equity research · according to ambient insight’s “the 2015-2020 worldwide digital english...

Alex [email protected]

Price Performance - Since IPO on Dec. 1, 2016

Market Data (CSE:CNI)Price (February 24, 2017 close) $0.2552 Week Range $0.23 - $0.32Market Cap (mm) $9.8Shares Outstanding (f/d, mm) 39.1Free Float 71%Average Daily Volume (1 month) 47k

Total Debt (mm) $0.7Cash & Short-Term Investments (mm) $0.5Total Assets (mm) $1.3

Headquarters Vancouver, B.C., Canada

ShareholdersMichael Hunter, CEO 21.5%Dalton Larson, Chairman of the Board 7.1%Kulwant Sandher, Director 0.2%

All figures in CAD unless otherwise stated.Source: Thomson Reuters (2/24/2017)

Cloud Nine Education Group Ltd.(CSE:CNI)

EdTech English ESL Platform for Latin America

Company Description Cloud Nine Education Group Ltd. (“Cloud Nine”) is an education technology (“EdTech”) company that focuses on selling its proprietary English as a Second Language (ESL) curriculums to schools/colleges in foreign markets. The Company’s primary focus will be in Latin America, with the Company’s growth outlook aiming to accumulate 1 million student users within 4-5 years. Cloud Nine completed an Initial Public Offering (IPO) and was listed on the Canadian Securities Exchange (CSE) in November 2016.

Investment Highlights• Grow the sales team, grow the business. One of Cloud Nine’s main

objectives for 2017 will be to scale their digital software revenues. In order to do so, a ‘boots on the ground’ approach will be implemented in carefully selected international markets, ripe for English learning software penetration. To achieve their growth goal, the Company will deploy sales offices and sales representatives to go out and introduce the product to targeted institutions, starting with 1 sales office and 2 sales representatives in Cancun, Mexico.

• Cloud Nine’s subscription based business model encompasses monthly recurring licensing fees paid for by students or educational institutions. This model not only stabilizes revenues, but also benefits from having marginal incremental costs for on-boarding new clientele.

• Cloud Nine owns and operates an ESL school out of Vancouver, which has BC Provincial Education Quality Assurance accreditation and houses ~100 students year round. Not only does this institution generate additional revenues via tuition fees, but serves as a place to refine Cloud Nine ESL Program content, pedagogy, methodology, and delivery in an ever current, ongoing, and real-time basis.

Financial Analysis & ValuationTo help fund development of their ESL curriculum and open new sales office in Latin America, Cloud Nine raised $509k from a successful IPO in November 2016, issuing 2.0 million shares at a price of $0.25/share. Management’s primary focus for 2017 is to concentrate on increasing sales of its ESL curriculum, which we estimate will increase dramatically to $820k in FY2017 from only $18.8k in FY2016, as the Company coverts pilot programs in Mexico and Brazil into paying customers. In FY2017, we are estimating combined revenue from the Cloud Nine College and ESL Program at $1.6mm, growing to $3.1mm in FY2018. Cloud Nine currently trades at a forward 5.8x EV/Sales, which is above the industry EdTech comparables but warranted because of its sales growth trajectory over the next few years. From our model, we estimate the Company will be cash-flow positive by Q4/2017.

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Equity ResearchEducational Technology | Canadian Small Cap

February 27, 2017

Cloud Nine Education Group Ltd. (CSE:CNI)

February 27, 2017 2

Table of Contents

Investment Thesis ................................................................................................................................................. 3Cloud Hosted, Digital-Based ESL Curriculums: A Highly Effective and Low Cost Alternative to Studying English Through Textbooks .............................................................................................................................................................................................. 3

Digitally Speaking, the Online ESL Market Will Hit $3.8 Billion by 2020 ......................................................................................... 4

The Move to Digital Learning ........................................................................................................................................................ 4

Vocational English (English for Specific Purposes) Also Drives Demand .......................................................................................... 5

The Company ........................................................................................................................................................ 6Traction to Date ..................................................................................................................................................................................... 6

International Growth ............................................................................................................................................................................. 8

Primary Markets: Brazil & Mexico ................................................................................................................................................. 8

Secondary Markets: Peru, Argentina, South Korea, Japan, Taiwan, China, India ........................................................................ 8

Business Growth ................................................................................................................................................................................... 9

Expanding the ESL Curriculum ....................................................................................................................................................... 9

Industry Overview ................................................................................................................................................ 9Competition ........................................................................................................................................................................................ 10

Financial Analysis and Valuation ...................................................................................................................... 11Comparable Companies ..................................................................................................................................................................... 13

Risks .................................................................................................................................................................................................... 14

Ability to Raise Capital .................................................................................................................................................................. 14

Speed of Scaling Revenues ............................................................................................................................................................ 14

Threat of Competition .................................................................................................................................................................... 14

Appendix A: Recent News ................................................................................................................................. 15Appendix B: Management & Board of Directors ............................................................................................ 16


February 27, 2017 3

Investment Thesis

Cloud Hosted, Digital-Based ESL Curriculums: A Highly Effective and Low Cost Alternative to Studying English Through TextbooksWhile studying language in a traditional classroom continues to be the best environment in which to study and acquire a language, using a cloud hosted, digital based curriculum is proving to be a highly effective and fiscally competitive alternative to textbook based programs.

Two examples of the effectiveness in using cloud hosted, digital based materials to achieve language acquisition are evidenced in flipped classroom methodology and the ability to generate instant feedback, which provides essential information related to student progress and instructor focus.

Flipped classroom methodology enables students to understand the basic focus of the lesson plan before class begins. Instructors provide their students a link to a short 3-4 minute video, which introduces the topic matter. Students watch the video when it bests suits their schedule and can watch it as many times as needed without the embarrassment that would occur in a classroom setting. When they feel ready, students answer a few multiple-choice questions and are provided instant feedback on their answers. This provides the student a good sense of where they need to focus their attention.

Importantly, teachers also receive the information on their student’s performance. The information is provided on a macro level by calculating the percentage of the class that got the questions right or wrong. This is valuable information for the teacher in preparing for the class. Instructors know what elements of the lesson the students grasp so they can focus their attention on teaching to the gaps in their student’s knowledge base. On a micro basis, teachers also know which individual students got a question right or wrong so they can pair the students together in class.

Textbook based learning cannot compete in providing this ongoing and accurate understanding about the level of student comprehension. Students and teachers are able to identify which parts of the lesson plan require the most attention in order to achieve the learning objectives.

Another key advantage of cloud hosted, digital content is that it can be edited and revised in a timeframe that textbooks cannot match. This keeps the Cloud Nine ESL Program fresh, interesting, and relevant to the student. Changes to the curriculum are provided instantly and at no additional cost; meeting the needs and interests of today’s highly-mobile learner.

Because the process is highly scalable, the Company is able to charge students a licensing fee of $10 per month and still generate an EBITDA above 30%. The cost structure positions the Company to upset the traditional model and disrupt textbook publishers. In many cases, students are paying less for the monthly license than they would for their textbooks. In addition, the program is always current, available to users on their mobile devices and provides feedback to the user and their instructors that would be unattainable using any textbook based study program.


February 27, 2017 4

In developing nations where average incomes are as low as US$5-8k/year (as is the case with Mexico and Brazil) yet the need to learn English remains high, the Cloud Nine ESL Program provides an effective and financially competitive alternative to textbook based curriculums.

Digitally Speaking, the Online ESL Market Will Hit $3.8 Billion by 2020According to Ambient Insight’s “The 2015-2020 Worldwide Digital English Language Earning Market” report, two billion people will be studying English by 2020. The global market for digital English language learning products reached $2.8 billion in 2015 alone, and is expected to grow at a 6% clip until 2020.

English language learning products (digital and non-digital combined) generated $34.1 billion (or 63% of the total language learning market) in revenues in 2015, making it the largest concentrated revenue opportunity in the international language learning market. As of 2015, only 8.3% ($2.8 billion) of that $34.1 billion English language learning revenue was generated by the sale of digital products, which indicates a significant potential for growth.

The Move to Digital Learning Suppliers need to track digitization efforts on an ongoing basis. Digitization in public schools is a policy-driven decision and conditions can change quickly. In July 2011, the government of Thailand announced that they would give every child in grades 1-6 a tablet starting in the 2012 school year. Additionally, over 5 million children in the higher grades were scheduled to get Netbooks. About 1.6 million tablets had been distributed by early 2014.

Another example is of the Russian government announcing in 2011 that they would equip 14 million schoolchildren with tablets within three years. A Russian company called Rusnano signed a $700 million contract with UK-based Plastic Logic to build a production facility in Zelenograd.

Yet another example is of the government in South Korea that has moved away from paper text books and instead endorses the use of tablets. As reported, more than 60 primary, middle and high schools are now using digital textbooks as part of their curriculum, according to the state-run Korea Education and Research Information Service, which provides technical support. Seoul believes it can finish the $2.1 billion program to build a single computer network packed with high-quality digital content by 2015. Replacing textbooks with tablet PCs will account for a quarter of that budget.

The last example is particularly relevant for Cloud Nine as the Company intends to market its ESL Program in South Korea, Japan and Taiwan once it has become cash-flow positive from revenues generated in Latin America.

http://www.tradingeconomics.com/mexico/wages

http://www.tradingeconomics.com/brazil/wages

http://www.ambientinsight.com/Resources/Documents/AmbientInsight_2015-2020_Worldwide_Digital_English_Market_Executive_Overview.pdf

http://www.ambientinsight.com/Resources/Documents/AmbientInsight_2015-2020_Worldwide_Digital_English_Market_Executive_Overview.pdf

http://www.pressherald.com/2011/07/24/tablets-replace-books-as-nations-create-digital-school-system_2011-07-24/


February 27, 2017 5

If you’ve got siblings or children of your own in Canada or the U.S., you are probably aware of the rise in digitized learning in North America. An investment of $150mm has been announced by the Ontario’s Education Minister, to invest in technology that enhances classroom learning. This is just one example of the many changes taking place in an effort to digitize the schooling system. Change is happening, and it’s happening fast.

As apparent from the several previous examples, the move towards offering digitally based learning is significantly influenced by the respective Governments, well at least when it comes to schooling. And keep in mind that this is not limited to Pre K – Grade 12 segments, as the government also plays a role within institutes providing higher education. Also keep in mind that with the rise in digital hardware used amongst classrooms, a rising need for software counterparts also emerges.

Vocational English (English for Specific Purposes) Also Drives Demand Another major catalyst for global consumption of digital English language learning comes from the demand for English learning products in specific industries/job roles such as aviation, nautical, business, hospitality, finance, law, medical, transportation, tourism, energy, military, and information technology (IT). These products are mostly purchased by corporate buyers, government agencies and individuals.

According to the World Travel and Tourism Council, global tourism and hospitality industry employed 8.7% of the world’s workforce. Large scale tourism English product sales are usually sparked by international sporting events. The Summer Olympics held in Rio, delivered English learning training to 110,000 staff as well as over 900,000 volunteers. The 2018 Winter Olympics in Pyeongchang, South Korea, as well as the 2018 FIFA World Cup in Russia, are destined to ignite similar purchasing results.

http://www.cbc.ca/news/canada/hamilton/ontario-announces-150-million-investment-for-ipads-in-the-classroom-1.2755755

http://www.cbc.ca/news/canada/hamilton/ontario-announces-150-million-investment-for-ipads-in-the-classroom-1.2755755


February 27, 2017 6

The Company

Cloud Nine Education Group Ltd. (“Cloud Nine”) was incorporated in the Province of British Columbia (BC) on April 14, 2015, and listed its shares on the CSE under the ticker symbol “CNI”, with trading commencing on December 1, 2016. The Company is run by CEO Michael Hunter, who has had an extensive 25+ year career in the energy and resource sector, where he raised in excess of $100mm in capital to fund various projects.

Cloud Nine operates as a developer and distributor of its digitally based ESL curriculum to technical schools, universities, high schools and ESL providers in Canada and internationally. The Company also owns and operates an ESL school located in downtown Vancouver, British Columbia.

The Company’s ESL curriculum is based on the Common European Framework of Reference for Languages (CEFRL) with learning levels divided into six groups: A1, A2, B1, B2, C1, C2. One of the differentiating factors about Cloud Nine’s business model is that it utilizes a digitally based approach to teaching. The Company uses tablets and online learning management software to complement in-school teaching. This two-fold approach not only allows for efficiency when it comes to keeping students on track and checking their progress, but also allows teachers to assign out of class work, which aids in speed of development and English comprehension.

Figure 1: Cloud Nine’s 3-step Teaching Model

Source: Company Presentation

Traction to DateAs previously mentioned, Cloud Nine owns and operates an ESL school in Vancouver, hosting approximately 100 students year-round. However, this is not their point of focus, as corporate strategy is aligned with selling digital ESL curriculums to international institutions. However, the ESL school does generate some additional revenues via tuition fees and serves as a facility to refine Cloud Nine’s ESL program content, pedagogy, methodology, and delivery in an ever current, ongoing, and real-time basis.


February 27, 2017 7

Focusing on the digital side of the business, Cloud Nine has penetrated several international institutions in Brazil and Mexico, getting the schools to implement pilot projects using the digital ESL curriculums. As of the end of September 2016, the Company had about ~280 students signed up for the digital ESL service. Although this is a marginally small figure, it represents only a fraction of the approximate 350,000 students enrolled within the schools, which are currently running the pilot.

Figure 2: Cloud Nine School in Vancouver, B.C.

Source: Ubika Research


February 27, 2017 8

International GrowthWithin the Canadian education market, the ESL market in particular generates $745mm annually and services approximately 30,000 foreign students each year (Source: Industry Canada 2009) who come to Canada to learn English.

Although this size of the market is very large, it has attracted a lot of industry participants. At this stage, the industry is highly fragmented and competition for foreign students is fierce. As a result, tuition fees are being pushed lower at the cost of corporate profitability. Due to this, Cloud Nine has decided to focus their efforts on less penetrated markets, with large populations, and a great national desire to learn English. Brazil and Mexico fit this bill quite nicely.

Primary Markets: Brazil & MexicoThere are over 50 million primary and secondary students in Brazil, and at least one foreign language is required to be taught to students in grades 6-9, in both public and private schools. According to the government’s Census of Basic Education, 47.4% of these schools offer English as the primary foreign language. These estimates create a large demand for English language learning in Brazil.

The country has invested heavily into expanding its digitally-based learning efforts. Brazil’s federal government aims to spend over $500 million a year on reading material (such as textbooks and notebooks) for schools. Seeing as the large expenditure cannot be sustained, the government began buying digital content in 2015, and estimates that they will have 80 million copies of digital textbooks delivered to 7 million students by 2017. Although a good start, this is still only equal to 12% of the entire PreK-12 population, leaving much more room for growth.

On the hardware side, the Brazilian government distributed 460,000 tablets to schools in 2014. The goal in Brazil is to have all books and instructional content in high schools in digital formats by 2018, which opens up the door for software providers to accommodate the market. With its focus on Brazil during the early phases of corporate development, Cloud Nine Education Group is well positioned to exploit this opportunity and generate sales of its ESL Program.

On the other hand, nearly 24 million people study English in Mexico. The value of the linguistic capital gained by the English language in Mexico is estimated at around US$27 billion each year via growth in the services sector.

Secondary Markets: Peru, Argentina, South Korea, Japan, Taiwan, China, India Much like Mexico and Brazil, these secondary markets share similar desirable characteristics for business expansion: high growth of interest in English learning, need for a cost-effective solution, as well as high population of non-English speakers.


February 27, 2017 9

Business GrowthExpanding the ESL CurriculumBeing a predominantly adult-learner program (as defined by the Company as teaching people 15 years or older), Cloud Nine is developing a curriculum specifically suited for a younger demographic as well. The team is developing material for learners in Grades 7, 8, and 9. Doing so would open up the sales door to high schools (in addition to universities, colleges and other technical institutions).

Additionally, the content team is also in the midst of developing English curriculums for specific purposes, such as for business, tourism, law, aviation, and other professions.

These two product developments have very specific purposes: expanding the addressable market. What this means is that it builds additional sales channels for Cloud Nine.

Industry Overview

The six major buying segments for digital English language learning products are consumers, corporations & businesses, PreK-12 school systems, higher education institutions, federal government agencies, and state/provincial/local government agencies.

Federal and municipal government agencies purchase digital English language learning products for their employees, military personnel, and diplomatic staffs. Government agencies often fund tourism English classes and online courses in their efforts to support the tourism industry.

Higher education institutions buy commercial English language learning products from education publishers and language learning lab suppliers. Higher education institutions in many countries tend to create their own instructional content, but it is often cheaper to buy commercial products.

Corporations are strong buyers of English for Specific Purposes (ESP), particularly business and aviation English. The large multinational corporations represent the biggest revenue opportunities for suppliers.

In terms of digital English language learning revenues, mobile products (apps and educational games) overtook self-paced products in 2013 to become the top revenue generating product type. Self-paced products generated the second-highest revenues in 2015, but have the lowest growth rate at 2.7%. The self-paced products are losing appeal in the consumer segments, as consumers in many countries are opting for mobile digital products instead. By 2020, mobile education apps and mobile learning value added services (VAS) combined will account for 63% of all global digital English language learning revenues. Clearly, all roads lead to mobile. Keep in mind that tablets are a segment of “mobile,” not just cellphones.


February 27, 2017 10

Competition There are hundreds of publicly-traded education technology companies in the world. There are dozens in North America alone and many of them specialize in online English language learning products.

The major international educational publishers include Pearson (NYSE:PSO), McGraw-Hill (division of S&P Global – NYSE:SPGI), Cambridge University Press (pvt), Sanoma (NASDAQ: SAA1V), Wiley & Sons, Elsevier (pvt), Houghton Mifflin Harcourt (NASDAQ:HMHC), Macmillan (pvt), Oxford University Press (pvt), Santillana (pvt), Singapore-based Popular Holdings (SGX:P29), Santillana (pvt), India’s Educomp (NSE:EDUCOMP), France-based Hachette Livre (pvt), and Japan-based Benesse (TYO:9783). All have significant market presence in regional and global markets and their financial reports provide detailed data on the markets in specific countries.

Pearson is the largest educational publisher in the world and generated just over $6 billion in revenue in 2015; 65% of their revenues were generated from the sales of digital content. Their annual investor presentations include very detailed information about discrete types of products sold in specific regions including their digital English offerings: Pearson English Business Solutions (formerly GlobalEnglish), MyEnglishLab, and Wall Street English.

McGraw-Hill is the second-largest educational publisher in the world and generated over $1.2 billion in 2015, where they reported that their digital products outsold print products for the first time.

Figure 3: 2015-2020 Worldwide Digital English Language Learning Growth by Product Types

Source: Ambient Insight 2016



Benesse is the largest educational publisher in Japan and the third-largest in the world. Macmillan (owned by the German pushing conglomerate Holtzbrinck Publishing Group) is the fourth-largest educational publisher in the world. McGraw-Hill, Scholastic, Wiley, Cengage Learning, Houghton Mifflin Harcourt, Oxford University Press, and China Education Publishing all generate over a billion dollars a year in revenue.

However, large publishing companies that have dominated the market often focus on having educators and their students buy new editions of textbooks every year that can be out of date even before being shipped to the school.

Cloud Nine’s ESL program focuses on providing a competitive alternative by providing a cost-effective digital solution at a monthly fee, for ongoing content revisions that keep the digital ESL curriculum current and engaging. Modifications to the Cloud Nine ESL program are provided to users immediately and at no additional cost.

Other smaller companies also exist such as Lingo Media (TSXV:LM) and Cricket Media (pvt), which predominantly operate in China.

There are also publicly-traded English language learning school chains across regions that specialize in online English including RareJob in Japan and New Oriental in China.

As clearly evident, this market is by no means easy to penetrate, and is highly competitive. But with more than 1.5 billion people studying English around the world each year, there is clearly room for companies like Cloud Nine to develop and flourish.

Financial Analysis and Valuation

Cloud Nine’s primary business focuses on the licensing and sale of its proprietary, digitally-based ESL curriculum called the Cloud Nine ESL Program to technical schools, universities, high schools and ESL providers in Canada and internationally. The Company’s secondary focus is that it owns and operates an ESL school (Cloud Nine College) located in Vancouver, B.C.

In 2016, the Company operated its ESL school in Vancouver, finished development of the first phase of the Cloud Nine ESL curriculum and completed an IPO. To help fund development of the curriculum and open a new sales office in Latin America, in December 2016, Cloud Nine raised proceeds of $509k from an IPO of 2,035,000 shares at a price of $0.25/share.

In FY2016, revenue from the ESL school in Vancouver was approximately $724k and is expected to grow to over $800k annually as the Company expands its student enrolment. However, management’s primary focus for 2017 is to concentrate on increasing sales of its ESL curriculum.

The Cloud Nine ESL program was crafted to meet the needs of students aged 15 years and older. Educational institutions or companies pay a monthly licensing fee to access the curriculum, which replaces the current cost of textbooks often for a fee that is less than the



cost of the textbooks. Currently the Company has over 6 schools with pilot programs where approximately 350,000 students are learning English. The Company’s focus is to convert the pilot programs into paying curriculum customers, and would be cash-flow positive with only a 2.5% conversion rate, or 5,000 users.

We are estimating the ESL curriculum sales will increase dramatically to $820k in FY2017 from only $18.8k in FY2016, as the Company coverts pilot programs in Mexico and Brazil into paying customers.

In FY2017, we are estimating combined revenue from the Cloud Nine College and ESL Program at $1.6mm, growing to $3.1mm as we forecast the curriculum sales to triple from FY2017 to FY2018.

Currently, Cloud Nine trades at a forward 5.8x EV/Sales, which is above the industry EdTech comparables but warranted because of its sales growth trajectory over the next few years as the Company has established leads at a dozen schools in Brazil, Chile, Mexico, and Peru with a total student population of over 900,000. From our model, we estimate the Company will be cash-flow positive by Q4/2017.



Comparable Companies

Last Mkt Cap Mkt Cap Cash Debt EVName Ticker Curr Close C$ (mm) Local (mm) (mm) (mm) (mm)Cloud Nine Education Group Ltd. CSE:CNI CAD $0.23 9.0 9.0 0.5 0.7 9.1

Pearson plc LSE:PSON GBP £6.44 $8,529 £5,250 £1,011 £2,637 £6,8792U, Inc. NASDAQ:TWOU USD US$34.19 $2,092 US$1,609 US$157 US$0 US$1,452Houghton Mifflin Harcourt Company NASDAQ:HMHC USD US$11.05 $1,767 US$1,359 US$217 US$787 US$1,929K12 Inc. NYSE:LRN USD US$18.71 $989 US$761 US$182 US$25 US$605Instructure, Inc. NYSE:INST USD US$22.55 $828 US$637 US$68 US$0 US$568Chegg, Inc. NYSE:CHGG USD US$6.96 $827 US$636 US$77 US$0 US$558Daekyo Co., Ltd. KOSE:A019680 KRW ₩8,240.00 $788 ₩691,274 ₩233,354 ₩27,250 ₩502,344Somos Educação S.A. BOVESPA:SEDU3 BRL R$ 6.60 $720 R$ 1,724 R$ 389 R$ 1,672 R$ 3,020China Distance Education Holdings Limited NYSE:DL USD US$10.30 $441 US$339 US$55 US$16 US$311China Online Education Group NYSE:COE USD US$14.13 $368 US$283 US$91 US$0 US$192Cambium Learning Group, Inc. NASDAQ:ABCD USD US$5.10 $305 US$235 US$12 US$100 US$323The Citadel Group Limited ASX:CGL AUD AU$4.98 $238 AU$238 AU$35 AU$1 AU$209Rosetta Stone Inc. NYSE:RST USD US$8.04 $231 US$177 $32 $3 $148LONGTU KOREA Inc. KOSDAQ:A060240 KRW ₩9,480.00 $203 ₩177,941 ₩28,618 ₩42,351 ₩215,5983P Learning Limited ASX:3PL AUD AU$0.93 $129 AU$129 AU$4 AU$12 AU$137Chungdahm Learning, Inc. KOSDAQ:A096240 KRW ₩16,550.00 $112 ₩98,467 ₩25,721 ₩36,248 ₩128,891Digital Daesung Co., Ltd. KOSDAQ:A068930 KRW ₩3,935.00 $100 ₩87,459 ₩19,853 ₩7,000 ₩77,268YBM Net, Inc. KOSDAQ:A057030 KRW ₩4,595.00 $85 ₩74,183 ₩17,121 ₩27,577 ₩84,605RareJob Inc. TSE:6096 JPY ¥1,983.00 $53 ¥4,594.61 ¥932 ¥0 ¥3,663Bluedrop Performance Learning Inc. TSXV:BPL CAD $0.28 $28 $28 $3 $9 $34Educomp Solutions Limited BSE:532696 INR ₹ 11.24 $27 ₹ 1,377 ₹ 1,062 ₹ 35,913 ₹ 38,171Compucom Software Limited BSE:532339 INR ₹ 14.90 $23 ₹ 1,179 ₹ 334 ₹ 422 ₹ 1,267Scientific Learning Corporation OTCPK:SCIL USD US$0.55 $17 US$13 US$4 US$5 US$14DTCOM - Direct to Company S/A BOVESPA:DTCY3 BRL R$ 4.60 $15 R$ 36 R$ 1 R$ 8 R$ 43Lingo Media Corporation TSXV:LM CAD $0.20 $7 $7 $0 $0 $7China Education Resources Inc. TSXV:CHN CAD $0.15 $7 $7 $3 $2 $8Langloo.com S.A. WSE:LAN PLN 0.33 zł $2 7 zł 0 zł 0 zł 7 zł

Rev Growth EV/Revenue EV/EBITDAName Ticker 2016 2017 2016 2017 2017 2017Cloud Nine Education Group Ltd. CSE:CNI 0.8 1.6 92% -0.8 -0.2 5.8x -

Pearson plc LSE:PSON £4,417 £4,571 3% £747 £765 1.5x 9.0x2U, Inc. NASDAQ:TWOU US$205 US$268 31% US$4 US$8 5.4x 174.7xHoughton Mifflin Harcourt Company NASDAQ:HMHC US$1,365 US$1,394 2% US$201 US$217 1.4x 8.9xK12 Inc. NYSE:LRN US$889 US$911 2% US$84 US$104 0.7x 5.8xInstructure, Inc. NYSE:INST US$110 US$151 37% -US$41 -US$34 3.8x -Chegg, Inc. NYSE:CHGG US$250 US$231 -8% US$20 US$35 2.4x 16.1xDaekyo Co., Ltd. KOSE:A019680 ₩823,533 ₩852,867 4% ₩85,100 ₩89,767 0.6x 5.6xSomos Educação S.A. BOVESPA:SEDU3 R$ 1,460 n/a - R$ 147 n/a n/a -China Distance Education Holdings Limited NYSE:DL US$116 US$133 15% US$30 n/a 2.3x -China Online Education Group NYSE:COE US$62 US$141 126% -US$62 -US$34 1.4x -Cambium Learning Group, Inc. NASDAQ:ABCD US$151 n/a - US$26 n/a n/a -The Citadel Group Limited ASX:CGL AU$99 AU$118 20% AU$25 AU$30 1.8x 7.0xRosetta Stone Inc. NYSE:RST $191 n/a - -$5 n/a n/a -LONGTU KOREA Inc. KOSDAQ:A060240 ₩58,886 n/a - ₩5,662 n/a n/a -3P Learning Limited ASX:3PL AU$51 AU$57 11% AU$14 AU$16 2.4x 8.8xChungdahm Learning, Inc. KOSDAQ:A096240 ₩142,400 ₩157,900 11% ₩26,969 n/a 0.8x -Digital Daesung Co., Ltd. KOSDAQ:A068930 ₩79,087 n/a - ₩10,807 n/a n/a -YBM Net, Inc. KOSDAQ:A057030 ₩68,373 n/a - ₩1,106 n/a n/a -RareJob Inc. TSE:6096 ¥2,438 n/a - ¥199 n/a n/a -Bluedrop Performance Learning Inc. TSXV:BPL $25 $25 1% $4 $5 1.4x 7.0xEducomp Solutions Limited BSE:532696 ₹ 4,995 n/a - -₹ 85 n/a n/a -Compucom Software Limited BSE:532339 ₹ 593 n/a - ₹ 279 n/a n/a -Scientific Learning Corporation OTCPK:SCIL US$18 n/a - US$1 n/a n/a -DTCOM - Direct to Company S/A BOVESPA:DTCY3 R$ 13 n/a - R$ 1 n/a n/a -Lingo Media Corporation TSXV:LM $4 n/a - $1 n/a n/a -China Education Resources Inc. TSXV:CHN $13 n/a - $1 n/a n/a -Langloo.com S.A. WSE:LAN 5 zł n/a - 2 zł n/a n/a -Mean (excluding CSE:CNI) 2.0x 27.0xMedian (excluding CSE:CNI) 1.5x 8.8x

Revenue EBITDA

Source: Ubika Research

Figure 4: Comparables Table



RisksAbility to Raise CapitalCloud Nine will require additional capital to progress their business and sales efforts going forward. In that regard, the Company faces financing risk, as raising capital is crucial for business continuity.

Speed of Scaling RevenuesCloud Nine is beginning to accelerate their commercialization efforts of their digital ESL curriculum. International expansion may prove to be challenging, with added associated unforeseen costs. The speed at which Cloud Nine can close new sales, and convert existing pilot projects to full-scale recurring revenues will marginally affect our projections and the Company’s overall valuation.

Threat of CompetitionAs previously mentioned, competition in the market seems extensive, yet still fragmented. Cloud Nine will need to differentiate their product in order to compete with other industry players.



Appendix A: Recent News

Cloud Nine Announces Non-Brokered Private Placement, Closes First TrancheThe Company announced a non-brokered private placement of up to 4,000,000 units at $0.25 per unit for gross proceeds of up to $1,000,000. The Company has already closed a first tranche of the private placement comprised of 416,000 units for gross proceeds of $104,000. 208,000 of the units in the first tranche were issued to the Company CEO, Michael Hunter, for settlement of an existing loan he had provided to the Company in the amount of $52,000.

Cloud Nine Files FY2016 Financial Statement

Cloud Nine Completes Initial Public OfferingThe Company completed an IPO of 2,035,000 units at a price of $0.25 per unit for aggregate gross proceeds of $508,750. Each unit consists of one common share and one half of one warrant. Each whole warrant is exercisable to purchase one common share at $0.50 per share until May 25, 2018.

Cloud Nine Signs Agreement with SENAC in BrazilCloud Nine executed a formal agreement to introduce its digital, cloud based ESL program at the Sao Paulo branch of the Brazilian institution SENAC. SENAC, a private non-profit institution in Brazil, was created to provide professional qualifications for adults and vocational training for young apprentices.

Cloud Nine Recruits Boris Mann to position of Chief Technology OfficerCloud Nine recruited Boris Mann to act as its Chief Technology Officer. Mr. Mann brings considerable experience to the Company following his work at Full Stack Ventures and Human Experience Research Corporation.

September 12, 2016

September 21, 2016

January 30, 2017

November 28, 2016

February 23, 2017



Appendix B: Management & Board of Directors

Michael Hunter, President and CEOMr. Hunter, an experienced teacher, has a degree in International Relations with a minor in Asian Linguistics. He founded Cloud Nine Education Group in 2013 and has led the company since that time. Mr. Hunter has raised more than $100M in equity for private & public companies since 2005 and has provided shareholders with an opportunity to secure a significant return on their investments in his last two corporate ventures.

Dalton Larson, Chairman of the BoardMr. Larson has over 40 years of academic, legal and corporate experience. He is a highly regarded businessman with extensive experience managing private and public companies. Mr. Larson worked with Mr. Hunter between 2005 – 20011 when they started First Coal Corporation with an initial investment of just $60,000 before developing the company and selling it to Xstrata for $157M in 2011.

Kulwant Sandher, DirectorMr. Sandher is a practicing Chartered Accountant who brings over 20 years of diverse and valuable experience in financing and company growth strategies to the Company. Mr. Sandher also holds an engineering degree from London University, England and is well positioned to assist Cloud Nine develop and achieve its corporate development plans.

Boris Mann, CTOMr. Mann brings considerable experience to the Company following his work at Full Stack Ventures and Human Experience Research Corporation. His primarily focus at Cloud Nine will be to leverage scalable technology platforms to support the Company’s cutting edge digital ESL curriculum, and to and explore a optimized approaches to support delivery of the Cloud Nine ESL Program direct to a student’s mobile device.

Fergus Fadden, Director of Teacher Training & Curriculum DevelopmentFergus Fadden is an experienced and well recognized ESL instructor and teacher trainer, mentor and manager. He earned his first degree in law before joining the international ESL community in 2010 and has since worked in France, Spain, Brazil, the United States, South Africa, Canada and Ireland before joining the Cloud Nine team in early 2015.



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