EpicQuest Education International (EEIQ) - 2024 Q4 - Annual Report

PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS This item is not required for the registrant, indicating no specific disclosures regarding the identity of directors, senior management, and advisers are being provided in this section ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE This item is not required for the registrant, indicating no specific disclosures regarding offer statistics and expected timetable are being provided in this section ITEM 3. KEY INFORMATION This section outlines critical information about the company, including significant risk factors related to its business operations, corporate structure, and securities D. Risk factors The company faces significant risks, including substantial doubt about its ability to continue as a going concern, regulatory risks in China, and potential Nasdaq delisting - The company has incurred recurring net losses and negative cash flows from operations, raising substantial doubt about its ability to continue as a going concern within one year[34][35][36] Net (Loss) for Fiscal Years Ended September 30 | Year | Net (Loss) (US$) | | :--- | :--------------- | | 2024 | (6,571,184) | | 2023 | (7,069,862) | - The company's business and prospects are materially and adversely affected if it fails to attract and retain students, which depends on developing new services, maintaining education quality, and effective marketing[38][39][41] - Operations are significantly influenced by economic, political, and legal developments in China, with potential for government intervention, regulatory changes, and increased compliance costs[47][48][49] - The company's common shares were at risk of delisting from Nasdaq due to failing the minimum bid price requirement, though compliance was regained in January 2025; future compliance is not assured[88][89] - The company's independent registered public accounting firm is based in the United States and is not subject to PCAOB inspection issues related to mainland China and Hong Kong, mitigating delisting risks under the HFCAA[93] - The market price for the company's shares may be volatile due to broad market factors, regulatory developments, and negative publicity, among other factors[95][96] ITEM 4. INFORMATION ON THE COMPANY This section provides a comprehensive overview of EpicQuest Education Group International Limited, detailing its history, corporate structure, business operations, and strategic initiatives A. History and Development of the Company EpicQuest Education Group International Limited, a BVI holding company, expanded through strategic acquisitions and subsidiaries, including its 2021 IPO and the acquisitions of Davis University and EduGlobal College - EpicQuest Education Group International Limited (formerly Elite Education Group International Limited) was incorporated in the British Virgin Islands on December 13, 2017[114] - The company completed its initial public offering in March 2021, selling 781,343 units at $8.00 per unit[117] - Acquired 70% of Ameri-Can Education Group Corp. in November 2021 for $1.25 million cash and 201,613 common shares, later converting to 100% ownership of Davis College (now Davis University) in December 2022[118][120] - Acquired 80% of Richmond Institute of Languages (d.b.a. EduGlobal College) in January 2022 for C$1.0 million (US$0.8 million) and assumed C$200,000 in liabilities, completing 100% ownership by March 2023 for an additional C$250,000 (US$187,505)[121] - Established Gilmore INV LLC and SouthGilmore LLC in 2023 for kinesiology/recreation education and sports-related entertainment projects, with SouthGilmore 40% owned by Gilmore[122] Capital Expenditures for Fiscal Years Ended September 30 | Year | Amount (US$) | | :--- | :----------- | | 2024 | 40,343 | | 2023 | 14,231 | - Completed a private placement offering in January 2024, selling 400,000 ordinary shares and warrants for $0.8 million gross proceeds, intended for general corporate purposes[124] B. Business Overview EpicQuest Education Group International Limited, a BVI holding company, provides international education services through subsidiaries, expanding offerings via university partnerships and acquisitions, and venturing into sports entertainment - EpicQuest is a British Virgin Islands holding company with operations conducted by its subsidiaries, not utilizing variable interest entities (VIEs)[129][130] - The company has a five-year agreement with Miami University of Ohio (effective July 1, 2023) to recruit international students for its English Language Center[131][132] - Davis College was approved by the HLC to offer a four-year Bachelor of Science in Business degree in June 2023 and converted to Davis University in November 2023[134] Davis University International Student Enrollment (First Academic Quarter) | Year | International Students Enrolled | | :--- | :------------------------------ | | 2024 | 220 | | 2023 | 102 | | 2022 | 35 | - Davis University entered agreements with Peking University School of Education (renewed in July 2024, cap increased to 80 students) and Shanghai Jiao Tong University (started September 2024) for foundational and continuing education programs[136] - EduGlobal College in Canada received approval for two new co-op diploma programs (Business Studies Diploma and Certificate) in March 2024, designed for international students[140] - SouthGilmore LLC, 40% owned by Gilmore INV LLC, entered a contract with the Argentine Football Association (AFA) in November 2023 to host two exhibition matches in China, rescheduled for October 2025 to March 2026[142][143] - QHI provides comprehensive one-stop study abroad and post-study services for Chinese students, including language training, admission/visa counseling, accommodation, catering, academic guidance, and internship services[146][148][149] - The company's competitive strengths include partnerships with high schools and Chinese International Student Service Centers, university cooperation projects, domestic preparatory training, comprehensive post-study services, a high student success rate, and high barriers to entry[158][159] - As of September 30, 2024, the company had 43 full-time and 17 part-time employees, with 39 in the U.S., 17 in Canada, and 4 in Sri Lanka[164] C. Organizational Structure The company's organizational structure as of January 31, 2025, shows EpicQuest Education Group International Limited as the parent, with various wholly-owned and majority-owned subsidiaries in the US and Canada - The organizational chart illustrates EpicQuest Education Group International Limited as the parent company, with subsidiaries including Quest Holding International LLC (QHI), Quest International Education Center LLC (QIE), Highrim Holding International Limited (HHI), Study Up Center LLC (SUPC), Davis University (DU), Skyward Holding International Limited (Skyward), Gilmore INV LLC (Gilmore), and SouthGilmore LLC[19][115][116][129][42] D. Property, plant and equipment The company owns its principal executive office and manages 11 apartment buildings/dormitories and one dining hall in Middletown, OH, while renting offices in Canada and Beijing - The principal executive office is owned by the company at 1209 N. University Blvd, Middletown, OH 45042[177] - The company manages and operates 11 apartment buildings/dormitories and one dining hall in Middletown, OH[178] - Offices for HHI and EduGlobal College are rented in New Westminster, British Columbia, Canada, and administrative offices in Beijing are rented through Renda Financial[178] ITEM 4A. UNRESOLVED STAFF COMMENTS This item is not applicable to the registrant, indicating no unresolved staff comments from the SEC ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes the company's financial performance, highlighting revenue growth from professional training and Canadian operations, ongoing net losses, liquidity concerns, and critical accounting estimates A. Operating Results The company saw a 42.7% revenue increase in fiscal 2024, driven by professional training and Canadian English education, yet gross margin decreased to 65% due to higher costs, with net loss improving by $0.5 million Consolidated Statements of Operations and Comprehensive Loss | Metric | 2024 (US$) | 2023 (US$) | 2022 (US$) | | :---------------------------------- | :--------- | :--------- | :--------- | | Revenues | 8,153,546 | 5,712,480 | 6,330,428 | | Costs of services | 2,840,112 | 1,502,255 | 2,021,058 | | Gross profit | 5,313,434 | 4,210,225 | 4,309,370 | | Total operating costs and expenses | 12,738,451 | 11,229,854 | 11,474,439 | | Loss from operations | (7,425,017) | (7,019,629) | (7,165,069) | | Net loss | (6,571,184) | (7,069,862) | (6,128,442) | - Revenue increased by US$2.4 million (42.7%) in fiscal 2024, driven by a US$0.6 million increase from Canadian English education programs and a US$1.8 million increase from professional training programs (Davis University)[183][189] Revenue by Program Type (US$) | Program Type | 2024 (US$) | 2023 (US$) | 2022 (US$) | | :----------------------------------- | :--------- | :--------- | :--------- | | English education program (QHI) | 3,927,988 | 3,946,380 | 6,330,428 | | English education program (RIL) | 607,697 | - | - | | Professional education and training programs (DU) | 3,617,861 | 1,766,100 | - | - Gross margin decreased to 65% in 2024 from 74% in 2023, mainly due to increased recruitment fees for English education programs (77% from 79%) and higher costs of services for professional training programs (51% from 62%)[195] - General and administrative expenses increased by $1.0 million in 2024, primarily due to a US$1.0 million increase in management service fees at RIL and Davis University, reflecting increased business activities[200] Income Tax Expense (Recovery) (US$) | Year | Income Tax Expense (Recovery) | | :--- | :---------------------------- | | 2024 | (335,826) | | 2023 | 289,464 | | 2022 | (191,029) | - Net loss decreased by US$0.5 million to US$6.6 million in 2024 from US$7.1 million in 2023[208] B. Liquidity and Capital Resources The company faces significant liquidity concerns with recurring net losses and negative cash flows, raising substantial doubt about its going concern ability, despite management plans for cost reduction and financing - As of September 30, 2024, the company had an accumulated deficit of $14,958,678 and a working capital deficit of $5,469,694, raising substantial doubt about its ability to continue as a going concern[212][419] Cash and Cash Equivalents (US$) | Date | Amount | | :--- | :------- | | Sep 30, 2024 | 1,488,754 | | Sep 30, 2023 | 5,305,551 | | Sep 30, 2022 | 11,443,059 | - Net cash used in operating activities increased to US$9.5 million in 2024 from US$5.3 million in 2023, primarily due to increased prepaid expenses and accounts receivable[219] - Net cash generated from investing activities was US$0.7 million in 2024, mainly from the sale of property and equipment, a shift from net cash used in previous years[222] - Net cash provided by financing activities was US$4.9 million in 2024, attributable to a private placement ($0.8 million), debt financing ($0.4 million), and equity investment from shareholders for a new subsidiary ($3.7 million)[224] - Management's plan to address going concern uncertainty includes cost reduction, seeking additional equity financing, exploring asset sales, and introducing new university programs[213][214][420] C. Research and development, patents and licenses As an education service provider, the company's business model does not rely on research and development, resulting in no R&D expenses for the fiscal years 2022-2024 - The company did not incur research and development expenses for the years ended September 30, 2024, 2023, and 2022, as its business model as an education service provider does not rely on R&D[226] D. Trend Information The company is unaware of any material trends, uncertainties, demands, commitments, or events likely to affect its financial performance or resources beyond what is already disclosed - No material trends, uncertainties, demands, commitments, or events are identified that are reasonably likely to have a material effect on net revenues, income, profitability, liquidity, or capital resources, other than those already disclosed[227] E. Critical Accounting Estimates Financial statement preparation involves significant judgments and estimates for business combinations, goodwill, and intangible assets, with assumptions about future cash flows and market conditions that could materially differ - Critical accounting estimates include purchase price allocation for business combinations, recoverable amounts of goodwill and indefinite-lived intangible assets, useful lives of long-lived assets, and deferred income taxes[228][230] - Goodwill and indefinite-lived intangible assets are tested annually for impairment, or more frequently if indicators exist, using qualitative and quantitative assessments based on fair value and carrying amounts[231][232][236] - For the year ended September 30, 2024, no indicators of impairment were found for goodwill or indefinite-lived intangible assets under the professional education and training program reporting unit or other reporting units[234][235][237] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details the company's leadership, including executive officers and independent directors, their compensation, board practices, employee numbers, and the recoupment policy for erroneously awarded compensation A. Directors and senior management The management team includes Jianbo Zhang (Chairman, CEO), Zhenyu Wu (CFO, Director), Yunxia Xu (COO, CMO), Jing Li (CDO), and Bo Yu (CPO), supported by independent directors Craig Wilson, G. Michael Pratt, and Xiaojun Cui Executive Officers and Directors as of January 31, 2025 | Name | Age | Position | | :----------- | :-- | :-------------------------------- | | Jianbo Zhang | 60 | Chairman, Chief Executive Officer | | Zhenyu Wu | 45 | Chief Financial Officer, Director | | Yunxia Xu | 43 | Chief Operating Officer and Chief Marketing Officer | | Jing Li | 43 | Chief Development Officer | | Bo Yu | 50 | Chief Programs Officer | | Craig Wilson | 53 | Independent Director | | G. Michael Pratt | 74 | Independent Director | | Xiaojun Cui | 54 | Independent Director | - Jianbo Zhang is the founding Chairman and CEO, with a background in finance and extensive experience in international education[240] - Zhenyu Wu serves as CFO and Director, bringing financial and accounting expertise, and has an academic background in entrepreneurship and finance[241] - Yunxia Xu is COO and CMO, responsible for U.S. office coordination and management, with a background in English and MBA studies[242] - Independent directors Craig Wilson, G. Michael Pratt, and Xiaojun Cui contribute expertise in finance, university administration (Miami University connections), and international higher education recruitment, respectively[245][246][247] B. Compensation Non-employee directors receive cash and stock options, while executive officers have nominal base salaries, restricted stock units, and stock options, with performance bonuses tied to revenue growth and a recoupment policy for erroneous awards - The 2023 Director Compensation Plan for non-employee directors includes an annual cash retention payment of $40,000, additional fees for committee chairs/members, and an annual grant of ten-year options to purchase 45,000 common shares (15,000 for Lead Independent Director)[251] Non-Employee Director Compensation for FY2024 (US$) | Name | Fees Earned or Paid in Cash | Option Awards | Total | | :--------------- | :-------------------------- | :------------ | :---- | | Craig Wilson | 67,000 | 66,000 | 133,000 | | G. Michael Pratt | 62,000 | 49,500 | 111,500 | | Xiaojun Cui | 59,417 | 49,500 | 108,917 | - Jianbo Zhang (CEO) and Zhenyu Wu (CFO) have employment agreements with nominal base salaries ($1.00) and receive restricted stock units (200,000 and 160,000 respectively for FY2024) and stock options (500,000 and 360,000 respectively for FY2024), with performance-based bonuses tied to 20% sales revenue increase (not achieved in FY2022 or FY2023)[258][259][263][264][265][269] - The company adopted the Dodd-Frank Restatement Recoupment Policy, effective October 2, 2023, to recover erroneously awarded incentive-based compensation in the event of a financial restatement[256] C. Board Practices The Board of Directors has Audit, Compensation, and Nominating committees, all composed of independent directors, with Craig Wilson as the audit committee financial expert, and the Compensation Committee engaging an external consultant in 2023 - The Board has three standing committees: Audit, Compensation, and Nominating, all composed of independent directors (Craig Wilson, G. Michael Pratt, Xiaojun Cui)[276][278] - Craig Wilson chairs the Audit Committee and is designated as an 'audit committee financial expert'[278][280] - The Compensation Committee, chaired by G. Michael Pratt, engaged Anderson Pay Advisors LLC in 2023 to assist in reviewing executive and director compensation practices[282][283] - The Nominating Committee is chaired by Xiaojun Cui[288] - All members of the Audit, Compensation, and Nominating Committees are deemed independent directors under NASDAQ rules[280][282][288][289] D. Employees As of September 30, 2024, the company employed 60 individuals (43 full-time, 17 part-time) across the U.S., Canada, and Sri Lanka, maintaining good employee relations without a labor union Employee Count and Location as of September 30, 2024 | Employee Type | Total | U.S. | Canada | Sri Lanka | | :-------------- | :---- | :--- | :----- | :-------- | | Full-time | 43 | - | - | - | | Part-time | 17 | - | - | - | | Total | 60 | 39 | 17 | 4 | - The company does not have a labor union, and management believes relations with employees are good[290] E. Share Ownership This section refers to Item 7 for detailed information on share ownership F. Disclosure of a registrant's action to recover erroneously awarded compensation The company was not required to prepare an accounting restatement that necessitated the recovery of erroneously awarded compensation during or after the last completed fiscal year - The company was not required to prepare an accounting restatement that triggered the recovery of erroneously awarded compensation during or after the last completed fiscal year[292] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details the beneficial ownership of the company's shares, highlighting the significant influence of its CEO and CFO, and discloses related party balances, primarily IPO costs paid by the CEO A. Major shareholders As of January 31, 2025, Jianbo Zhang (CEO) and Zhenyu Wu (CFO) collectively hold a significant portion of the company's outstanding shares, giving them substantial influence over corporate matters Beneficial Ownership as of January 31, 2025 | Name of Beneficial Owner | Common Shares | Percentage | | :-------------------------------- | :------------ | :--------- | | Jianbo Zhang, CEO | 7,842,416 | 57.36% | | Zhenyu Wu, CFO | 1,281,900 | 9.43% | | All directors and executive officers as a group (8 persons) | 9,888,182 | 70.24% | | Wonderland Holdings International Limited | 5,159,700 | 38.80% | - Jianbo Zhang is the sole shareholder and director of Wonderland Holdings International Limited, making him the beneficial owner of its 5,159,700 common shares[296] - The concentration of ownership by management and major shareholders allows them to exercise significant influence over shareholder approval matters, including director elections and corporate transactions[110] - As of January 31, 2025, there were 40 holders of record, with 5 being U.S. residents[297] B. Related Party Transactions The primary related party transaction involves a $140,000 balance owed to Jianbo Zhang, the CEO and controlling shareholder, for IPO costs, which is unsecured, non-interest bearing, and due on demand - A related party balance of $140,000 as of September 30, 2024 and 2023 is owed to Jianbo Zhang (Founder, CEO, and ultimate controlling shareholder) for IPO costs[300][301][537][538] - The related party balance is unsecured, non-interest bearing, and due on demand[301][538] C. Interests of Experts and Counsel This item is not required for the registrant, indicating no specific disclosures regarding the interests of experts and counsel are being provided in this section ITEM 8. FINANCIAL INFORMATION This section addresses the company's consolidated financial statements, legal proceedings, and dividend policy, noting the unpredictability of litigation outcomes and no anticipated dividends A. Consolidated Statements and Other Financial Information The company's audited consolidated financial statements are in Item 18; it is involved in ordinary course legal proceedings with unpredictable outcomes and does not anticipate declaring dividends in the foreseeable future - The company's audited consolidated financial statements are included in Item 18[303] - The company is involved in legal proceedings in the ordinary course of business, with inherently unpredictable outcomes, but does not anticipate a material adverse effect on its financial position[304] - The board of directors has never declared a dividend and does not anticipate declaring one in the foreseeable future, with future dividend decisions dependent on earnings, financial condition, and capital requirements[305] B. Significant Changes No significant changes have occurred since the date of the audited consolidated financial statements, other than those already disclosed elsewhere in this Annual Report - No significant changes have occurred since the date of the audited consolidated financial statements, except as disclosed elsewhere in the Annual Report[306] ITEM 9. THE OFFER AND LISTING This section confirms the listing of the company's common shares on the Nasdaq Capital Market since March 24, 2021, under the symbol "EEIQ," with other offer and listing details not applicable A. Offer and Listing Details The company's common shares have been listed on the Nasdaq Capital Market under the symbol "EEIQ" since March 24, 2021, with no trading suspensions reported as of the annual report date - Common shares have been listed on the Nasdaq Capital Market under the symbol "EEIQ" since March 24, 2021, with no trading suspensions[307] B. Plan of Distribution This item is not applicable to the registrant C. Markets This item refers to the "Offer and Listing Details" section for information on markets D. Selling Shareholders This item is not applicable to the registrant E. Dilution This item is not applicable to the registrant F. Expenses of the Issue This item is not applicable to the registrant ITEM 10. ADDITIONAL INFORMATION This section provides supplementary information, including details on the company's memorandum and articles of association, material contracts, exchange controls, and a comprehensive overview of British Virgin Islands and United States federal income taxation relevant to its shares A. Share Capital This item is not applicable to the registrant B. Memorandum and Articles of Association Information regarding the company's Memorandum and Articles of Association is incorporated by reference from its Registration Statement on Form F-1 filed on December 15, 2020 - Information on the Memorandum and Articles of Association is incorporated by reference from the Registration Statement on Form F-1 (File No.: 333-251342) filed on December 15, 2020[313] C. Material Contracts The company has not entered into any material contracts outside the ordinary course of business, other than those described in Item 4 or elsewhere in this annual report - No material contracts have been entered into other than in the ordinary course of business or as described elsewhere in the annual report[315] D. Exchange controls British Virgin Islands law imposes no restrictions on capital export/import, foreign exchange controls, or the remittance of dividends, interest, or other payments to non-resident shareholders - British Virgin Islands law imposes no restrictions on capital export/import, foreign exchange controls, or remittance of dividends/interest to non-resident shareholders[316] E. Taxation This section summarizes British Virgin Islands and U.S. federal income tax consequences for investors, noting BVI tax exemption and detailing U.S. taxation of dividends, dispositions, and potential PFIC implications - The company and its distributions to non-BVI residents are exempt from all provisions of the Income Tax Ordinance in the British Virgin Islands, including estate, inheritance, succession, or gift taxes[318][319][320] - For U.S. Holders, dividends are generally includable in gross income as dividend income, potentially taxed at lower capital gains rates if common shares are readily tradable on an established U.S. securities market (like Nasdaq) and the company is not a PFIC[327][328] - U.S. Holders recognize taxable capital gain or loss on the sale or disposition of shares, generally treated as U.S. source income or loss[329] - The company does not expect to be treated as a Passive Foreign Investment Company (PFIC) for the current taxable year or foreseeable future, but PFIC status is a factual annual determination subject to uncertainty[330][331] - If classified as a PFIC, U.S. Holders would be subject to special tax rules for 'excess distributions' and gains, unless a 'mark-to-market' election is made for marketable stock[332][336] - Dividend payments and sale proceeds may be subject to U.S. information reporting and backup withholding, unless an exemption is established[340] F. Dividends and paying agents This item is not required for the registrant, indicating no specific disclosures regarding dividends and paying agents are being provided in this section G. Statement by experts This item is not required for the registrant, indicating no specific disclosures regarding statements by experts are being provided in this section H. Documents on display The company files reports with the SEC, including its annual Form 20-F, accessible online, and as a foreign private issuer, it is exempt from certain U.S. domestic issuer reporting requirements - The company files reports and other information, including its annual Form 20-F, with the SEC, accessible at public reference facilities and on www.sec.gov[346](index=346&type=chunk) - As a foreign private issuer, the company is exempt from certain U.S. domestic issuer requirements, such as quarterly reports, proxy statements, and insider trading reporting under Section 16 of the Exchange Act[346] I. Subsidiary Information Information regarding the company's subsidiaries can be found in "Item 4. Information on the Company - C. Organizational Structure" - A listing of the company's subsidiaries is provided in "Item 4. Information on the Company - C. Organizational Structure"[347] J. Annual Report to Security Holders This item is not applicable to the registrant ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK This section discusses the company's exposure to market risks, primarily foreign currency and credit risk, noting the U.S. dollar as the functional currency for most subsidiaries and no significant credit risk due to student prepayments - The company's reporting currency is the U.S. dollar, which is also the functional currency for most subsidiaries, except for RIL (Richmond Institute of Language Inc.) where the Canadian dollar is the functional currency[348][429] - Monetary assets and liabilities denominated in non-functional currencies are re-measured at prevailing exchange rates, with differences reported in consolidated statements of operations[349][430] - The company's financial instruments are primarily cash and cash equivalents, and accounts receivable, held in major financial institutions in the U.S. and Canada[350][432] - There is no significant concentration risk for trade receivables as students are required to prepay service fees[351][352][433][434] ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES This item is not required for the registrant, indicating no specific disclosures regarding securities other than equity securities are being provided in this section PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES The company reports no defaults on indebtedness, dividend arrearages, or delinquencies - There has been no default of any indebtedness, nor any arrearage in the payment of dividends[355] ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS This item refers to "Item 10. Additional Information" for a description of the rights of security holders, which remain unchanged - The rights of security holders remain unchanged, as described in "Item 10. Additional Information"[356] ITEM 15. CONTROLS AND PROCEDURES The company's disclosure controls and procedures were deemed ineffective as of September 30, 2024, due to material weaknesses in internal control over financial reporting, including a lack of proper risk assessment, review of non-routine transactions, and formal documentation Disclosure Controls and Procedures As of September 30, 2024, the company's disclosure controls and procedures were concluded to be ineffective by the Certifying Officers due to material weaknesses in internal control over financial reporting - Disclosure controls and procedures were not effective as of September 30, 2024, due to material weaknesses in internal control over financial reporting[359] Management's Annual Report on Internal Control over Financial Reporting Management identified material weaknesses in internal control over financial reporting as of September 30, 2024, including a lack of proper risk assessment, review of non-routine transactions, and formal documentation, leading to a conclusion of ineffective internal control - Management identified material weaknesses as of September 30, 2024: (i) lack of proper risk assessment process; (ii) lack of proper review and analysis of non-routine transactions; and (iii) lack of formal documentation in internal controls over financial reporting[361] - Due to identified material weaknesses, management concluded that the company did not maintain effective internal control over financial reporting as of September 30, 2024[364] Attestation Report of the Registered Public Accounting Firm This annual report does not include an attestation report from the registered public accounting firm regarding internal control over financial reporting, as the company qualifies as a non-accelerated filer and an "emerging growth company" under SEC rules - The annual report does not include an attestation report from the registered public accounting firm on internal control over financial reporting, as the company is a non-accelerated filer and an "emerging growth company"[366] Changes in Internal Control over Financial Reporting There were no changes in the company's internal controls over financial reporting during the reporting period that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No material changes in internal controls over financial reporting occurred during the period covered by this annual report[367] ITEM 16. RESERVED This item is reserved and contains no information ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Board of Directors has determined that Mr. Craig Wilson qualifies as an audit committee financial expert, as defined by Form 20-F, and is independent under Nasdaq listing standards - Mr. Craig Wilson has been determined by the Board of Directors to be an audit committee financial expert and independent under Nasdaq listing standards[368] ITEM 16B. CODE OF ETHICS The company has adopted a Code of Business Conduct and Ethics applicable to its directors, officers, and employees, which is available on its website - A Code of Business Conduct and Ethics has been adopted, applying to directors, officers, and employees, and is available on the company's website[369] ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES This section details the fees paid to ZH CPA, LLC, the company's independent registered public accounting firm, for audit and audit-related services in fiscal years 2024 and 2023, with all services pre-approved by the audit committee Aggregate Fees for Services by ZH CPA, LLC (US$) | Fee Type | September 30, 2024 | September 30, 2023 | | :--------------- | :----------------- | :----------------- | | Audit Fees | 220,000 | 230,000 | | Audit Related Fees | 55,000 | 60,000 | | Tax Fees | - | - | | All Other Fees | - | 40,000 | | Total Fees | 275,000 | 330,000 | - The audit committee's policy is to pre-approve all audit and non-audit services provided by ZH CPA, LLC[370] ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. The company has not utilized any exemptions from the listing standards for audit committees - The company has not utilized any exemptions from the listing standards for audit committees[371] ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS There were no purchases of equity securities by the issuer or affiliated purchasers during the reporting period - There were no purchases of equity securities by the issuer or affiliated purchasers[372] ITEM 16F. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT There have been no changes in the registrant's certifying accountant - There have been no changes in the registrant's certifying accountant[373] ITEM 16G. CORPORATE GOVERNANCE As a BVI exempted company listed on Nasdaq, the company follows Nasdaq corporate governance standards but uses a home country exemption for shareholder approval of large share issuances, otherwise aligning with U.S. domestic companies - The company, as a BVI exempted company listed on Nasdaq, follows Nasdaq corporate governance standards but uses a home country exemption from the requirement to obtain shareholder approval for issuing 20% or more of its outstanding common shares[375][376] - Except for the noted exemption, the company's corporate governance practices do not materially differ from those of U.S. domestic companies under Nasdaq listing standards[377] ITEM 16H. MINE SAFETY DISCLOSURE This item is not applicable to the registrant - This item is not applicable to the registrant[378] ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. This item is not applicable to the registrant - This item is not applicable to the registrant[379] ITEM 16J. INSIDER TRADING POLICIES. The company has adopted securities trading policies and procedures for directors, senior management, and employees to ensure compliance with insider trading laws and regulations - Securities trading policies and procedures have been adopted for directors, senior management, and employees to promote compliance with insider trading laws[380] ITEM 16K. CYBERSECURITY. While the company manages cybersecurity risks through technology, policies, training, and monitoring, it has not yet adopted formal company-wide programs across all subsidiaries, with no material incidents reported in the last three years - The company has not yet adopted formal company-wide cybersecurity risk management programs or processes across all subsidiaries[381] - Cybersecurity risks are managed through a combination of technology (commercially available anti-virus, cloud-based systems), policies, training, and monitoring, though not consistently implemented company-wide[382][383] - The company believes it has limited exposure to cyber threats beyond emails and project data storage, with financial transactions handled by established financial institutions[384] - No material cybersecurity threats or incidents have been experienced in the last three years[384] - The board of directors oversees cybersecurity risk as part of its enterprise-wide risk management role[386] PART III ITEM 17. FINANCIAL STATEMENTS The company has elected to provide its financial statements pursuant to Item 18 of Form 20-F - The company has elected to provide financial statements pursuant to Item 18[388] ITEM 18. FINANCIAL STATEMENTS The audited consolidated financial statements for EpicQuest Education Group International Limited are filed as part of this Annual Report, beginning on page F-1 - The financial statements are filed as part of this Annual Report beginning on page F-1[389] ITEM 19. EXHIBITS This section lists all exhibits filed as part of the Annual Report on Form 20-F, including corporate governance documents, employment agreements, acquisition agreements, and certifications - The section lists various exhibits filed with the Annual Report, including corporate governance documents, employment agreements, acquisition agreements, and certifications[390][393] Financial Statements Report of Independent Registered Public Accounting Firm ZH CPA, LLC issued an unqualified opinion on the consolidated financial statements for 2022-2024, but included an explanatory paragraph highlighting substantial doubt about the company's going concern ability due to recurring losses and negative cash flows - ZH CPA, LLC issued an unqualified opinion on the consolidated financial statements for the years ended September 30, 2024, 2023, and 2022[403] - The report includes an explanatory paragraph regarding the company's ability to continue as a going concern, citing recurring net losses and negative cash flows from operations[404] Consolidated Balance Sheets The consolidated balance sheets show total assets increased to $23.29 million in 2024, driven by long-term prepaids, but total shareholders' equity decreased to $5.17 million due to a significant accumulated deficit and increased non-controlling interests Consolidated Balance Sheets Summary (US$) | Metric | September 30, 2024 | September 30, 2023 | | :-------------------------- | :----------------- | :----------------- | | Total current assets | 4,291,475 | 8,711,346 | | Total assets | 23,291,327 | 19,209,136 | | Total current liabilities | 9,761,169 | 6,879,815 | | Total liabilities | 12,413,406 | 8,275,426 | | Total shareholders' equity | 5,168,404 | 9,143,206 | | Non-controlling interests | 5,709,517 | 1,790,504 | - Cash and cash equivalents decreased significantly from $4.97 million in 2023 to $1.15 million in 2024[411] - Long-term prepaids increased substantially from $0 in 2023 to $7.5 million in 2024[411] - The accumulated deficit grew from $(8.97) million in 2023 to $(14.96) million in 2024[411] Consolidated Statements of Operations and Comprehensive Loss The consolidated statements show a net loss of $6.57 million in 2024, an improvement from $7.07 million in 2023, despite a significant increase in revenues to $8.15 million, with operating costs remaining high Consolidated Statements of Operations and Comprehensive Loss (US$) | Metric | 2024 | 2023 | 2022 | | :---------------------------------- | :--------- | :--------- | :--------- | | Revenues | 8,153,546 | 5,712,480 | 6,330,428 | | Costs of services | 2,840,112 | 1,502,255 | 2,021,058 | | Gross profit | 5,313,434 | 4,210,225 | 4,309,370 | | Total operating costs and expenses | 12,738,451 | 11,229,854 | 11,474,439 | | Loss from operations | (7,425,017) | (7,019,629) | (7,165,069) | | Net loss | (6,571,184) | (7,069,862) | (6,128,442) | | Basic & diluted net loss per share | (0.47) | (0.57) | (0.54) | - Revenues increased by 42.7% from $5.71 million in 2023 to $8.15 million in 2024[412] - Net loss attributable to common stockholders decreased from $(6.66) million in 2023 to $(5.99) million in 2024[412] Consolidated Statements of Changes in Shareholders' Equity Total equity decreased from $10.93 million in 2023 to $10.88 million in 2024, influenced by a $6.57 million net loss, offset by increased paid-in capital from share issuances and stock-based compensation, and a significant rise in non-controlling interests Consolidated Statements of Changes in Shareholders' Equity (US$) | Metric | September 30, 2024 | September 30, 2023 | September 30, 2022 | | :-------------------------------- | :----------------- | :----------------- | :----------------- | | Common shares amount | 20,814 | 19,045 | 17,697 | | Additional paid-in capital | 20,142,071 | 18,129,000 | 16,276,866 | | Deficit | (14,958,678) | (8,968,555) | (2,309,114) | | Accumulated other comprehensive loss | (35,803) | (36,284) | (28,939) | | Non-controlling interests | 5,709,517 | 1,790,504 | 2,180,108 | | Total equity | 10,877,921 | 10,933,710 | 16,138,618 | - Net loss attributable to common stockholders was $(5,990,123) in 2024[413] - Additional paid-in capital increased by $2.01 million in 2024, primarily from share issuances for cash ($800,000) and share-based compensation ($834,399 common shares, $1,142,787 stock options)[413] - Non-controlling interests increased significantly by $3.92 million in 2024, largely due to a $3.74 million equity investment for SouthGilmore[413] Consolidated Statements of Cash Flows The consolidated statements show a net decrease in cash of $3.82 million in 2024, primarily from a $9.48 million net cash outflow from operating activities, partially offset by $4.95 million from financing and $0.72 million from investing activities Consolidated Statements of Cash Flows (US$) | Metric | 2024 | 2023 | 2022 | | :------------------------------------------ | :----------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | (9,481,722) | (5,252,527) | (4,613,697) | | Net cash provided by (used in) investing activities | 716,772 | (877,635) | (651,480) | | Net cash provided by (used in) financing activities | 4,947,683 | - | 200,000 | | Net increase (decrease) in cash | (3,816,797) | (6,137,508) | (5,094,115) | | Cash at end of period | 1,488,754 | 5,305,551 | 11,443,059 | - Net cash used in operating activities increased significantly from $5.25 million in 2023 to $9.48 million in 2024, largely due to changes in prepaid expenses and long-term prepaids[416][219] - Net cash provided by investing activities turned positive in 2024 ($0.72 million) due to proceeds from the sale of fixed assets, compared to net cash used in 2023 and 2022[416][222] - Net cash provided by financing activities was $4.95 million in 2024, primarily from a long-term investment for Gilmore, share issuances, and third-party debt financing[416][224] Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's financial reporting, including its organization, significant accounting policies, acquisitions, and specific financial line items, addressing going concern uncertainty and recent accounting standards 1. Organization and principal activities and going concern EpicQuest Education Group International Limited, a BVI company focused on education, faces substantial doubt about its going concern ability due to recurring net losses and negative operating cash flows, prompting management to plan cost reductions and financing - The company was incorporated in the British Virgin Islands on December 13, 2017, and primarily engages in foreign language education and university education[418] - Recurring net losses and negative cash flows from operations as of September 30, 2024, raise substantial doubt about the company's ability to continue as a going concern[419] - Management's plan to address going concern includes cost reduction, equity financing, asset sales, and new university programs, though success is not assured[420] 2. Summary of significant accounting policies The company's consolidated financial statements adhere to U.S. GAAP, utilizing estimates for business combinations and goodwill, with the U.S. dollar as the functional currency for most subsidiaries, and revenue recognized over time for education services - Consolidated financial statements are prepared in accordance with U.S. GAAP, requiring management estimates for items like business combinations, goodwill, and deferred income taxes[422][427][428] - The U.S. dollar is the functional currency for most subsidiaries, while the Canadian dollar is the functional currency for RIL[429] - Revenue for education services is recognized over time as students receive and consume benefits, with deferred revenue released using a straight-line method over the semester period[443][445] - Costs of services primarily include tuition fees paid to partner institutions and salaries for instructors, recognized as incurred based on semester terms[446] - The company adopted ASU 2021-08 (Business Combinations) for fiscal year 2024 with no impact, and is evaluating ASU 2023-07 (Segment Reporting) and ASU 2024-03 (Expense Disaggregation Disclosures) for future fiscal years[478][479][481] 3. Acquisitions The company completed key acquisitions, including 70% of Ameri-Can in November 2021 (leading to 100% ownership of Davis University in December 2022) and 80% of RIL (EduGlobal College) in January 2022 (with full ownership by March 2023), accounted for as asset or business combinations - Acquired 70% of Ameri-Can in November 2021 for $1.25 million cash and 201,613 common shares, which converted to 100% ownership of Davis University in December 2022[483][484][490] Ameri-Can Acquisition Consideration and Net Assets (US$) | Metric | Amount | | :-------------------------- | :------- | | Share consideration | 1,250,000 | | Cash consideration | 3,750,000 | | Non-controlling interest fair value | 2,142,860 | | Total consideration | 7,142,860 | | Net assets acquired | 7,142,860 | - Acquired 80% of RIL (EduGlobal College) in January 2022 for C$1.0 million (US$0.8 million), and the remaining 20% in March 2023 for US$187,505 (C$250,000), making RIL 100% owned[486][488] RIL Acquisition Consideration and Net Assets (US$) | Metric | Amount | | :-------------------------- | :------- | | Cash | 808,538 | | Non-controlling interest fair value | 202,135 | | Total consideration | 1,010,673 | | Net assets acquired | 1,010,673 | DU Acquisition Consideration and Net Assets (US$) | Metric | Amount | | :-------------------------- | :------- | | Carrying value of convertible debt | 5,603,529 | | Total consideration | 5,603,529 | | Net assets acquired | 5,603,529 | 4. Prepaid Expenses and Long-term Prepaids Prepaid expenses include tuition fees to various universities and Beijing office fees, while long-term prepaids primarily consist of a $7.5 million service fee to the Argentine Football Association for rescheduled exhibition soccer games Prepaid Expenses (US$) | Item | September 30, 2024 | September 30, 2023 | | :------------------------------------------ | :----------------- | :----------------- | | Prepaid tuition fees to Miami University | - | 258,248 | | Prepaid fees to Renda for Beijing office expenses | 73,429 | 1,073,429 | | Prepaid fees to Beijing University Graduate School of Education | 670,820 | 621,420 | | Prepaid tuition fees to Shanghai Jiao Tong University | 144,131 | - | | Total current prepaid expenses | 1,305,935 | 2,326,185 | - Long-term prepaids include $7.5 million for soccer games, representing a service fee prepaid to the Argentine Football Association (AFA) for exhibition matches rescheduled to October 2025 and March 2026[497][498] 5. Property and Equipment, net Property and equipment, net, decreased to $1.60 million in 2024 from $2.04 million in 2023, encompassing land, buildings, machinery, vehicles, furniture, software, and leasehold improvements, with depreciation recorded in general and administrative expenses Property and Equipment, Net (US$) | Category | September 30, 2024 | September 30, 2023 | | :-------------------- | :----------------- | :----------------- | | Land | 721,462 | 721,462 | | Buildings | 849,961 | 1,129,961 | | Machinery & equipment | 2,008,987 | 1,974,266 | | Total | 4,782,812 | 5,022,400 | | Less: Accumulated depreciation | (3,184,989) | (2,981,158) | | Property and equipment, net | 1,597,823 | 2,041,242 | - Depreciation expenses of US$203,780 and US$214,820 were recorded for the years ended September 30, 2024 and 2023, respectively, as part of general and administrative expenses[499] 6. Intangible assets, net Intangible assets, net, decreased to $4.46 million in 2024 from $4.69 million in 2023, comprising university relationships, education licenses, accredited curriculum, and indefinite-lived assets like accreditations and brand-related assets, which are not amortized Intangible Assets, Net (US$) | Category | September 30, 2024 | September 30, 2023 | | :-------------------------- | :----------------- | :----------------- | | University relationship | 377,587 | 377,587 | | Education license/certificate | 28,240 | 28,240 | | Accreditations and licensing* | 2,202,793 | 2,202,793 | | Accredited curriculum | 1,670,461 | 1,670,461 | | Brand related assets* | 552,580 | 552,580 | | Total | 4,911,521 | 4,911,521 | | Less: Accumulated depreciation | (447,295) | (225,293) | | Intangible assets, net | 4,464,226 | 4,686,228 | - Accreditations and licensing, and brand-related assets are indefinite-lived and not subject to amortization[500] - Depreciation expenses for intangible assets were US$222,003 in 2024 and US$192,193 in 2023, recorded in general and administrative expense[500] 7. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities increased to $3.23 million in 2024 from $2.12 million in 2023, primarily due to a significant rise in accounts payable and accrued commission expenses Accounts Payable and Accrued Liabilities (US$) | Item | September 30, 2024 | September 30, 2023 | | :-------------------------- | :----------------- | :----------------- | | Accounts payable | 1,206,940 | 210,100 | | Student refundable deposits | 1,403,121 | 1,407,121 | | Accrued commission expenses | 420,118 | 269,621 | | Other payables | 203,292 | 234,209 | | Total | 3,233,471 | 2,121,051 | 8. Deferred revenue Deferred revenue increased to $5.33 million in 2024 from $4.06 million in 2023, reflecting additional accruals of $5.30 million and revenue recognition of $4.03 million from prior periods Movement of Deferred Revenue (US$) | Item | September 30, 2024 | September 30, 2023 | | :-------------------------- | :----------------- | :----------------- | | Opening balance | 4,057,517 | 3,286,350 | | Additional deferred revenue accrual | 5,302,014 | 3,983,730 | | Revenue release from deferred revenue | (4,027,337) | (3,212,563) | | Ending Balance | 5,332,194 | 4,057,517 | - For the year ended September 30, 2024, $4,027,337 of revenue recognized was from prior period's ending deferred revenue balance[502] 9. Loan payable A loan payable of $409,956 from a third party, bearing 2% annual interest, matured on November 15, 2024, and has been extended to November 15, 2026 - Loan payable of US$409,956 from a third party bears an annual interest of 2% and was extended to November 15, 2026[503] 10. Income Taxes The company is exempt from BVI income tax, with U.S. subsidiaries subject to Ohio's Commercial Activity Tax and 21% federal income tax, and Canadian subsidiaries facing a 27% combined corporate income tax rate, resulting in a $335,826 income tax recovery in 2024 - The company is not subject to income or capital gain tax in the British Virgin Islands[504] - U.S. Ohio subsidiaries are subject to Ohio's Commercial Activity Tax and a 21% federal income tax rate[505] - Canadian subsidiaries are subject to a combined provincial and federal corporate income tax rate of 27%[506] Income Tax Expense (Recovery) (US$) | Year | Current | Deferred | Total | | :--- | :------ | :------- | :------ | | 2024 | 18,186 | (354,012) | (335,826) | | 2023 | 11,590 | 277,874 | 289,464 | | 2022 | 16,459 | (207,488) | (191,029) | - The income tax recovery in 2024 is attributable to deferred income tax recovery resulting from the decrease of deferred income tax liabilities related to depreciation of intangible assets[207][507] Deferred Income Tax Assets and Liabilities (US$) | Item | September 30, 2024 | September 30, 2023 | | :------------------------------------------ | :----------------- | :----------------- | | Deferred income tax assets (Net operating losses, Lease liabilities) | 4,227,461 | 2,823,591 | | Deferred income tax liabilities (Intangible assets, Right-of-use assets) | (1,554,202) | (1,264,691) | | Net deferred income tax assets (liabilities) before valuation allowance | 2,673,259 | 1,558,900 | | Valuation allowance | (3,143,727) | (2,383,380) | | Net deferred income tax assets (liabilities) | (470,468) | (824,480) | - As of September 30, 2024, the company had **$2,790,067 in un