In addition to leverage ourthe opening of the Sri Lanka recruiting office, EduGlobal College signed a non-exclusive MOU with Apex, a career college based in London, whose purpose is for Apex to use its best efforts to recruit qualified students in Sri Lanka for EduGlobal Colleges educational programming and unique culture of learning to include Viet Nam, Thailand, Malaysia and India.programs.

 

We have developed and intend to implement the following strategies to expand and grow the size of our Company:

 

Overseas marketsProjects

 

 

Miami University (Regional Campuses) Project. As of September 30, 2022,2023, a total of 8060 students who had been admitted to the English Language Program at the MUMiami University Regional Campuses and paid full tuition fees However, as compared to 136 students for the same period in the previous year. This reflected the significant impacts of in the recent extremely challenging years. However, the good news is thatJanuary 25, 2024, a total of 8916 students including those admitted in 2022 and those fromhave confirmed to join the previous year, came to Ohio physically to take in-person classesEnglish Language Program at the Miami University Regionals, and givenRegional Campuses. Given that China has announcedtaken steps to relax travel restrictions, we believe the number of students admitted to our program at the Miami University Regionals may increase back to levels similar to previous years.

 

Davis CollegeUniversity Project. As a key part of our strategic growth plan, we acquired a controlling stake in Ameri-Can, which, as of December 2022, ownsowned Davis College (now Davis University), a two-year career-training college. It represents a key strategic growth initiative that expands our business model to being an operator of a college that provides career-training programs as well as a ‘transfer pathway’ to top universities for students to pursue Bachelors’ degrees. We believe that Davis College offers immediate synergies with our existing operations as well as significant long-term growth opportunities in the U.S., the foundation of our global expansion strategy. As we engage in the administration of Davis College and its curriculum, we plan to develop new educational programs at Davis College to provide an optimal academic experience for our students. We believe that this will enable us to substantially heighten our recruitment efforts both domestically and internationally as we offer students a broader set of academic and career-training options that match their life goals. As a key element of our strategic growth plan, we will continue to target educational institutions that meet our acquisition criteria and that offer high potential synergies. We plan to prioritize domestic recruiting with an initial focus on Ohio and Michigan to substantially increase the student body at Davis College which we believe has ample room for growth. We also envision the acquisition as an opportunity to implement innovative education programs that are both broad and flexible in order to provide an enriched experience for our students. We plan to recruit students from China and other Asian countries and deploy the academic model we established at the MUMiami University Regional Campuses where we provide English language support for our international students as well as dormitories and on-campus support. We believe that our entry into the career-oriented community college field will help us to recruit international students from China as well as to help us to enter the Southeast Asian markets. The acquisition is consistent with the recent announcement by the Chinese government to emphasize practical, career-training education which includes promoting participation of publicly-listedpublicly listed and industry-leading companies.

 

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In June of 2023, Davis College was approved by the Higher Learning Commission (HLC) to offer a four-year Bachelor of Science in Business degree. The HLC is an independent corporation and is one of seven regional accreditors in the U.S. that accredits degree-granting post-secondary educational institutions in order to help assure the quality of higher education. Effective November 18, 2023, the conversion of Davis College to Davis University was approved by regulatory authorities. This new designation reflects the breadth of Davis University’s academic programs including current and planned four-year degree programs which offer students a wide range of avenues to pursue different levels of education. In 2023, EpicQuest established a wholly owned subsidiary, Gilmore INV LLC (Gilmore), in Ohio, for the purposes of organizing sport-related exhibition matches, and kinesiology and recreation education programs to be offered by both of EpicQuest's owned and operated institutions, Davis University and EduGlobal College. Another entity SouthGilmore LLC (SouthGilmore) was also formed in 2023 to organize sports-related entertainment projects. SouthGilmore is 40% owned by Gilmore, with EpicQuest Education maintaining control of its Board of Directors and heading its management team.
Canada Project. QHI has begun its exploration of the Canadian markets with the intent to replicate the Miami University (Regional model). On January 15, 2022, HHI entered into agreements with Canada EduGlobal Holdings Inc. (“EduGlobal”)(EduGlobal Holdings) and Richmond Institute of Languages Inc. d.b.a. EduGlobal College (EduGlobal College), pursuant to which it acquired 80% of the issued and outstanding shares of EduGlobal College from GlobalEduGlobal Holdings in order to achieve geographical diversification.  On March 31, 2023, HHI acquired the 20% remaining equity of EduGlobal College from EduGlobal Holdings, resulting in EduGlobal College being 100% owned by HHI. EduGlobal College has signed a Memorandum of Understanding and Articulation Agreement with Corpus Christi College, located in Vancouver, Canada, and an Articulation Agreement with Academy of Learning, which has learning campuses throughout Canada. The agreements provide for ongoing collaborations between EduGlobal College and the two institutions of higher learning.

 

 UK University Collaborative Project. Starting in 2021, we also began working with two premier UK universities (University of the West of Scotland (UWS) and Coventry University (CU)). UWS has four campuses across the west and southwest of Scotland and one campus in Central London. UWS offers a range of career-focused undergraduate, postgraduate and research degree opportunities across its four academic schools that serve approximately 17,000 students from more than 70 countries. UWS is recognized as a top 600 university worldwide by Times Higher Education (2020 World University Rankings). CU has two principal campuses, one in the center of Coventry, England, where the majority of its operations are located, and one in Central London which focuses on business and management. CU also governs other higher education institutions, CU Coventry, CU Scarborough and CU London. CU has more than 29,000 undergraduate and 6,000 postgraduate students. CU is ranked first in the Midlands (Central England) among modern universities according to The 2021 Guardian University Guide.

 

 Developing Market Cooperation in Southeast Asia and other countries and regions: We intend to open additional projects in new markets, including Vietnam, Hong Kong, and other countries and regions, mainly for self-built private international schools, including but not limited to the high school and colleges, and to establish cooperation with local well-known universities. On September 4, 2023, the Company opened a recruiting office in Sri Lanka to serve as its main hub to attract students from Southeast Asia and the Middle East for its owned and operated colleges, Davis University and EduGlobal College. In addition to the opening of the Sri Lanka recruiting office, EduGlobal College signed a non-exclusive MOU with Apex, a career college based in London, whose purpose is for Apex to use its best efforts to recruit qualified students in Sri Lanka for EduGlobal Colleges educational programs.

 


China marketsMarkets

 

 Partnering with High Schools. Presently, we maintain business relationships with more than ten high schools in China and seek to expand that base. We believe the benefit of such relationships is in (i) students’ familiarity and comfort with our programs, and (ii) expansion of our brand and influence in the target demographic.

 

 Continuous Expansion of the Chinese International Student Service Center. Since 2015, QHI has established cooperative relationships with many Chinese International Student Service Centers. Currently, three universities have listed our program as their main study abroad recommendation.

  

 QHI University Cooperation Project. In order to provide higher quality study abroad programs, QHI has established cooperation projects with universities to allow Chinese students to obtain 1-2 years’ worth of college credits at North American colleges and universities. Presently, we maintain relationships with multiple such institutions and are looking to further expand.

 

 Domestic Preparatory Training. We believe that the vast majority of English language programs are in need of improvement. We believe, however, that this is one of the Company’s strengths and intend to open training facilities nationwide to combine English language programs with university credit hours, as a cost saving measure for Chinese students who plan to study abroad.

 

 Additional Facilities. In response to China’s current policy designed to attract more students to study in China, QHI has planned to recruit students from the Belt and Road countries.

 

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Our Competitive Strengths

 

We believe that the following strengths differentiate us from our competitors and will continue contributing to our growth and success.

 

 Comprehensive Service After Study. We believe that our post-study services are one of the most important reasons why agents and parents choose us. After students arrive in the United States, QHI provides comprehensive services for students, including pick-up services, student dormitory accommodation arrangements, safety guidance for freshmen, academic guidance, guidance for further education, legal aid and medical escort. To our knowledge, no other education group offers similar services.

 

 High Success Rate. The average number of students enrolled in our program is 120-130 per year, and the number of students who are transferred or expelled is less than 5 per year. Our track record shows that virtually all students, irrespective of their background or grades, can progress academically. We are so confident in the quality of our services that we offer an investment guarantee with respect to the progress and graduation of our students.
   
 High Barrier to Entry: We believe that it is very difficult to replicate our business model due to the inherent challenges related to reaching recruiting agreements with universities in North America, especially those ranked as high as, or higher than, Miami University, the dormitories and catering services that we provide for students (these facilities are not owned, maintained, operated or are part of Miami University), and our relationships in China. We believe that these elements provide us with competitive advantages in the marketplace.


 

Sales and Marketing

 

We recruit prospective students from various parts of China. Namely, our sales and marketing staff have operations in four large regions (North, South, East and West) that cover nearly the entire territory of the country, with North and West of the country being covered by the members of the sales team. During the years since our inception in 2012, the number of annual student applications and enrollments has increased dramatically. Our marketing strength lies in our flexibility since we can cooperate with all types of study abroad service providers and educational institutions, irrespective of their size, because all of them are tasked with providing prospective student referrals. Our marketing channels include:

 

 Study Abroad Agencies. Currently, we have established cooperation with the five largest study abroad agencies in China. Among them, New Oriental Education, JJL Education and Shinway Education have signed a cooperation agreement of a gradient commission system starting from $4,000 per student with us. Our agreement with EIC Education has a $3,000 per student non-gradient commission system.

 

 B2B Study Abroad Companies. We have B2B arrangements with GEA, Puri, and H&B. Since a large portion of our current students come from small organizations and individual agents, we can integrate a comprehensive management system to more effectively manage the large number of agents before shifting entirely to B2B.

 

 International High School/Language Programs. In addition to presentations made by US university representatives, we incorporate summer camps, online courses, English placement tests, student leadership development programs, instructor visits and parental visiting groups to enhance prospective student interest.

 

 University Foundation Programs. These programs introduce new students to our services; we also administer admissions support, online courses, English placement test, application and visa support, seminars with lecturers, track records of previous enrollees and parent visiting groups on top of the standard demonstration classes to grow the number of recruits. On August 10, 2023, for instance, Davis entered into an agreement with Peking University School of Education for a two-year continuing education and training program. During the first two years of the program, Davis students take course work on the main campus of Peking University; the remainder of the course work is to be taken on Davis; campus in Toledo, Ohio, leading to the attainment of degrees.

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Presently, there are two teams of marketing department members who are responsible for different regions across China, with one person to specifically focus on building partnerships with Chinese vocational colleges. Our sales personnel mainly reliesrely on on-site visits and training models to develop and maintain our customer base. We also believe that strengthening of online training programs in combination of streamlining the network of training models can effectively reduce the cost of travel. We intend to develop a virtual library of new media training resources segmented by various topics to simplify training and consulting time and improve efficiency. We also intend to implement training programs such as seminars on writing business English email, commercial business communications, PPT production, presentation skills and sales consulting skills to increase the sales capacity of all personnel.

 

Geographic Scope of Our Operations

 

During the fiscal year ending September 30, 2022, 100%2023, our study body consisted of both domestic and international students, while most of our customers were still Chinese residents. However,Furthermore, the Company is expanding to other international markets through Davis CollegeUniversity and EduGlobal College, and believes that in the next fiscal year, more students from countries other than China will join our programs.

 

On July 24, 2021, a China government policy called “Opinions on Further Reducing the Burden of Homework and Extracurricular Training for Students in Compulsory Education.” This policy states that tutoring of core subjects, including Chinese, English and math, are not allowed on weekends or during the summer and winter months when school is out. In addition, Chinese education firms are no longer allowed to publicly list, raise foreign capital or be a for-profit company. Although we market our services to students in China, our business operations are primarily in the U.S. We do not engage in the after school tutoring in China.

 

As of December 31, 2022,September 30, 2023, the Company had 5838 full-time and 22 part-time employees, of which 1149 were located in the U.S., 1410 were located in Canada, and the remaining employees were1 was located in China.Sri Lanka.

Neither we, nor our subsidiaries, are required to obtain any permission or approval from Chinese authorities to operate our business or to offer the securities being registered to foreign investors. In addition, neither we, nor our subsidiaries, have received any permissions from the China Securities Regulatory Commission (CSRC), Cyberspace Administration of China (CAC) or any other governmental agency, as we do not believe our operations require any such permissions or approvals. There can be no assurance, however, that regulators in China will not take a contrary view or will not subsequently require us to undergo the approval procedures and subject us to penalties for non-compliance. The foregoing statements are based on our management’s understanding and belief and we have determined not to seek an opinion of local counsel to verify such understanding and belief. We made this decision based on the types of activities we conduct in China, which do not believe raises any issues under Chinese law. Notwithstanding the foregoing, we, our subsidiaries, and investors in our securities would be materially harmed if (i) we do not receive or maintain such permissions or approvals, (ii) we inadvertently conclude that such permissions or approvals are not required, or (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future.

 


All

Most of our revenue is remitted to us in U.S. dollars, and all the bank accounts owned by us, other than those owned by Richmond Institute of Languages (RIL) located in British Columbia, Canada, are located in Ohio. The rest of our revenue is remitted to RIL in Canadian dollars, and the bank accounts owned by RIL are located in British Columbia, Canada. There are no restrictions on our ability to transfer cash between us, our Ohio-based subsidiaries and our Canadian subsidiary, and investors. The typical structure of cash flows through our organization is as follows: (i) our subsidiaries, which conduct our operations, receive cash from our operations; and (ii) to the extent EpicQuest requires cash for its expenses, the subsidiaries satisfy such obligations through intercompany loans made to EpicQuest. QHI, which is our only subsidiary that conducts any business in China, pays its employees and its operational expenses through payments to its business partner in China, Renda Financial Education Technology Co., Ltd.

 

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Pursuant to the Holding Foreign Companies Accountable Act (the “HFCAA”), on December 16, 2021, the U.S. Public Company Accounting Oversight Board (the “PCAOB”) issued its report notifying the SEC of its determination that it is unable to inspect or investigate completely accounting firms headquartered in mainland China or Hong Kong. On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the PRC, which sets out specific arrangements on conducting inspections and investigations by both sides over relevant audit firms within the jurisdiction of both sides, including the audit firms based in mainland China and Hong Kong. This agreement marks an important step towards resolving the audit oversight issue that concern mutual interests and sets forth arrangements for both sides to cooperate in conducting inspections and investigations of relevant audit firms, and specifies the purpose, scope and approach of cooperation, as well as the use of information and protection of specific types of data. As of the date hereof, our auditor, ZH CPA, LLC, is not among the auditor firms listed on the HFCAA determination list, which list notes all of the auditor firms that the PCAOB is not able to inspect. However, trading in our securities on any U.S. stock exchange or the U.S. over-the-counter market may be prohibited under the HFCAA if the PCAOB, determines that it cannot inspect the work papers prepared by our auditor and that as a result an exchange may determine to delist our securities.

 

Cash Flows through Our Organization; Dividends and Distributions

 

The typical structure of cash flows through our organization is as follows: (i) our subsidiaries, which conduct our operations, receive cash from our operations; (ii) to the extent EpicQuest requires cash for its expenses, the subsidiaries satisfy such obligations through intercompany loans made to EpicQuest. QHI, which is our only subsidiary that conducts any business in China pays its employees and its operational expenses through payments to its business partner in China, Renda Financial Education Technology Co., Ltd.

 

During the fiscal year ending September 30, 2022, cash transfers have been made to date between EpicQuest and our subsidiaries as follows: (i) intercompany loans from QHI to QIE of $4.1 million; (ii) intercompany loans from QHI to Ameri-Can of $2.5 million; and (iii) intercompany loans from QHI to HHI of $3.0 million. During the fiscal year ending September 30, 2021, cash transfers were made to date between EpicQuest and our subsidiaries as follows: (i) intercompany loans from QIE to QHI of $7.4 million.

Neither EpicQuest nor any subsidiary has paid any dividends or made any distributions to any other entity. In addition, neither EpicQuest nor any subsidiary has made any dividends or distributions made to U.S. investors.

 

As of the date of this prospectus,annual report, none of our subsidiaries has declared or paid any dividends or made any distributions to EpicQuest, nor does any of them have intention to do so. As of the date of this prospectus,annual report, EpicQuest has not declared any dividend and does not have a plan to declare a dividend to its shareholders.

 

To the extent cash in the business is in the PRC or a PRC entity, the funds may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations by the PRC government on our ability or our subsidiaries’ ability to transfer cash.

 

We currently do not have cash management policies that dictate how funds are transferred between us, our subsidiaries or investors.

 


Competition

 

The competition for the North American educational market has intensified in recent years with more participants entering the market. Our competition generally includes:

 

 Chinese recruiting offices of the top 100 ranked US universities.

 

 International education groups such as Shorelight, Study Group, INTO, ELS, ICM Manitoba International College and the like that provide language courses.

 

 Foreign universities wishing to establish partnerships with domestic institutions or to recruit from Chinese university level international classes.

 

We have a university recruiting office, international education group, study-abroad consultants and a training institution in the U.S. which allows us to serve a multitude of functions throughout the supply chain. We believe we offer superior services during and after students’ studies abroad as compared with the services offered by individual study abroad agents. Similarly, we believe that our commission rates and guidance services set us apart from foreign university recruiting offices.

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Student Facilities

 

 Students who are currently taking in-person classes in the U.S. are residing in housing owned by the Company on Roosevelt Blvd. in Middletown, Ohio, as well as a rental property which was recently renovated in Hamilton, Ohio. The Company is seeking opportunities to (1) purchase/rent and renovate existing buildings in Hamilton, Ohio, and/or (2) build residential buildings in Hamilton Ohio, to provide close proximity to classes and libraries as well as the full range of campus activities.

 

 Restaurant: QHI has opened a full service cafeteria that serves authentic Chinese food, at least twice a day (breakfast and dinner), for students. It can accommodate up to 100 people at a time. The cafeteria area also features a gym and an entertainment area with a wide range of fitness equipment and recreational facilities.

 

 Shuttle Buses: We maintain business vehicles to support our operations and provide for student transportation needs.

 

Properties

 

Our principal executive office is located 1209 N. University Blvd, Middletown, OH 45042. We own this property. In addition, the Company manages and operates one dining hall. We maintain property insurance policies covering facilities for losses due to fire, earthquake, flood or any other disaster. We believe that the facilities that we currently own are adequate to meet our needs for the foreseeable future, and we believe that we will be able to obtain adequate facilities, principally through leasing of additional properties, to accommodate our future expansion plans.

We also rent Unit 500 and Unit 550 at 628 6th Avenue, New Westminster, British Columbia, Canada for HHI and EduGlobal College. The Company also maintains administrative offices in Beijing. The offices are rented for the Company by Renda Financial under the terms of an agreement between the Company and Renda which contemplates that we pay a sum of RMB 2.9 million per year for the office rental and Renda’s staffing and paying the employees located at such offices. In September 2019, this agreement was renewed by Renda on behalf of the Company for another 12-month term. Since then, Renda started charging the Company the actual rental expense of RMB1.0 million per year instead of the previous agreed-upon RMB 2.9 million. This annual RMB1.0 million rental fee charged by Renda does not include the other hiring, administrative and paying employee expenditures that previously included in the RMB2.9 package fee. Instead, similar to rental expense, the other services are now charged by Renda based on their actual expenditures incurred on behalf of the Company since October 2019.Renda.

 

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C.Organizational Structure

C. Organizational Structure

 

The following chart illustrates EpicQuest Education’s organizational structure as of September 30, 2022:January 25, 2024:

 

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D.Property, plant and equipment

D. Property, plant and equipment

 

Our principal executive office is located 1209 N. University Blvd, Middletown, OH 45042. We own this property.

 

In addition, the Company manages and operates 11 apartment buildings/dormitories at 1061-1099 Park Lane, Middletown, OH, 45042, and one dining hall is 1209 N. University Blvd, Middletown, OH 45042. We maintain property insurance policies covering facilities for losses due to fire, earthquake, flood or any other disaster. We believe that the facilities that we currently own are adequate to meet our needs for the foreseeable future, and we believe that we will be able to obtain adequate facilities, principally through leasing of additional properties, to accommodate our future expansion plans.

We also rent Unit 500 and Unit 550 at 628 6th Avenue, New Westminster, British Columbia, Canada for HHI and EduGlobal College. The Company also maintains administrative offices in Beijing. The offices are rented for the Company by Renda Financial under the terms of an agreement between the Company and Renda which contemplates that we paid a sum of RMB 2.9 million per year for the office rental and Renda’s staffing and paying the employees located at such offices. In September 2019, this agreement was renewed by Renda on behalf of the Company for another 12-month term. Since then, Renda started charging the Company the actual rental expense of RMB1.0 million per year instead of the previous agreed-upon RMB 2.9 million. This annual RMB1.0 million rental fee charged by Renda does not include the other hiring, administrative and paying employee expenditures that previously included in the RMB2.9 package fee. Instead, similar to rental expense, the other services are now charged by Renda based on their actual expenditures incurred on behalf of the Company since October 2019.Renda.

  

ITEM 4A.UNRESOLVED STAFF COMMENTS

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable. 

 

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

Operating and Financial Review and Prospects

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this annual report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report, particularly in “Risk Factors.”

 

A.Operating Results

A. Operating Results

 

We were founded in 2012. Our revenue is primarily derived from foreignEnglish education program fees paidprograms for the years ended September 30, 2022 and student accommodation services.2021 and from English education programs and professional training programs for the year ended September 30, 2023.

 

Our revenue for the year ended September 30, 2023 decreased by US$0.6 million as compared to that of the year ended September 30, 2022. These decreases were mainly due to the net effect of: i) a US$2.4 million decrease in revenue from our English education program due to the continuing effects of the COVID-19 pandemic. When a new wave of COVID-19 pandemic occurred in China starting in November 2022, our recruiting activities for the spring and summer semesters of the 2022-23 academic year were again significantly affected; and ii) a US$1.8 million increase in revenue from professional training programs due to the inclusion of our newly acquired Davis College subsidiary in 2023. Our operating expenses decreased by US$0.1 million compared to fiscal 2022 primarily due to the decrease in our general administrative expenses. Our income tax expenses increased by US$0.5 million compared to fiscal 2022 primarily due to the new valuation allowance provided in 2023 based on the Company’s assessment of its ability to use the temporary deductible differences in foreseeable future. Hence, our net loss for the year ended September 30, 2023 increased by US$1.0 million as compared to that of the year ended September 30, 2022.

Our revenue for the year ended September 30, 2022 increased by 19%US$1.0 million as compared to that of the year ended September 30, 2021. These increases were mainly due to the easingease of Covid 19COVID-19 travel restrictions in 2022 since the U.S.US has lifted most of the Covid 19COVID-19 restrictions during 2022. As such, students were able to return to the U.S.US to attend classes. Our operating expenses increased by 135%US$6.6 million compared to fiscal 2021 primarily due to the increase in our general administrative expenses as a result of stock-based compensations granted to our directors, officers and employees and new management service fee incurred in fiscal 2022. Hence, our net loss for the year ended September 30, 2022 increased by 475%US$5.0 million as compared to that of the year ended September 30, 2021.

 

Our revenue for the year ended September 30, 2021 decreased by 41% as compared to that of the year ended September 30, 2020. These decreases were mainly due to the impacts from Covid 19 travel restrictions. Our operating expenses decreased by 10% compared to fiscal 2020 primarily due to the decrease in our selling expenses as a result of the decrease in our revenue. Hence, our net income for the year ended September 30, 2021 decreased by 207% as compared to that of the year ended September 30, 2020.

As of September 30, 2022,2023, our cash was US$11.45.3 million, representingincluding restricted cash. This represents a decrease of US$5.16.1 million from US$16.511.4 million as of September 30, 2021.2022. The decrease is mainly due to the net operating loss in fiscal 2022.2023.

 

30


 

 

Results of Operations

 

Years Ended September 30, 2023, 2022 2021 and 20202021

  

  For The Year
Ended
  For The Year
Ended
  For The Year
Ended
 
  September 30,
2022
  September 30,
2021
  September 30,
2020
 
Revenues $6,330,428  $5,341,850  $9,063,137 
Costs of services  2,021,058   1,934,237   2,342,276 
Gross profit  4,309,370   3,407,613   6,720,861 
             
Operating costs and expenses:            
Selling expenses  952,888   1,732,758   2,310,188 
General and administrative  10,521,551   3,148,256   3,115,120 
Total operating costs and expenses  11,474,439   4,881,014   5,425,308 
             
Income (loss) from operations  (7,165,069)  (1,473,401)  1,295,553 
             
Other income  (845,598)  (81,920)  (113,555)
             
Income (loss) before provision for income taxes  (6,319,471)  (1,391,481)  1,409,108 
             
Income taxes expense (recovery)  (83,355)  (307,168)  397,553 
             
Net income  (6,236,116)  (1,084,313)  1,011,555 

  For The Year
Ended
  For The Year
Ended
  For The Year
Ended
 
  September 30,
2023
  September 30,
2022
  September 30,
2021
 
          
Revenues $5,712,480  $6,330,428  $5,341,850 
Costs of services  1,502,255   2,021,058   1,934,237 
Gross profit  4,210,225   4,309,370   3,407,613 
             
Operating costs and expenses:            
Selling expenses  1,018,894   952,888   1,732,758 
General and administrative  10,314,223   10,521,551   3,148,256 
Total operating costs and expenses  11,333,117   11,474,439   4,881,014 
             
Income (loss) from operations  (7,122,892)  (7,165,069)  (1,473,401)
             
Other income  (239,231)  (845,598)  (81,920)
             
Income (loss) before provision for income taxes  (6,883,661)  (6,319,471)  (1,391,481)
             
Income taxes expense (recovery)  289,464   (191,029)  (307,168)
             
Net loss  (7,173,125)  (6,128,442)  (1,084,313)

 

Revenue, costs of sales and gross profit margin

 

The following table sets forth the revenue, costs of sales and gross profit margin of the Company:

  

  For The Year
Ended
  For The Year
Ended
  For The Year
Ended
 
  September 30,
2022
  September 30,
2021
  September 30,
2020
 
          
Revenues $6,330,428  $5,341,850  $9,063,137 
Costs of services  2,021,058   1,934,237   2,342,276 
Gross profit  4,309,370   3,407,613   6,720,861 
Gross profit margin %  68%  64%  74%

  For The Year
Ended
  For The Year
Ended
  For The Year
Ended
 
  September 30,
2023
  September 30,
2022
  September 30,
2021
 
          
Revenues – English education program $3,946,380  $6,330,428  $5,341,850 
Revenues – professional training programs  1,766,100   -   - 
Costs of services English education programs  837,055   2,021,058   1,934,237 
Costs of services professional training programs  665,200   -   - 
Gross profit  4,210,225   4,309,370   3,407,613 
Gross profit margin %  74%  68%  64%

 

Nearly all ourRevenue

Our revenues decreased by US$0.6 million or 10% in fiscal 2023 compared to fiscal 2022. These decreases were mainly due to the net effect of: i) a US$2.4 million decrease in revenue is attributable to our tuition fees and dormitory rental fees that we collected from our students.English education program due to the continuing effects of the COVID-19 pandemic. When a new wave of COVID-19 pandemic occurred in China starting in November 2022, our recruiting activities for the spring and summer semesters of the 2022-23 academic year were again significantly affected; and ii) a US$1.8 million increase in revenue from professional training programs due to the inclusion of our newly acquired Davis College subsidiary in 2023.

 

Our revenues increased by US$1.0 million or 19%18% in fiscal 2022 compared to fiscal 2021. The increase was mainly due to the ease of the Covid 19COVID-19 travel restrictions during fiscal 2022. As a result, there were more students (230 students) registered in our 2021 Fall program in 2021 compared to those registered in 2020.

Our revenues decreased by US$3.7 million or 41% in fiscal 2021 compared to fiscal 2020. The decrease was mainly due to the impacts of Covid 19. As a result of the Covid 19 impacts, there were less student105 students registered in our program in 2020 compared to those registered in 2019.Fall program.

 

31


 

Costs of services

Costs of sales (services)services for English education program mainly related to the program fees that we paid to our partnered university which provides the English learning programsprogram to our students and fees paid to Dongbei University of Finance and Economics (“DUFE”) for using DUFE’s facilities, to host remote online English education programs and provide accommodation to students during their studies.students. The program fees are based on semester terms and are generally fixed per student and per semester. Our English learning programs contain five competence levels. Generally, the last level (Level-five) generally has a lower costCosts of services for professional training programs mainly related to salary expenses incurred for instructors and therefore has higher gross margin thanemployees that are directly involved in assisting the provisions of the program services.

Our costs of services in 2023 decreased by US$0.5 million or 25% compared to fiscal 2022, which is due to the net effect of: i) costs of services for English education programs offereddecreased by US$1.2 million due to the decrease in revenue from English education program and the termination of cooperation with Dongbei University of Finance and Economics; and ii) costs of services for professional training programs increased by US0.7 million due to inclusion of the first four competence level programs.newly acquired Davis College’s operations in fiscal 2023.

 

Our costs of sales in 2022 increased by US$0.1 million or 4% compared to fiscal 2021, which is in line with the increase in our revenue in 2022.

 

Gross margins

Our costsgross margin in 2023 increased to 74% from 68% of sales in 2021 decreased by US$0.4 million or 17%2022 primarily due to the net effect of: i) our gross margin for English education program for 2023 is 79% compared to fiscal 2020,68% of 2022 due to more students resumed physical attendance of the English Program courses in the US due to the lifting of COVID-19 travel restrictions. Therefore, we did not need to pay the additional costs to a local university in China to provide online courses to students who went to US for in-class courses; and ii) our gross margin for professional training programs is 62% for 2023, which is in line with the decrease in ourfirst year we had revenue in 2021.from this revenue stream.

 

Our gross margin in 2022 increased to 68% from 64% of 2021 primarily due to our students startingstarted to resume physical attendance of the English Program courses in the U.S.US due to the lifting of Covid 19COVID-19 travel restrictions, and more students using dormitory services instead of attending the English courses online.restrictions. Therefore, we did not need to pay the additional costs to a local university in China to provide online courses to students who went to the U.S.US for in-class courses.

Our gross margin in 2021 decreased to 64% from 74% of 2020 primarily due to our students could not physically attend the English Program courses in the U.S. due to the Covid 19 travel restrictions. Therefore, we had to engage a local university in China and used their facility to continue provide our English Program courses locally. The use of the facility of the local university represented incremental costs for us and therefore reduced our gross margin.

 

Operating expenses

 

Our operating expenses consist of selling and marketing expenses, and general and administrative expenses.

 

Selling expenses

 

  For The Year
Ended
  For The Year
Ended
  For The Year
Ended
 
  September 30,
2022
  September 30,
2021
  September 30,
2020
 
Selling expenses $952,888  $1,732,758  $2,310,188 
  For The Year Ended  For The Year Ended  For The Year Ended 
  September 30,
2023
  September 30,
2022
  September 30,
2021
 
          
Selling expenses $1,018,894  $952,888  $1,732,758 

 

The Company’s selling expenses primaryprimarily relate to the student recruitment commission fees paid to agents who provided student recruitment services to the Company and expenses related to business development. The Company relies on agents to promote and recruit potential students to enroll in its English learning programs. The totalTotal selling expenses decreasedincreased by US$0.60.07 million in 20212023 compared to 2020.2022. The decreaseincrease is primary due to inclusion of the operating expenses of the newly acquired Davis University in line with the decrease of our revenue in 2021 as compared to 2020.2023. The total selling expenses decreased by US$0.8 million in 2022 compared to 2021. The decrease is due to reduction in the Company’s marketing development activities during fiscal 2022.

 

32


 

 

General and administrative expense

 

General and administrative expense consist primarily of the following expenses:

 

  For the Year
Ended
September 30,
2022
  For the Year
Ended
September 30,
2021
  For the Year
Ended
September 30,
2020
 
Bank charges $8,982  $7,058  $7,586 
Depreciation expenses  252,097   126,234   87,593 
Insurance  70,515   57,057   79,303 
Office expenses  190,338   629,771   555,176 
Professional  1,131,745   439,790   185,990 
Rental expenses  496,054   396,263   405,195 
Repairs and maintenance  64,317   33,883   89,520 
Salary and benefits  1,043,343   1,328,671   1,515,799 
Management service fee  2,160,000   -   - 
Stock-based compensation  4,813,049   -   - 
Sundry  177,153   35,634   66,813 
Tax and licenses  87,942   85,321   111,471 
Vehicle expenses  26,016   8,574   10,674 
Total  10,521,551   3,148,256   3,115,120 

  For the Year
Ended
September 30,
2023
  For the Year
Ended
September 30,
2022
  For the Year
Ended
September 30,
2021
 
Bank charges $9,156  $8,982  $7,058 
Depreciation expenses  407,384   252,097   126,234 
Insurance  64,393   70,515   57,057 
Office expenses  721,419   190,338   629,771 
Professional  1,581,541   1,131,745   439,790 
Rental expenses  694,067   496,054   396,263 
Repairs and maintenance  3,169   64,317   33,883 
Salary and benefits  2,246,993   1,043,343   1,328,671 
Management service fee  2,430,000   2,160,000   - 
Stock-based compensation  1,920,573   4,813,049   - 
Sundry  

121,915

   177,153   35,634 
Tax and licenses  34,362   87,942   85,321 
Vehicle expenses  35,296   26,016   8,574 

Impairment

  14,019   -   - 
Bad debt  29,936   -   - 
Total  10,314,223   10,521,551   3,148,256 

 

Our general administrative (“G&A”) expenses are generally fixed and will not significantly vary according to the changes of our revenue.

Our general administrative expenses remained relatively stable in 20212023 compared to 2020,2022, only slightly increaseddecreased by US$0.030.2 million. This was because there were no significant changes in our G&A activities in 2021.2023 other than certain items such as salary and benefits. The significant increase in salary and benefits was due to the inclusion of the newly acquired Davis College subsidiary. The significant decrease in stock-based compensation in 2023 compared to 2022 was due to the share prices were lower in 2023 and the Company’s share-based compensation was mostly related to direct common shares granted to directors, officers and employees.

 

Our general administrative expenses increased by $7.4$7.3 million in 2022 compared to 2021, mainly due to the two new expense items, management service fees and stock-based compensation expenses with total amount of US$7.0 million incurred in fiscal 2022. During fiscal 2022, we entered into a management service agreement with a third-party who manages our Beijing Office branch on our behalf and in return receives a fixed monthly management fee from us. In addition, we granted some stock-based awards to our directors, officers and employees to compensate their work, whereas there was no such transaction in the periods before fiscal 2022. Certain other expense items such as depreciation expenses, professional, rental expenses and sundry also experienced slight increases in fiscal 2022 compared to fiscal 2021. This was mainly due to the acquisitions and incorporations of four new subsidiaries in total during 2022. As a result, business activities also increased.

 

Other income

Other income of US$0.2 million in fiscal 2023 is mainly related to government grant for COVID-19 relief. Other income of $0.8 million in fiscal 2022 is mainly related to gain from disposal of fixed assets. Other income for fiscal 2021 was immaterial.

Income Tax

 

BVI

 

Under the current laws of the BVI, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no BVI withholding tax will be imposed.


 

US

 

Under the current Ohio state and US federal income tax, the Company’s Ohio subsidiaries, QHI, QIE, SUPC and AMC are subject to the Ohio state’s Commercial Activity Tax (“CAT”) and federal income tax. The Ohio CAT is a business tax levied based on the gross receipts from sales. The federal income tax is based on a flat rate of 21%.

 

33

Canada

 

Under the current Canadian income tax, the Company’s Canadian subsidiaries, HHI and RIL, are subject to a combined provincial and federal corporate income tax rate of 27%.

 

The following table sets forth a breakdown of the income tax expense for the Company.

  For The Year Ended  For The Year Ended  For The Year Ended 
  September 30,
2022
  September 30,
2021
  September 30,
2020
 
Income tax expenses (recovery) $(83,355) $(307,168) $397,553 
  For The Year Ended  For The Year Ended  For The Year Ended 
  September 30,
2023
  September 30,
2022
  September 30,
2021
 
          
Income tax expenses (recovery) $289,464  $(191,029) $(307,168)

 

The Company had an operating loss in 2021. The income tax recovery in 2021 is related to the deferred income tax assets recognized for the loss carryforward. The Company had an operating loss in 2022. The income tax recovery in 2022 is related to the deferred income tax assets recognized for the loss carryforward. The Company had an operating loss in 2023. The income tax expense in 2023 is related to new valuation allowance provide based on the Company’s assessment of its ability to use the temporary deductible differences in foreseeable future.

 

Net income (loss)

Net loss for the year ended September 30, 2021 was US$1.1 million, compared to the net income of US$1.0 million for the year ended September 30, 2020, representing a decrease in net income of US$2.1 million.

 

Net loss for the year ended September 30, 2022 was US$6.26.1 million, compared to the net loss of US$1.1 million for the year ended September 30, 2021, representing an increase in net loss of US$5.15.0 million.

Net loss for the year ended September 30, 2023 was US$7.2 million, compared to the net loss of US$6.1 million for the year ended September 30, 2022, representing an increase in net loss of US$1.1 million.

 

B.Liquidity and Capital Resources

B. Liquidity and Capital Resources

 

Cash Flows and Working Capital

 

To date, we have financed our operations primarily through cash raised from our last initial public offering, US$9.3 million, and cash generated by operating activities. As of September 30, 2023, 2022 2021 and 2020,2021, we had US$11.45.0 million, US$16.511.4 million, and US$7.416.5 million, respectively, in cash, which primarily consist of cash deposited in banks.

 

The Company’s working capital requirements mainly comprise cost of English learning program fees, student recruitment fees, office expenses, professional fees, rental expenses, and salary expenses. We expect that the Company’s capital requirements will be met by cash generated from its own operating activities.activities and equity financing. On December 26, 2023, the Company completed a unit offering private placement and issued 400,000 units with unit price of $2.00, raising total gross proceeds of US0.8 million.

 

34


 

Cash Flow Summary

 

Years Ended September 30, 2023, 2022 2021 and 20202021

 

 For the year
ended
September 30,
2022
  For the year
ended
September 30,
2021
  For the year
ended
September 30,
2020
  For the year ended September 30, 2023 For the year ended September 30, 2022 For the year ended September 30, 2021 
Net cash provided by (used in) operating activities  (4,613,697)  322,190   (144,043)  (5,252,527)  (4,613,697)  322,190 
Net cash provided by (used in) investing activities  (651,480)  (514,529)  (288,555)  (877,635)  (651,480)  (514,529)
Net cash provided by (used in) financing activities  200,000   9,321,523   (432,035)  -   200,000   9,321,523 
Effect of exchange rate changes on cash  (28,938)  -   -   (7,346)  (28,938)  - 
Net increase (decrease) in cash  (5,094,115)  9,129,184   (864,633)  (6,137,508)  (5,094,115)  9,129,184 
Cash at beginning of year  16,537,174   7,407,990   8,272,623 
Cash at end of year  11,443,059   16,537,174   7,407,990 
Cash at beginning of period  11,443,059   16,537,174   7,407,990 
Cash at end of period  5,305,551   11,443,059   16,537,174 

 

We had a balance of cash and cash equivalents of US5.3 million (including restricted cash) as of September 30, 2023, US11.4 million as of September 30, 2022, and a balance of US$16.5 million as of September 30, 2021, and a balance of US$7.4 million as of September 30, 2020.2021. Historically, we mainly derived our cash inflow from operating activities. For the year ended September 30, 2022,2021, we also derived US$0.29.3 million (2021: US$9.3 million) from financing activities in relation to our IPO.

Operating Activities:

September 30, 2021 vs. 2020

Net cash generated from operating activities was US$0.3 million for the year ended September 30, 2021, compared to net cash used in operating activities of US$0.1 million for the year ended September 30, 2020, represented a US$0.4 million increase in the net cash inflow generated from operating activities. The increase in net cash generated from operating activities was primarily due to the following:

1)We had net loss of US$1.1 million for the year ended September 30, 2021. For the year ended September 30, 2020, we had net income of US$1.0 million which led to a US$2.1 million decrease in net cash inflow from operating activities.

2)Change in prepaid expenses was US$0.1 million cash inflow for the year ended September 30, 2021. For the year ended September 30, 2020, change in prepaid expenses was a US$0.5 million cash inflow, which led to a US$0.4 million decrease in net cash inflow from operating activities.

3)Change in long-term prepaid expenses provided US$0.2 million net cash inflow for the year ended September 30, 2021. For the year ended September 30, 2020, change in long-term prepaid expenses provided US$0.6 million cash inflow, which led to a US$0.4 million decrease in net cash inflow from operating activities.

4)Change in accounts payable and accrued liabilities provided US$1.1 million net cash inflow for the year ended September 30, 2021. For the year ended September 30, 2020, change in accounts payable and accrued liabilities provided net cash inflow of US$0.5 million, which led to a US$0.6 million increase in net cash inflow from operating activities.

5)Change in deferred revenue, provided US$1.0 million net cash inflow for the year ended September 30, 2021. For the year ended September 30, 2020, change in deferred revenue used net cash flow of US$3.2 million, which led to a US$4.2 million increase in net cash inflow from operating activities.

6)Change in current and deferred income taxes in total used US$0.8 million net cash outflow for the year ended September 30, 2021. For the year ended September 30, 2020, the change was a net cash outflow of US$0.7 million, which led to a US$0.1 million increase in net cash outflow from operating activities.

7)Change in student deposits used US$0.3 million net cash outflow for the year ended September 30, 2021. For the year ended September 30, 2020, the change was a net cash inflow of US$1.0 million, which led to a US$1.3 million decrease in net cash inflow from operating activities.


September 30, 2022 vs. 2021

 

Net cash used in operating activities was US$4.6 million for the year ended September 30, 2022, compared to net cash generated from operating activities of US$0.3 million for the year ended September 30, 2021, represented a US$4.9 million increase in the net cash outflow in operating activities. The increase in net cash outflow in operating activities was primarily due to the following:

 1)

We had net loss of US$6.26.1 million for the year ended September 30, 2022. For the year ended September 30, 2021, we had net loss of US$1.1 million which led to a US$5.15.0 million increase in net cash outflow in operating activities.

2)Change in prepaid expenses was US$0.6 million cash inflow for the year ended September 30, 2022. For the year ended September 30, 2021, change in prepaid expenses was a US$0.1 million cash inflow, which led to a US$0.5 million increase in net cash inflow from operating activities.

3)Change in accounts receivable provided US$0.1 million net cash inflow for the year ended September 30, 2022. For the year ended September 30, 2021, change in accounts receivable used US$0.01 million cash outflow, which led to a US$0.1 million increase in net cash inflow from operating activities.

4)Change in accounts payable and accrued liabilities used US$1.3 million net cash outflow for the year ended September 30, 2022. For the year ended September 30, 2021, change in accounts payable and accrued liabilities provided net cash inflow of US$1.1 million, which led to a US$2.4 million decrease in net cash inflow from operating activities.

5)Change in deferred revenue, used US$1.2 million net cash outflow for the year ended September 30, 2022. For the year ended September 30, 2021, change in deferred revenue generated net cash inflow of US$1.0 million, which led to a US$2.2 million decrease in net cash inflow from operating activities.

6)

Change in income tax receivable in total generatedused US$0.01 million net cash inflow for the year ended September 30, 2022. For the year ended September 30, 2021, the change was a net cash outflow of US$0.5 million, which led to a US$0.5 million decreaseincrease in net cash outflow from operating activities.

7)

Change in student deposits used US$0.6 million net cash outflow for the year ended September 30, 2022. For the year ended September 30, 2021, the change was a net cash outflow of US$0.3 million, which led to a US$0.3 million increase in net cash outflow in operating activities.

8)

Change in non-cash items, including depreciation, non-cash lease expenses, gain/loss from disposal of fixed assets, deferred income taxes and stock-based compensation expenses, provided a total of US$4.14.0 million net cash inflow for the year ended September 30, 2022. For the year ended September 30, 2021, the change was a net cash inflowoutflow of US$0.1 million, which led to a US$4.24.1 million increase in net cash inflow in operating activities.


Investing Activities:

September 30, 2023 vs. 2022 2021 and 2020

Net cash used in investingoperating activities was US$0.35.3 million for the year ended September 30, 2020. It2023, compared to net cash used in operating activities of US$4.6 million for the year ended September 30, 2022, represented a US$0.6 million increase in the net cash outflow in operating activities. The increase in net cash outflow in operating activities was solely attributableprimarily due to the cash used for purchase of property and equipment during the year.following:

1)We had a net loss of US$7.2 million for the year ended September 30, 2023. For the year ended September 30, 2022, we had a net loss of US$6.1 million which led to a US$1.1 million increase in net cash outflow in operating activities.

2)Change in prepaid expenses used US$1.3 million cash outflow for the year ended September 30, 2023. For the year ended September 30, 2022, change in prepaid expenses provided a US$0.6 million cash inflow, which led to a US$1.9 million increase in net cash outflow from operating activities.

3)Change in accounts receivable generated US$0.2 million net cash inflow for the year ended September 30, 2023. For the year ended September 30, 2022, change in accounts receivable provided US$0.1 million cash inflow, which led to a US$0.1 million increase in net cash inflow from operating activities.

4)Change in accounts payable and accrued liabilities used US$0.2 million net cash outflow for the year ended September 30, 2023. For the year ended September 30, 2022, change in accounts payable and accrued liabilities used net cash outflow of US$1.3 million, which led to a US$1.1million decrease in net cash outflow from operating activities.

5)

Change in deferred revenue generated US$0.2 million net cash inflow for the year ended September 30, 2023. For the year ended September 30, 2022, change in deferred revenue used net cash outflow of US$1.3 million, which led to a US$1.5 million increase in net cash inflow from operating activities.

6)Change in income tax receivable provided US$0.3 million net cash inflow for the year ended September 30, 2023. For the year ended September 30, 2022, the change was a net cash inflow of US$0.01 million, which led to a US$0.3 million increase in net cash inflow from operating activities.

7)

Change in student deposits used US$0.04 million net cash outflow for the year ended September 30, 2023. For the year ended September 30, 2022, the change was a net cash outflow of US$0.6 million, which led to a US$0.6 million decrease in net cash outflow in operating activities.

8)Change in non-cash items, including depreciation, goodwill impairment, accretion of lease expenses, gain/loss from disposal of fixed assets, deferred income taxes and stock-based compensation expenses, provided a total of US$2.9 million net cash inflow for the year ended September 30, 2023. For the year ended September 30, 2022, the change was a net cash inflow of US$4.0 million, which led to a US$1.1 million decrease in net cash inflow in operating activities.


Investing Activities:

September 30, 2023, 2022 and 2021

Net cash used in investing activities was US$0.5 million for the year ended September 30, 2021. It was primarily attributable to the net result of: 1) US$0.6 million used for purchase of property and equipment; and 2) collection of US$0.1 million for a note receivable.

Net cash used in investing activities was US$0.7 million for the year ended September 30, 2022. It was primarily attributable to the net effects of: (i)i) US$0.3 million net repayment of notes receivable; (ii) $0.3 million used in long-term investment; (iii)ii) net amount of US$1.9 million used in business and asset acquisitions; and (iv)iii) proceeds of US$1.9 million from sale of a real estate property.


Financing Activities:

September 30, 2022, 2021 and 2020

ForNet cash used in investing activities was US$0.9 million for the year ended September 30, 2020, the Company had net cash used in financing activities of US$0.4 million, which2023. It was attributable to cashthe net effects of: i) US$1.2 million used for share buyback; and ii) US$0.2 million used in IPO activities.acquisition of 20% share of a subsidiary; iii) net cash of US$0.6 million acquired from business and asset acquisitions; and iv) US$0.01 million used for purchase of property and equipment.

Financing Activities:

September 30, 2023, 2022 and 2021

For the year ended September 30, 2021, the Company had net cash provided by financing activities of US$9.3 million, which was solely attributable to net cash proceeds from the IPO completed in March 2021.

For the year ended September 30, 2022, the Company had net cash provided by financing activities of US$0.2 million, which was attributable to collection of remaining IPO proceeds of US$0.2 million previously held in trust account.

CommitmentsFor the year ended September 30, 2023, the Company did not have financing activities.

Off-balance Sheet Arrangements

The Company had certain office leases and car leases in relation to its operations. These leases are classifiednot entered into any off-balance sheet transactions or arrangements as operating leases. Other than these operating leases,at the Company does not have significant commitments, long-term obligations, or guarantees as of September 30, 2022 and 2021.latest practicable date.

Operating lease

The future aggregate minimum lease payments under the non-cancellable residential apartment building operating lease are as follows:

2023 $484,739 
2024  469,120 
2025 and thereafter  230,461 
Total future minimum lease payments $1,184,320 
Less: imputed interest  (161,262)
Total operating lease liability $1,023,058 
Less: operating lease liability - current  461,161 
Total operating lease liability – non current $561,897 

C. Research and development, patents and licenses

As an education service provider, our business does not rely on research and development. Therefore, we have not incurred research and development expenses for the years ended September 30, 2023, 2022 2021 and 2020.2021.

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition or results of operations.

E. Critical Accounting Estimates

We prepared our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these estimates and assumptions based on historical experience, knowledge and assessment of current business and other conditions, expectations regarding the future based on available information and reasonable assumptions, which together form a basis for making judgments about matters not readily apparent from other sources. The use of estimates is an integral component of the financial reporting process, though actual results could differ from those estimates. Please refer to Note 2 of consolidated financial statements included in this 20-F annual report for the accounting policies critical to an understanding of our consolidated financial statements as their application places the most significant demands on the judgment of our management.


 

 

The following discussion of critical accounting policies and estimates is intended to supplement the significant accounting policies presented in the notes to our consolidated financial statements included in “Item 18: Financial Statements” presented in this Form 20-F, which summarize the accounting policies and methods used in the preparation of those consolidated financial statements. The policies and the estimates discussed below are included here because they require more significant judgments and estimates in the preparation and presentation of our consolidated financial statements than other policies and estimates. Actual amounts could differ materially from those estimated by us at the time our consolidated financial statements are prepared.

Business Combinations

Accounting for business combinations requires management to make significant estimates and assumptions, particularly for the valuation of intangible assets. The fair value of intangible assets are based upon widely-accepted valuation techniques, including discounted cash flows, multi period excess earnings method, replacement costs, and relief from royalty method, depending on the nature of the assets acquired or liabilities assumed. Inherent in each valuation technique are critical assumptions, including future cash flows and growth rates, gross margins, attrition rates, royalty rates, discount rates, and terminal value and forecast period assumptions. The discount rates used to discount expected cash flows to present values are typically derived from a weighted average cost of capital analysis and adjusted to reflect inherent risks. Unanticipated events and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results.

Goodwill

Goodwill is not amortized, but it is tested annually for impairment as of September 30, or more frequently if events or changes in circumstances indicate that those assets might be impaired. Goodwill is tested for impairment at a reporting unit level, which is at the same level or one level below an operating segment. The reporting units that contain goodwill include Professional Training Program reporting unit and Other reporting unit.

We have the option of performing a qualitative assessment of a reporting unit to determine whether a quantitative impairment test is necessary. A qualitative assessment involves evaluating factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the fair value of the reporting unit to which goodwill belongs is less than its carrying amount. If the qualitative assessment indicates that the fair value of the reporting unit is more likely than not less than the carrying amount, then a quantitative impairment test would be performed.

If a quantitative impairment test is required, the process is to identify potential impairment by comparing the reporting unit’s fair value with its carrying amount. The reporting unit’s fair value is determined using various valuation methodologies including assets-based, income or market approaches. In determining the reporting unit’s fair value, management is required to make judgments and assumptions relating to future cash flows, growth rates and economic and market conditions.

Professional Training Program reporting unit goodwill

For the year ended September 30, 2023, we performed a qualitative assessment of the Professional Training Program reporting unit and we concluded there were no indicators of impairment that existed.

Other reporting unit goodwill

For the year ended September 30, 2023, we performed a quantitative assessment of the Other reporting unit using an income approach based on discounted cash flows. The fair value of the Other reporting unit was measured based on the present value of the cash flows that we expect the reporting unit to generate. In determining our future cash flows, we estimated an annual revenue growth rate ranging between 2.9% to 175.8% and an operating margin ranging between 19.3% to 20% from 2025 to 2028, based on our best estimate of the reporting units’ growth trajectory. We estimated a discount rate of 26.2% reflecting the risk premium on this reporting unit, including company specific risk, on this reporting unit, and a terminal growth rate of 2% for the period beyond 5 years, based on our view of the cash flows and using market comparatives. As the fair value of the other reporting unit was less than its carrying amount, we concluded that Other report unit goodwill was impaired by $14,308 at September 30, 2023. The impairment test conclusion does not appear to be sensitive to change in discount rate. An increase of one percentage to the discount rate used would result in goodwill impairment to increase by $68,000.


ITEM 6.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.Directors and senior management

MANAGEMENT

A. Directors and senior management

MANAGEMENT

The following table sets forth our executive officers and directors, their ages and the positions held by them:

NameAgeAge*Position
Jianbo Zhang5859Chairman, Chief Executive Officer
Zhenyu Wu4344Chief Financial Officer, Director
Yunxia Xu4142Chief Operating Officer and Chief Marketing Officer
Jing Li4142Chief Development Officer
Bo Yu4849Chief Programs Officer
Craig Wilson (1)(1‡)(2)(3)(4)**5152Independent Director
G. Michael Pratt (2)(1)(2‡)(3)7273Independent Director
M. Kelly Cowan (3)Xiaojun Cui(1)(2)(3‡) 6153Independent Director

*As of January 22, 2024
**Lead Independent Director
Committee Chair

(1)Chair of the Audit Committee.

(2)Chair of the Compensation Committee.

(3)Chair of the Nominating Committee.

(4)Audit Committee financial expert.

Zhang Jianbois the founding Chairman and Chief Executive Officer of the Company. From October 2012 to December 2017, he served as Chief Executive Officer of Quest Holding International. From December 2017 to present, he has held the offices of the Company’s CEO. Mr. Zhang holds an undergraduate degree in Finance from Renmin University of China (1987), where he also completed a Ph.D. Diploma Course in Finance, School of Finance (2013). He also completed an EMBA course at Singapore Tiandu Education Group (2003) and an MBA course at Coventry University, UK (1999), and holds a Master Diploma Course in Finance, School of Finance, Renmin University (1993). Zhang Jianbo holds a pivotal role in the Company’s founding and long-term vision.

Zhenyu Wu is the Company’s Chief Financial Officer and a Board member. From 2017 to present, Mr. Wu has been an Associate Dean Research and Graduate Research Programs and a Professor of Entrepreneurship and Finance, Asper School of Business, University of Manitoba. He was the Head, Department of Business Administration, at the same School of Business from 2015 to 2017. From 2011 to 2017, he was an Associate Professor at the I.H. School of Business, University of Manitoba, and he holds the position of Canada Research Chair (Tier II) in Entrepreneurship and Innovation starting 2012. Mr. Wu holds a Ph.D. in Finance (2007), an MBA degree in Finance (2012), and a Master’s Arts degree in Economics (2001), all from the University of Calgary, Calgary, Alberta, Canada. He also holds a B.A. degree in Economics from Nankai University, Tianjin, China (1999). Mr. Wu’s knowledge of the Company’s operations as well as his financial and accounting expertise are critical to the Company’s success.


Yunxia Xu is the Company’s Chief Operating Officer and Chief Marketing Officer. Since December 2017, she held the position of General Manager at EpicQuest Education Group Ltd.International Limited. Prior to that, from September 2016 to December 2017, she held the position of General Manager at QHI responsible for coordination and management of the U.S. offices. From 2009 to August 2016, she was the Deputy General Manager at Beijing Renda Finance Education Technology Co., Ltd. She holds a Bachelor’s degree in English from Shandong Normal University (2003) and attended several MBA diploma courses at Renmin University (2008-2009) and Tsinghua University (2013-2015).

Jing Liis the Company’s Chief Development Officer. From March 2013 to present, she has held the offices of Managing Director at QHI, responsible for marketing and partnership development, and team management. She holds a Bachelor’s degree in Polymer Materials from Institute of Clothing Technology, Beijing, China (2000-2004) and a Master’s degree in Polymers and Surface Coatings Science and Technology from University of Leeds, UK (2005-2007).


Bo Yu is the Company’s Chief Programs Officer. Prior to joining the Company in 2018, he held multiple positions with Global IELTS, Beijing School of Shinyway Education, and Meten English. He obtained the Global Teacher Certificate - TEFL (Teaching English as a Foreign Language) from Trinity College, London, U.K. in 1999, and the Global Advanced English Trainer Certificate - LTCL in Sheffield, U.K. in 2000. He studied in the Master’s Degree in Education Program (TESOL MA) at Sheffield Harlem University, U.K. in 2001.

Craig Wilsonis an independent director of the Company. He is currently a Professor of Finance at Edwards School of Business, University of Saskatchewan.Saskatchewan, having worked there since July 1, 2002. From July 1, 2018 to present,June 30, 2023, he has held the position of the Head of Department of Finance & Management Science, Edwards School of Business, University of Saskatchewan, and from 2008 to present – of an Associate Professor of Finance at the same School of Business.Saskatchewan. Mr. Wilson holds a PhD in Finance (University of Alberta, 2004) and a Bachelor of Commerce degree in Finance (University of Alberta, 2004) as well as a Bachelor of Science degree in Mathematics (University of Alberta, 1996). Mr. Wilson’s deep academic knowledge and expertise of finance and management sciences represent valuable skills on the Company’s Board.

G. Michael Pratt is an independent director of the Company. From July 2010 to June 2016, Mr. Pratt served as Dean of Regional Campuses and Associate Provost at Miami University of Ohio. Prior to that, from 2013 to 2016, he was Associate Provost, Dean of Regional Campuses, Professor of Anthropology (2010-2013). He holds a Ph.D. in Anthropology, Case Western Reserve University, Cleveland, Ohio (1981), a Master’s degree in Anthropology, Case Western Reserve University (1975) and an undergraduate degree in Anthropology, Miami University, Oxford, Ohio (1973). Mr. Pratt’s academic background and long-standing connections to our key partner, Miami University, represent an important contribution to the Board’s skillset.

M. Kelly CowanXiaojun Cui is an independent director of the Company. FromCompany and was appointed to the Board on October 201519, 2023, to Septemberfill a vacancy created by the resignation of a prior director. Ms. Cui served as the Regional Manager for East Asia at Lancaster University since November 1, 2016, Ms. Cowan heldwhere her responsibilities included implementing international recruitment strategy, building international university partnerships and managing the position of Director of Middletown Campus at Cincinnati State Technical and Community College.recruitment agent network. She has degree in MSc Marketing from Edinburgh Napier University, where she worked, beginning in 2002 as the international Student Advisor, until leaving Napier in 2016 after serving as the International Partnership Manager for 9 years. Prior to that, from 1993 to 2014, she was a professorworking at Napier, Xiao worked at Dalian University of Foreign Languages as Project Manager, managing Study Abroad Language training Center. Ms. Cui possesses extensive knowledge and Dean at Miami University Middletown Campus. Ms. Cowan’s academic backgroundexpertise in the Higher Education sectors of the UK and long-standing connections to the Ohio university community represent an important contribution to the Board’s skillset.China.

None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years that is material to the evaluation of the ability or integrity of any of our directors, director nominees or executive officers.

There are no family relationships among our directors or officers.

The business address of each party described above is c/o EpicQuest Education Group International Limited 1209 N. University Blvd, Middletown, OH 45042.


 

Board Diversity

The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.

Board Diversity Matrix for EpicQuest Education Group Limited

As of 1/13/202331/2024

Total Number of Directors55
       Did Not        Did Not 
Part I: Gender Identity Female Male Non-Binary Disclose  Female Male Non-Binary Disclose 
       Gender        Gender 
Directors 1 4 0 0  1 4 0 0 
                  
Part II: Demographic Background                  
                  
Asian 0 2 0 0  1 2 0 0 
White 1 2 0 0  0 2 0 0 

B.Compensation

Director and OfficerB. Compensation

Director Compensation

In October 2021, the Company’ Board, of Directors, upon the recommendation of the Compensation Committee of the Board of Directors, approved a non-employee director compensation plan (the “2021 Director Compensation Plan”), pursuant to which each non-employee director: (i) will be granted annually a number of restricted stock units equal to $30,000 divided by the closing price of the Company’s common shares, under the Company’s 2019 Equity Incentive Plan (the “Stock“2019 Plan”), on the date of the Company’s annual meeting of stockholdersshareholders (the “Annual Grant”); and (ii) will receive the following cash compensation: (A) base compensation of $18,000 per year; (B) the chairperson of the Audit Committee, Compensation Committee and Nominating and Governance Committee shall receive annual compensation of $12,000, $6,000 and $6,000, respectively; and (C) each member (other than chairperson) of such committees shall receive annual compensation of $6,000.

In addition, to the creation of the foregoing plan, forin October 2021 the Company’ Compensation Committee approved a one-time grant of Company common shares to each of the non-employee directors as follows: (i) Mr. Craig Wilson received a grant of shares equal to $27,000 (based on the Company’s common share price as of November 1, 2021) of which one-third of such shares were issued and the remaining two-thirds will bewere issued in equal installments on April 1, 2022 and October 1, 2022; and (ii) Ms.M. Kelly Cowan and Mr.G. Michael Pratt each received a grant of shares equal to $22,500 (based on the Company’s common share price as of November 1, 2021) of which one-third of such shares were issued and the remaining two-thirds will bewere issued in equal installments on April 1, 2022 and October 1, 2022. M. Kelly Cowan resigned from the Board on March 16, 2023.

The Company held its annual meeting on November 28, 2022. The Compensation Committee did not issue the Annual Grant on such date. On December 30, 2022, the Company issued each non-employee director the Annual Grant, which was a RSU grant for 15,57513,575 common shares (based on the closing price of the Company’s common shares on December 30, 2022 of $2.21) vesting upon the earlier of the first anniversary after the date of the grant or the date of the Company’s next annual meeting of stockholders,shareholders, subject to the director’s continued service on the Board of Directors on such vesting date.

For the year ended September 30, 2023, the total compensation paid to the Company’s non-employee directors was as follows:

Name(1) Fees earned or paid in cash ($)  Stock Awards($)(2)  Total ($) 
Craig Wilson $36,000  $30,000  $66,000 
G. Michael Pratt $30,000  $

30,000

  $60,000 
M. Kelly Cowan(3) $15,000  $30,000  $

45,000

 
Xiaojun Cui(4)  NA   NA   NA 

(1)Compensation paid to Jianbo Zhang, our Chairman and Chief Executive Officer, and Zhenyu Wu, our Chief Financial Officer, for their service on the Board of Directors is set forth below under the section titled Executive Officer Compensation.

(2)Based on the Company’s common share price of $2.21, the closing price of the common shares on the date of grant.  

(3)M. Kelly Cowan resigned from the Board on March 16, 2023.

(4)Xiaojun Cui was appointed to the Board on October 16, 2023, and did not receive compensation for the fiscal year ended September 30, 2023.


 

Retirement BenefitsOn October 19, 2023, the Board, upon the recommendation of the Compensation Committee, approved an updated director compensation plan for non-employee directors (the “2023 Director Compensation Plan”) that replaced the 2021 Director Compensation Plan. The 2023 Director Compensation Plan provides for the following: (i) annual cash retention payment of $40,000; (ii) the Committee chair-Audit: additional $15,000; (iii) Committee chair-Compensation: additional $10,000; (iii) Committee chair- Nominating and Governance: additional $10,000; (iv) Committee member-Audit: additional $6,000; (v) Committee member-Compensation: additional $6,000; (vi) Committee member- Nominating and Governance: additional $6,000; (vii) each director received a ten-year option to purchase 45,000 common shares options at an exercise price of $1.16 per share (the closing price of the common shares on the date of grant) vesting in one year for existing non-employee Board members and in three years for initial Board members; and (viii) for the Lead Independent Director a ten-year option to purchase 15,000 common shares options at an exercise price of $1.16 per share (the closing price of the common shares on the date of grant) vesting in one year.

The Company held its annual meeting on November 24, 2023. The Compensation Committee did not issue the Annual Grant on such date, but expects to do so in the near future.

Retirement Benefits

The Company contributes to defined contribution retirement schemes which are available to all employees. Contributions to the schemes by the Company and employees are calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost charged to profit or loss represents contributions payable by the Company to the funds.

Officer Compensation; Employment Agreements and Arrangements

The total cash compensation paid by us or our significant subsidiaries during the years ended September 30, 2023 and September 30, 2022, to our officers for such persons’ services as officers (including contingent or deferred compensation accrued during the years ended September 30, 2023 and September 30, 2022, but not including any amounts paid to such persons for their services as directors), as well as equity-based compensation paid to our executive officers during the fiscal years ended September 30, 2022, and September 30, 2023, are described below.

Employment Agreement with

Jianbo Zhang

On November 1, 2021, the Company entered into an amendment and restated employment agreement, effective as of October 1, 2021, with Jianbo Zhang pursuant to which he agreed to serve as the Company’s Chief Executive Officer. For the year ending September 30, 2022, the agreement provided for an annual base salary of US$1.00 and the issuance of restricted stock units for 100,000 common shares vesting in four equal installments on the first calendar day of each full fiscal quarter. Effective for the year ending September 30, 2023, the foregoing compensation was increased to US$1.00 and the issuance of restricted stock units for 200,000 common shares vesting in four equal installments on the first calendar day of each full fiscal quarter.

Under the terms of the agreement, for the year ending September 30, 2022, Mr. Zhang was eligible to receive an annual bonus of restricted stock units for up to 50,000 common shares, in the determination of the Company’s Compensation Committee, if the Company’s sales revenue increased by 20% during the fiscal year in question. This milestone was not achieved during the fiscal year. Effective for the year ending September 30, 2023, Mr. Zhang will be eligible to receive an annual bonus of restricted stock units for up to 100,000 common shares, in the determination of the Company’s Compensation Committee, if the Company’s sales revenue increased by 20% during the fiscal year in question.


Mr. Zhang is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. On October 1, 2022, Mr. Zhang was also issued an option to purchase 50,000 common shares under the terms of the Company’s 2019 Equity Incentive Plan. The term of the agreement shall expire on October 1, 2026, which term will automatically extend for additional 12-month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at the Company’s election without “cause” (as defined in the agreement), which requires 90 days’ advanced notice, or by him for “good reason” (as defined in the agreement), he shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of his target annual bonus for the year when termination occurs. Mr. Zhang has agreed not to compete with the Company for 9 months after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.

In November 2021, for services Mr. Zhang was issued restricted stock units for 250,000 common shares vesting in five equal installments in the period between October 1, 2021 and October 1, 2023, as well as an additional option to purchase 150,000 common shares, under the terms of the Company’s 2019 Equity Incentive Plan. On December 30, 2022, for services Mr. Zhang was issued an option to purchase 50,000 common shares with an exercise price of $2.21 vesting in four equal installments on the first calendar day of each full fiscal quarter under the terms of the Company’s 2019 Equity Incentive Plan.


On October 19, 2023, the Board, upon the recommendation of the Compensation Committee, approved the following compensation for Mr. Zhang: (i) base salary: $1.00; (ii) issuance of restricted stock units for 200,000 common shares vesting in four equal quarterly installments during the fiscal year ending September 30, 2024; (iii) issuance of an option to purchase 500,000 common shares at an exercise price of $1.16 per share (the closing price of the common shares on the date of grant) vesting in four annual installments; and (iv) issuance of restricted stock units for 100,000 common shares vesting if the Company’s sales revenue increases by 20% during the year ending September 30, 2024.

Employment Agreement with Zhenyu Wu

On November 1, 2021, the Company entered into an amendment and restated employment agreement, effective as of October 1, 2021, with Zhenyu Wu pursuant to which he agreed to serve as the Company’s Chief Financial Officer. For the year ending September 30, 2022, the agreement provided for an annual base salary of US$1.00 and the issuance of restricted stock units for 80,000 common shares vesting in four equal installments on the first calendar day of each full fiscal quarter. Effective for the year ending September 30, 2023, the foregoing compensation was increased to US$1.00 and the issuance of restricted stock units for 160,000 common shares vesting in four equal installments on the first calendar day of each full fiscal quarter.

Under the terms of the agreement, for the year ending September 30, 2022, Mr. Wu was eligible to receive an annual bonus of restricted stock units for up to 40,000 common shares, in the determination of the Company’s Compensation Committee, if the Company’s sales revenue increased by 20% during the fiscal year in question. This milestone was not achieved during the fiscal year. Effective for the year ending September 30, 2023, Mr. Wu will be eligible to receive an annual bonus of restricted stock units for up to 80,000 common shares, in the determination of the Company’s Compensation Committee, if the Company’s sales revenue increased by 20% during the fiscal year in questionquestion.

Mr. Wu is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. On October 1, 2022, Mr. Wu was also issued an option to purchase 40,000 common shares under the terms of the Company’s 2019 Equity Incentive Plan. The term of the agreement shall expire on October 1, 2026, which term will automatically extend for additional 12-month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at the Company’s election without “cause” (as defined in the agreement), which requires 90 days’ advanced notice, or by him for “good reason” (as defined in the agreement), he shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of his target annual bonus for the year when termination occurs. Mr. Wu has agreed not to compete with the Company for 9 months after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.


In November 2021, for services Mr. Wu was issued restricted stock units for 150,000 common shares vesting in three equal installments on in the period between October 1, 2021, and October 1, 2022, as well as an additional option to purchase 125,000 common shares, under the terms of the Company’s 2019 Equity Incentive Plan. On December 30, 2022, for services Mr. Wu was issued an option to purchase 40,000 common shares with an exercise price of $2.21 vesting in four equal installments on the first calendar day of each full fiscal quarter under the terms of the Company’s 2019 Equity Incentive Plan.

On October 19, 2023, the Board, upon the recommendation of the Compensation Committee, approved the following compensation for Mr. Wu: (i) base salary: $1.00; (ii) issuance of restricted stock units for 160,000 common shares vesting in four equal quarterly installments during the fiscal year ending September 30, 2024; (iii) issuance of an option to purchase 360,000 common shares at an exercise price of $1.16 per share (the closing price of the common shares on the date of grant) vesting in four annual installments; and (iv) issuance of restricted stock units for 80,000 common shares vesting if the Company’s sales revenue increases by 20% during the year ending September 30, 2024.

Employment Agreement with Yunxia Xu

On November 1, 2021, the Company entered into an amendment and restated employment agreement, effective as of October 1, 2021, with Yunxia Xu pursuant to which she agreed to serve as the Company’s Chief Operating Officer and Chief Marketing Officer. The agreement provides for an annual base salary of US$50,000 payable in accordance with the Company’s common payroll practices. Under the terms of the agreement, Ms. Xu will be entitled to receive an annual cash bonus in the amount of up to US$20,000 if, in the determination of the Company’s Compensation Committee, the Company’s sales revenue increased by 20% during the fiscal year in question. This milestone was not achieved during the fiscal year ended September 30, 2022. She is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Under the terms of the agreement, commencing with the year ending September 30, 2022, Ms. Xu will be eligible to receive an annual bonus of restricted stock units for up to 60,000 common shares, in the determination of the Company’s Compensation Committee. The term of the agreement shall expire on October 1, 2026, which term will automatically extend for additional 12 month12-month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits under the agreement. If her employment is terminated at the Company’s election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by her for “good reason” (as defined in the agreement), she shall be entitled to receive severance payments equal to 9 months’ of her base salary and a pro rata portion of her target annual bonus for the year when termination occurs. Ms. Xu has agreed not to compete with the Company for 9 months after the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature. In addition to entering into the employment agreement, for services Ms. Xu was issued 60,000 common shares, as well as restricted stock units for 80,000 common shares vesting in four equal installments in the period between October 1, 2021, and April 1, 2023, under the terms of the Company’s 2019 Equity Incentive Plan.


On October 19, 2023, the Board, upon the recommendation of the Compensation Committee, approved the following compensation for Ms. Xu: (i) base salary: $50,000; (ii) issuance of restricted stock units for 60,000 common shares vesting in four equal quarterly installments during the fiscal year ending September 30, 2024; (iii) issuance of an option to purchase 20,000 common shares at an exercise price of $1.16 per share (the closing price of the common shares on the date of grant) vesting in four annual installments; and (iv) issuance of restricted stock units for 20,000 common shares vesting if the Company’s sales revenue increases by 20% during the year ending September 30, 2024.

Employment Agreement with Jing Li

On November 1, 2021, the Company entered into an amendment and restated employment agreement, effective as of October 1, 2021, with Jing Li pursuant to which she agreed to serve as the Company’s Chief Development Officer. The agreement provides for an annual base salary of US$35,000 payable in accordance with the Company’s common payroll practices. Under the terms of the agreement, Ms. Li will be entitled to receive an annual cash bonus in the amount of up to US$15,000 if, in the determination of the Company’s Compensation Committee, the Company’s sales revenue increased by 20% during the fiscal year in question. This milestone was not achieved during the fiscal year ended September 30, 2022. She is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Under the terms of the agreement, commencing with the year ending September 30, 2022, Ms. Li will be eligible to receive an annual bonus of restricted stock units for up to 10,000 common shares, in the determination of the Company’s Compensation Committee. The term of the agreement shall expire on October 1, 2026, which term will automatically extend for additional 12 month12-month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits under the agreement. If her employment is terminated at the Company’s election without “cause” (as defined in the agreement), which requires 90 days’ advanced notice, or by her for “good reason” (as defined in the agreement), she shall be entitled to receive severance payments equal to 9 months’ of her base salary and a pro rata portion of her target annual bonus for the year when termination occurs. Ms. Li has agreed not to compete with the Company’s for 9 months after the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature. In addition to entering into the employment agreement, for services Ms. Li was issued 5,000 common shares, as well as restricted stock units for 30,000 common shares vesting in three equal installments in the period between October 1, 2021 and October 1, 2022, under the terms of the Company’s 2019 Equity Incentive Plan.


Employment Agreement with Bo Yu

On November 1, 2021, the Company entered into an amendment and restated employment agreement, effective as of October 1, 2021, with Bo Yu pursuant to which he agreed to serve as the Company’s Chief Programs Officer. The agreement provides for an annual base salary of US$35,000 payable in accordance with the Company’s common payroll practices. Under the terms of the agreement, Mr. Yu will be entitled to receive an annual cash bonus in the amount of up to US$15,000 if, in the determination of the Company’s Compensation Committee, the Company’s sales revenue increased by 20% during the fiscal year in question. This milestone was not achieved during the fiscal year ended September 30, 2022. He is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. Under the terms of the agreement, commencing with the year ending September 30, 2022, Mr. Yu will be eligible to receive an annual bonus of restricted stock units for up to 10,000 common shares, in the determination of the Company’s Compensation Committee. The term of the agreement shall expire on October 1, 2026, which term will automatically extend for additional 12 month12-month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at the Company’s election without “cause” (as defined in the agreement), which requires 90 days’ advanced notice, or by him for “good reason” (as defined in the agreement), he shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of his target annual bonus for the year when termination occurs. Mr. Yu has agreed not to compete with the Company’s for 9 months after the termination of her employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature. In addition to entering into the employment agreement, for services Mr. Yu was issued 40,000 common shares, as well as restricted stock units for 30,000 common shares vesting in three equal installments in the period between October 1, 2021 and October 1, 2022, under the terms of the Company’s 2019 Equity Incentive Plan.

C.Board Practices

C. Board Practices

The term of each director is until their resignation or removal.

Currently, three standing committees have been established under the board: the Audit Committee, the Compensation Committee and the Nominating Committee.


The Audit Committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The Compensation Committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The Nominating Committee of the board is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.

Audit Committee

Audit Committee

We have a separate-designed standing Audit Committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee will be responsible for, among other matters:operates under a written charter, which is available on our website at https://ireei-global.net. The information on our corporate website is not a part of this Proxy Statement.

The Audit Committee’s responsibilities include the following functions:

appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm;

discussing with our independent registered public accounting firm the independence of its members from its management;

reviewing with our independent registered public accounting firm the scope and results of their audit;

approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;

overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;

reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements;


coordinating the oversight by our board of directorsBoard of our code of business conduct and our disclosure controls and procedures;

establishing procedures for the confidential and or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and

reviewing and approving related-party transactions.

Our Audit Committee consists of Craig Wilson, G. Michael Pratt and Kelly Cowan, with Mr. Wilson serving as chair of the Audit Committee. Our boardBoard has affirmatively determined that each of the members of the Audit Committee meets the definition of “independent director” for purposes of serving on an Audit Committee under Rule 10A-3 of the Exchange Act and NasdaqNASDAQ rules. Our Audit Committee consists of Craig Wilson, G. Michael Pratt and Xiaojun Cui, with Mr. Wilson serving as chair of the Audit Committee. In addition, our boardBoard has determined that Mr. Wilson qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K and meets the financial sophistication requirements of the NasdaqNASDAQ rules.

M. Kelly Cowan was a member of the Audit Committee prior to her resignation from the Board on March 16, 2023.

Compensation Committee

Compensation Committee

The Compensation Committee will be responsible for, among other matters:operates under a written charter, which is available on our website at https://www.epicquesteducation.com/investor-relations/governance/governance-documents.html.

The Compensation Committee’s responsibilities include the following functions: 

reviewing and approving, or recommending to the board of directorsBoard to approve the compensation of our CEO and other executive officers and directors;

reviewing key employee compensation goals, policies, plans and programs;

administering incentive and equity-based compensation;

reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and

appointing and overseeing any compensation consultants or advisors.

 


��

Our Compensation Committee consists of Craig Wilson, G. Michael Pratt, Craig Wilson and Kelly Cowan,Xiaojun Cui, with Mr. Pratt serving as chair of the Compensation Committee. Our boardBoard has affirmatively determined that each of the members of the Compensation Committee meets the definition of “independent director” for purposes of serving on Compensation Committee under NasdaqNASDAQ rules.

M. Kelly Cowan was a member of the Compensation Committee prior to her resignation from the Board on March 16, 2023.  

Nominating Committee

Nominating Committee

The Nominating Committee will be responsible for, among other matters:operates under a written charter, which is available on our website at https://www.epicquesteducation.com/investor-relations/governance/governance-documents.html.

The Nominating Committee’s responsibilities include the following functions:  

selecting or recommending for selection candidates for directorships;

evaluating the independence of directors and director nominees;


reviewing and making recommendations regarding the structure and composition of our board and the board committees;

developing and recommending to the board corporate governance principles and practices;

reviewing and monitoring the Company’s Code of Business Conduct and Ethics; and

overseeing the evaluation of the Company’s management.

Our Nominating Committee consists of consists of Craig Wilson,Xiaojun Cui, G. Michael Pratt and Kelly Cowan,Craig Wilson, with Ms. CowanXiaojun Cui serving as chair of the Nominating Committee. Our boardBoard has affirmatively determined that each of the members of the Nominating Committee meets the definition of “independent director” for purposes of serving on a Nominating Committee under NasdaqNASDAQ rules. M. Kelly Cowan was the chair of the Nominating Committee prior to her resignation from the Board on March 16, 2023.

Director Independence

Our boardThe Board has reviewed the independence of our directors, applying the Nasdaq independence standards. Based on this review, the board determined that each of Craig Wilson, G. Michael Pratt and Kelly CowanXiaojun Cui are “independent” within the meaningeach an independent director as defined in Rule 5605(a)(2) of the Nasdaq rules.Listing Rules of the NASDAQ Stock Market LLC. In making this determination, our boardBoard considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our boardBoard deemed relevant in determining their independence. As required under applicable NasdaqNASDAQ rules, we anticipate that our independent directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and management.

D.Employees

D. Employees

As of September 30, 2022, we2023, the Company had 5838 full-time and 22 part-time employees, of which 1149 were located in the United States, 14U.S., 10 were located in Canada, and the remaining employees were1 was located in China.Sri Lanka. There is no labor union for our employees. We believe our relations with our employees are good.

E.Share Ownership

E. Share Ownership

See Item 7 below.

F. Disclosure of a registrant’s action to recover erroneously awarded compensation


The Company, during or after the last completed fiscal year, was not required to prepare an accounting restatement that required recovery of erroneously awarded compensation.

ITEM 7.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.Major shareholders

A. Major shareholders

The following tables settable sets forth certain information regarding beneficial ownership of our shares by each person who is known by us to beneficially own more than 5% of our shares. The table also identifies the share ownership of each of our directors, each of our executive officers, and all directors and officers as a group. Except as otherwise indicated, the shareholders listed in the table have sole voting and investment powers with respect to the beneficial ownershipshares indicated. Our major shareholders do not have different voting rights than any other holder of our common shares for:shares.

each stockholder known by us to be the beneficial owner of more than 5% of our outstanding common shares;

each of our directors;

each of our named executive officers; and

all of our directors and executive officers as a group.

We haveBeneficial ownership is determined beneficial ownership in accordance with the rules of the SEC. Under such rules,SEC, which generally attribute beneficial ownership includes any shares over which the individual hasof securities to persons who possess sole or shared voting power or investment power as well as anywith respect to those securities and includes our common shares issuable pursuant to the exercise of stock options, warrants, or other securities that the individual has the right to subscribe forare immediately exercisable or convertible or exercisable or convertible within 60 days of December 31, 2022 through the exercise of any warrants or other rights.January 25, 2024. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power or the power to receive the economic benefit with respect to all common shares that they beneficially own, subject to applicable community property laws. None of the stockholdersshareholders listed in the table are a broker-dealer or an affiliate of a broker dealer. NoneWith the exception of Mr. Pratt, none of the stockholdersshareholders listed in the table are located in the United States and none of the common shares held by them are located in the United States. Applicable percentage ownership is based on 11,439,20612,702,173 common shares outstanding as of December 31, 2022.January 25, 2024. Unless otherwise indicated, the address of each beneficial owner listed in the table below is to the Company c/o 1209 N. University Blvd, Middletown, OH 45042.

  Amount of Beneficial
Ownership (1)
 
Name of Beneficial Owner Common
shares
  Percentage 
Jianbo Zhang, CEO (3)(4)  6,967,416   60.64%
Zhenyu Wu, CFO (5)  666,900   5.81%
Yunxia Xu, COO & CMO (6)  258,000   2.25%
Jing Li, CDO (7)  79,000   * 
Bo Yu, CPO (7)  82,500   * 
Craig Wilson (2)  15,391   * 
G. Michael Pratt (2)  12,825   * 
Kelly Cowan (2)  12,825   * 
All directors and executive officers as a group (8 persons)  2,935,157   25.41%
         
5% or greater beneficial owners as a group        
Wonderland Holdings International Limited (3)  5,159,700   45.11%


  Amount of Beneficial Ownership(1) 
Name of Beneficial Owner(2) Common shares  Percentage 
Jianbo Zhang, CEO(3)(4)  7,517,416   59.18%
Zhenyu Wu, CFO(5)  1,031,900   8.12%
Yunxia Xu, COO & CMO(6)  338,000   2.66%
Jing Li, CDO(7)  89,000   * 
Bo Yu, CPO(8)  92,500   * 
Craig Wilson(9)  28,966   * 
G. Michael Pratt(10)  26,400   * 
Xiaojun Cui (11)  --   * 
All directors and executive officers as a group (8 persons)(12)  9,122,182   71.82%
         
5% or greater beneficial owners as a group        
Wonderland Holdings International Limited(3)  5,159,700   40.62%

*Less than 1%.

(1)Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common shares or the power to receive the economic benefit of the common shares.

(2)Independent director. Does not include an RSU grant for 15,575 common shares granted toUnless otherwise indicated, the address of each independent director on December 30, 2022, and vesting uponbeneficial owner listed in the earlier of the first anniversary after the date of the grant or the date of the Company’s next annual meeting of stockholders, subject to the director’s continued service on the Board of Directors on such vesting date.table below is c/o EpicQuest Education Group International Limited, 1209 N. University Blvd. Middletown.

(3)A BVI incorporated entity with the mailing address of c/o No. 36, Daxing Hutong, Fongcheng District, Beijing City, PRC. As Jianbo Zhang is the sole shareholder and director of the entity, he is deemed the beneficial owner of the Company’s securities held by Wonderland Holdings.
(4)Consists of 2,057,716 common shares directly held by Jianbo Zhang, 50,000 shares  issued on December 31, 2023, 250,000 common shares underlying stock options exercisable within 60 days of January 25, 2024, and 5,159,700 common shares directly held by Wonderland Holdings International of which Mr. Zhang is deemed to be the beneficial owner.
(5)Consists of 786,900 common shares directly held by Zhenyu Wu, 40,000 shares issued on December 31, 2023, and 205,000 common shares underlying stock options exercisable within 60 days of January 25, 2024.
(6)Consists of 323,000 common shares directly held by Yunxia Xu, and 15,000 shares issued on December 31, 2023.
(7)Consists of 86,500 common shares directly held by Jing Li, and 2,500 shares issued on December 31, 2023.
(8)Consists of 90,000 common shares directly held by Bo Yu, and 2,500 sharesissued on December 31, 2023.
(9)Consists of 28,966 common shares directly held by Craig Wilson.
(10)Consists of 26,400 common shares directly held by G. Michael Pratt.
(11)Xiaojun Cui does not currently own any common shares of the Company.
(12)Does not include 5,159,700 common shares held by Wonderland Holdings International Limited described in footnote 3.


 

(4)Includes 50,000 vested RSUs for common shares approved on December 30, 2022 (out of a total approved award of 200,000 RSUs), and does not include 150,000 unvested RSUs for common shares from the same award, which was made under the 2019 Equity Incentive Plan, that vest in three equal installments on the last calendar day of each of the last three full fiscal quarters.

(5)Includes 40,000 vested RSUs for common shares approved on December 30, 2022 (out of a total approved award of 160,000 RSUs), and does not include 120,000 unvested RSUs for common shares from the same award, which was made under the 2019 Equity Incentive Plan, that vest in three equal installments on the last calendar day of each of the last three full fiscal quarters.
(6)Includes 15,000 vested RSUs for common shares approved on December 30, 2022 (out of a total approved award of 60,000 RSUs), and does not include 45,000 unvested RSUs for common shares from the same award, which was made under the 2019 Equity Incentive Plan, that vest in three equal installments on the last calendar day of each of the last three full fiscal quarters.
(7)Includes 2,500 vested RSUs for common shares approved on December 30, 2022 (out of a total approved award of 10,000 RSUs), and does not include 7,500 unvested RSUs for common shares from the same award, which was made under the 2019 Equity Incentive Plan, that vest in three equal installments on the last calendar day of each of the last three full fiscal quarters.

As of December 31, 2022,January 25, 2024, there were 3936 holders of record (excluding the beneficial shareholders held through the intermediaries) entered in our share register, of which 74 holders were U.S. residents. The number of individual holders of record is based exclusively upon our share register and does not address whether a share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial owner of a share or shares in our company.

B.Related Party Transactions

All of the Company’s shareholders have the same voting rights.

B. Related Party Transactions

The following is a description of transactions since September 30, 2019, to which any of our related parties, had or will have a direct or indirect material interest.

Name of related partiesRelationship with the Company
Jianbo ZhangFounder, CEO and ultimate controlling shareholder of the Company.

Due to related party balance

The related party balances of $140,000 as of September 30, 2023, 2022 and 2021 relate to IPO costs paid by Jianbo Zhang on behalf of the Company. The related party balance is unsecured, non-interest bearing and due on demand.

C.Interests of Experts and Counsel

Not required.C. Interests of Experts and Counsel

Not required.

ITEM 8.

ITEM 8. FINANCIAL INFORMATION

A.Consolidated Statements and Other Financial Information.

A. Consolidated Statements and Other Financial Information.

See Item 18 for our audited consolidated financial statements.


Legal Proceedings

Legal Proceedings

From time to time in the ordinary course of our business, we may be involved in legal proceedings, the outcomes of which may not be determinable. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable, primarily for the following reasons: (i) many of the relevant legal proceedings are in preliminary stages, and until such proceedings develop further, there is often uncertainty regarding the relevant facts and circumstances at issue and potential liability; and (ii) many of these proceedings involve matters of which the outcomes are inherently difficult to predict. We have insurance policies covering potential losses where such coverage is cost effective.

Dividend Policy

The holders of our common shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In addition, our operating companies may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our common shares are entitled to receive, ratably, the net assets available to shareholders after payment of all creditors.

B.Significant Changes


B. Significant Changes

Except as disclosed elsewhere in this Annual Report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this Annual Report.

ITEM 9.

ITEM 9. THE OFFER AND LISTING

A.Offer and Listing Details

A. Offer and Listing Details

Our common shares have been listed on the Nasdaq Capital Market since March 24, 2021, under the symbol “EEIQ.” As of the date of this annual report, no trading suspensions have occurred.

B.Plan of Distribution

Not Applicable.B. Plan of Distribution

C.Markets

Not Applicable.

C. Markets

See “Offer and Listing Details” above.”

D.Selling Shareholders

Not Applicable.D. Selling Shareholders

E.Dilution

Not Applicable.

F.Expenses of the Issue

Not Applicable.E. Dilution

Not Applicable.


F. Expenses of the Issue

Not Applicable.

ITEM 10.

ITEM 10. ADDITIONAL INFORMATION

A.Share Capital

Not Applicable.

B.A. Share CapitalMemorandum and Articles of Association

Not Applicable.

B. Memorandum and Articles of Association

The information required by Item 10.B of Form 20-F is included in the section titled “Description of Share Capital” in our Registration Statement on Form F-1 initially filed with the SEC on December 15, 2020 (File No.: 333-251342), which section is incorporated herein by reference.


 

C.Material Contracts

C. Material Contracts

 

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report.

  

D.Exchange controls

D. Exchange controls

 

Under British Virgin Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to nonresident holders of our shares.

 

E.Taxation

E. Taxation

 

The following summary of the material British Virgin Islands and U.S. tax consequences of an investment in our common shares is based upon laws and relevant interpretations thereof in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. This summary is not intended to be, nor should it be construed as, legal or tax advice and is not exhaustive of all possible tax considerations. This summary also does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as the tax consequences under state, local, non-U.S., and non-British Virgin Islands tax laws. Investors should consult their own tax advisors with respect to the tax consequences of the acquisition, ownership, and disposition of our common shares.

 

British Virgin Islands Taxation

 

The company and all distributions, interest and other amounts paid by the company in respect of the common shares of the company to persons who are not resident in the British Virgin Islands are exempt from all provisions of the Income Tax Ordinance in the British Virgin Islands.

 

No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not resident in the British Virgin Islands with respect to any common shares, debt obligations or other securities of the company.

 

All instruments relating to transactions in respect of the common shares, debt obligations or other securities of the company and all instruments relating to other transactions relating to the business of the company are exempt from payment of stamp duty in the British Virgin Islands provided that they do not relate to real estate in the British Virgin Islands.

 

There are currently no withholding taxes or exchange control regulations in the British Virgin Islands applicable to the company or its shareholders.

 


United States Federal Income Taxation

 

The following does not address the tax consequences to any particular investor or to persons in special tax situations such as:

 

 banks;

 

 financial institutions;

 

 insurance companies;

 

 regulated investment companies;

  

 real estate investment trusts;
   
 broker-dealers;

 

 persons that elect to mark their securities to market;


 

 U.S. expatriates or former long-term residents of the United States ;
   
 governments or agencies or instrumentalities thereof;

 

 tax-exempt entities;

 

 persons liable for alternative minimum tax;

 

 persons holding our common shares as part of a straddle, hedging, conversion or integrated transaction;

 

 persons that actually or constructively own 10% or more of our voting shares;

 

 persons who acquired our common shares pursuant to the exercise of any employee share option or otherwise as consideration;

 

 persons holding our common shares through partnerships or other pass-through entities;
   
 beneficiaries of a trust holding our common shares; or
   
 persons holding our common shares through a trust.

 

The discussion below is addressed only to U.S. Holders that purchase common shares. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. Federal tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our common shares.

 

Material Tax Consequences Applicable to U.S. Holders of Our Shares

 

The following sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our common shares. It is directed to U.S. Holders (as defined below) of our common shares and is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This description does not deal with all possible tax consequences relating to ownership and disposition of our common shares or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, state, local, and other tax laws.

 


The following brief description applies only to U.S. Holders that hold our common shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.

 

The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of our common shares and you are, for U.S. federal income tax purposes,

 

 an individual who is a citizen or resident of the United States;
  
 a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;
  
 an estate whose income is subject to U.S. federal income taxation regardless of its source; or
  
 a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.


 

Taxation of Dividends and Other Distributions on our Shares

 

Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the common shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.

 

With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the common shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the British Virgin Islands, clause (1) above can be satisfied only if our common shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, common shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on The Nasdaq Capital Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our common shares, including the effects of any change in law after the date of this report. Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our common shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”

 

To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your common shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

 


Taxation of Dispositions of Shares

 

Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the common shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the common shares for more than one year, you will be eligible for reduced tax rates applicable to long term capital gains. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes.


 

Passive Foreign Investment Company

 

Based on our current and anticipated operations and the composition of our assets, we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year. Our actual PFIC status for the current taxable year will not be determinable until after the close of such taxable year and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year. PFIC status is a factual determination for each taxable year which cannot be made until the close of the taxable year. A non-U.S. corporation is considered a PFIC for any taxable year if either:

 

 at least 75% of its gross income is passive income; or

 

 at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”).

 

Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets.

 

We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. We must make a separate determination each year as to whether we are a PFIC, and there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. As a result, our PFIC status may change. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our common shares, our PFIC status will depend in large part on the market price of our common shares. Accordingly, fluctuations in the market price of the common shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend our liquid assets. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and, as stated above, the determination of the value of our assets will depend upon material facts that may not be within our control. If we are a PFIC for any year during which you hold common shares, we will continue to be treated as a PFIC for all succeeding years during which you hold common shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the common shares.

 


If we are a PFIC for any taxable year during which you hold common shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive on the common shares and any gain you realize from a sale or other disposition (including a pledge) of the Equity Securities, unless, in the case of the common shares, you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the common shares will be treated as an excess distribution. Under these special tax rules:

 

 the excess distribution or gain will be allocated ratably over your holding period for the common shares;

 

 the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and

 

 the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

 

The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the Equity Securities cannot be treated as capital, even if you hold the common shares as capital assets.


 

A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for the common shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the common shares as of the close of your taxable year over your adjusted basis in such common shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the common shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the common shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the common shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the common shares, as well as to any loss realized on the actual sale or disposition of the common shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such common shares. Your basis in the common shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “Taxation of Dividends and Other Distributions on our Shares” generally would not apply.

 

The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including The Nasdaq Capital Market. If the common shares are regularly traded on The Nasdaq Capital Market and if you are a holder of common shares, the mark-to-market election would be available to you were we to be or become a PFIC.

 

Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold common shares in any year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such common shares, including regarding distributions received on the common shares and any gain realized on the disposition of the common shares.

 

You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our common shares and the elections discussed above.

 


Information Reporting and Backup Withholding

 

Dividend payments with respect to our common shares and proceeds from the sale, exchange or redemption of our common shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

 

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information.

 

Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our common shares, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain financial institutions), by attaching a complete U.S. Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, to their tax return for each year in which they hold common shares. U.S. Holders should consult their own tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

 

F.Dividends and paying agents


F. Dividends and paying agents

 

Not required.

 

G.Statement by experts

G. Statement by experts

 

Not required.

 

H.Documents on display

H. Documents on display

 

We previously filed with the SEC a registration statement on Form F-1 (Registration No. 333-251342), as amended, to register our common shares in relation to our initial public offering.

 

We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed with the SEC, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

 

I. Subsidiary Information


I.Subsidiary Information

 

For a listing of our subsidiaries, see “Item 4. Information on the Company—Company - C. Organizational Structure.”

 

J.Annual Report to Security Holders.

J. Annual Report to Security Holders.

 

The Company is not required to provide an annual report to security holders in response to the requirements of Form 6-K.Not applicable.

 

ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Foreign currency and foreign currency translation

 

The Company’s reporting currency is the United States dollar (“US$” or “$”). The US$ is the functional currency of the Company and all of its subsidiaries.subsidiaries except RIL, which has a functional currency of C$.

 

Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance date. The resulting exchange differences are reported in the consolidated statements of operations and comprehensive income.

 

Certain risks and concentration

 

The Company’s financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and notes receivable. As of September 30, 20222023 and 2021,2022, substantially all of the Company’s cash and cash equivalents were held in major financial institutions located in the US.U.S and Canada.

 

The Company does not have material trade receivable related to students as they are required to prepay service fees. Accounts receivable at September 30, 2022 primarily consist of receivable of $32,116 in relation interest receivable and $13,486 in relation to GST receivable.

 

The remaining $485,000 note receivable balance as at September 30, 2022 is related to a third-party borrower. Although the Company is directly affected by the financial conditions of the borrower, the Company does not believe significant credit risk exist with respect to the note receivable.

 

Therefore, there was no significant concentration risk for the Company as at September 30, 20222023 and 2021.2022.

 

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

Not required.

 


 

 

PART II

 

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

There has been no default of any indebtedness nor is there any arrearage in the payment of dividends.

 

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.

 

The following “Use of Proceeds” information relates to the registration statement on Form F-1, as amended (File Number 333-251342), which was declared effective March 24, 2021, for our IPO in which we offered and sold an aggregate of 781,343 units, each unit consisting of one common share, one Series A warrant and one Series B warrant, at a public offering price of $8.00 per unit. The Series A warrants permit the holder to purchase one common share at an exercise price of $5.00 and expire after 5 years. The Series B warrants permit the holder to purchase one common share at an exercise price of $10.00 and expire after 5 years, and contain an exchange feature that will permit the holder to exchange the warrant into shares of common shares on a one-for-one basis any time commencing the earlier of 15 days from the warrant issuance date or the time when $10 million of volume is traded in the common shares if the volume weighted average price of common shares on any trading day on or after the date of issuance fails to exceed the exercise price of the Series B warrants.

 

The net proceeds raised from the IPO were $8.7 million after deducting underwriting commissions and the offering expenses payable by us. ViewTrade Securities, LLC was the underwriter of our IPO.

 

We incurred approximately $1.9 million in expenses in connection with our IPO, which included approximately $0.5 million in underwriting commissions for the IPO and approximately $1.4 million in other costs and expenses. None of the transaction expenses included payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds we received from the IPO were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.

 

As of September 30, 2022,2023, we have not used all amounts of the net proceeds from our IPO. The Company started working on expanding into new markets, including both the U.S. and Canadian markets, through acquisitions after the IPO. On November 24, 2021, the Company closed a transaction with Ameri-Can Education Group Corp. in Ohio, US, in order to expand our business model to being an operator of a college that provides career-training programs as well as a ‘transfer pathway’ to top universities for students to pursue Bachelors’ degrees. In July 2021, the Company also set up a wholly-owned subsidiary in Canada, Highrim Holding International Limited,HHI, in order to enter the Canadian markets. On January 15, 2022, Highrim Holding International LimitedHHI entered into agreements to acquire 80% of the issued and outstanding shares of Richmond Institute of Languages Inc. d.b.a. EduGlobal College. On March 31, 2023, HHI acquired the remaining 20% of the issued and outstanding shares of Richmond Institute of Languages Inc. d.b.a. EduGlobal College. The remaining net proceeds from our IPO are being used in the manner as disclosed in our registration statement on Form F-1, as amended (File Number 333-251342).

 


ITEM 15.CONTROLS AND PROCEDURES

ITEM 15. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our Certifying Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

Under the supervision of our Chief Executive Officer and Chief Financial Officer (the “Certifying Officer”Officers”), the Company has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying OfficerOfficers concluded that our disclosure controls and procedures were not effective as of September 30, 20222023, due to the material weakness in our internal control over financial reporting discussed below.


 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief financial officer and effected by our management and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. GAAP. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

The Company has identified the following material weaknesses, which are indicative of many small companies with small number of staff, as of September 30, 2022:2023: (i) lack of proper risk assessment processprocess; (ii) lack of proper review and (ii)analysis of non-routine transactions and (iii) lack of formal documentation in internal controls over financial reporting.

 

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatement. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with our policies and procedures may deteriorate.

 

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2022.2023. In making this assessment, management used the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

Because of the material weaknesses identified above, management has concluded that the Company did not maintain effective internal control over financial reporting as of September 30, 2022,2023, based on the criteria established in “2013 Internal Control-Integrated Framework” issued by COSO.

 


 

 

Attestation Report of the Registered Public Accounting Firm

 

This annual report on Form 20-F does not include an attestation report of our registered public accounting firm due to rules of the SEC where domestic and foreign registrants that are non-accelerated filers, which we are, and “emerging growth companies” which we also are, are not required to provide the auditor attestation report.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

ITEM 16.RESERVED

ITEM 16. RESERVED

 

ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.

 

Our Board of Directors has determined that Mr. Craig Wilson is an audit committee financial expert as that term is defined in Item 16A(b) of Form 20-F, and “independent” as that term is defined in the Nasdaq listing standards.

 

ITEM 16B.CODE OF ETHICS.

ITEM 16B. CODE OF ETHICS.

 

We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer. A copy of the Code of Business Conduct and Ethics is available on our website, http://www.epicquesteducation.com. The information on our corporate website is not a part of this Annual Report.

 

ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

The following table represents the approximate aggregate fees for services rendered by ZH CPA, LLC for the periods indicated:

 

 September 30,
2022
  September 30,
2021
  September 30,
2023
  September 30,
2022
 
          
Audit Fees  240,000   160,000   230,000   240,000 
Audit Related Fees  55,000   30,000   60,000   55,000 
Tax Fees  -   -   -     
All Other Fees  20,000   30,000   40,000   20,000 
Total Fees  315,000   220,000   330,000   315,000 

 

The policy of our audit committee is to pre-approve all audit and non-audit services provided by ZH CPA, LLC, our independent registered public accounting firm, including audit services, audit-related services, tax services and other services as described above.  

 

ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

 

None.

 

ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

None.

ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT.

 

None.

 


 

 

ITEM 16F.CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT.

ITEM 16G. CORPORATE GOVERNANCE

None.

ITEM 16G.CORPORATE GOVERNANCE

 

While the Company may be deemed a “controlled company” under the Nasdaq Marketplace Rules (specifically, as defined in Rule 5615(c)), the Company does not intend to avail itself of the corporate governance exemptions afforded to a controlled company under the Nasdaq Marketplace Rules.

  

As a British Virgin Islands exempted company listed on Nasdaq Stock Market, we are subject to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the British Virgin, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. The paragraph below provides a summary of some of the significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of the Nasdaq.

 

Pursuant to the home country rule exemptions set forth under Nasdaq Listing Rule 5615, we have elected to be exempt from the requirement under Nasdaq Listing Rule 5635 to obtain shareholder approval for the issuance of 20% or more of our outstanding common shares. Nasdaq Listing Rule 5635 requires each issuer to obtain shareholder approval prior to certain dilutive events, including a transaction other than a public offering involving the sale of 20% or more of the issuer’s common shares outstanding prior to the transaction for less than the greater of book or market value of the stock. As a foreign private issuer, however, we may adopt the practices of our home country, the British Virgin Islands, which do not require shareholder approval for issuance of securities in connection with acquisitions.

 

Except for the foregoing, there are no material differences in the Company’s corporate governance practices from those of U.S. domestic companies under the listing standards of the Nasdaq.

 

ITEM 16H.MINE SAFETY DISCLOSURE

ITEM 16H. MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 16IDISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

 

Not applicable.

 

ITEM 16J. INSIDER TRADING POLICIES.

Not applicable.

ITEM 16K. CYBERSECURITY.

Not applicable.


 

PART III

ITEM 17.FINANCIAL STATEMENTS

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18.FINANCIAL STATEMENTS

ITEM 18. FINANCIAL STATEMENTS

The financial statements are filed as part of this Annual Report beginning on page F-1.

ITEM 19.EXHIBITS

ITEM 19. EXHIBITS

Exhibit No.Description
1.1*1.1Amended and Restated Memorandum and Articles of Association filed July 26, 2022.2022  (incorporated by reference to Exhibit 1.1 of the Form 20-F filed January 19, 2023).
2.1Specimen Share Certificate.Certificate (incorporated by reference to exhibit 4.1 to the Form F-1 file number: 333-251342).
2.2Form of Series A Warrant.Warrant (incorporated by reference to exhibit 4.2 to the Form F-1 file number: 333-251342).
2.3Form of Series B Warrant.Warrant (incorporated by reference to exhibit 4.3 to the Form F-1 file number: 333-251342).
2.4Form of Warrant Agency Agreement. (incorporated by reference to exhibit 4.4 to the Form F-1 file number: 333-251342).
2.5*2.5Description of Securities  (incorporated by reference to Exhibit 2.5 of the Form 20-F filed January 19, 2023).
4.1Form independent director agreement (incorporated by reference to exhibit 10.1 to the Form F-1 file number: 333-251342).
4.2Renda Agreement (incorporated by reference to exhibit 10.7 to the Form F-1 file number: 333-251342).
4.3Indemnification Escrow Agreement (incorporated by reference to exhibit 10.8 to the Form F-1 file number: 333-251342).
4.42019 Equity Incentive Plan of EpicQuest Education Group International Limited, as amended (incorporated by reference to exhibit 99.1 of the Form 6-K, filed November 30, 2022).
4.5*4.5Forms of award agreements under the 2019 Equity Incentive Plan of EpicQuest Education Group International Limited.Limited  (incorporated by reference to Exhibit 4.5 of the Form 20-F filed January 19, 2023).
4.6Employment Agreement between EpicQuest Education Group International Limited and Jianbo Zhang, dated November 1, 2021.2021 (incorporated by reference to exhibit 99.1 to the Form 6-K filed November 5, 2021).
4.7Employment Agreement between EpicQuest Education Group International Limited and Zhenyu Wu, dated November 1, 2021.2021 (incorporated by reference to exhibit 99.2 to the Form 6-K filed November 5, 2021).
4.8Employment Agreement between EpicQuest Education Group International Limited and Yunxia Xu, dated November 1, 2021.2021 (incorporated by reference to exhibit 99.3 to the Form 6-K filed November 5, 2021).
4.9Employment Agreement between EpicQuest Education Group International Limited and Jing Li, dated November 1, 2021.2021 (incorporated by reference to exhibit 99.4 to the Form 6-K filed November 5, 2021).
4.10Employment Agreement between EpicQuest Education Group International Limited and Bo Yu, dated November 1, 2021.2021 (incorporated by reference to exhibit 99.5 to the Form 6-K filed November 5, 2021).
4.11Non-Employee Director Compensation Plan.Plan (incorporated by reference to exhibit 99.6 to the Form 6-K filed November 5, 2021).
4.12Stock Purchase Agreement with Ameri-Can Education Group Corp, and the holders of shares of capital stock of Ameri-Can, dated November 24, 2021.2021 (incorporated by reference to exhibit 99.1 to the Form 6-K filed December 1, 2021).
4.13Agreement Miami University and Renda Finance and Education Technology Company, dated July 1, 2020.2020 (incorporated by reference to exhibit 4.12 to the Form 20-F filed December 30, 2021).
4.14Share Purchase and Sale Agreement by and between Highrim Holding International Limited, Canada EduGlobal Holdings Inc. and Richmond Institute of Languages Inc., dated January 15, 2022.2022 (incorporated by reference to exhibit 99.1 to the Form 6-K filed January 21, 2022).
4.15*EpicQuest Education Group International Ltd. Dodd-Frank Restatement Recoupment Policy
4.16Share Purchase and Sale Agreement by and between Highrim Holding International Limited, Canada EduGlobal Holdings Inc., Richmond Institute of Languages Inc., and Sylvester Chen, dated March 31, 2023 (incorporated by reference to exhibit 99.2 to the Form 6-K filed April 12, 2023).
4.17Memorandum of Agreement by and among Miami University, a body politic and corporate established and existing under the laws of the State of Ohio and Quest Holding International, LLC, dated May 24, 2023  (incorporated by reference to exhibit 99.1 to the Form 6-K filed May 30, 2023).
4.18Form of Investor Warrant (incorporated by reference to exhibit 4.1 to the Form 6-K filed January 10, 2024).
4.19Form of Securities Purchase Agreement (incorporated by reference to exhibit 10.1 to the Form 6-K filed January 10, 2024).
4.20Contract between SouthGilmore LLC and the Argentine Football Association dated November 23, 2023 (incorporated by reference to exhibit 4.1 to the Form 6-K filed January 18, 2024).
8.1*List of Subsidiaries of the Registrant.
11.1Code of Conduct and Ethics. (incorporated by reference to exhibit 14.1 to the Form F-1 file number: 333-251342)
12.1*Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*Certification by Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1*Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*Consent of ZH CPA, LLC
101.INS Inline XBRL Taxonomy Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Label Linkbase Document
101.PRE Inline XBRL Taxonomy Presentation Linkbase Document
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

*Filed herewith.


 

 

SIGNATURES

 

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

 EPICQUEST EDUCATION GROUP INTERNATIONAL LIMITED
   

January 19, 202331, 2024

By:/s/ Zhang Jianbo
  Name:Zhang Jianbo
  Title:Chief Executive Officer
(Principal Executive Officer)

 

EPICQUEST EDUCATION GROUP INTERNATIONAL LIMITED

January 19, 202331, 2024

By:/s/ Zhenyu Wu
Name:Zhenyu Wu
Title:Chief Financial Officer
(Principal Financial and Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

 

SignatureTitleDate
By:/s/ Zhang JianboChairman, Chief Executive OfficerJanuary 19, 202331, 2024
Zhang Jianbo(Principal Executive Officer)
By:/s/ Zhenyu WuChief Financial Officer and DirectorJanuary 19, 202331, 2024
Zhenyu Wu(Principal Financial and Accounting Officer)
By:/s/ Craig WilsonIndependent DirectorJanuary 19, 202331, 2024
Craig Wilson
By:/s/ G. Michael PrattIndependent DirectorJanuary 19, 202331, 2024
G. Michael Pratt
By:/s/ M. Kelly CowanXiaojun CuiIndependent DirectorJanuary 19, 202331, 2024
M. Kelly CowanXiaojun Cui

 


 

ePICQUEST education GROUP international LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
Consolidated Financial Statements for the Years Ended September 30, 2023, 2022 2021 and 20202021  
Report of Independent Registered Public Accounting Firm (PCAOB ID: 6413) F-2
Consolidated Balance Sheets as of September 30, 20222023 and 20212022 F-3
Consolidated Statements of Operations and Comprehensive Loss for the years Ended September 30, 2023, 2022 2021 and 20202021 F-4
Consolidated Statements of Changes in Shareholders’ Equity for the years Ended September 30, 2023, 2022 2021 and 20202021 F-5
Consolidated Statements of Cash Flows for the years Ended September 30, 2023, 2022 2021 and 20202021 F-6
Notes to Consolidated Financial Statements F-7


 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors of

EpicQuest Education Group International Limited

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of EpicQuest Education Group International Limited and its subsidiaries (collectively the “Company”) as of September 30, 20222023 and 20212022, and the related consolidated statements of operations and comprehensive income (loss),loss, changes in shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2022,2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 20222023 and 2021,2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022,2023, in conformity with accounting principles generally accepted in the United States of America.

Restatement of Previous Issued Financial Statements

As discussed in Note 2, Note 11, Note 12, Note 13 and Note 16 to the consolidated financial statements, the 2022 consolidated financial statements have been restated to correct misstatements.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ ZH CPA, LLC

 
We have served as the Company’s auditor
since 2018
 
Denver, Colorado 
January 19, 202331, 2024  

 

 

1600 Broadway,999 18th Street, Suite 1600,3000, Denver, CO, 80202 USA.USA Phone: 1.303.386.7224 Fax: 1.303.386.7101 Email: admin@zhcpa.us


ePICQUEST education GROUP international LIMITED

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2022 and 2021

(US$, except share data, or otherwise noted)

  September 30,
2022
  September 30,
2021
 
  US$  US$ 
Assets      
Current Assets      
Cash and cash equivalents  11,443,059   16,537,174 
Accounts receivables  47,639   154,537 
Prepaid expenses  946,299   1,560,847 
Notes receivable  485,000   180,000 
Income tax receivable  1,147,213   1,149,506 
Total current assets  14,069,210   19,582,064 
Non-current assets        
Property and equipment, net  2,205,084   3,479,922 
Long term investment  5,086,413   - 
Deferred income tax assets  411,934   321,057 
Intangible assets  398,794   - 
Right-of-use assets  976,404   626,596 
Goodwill  854,887   - 
Total assets  24,002,726   24,009,639 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Liabilities:        
Current liabilities        
Accounts payable and other liabilities  2,120,660   2,960,915 
Student deposits  46,040   681,818 
Due to related party  140,000   140,000 
Lease liabilities – current  461,161   259,297 
Deferred revenue  3,286,350   4,569,664 
Total current liabilities  6,054,211   8,611,694 
Non-current liabilities        
Lease liabilities – non current  561,897   461,997 
Deferred income tax liabilities  107,674   - 
Total liabilities  6,723,782   9,073,691 
         
Commitments and contingencies        
Shareholders’ equity        
Common shares, US$0.0015873 par value, 31,500,000 shares authorized, 11,350,704 and 10,412,843 shares issued and outstanding as of September 30, 2022 and 2021, respectively  18,017   16,528 
Additional paid-in capital  17,526,546   11,464,979 
Subscription receivable  -   (200,000)
Retained earnings (deficit)  (2,416,788)  3,654,441 
Accumulated other comprehensive loss  (28,939)  - 
Total shareholders’ equity  15,098,836   14,935,948 
         
Non-controlling interests  2,180,108   - 
Total liabilities and shareholders’ equity  24,002,726   24,009,639 


 

ePICQUEST EDUCATION GROUP international LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOMEBALANCE SHEETS

FOR THE YEARS ENDEDAS OF SEPTEMBER 30, 2023 and 2022 2021 AND 2020

(US$, except share data and per share data, or otherwise noted)

  September 30,
2022
  September 30,
2021
  September 30,
2020
 
  US$  US$  US$ 
Revenues  6,330,428   5,341,850   9,063,137 
Costs of services  2,021,058   1,934,237   2,342,276 
             
Gross profit  4,309,370   3,407,613   6,720,861 
             
Operating costs and expenses:            
Selling expenses  952,888   1,732,758   2,310,188 
General and administrative  10,521,551   3,148,256   3,115,120 
Total operating costs and expenses  11,474,439   4,881,014   5,425,308 
             
Income (loss) from operations  (7,165,069)  (1,473,401)  1,295,553 
             
Other (income) expenses:            
Other income  (819,135)  (71,640)  (55,000)
Interest income  (26,463)  (9,537)  (35,293)
Foreign exchange gain  -   (743)  (23,262)
Total other (income) expenses  (845,598)  (81,920)  (113,555)
             
Income (loss) before provision for income taxes  (6,319,471)  (1,391,481)  1,409,108 
             
Current income tax expense (recovery)  16,459   13,889   397,553 
Deferred income tax expense (recovery)  (99,814)  (321,057)  - 
Income taxes expense (recovery)  (83,355)  (307,168)  397,553 
          
Net income (loss)  (6,236,116)  (1,084,313)  1,011,555 
Net income (loss) attributable to non-controlling interest  (164,887)  -   - 
Net income (loss) attributable to common stockholders  (6,071,229)  (1,084,313)  1,011,555 
Unrealized foreign currency translation adjustment  (28,939)  -   - 
Comprehensive income  (6,265,055)  (1,084,313)  1,011,555 
             
Basic & diluted net income per share $(0.55) $(0.12)  0.13 
             
Weighted average number of ordinary shares-basic and diluted  11,010,240   9,160,447   7,938,000 
  September 30,
2023
  September 30,
2022
 
  US$  US$ 
Assets    Restated
(Note 2)
 
Current Assets        
Cash and cash equivalents  4,966,839   11,443,059 
Restricted cash  338,712   - 
Accounts receivable, net  36,503   - 
Other receivable  107,179   47,639 
Prepaid expenses  2,326,185   946,299 
Inventory  41,185   - 
Notes receivable  -   485,000 
Income tax receivable  894,743   1,147,213 
Total current assets  8,711,346   14,069,210 
Non-current assets        
Property and equipment, net  2,041,242   2,205,084 
Long term investment  -   5,086,413 
Deferred income tax assets  -   411,934 
Intangible assets  4,686,228   398,794 
Right-of-use assets  1,117,554   976,404 
Goodwill  2,652,766   854,887 
Total assets  19,209,136   24,002,726 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Liabilities:        
Current liabilities        
Accounts payable and other liabilities  2,121,051   2,120,660 
Student deposits  -   46,040 
Income tax payable  1,872   - 
Due to related party  140,000   140,000 
Lease liabilities – current  559,375   461,161 
Deferred revenue  4,057,517   3,286,350 
Total current liabilities  6,879,815   6,054,211 
Non-current liabilities        
Lease liabilities – non current  571,131   561,897 
Deferred income tax liabilities  824,480   - 
Total liabilities  8,275,426   6,616,108 
         
Commitments and contingencies        
Common shares subject to redemption  -   1,250,000 
Shareholders’ equity        
Common shares, US$0.0015873 par value, 31,500,000 shares authorized, 11,998,173 and 11,350,704 shares issued and outstanding as of September 30, 2023 and 2022, respectively  19,045   17,697 
Additional paid-in capital  18,232,263   16,276,866 
Deficit  (9,071,818)  (2,309,114)
Accumulated other comprehensive loss  (36,284)  (28,939)
Total shareholders’ equity  9,143,206   13,956,510 
   

   

 
Non-controlling interests  1,790,504   2,180,108 
Total liabilities and shareholders’ equity  19,209,136   24,002,726 


 

ePICQUEST EDUCATION GROUP international LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED SEPTEMBER 30, 2023, 2022 AND 2021

(US$, except share data and per share data, or otherwise noted)

  September 30,
2023
  September 30,
2022
  September 30,
2021
 
  US$  US$  US$ 
     Restated
(Note 2)
    
Revenues  5,712,480   6,330,428   5,341,850 
Costs of services  1,502,255   2,021,058   1,934,237 
             
Gross profit  4,210,225   4,309,370   3,407,613 
             
Operating costs and expenses:            
Selling expenses  1,018,894   952,888   1,732,758 
General and administrative  10,314,223   10,521,551   3,148,256 
Total operating costs and expenses  11,333,117   11,474,439   4,881,014 
             
Loss from operations  (7,122,892)  (7,165,069)  (1,473,401)
             
Other (income) expenses:            
Other income  (186,137)  (819,135)  (71,640)
Interest income  (53,089)  (26,463)  (9,537)
Foreign exchange gain  (5)  -   (743)
Total other (income) expenses  (239,231)  (845,598)  (81,920)
             
Loss before provision for income taxes  (6,883,661)  (6,319,471)  (1,391,481)
             
Current income tax expense  11,590   16,459   13,889 
Deferred income tax expense (recovery)  277,874   (207,488)  (321,057)
Income taxes expense (recovery)  289,464   (191,029)  (307,168)
          
Net loss  (7,173,125)  (6,128,442)  (1,084,313)
Net loss attributable to non-controlling interest  (410,421)  (164,887)  - 
Net loss attributable to common stockholders  (6,762,704)  (5,963,555)  (1,084,313)
Unrealized foreign currency translation adjustment  (7,345)  (28,939)  - 
Comprehensive loss  (7,180,470)  (6,157,381)  (1,084,313)
             
Basic & diluted net loss per share $(0.58) $(0.54)  (0.12)
             
Weighted average number of ordinary shares-basic and diluted  11,655,642   11,010,240   9,160,447 


ePICQUEST EDUCATION GROUP international LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED SEPTEMBER 30, 2023, 2022 2021 AND 20202021

(US$, except share data and per share data, or otherwise noted)

  Common
shares
  Common
shares
amount
  Additional
paid-in capital
  Subscription
receivable
  Retained
earnings
  Accumulated
other
comprehensive
income
  Non-controlling
interests
  Total equity 
Balance as of September 30, 2019  7,938,000   12,600   2,731,273   -   3,727,199   -   -   6,471,072 
Net income                  1,011,555   -   -   1,011,555 
Balance as of September 30, 2020  7,938,000   12,600   2,731,273   -   4,738,754   -   -   7,482,627 
Net income                  (1,084,313)  -   -   (1,084,313)
Share issues – transaction costs  2,474,843   3,928   8,733,706   (200,000)  -   -   -   8,537,634 
Balance as of September 30, 2021  10,412,843   16,528   11,464,979   (200,000)  3,654,441   -   -   14,935,948 
Net income                  (6,071,229)      (164,887)  (6,236,116)
Receipt of subscription receivable  -   -   -   200,000   -   -   -   200,000 
Issuance of common shares for acquisition  201,614   320   1,249,687   -   -   -   2,344,995   3,595,002 
Share-based compensation – common shares  736,247   1,169   3,454,511   -   -   -   -   3,455,680 
Share-based compensation – stock options  -   -   1,357,369   -   -   -   -   1,357,369 
Currency translation adjustment  -   -   -   -   -   (28,939)  -   (28,939)
Balance as of September 30, 2022  11,350,704   18,017   17,526,546   -   (2,416,788)  (28,939)  2,180,108   17,278,944 

  Common
shares
  Common
shares
amount
  Additional
paid-in
capital
  Subscription
receivable
  Retained
earnings
(deficit)
  Accumulated
other
comprehensive
loss
  Non-controlling
interests
  Total equity 
Balance as of September 30, 2020  7,938,000   12,600   2,731,273       -   4,738,754        -        -   7,482,627 
Net loss                  (1,084,313)  -   -   (1,084,313)
Share issues – transaction costs  2,474,843   3,928   8,733,706   (200,000)  -   -   -   8,537,634 
Balance as of September 30, 2021  10,412,843   16,528   11,464,979   (200,000)  3,654,441   -   -   14,935,948 
Net loss                  (5,963,555)      (164,887)  (6,128,442)
Receipt of subscription receivable  -   -   -   200,000   -   -   -   200,000 
Issuance of common shares for acquisition  201,614   -   7   -   -   -   2,344,995   2,345,002 
Share-based compensation – common shares  736,247   1,169   3,454,511   -   -   -   -   3,455,680 
Share-based compensation – stock options  -   -   1,357,369   -   -   -   -   1,357,369 
Currency translation adjustment  -   -   -   -   -   (28,939)  -   (28,939)
Balance as of September 30, 2022 (restated, Note 2)  11,350,704   17,697   16,276,866   -   (2,309,114)  (28,939)  2,180,108   16,136,618 
Net loss                  (6,762,704)      (410,421)  (7,173,125)
Share buyback  (201,614)  -   (7)  -   -   -   -   (7)
Share-based compensation – common shares  849,083   1,348   1,898,094   -   -   -   -   1,899,442 
Share-based compensation – stock options  -   -   265,631   -   -   -   -   265,631 
Acquisition of additional interest in subsidiary  -   -   (208,321)  -   -   -   20,817   (187,504)
Currency translation adjustment  -   -   -   -   -   (7,345)  -   (7,345)
Balance as of September 30, 2023  11,998,173   19,045   18,232,263   -   (9,071,818)  (36,284)  1,790,504   10,933,710 

The accompanying notes form an integral part of these consolidated financial statements.


 

ePICQUEST EDUCATION GROUP international LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 2023, 2022 2021 AND 20202021

(US$, except share data and per share data, or otherwise noted)

  September 30,  September 30,  September 30, 
  2022  2021  2020 
  US$  US$  US$ 
Cash Flows from Operating Activities:         
Net income (loss)  (6,236,116)  (1,084,313)  1,011,555 
Adjustments for items not affecting cash:            
Depreciation and amortization  252,097   126,234   87,593 
Share-based compensation  4,813,049   -   - 
Non-cash adjustment to lease expenses  (25,643)  94,698   - 
Deferred income tax expense  (99,814)  (321,057)  - 
Gain from disposal of fixed assets  (813,064)  (4,000)  - 
Changes in operating assets and liabilities            
Accounts receivable  118,608   (5,176)  89,521 
Prepaid expenses  614,548   71,800   428,592 
Long-term prepaid expenses  -   159,382   584,356 
Accounts payable & accrued liabilities  (1,320,563)  1,117,184   545,606 
Deferred revenue  (1,283,314)  961,426   (3,221,807)
Income tax receivable  2,293   (480,866)  (664,399)
Student deposits  (635,778)  (313,122)  994,940 
Net cash provided from (used in) operating activities  (4,613,697)  322,190   (144,043)
             
Cash Flows from Investing Activities:            
Purchase of property and equipment  (51,410)  (618,529)  (288,555)
Notes receivable  (305,000)  100,000   - 
Long-term investment  (270,000)  -   - 
Net cash used for business acquisitions  (1,945,931)  -   - 
Proceeds from sale of fixed assets  1,920,861   4,000   - 
Net cash used in investing activities  (651,480)  (514,529)  (288,555)
             
Cash Flows from Financing Activities:            
Deferred costs related to initial public offering  -   -   (432,035)
Share issuances, net of issuance costs  200,000   9,321,523   - 
Net cash provided from (used in) financing activities  200,000   9,321,523   (432,035)
             
Effect of exchange rate changes on cash and cash equivalents  (28,938)  -   - 
Net increase/(decrease) in cash, cash equivalents  (5,094,115)  9,129,184   (864,633)
Cash and cash equivalents, beginning of period  16,537,174   7,407,990   8,272,623 
Cash and cash equivalents, end of period  11,443,059   16,537,174   7,407,990 
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:         
Interest paid -  -  - 
Income taxes paid  14,166   490,250   1,053,360 
Non-cash investing activities – acquisition of operating lease right-of-used assets  574,483   -   - 
Non-cash investing activities – assumption of operating lease obligation  574,483   -   - 

  September 30,  September 30,  September 30, 
  2023  2022  2021 
  US$  US$  US$ 
Cash Flows from Operating Activities:     Restated (Note 2)    
Net loss  (7,173,125)  (6,128,442)  (1,084,313)
Adjustments for items not affecting cash:            
Depreciation and amortization  407,013   252,097   126,234 
Share-based compensation  2,165,073   4,813,049   - 
Impairment of goodwill  14,038   -   - 
Non-cash lease expenses  -   (25,643)  94,698 
Deferred income tax expense  277,874   (207,488)  (321,057)
Gain from disposal of fixed assets  -   (813,064)  (4,000)
Changes in operating assets and liabilities            
Accounts receivable and other receivable  217,407   118,608   (5,176)
Prepaid expenses  (1,323,593)  614,548   71,800 
Operating lease – lease liabilities and right of use assets  (45,022)  -   - 
Inventory  (21,170)  -   - 
Long-term prepaid expenses  -   -   159,382 
Accounts payable & accrued liabilities  (212,817)  (1,320,563)  1,117,184 
Deferred revenue  233,493   (1,283,314)  961,426 
Income tax receivable  254,342   2,293   (480,866)
Student deposits  (46,040)  (635,778)  (313,122)
Net cash provided from (used in) operating activities  (5,252,527)  (4,613,697)  322,190 
             
Cash Flows from Investing Activities:            
Purchase of property and equipment  (14,231)  (51,410)  (618,529)
Collection (addition) of notes receivable  -   (305,000)  100,000 
Repayment to related parties  -   (270,000)  - 
Share buyback  (1,250,007)  -   - 
Acquisition of additional interest in subsidiary  (187,505)  -   - 
Net cash acquired from (used for) business acquisitions  574,108   (1,945,931)  - 
Proceeds from sale of fixed assets  -   1,920,861   4,000 
Net cash used in investing activities  (877,635)  (651,480)  (514,529)
             
Cash Flows from Financing Activities:            
Share issuances, net of issuance costs  -   200,000   9,321,523 
Net cash provided from (used in) financing activities  -   200,000   9,321,523 
             
Effect of exchange rate changes on cash and cash equivalents  (7,346)  (28,938)  - 
Net increase/(decrease) in cash, cash equivalents  (6,137,508)  (5,094,115)  9,129,184 
Cash and cash equivalents and restricted cash, beginning of year  11,443,059   16,537,174   7,407,990 
Cash and cash equivalents and restricted cash, end of year  5,305,551   11,443,059   16,537,174 
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:            
Interest paid            
Income taxes paid  10,575   14,166   490,250 
Non-cash investing activities – acquisition of operating lease right-of-used assets  561,247   574,483   - 
Non-cash investing activities – assumption of operating lease obligation  572,564   574,483   - 

 


 

 

ePICQUEST EDUCATION GROUP international LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and principal activities

The Company was incorporated in the British Virgin Island (“BVI”) on December 13, 2017. The Company principally engages in the business of foreign language educations.education and university education. The Company’s revenue is primarily derived from foreign education programs, university education programs and student accommodation services.

2. Summary of significant accounting policies

Basis of presentation

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Principal of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries.subsidiaries as of September 30, 2023. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.

Principal activitiesPercentage
of
ownership
Date of
incorporation
Place of
incorporation
Epicquest Education Group International Limited (the “Company”) (formerly Elite Education International Co. Ltd.)Investment holdingDecember 13,
2017
BVI
Quest Holdings International LLC (“QHI”)Foreign education programs and student dormitory services100%December 19,
2012
Ohio, US
Quest International Education Center LLC (“QIE”) (formerly Miami International Education Center LLC)Collection of tuition payments from oversea students100%January 23,
2017
Ohio, US
Highrim Holding International Limited (“HHI”)Investing holding100%July 9,
2021
BC, Canada
Richmond Institute of Language Inc. (“RIL”)Academic services for college and university applications80%April 18,
2008
BC, Canada
Ameri-Can Education Group Corp. (“AEGC”)Education services70%November 17,
2019
Ohio, US
Student Up Center, LLC (“SUPC”)Student education assistance100%April 27,
2022
Ohio, US
  Principal
activities
 Percentage of
ownership
  Date of
incorporation
 Place of
incorporation
EpicQuest Education Group International Limited (the “Company” or “EpicQuest”) (formerly  Elite Education International Co. Ltd.) Investment holding    December 13, 2017 BVI
Quest Holdings International LLC (“QHI”) Foreign education programs and student dormitory services  100% December 19, 2012 Ohio, US
Quest International Education Center LLC (“QIE”) (formerly Miami International Education Center LLC) Collection of tuition payments from oversea students  100% January 23, 2017 Ohio, US
Highrim Holding International Limited (“HHI”) Investing holding  100% July 9, 2021 BC, Canada
Richmond Institute of Language Inc. (“RIL” or “EduGlobal College”) Academic services for college and university applications  100% April 18, 2008 BC, Canada
Ameri-Can Education Group Corp. (“Ameri-Can”) Education services  70% November 17, 2019 Ohio, US
Study Up Center, LLC (“SUPC”) Student education assistance  100% April 27, 2022 Ohio, US
Davis College Inc. (“DC”) Education services  70% 1858 Ohio, US
Skyward Holding International Limited (“Skyward”) Investment holding  100% June 13, 2023 MB, Canada

 


On November 24, 2021, the Company acquired 70% of AEGCAmeri-Can and on January 15, 2022, the Company acquired 80% of RIL and on March 31, 2023 the Company acquired the remaining 20% of RIL. Refer to Note 3 below for details.

On April 27, 2022, the Company incorporated the new subsidiary SUPC to provide student education assistance services.


 

On December 1, 2022, Ameri-Can exercised its conversion feature in relation to a convertible debt, through which the Ameri-Can acquired 100% ownership of DC.

On June 13, 2023, the Company incorporated the new subsidiary Skyward as an investment holding subsidiary.

Use of estimates

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Actual amounts could differ from those estimates and differences could be material. Changes in estimates are recorded in the period they are identified.

Judgments, estimates and underlying assumptions are evaluated on an ongoing basis by management and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances and such changes are reflected in the assumptions when they occur.

 

Accounting forSignificant items subject to estimates include, purchase price allocation associated with business combinations, the recoverable amounts of goodwill and asset acquisitions requires estimates with respect to the fair value of the assets acquired and liabilities assumed. Such estimates of fair value may require valuation methods which use significant estimates and assumptions. At the acquisitions of AEGC and RIL, we estimated the fair value of the long term investment andindefinite-lived intangible assets, acquired, using valuation methods, which required management to make estimates with respect to expected future cash flowsthe useful lives of long-lived assets and growth rates, gross margins, discount rates, terminal value,finite-lived intangible assets and forecast period etc. The Company based these estimates on historical and anticipated results, industry trends, economic analysis, and various other assumptions that it believes are reasonable, including assumptions as to future events.deferred income taxes.

Foreign currency and foreign currency translation

The Company’s reporting currency is the United States dollar (“US$” or “$”). The US$ is the functional currency of the Company and its subsidiaries of QHI, QIE, HHI, AEGCAmeri-Can, SUPC, DC and SUPC.Skyward. The CAD$Canadian dollar (“C$”) is the functional currency of the Company’s subsidiary of RIL.

Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance date. The resulting exchange differences are reported in the consolidated statements of operations and comprehensive income.loss.

The assets and liabilities of the Company’s subsidiary in the CAD$C$, which is RIL, are translated at the exchange spot rate at the balance sheet date, stockholders’ equity is translated at the historical rates and the revenues and expenses are translated at the average exchange rates for the periods. The resulting translation adjustments are reported under other comprehensive income in the consolidated statements of incomeoperations and comprehensive incomeloss in accordance with ASC 220. The following are the exchange rates that were used in translating RIL’s financial statements into the consolidated financial statements:

September 30,
2023
September 30,
2022
   September 30, 
2022
 
Year-end spot rate US$1=CAD$ 1.3752C$ 1.3535 US$1=C$ 1.3752
Average rate US$1=CAD$ 1.2841*C$ 1.3486 US$1=C$ 1.2842*

(* For period from January 15, 2022, acquisition date, to September 30, 2022)


Certain risks and concentration

The Company’s financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, accounts receivable and notes receivable. As of September 30, 20222023 and 2021,2022, substantially all of the Company’s cash and cash equivalents were held in major financial institutions located in the US.US and Canada.

The Company does not have significant trades receivable related to students as they are required to prepay service fees. Accounts receivable at September 30, 2022 primarily consist of receivable of $32,116 in relation interest receivable and $13,486 in relation to GST receivable.

The remaining $485,000 note receivable balance as at September 30, 2022 is related to a third-party borrower. Although the Company is directly affected by the financial conditions of the borrower, the Company does not believe significant credit risk exist with respect to the note receivable.

Therefore, there was no significant concentration risk for the Company as at September 30, 20222023 and 2021.2022.

Cash and cash equivalents

Cash and cash equivalents consist of petty cash on hand and cash held in banks, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use.


 

Restricted cash

Restricted cash represents the cash that is held by the Department of Education on behalf of DC, in order to meet the financial protection requirement for change of ownership of DC. This amount represents 25% of the Title IV, Higher Education Act (“HEA”) program funds received by DC during its most recently completed fiscal year.

Revenue recognition

ASC 606 provides for a five-step model for recognizing revenue from contracts with customers. These five steps include:

(i)Identify the contract

(ii)Identify performance obligations

(iii)Determine transaction price

(iv)Allocate transaction price

(v)Recognize revenue

Under ASC 606, revenue is recognized when the customer obtains control of a good or service. A customer obtains control of a good or service if it has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. The Company’s revenue streams contain two primarythe following performance obligations, which are the: i) English education programs; and ii) the accommodation services. obligations:

English education programs through the subsidiary of QHI;
Dorm renewal services offered through the subsidiary of QHI;  
Professional career training programs offered through the subsidiary of DC.
College education programs offered through the subsidiary of DC.
Post-education training programs offered through the subsidiary of DC.


The transfertransfers of controlcontrols of the Company’s English education programs, occursprofessional career training programs and college degree education programs occur over time upon the delivery of the services to the students based on the terms of the semester. Similar, the transfer of the accommodation services occurs over time as the students receive the benefits of the accommodation services based on the terms of the semester. Therefore, revenues for English education programs and accommodation servicesall these performance obligations are bothall recognized over time as the students simultaneously receive the services and consume the benefits provided by the Company’s performance of the services.

The Company determined it acts as the principal for all the service performance obligations since it is in control of establishing the prices for the specified services, managing the major aspects of the service delivery processes, and assuming the risks of loss for delivery and collection. All services revenues are presented on a gross basis in the consolidated statements of operations and comprehensive loss.

Funds received from student prior to provision of our education and accommodation services are recognized as deferred revenue. The deferred revenue is subsequently released into revenue once the registered semester starts and is released using straight-line method based on the semester period, which is generally three months. The release of the deferred revenue is to match the timing of the cost of our services, which is generally also based on the semester term.

Costs of services

Costs of services for English education programs are primarily comprised of the tuition fees paid to our partnered education institution Miami University,in the US, for the provision of our English language programs and fees paid to Dongbei University of Finance and Economics (“DUFE”) for using DUFE’s facilities, to host remote online English education programs and provide accommodation to students during their studies.programs. These fees are recognized into costs of services when such fees are incurred based on semester terms in direct relation to Miami University’s conducting of the English language education services for us.  


 

Costs of services for professional career training programs are primarily comprised of salary expenses incurred for instructors and employees that are directly involved in assisting the provisions of the services.

Cost of services for college degree education programs and post-education training programs are primarily comprised of fees paid to our partnered education institutions in China for provision of our college degree education programs.

Fair value measurement

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

 

The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value as follows:

Level 1:Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities.
Level 3:Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.


The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, notes receivables, long-term investment, accounts payable and accrued liabilities, due to related party, common shares subject to redemption and taxes payable.lease liabilities. The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities and taxes payabledue to related party approximate their fair values due to the short-term nature of these instruments. For lease liabilities, fair value approximates their carrying value at the year-end, as the interest rates used to discount the host contracts approximate market rates.

The Company noted no transfers between levels during any of the periods presented. The Company did not have any instruments that were measured at fair value on a recurring nor non-recurring basis as of September 30, 20222023 and 2021.2022.

Property and equipment

Property and equipment are recorded at cost, less accumulated, depreciation and impairment. Depreciation of property and equipment is calculated on a straight-line basis, after consideration of expected useful lives and estimated residual values. The estimated annual deprecation rate of these assets are generally as follows:

Category Depreciation years Estimated
residual value
Buildings 33 to 39 $Nil
Machinery & equipment 3 $Nil
Vehicles 5 $Nil
Furniture and fixtures 7 $Nil
Software 5 $Nil
Leasehold improvementLesser of lease term or economic life$Nil

Expenditures for maintenance and repairs are expensed as incurred. Gains and losses on disposals are the differences between net sales proceeds and carrying amount of the relevant assets and are recognized in the consolidated statements of operations and comprehensive income.loss.


  

Intangible assets

 

Intangible assets are measured at cost less accumulated amortization and accumulated impairment losses. Cost includes all expenditures that are directly attributable to the acquisition or development of the asset, net of any amounts received in relation to those assets.

Amortization is recognized in net earnings on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives are:

Asset Basis Rate / term
University relationship Straight-line 10 years
Education license/certificate Straight-line 5 years
In-process course curriculum Straight-line 5 years
Accreditations and licensingn/aIndefinite life
Accredited curriculumStraight-line10 years
Articulation agreementStraight-line5 years
Brand related assetsn/aIndefinite life


Leases

 

The Company adopted ASC 842 – Leases for its fiscal year beginning on October 1, 2020. There was only one office lease subject to ASC 842 upon the adoption of the new standard. Since the office lease is classified as operating lease under ASC 842 and was also previously classified as operating lease under the legacy ASC 840, the adoption of the ASC 842 did not result in material adjustments to this office lease compared to ASC 840.

The Company determines if an arrangement is a lease at inception. The Company may have lease agreements with lease and non-lease components, which are generally accounted for separately. Leases are classified as either operating leases or finance leases pursuant to ASC 842.

i)i)Operating leases

 

Operating leases are recognized as right-of-use assets (“ROU”) in non-current assets and lease liabilities in non-current liabilities in the consolidated balance sheets if the initial lease term is greater than 12 months. For leases with an initial term of 12 months or less the Company recognizes those lease payments on a straight-line basis over the lease term.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. Lease expense for lease payments is recognized on a straight-line basis over the lease term and are included in general and administrative (“G&A”) expenses.

ii)Finance leases

Finance lease ROU assets are included in property, plant and equipment, trade and other payables, and other non-current liabilities in the consolidated balance sheets.

Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. Finance lease ROU assets are generally amortized over the lease term and are included in depreciation expense. The interest on the finance lease liabilities is included in interest expense.

Impairment of long-lived and indefinite-lived assets

The Company evaluates its long-livedLong-lived assets, comprised of property and equipment, ROU assets, and intangible assets subject to amortization, are assessed for impairment whenever events or changes in circumstances indicate that thetheir carrying amount of an assetvalue may not be recoverable. RecoverabilityFor the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. An impairment loss is measured by comparisonrecognized when the carrying value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying amounts tovalue over the expected future undiscountedfair value of the asset or asset group. Fair value is based on valuation techniques or third party appraisals. Significant estimates and judgments are applied in determining these cash flows attributableand fair values.

Indefinite-lived intangible assets are tested annually for impairment as of September 30, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment to these assets. Iffirst determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is determinedmore likely than not that anthe fair value of the indefinite-lived intangible asset is less than its carrying value. If the qualitative assessment indicates it is not recoverable, anmore likely than not that the fair value is less than its carrying value, a quantitative impairment test is not required. Where a quantitative impairment test is required, the procedure is to compare the indefinite-lived intangible asset’s fair value with its carrying amount. An impairment loss is recorded inrecognized as the amount by whichdifference between the indefinite-lived intangible asset’s carrying amount of the assets exceeds the expected discounted cash flows arising from those assets.and its fair value. 

There were no impairment losses for the years ended September 30, 20222023 and 2021. 2022. 


 

Goodwill

 

Goodwill represents the excess of the purchase price of an acquired enterprise over the fair value assigned to the assets acquired and liabilities assumed in a business combination.

Goodwill is not amortized, but it is tested annually for impairment at the reporting unit level as of September 30, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment of a reporting unit to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the fair value of the reporting unit to which goodwill belongs is less than its carrying value. If the qualitative assessment indicates it is not more likely than not that the reporting unit’s fair value is less than its carrying value, a quantitative impairment test is not required.


If a quantitative impairment test is required, the procedure is to identify potential impairment by comparing the reporting unit’s fair value with its carrying amount, including goodwill. The reporting unit’s fair value is determined using various valuation approaches and techniques that involve assumptions based on what the Company believes a hypothetical marketplace participant would use in estimating fair value on the measurement date. An impairment loss is recognized as the difference between the reporting unit’s carrying amount and its fair value. If the difference between the reporting units carrying amount and fair value is greater than the amount of goodwill allocated to the reporting unit, the impairment loss is restricted by the amount of the goodwill allocated to the reporting unit. Significant items subject to estimates include, the recoverable amounts of goodwill and indefinite-lived intangible assets, the useful lives of long-lived assets and finite-lived intangible assets, share-based compensation, share-based continuing employment costs, the determination of lease term and lease liabilities, deferred income taxes, reserves for tax uncertainties, derivative financial instruments and other contingencies.

As of September 30, 2022,2023, the Company elected to perform a quantitative assessment directly for its goodwill under RIL’s operation and recorded an impairment of $14,308 to RIL’s goodwill.

As of September 30, 2023, the Company performed a qualitative assessment of its goodwill under DC’s operation and concluded that there were no indicators of impairment.

Taxation

Current income taxes are provided on the basis of net profit for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax jurisdictions.

Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of operation and comprehensive income in the period of the enactment of the change. 

The Company considers positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies. The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, the Company has considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.

The Company recognizes a tax benefit associated with an uncertain tax position when, in its judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, the Company initially and subsequently measures the tax benefit as the largest amount that the Company judges to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The Company’s liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The Company’s effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. The Company classifies interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense.


Earnings per share

Basic earnings per share is computed by dividing net income attributable to shareholders by the weighted average number of common shares outstanding during the period using the two-class method. Under the two-class method, net income is allocated between common shares and other participating securities based on their participating rights. Net loss is not allocated to other participating securities if based on their contractual terms they are not obligated to share in the losses. Diluted earnings per share is calculated by dividing net income attributable to common shareholders by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares are not included in the denominator of the diluted loss per share calculation when inclusion of such shares would be anti-dilutive.


 

Defined contribution plans

 

The Company contributes to defined contribution retirement schemes which are available to all employees. Contributions to the schemes by the Company and employees are calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost charged to profit or loss represents contributions payable by the Company to the funds.

Stock-Based Compensation

The measure stock-based awards at fair value on the date of the grant and expense the awards in Consolidated Statements of Operations and Comprehensive Loss over the requisite service period of employees or consultants. The fair value of stock options is determined using the Black-Scholes valuation model. The fair value of stock-based awards is determined using the share price of the Company at the date of grant. Stock-based compensation expense related to all stock-based awards, including stock option, is recognized over the requisite service period on a straight-line basis. The amount of stock-based compensation expense recognized at any date must at least equal the portion of the grant-date value of the award that is vested at that date. Forfeitures are accounted for as they occur.

Business combinations

The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, while transaction costs related to business combinations are expensed as incurred. An income, market or cost valuation method maymay be utilized to estimate the fair value of the assets acquired and liabilities assumed, if any, in a business combination. The income valuation method represents the present value of future cash flows over the life of the asset using: (i) discrete financial forecasts, which rely on management’s estimates of resource quantities and exploration potential, costs to produce and develop resources, revenues and operating expenses; (ii) appropriate discount rates; and (iii) expected future capital requirements (the “income valuation method”). The market valuation method uses prices paid for a similar asset by other purchasers in the market, normalized for any differences between the assets (the “market valuation method”). The cost valuation method is based on the replacement cost of a comparable asset at the time of the acquisition adjusted for depreciation and economic and functional obsolescence of the asset (the “cost valuation method”). If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition date, and not later than one year from the acquisition date, the Company will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustments arises.

Recently issued accounting standards

In August 2020,October 2021, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)2021-08, Business Combinations (Topic 805): Accounting for Convertible InstrumentsContract Assets and Contract Liabilities from Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifieswith Customers. The update primarily addresses the accounting for convertible instruments by removing major separation models required under current GAAP.contract assets and contract liabilities from revenue contracts with customers acquired in a business combination. The ASU also removes certain settlement conditionsupdate requires that are required for equity-linked contractsan acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 - Revenue from Contracts with Customers, whereas prior to qualify for scope exception,the adoption of the update, contract assets acquired and it simplifiescontract liabilities assumed in a business combination were recognized at fair value on the diluted earnings per share calculationacquisition date. The amendments in certain areas. ASU 2020-06 is effective for public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendmentsthis update are effective for fiscal years beginning after December 15, 2023,2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company is required to adopt the new standards for fiscal year ending September 30, 2024. The Company is currently assessing the impact, if any, that ASU 2020-062021-08 would have on its financial position, results of operations or cash flows.


Restatement

During the year ended September 30, 2023, the Company identified two adjustments related to its previously September 30, 2022 consolidated financial statements filed on January 19, 2023. These two adjustments are: i) a balance sheet reclassification error. The error was due to the 201,613 common shares issued for the acquisition of Ameri-Can (refer to Note 3 below) were redeemable at the option of the seller. The Company incorrectly classified these redeemable shares as equity instead of as financial liability; ii) an error related to an overstatement of its deferred income tax liabilities due to the Company did not offset its net-operating loss (“NOL”) with the deferred income tax liabilities for the same legal entity before providing full valuation allowance for the NOL. The Company has corrected the two errors in the year ended September 30, 2023.

The relevant notes, Notes 11, 12,13 and 16, to the consolidated financial statements have been restated to reflect the adjustments disclosed in the restatement. The following table summarizes the effect of the restatement on each financial statement line item as of the date, and for the period, indicated:

Consolidated Balance Sheets

  Year Ended September 30,
2022
        Year Ended September 30,
2022
 
  As
previously
reported
(US$)
  Adjustment 1 (US$)  Adjustment 2 (US$)  As restated
(US$)
 
Deferred income tax liabilities  107,674   -   (107,674)  - 
                 
Common shares subject to redemption  -   1,250,000       1,250,000 
                 
Common shares  18,017   (320)      17,697 
Additional paid-in-capital  17,526,546   (1,249,680)      16,276,866 
Deficit  (2,416,788)  -   107,674   (2,309,114)
Total shareholder’ equity  15,098,836   (1,250,000)  107,674   13,956,510 

Consolidated Statements of Operations and Comprehensive Loss

  Year Ended September 30,
2022
     Year Ended September 30,
2022
 
  As
previously
reported
(US$)
  Adjustment 2
(US$)
  As restated
(US$)
 
Deferred income tax recovery  (99,814)  (107,674)  (207,488)
             
Total income tax recovery  (83,355)  (107,674)  (191,029)
             
Net loss  (6,236,116)  107,674   (6,128,442)
Net loss attributable to common stockholders  (6,071,229)  107,674   (5,963,555)
Total comprehensive loss  (6,265,055)  107,674   (6,157,381)
Loss per share (basic and diluted)  (0.55)  0.01   (0.54)

Consolidated Statements of Cash flows

  Year Ended September 30,
2022
     Year Ended September 30,
2022
 
  

As
previously

reported
(US$)

  Adjustment 2
(US$)
  

As restated

(US$)

 
Net loss  (6,236,116)  107,674   (6,128,442)
Adjustments for items not affecting cash:            
Deferred income tax recovery  (99,814)  (107,674)  (207,488)

Adjustment 1 does not have impacts to the consolidated statements of operations and comprehensive loss, loss per share and the consolidated statements of cash flows for the years ended September 30, 2023 and 2022.


 

3. Acquisitions of AEGC and RIL

Acquisition of AEGCAmeri-Can

 

On November 24, 2021, the Company entered into: (i) a stock purchase agreement with AEGC,Ameri-Can, and the holders (the “Sellers”) of shares of capital stock of AEGCAmeri-Can (the “Stock Purchase Agreement”), and (ii) a subscription agreement with AEGCAmeri-Can (the “Subscription Agreement”). Pursuant to the Stock Purchase Agreement and Subscription Agreement, the Company acquired 70% of the equity of Ameri-Can and 77.78% of the voting equity of AEGCAmeri-Can for an aggregate purchase price of: (i) $1,250,000 in cash and the issuance of 201,614201,613 shares of Company common stock (the “Purchaser Shares”) to the Sellers at a share price of $6.20 with a value of $1,250,000; and (ii) $2,500,000 in cash to subscribe additional 900 common shares of AEGC.Ameri-Can. Of the remaining 30% of the equity Ameri-Can, 10% is held by one Seller and represents non-voting and non-dilutable equity.

AEGC’sAmeri-Can’s primary asset is a convertible debt with Davis College, Inc., which operates Davis CollegeUniversity (formerly Davis College) in Toledo, Ohio, pursuant to which AEGCAmeri-Can has the right to convert its convertible debt security into 100% of the shares of Davis College, Inc. prior to December 31, 2022.

The acquisition was accounted for as an asset acquisition.acquisition during the year ended September 30, 2022. The table below sets forth the consideration paid and the allocation of the consideration to the assets and liabilities identified:

Consideration paid US$ 
Share consideration  1,250,0071,250,000 
Cash consideration  3,750,000 
Non-controlling interest fair value  2,142,860 
Total  7,142,8677,142,860 
     
Assets acquired and liabilities assumed    
Cash and cash equivalents  2,610,943 
Long-term investment (loan receivable)  4,828,123 
Total assets  7,439,066 
     
Accounts payableDue to related parties  296,199296,196 
Total liabilities  296,199296,196 
     
Net assets acquired  7,142,8677,142,860 

Acquisition of RIL

 

On January 15, 2022, the Company through it is wholly owned subsidiary, HHI, entered into a share purchase agreement (the “Purchase Agreement”) with Canada EduGlobal Holdings Inc. (“EduGlobal Holdings”), through which HHI acquired 80% common shares (the “Shares”) of RIL from EduGlobal Holdings for a total consideration of CAD$C$1,000,000. RIL operates and does business as “Canada EduGlobal Holdings Inc.”. RIL offers an International Undergraduate Pathways Program (iUPP) and an English for Academic Purposes Program (EAPP), which are articulated to Algoma University (AU). Both institutions of RIL and AU contribute their expertise in academic programming, marketing and recruitment, and student services to support those aspiring to pursue undergraduate studies at Algoma University.

 


 

The acquisition was accounted for as a business combination. The table below sets forth the consideration paid and the fair value of the assets acquired and liabilities assumed for the RIL acquisition as at January 15, 2022:

Consideration paid C$  US$ 
Cash  1,000,000   808,538 
Non-controlling interest fair value  250,000   202,135 
Total  1,250,000   1,010,673 
         
Assets acquired and liabilities assumed        
Cash and cash equivalents  2,188   1,769 
Property, plant and equipment  546   441 
Right-of-use assets  709,283   573,483 
Intangible assets  534,167   431,894 
Goodwill  1,057,324   854,887 
Total assets  2,303,508   1,862,474 
         
Accounts payable  200,000   161,708 
Lease liabilities  709,283   573,483 
Deferred income tax liabilities  144,225   116,610 
Total liabilities  1,053,508   851,801 
         
Net assets acquired  1,250,000   1,010,673 

In addition to the Purchase Agreement, HHI entered into a shareholder agreement (the “Shareholders Agreement”) and an option agreement (the “Option Agreement”) with EduGlobal Holdings concurrently on January 15, 2022. Pursuant to the Shareholder Agreement, HHI agreed to invest a total of C$3.0 million over a two-year period to RIL by way of capital contribution (the “Capital Contribution”). In the event that HHI breached its obligations to make the foregoing Capital Contribution, EduGlobal Holdings, pursuant to the Option Agreement, had the option to repurchase the Shares for an aggregate price of C$100. In addition, according to the Option Agreement, on the three-year anniversary of the agreement, if RIL had not achieved certain financial and student enrollment metrics, HHI had the right to sell the Shares back to EduGlobal Holdings for an amount equal to C$1.0 million plus the sum of the Capital Contribution made, up to an additional C$3.0 million.

On March 31, 2023, HHI and EduGlobal Holdings entered into a new share purchase and sale agreement (the “2023 Purchase Agreement”) pursuant to which HHI acquired the remaining 20% of the issued and outstanding shares of RIL from EduGlobal Holdings for a purchase price of US$187,505 (C$250,000). In connection with the 2023 Purchase Agreement, the parties terminated the Shareholders Agreement and Option Agreement. In connection with the original Purchase Agreement, RIL entered into a three-year employment contract with the principal of EduGlobal Holdings to serve as chief executive officer of RIL at an annual salary of C$200,000. As part of the 2023 Purchase Agreement, the foregoing employment agreement was terminated and RIL paid severance of C$100,000, plus earned and carried forward vacation pay during the employment and the vacation pay to be accrued for additional six months to the principal of EduGlobal Holdings.

The acquisition of the additional 20% of RIL is treated as an equity transaction since the Company had control over RIL before the acquisition already. The acquisition of the additional 20% ownership did not change the existing control relationship between the Company and RIL. This equity transaction resulted in a decrease of $208,321 to additional paid-in-capital and an increase of $20,817 to non-controlling interest.

Consideration paid CAD$  US$ 
Cash  1,000,000   808,538 
Non-controlling interest fair value  250,000   202,135 
Total  1,250,000   1,010,673 
         
Assets acquired and liabilities assumed        
Cash and cash equivalents  2,188   1,769 
Property, plant and equipment  545   441 
Right-of-use assets  709,283   573,483 
Intangible assets  534,167   431,894 
Goodwill  971,858   785,784 
Total assets  2,218,042   1,793,371 
         
Accounts payable  200,000   161,708 
Lease liabilities  709,283   573,483 
Deferred income tax liabilities  58,758   47,508 
Total liabilities  968,042   782,699 
         
Net assets acquired  1,250,000   1,010,673 


Acquisition of DC

On December 1, 2022, the Company exercised its right and converted its convertible debt security into 100% of the shares of DC. Refer to “Acquisition of Ameri-Can” above for details.

The acquisition was accounted for as a business combination. The table below sets forth the consideration paid and the fair value of the assets acquired and liabilities assumed for the DC acquisition as at December 1, 2022:

Consideration paidUS$
Carrying value of convertible debt (Note 7)5,603,529
Total5,603,529
Assets acquired and liabilities assumed
Cash and cash equivalents594,907
Accounts receivable313,450
Inventory32,716
Prepaid43,591
Property and equipment36,747
ROU577,821
Intangible assets4,479,627
Goodwill1,811,917
Total assets7,890,776
Accounts payable213,212
Deferred revenue537,674
Lease liabilities577,821
Deferred income tax liabilities958,540
Total liabilities2,287,247
Net assets acquired5,603,529

Goodwill relates to benefits expected from the acquisition of DC’s business, its assembled workforce as well as anticipated synergies from applying the Company’s educational expertise and transactional capabilities to DC’s existing structure. The transaction is considered a non-taxable business combination and the goodwill is not deductible for tax purposes.

The following is the financial information from Acquisiton date to September 30, 2023 and the comparative pro forma financial information of the acquiree, DC:

  From December 1,
2022 to
September 30,
2023
  For the year ended
September 30,
2022
 
  US$  US$ 
Revenue  1,766,100   1,800,362 
Net loss  606,686   691,863 

There are no material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and loss. 


4. Prepaid Expenses

Prepaid expenses consist of the following:

 September 30,
2022
  September 30,
2021
  September 30,
2023
  September 30,
2022
 
 US$ US$  US$ US$ 
Prepaid recruitment fees  -   159,883 
Prepaid tuition fees to Miami University  -   550,613   258,248   - 
Prepaid fees to Renda for Beijing office expenses  769,717   558,356   1,073,429   769,717 
Prepaid fees to DUFE  -   181,829 
Prepaid fees to Beijing University Graduate School of Education  621,420   - 
Prepaid insurance  70,517   39,448   106,067   70,517 
Security deposit  104,713   - 
Other prepaid expenses  106,065   70,718   162,308   106,065 
Total  946,299   1,560,847   2,326,185   946,299 

Prepaid recruitment fees represent the prepaid student recruitment fees to agents who help the Company promote and recruit students to enroll in the English education programs offered by the Company. The prepaid expenses are deferred as they represent payments for future services to be rendered by our service agents and future economic benefits to the Company are anticipated.

Prepaid tuition fees represent the tuition fees that the Company prepaid to Miami University for services have yet to be provided by Miami University. The prepaid tuition fees will be recognized into costs of services when such fees are incurred based on semester terms in direct relation to Miami University’s conducting of the English language education services for us.

Prepaid fees to Renda for Beijing office expenses represent the fees that the Company prepaid to Beijing Renda Finance and Education Technology Co., Ltd (“Renda”) for services have yet to be provided by Renda. The prepaid fees will be recognized into expensecosts of services when such fees are incurred based on a monthly basisthe actual costs incurred by Renda on behalf of the Company’s Beijing office.

Prepaid fees to DUFEBeijing University Graduate School of Education (“BUGSE”) represent tuition fees that the Company paid to DUFE,BUGSE for services that have yet to be provided by BUGSE. The Company has entered into a university in China, for using DUFE’s facilities, including student dormitories,training agreement with BUGSE, pursuant to host remote online English education programs andwhich BUGSE will provide accommodationsome International Innovation Talent Training (“IIT”) courses to students during their studies. Due to the impacts from the Covid-19 pandemic, a majority of the Company’s students were unable to travel to the U.S. to physically attend the in-class programs. Therefore, the Company entered into an agreement with DUFE to use DUFE’s facilities to continue its English education programs in China using online conferences with the Miami University. The agreement was terminated since fall 2022. Company.


5. Property and Equipment, net

Property and equipment, net consist of the following:

  September 30,
2022
  September 30,
2021
 
  US$  US$ 
Land  721,462   1,007,273 
Buildings  1,129,961   2,131,945 
Machinery & equipment  92,654   84,542 
Vehicles  153,851   127,997 
Furniture and fixtures  91,958   71,301 
Software  698,000   698,000 
Total  2,887,886   4,121,058 
Less: Accumulated depreciation  (682,802)  (641,136)
Property and equipment, net  2,205,084   3,479,922 

 

  September 30,
2023
  September 30,
2022
 
  US$  US$ 
Land  721,462   721,462 
Buildings  1,129,961   1,129,961 
Machinery & equipment  1,974,266   92,654 
Vehicles  153,851   153,851 
Furniture and fixtures  154,804   91,958 
Software  870,727   698,000 
Leasehold improvement  17,329   - 
Total  5,022,400   2,887,886 
Less: Accumulated depreciation $(2,981,158) $(682,802)
Property and equipment, net  2,041,242   2,205,084 

Depreciation expenses was recorded in general and administrative expense. The Company recorded depreciation expenses of US$220,767214,820 and US$126,234220,767 for the year ended September 30, 2023 and 2022, and 2021, respectively.


During the year ended September 30, 2022, the Company dispose of a building, including the land, with the aggregate cost of $1,287,795. A disposal gain of $813,064 was recognized as a result of this disposal.

6. Intangible assets, net

 

Intangible assets, net consist of the following:

 

September 30,
2022
September 30,
2021
US$US$
University relationship377,587-
Education license/certificate28,240-
In-process course curriculum26,067-
Total431,894-
Less: Accumulated depreciation(33,100)-
Intangible assets, net398,794-
  September 30,
2023
  September 30,
2022
 
  US$  US$ 
University relationship  377,587   377,587 
Education license/certificate  28,240   28,240 
In-process course curriculum  26,067   26,067 
Accreditations and licensing*  2,202,793   - 
Accredited curriculum  1,670,461   - 
Articulation agreement  53,793   - 
Brand related assets*  552,580   - 
Total  4,911,521   431,894 
Less: Accumulated depreciation  (225,293)  (33,100)
Intangible assets, net  4,686,228   398,794 

 

* (Indefinite-lived assets, not subject to amortization)

Depreciation expenses was recorded in general and administrative expense. The Company recorded depreciation expenses of US$33,100192,193 and US$nil33,100 for the year ended September 30, 20222023 and 2021,2022, respectively.

 

7. Long term investment

 

Long term investment represents the Company’s convertible debt (receivable) due from Davis College Inc. Pursuant to the convertible debt agreement between the Company’sCompany and Davis College Inc., the Company has the right to convert its convertible debt security into 100% of the shares of Davis College, Inc. prior to December 31, 2022. The table below outlines the movement of long-term investment:

 

  US$ 
As of September 30, 2021  - 
Acquisition of Ameri-Can (Note 3)  4,828,123 
Additional investment  258,290 
Balance as of September 30, 2022 $5,086,413 
Interest accrued  32,116 
Additional investment  485,000 
Exercise of conversion feature (Note 3)  (5,603,529)
Balance as of September 30, 2023 $- 
  September 30,
2022
 
  USD$ 
As of September 30, 2021    - 
Acquisition of AEGC (Note 3)  4,828,123 
Additional investment  258,290 
Balance as of September 30, 2022 $5,086,413 


8.8. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities primarily consist of the following:

 September 30,
2022
  September 30,
2021
  September 30,
2023
  September 30,
2022
 
 US$ US$  US$ US$ 
Accounts payable  91,083   148,761   210,100   91,083 
Student refundable deposits  1,614,219   2,096,073   1,407,121   1,614,219 
Accrued commission expenses  159,945   233,528   269,621   159,945 
Other payables  255,413   482,553   234,209   255,413 
Total  2,120,660   2,960,915   2,121,051   2,120,660 


9. Student Deposits

Student deposits represented application deposits and dormitory fees prepaid by students during the years ended September 30, 2022 and 2021.2022. These student deposits historically were not refundable under normal circumstances. Due to the impacts of the Covid-19COVID-19 pandemic, the Company has adjusted the policy to provide refunds to prospective students who decide to withdraw their applications and to admitadmitted students who decide to take online courses at home.

10. Deferred revenue

The movement of deferred revenue is as follows:

  September 30,
2023
  September 30,
2022
 
  US$  US$ 
Opening balance  3,286,350   4,569,664 
Additional deferred revenue accrual  4,530,733   3,219,950 
Revenue release from deferred revenue  (3,759,566)  (4,503,264)
Ending Balance  4,057,517   3,286,350 

11. Income Taxes

BVI

Under the current laws of the BVI, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no BVI withholding tax will be imposed.

US

Under the current Ohio state and US federal income tax, the Company’s Ohio subsidiaries, QHI and MIE, are subject to the Ohio state’s Commercial Activity Tax (“CAT”) and federal income tax. The Ohio CAT is a business tax levied based on the gross receipts from sales. The federal income tax is based on a flat rate of 21% for the calendar year of 2022 (2021:2023 (2022: 21%).

Canada

Under the current Canadian income tax, the Company’s Canadian subsidiaries, HHI and RIL, are subject to a combined provincial and federal corporate income tax rate of 27%.

The Company’s provision for income taxes consists of the following:

 September 30,
2022
  September 30,
2021
  September 30,
2020
  September 30,
2023
  September 30,
2022
  September 30,
2021
 
 US$ US$ US$  US$ US$ US$ 
Current  16,459   13,889   397,553   11,590   16,459   13,889 
Deferred  (99,814)  (321,057)  -   277,874   (207,488)  (321,057)
Total income tax (recovery)  (83,355)  (307,168)  397,553   289,464   (191,029)  (307,168)


Reconciliation of the differences between statutory tax rate and the effective tax rate

The Company operates in serval tax jurisdictions. Therefore, its income is subject to various rates of taxation. The income tax expense differs from the amount that would have resulted from applying the BVI statutory income tax rates to the Company’s pre-tax income as follows:

  September 30,
2022
  September 30,
2021
  September 30,
2020
 
  US$  US$  US$ 
Income (loss) before income tax expenses  (6,319,471)  (1,391,481)  1,409,108 
BVI statutory income tax rate  -%  -%  -%
Income tax calculated at statutory rate  -   -   - 
(Increase) decrease in income tax expense resulting from:            
Rate differences in various jurisdictions  16,459   13,889   397,553 
Utilization of loss carryforward  -   -   - 
Change in deferred income tax assets due to the U.S. reform  -   -   - 
Change in deferred income tax assets due to use of loss carryforward  (99,814)  (321,057)  - 
Income tax expense/Effective tax rate  (83,355)  (307,168)  397,553 

 


  September 30,
2023
  September 30,
2022
  September 30,
2021
 
  US$  US$  US$ 
Income (loss) before income tax expenses  (6,883,661)  (6,319,471)  (1,391,481)
BVI statutory income tax rate  -%  -%  -%
Income tax calculated at statutory rate  -   -   - 
(Increase) decrease in income tax expense resulting from:            
Rate differences in various jurisdictions  11,590   16,459   13,889 
Change in deferred income tax assets due to use of loss carryforward or valuation allowance  277,874   (207,488)  (321,057)
Income tax expense/Effective tax rate  289,464   (191,029)  (307,168)

 

Income tax receivable balance as of September 30, 2023 and 2022 represents amountrepresent amounts the Company expects to receive due to the Company overpayment of its income taxes for the current year and overpayments of income taxes for its previous fiscal yearsyears.

The tax effects of temporary differences that give rise to significant deferred tax assets and deferred tax liabilities were as well as a result of the Company’s change of its tax fiscal yearend from December 31 to match its accounting fiscal yearendfollows:

  September 30,
2023
  September 30,
2022
 
Deferred income tax assets US$  US$ 
Net operating losses  2,562,127   408,481 
Lease liabilities  261,464   246,502 
Ending Balance  2,823,591   654,983 
         
Deferred income tax liabilities US$  US$ 
Intangible assets  (1,005,360)  (107,674)
Right-of-use assets  (259,331)  (237,716)
Ending Balance  (1,264,691)  (345,390)
         
Net deferred income tax assets (liabilities) before valuation allowance  1,558,900   309,593 
Valuation allowance  (2,383,380)  (309,593)
Net deferred income tax assets (liabilities)  (824,480)  -

As of September 30.30, 2023, the Company had $1,886,974 unrecognized net operation loss in US that can be carried forward indefinitely and had $675,153 unrecognized non-capital loss in Canada that can be carried forward for 20 years until 2042 to 2043.

Uncertain tax positions

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions.

As of September 30, 2022 and 2021, the Company did not have any significant unrecognized uncertain tax positions.

11.12. Capital stock

Common shares

 

During the year ended September 30, 2021, the Company issued 2,474,843 common shares in relation to its IPO and warrant exercises (“Equity Transactions”). The net proceeds from the Equity Transactions were US$8,737,634. Of the amount, $200,000 is held in the escrow trust account of the Company’s transfer agent for the purposes of clearing out any potential unsettled IPO costs. The $200,000 will be held in the escrow trust account for a period of 18 months from the IPO completion date. This amount was recognized as subscription receivable as of September 30, 2021. During the year ended September 30, 2022, the $200,000 has been collected.


During the year ended September 30, 2022, the Company issued 736,247 common shares to its directors, executives and employees for their services rendered to the Company. These common shares are based on certain vesting schedules (see “Share-based awards” below). An aggregate value of $3,455,680 related to the vested common shares was recognized in the year ended September 30, 2022.

During the year ended September 30, 2022, the Company issued 201,614 common shares for the acquisition of AEGCAmeri-Can (Note 3). The value of $1,250,007$1,250,000 of the common shares was determined based on the share price agreed upon at the closing date, which was November 24, 2021. The shares were redeemable at the option of the Seller of Ameri-Can until one year anniversary of the acquisition date, being November 24, 2022. Upon the Seller’s redemption, the Company is required to buy back the 201,614 common shares at the same price of $1,250,000. The Company presented the 201,614 redeemable common shares as financial liability in temporary equity account.

During the year ended September 30, 2023, the Company issued 699,083 common shares to its directors, executives and employees for their services rendered to the Company. These common shares are based on certain vesting schedules (see “Share-based awards” below). An aggregate value of $1,654,942 related to the vested common shares was recognized in the year ended September 30, 2023.

During the year ended September 30, 2023, the Company issued 150,000 common shares for certain consulting services. The value of $244,500 of the common shares was recognized in the year ended September 30, 2023.

During the year ended September 30, 2023, the Seller of Ameri-Can exercised its redemption option and therefore the Company repurchased the 201,614 common shares that it previously issued for the acquisition of Ameri-Can (see above). The Company paid cash consideration of $1,250,000 for the repurchase and the amount is debited from the share capital for the year ended September 30, 2023.

Stock options

At September 30, 2022, the Company had one stock option plan, the 2019 Equity Incentive Plan (collectively the “Equity Incentive Plan”).

During the year ended September 30, 2022, we2023, the Company granted stock options under the Stock Incentive Plan to certain of our officers to purchase an aggregate of 365,000 (2021: nil; 2020:90,000 (2022: 365,000; 2021: nil) shares of the Company, which are subject to a 12-month vesting provision whereby, at the end of each of the first three months after the grant date, 25% of the total stock options become exercisable.


 

The fair valuevalues of these stock options waswere estimated at the datedates of grant, which is December 30, 2022 for stock options granted in fiscal 2023 and November 1, 2021 for stock options granted in fiscal 2022, using the Black-Scholes Option Valuation Model, with the following weighted average assumptions:

 September 30,
2022
  September 30,
2023
 September 30,
2022
 
Stock price $4.10  $2.21  $4.10 
Exercise price $4.10  $2.21  $4.10 
Expected risk free interest rate  1.20%  3.99%  1.20%
Expected volatility  227.90%  174.20%  227.90%
Expected life in years  5   5   5 
Expected dividend yield  nil   nil   nil 
Grant date fair value per option $4.06  $2.11  $4.06 


A continuity schedule of outstanding stock options at September 30, 2022, and the changes during the periods, is as follows:

 Number of
Stock Options
  Weighted
Average
Exercise Price
  Number of
Stock
Options
  Weighted
Average
Exercise
Price
 
    US$     US$ 
Balance, September 30, 2020 and 2021  -   - 
Balance, September 30, 2021  -   - 
Granted  365,000   4.10   365,000   4.10 
Exercised  -   -   -   - 
Forfeited  -   -   -   - 
Balance, September 30, 2022  365,000   4.10   365,000   4.10 
Granted  90,000   2.21 
Exercised  -   - 
Forfeited  -   - 
Balance, September 30, 2023  455,000   3.73 

A continuity schedule of outstanding unvested stock options at September 30, 2022, and the changes during the periods, is as follows:

 

 Number of
Unvested
Stock Options
  Weighted
Average Grant
Date Fair
Value
  Number of
Unvested
Stock
Options
  Weighted
Average
Grant Date
Fair Value
 
    US$     US$ 
Balance, September 30, 2020 and 2021  -   - 
Balance, September 30, 2021  -   - 
Granted  365,000   4.06   365,000   4.06 
Vested  (273,750)  4.06   (273,750)  4.06 
Forfeited  -   -   -   - 
Balance, September 30, 2022  91,250   4.06   91,250   4.06 
Granted  90,000   2.11 
Vested  (158,750)  3.30 
Forfeited  -   - 
Balance, September 30, 2023  22,500   2.11 

At September 30, 2022,2023, the aggregate intrinsic value of all outstanding stock options granted was estimated at $nil. At September 30, 2022,2023, the unrecognized compensation cost related to unvested stock options was $123,397$47,411 expected to be recognized over 0.080.25 years.


 

A summary of stock options outstanding and exercisable at September 30, 2022:2023:

 Exercisable  Weighted
Average
Exercise Price
  Weighted
Average
Remaining
Contractual
Life (Years)
  Exercisable  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Life (Years)
 
    US$        US$    
Grant date              
November 1, 2021  273,750   4.10   9.08   365,000   4.10   8.08 
December 30, 2022  67,500   2.21   9.25 


Share-based awards

(a)During the year ended September 30, 2022, the Company granted an aggregate of 875,000 share-based awards with a fair value of $4.10 per share, determined using the share price at the date of grant of November 1, 2021 to certain directors, officers and employees of the Company (the “November 1, 2021 Grant”). These share-based awards have a vesting period of ranging from 1 year to 2 years from the grant date in ranging from 3 equal instalments to 5 equal instalments in the vesting periods. During the year ended September 30, 2022, an aggregate of 640,000 shares were issued to these directors, officers and employees under the November 1, 2021 Grant.

(b)During the year ended September 30, 2022, the Company approved the following share-based compensationcompensations to its directors: i)directors (the “November 1, 2021 Director Grant”): (i) annually a number of restricted stock equal to $30,000 divided by the closing price of the Company’s common stock, under the Company’s 2019 Equity Incentive Plan on the date of the Company’s annual meeting of stockholders; ii)(ii) Mr. Craig Wilson received a grant of shares equal to $27,000 (based on the Company’s common share price as of November 1, 2021) of which one-third of such shares were issued and the remaining two-thirds will be issued in equal instalments on April 1, 2022 and October 1, 2022; and iii) Ms. Cowan and Mr. Pratt each received a grant of shares equal to $22,500 (based on the Company’s common share price as of November 1, 2021) of which one-third of such shares were issued and the remaining two thirds will be issued in equal instalments on April 1, 2022 and October 1, 2022. As of September 30, 2022, an aggregate of 16,247 shares were issued to these directors.

(c)On November 1, 2021, the Company granted an aggregate of 80,000 annual bonus share (the “Bonus Shares”) to certain of its officers. The Bonus Shares are subject to a one-year vesting provision whereby the total Bonus Shares become exercisable at the end of September 30, 2022. The share-based compensation expense in relation to the Bonus Shares have been recognized based on the fair value on the share price of $4.10 on the grant date. As of September 30, 2022, the 80,000 annual bonus shares have been issued to these officers.

The total amount of stock-based compensation expenses in relation to awards (a), (b) and (c) above is $3,455,680 for the year ended September 30, 2022 (2021: $nil, 2020: $nil).

(d)In addition, on November 1, 2021, the Company granted an aggregate of 90,000 performance-based share (the “Performance Shares”) to Chief Executive Officer and Chief Financial Officer. The Performance Shares are subject to a one-year vesting provision whereby the total Performance Shares become exercisable at the end of September 30, 2022 if the Company’s sales increase achieved a targeted percentage determined by the Company. Since the Company has not met the sales increase target for the year ended September 30, 2022, the share-based compensation expense in relation to the Performance Shares have not been recognized during the year ended September 30, 2022.

(e)During the year ended September 30, 2023, the Company issued the remaining 185,000 shares of the November 1, 2021 Gant (see (a) above) pursuant to its vesting schedule.

(f)During the year ended September 30, 2023, the Company issued the remaining 71,519 shares of the November 1, 2021 Director Grant (see (b) above) pursuant to its vesting schedule.

(g)During the year ended September 30, 2023, the Company approved the granting to its directors of a number of restricted stock equal to $34,421 divided by the closing price of the Company’s common stock, under the Company’s 2019 Equity Incentive Plan on the date of the Company’s annual meeting of stockholders. As of September 30, 2023, the related shares have not been issued.

(h)

During the year ended September 30, 2023, the Company granted an aggregate of 360,000 share-based awards with a fair value of $2.21 per share, determined using the share price at the date of grant of December 31, 2022 to the Company’s Chief Executive Officer and Chief Financial Officer. These share-based awards vest in 4 equal instalments over each of the quarter end of the fiscal year. During the year ended September 30, 2023, an aggregate of 360,000 shares have already been issued to the Chief Executive Officer and Chief Financial Officer.

(i)During the year ended September 30, 2023, the Company granted an aggregate of 80,000 share-based awards with a fair value of $1.63 per share, determined using the share price at the date of grant of February 7, 2023, to certain officers of the Company. These share-based awards vest in 4 equal instalments over each of the quarter end of the fiscal year. During the year ended September 30, 2023, all of the 80,000 shares have already been issued to these officers.


(j)During the year ended September 30, 2023, the Company granted 300,000 share-based awards with a fair value of $1.63 per share, determined using the share price at the date of grant of February 7, 2023, to a consultant of the Company. These share-based awards vest according to the percentage of the consulting services rendered to the Company. As of September 30, 2023, only 50% of the services have been rendered to the Company. Therefore, only 150,000 shares have been issued to the consultant during the year ended September 30, 2023.

(k)

In addition, on February 7, 2023, the Company granted share-based awards with value equal to US$3,846 (RMB27,000) divided by the closing price of February 7, 2023 to an employee. Accordingly, 2,564 shares were issued to the employee during the year ended September 30, 2023.

The total amount of stock-based compensation expenses in relation to awards (e) to (k) above is $1,899,442 for the year ended September 30, 2023.

A summary of stock-based compensation expense for the years ended September 30 2023, 2022 2021 and 20192021 is as follows:

September 30,
2022
September 30,
2021
September 30,
2020
US$US$US$
Common share awards3,455,680     -      -
Stock option awards1,357,369--
Total4,813,049--
  September 30,
2023
  September 30,
2022
  September 30,
2021
 
  US$  US$  US$ 
          
Common share awards  1,899,442   3,455,680         - 
Stock option awards  265,631   1,357,369   - 
Total  2,165,073   4,813,049   - 

13. Loss per share


 

12. Earnings per share

Basic and diluted net earningsloss per share for each of the years presented are calculated as follows:

  September 30,
2023
  September 30,
2022
  September 30,
2021
 
  US$  US$  US$ 
          
Numerator:         
Net loss attributable to ordinary shareholders—basic and diluted  (6,762,704)  (5,963,555)  (1,084,313)
             
Denominator:            
Weighted average number of ordinary shares outstanding—basic and diluted  11,655,642   11,010,240   9,160,447 
             
Loss per share attributable to ordinary shareholders —basic and diluted  (0.58)  (0.54)  (0.12)


  September 30,
2022
  September 30,
2021
  September 30,
2020
 
  US$  US$  US$ 
Numerator:         
Net Income attributable to ordinary shareholders—basic and diluted  (6,071,229)  (1,084,313)  1,011,555 
             
Denominator:            
Weighted average number of ordinary shares outstanding—basic and diluted  11,010,240   9,160,447   7,938,000 
             
Earning per share attributable to ordinary shareholders —basic and diluted  (0.55)  (0.12)  0.13 

13.14. Commitments and Contingencies

The Company had certain office leases and car leases in relation to its operations. These leases are classified as operating leases. Other than these operating leases and the common shares subject to redemption (note 12), the Company does not have significant commitments, long-term obligations, or guarantees as of September 30, 20222023 and 2021.2022.

Operating lease

 

The future aggregate minimum lease payments under the non-cancellable residential apartment building operating lease are as follows:

2023 $484,739 
2024  469,120  $642,604 
2025 and thereafter  230,461 
2025  373,941 
2026 and thereafter  247,537 
Total future minimum lease payments $1,184,320  $1,264,082 
Less: imputed interest  (161,262)  (133,576)
Total operating lease liability $1,023,058  $1,130,506 
Less: operating lease liability - current  461,161   559,375 
Total operating lease liability – non current $561,897  $571,131 

 

Contingencies

The Company is subject to legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome arising out of any such matter will have a material adverse effect on our consolidated business, financial position, cash flows or results of operations taken as a whole.

During the fiscal year ended September 30, 2022, the Company was involved in a dispute with another party (the “Plaintiff”) due to the similarity of the Company’s former name Elite Education Group International, Ltd with the Plaintiff’s business name. On July 21, 2022, the Company reached a settlement agreement with the Plaintiff by paying a sum of US$40,000 to the Plaintiff and also agreed to change the Company’s name to EpicquestEpicQuest Education Group International Limited. The US$40,000 was recorded in the consolidated financial statements for the year ended September 30, 2022.

 


14.15. Related Party Transactions and Balances

Related Parties

Name of related partiesRelationship with the Company
Jianbo ZhangFounder and ultimate controlling shareholder, CEO

Due to related party balance

The related party balances of $140,000 as of September 30, 20222023 and 20212022 relate to IPO costs paid by Jianbo Zhang on behalf of the Company. The related party balance is unsecured, non-interest bearing and due on demand.

15. Segmented Information


The

16. Segment Reporting

During the year ended September 30, 2023, the Company operated in two primary reportable segments, which were the foreign language education and the professional training programs. Other business activities that are currently operatenot classified as a reportable segment is combined in the category of “Other”, which includes the results of HHI, RIL and Skyward.

  Foreign
language
education
  Professional
training
programs
  Other  Total 
  US$  US$  US$  US$ 
             
Revenue  3,946,380   1,766,100   -   5,712,480 
Costs of services  837,055   665,200   -   1,502,255 
Selling expenses and general administrative  5,242,103   2,053,130   1,465,798   8,761,031 
Segment loss  2,132,778   952,230   1,465,798   4,550,806 
Depreciation expense              407,013 
Stock-based compensation expense              2,165,073 
Other income              (186,137)
Interest income              (53,089)
Foreign exchange gain              (5)
Loss before income taxes              6,883,661 
Income taxes              289,464 
Net loss              7,173,125 
                 
Segmented assets  8,414,389   8,540,087   2,254,660   19,209,136 
Goodwill allocation  -   1,811,917   840,849   2,652,766 

During the years ended September 30, 2022 and 2021, the Company operated in a single reportable segment, and is principally engagedwhich in the business of foreign language educations.education. The Company’s revenue is primarilywas derived from its US subsidiary, QHI, during the years ended September 30, 2022 2021 and 2020.2021.

As at September 30, 2023, long-term assets located in the U.S. and Canada were $8,852,343 or 84%, and $1,645,447 or 16% of the Company’s total long-term assets.

As at September 30, 2022, long-term assets located in the U.S. and Canada were $8,220,921 or 83%, and $1,712,595 or 17% of the Company’s total long-term assets.

As at September 30, 2021, long-term assets located in the U.S. were $4,427,575 or 100% of the Company’s total long-term assets.

16.17. Subsequent Events 

The Company has evaluated the impact of events that have occurred subsequent to September 30, 2022,2023, through the date the consolidated financial statements were available to issue, and concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements except the following:

i)(a)On November 17, 2023, the Company incorporated a wholly owned subsidiary, which is Gilmore INV LLC (“Gilmore”) in Ohio. Gilmore owns 40% of SouthGilmore LLC (“SouthGilmore”), which was incorporated on November 20, 2023 in Ohio. On November 23, 2023, SouthGilmore entered into an agreement (the “Agreement”) with Argentine Football Association (the “AFA”), pursuant to which the parties agreed that two international friendly matches will take place between March 18-26, 2024 between the Argentine men’s national soccer team and similar opponents in China. Pursuant to the Agreement, SouthGilmore agreed to pay the AFA a total of $15.0 million, of which $7.5 million was paid in November 2023 in connection with the execution of the Agreement, the remaining $7.5 million is expected to be paid in February 2024. In addition, pursuant to the Agreement, SouthGilmore agreed to assume the costs and obligations related to stadium charges, security, ticketing and all other matters generally related to the organization of the games.
ii)On November 22, 2023, the Company sold one of its lands, which is with a carrying value of $280,000 and located in Butler County, Ohio, for a sales price of $875,000.
iii)On December 1, 2022,26, 2023, the Company through its subsidiarycompleted a unit offering private placement and issued 400,000 units with unit price of AEGC, exercised its conversion right whereby converting its convertible debt security$2.00, raising total gross proceeds of $800,000. Each unit contains one share and one warrant. Each warrant is exercisable into 100%one share at an exercise price of $2.00/share within 5 years from the shares of Davis College, Inc.issuance date.

 

F-22


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