Gordon Swaby, CEO of EduFocal, an education technology company listed on the Jamaica Stock Exchange (JSE) under the ticker symbol “LEARN,” said the two-week suspension of shares trading earlier this month left a sour taste in his mouth, adding that changes made since then should prevent a similar situation in the future. Still, rather than focusing on the past, in a wide-ranging interview with the Jamaica Observer earlier this week, Swaby looked to the company’s future, including restoring profitability in the near term and setting a schedule for paying its first dividend since listing in March 2022.
Trading in Edufocal’s shares was halted on June 4 after the company failed to timely submit its audited financial statements for fiscal year 2023. Edufocal’s fiscal year coincides with the calendar year, running from January 1 to December 31 of each year.
But the company is taking advantage of JSE rules that allow companies to skip publishing interim financial statements for the fourth quarter of their financial year (fourth-quarter results are usually released within 45 days of the quarter-end), instead opting to publish audited financial statements within 60 days. By choosing to do so, the company was meant to publish its full-year 2023 results by 29 February 2024, but ran into problems in not being able to do so in time.
Edufocal missed the deadline, posting a notice on the JSE’s website on 1 March acknowledging its delayed 2023 accounts, stating that it hoped to submit them by April 22. However, that deadline was again missed and seven days later, on 29 April, it again notified the JSE of a further delay in publishing its audited financial statements for the year ending 31 December 2023, amending the financial statements to be submitted by 19 May.
That deadline also passed, with the company announcing on May 24 that it was working to release its financial statements by June 28, only to amend that timeline four days later, on May 28, to say it planned to release its financial statements by May 31.
However, after these promises were not met, the JSE stepped in and halted trading in the company’s shares on 4 June.
“The Jamaica Stock Exchange (JSE) wishes to advise that, pursuant to Appendix 2, Part 4(2) of the JSE Junior Market Rules, it has decided to suspend trading in the shares of Edufocal Limited with immediate effect, pending the filing of the company’s audited financial statements for the financial year 2023,” a notice from the JSE late on June 4 read.
Swaby explained how he got to this situation and said he regrets it.
“When people think of junior market companies, I think people think we have 10, 15, 20 people in our finance department. Edufocal is still a relatively small company. Notably, we only had three people in our finance department until the end of 2023. We had a new CFO and two other people in the department. The CFO went on maternity leave in November and the other senior person who was there had just joined the company, so we were effectively in a position to deal with the audit. We only had 60 days for the audit, which meant we had to have the financial statements ready by February 29, 2024, and the CFO was not there,” he said.
Swaby said the chief financial officer supported remotely “as much as we could” and took on some responsibilities, but things didn’t move as quickly as expected, which led to delays and ultimately a halt.
“I have heard a lot of speculation as to why there was a delay,” Swaby said, but declined to elaborate on that, adding, “Ultimately, we were suspended because our financial reporting was late. I know Jamaicans will come up with all sorts of creative reasons (to explain the suspension), but it was simply because we were suspended late and the rules state that if there is a delay, there will be a grace period before you are suspended.”
“It’s unfortunate. I take full responsibility. This is not one of our proudest moments. We got back in trading within two weeks of the suspension. We got back in trading very quickly. I’m proud of everyone who helped us get there,” he added.
Edufocal finally filed its financial statements on June 20th, and its shares resumed trading a week ago on June 21st, but its shares have plummeted since then. On June 4th, when trading was halted, Edufocal shares were trading at $0.81. When trading resumed on June 21st, it closed the day at $0.63, and fell to $0.53 yesterday, June 27th. Overall, it is down 64.12% from $1.49 at the start of the year. Earlier this week, the company’s shares hit an all-time low of $0.52. Its all-time high was $4.06, recorded on March 21, 2022, just a few days after its listing on March 15th of the same year.
But given how the share price has performed since listing and the sentiment surrounding the trading halt, Swaby said the company will work to ensure it doesn’t get into that situation again.
“I don’t want to say it won’t happen again, but I’m pretty confident and almost certain that the delayed first-quarter results will be the last ones that are delayed,” Swaby said.
Edufocal’s first quarter (Jan. 1 to March 31, 2024) financial statements were due to be filed with the Jamaica Stock Exchange by mid-May, 45 days after the end of the quarter. Swaby told Businessweek that the statements are expected to be filed between Wednesday and Thursday to avoid another trading halt. If they are not filed by today, June 28, the company’s shares will again be suspended from trading – for the second time in a month.
Focus on growth
But those issues aside, Swabhee said he is fully focused on Edufocal’s future and has implemented reforms at the company to ensure profitability, reduce costs, improve capacity building, improve both top and bottom line growth, increase transparency, improve corporate governance and enhance operational efficiency.
So far, Darval Williams, currently head of internal audit at Supreme Ventures, has been appointed as the new audit committee chair following Kevin Donaldson’s resignation from the role to focus more on businesses including quick service restaurant Mothers Group, private hospital Medical Associates and Summit Kingston (formerly Knutsford Court Hotel). His investments in companies such as Amazing Concrete Limited and QuickPlate, and his appointments to the boards of Caribbean Assurance Brokers and Elite Diagnostics, have also been announced. Swaby is quick to point out that Donaldson’s resignation from his role as Edufocal’s audit committee chair was voluntary and uncontested, and that he will still remain as a director of Edufocal. Donaldson is Edufocal’s seventh largest shareholder, holding 13.2 million shares through Roots Financial Group.
But it’s not just board-level change that’s happening at EduFocal.
The company had 40 full-time employees by the end of 2023 and has since been reducing its workforce. Swaby said only 15 remain, but the reduction in headcount won’t affect the company’s ability to generate revenue or turn a profit. He said some of the jobs were lost to artificial intelligence.
Driving the company’s growth is a new proprietary learning management system (LMS) called Amigo. Swaby says the company has spent $60 million developing the software so far, and it’s ready to be released soon.
“We believe Amigo is the future of Edufocal, so it’s the foundation for everything we want to do,” Swaby said.
He said the software will help grow two of the company’s divisions: learning and enterprise.
He outlined how it works in the learning department.
“Amigo allows teachers to quickly mark exam questions, primarily multiple choice questions. We piloted Amigo at St. Andrew’s Prep about two weeks ago and graded 156 exam questions in four minutes. Typically it takes a teacher three days to do this. This isn’t just theory, this is reality.”
He said the software would be downloaded onto smartphones that teachers would use to take photos, which would then be recorded in milliseconds and reports would be generated for students, schools and ministries.
Swaby said he would eventually like to use the tool not just to grade multiple-choice exam questions but also essay questions, and so far it has produced 100 percent accurate reports in all cases.
“We want people to understand what Amigo can accomplish. To get a food handler’s permit, you have to take a multiple-choice test. To get a driver’s license, you have to take a multiple-choice test. We can help with psychometric testing for organizations as well. Our goal is to have 100 organizations/schools using Amigo by September 2024. It will cost $130 per month with a 60 percent margin, and our goal is to have 400 organizations using it by the end of October.”
He said the software would allow the company to move away from its reliance on large, one-off contracts that were difficult to recoup, which had piled up huge accounts receivable on the company’s balance sheet and forced it to write off $75 million in bad debt.
The company also wants to diversify its revenue streams. Unprofitable businesses like the Academy are being closed and new ventures are being explored. Most recently, the company announced a three-year contract with National Commercial Bank to create content for a national financial literacy program. It also has contracts with Supreme Ventures for just under $10 million a year and another entity that will generate $80 million in revenue, he said.
But the company’s focus is on LMS software, he said, with an eye on rolling it out in Lagos, Nigeria, where it has an operations base. Deploying the software in schools in Nigeria’s largest city, with an estimated population of 12 million, will be of great benefit to EduFocal.
He estimates that this could boost Edufocal’s revenue by $5 million ($775 million), significantly higher than the $263 million the company reported last year.
“Our model is very simple. We charge a subscription fee of about $20,000 per month, which is automatically billed every month. It’s the same software for everyone and it offers us a lot of opportunities, including regular cash flow, easier forecasting and reduced expenses. So, we’ve sowed the seeds and now it’s time to harvest.”
We’re going to focus on earnings and cash flow rather than revenue as we shift our focus to executing on what we’ve been developing over the last two years.”
This should enable the company to start paying dividends “within two to two-and-a-half years,” he said.
The company also plans to raise $250 million to $300 million through an initial public offering later this year to help recapitalize its balance sheet after being deemed a “going concern” with liabilities exceeding assets by $40 million. Swaby said changes to the company’s accounting policies will bring $100 million to the balance sheet and help allay concerns, and they should also change how intellectual property is valued.
“We are currently in discussions with professional valuers to assess the value of the assets we have built. If they prove to be worth more than what is stated on the books, the current value of the assets will increase,” he said, adding that the going concern issue should be resolved within two months.
Meanwhile, partner Mayberry Investments, Edufocal’s second-largest shareholder through a company called Widebase, is helping the company explore opportunities to improve the cash flow it faces, he said.
