CURRENCY EXCHANGE INTERNATIONAL
2013
REPORT
ANNUAL
Financial
Highlights
Exchange Volume:
In Millions
Total Revenue:
In Millions
Total Assets
In Millions
2013*
$878
$16.0
$33.7
2012
$605
$12.3
$18.2
All amounts in this report are stated in USD unless otherwise noted.
Exchange Volume
$ Millions
Total Revenue
$ Millions
$1000
$800
$600
$400
$200
$0
$25
$20
$15
$10
$5
$0
Millions
2010**
2011
2012
2013*
Millions
2010**
2011
2012
2013*
2011
2010**
$116
$3.4
$5.0
Total Assets
$ Millions
$409
$8.7
$9.9
$35
$30
$25
$20
$15
$10
$5
$0
Millions
2010**
2011
2012
2013*
Corporate Customers and Distinct Locations
Key Ratios
2012
2013*
Company-Owned
Branch Locations
Affiliate Branch
Locations
Wholesale Company
Relationships
Distinct Corporate
Customer Locations
2010**
2011
2012
2013*
15
9
70
18
11
23
11
26
23
123
245
364
267
1,983
2,455
5,741
Earnings Per Share
$0.83
$0.64
Return On Assets
15%
7.8%
Return On Equity
12%
8.9%
Quarterly Stock Price (TSX:CXI)
Efficiency Ratio
71%
75%
Q1
Ended 12/31/2012
Q2
Ended 3/31/2013
Q3
Ended 6/30/2013
Q4
Ended 10/31/2013
$7.00
$8.30
$7.35
$11.20
2013 Key Ratios include one-time non-cash gain of $458,241
from the revaluation of the Company’s warrant liability
2012 Key Ratios include one-time non-cash gain of $962,408
from the revaluation of the Company’s warrant liability.
TSX stock prices are quoted in Cdn$
*13 month period ended October 31, 2013
**9 month period ended September 30, 2010
1
CXI Annual Report 2013
Dear CXI Shareholders,
Employees, and Customers,
I am pleased to present the progress and
achievements of Currency Exchange
International for our 13 month period
ended October 31, 2013.
Randolph W. Pinna
President & CEO
All amounts expressed in USD unless otherwise noted.
Application for CXI Canada to Continue as
Exchange Bank of Canada
report presents and compares the results of the 13 months
ended October 31, 2013 and the year ended September 30,
2012.
After several months of pre-application meetings,
in
November 2012, Currency Exchange International (CXI)
submitted an application to the Office of the Superintendent
of Financial Institutions (OSFI) in Canada to continue its
wholly-owned subsidiary, Currency Exchange International
of Canada Corp. (CXIC), as a new Canadian Schedule 1 Bank.
CXI has been working with OSFI throughout the year and
believes that the progress made has been very positive. If
approved, the bank will be known as Exchange Bank of
Canada in English and Banque de Change du Canada in
French. By becoming a Toronto based bank, CXI would
benefit from a lower cost of transacting in cash, expect to
gain clients that are used to or would prefer to deal with a
bank, and expand its international payments services at
lower costs, amongst other benefits.
Change of Year End
As part of the bank application process, CXI also changed its
year end from September 30 to October 31 in order to align
with the required year end reporting period for Canadian
banks. As a result of the change in year end, this annual
Continuing CXI’s Successful Expansion
During this 13 month fiscal year, CXI commenced currency
exchange services for several large financial institutions.
These new relationships, combined with increased volumes
from many new retail and wholesale customers resulted in an
increase of more than $270 million in total exchange volume
compared with the previous year. Revenues grew by $3.7
million to $16 million compared to $12.3 million for the
previous year. CXI’s management and board are pleased with
these results since the 2013 year was projected to be a
transition year due to the many changes at the corporation to
accommodate becoming a chartered bank.
Also during the last 13 months, CXI’s branch locations had
strong year over year performances and we are extremely
pleased to report that all of the branch locations contributed
to CXI’s revenue and profit growth. During fiscal 2013, CXI
opened five new company-owned locations in markets across
the U.S. raising the total number of branches in its network to
26 at period end. The company once again saw a large number
of U.S. and Canadian customers buying an assortment of currencies.
CXI Annual Report 2013 2
CXI - A Well Capitalized Group of Companies
Key financial ratios across the balance sheet and income
statement show that our team managed the growth during the
past year with great efficiency. Compared to the previous year,
total current assets increased from $18.2 million to $33.7
million. Shareholder’s Equity increased from $16.2 million to
$29.8 million, as a result of positive earnings and the exercise
of warrants and broker compensation units from its initial
public offering in March 2012. A total of 1,518,405 common
share purchase warrants and broker compensation units were
exercised prior to their expiration. The total number of
exercised common share purchase warrants and broker
compensation units represents 98% of all common share
purchase warrants and broker compensation units available
for exercise, bringing the total number of shares issued and
outstanding to 5.39 million. The company had a total of
1,435,725 common share purchase warrants exercised at an
exercise price of Cdn$7.50 per share resulting in total gross
proceeds of Cdn$10.8 million for CXI. The company had
82,680 broker compensation units exercised at Cdn$6.65 per
unit for gross proceeds of Cdn$0.5 million.
CXI has used the new funds to capitalize CXIC, as anticipated
in CXIC’s business plan as a part of its application to OSFI for
it to continue as Exchange Bank of Canada. As a part of this
process, CXI has begun operating the 2014 year with CXI
having one wholly-owned subsidiary, CXIC and CXIC having
Exchange
subsidiary,
one wholly-owned
International America Corp. (CXIA), being operating entities.
Currency
Shareholder’s Equity
$ Millions
September 30, 2010
$3.3
September 30, 2011
$6.2
September 30, 2012
$16.2
extremely flexible and allows for unique customizations for a
wide range of institutions, which CXI uses to its advantage to
win customers away from its competitors. The software
platform is easy to use and incorporates all of the reporting,
compliance, and risk management features that one would
expect from a leading full service provider of international
foreign currency services.
its
CXI also continues to make significant investments in
resources necessary to effectively manage the company in
compliance with all regulatory requirements. As a part of this
internal audit,
process, CXI continued to enhance
compliance, information security, and accounting capabilities,
often in a manner which exceeds regulatory requirements.
During the past year, CXI procured a seasoned CFO, (Peter
Scherer) experienced with banking and OSFI compliance. In
addition, the company continued to make enhancements in
operations and structure in order to ensure the achievement
of our goals of profitably, while providing exceptionally
responsive customer service in a fully transparent and
compliant environment.
Well Positioned for the Years Ahead
I am excited that we are well positioned to efficiently manage
the continued expansion of our wholesale relationships and
growth of our branch network in the coming years. We are in
advanced discussions with several new, prestigious customers
to begin offering our services and we believe that this growth
will be even further accelerated if the bank license is approved.
In view of the current status of these initiatives, we believe
that 2014 will be a profitable year and that our stock will
continue to reflect the company’s strong performance.
The entire board of directors and management teams are
extremely proud of the achievements made through the past
13 months with the help and support of our excellent
employees, customers, and shareholders.
I personally thank all of CXI’s employees, shareholders,
customers, and friends for their continued support of
Currency Exchange International. Should you have any
questions or wish to discuss anything at all, I remain available
to discuss our company and its goals with you personally.
October 31, 2013
$29.8
Sincerely,
Strategic Improvements
During 2013, CXI continued to invest substantial resources to
further enhance its core, proprietary operating software,
CEIFX.com. This web based application allows for foreign
currency exchange, cheques and wire payments, and inventory
management for CXI as well as CXI’s clients. The software is
Randolph W. Pinna
President and CEO
3
CXI Annual Report 2013
Company Snapshot
Our History
2007
2013
CXI begins operations when Randolph Pinna purchases the retail branches of Foreign Currency Exchange Corp. from the
Bank of Ireland Group.
Retail operations include eight retail locations and over the next six years, CXI adds an additional 18 wholly-owned branches.
CXI expands branch operations with its affiliate program to more than 20 locations.
CXI launches its proprietary, web-based foreign currency software solution.
CXI establishes regional vaults for a total of three vaults in the U.S.: its main currency processing center in Miami, Florida
and regional vaults in New York and California.
CXI commences services for financial institutions, allowing its wholesale partnerships to grow rapidly.
CXI Canada opens for business.
CXI Canada’s Toronto vault is established.
CXI completes its Initial Public Offering (IPO) on the Toronto Stock Exchange (TSX).
CXI Canada files application to continue as a new Schedule 1 Bank in Canada.
Expiration of the Regulation S restriction removed from CXI.S Common Shares - now trades as CXI on the TSX.
98% of Common Share Purchase Warrants and Broker Compensation Units are exercised for total gross proceeds of
Cdn$11.3 million.
CXI services more than 350 companies at 5,700 plus distinct locations.
CXI exchanges $878 million in volume and has assets totaling $33.7 million.
Currency Exchange International Key Activities
CXI Canada Files Application for New Schedule 1 Bank
in Canada
Exercised Stock Warrants and Units Lead to Asset
Growth
Subject to review and approval of the application by the Office of
the Superintendent of Financial Institutions (OSFI) in Canada
and the Minister of Finance (Canada), the new bank will be called
“Exchange Bank of Canada” in English and “Banque de change du
Canada” in French and will have its head office in Toronto.
The objective of Exchange Bank of Canada is to expand current
and future business opportunities and become a leading banker's
bank for foreign exchange products and services. Obtaining a
Canadian bank charter will afford the Company numerous
advantages, among them it eventually expects to be able to bank
with Central banks, including the Bank of Canada and the U.S.
Federal Reserve Bank, thereby obtaining a source of stable,
cost-effective funds, collateral reductions with corresponding
banks, and enhancing existing banking relationships.
Currency Exchange International, Corp has been engaged in
ongoing correspondence with OSFI during the application
process to align the company with OSFI’s expectations of a
Schedule 1 Bank. Over the course of the year, CXI appointed Peter
Scherer as Senior Vice President and Chief Financial Officer and
Chirag Bhavsar as Lead Director of the Board for CXI and
Chairman of the Board for CXI Canada. Previous to CXI, Mr.
Scherer held the same positions at AGF Trust Company. Mr.
Scherer brings significant financial experience beneficial to the
company’s goal of becoming a Canadian chartered bank. Mr.
Bhavsar brings extensive banking experience in the U.S. as
Executive Vice President and Chief Financial Officer of CNL
Bank, qualities that are invaluable to the future growth of the
company. CXI believes strong, experienced leadership in its
senior management and board members is critical to building a
successful foundation for the bank.
With the support of its shareholders, a total of 1,518,405
common share purchase warrants and broker compensation
units were exercised for total gross proceeds of Cdn$11.3
million. A total of 1,435,725 common share purchase warrants
for gross proceeds of Cdn$10.8 million and 82,680 broker
compensation units for proceeds of Cdn$0.5 million were
exercised prior to their expiration date and were qualified under
CXI’s initial public offering and listing on the Toronto Stock
Exchange in March 2012.
The additional equity raised exceeded the projections CXI
provided to OSFI as part of the application for Exchange Bank
of Canada. The new funds provide the company with the
opportunity to achieve the goals described within this report.
Company Structure
CXI restructured the company during 2013 to allow the
majority of assets to fall under Canadian regulatory authority.
This ensures that the majority of the consolidated assets of the
group of companies be under the control of the entity which has
a pending application to operate as a bank in Canada. Furthermore,
CXI changed its year end for 2013 from September 30 to
October 31, 2013 as required for Canadian banks.
The company is structured as follows: Currency Exchange
International, Corp. has one subsidiary, Currency Exchange
International of Canada Corp., which is wholly-owned, and was
incorporated under the Canada Business Corporations Act.
Currency Exchange International of Canada Corp. has a
wholly-owned subsidiary, Currency Exchange International
America Corp., which is incorporated under the laws of Florida.
CXI Annual Report 2013 4
4
Currency Exchange International Operations
Business Overview
Currency Exchange International’s wholesale business and
company-owned branch network maintain a complementary role
in the health and growth of the company. Since its inception, CXI
has recognized the interdependent importance of each to the
overall success of the company. As a net buyer of foreign currency,
the company-owned branches provide an influx of foreign
currency that it can in turn make available for sale through its
wholesale network relationships. This synergy, which Currency
Exchange International effectively creates, affords the company
the ability to offer its customers and clients the best rates, helping
grow the business, while enjoying larger margins in its business
lines.
Company-Owned Branch Network
Lastly, two new branches started transacting in August, one
across from the bustling Penn Station transportation hub in New
York, in an Apple Bank branch, and another in Bethesda,
Maryland at the Westfield Montgomery Mall. The Montgomery
Mall location has acted as a replacement for the Pentagon City
branch which was displaced when the branch closed at the end of
July 2013.
Opening new wholly-owned branch locations requires an up-front
investment from the company. CXI continues to prove this
internal investment is well spent, creating profitable, long-lasting
branches. Within the period end, all branch additions are
performing up to company expectations and contributing to the
company’s revenue growth.
CXI’s management team continued its strategic growth plan
during the 13 month period ended October 31, 2013 with five
new branches transacting across the United States, many in
popular regional shopping centers in tourist-oriented markets. As
in years past, the company-owned branch expansion has been
divided into familiar regions as well as new markets.
In the first quarter of the this period ended October 31,2013, CXI
commenced transacting at the Galleria Mall in Fort Lauderdale,
Florida. The Galleria Mall was the latest Florida location for CXI,
an area the company knows well as this branch is its sixth South
Florida location.
The next four branch openings occurred over a three month
period from June to August 2013. First, the company’s fifth entry
into the greater Los Angeles area commenced at the Westfield
MainPlace Mall in June. Following the June opening in Los
Angeles, California, CXI extended its branch network into the
newest market for the company, Chicago, Illinois, at The Shops at
North Bridge located along the famous “Magnificent Mile”
shopping district.
U.S. Wholesale Environment
CXI generated great return from its existing wholesale customer
base and expanded the number of relationships by winning the
business of financial institutions, money-services businesses
(MSBs), and other corporate clients. The company provides a full
suite of foreign currency services in the U.S. including foreign
banknotes, international wires, issuing foreign drafts, and
clearing foreign denominated cheques.
There are a number of factors that come into play when
considering why the company has been successful in gaining so
many new customers. A few of the key factors the company excels
at include pricing, versatile service capabilities, an advanced and
fully compliant software platform, and customer service.
Many customers realize the value of the company’s flexible service
offerings such as turn-key solutions with as much or as little
company
in each situation. The
adaptability of the company’s programs has routinely been
regarded as one of its best features. New customers often find
involvement as needed
Currency Exchange International’s
Distinct Customer Location Heat Map
More
Location Concentration
Fewer
immediate advantages when switching or starting foreign
currency programs with CXI and this is expected to continue as
the company has created a foundation for scalable and efficient
growth of its services.
The goal for CXI when establishing customer relationships is to
create a mutually beneficial relationship where all parties involved
are in a better financial position due to their interaction. This
commitment to building meaningful relationships has been a
successful basis for growth as the company’s customers remain
loyal and has created a positive reputation for CXI to do business
within the industry.
Canadian Wholesale Environment
Currency Exchange International of Canada Corp. began its vault
operation in November 2011 and has achieved great success in
growing its business over the course of the last two years. An
example of its achievement is evident by the company surpassing
more than $1.6 million in revenue, nearly doubling its previous
year’s revenue.
The increase in revenue has been made possible by gains in its
customer base and ultimately the number of locations it services.
In the 13 month period ended October 31, 2013, it more than
doubled its customer base from the prior year and now provides
banknote currency exchange to more than four times the number
of distinct locations than it did at the end of its 2012 fiscal year.
The gain in business has been overseen by its experienced
Total Revenue By Region
United States
Canada
2012
2013
Total Revenue By Region
$ Millions
Year Ended
September 30,
2012
13 Month Period
Ended October
31, 2013
% Change
United States
$11.5
Canada
Total
$0.8
$12.3
$14.4
$1.6
$16.0
25%
92%
30%
Canadian operations team. The guidance provided by the
in keeping business
management team has been pivotal
productivity high and achieving strong operational efficiencies.
CXI has continually been selected by companies and financial
institutions as their preferred foreign exchange provider in
Canada, resulting in more opportunities for the company in the
future.
CEIFX Software Advantage
Viewed as a leading application in foreign currency exchange, the
CEIFX software continues to generate interest with new and
potential customers, while garnering positive reviews from
current users. The core features allow for fully customized
customer setups, compliance
instinctual user
interface, user management, and robust reporting capabilities.
The software’s active development cycle means routine
maintenance, new features, and requests are fulfilled quickly and
securely.
integration,
The web-based software accommodates all product lines offered
by CXI including banknotes, traveler’s cheques, foreign cheque
clearing, foreign draft issuance, and wire transfer payments. At its
core, the system is driven by its Compliance Verification System
(CVS). The CVS allows for live compliance checks of regulatory
watch lists, easy to review matches, live-stop capabilities, branch
hopper aggregation, compliance reporting, and maintains
compliance with all current U.S. and Canadian regulations.
Even with such robust capabilities the system remains flexible for
many setup types and deployment needs. The versatility of the
software offers a full white-label environment, where the
software can be deployed to look like the customer’s own website,
allowing CXI to operate completely behind the scenes.
Additionally, the software has the ability to connect with a
customer’s own environment with Single Sign On (SSO). The
functionality of the software for each user and company is fully
customizable for each client’s needs. This ensures each FX
transaction is as quick and easy as possible without losing any
functionality.
On top of users completing foreign currency transactions, the
software is functional for administrators, auditors, and risk
managers. The software has been certified with external security
audits and necessary security protocols are in place so all
customers can be comfortable working with the CEIFX system.
The company is dedicated to maintaining and continually
enhancing its software to keep pace as the leading foreign
currency software in the industry. With financial regulations and
customer needs always changing, CEIFX remains an integral part
of the company’s competitive advantage.
6
CURRENCY EXCHANGE INTERNATIONAL, CORP.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
FOR THE THIRTEEN-MONTH
PERIOD ENDED OCTOBER 31,
2013, AND YEAR ENDED
SEPTEMBER 30, 2012
7
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Scope of Analysis
This Management Discussion and Analysis (“MD&A”) covers the results of operations, and financial
condition of Currency Exchange International, Corp. (the “Company,” “Currency Exchange,” or "CXI")
for the thirteen-month period ended October 31, 2013 and the year ended September, 2012, including
the notes thereto. This document is intended to assist the reader in better understanding operations
and key financial results as they are, in our opinion, at the date of this report.
This MD&A has been prepared a s at January 8, 2014 in accordance with National Instrument 51-102
– Continuous Disclosure Obligations adopted by the Canadian Securities Administrators. This
information has been prepared by management of the Company in accordance with International
Financial Reporting Standards (“IFRS”) and should be read in conjunction with the audited
consolidated financial statements of the Company for the thirteen-month period ended October 31,2013
and the year ended September 30, 2012, and the notes thereto. A detailed summary of the Company's
significant accounting policies is included in Note 2 of the Company's audited consolidated financial
statements. The functional currency of the Company and its U.S. subsidiary, Currency Exchange
International America Corp., is the U.S. dollar. The functional currency of the Company’s Canadian
subsidiary, Currency Exchange International Canada Corp., is the Canadian dollar. The Company’s
presentation currency is the U.S. dollar. Unless otherwise noted, all references to currency in this MD&A
refer to U.S. dollars. The consolidated financial statements and the MD&A have been reviewed by the
Company’s Audit Committee and approved by its board of directors.
In this document, “our”, “Company,” and "CXI" refer to Currency Exchange International, Corp.
collectively with its subsidiaries, Currency Exchange International of Canada Corp. and Currency
Exchange International America Corp.
Additional Information
Additional information relating to the Company, including annual financial statements, is available on the
Company’s SEDAR profile at www.sedar.com and on the Company’s website at www.ceifx.com.
8
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Forward Looking Statements
This MD&A contains certain “forward-looking information” as defined in applicable securities laws. These
statements relate to future events or the Company’s future performance. All statements other than
statements of historical fact are forward-looking information. Often, but not always, forward-looking
information can be identified by the use of words such as “plans”, “expects”, “budgeted”, “scheduled”,
“estimates”, “continues”, “forecasts”, “projects”, “predicts”, “intends”, “anticipates” or “believes”, or
variations of, or the negatives of, such words and phrases, or state that certain actions, events or results
“may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved. The forward-looking
information in this MD&A speaks only as of the date of this MD&A or as of the date specified in such
statements. The following table outlines certain significant forward-looking information contained in this
MD&A and provides the material assumptions used to develop such forward-looking information and
material risk factors that could cause actual results to differ materially from the forward looking
information.
Forward-looking information
Assumptions
Risk factors
Status of CXI’s application to
continue its subsidiary as a
Canadian Schedule I bank, and
the objectives for such bank
Regulatory and governmental
approval for the establishment of
the bank will be received on a timely
basis upon terms favorable to CXI;
the bank will be able to attract and
retain clients
Approvals are made at the
discretion of governmental
bodies and may not be
granted on terms favorable to
CXI or at all; the bank has no
history of operations
Expectations regarding CXI’s
ratio of operating expenses to
total revenues
Sensitivity analyses relating to
foreign currencies and interest
rates
The operations of CXI in the near
term, and the costs associated
therewith, will be consistent with
management’s current
expectations; foreign exchange
rates and other applicable economic
conditions are favorable to CXI; CXI
will be able to successfully execute
its expansion plans
The possibility that
operations will not be
consistent with recent history
and management’s
expectations; increases in
transactional or other costs;
fluctuations in foreign
exchange markets; changes
in economic conditions
Exchange rate and interest
rate fluctuations
All factors other than the variable in
question remain unchanged; CXI’s
entire unhedged balance of foreign
currency holdings is affected
uniformly by changes in exchange
rates; CXI’s interest-bearing
instruments and obligations were
constant during the period
Inherent in forward-looking information are risks, uncertainties and other factors beyond the Company’s
ability to predict or control. Please also make reference to those risk factors referenced in the “Risks
Factors” section below. Readers are cautioned that the above chart does not contain an exhaustive list of
the factors or assumptions that may affect the forward-looking information in this MD&A, and that the
assumptions underlying such statements may prove to be incorrect. Actual results and developments are
likely to differ, and may differ materially, from those expressed or implied by the forward-looking
information contained in this MD&A.
9
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Forward Looking Statements (continued)
Forward-looking information involves known and unknown risks, uncertainties and other factors that may
cause the Company’s actual results, performance or achievements to be materially different from any of
its future results, performance or achievements expressed or implied by forward-looking information. All
forward-looking information herein is qualified by this cautionary statement. Accordingly, readers should
not place undue reliance on forward-looking information. The Company undertakes no obligation to
update publicly or otherwise revise any forward-looking information, whether as a result of new
information or future events or otherwise, except as may be required by applicable securities laws. If the
Company does update any forward-looking information, no inference should be drawn that it will make
additional updates with respect to that or other forward-looking information, unless required by applicable
securities laws.
Overview
CXI is a publicly traded company (T SX : C X I ,O T CB B :C UR N ) specializing in providing currency
exchange and related products to banks, travel companies, and to clients through its company owned
branches and inventory on consignment locations, throughout the United States and Canada, by utilizing
the Company’s proprietary online software system, CEIFX (www.ceifx.com). The Company has
developed CEIFX, its proprietary customizable web-based software, as an integral part of its business
and believes that it represents an important competitive advantage. CEIFX is also an on-line compliance
and risk management tool. The trade secrets associated with CEIFX are protected via copyright and
secure maintenance of source code by the head office. CEIFX is updated regularly and o n - g o i n g
system development and enhancement is a core activity at the Company.
On November 23, 2012, CXI submitted its application to continue its wholly-owned subsidiary, Currency
Exchange International of Canada Corp., as a new Canadian Schedule I bank. Subject to review and
approval of the application by the Office of the Superintendent of Financial Institutions (“OSFI” - Canada)
and the Minister of Finance (Canada), the new bank will be called "Exchange Bank of Canada" in English
and "Banque de Change du Canada" in French and will have its head office in Toronto.
The objective of the Exchange Bank of Canada is to expand current and future business opportunities
and become a leading banker's bank for foreign exchange products and services. Obtaining a Canadian
bank charter affords the Company numerous advantages including the opportunity to bank with Central
Banks, thereby obtaining a source of stable, cost-effective funds, collateral reductions with corresponding
banks, and enhancing existing bank relationships.
10
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Overview (continued)
CXIC wholly owns Currency Exchange International America Corp. (“CXIA”), a Florida corporation
incorporated under the Florida Business Corporation Act. CXIA was formed pursuant to a request from
OSFI to reorganize the corporate structure so as to transfer the operations and assets of the U.S. based
business to an entity wholly owned by CXIC.
Currency Exchange International, Corp. (“CXI”)
(Incorporated under the laws of Florida)
Publicly traded TSX:CXI and OTCBB:CURN
100% ownership
Currency Exchange International of Canada
(“CXIC”) – pending application to be continued as
Exchange Bank of Canada (“EBC”) under the
Bank Act (Canada)
100% ownership
Currency Exchange International of America,
Corp. (“CXIA”) – (Incorporated under the laws of
Florida)
On October 31, 2013 the Company restructured its operations to add additional capital into CXIC as part of
its bank application process. As a result, the cash and capital in the Canadian subsidiary increased
substantially.
Currency Exchange International is a reporting issuer in the provinces of British Columbia, Alberta and
Ontario.
The Company has the following sources of revenues which are reported as commissions and fees:
● Commission revenue is comprised of the spread between the cost and selling price of foreign
currency products, including bank notes, wire transmissions, cheque collections and draft
issuances and the revaluation of foreign exchange positions to market value, combined with the
net gain or loss from foreign currency forward contracts used to offset the revaluation of inventory
positions and commissions paid to bank and non-bank financial institutions on the sale and
purchase of currency products. The amount of this spread is based on competitive conditions
and the convenience and value added services offered.
● Fee revenue is comprised of the following:
○
International exchange fees generated at the Company’s branch locations, including
foreign currency (banknote) exchange, foreign traveller’s cheques, and fees collected
on payroll cheque cashing; and
o Fees collected on foreign wire transfers, foreign drafts, and check collection transactions.
11
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Overview (continued)
The following are some of the characteristics of the Company’s revenue streams:
The Company operates 4 vaults located within the United States and Canada that serve as
distribution centers for its branch network as well as order fulfillment centers for its clients
including downstream financial institutions, money service businesses, and other corporate
clients. Revenues generated from vaults have greater scale as the Company maintains a sales
force to increase its geographic customer base. Exchange rate margins vary from customer to
customer and are dependent on criteria such as exchange volumes and customer setup. There
are two common customer setups:
o Centralized setup - For customers with a high volume of foreign currency exchange who
maintain and manage their own inventory in central vault facilities, the Company offers
bulk wholesale banknote trading. Trades of this nature are generally executed at lower
margins as the cost per transaction is low and the average value is high;
o Decentralized setup - Many customers have determined that it is advantageous to avoid
a currency inventory and allow their locations to buy and sell directly from CXI.
Transactions in a decentralized setup typically are executed at a higher margin as the
average transaction is low and the cost to fulfill each trade is higher than that of a
centralized setup. Several of the Company's financial institutions outsource their
currency needs in return for a commission based upon exchange volume. When a client
outsources their currency needs, the Company is granted access to the entire branch
network thus immediately increasing its geographic footprint and expanding its customer
base;
● The Company operates 26 branch locations which are located in high-traffic areas, staffed by CXI
employees, and located across the United States. These locations hold domestic and foreign
currencies to buy and sell on demand. The currency exchange margins associated with these
locations are generally higher in order to recapture costs of deployed capital in the form of
domestic and foreign currencies, rent, payroll, and other general and administrative costs;
● CXI currently maintains inventory in the form of domestic and foreign bank notes in banks and
other high traffic locations. These locations can be very profitable as there are no occupancy
costs or payroll. Essentially, foreign exchange currency is placed in these locations on a
consignment basis. As at October 31, 2013, the Company had inventory on consignment in
nearly 100 tills located across the United States. To encourage inventory turnover, the Company
pays commissions as a percentage on volumes generated by these affiliates; and
● Company owned branch locations generally act as a net buyer of foreign currency whereas CXI's
downstream clients act as a net seller. Excess currency collected via the branch network can be
redeployed to downstream banks and clients which eliminate the need to source currency
through wholesale sources at a greater cost, thus increasing currency margins.
12
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Overview (continued)
The Company has aggressively grown its branch network as well as the number of wholesale
relationships over the years. Below is a branch and customer matrix of the 26 branch locations:
Store
City
State
Start
Date
(Fiscal
Year)
Store
City
State
NY
New York
Apple Bank - Avenue of Americas
NY
Apple Bank - Grand Central Station New York
NY
New York
Apple Bank - Penn Station
MD
Hanover
Arundel Mills Mall
FL
Aventura
Aventura Mall Booth #1
Aventura
Aventura Mall Booth #2
FL
Los Angeles CA
Century City Mall
MA
Boston
Copley Place Mall
FL
Miami
Dadeland Mall
FL
Miami
Dolphin Mall
FL
Orlando
Florida Mall
VA
Norfolk
MacArthur Mall
CA
Santa Ana
Mainplace at Santa Ana
Berkeley
CA
FY 2011 Mechanics Bank - Berkeley
FY 2011 Mechanics Bank - San Francisco San Francisco CA
MD
FY 2013 Montgomery at Bethesda
Bethesda
CA
FY 2012 Ontario Mills Mall
Ontario
VA
FY 2008 Potomac Mills Mall
Woodbridge
San Francisco CA
FY 2012 San Francisco City Center
San Jose
FY 2009 San Jose Great Mall
CA
Santa Monica CA
FY 2009 Santa Monica Place
CA
Sunrise
FY 2009 Sawgrass Mills Mall Booth #1
CA
Sunrise
FY 2009 Sawgrass Mills Mall Booth #2
IL
Chicago
FY 2007 Shops at Northbridge
Tukwila
FY 2009 SouthCenter
WA
Ft. Lauderdale FL
FY 2013 The Galleria at Fort Lauderdale
Start
Date
(Fiscal
Year)
FY 2007
FY 2008
FY 2013
FY 2007
FY 2007
FY 2011
FY 2011
FY 2012
FY 2007
FY 2010
FY 2013
FY 2012
FY 2013
Company owned retail stores
Wholesale company relationships
Number of transacting locations
FY 2007
8
10
25
FY 2008
9
26
88
FY 2009
14
61
190
FY 2010
15
70
267
FY 2011
18
123
1983
FY 2012
23
245
2455
FY 2013
26
364
5,741
The Company’s largest asset is cash. The cash position consists of local currency notes, both in U.S
and Canadian dollars, held in inventory at its branch and affiliate locations to facilitate the buying and
selling of foreign currency, as well as foreign currency held at the Company's' vaults, branch locations,
affiliate partners, or cash inventory in transit between the Company and its locations. The Company also
has traditional bank deposits which act as reserves to maintain operations and as settlement accounts to
facilitate currency transactions at various financial institutions.
Accounts receivable consist primarily of bulk wholesale transactions where the Company is awaiting
payment. Receivables are highly liquid and typically have a settlement time of two business days
with most buyers being banks and other financial institutions.
Accounts payable consist mainly of foreign currency transactions and commissions payable at period end
where the Company receives currency from a customer and then remits payment at a later date.
13
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Initial Public Offering
On March 9, 2012, the Company completed its initial public offering ("IPO," or "Offering") on the Toronto
Stock Exchange ("TSX") by issuing 1,380,000 units at a price of Cdn$6.65 per unit for aggregate
proceeds of Cdn$9,177,000. Each Unit was comprised of one common share in the capital stock of the
Company (“Common Share”) and one Common Share Purchase Warrant (“Warrant”) which was able to
be exercised at a price of Cdn$7.50 per share until an expiration of September 8, 2013. In addition, the
Company issued 82,800 broker compensation units which were comprised of one Common Share and
one Warrant which were able to be exercised at $7.50 per share. During the thirteen-month period ended
October 31, 2013, 82,680 broker units were exercised for proceeds of Cdn$549,822 and 1,435,725
warrants were exercised for proceeds of Cdn$10,767,938. Funds received were used to finance foreign
currency inventories at vault locations, increase its branch and inventory on consignment network, and
enhance its proprietary software, CEIFX, as well as for debt reduction.
SELECTED FINANANCIAL DATA
Period
Date
Revenue
Operating
income
Net
income
Total
Assets
(unaudited)
$
$
$
$
Total
equity
$
Return on
assets
(annualized)
Return on
equity
(annualized)
%
%
Four-months ending
31-Oct-13
6,463,406
2,207,417 1,669,609
33,681,819
29,763,976
Three-months ending
30-Jun-13
3,799,683
1,094,456
1,466,835
19,997,719
17,607,201
22.2%
30.3%
27.9%
35.0%
Three-months ending
31-Mar-13
2,919,292
435,357
(575,087)
18,709,964
16,255,314
-12.4%
-13.8%
Three-months ending
31-Dec-12
2,808,053
308,233
80,338
19,929,308
16,734,553
Three-months ending
30-Sep-12
3,369,548
1,433,792
1,475,426
18,225,628
16,226,974
Three-months ending
30-Jun-12
3,152,246
676,915
208,542
17,275,581
14,711,060
Three-months ending
31-Mar-12
3,076,693
631,705
497,415
16,829,379
14,478,596
Three-months ending
31-Dec-11
2,715,986
831,209
536,269
10,391,386
6,695,607
1.7%
30.7%
4.7%
16.1%
21.3%
2.0%
38.4%
5.7%
21.1%
32.5%
Seasonality is reflected in the timing of when foreign currencies are in greater or lower demand. In a
normal operating year there is seasonality to the Company's operations with higher commissions
generally from March until September and fewer commissions from October to February. This coincides
with peak tourism seasons in North America when there are generally more travelers entering and leaving
the United States and Canada.
14
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Selected Financial Results for the four-months and thirteen-months ended October 31, 2013 and the
three-months and year ended September 30, 2012
Thirteen months
ended
October 31, 2013
Twelve months
ended
September 30, 2012
$
$
Four months
ended
October 31,
2013
$
Revenue
Operating expenses
Net Operating income
Total other income
Net income
Basic and diluted earnings per share
15,990,434
12,314,473
6,463,406
11,944,971
8,740,852
4,255,989
4,045,463
161,489
2,641,694
0.64
3,573,621
2,207,417
430,826
209,271
2,717,652
1,669,609
0.83
0.36
Three months
ended
September 30, 2012
$
3,369,548
1,946,465
1,423,083
492,569
1,475,427
0.38
Total assets
Total long term financial
liabilities
October 31, 2013
September 30, 2012
$
$
33,681,819
18,225,628
-
-
Total equity
29,763,976
16,226,974
Results of operations – thirteen-months ended October 31, 2013
During the thirteen-months ended October 31, 2013 revenues were $15,990,434 compared to
$12,314,473 for the year ended September 30, 2012. Revenue growth occurred from establishing five
new company owned retail locations as well as establishing 119 new wholesale relationships making
up approximately 3,300 locations.
A breakdown of revenues by geographic location is presented below:
Total revenues
Thirteen-months ended
October 31, 2013
Year ended September
30, 2012
$
$
United States
Canada
Total
14,382,012
1,608,422
15,990,434
11,477,160
837,313
12,314,473
15
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Results of operations – thirteen-months ended October 31, 2013 (continued)
Revenues increased to $14,382,012 during the thirteen-months ended October 31, 2013 from
$11,477,160 in the year ended September 30, 2012 in the United States and relate primarily to the
increase in the number of foreign currency transactions originating in branch locations as well as
increased trades from new customers brought on during the period.
Revenues increased in Canada to $1,608,422 during the thirteen-month period ended October 31, 2013
from $837,313 in the year ended September 30, 2012 and are related to the continued growth of the
Canadian subsidiary. Currency Exchange International of Canada Corp opened for business in
December 2011 and during the thirteen-month period ended October 31, 2013 added several customer
locations. During the thirteen-months ended October 31, 2013, operating expenses increased to
$11,944,971 compared to $8,740,852 for year ended September 30, 2012, the major components of
which are presented below:
Thirteen-months
ended
Year ended
October 31, 2013
September 30, 2012
Change
Change
$
$
$
%
Salaries and benefits
Rent
Legal, professional and director's fees
Postage and shipping
Stock based compensation
Amortization
Other general and administrative
Total operating expenses
5,742,923
1,683,547
1,089,853
1,187,081
289,019
347,052
1,605,496
11,944,971
4,060,630
1,682,293
1,344,777
338,770
616,725
473,128
878,711
308,370
41%
25%
77%
35%
64,409
224,610
349%
248,707
98,345
1,526,893
78,603
8,740,852
3,204,119
40%
5%
37%
Salaries and benefits increased 41% to $5,742,923 from $4,060,630 which is attributed to
increases in the Company’s short term incentive plan, increase in the number of Company
owned branch outlets, increase in the number of employees in the Canadian operations as
well as additional staff added in the areas of compliance, information technology, operations,
sales, vaults and finance. The Company hired a new Chief Financial Officer for Currency
Exchange International, Corp. in May 2013. The total number of employees hired by the
Company increased to 161 from 141;
Rent increased to $1,683,547 from $1,344,777 due to the opening of new branch locations
during the year;
Legal, professional and directors fees increased to $1,089,853 from $616,725. The primary
reason for the increase relate to increases in remuneration to the Company's Board of
Directors, payments to professional consultants as well as additional legal and professional
fees related to becoming a reporting issuer. During the thirteen-months ended October 31,
2013, the Company incurred one-time costs of $49,789 in connection with registering its
shares for listing on the Over the Counter Bulletin Board (“OTCBB”) and additional one -time
legal and consulting fees of $66,856 relating to the restructuring of its operations;
16
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Results of operations – thirteen-months ended October 31, 2013 (continued)
Postage and shipping increased 35% which is attributed to increased shipments in Canada
and the United States and increases in armored shipments;
Stock based compensation increased to $289,019 from $64,409 for the vested portion of stock
options granted pursuant to the Company's stock option plan. The options have an expiry
date of 5 years from the date of the grant and have a weighted average exercise price of
Cdn$8.84;
Amortization increased to $347,052 from $248,707 which relate to completed software
modules in CEIFX and fixed assets being amortized over their respective lives; and
Other general and administrative remained relatively constant and are comprised of
miscellaneous items including insurance, travel and lodging, software maintenance, utilities,
and other general and administrative expenses.
The ratio of operating expenses to total revenue for the thirteen-months ended October 31, 2013 was
75% compared to 71% for the year ended September 30, 2012. The Company expects this ratio to
remain steady in the short term as the Company continues to incur costs while building infrastructure
to expand its branch network and vault operations. In time, the Company can increase its operating
efficiency by the addition of new bank and non-bank financial institutions in Canada and the United
States to redeploy excess currency purchased by its branches, affiliate part ners, and other clientele.
Other income and expenses are comprised of the following:
Thirteen-months ended
Year ended
October 31, 2013
September 30, 2012
$
$
Other income (expense)
Gain on forward contract
13,126
(2,373)
-
92,343
Fair value change in warrant liability
458,241
962,408
Interest and accretion expense
(37,874)
(150,988)
Expenses related to Exchange Bank of Canada
(272,004)
(114,673)
Warrant issue costs
-
(124,171)
Costs related to initial public offering
-
(231,720)
Total other income
161,489
430,826
Other income increased to $13,126 from a loss of $2,373 and relate to interest income and
gains on the disposal of fixed assets;
Gain on forward contract decreased to $Nil from a gain of $92,343. The gain relates to the
revaluation of a forward contract to mitigate the exchange rate risk of Cdn$2,000,000 loan
from a shareholder of the Company. The gain on forward contract was partially offset by a
loss on the revaluation of the Cdn$2,000,000 loan;
17
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Results of operations – thirteen-months ended October 31, 2013 (continued)
Fair value change in warrant liability resulted in a gain of $458,241 during the thirteen-month
period ended October 31, 2013 from a gain of $962,408 for the year ended September 30,
2012 and relates to a mark to market adjustment of the Company’s issued and outstanding
warrants, of which 1,380,000 were outstanding on September 30, 2012. The warrants that
had not been exercised expired on September 8, 2013 and the liability was extinguished at
that time;
Interest and accretion expense decreased to $37,874 from $150,988 and relates primarily to
interest payments on credit lines and term loans. During much of the year ended September
30, 2012, the Company had debt obligations including Cdn$2,000,000 loan from a shareholder
of the Company and a term loan which were repaid in full in March of 2012;
Expenses related to Exchange Bank of Canada increased to $272,004 from $114,673 and
relate to legal and administrative expenses to file and process the bank application; and
Income tax expense increased to $1,565,258 from $1,286,795 and is a total of federal income
tax as well as various state and provincial taxes for the jurisdictions in which the Company
operates. The enacted tax rates in Canada of 26.5% (2012 – 26.9%) and in the United States of
38% (2012 – 39%) where the Company operates are applied in the tax provision calculation. The
Canadian rate was reduced due to a scheduled rate reduction, whereas the decrease in the
United States rate was due to change in income allocations amongst different states.
Results of operations – four-months ending October 31, 2013
During the four-months ended October 31, 2013 revenues increased to $6,463,406 compared to
$3,369,548 for the three-months ending September 30, 2012. Revenue growth occurred from
establishing four new Company owned retail locations as well as establishing 30 new wholesale
relationships making up approximately 800 locations.
A breakdown of revenues by geographic location is presented below:
Total revenues
Four-months ended
October 31, 2013
Three-months ended
September 30, 2012
$
$
United States
Canada
Total
5,840,939
622,467
6,463,406
2,955,025
414,523
3,369,548
The increase in commission revenues to $5,840,939 during the four-months ended October 31, 2013
from $2,955,025 for the three-months ended September 30, 2012 in the United States and relate primarily
to the new revenue generated from the Company's new branches as well as the establishment of new
relationships with bank and non-bank financial institutions.
Revenues increased in Canada to $622,467 during the four-months ended October 31, 2013 from
$414,253 for the three-months ended September 30, 2012 and are related to the growth of the Canadian
operation. Currency Exchange International of Canada Corp. opened for trading in December 2011.
18
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Results of operations – four-months ended October 31, 2013 (continued)
During the four-months ended October 31, 2013, operating expenses increased to $4,255,989 compared
to $1,946,465 for the three-months ended September 30, 2012, the major components of which are
presented below:
Four-months ended Three-months ended
October 31, 2013
September 30, 2012
$ Change
% Change
Salaries and benefits
2,077,222
1,149,977
927,245
Rent
562,584
367,981
194,603
81%
53%
Legal, professional and director's fees
447,357
(90,045)
537,402
-597%
Postage and shipping
429,718
201,001
228,717
Stock based compensation
93,911
40,487
53,424
Amortization
134,295
70,115
64,180
Other general and administrative
510,902
206,949
303,953
Total operating expenses
4,255,989
1,946,465
2,309,524
114%
132%
92%
147%
119%
Salaries and benefits increased to $2,077,222 from $1,149,977 which is attributed to
increases in the Company’s short term incentive plan, increase in the number of Company
owned branch outlets, increase in the number of employees in the Canadian operations as
well as additional staff added in the areas of compliance, information technology, operations,
sales, vaults and finance. The Company hired a new Chief Financial Officer for Currency
Exchange International, Corp. in May 2013;
Rent increased to $562,584 from $367,981 due to the opening of new branch outlets;
Legal, professional and directors fees increased to $447,357 from a gain of $90,045. During
the three-months ended September 30, 2012, the Company reclassified $231,720 in expenses
from legal and professional fees to costs related to the Company’s initial public offering. If this
adjustment is made, the expense incurred during the three-months ended September 30, 2012
would be $141,675. The change was from increases in remuneration to the Company's Board
of Directors as well as payments made to consultants. During the four months ended October
31, 2013, the Company incurred one-time costs of $5,280 in connection with registering its
shares for listing on the Over the Counter Bulletin Board (“OTCBB”) and additional one -time
legal and consulting fees of $66,856 relating to the restructuring of its operations;
Postage and shipping remained increased to $429,718 from $201,001. During the three-
months ending September 30, 2012, the Company reclassified $81,461 from revenue to credit
against postage and shipping. These represented shipping fees billed to customers to offset
fees charged by shipping couriers. Management decided to reclassify these from revenue to
an offset of shipping expenditures. If these expenditures are reclassified, the total shipping
charges for the three-months ending September 30, 2012 is $282,462. The increases relate
to increased shipping activity in Canada as well as an overall increase in armored shipments ;
Stock based compensation increased to $93,911 from $40,487 for the vested portion of stock
options granted pursuant to the Company's stock option plan. The options have an expiry
date of 5 years from the date of the grant and have a weighted average exercise price of
Cdn$8.84;
Amortization increased to $134,295 from $70,115 which relate to completed software modules
in CEIFX and fixed assets being amortized over their respective lives . The increase was due
to development of increased software enhancements; and
19
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Results of operations – four-months ended October 31, 2013 (continued)
Other general and administrative increased to $510,902 from $206,949. Included within the
$206,949 from the three-months ended September 30, 2012 is an exchange gain $117,122
relating to the consolidation of the financial statements. If this amount is added back, other
general and administrative expenses were $324,071 in 2012. Other expenses are comprised
of insurance, travel and lodging, software maintenance, utilities, and other general and
administrative expenses. The increase is a result of new, non-capitalized costs for opening a
new office in Toronto as well as expenditures to support the expansion of the Company’s
branch network.
The ratio of operating expenses to total revenue for the four-months ended October 31, 2013 was
66% compared to 58% for the three-months ending September 30, 2012. The Company expects this
ratio to remain steady in the short term as the Company continues to incur costs while building
infrastructure to expand its branch network and vault operations. In time, the Company can increase
its operating efficiency by the addition of new downstream financial institutions in Canada and the
United States to redeploy excess currency purchased by its branches, affiliate partners, and other
clientele.
Other income and expenses are comprised of the following:
Four-months ended
Three-months ended
October 31, 2013
September 30, 2012
($)
($)
Other income (expense)
4,890
(3,335)
Fair value change in warrant liability
278,288
868,837
Interest and accretion expense
(22,875)
(26,540)
Expenses related to Exchange Bank of Canada
(51,032)
(114,673)
Costs related to initial public offering
-
(231,720)
Income tax expense
Total other income
(747,079)
(440,225)
(537,808)
52,344
Other income increased to $4,890 from a loss of $3,335 and relate to interest income and
gains on the disposal of fixed assets;
Fair value change in warrant liability resulted in a gain of $278,288 during the four-month
period ended October 31, 2013 from a gain of $868,837 for the three-months ended
September 30, 2012 and relate to a marked to market adjustment of the Company’s issued
and outstanding warrants, of which 1,380,000 were outstanding on September 30, 2012. The
warrants that had not been exercised expired on September 8, 2013 and the liability was
extinguished at that time;
Interest and accretion expense increased to $22,875 from $26,540 and relate primarily to
interest payments on credit lines and term loans;
Expenses related to Exchange Bank of Canada decreased to $51,032 from $114,673 and
relate to legal and administrative expenses to file and process the bank application; and
Income tax expense increased to $747,079 from $440,225 and is a total of federal income tax
as well as various state and provincial taxes for the jurisdictions in which the Company
operates.
20
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Cash flows
Net cash flows from operating activities during the thirteen-month period ended October 31, 2013
increased to $4,556,326 from $2,261,836 during the year ended September 30, 2012. The majority of
the increase in operating cash flow and relates primarily to an increase in trade accounts payable and
accrued expenses at the end of the period. Accounts payable consist of transactions where the
company receives cash and remits payment at a later date, typically between one to two days. The
actual amount of accounts payable balances fluctuates widely from period to period due to the volume
of activity and timing differences. Operating cash flow is generated by commission and fee income,
and is offset by operating expenses.
Cash used in investing activities during the thirteen-month period ended October 31, 2013 increased
to $598,182 compared to $339,629 during the year ended September 30, 2012. The Company's
primary investments consisted of leasehold improvements at branch locations and its new corporate
office in Toronto as well as significant investments in the Company's proprietary software,
www.ceifx.com.
Cash used in financing activities during the thirteen-month period ended October 31, 2013 was
$10,932,373 compared to net cash generated of $6,053,584 for the year ended September 30, 2012.
During the thirteen-months ended October 31, 2013, Cdn$549,822 ($548,264) was generated from
the exercise of 82,680 broker options at a price of Cdn$6.65 per option and 1,435,725 warrants were
exercised at a price of Cdn$7.50 for proceeds of Cdn$10,767,938 ($10,384,109) . During the year
ended September 30, 2012, CXI generated cash of Cdn$9,177,000 ($9,240,936) by completing its
initial public offering for 1,380,000 common shares, at, a price of Cdn$6.65 per share, less issue costs
of $698,297, and debt service repayments of $2,489,055.
Liquidity and capital resources
At October 31, 2013, the Company had working capital of $28,935,018 (September 30, 2012 -
$15,651,326). Working capital consists of cash of $31,130,866 (September 30, 2012 - $16,564,453),
accounts receivable of $1,033,359 (September 30, 2012 - $603,602), restricted cash held in escrow of
$200,707 (September 30, 2012 - $132,340), (September 30, 2012 - $Nil), and other current assets of
$439,795 (September 30, 2012 - $312,975). This was offset by current liabilities of $3,869,709
(September 30, 2012 $1,962,044) which includes accounts payable of $2,918,054 (September 30,
2012 - $682,572), accrued expenses of $801,166 (September 30, 2012 - $714,207), income taxes
payable of $150,489 (September 30, 2012 - $146,438), and warrant liability of $Nil (September 30,
2012 - $418,827).
The Company also maintains a Cdn$2,000,000 credit line with a shareholder of the Company and a
$2,000,000 credit line with Branch Banking and Trust Company, a large US bank based in Winston-
Salem, N.C., to assist with its short-term cash flow needs.
21
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Selected annual and quarterly information
The following tables set out selected consolidated financial information of the Company for the periods
indicated. Each investor should read the following information in conjunction with those financial
statements and notes thereto. The operating results for any past period are not necessarily indicative
of results for any future period. The selected financial information set out below has been derived from
the consolidated financial statements of the Company.
Thirteen months
ended
Twelve months
ended
Twelve months
ended
October 31, 2013 (1)
30-Sep-12
30-Sep-11
Nine months
ended
September 30,
2010 (2)
$
$
$
$
15,990,434
12,314,473
4,045,463
2,641,694
3,573,621
2,717,652
$0.64
0.83
33,681,819
18,225,628
3,917,843
1,998,654
8,683,705
2,796,779
1,489,686
0.66
9,914,292
3,754,954
3,407,289
269,298
129,098
0.07
5,007,511
1,664,119
-
-
110,924
721,284
28,935,018
15,651,326
5,861,804
3,777,905
Revenues
Net operating income
Net income
Basic and diluted earnings per
share (3)
Total assets
Total liabilities
Total non-current financial
liabilities
Working capital
Notes:
1. The Company changed its year-end to October 31, and reported on the thirteen-months ended October 31, 2013.
2. The Company changed its year-end to September 30, and reported on the nine months ended September 30, 2010 as a
transition year.
3. Adjusted for a 2:1 share split effective June 28, 2011.
The following is a summary of unaudited financial data for the most recently completed eight quarters:
Three-months ended
Total revenues
Operating expenses
Operating income
Total assets
$
$
$
$
October 31, 2013 (1)
6,463,406
4,255,989
2,207,417
33,681,819
June 30, 2013
3,799,683
2,705,227
1,094,456
19,997,719
March 31, 2013
2,919,292
2,483,935
435,357
18,709,964
December 31, 2012
2,808,053
2,499,820
308,233
19,929,308
September 30, 2012
3,369,548
1,946,465
1,423,083
18,225,628
June 30, 2012
3,152,246
2,475,331
676,915
17,275,581
March 31, 2012
3,076,693
2,444,988
631,705
16,829,379
December 31, 2011
2,715,986
1,884,777
831,209
10,391,386
Notes:
1. 4 months ended October 31, 2013.
22
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Selected annual and quarterly information (continued)
The quarter ending September 30, 2012 had higher operating income due to a reclassification of
operating expenses incurred during the fiscal year to one-time expenditures relating to the Company's
initial public offering and the pursuit of the Canadian bank charter.
Commitments and contingencies
The Company is party to a management contract with the President and CEO of the Company. The
contract provides maximum commitments of $225,000 in salary for the 2014 fiscal year in addition to a
maximum bonus of up to 62.5% of the annual base salary and additional contingencies of a minimum
$321,000 to be made upon the occurrence of certain events such as a change of control or termination
for reasons other than cause. As the likelihood of a change on control is not determinable, the contingent
payments have not been reflected in the consolidated financial statements.
The Company has entered in to non-cancellable operating leases with terms in excess of one year for the
use of certain facilities. The minimum rental payments associated with these leases are $3,541,614 and
are payable as follows:
Year ended
Remaining minimum
payments required
October 31, 2014
October 31, 2015
October 31, 2016
October 31, 2017
October 31, 2018
October 31, 2019 and thereafter
Total
$1,193,131
$833,896
$548,236
$523,228
$344,434
$98,689
$3,541,614
Off-Balance Sheet Arrangements
There are currently no off balance sheet arrangements which could have an effect on current or
future results or operations, or on the financial condition of the Company.
23
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Hedging Activity
Other than as noted below, the Company does not engage in any form of hedged, derivative or
leveraged trading. Furthermore, the Company does not extend margin or leverage to any of its
customers.
The Company enters into non-deliverable foreign currency forward contracts on a daily basis to mitigate
the risk of fluctuations in the exchange rates of its holdings of major currencies. Changes in the fair value
of the contracts and the corresponding gains or losses are recorded daily and are included in
commissions on the consolidated statements of income and comprehensive income. The Company’s
management strategy is to minimize gains and losses associated with foreign exchange rate changes.
The foreign currency forward contracts can be closed immediately resulting in the collateral being
liquidated. For the thirteen-months ended October 31, 2013, the change in foreign currency value was a
gain of $369,834 (year ended September 30, 2012 - loss of $36,273), the net change from foreign
currency forward contracts related to foreign currency inventory holdings was a loss of $282,973 (year
ended September 30, 2012 - gain - $11,046). For the four-months ended October 31, 2013, the change
in foreign currency value was a gain of $289,730 (three-months ended September 30, 2012 - gain of
$145,974), the net change from foreign currency forward contracts related to foreign currency inventory
holdings was a loss of $265,561 (three-months ended September 30, 2012 - loss of $128,304).
At October 31, 2013 and September 30, 2012, management has assessed that the fair value of the above
foreign currency forward contracts was a nominal amount, given their short-term nature.
As at October 31, 2013 and September 30, 2012 approximately $200,707 and $132,340, respectively,
were being held as collateral on these contracts and are reflected as restricted cash held in escrow in the
consolidated statements of financial position.
Transactions with Related Parties
The remuneration of directors and other members of key management personnel during the thirteen-
months ended October 31, 2013 and the year ended September 30, 2012 were as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
Thirteen-months
ended
Year ended
October 31, 2013
September 30 2012
$
1,090,856
18,700
255,535
1,365,091
$
604,073
9,348
64,409
677,830
On October 29, 2013, the Compensation Committee of the Board of Directors approved a short term
incentive plan (“STIP”) for key officers and executives of the Company. The maximum amount of STIP
payable for key officers and executives for the fiscal year beginning on November 1, 2013 will be
$416,000 and will be paid upon the achievement of performance objectives.
24
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Transactions with Related Parties (continued)
The Company incurred legal and professional fees in the aggregate of $42,736 and $86,171 for the four
and thirteen-months ended October 31, 2013, respectively (three-months and year ended September 30,
2012 - $9,985 and $78,792, respectively) charged by entities controlled by directors or officers of the
Company. During the four and thirteen-months ended October 31, 2013, the Company incurred an
expense $81,052 and $255,535, respectively, from stock options to officers and directors (three-months
and year ended September 30, 2012 - $40,487 and $64,409, respectively).
On March 9, 2012 the Company completed its initial public offering described in Note 17 of the
Consolidated Financial Statements for the thirteen-month period ended October 31, 2013 and the year
ended September 30, 2012. Officers and directors who participated in the offering combined to purchase
a total of 8,100 units.
Option Grant
The Company adopted an incentive stock option plan dated April 28, 2011 (the "Plan"). The Plan is a
rolling stock option plan, under which 10% of the outstanding shares at any given time are available for
issuance there under. The purpose of the Plan is to promote the profitability and growth of the Company
by facilitating the efforts of the Company to attract and retain directors, senior officers, employees,
management and consultants. Vesting terms under the Plan will occur 1/3 upon the first anniversary, 1/3
upon the second anniversary and 1/3 upon the third anniversary of the grant unless otherwise specified
by the Company’s board of directors. Options issued to the company’s directors vest over a one year
period.
Below is information related to each option grant:
Date of Grant
May 4, 2012 December 17, 2012
May 3, 2013
October 29, 2013
October 29, 2013
Expiry Date
Vesting Schedule
Amount granted
Exercise Price
Risk-free interest rate
Expected volatility
Expected dividend yield
Expected life (years)
Fair value of share at grant date
Fair value of option at grant date
Amount vested for the thirteen-
May 4, 2017 December 18, 2017
1/3 annually
1/3 annually
116,000
90,000
Cdn$7.50
Cdn$7.50
0.74%
0.78%
49%
45%
Nil
Nil
5
5
Cdn$6.75
Cdn$7.30
$2.66
$2.84
May 3, 2018
1/3 annually
22,000
Cdn$7.65
0.73%
38%
Nil
5
Cdn$7.35
$2.42
October 29, 2018
1 year
35,640
Cdn$10.86
1.29%
35%
Nil
5
Cdn$10.86
$3.44
October 29, 2018
1/3 annually
114,420
Cdn$10.86
1.29%
35%
Nil
5
Cdn$10.86
$3.44
months ended October 31, 2013
$118,658
$155,366
$12,335
$1,343
$1,317
25
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Option Grant (continued)
The outstanding options as at October 31, 2013 and September 30, 2012 and the respective changes
during the periods are summarized as follows:
October 31, 2013
September 30, 2012
Weighted
average
exercise
price
Number of
options
Vesting
attributable
to period
Number
of options
Weighted
average
exercise
price
Vesting
attributable
to period
#
Cdn$
Cdn$
#
Cdn$
Cdn$
90,000
288,060
7.50
9.26
64,409
-
-
-
289,019
90,000
7.50
64,409
-
-
-
-
- -
-
-
-
-
- -
Outstanding, beginning of period
Granted
Exercised
Expired
Outstanding, end of period
378,060
8.84
353,428
90,000
7.50
64,409
The following options are outstanding and exercisable at October 31, 2013:
Options Outstanding and Exercisable
Exercise price Number outstanding Average remaining contractual life Number exercisable
Cdn$
7.50
7.50
7.65
10.86
10.86
#
90,000
116,000
22,000
35,640
114,420
(years)
3.51
4.13
4.51
5.00
5.00
#
30,000
-
-
-
-
Subsequent events
On November 12, 2013 the Company entered in to a lease agreement for a new corporate headquarters
in Orlando, Florida. The lease calls for total minimum payments of $668,365 and expires on July 31,
2018.
Significant management judgment in applying accounting policies and estimation uncertainty
Significant management judgment
The following are significant management judgments in applying the accounting policies of the Company
and have the most significant effect on the financial statements:
Carrying value of intangible assets
The Company makes significant judgments about the value of its proprietary software, www.ceifx.com.
Once the scope of a project is deemed technologically feasible, the Company capitalizes costs incurred
for the planning, development, and testing phases of modules developed within its software. Subsequent
to the completion of the software development cycle, each module is amortized over a period of five
years. Costs relating to software maintenance, regular software updates and minor software
customizations are expensed as incurred. The Company reviews completed software modules within
www.ceifx.com for impairment on an ongoing basis.
26
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Share-based payments including broker options
Management determines costs for share-based payments using market-based valuation techniques. The
fair value of the market-based and performance-based share awards are determined at the date of grant
using generally accepted valuation techniques. Assumptions are made and judgment used in applying
valuation techniques. These assumptions and judgments include estimating the future volatility of the
stock price, expected dividend yield, future employee turnover rates, future employee stock option
exercise behaviors and corporate performance. Such judgments and assumptions are inherently
uncertain. Changes in these assumptions affect the fair value estimates.
Income taxes and recoverability of potential deferred tax assets
In assessing the probability of realizing income tax assets recognized, management makes estimates
related to expectations of future taxable income, applicable tax planning opportunities, expected timing of
reversals of existing temporary differences and the likelihood that tax positions taken will be sustained
upon examination by applicable tax authorities. In making its assessments, management gives additional
weight to positive and negative evidence that can be objectively verified. Estimates of future taxable
income are based on forecasted cash flows from operations and the application of existing tax laws in
each jurisdiction. The Company considers whether relevant tax planning opportunities are within the
Company’s control, are feasible, and are within management’s ability to implement. Examination by
applicable tax authorities is supported based on individual facts and circumstances of the relevant tax
position examined in light of all available evidence. Where applicable tax laws and regulations are either
unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these
estimates can occur that materially affect the amounts of income tax assets recognized. Also, future
changes in tax laws could limit the Company from realizing the tax benefits from the deferred tax assets.
The Company reassesses unrecognized income tax assets at each reporting period.
Estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing basis. Information about estimates
and assumptions that have the most significant effect on recognition and measurements of assets,
liabilities, income and expenses is provided below. Actual results may be substantially different.
Assets’ carrying values and impairment charges
In the determination of carrying values and impairment charges, management looks at the higher of
recoverable amount or fair value less costs to sell in the case of assets and at objective evidence,
significant or prolonged decline of fair value on financial assets indicating impairment. These
determinations and their individual assumptions require that management make a decision based on the
best available information at each reporting period. The Company reviews property and equipment and
intangible assets for impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable.
Amortization expense
The Company's property and equipment and intangible assets are amortized over their estimated useful
economic lives. Useful lives are based upon management's estimates of the length of time that the assets
will generate revenue, which is reviewed at least annually for appropriateness. Changes to these
estimates can result in variations in the amounts charged for amortization and in the assets' carrying
amounts.
27
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Future accounting pronouncements
Certain pronouncements were issued by the International Accounting Standards Board (“IASB”) or
International Financial Reporting Interpretations Committee (“IFRIC”). Many are not applicable or do not
have a significant impact to the Company and have been excluded. The following standards have not yet
been adopted and are being evaluated to determine their impact on the Company.
IFRS 9 (2010) Financial Instruments (“IFRS 9 (2010)”) was issued in October 2010 and contains all of the
requirements in IFRS 9 (2009), as well as requirements for financial liabilities. Most of the guidance in
IFRS 9 (2010) related to the recognition and measurement of financial liabilities remains unchanged from
current IFRS. This standard is required to be applied for accounting periods beginning on or after
January 1, 2015, with earlier adoption permitted. The Company has not yet determined the impact of the
amendments to IFRS 9 on its consolidated financial statements.
IFRS 9 (2010) Financial Instruments (“IFRS 9 (2010)”) was issued in October 2010 and contains all of the
requirements in IFRS 9 (2009), as well as requirements for financial liabilities. Most of the guidance in
IFRS 9 (2010) related to the recognition and measurement of financial liabilities remains unchanged from
current IFRS. This standard is required to be applied for accounting periods beginning on or after
January 1, 2015, with earlier adoption permitted. The Company has not yet determined the impact of the
amendments to IFRS 9 on its consolidated financial statements.
IFRS 10 Consolidated Financial Statements (“IFRS 10”) provides a single model to be applied in the
control analysis for all investees, including entities that currently are special purpose entities in the scope
of SIC 12 Consolidation – Special purpose entities. In addition, the consolidation procedures are carried
forward substantially unmodified from IAS 27 Consolidated and Separate Financial Statements. The
Company has adopted this standard for the annual period commencing November 1, 2013. The
Company has determined that there is no impact at this time.
IFRS 12 Disclosure of Involvement with Other Entities (“IFRS 12”) was issued in May 2011. IFRS 12
requires a parent company to disclose information about significant judgments and assumptions it has
made in determining whether it has control, joint control, or significant influence over another entity and
the type of joint arrangement when the arrangement has been structured through a separate vehicle. An
entity should also provide these disclosures when changes in facts and circumstances affect the entity’s
conclusion during the reporting period. This standard is effective for annual periods beginning on or after
October 1, 2013, and early adoption is permitted. The Company has adopted this standard for the annual
period commencing November 1, 2013. The Company has determined that there is no impact at this
time.
IFRS 13 Fair Value Measurement (“IFRS 13”) was issued in May, 2011 and provides guidance on how to
measure fair value, as well as requiring specific disclosures related to fair value measurements
recognized and in the financial statements. IFRS 13 is effective for annual periods beginning on or after
January 1, 2013, with early adoption permitted. The Company has adopted this standard for the annual
period commencing November 1, 2013. The Company has determined that there is no impact at this
time.
IAS 32 Financial Instruments - Presentation ("IAS 32") was amended to clarify the criteria that should be
considered in determining whether an entity has a legally enforceable right of set off in respect of its
financial instruments. Amendments to IAS 32 are applicable to annual periods beginning on or after
January 1, 2014 with retrospective application required. Earlier application is permitted. The Company
has not yet determined the impact of IAS 32 on its consolidated financial statements.
28
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Accounting Policies
Principles of consolidation
The consolidated financial statements comprise the financial statements of the Company and its wholly-
owned subsidiaries, Currency Exchange International of Canada Corp, a corporation incorporated under
the Canada Business Corporations Act and Currency Exchange International America Corp., a corporation
incorporated under the Florida Corporations Act.
Subsidiaries are entities over which the Company has control, where control is defined as the power to
govern financial and operating policies of an entity so as to obtain benefit from its activities. Subsidiaries are
fully consolidated from the date control is transferred to the Company, and are de-consolidated from the
date control ceases. All material intercompany transactions are eliminated on consolidation.
Cash
Cash includes:
local and foreign currency notes held in tills, vaults, branches, distribution centers and in
transit; and
cash in bank accounts.
Foreign cash is recorded at market value based on foreign exchange rates as of October 31, 2013 and
September 30, 2012, respectively.
Accounts receivable
Trade accounts receivable are stated net of an allowance for doubtful accounts. Accounts receivable
consist primarily of bulk currency trades with a settlement cycle of 24 to 48 hours. The amount of
accounts receivable varies widely from period to period due to the volume of activity and timing
differences. There is minimal counter-party risk as the bulk of the Company's receivables reside with
banks and other financial institutions. Management estimates the allowance based on an analysis of
specific customers, taking into consideration the age of past due accounts and an assessment of the
customer's ability to pay. The Company does not accrue interest on past due receivables. Management
determined that allowance for doubtful accounts was $Nil as of October 31, 2013 and September 30
2012, respectively.
Revenue recognition
Commissions from trading are the difference between the cost and selling price of foreign currency
products, including bank notes, wire transmissions, cheque collections and draft issuances (foreign
currency margin) and the revaluation of open foreign exchange positions to market value, together with
the net gain or loss from foreign currency forward contracts used to offset the changes in foreign
exchange positions and commissions paid on the sale and purchase of currencies. These revenue
streams are all reflected in commissions from trading and are recognized at the time each transaction
takes place or at the end of each reporting period when revaluations of foreign exchange positions take
place.
Fee income includes fees collected on cheque cashing, wire transfers, cheque collections, and currency
exchange transactions. Fee income is recognized when the transaction is made on a trade date basis.
29
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Accounting Policies (continued)
Foreign currencies
Transactions denominated in foreign currencies are translated at the exchange rate at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the consolidated
statement of financial position date are translated at rates at that date. Exchange gains and losses,
which arise from normal trading activities, are included in operating expenses in the consolidated
statements of income and comprehensive income when incurred. The functional currency of Currency
Exchange International of Canada Corp, is the Canadian dollar and the functional currency of the parent
and Currency Exchange International America Corp. is the U.S. dollar.
Accounting Policies (continued)
In situations where the functional currency is not the same as the presentation currency, foreign currency
denominated assets and liabilities are translated to their U.S. dollar equivalents using foreign exchange
rates in effect at the consolidated statement of financial position date. Revenues and expenses are
translated at average rates of exchange during the period. Exchange gains or losses arising on foreign
currency translation are included in accumulated other comprehensive income.
Foreign currency forward contracts
Foreign currency forward contracts are recognized on the Company's consolidated statement of financial
position when the Company becomes a party to the contractual provisions of the instrument. The
instrument is derecognized from the consolidated statement of financial position when the contractual
rights or obligations arising from that instrument expire or are extinguished. Forward currency contracts
are recognized at fair value. The gain or loss on fair value is recognized immediately in the consolidated
statement of income and comprehensive income.
Leases
The Company has entered into various operating leases. Payments on operating lease agreements are
recognized and expensed on a straight-line basis over the term of the lease. Associated costs, such as
maintenance and insurance, are expensed as incurred.
Property and equipment
Property and equipment is initially recorded at its cost and amortized over its estimated useful life. Cost
includes expenditures which are directly attributable to bringing the asset into working condition for its
intended useful use. Amortization is calculated on a straight line basis, as follows:
Vehicles
Computer equipment
Furniture and equipment
Leasehold improvements
3 years
3 years
3 years
over the term of the lease
When parts of an asset have different useful lives, amortization is calculated on each separate part. In
determining the useful lives of the component parts, the Company considers both the physical condition
of the parts as well as technological life limitations. Estimates of remaining useful lives and residual
values are reviewed annually. Changes in estimates are accounted for prospectively.
30
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Accounting Policies (continued)
Provisions
Provisions are recognized when, (a) the Company has a present obligation (legal or constructive) as a
result of a past event, and (b) it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Where the Company expects some or all of a provision to be reimbursed, for example under an insurance
contract, the reimbursement is recognized as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented in the consolidated statement of
income and comprehensive income net of any reimbursement. If the effect of the time value of money is
material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks
specific to the liability. Where discounting is used, the increase in the provision due to the passage of
time is recognized as a finance cost.
Intangible assets
Intangible assets are comprised of internally developed software. Costs related to the development of
software prior to technological feasibility are expensed. Once the Company concludes that technological
feasibility has been obtained and the Company intends to use the software, all subsequent development
costs are capitalized and reported at cost less any accumulated amortization and any accumulated losses.
Amortization is calculated on a straight line basis over the estimated useful life of 5 years.
Share-based payments including broker options
The Company's share option plan allows certain employees, directors and consultants to acquire shares of
the Company. Equity settled share based payments to employees and others providing similar services
are measured at the fair value of the equity instruments at the grant date. The fair value determined at the
grant date of the equity-settled share-based payments is expensed on a graded vesting basis over the
period during which the employee, director or consultant becomes unconditionally entitled to the equity
instruments, based on the Company's estimate of equity instruments that will eventually vest. At the end of
each reporting period, the Company revises its estimate of the number of equity instruments expected to
vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
Financial assets
Financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement are
classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity
investments, available-for-sale financial assets, or derivatives. The Company determines the classification
of its financial assets at initial recognition.
Fair value through profit and loss
Financial assets at fair value through profit and loss are initially recognized at fair value with changes in fair
value recorded through income. Cash in local and foreign currencies held in tills, vaults, or in transit are
included in this category of financial assets.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an
active market. Such assets are initially recognized at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the
effective interest method, less any impairment losses. Financial assets including accounts receivable,
financial instruments included in other current assets and restricted cash held in escrow are all classified as
loans and receivables.
31
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Accounting Policies (continued)
Derivative financial instruments
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are
subsequently re-measured to their fair value at each reporting date. The resulting gain or loss is
recognised in profit or loss immediately. A derivative with a positive fair value is recognised as a financial
asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is
presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is
more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives
are presented as current assets or current liabilities.
Financial liabilities
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit
or loss or other financial liabilities. The Company determines the classification of its financial liabilities at
initial recognition. All financial liabilities are recognized initially at fair value. The Company's financial
liabilities include accounts payable, accrued expenses, shareholder loan payable, and short term note
payable which are all classified as other financial liabilities. Warrant liability is classified as fair value
through profit or loss.
Other financial liabilities
Other financial liabilities are recognized initially at fair value net of any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the
effective interest method. The effective interest method is a method of calculating the amortized cost of a
financial liability and of allocating interest and any transaction costs over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash payments through the expected life of
the financial liability or (where appropriate) to the net carrying amount on initial recognition. Other financial
liabilities are derecognized when the obligations are discharged, cancelled or expired.
Financial instruments recorded at fair value
Financial instruments recorded at fair value in the consolidated statements of financial position are
classified using a fair value hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets
or liabilities;
Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and
Level 3 - valuation techniques using inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
As of October 31, 2013 and September 30, 2012, cash including foreign currencies held in tills and vaults
and the warrant liability are classified as Level 1 financial instruments
Earnings per share
The Company presents basic and diluted earnings per share data for its common shares, calculated by
dividing the earnings attributable to common shareholders of the Company by the weighted average
number of common shares outstanding during the period. Diluted earnings per share is determined by
adjusting the earnings attributable to common shareholders and the weighted average number of common
shares outstanding for the effects of all dilutive warrants and options outstanding that may add to the total
number of common shares.
32
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Risk Factors
The operations of the Company are speculative due to the high-risk nature of its business and present
stage of development. These risk factors could materially affect the Company’s financial condition and/or
future operating results and could cause actual events to differ materially from those described in forward-
looking statements relating to the Company. Although the following are major risk factors identified by
management, they do not comprise a definitive list of all risk factors related to the Company, and other
risks and uncertainties not presently known by management could impair the Company and its business
in the future.
Limited operating history
The Company has only a limited operating history upon which an evaluation of the Company and its
prospects can be based. Although the Company anticipates increases in revenues, it is also incurring
substantial expenses in the establishment of its business. To the extent that such expenses do not result
in appropriate revenue increases, the Company’s long-term viability may be materially and adversely
affected.
A significant portion of the Company’s financial resources have been and will continue to be, directed to
the development of its business and marketing activities. The success of the Company will ultimately
depend on its ability to generate cash from its business. There is no assurance that the future expansion
of the Company’s business will be sufficient to raise the required funds to continue the development of its
business and marketing activities.
Future capital needs and uncertainty of additional financing
The Company may need to raise funds in order to support more rapid expansion, develop new or
enhanced services and products, respond to competitive pressures, acquire complementary businesses
or technologies or take advantage of unanticipated opportunities. The Company may be required to raise
additional funds through public or private financing, strategic relationships or other arrangements. There
can be no assurance that such additional funding, if needed, will be available on terms attractive to the
Company, or at all. Furthermore, any additional equity financing may be dilutive to shareholders and debt
financing, if available, may involve restrictive covenants. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the shareholders of the Company will be
reduced, shareholders may experience additional dilution in net book value per share, or such equity
securities may have rights, preferences or privileges senior to those of the holders of Common Shares. If
adequate funds are not available on acceptable terms, the Company may be unable to develop or
enhance its business, take advantage of future opportunity or respond to competitive pressures, any of
which could have a material adverse effect on the Company's business, financial condition and operating
results.
Competition
The Company faces competition from established competitors such as Travelex Group, Wells Fargo
Bank, Bank of America and American Express, and also from competitors using alternative technologies.
While the market for foreign currency exchange is highly fragmented in the United States, there exists
little in the way of barriers to entry to this type of business. The Company therefore believes that it must
continue to develop new products and services and introduce enhancements to its existing products and
services in a timely manner if it is to remain competitive. Even if the Company introduces new and
enhanced products and services, it may not be able to compete effectively because of the significantly
greater financial, technical, marketing and other resources available to some of its competitors. As the
markets for the Company’s products and services expand, additional competition may emerge and
competitors may commit more resources to competitive products and services. There can be no
assurance that the Company will be able to compete successfully in these circumstances.
33
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Risk Factors (continued)
Management of Growth
The Company has recently experienced, and may continue to experience, rapid growth in the scope of its
operations. This growth has resulted in increased responsibilities for the Company’s existing personnel,
the hiring of additional personnel and, in general, higher levels of operating expenses. In order to manage
its current operations and any future growth effectively, the Company will need to continue to implement
and improve its operational, financial and management information systems, as well as hire, manage and
retain its employees and maintain its corporate culture including technical and customer service standards.
There can be no assurance that the Company will be able to manage such growth effectively or that its
management, personnel or systems will be adequate to support the Company’s operations.
Credit Risk
Credit risk is the risk of financial loss associated with counterparty’s inability to fulfill its payment
obligations. The Company’s credit risk is primarily attributable to cash and accounts receivable. All
domestic and international banking relationships are selected by senior management. The Company
maintains accounts in high quality financial institutions. At various times, the Company's bank balances
may exceed the federally or provincially insured limits.
The credit risk associated with accounts receivable is limited, as the Company's receivables consist
primarily of bulk currency trades with a settlement cycle of 24 to 48 hours. There is minimal counterparty
risk as the majority of the Company's receivables reside with banks and other financial institutions. For
the purpose of risk control, the customers are grouped as follows: domestic and international financial
institutions, money service businesses and other customers. Credit limits are established for each
customer, whereby the credit limit represents the maximum open amount without requiring payments in
advance. A breakdown of accounts receivable by category is below:
Customer type
Domestic and international banks
Money service businesses
Other
Total
October 31, 2013
September 30, 2012
$
443,739
584,109
5,511
1,033,359
$
215,114
377,839
10,649
603,602
These limits are reviewed regularly by senior management.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset on the
statement of financial position. There are no commitments that could increase this exposure to more than
the carrying amount.
34
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Risk Factors (continued)
Foreign Currency Risk
The volatility of the Company's foreign currency holdings may increase as a result of the political and
financial environment of the corresponding issuing country. Several currencies have limited exchange
rate exposure as they are pegged to the U.S. Dollar, the reporting currency of the Company.
Management believes its exposure to foreign currency fluctuations is mitigated by the short-term nature
and rapid turnover of its foreign currency inventory, as well as the use of forward contracts to offset these
fluctuations. Due to their nature, some minor and exotic foreign currencies cannot be hedged or are too
cost prohibitive to hedge. In order to mitigate the risks associated with holding these foreign currencies,
the Company assigns wider bid/ask spreads and maintains specific inventory targets to minimize the
impact of exchange rate fluctuations. These targets are reviewed regularly and are increased or
decreased to accommodate demand. The amount of unhedged inventory held in vaults, tills and in transit
at October 31, 2013 was approximately $3,040,000. The amount of currency that is unhedged and that is
not pegged to the U.S. Dollar is $1,550,000. A 2% increase/reduction in the market price for the
aggregate of the Company's unhedged/un-pegged foreign currencies would result in an exchange
gain/loss of approximately +$30,000/-$30,000.
On a consolidated basis, the Company is also exposed to foreign currency fluctuations between the US
dollar and the functional currencies of its subsidiaries. The major foreign currency giving rise to currency
risk is the Canadian dollar.
The Company does not hedge its net investment in its foreign subsidiary and the related foreign currency
translation of local earnings.
Interest Rate Risk
As of October 31, 2013, the Company had access to interest bearing financial instruments in cash and
short term note payables. A significant amount of the Company's cash is held as foreign currency
banknotes in tills and vaults. These amounts are not subject to interest rate risk. Cash held in some of
the Company’s accounts are interest bearing; however, since prevailing interest rates are low there is
minimal interest rate risk. Borrowings bear interest at fixed and variable rates. Cash and borrowings
issued at variable rates expose the Company to cash flow interest rate risk. For the interest rate profile of
the Company's interest bearing financial liabilities, refer to Note 12 of the consolidated financial
statements for the thirteen-month period ended October 31, 2013.
The Company manages interest rate risk in order to reduce the volatility of the financial results as a
consequence of interest rate movements. For the decision whether new borrowings shall be arranged at
a variable or fixed interest rate, senior management focuses on an internal long-term benchmark interest
rate and considers the amount of cash currently held at a variable interest rate. Currently the interest rate
exposure is un-hedged.
If interest rates had been 50 basis points higher/lower with all other variables held constant, after tax
profit for the thirteen-months ended October 31, 2013 would have been approximately +$1,000/-$1,000
higher/lower as a result of credit lines held at variable interest rates.
35
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Risk Factors (continued)
Liquidity Risk
Liquidity Risk is the risk that the Company will not be able to meet its financial obligations as they fall due.
The CFO informs the CEO, the Board of Directors, and the Audit Committee of capital and liquidity issues
as they occur in accordance with established policies and guidelines. The Company targets to have a
cash reserve or credit lines greater than 15% of the Company's prior year's revenues.
The following are non-derivative contractual financial liabilities:
As at October 31, 2013
Non-derivative financial liabilities Carrying amount Contractual amount Next fiscal year
$
2,918,054
757,237
Accounts payable
Accrued expenses
$
2,918,054
801,165
$
2,918,054
757,237
As at September 30, 2012
Non-derivative financial liabilities Carrying amount Contractual amount Next fiscal year
$
682,572
690,212
Accounts payable
Accrued expenses
$
682,572
690,212
$
682,572
714,207
Future fiscal years
$
-
-
Future fiscal years
$
-
-
The Company had unused lines of credit amounting to $4,000,000 as of October 31, 2013
(September 30, 2012 - $3,000,000).
The Company manages capital through its financial and operational forecasting processes. The
Company reviews its working capital and forecasts its cash flows based on operating expenditures, and
other investing and financing activities related to its daily operations.
The Company monitors its capital structure and makes adjustments according to market conditions in an
effort to meet its objectives given the current outlook of the business and industry in general. The
Company may manage its capital structure by issuing new shares, obtaining loan financing, adjusting
capital spending, or disposing of assets. The capital structure is reviewed by management and the Board
of Directors on an ongoing basis.
Product Development and Rapid Technological Change
The advent of the so called “cashless society” may erode the physical bank-note currency markets
resulting in a significant adverse effect upon the Company’s continued growth and profitability. While the
enabling technology has existed for over a decade, the development of a truly cashless society continues
to be slowed by such factors as issues respecting infrastructure, cultural resistance, distribution problems
and patchwork regulations. Nevertheless, the success of the Company could be seriously affected by a
competitor’s ability to develop and market competing technologies.
36
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Risk factors (continued)
Product Development and Rapid Technological Change (continued)
To remain competitive, the Company must continue to enhance and improve the responsiveness,
functionality and features of its technology and website, CEIFX. The Internet and the e-commerce
industry are characterized by rapid technological change, changes in user and customer requirements
and preferences, frequent new product and service introductions embodying new technologies and the
emergence of new industry standards and practices that could render the Company’s existing operations
and proprietary technology and systems obsolete. The Company’s success will depend, in part, on its
ability to develop leading technologies useful in its business, enhance its existing services, develop new
services and technology that address the increasingly sophisticated and varied needs of its existing and
prospective customers and respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. The development of Internet and other proprietary
technology entails significant technical, financial and business risks. There can be no assurance that the
Company will successfully implement new technologies or adapt its website, proprietary technology and
transaction-processing systems to customer requirements or emerging industry standards. If the
Company is unable to adapt in a timely manner in response to changing market conditions or customer
requirements for technical, legal financial or other reasons, the Company’s business could be materially
adversely affected.
Intellectual Property
Proprietary rights are important to the Company’s success and its competitive position. Although the
Company seeks to protect its proprietary rights, its actions may be inadequate to protect any trademarks
and other proprietary rights or to prevent others from claiming violations of their trademarks and other
proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or
limited in certain countries, and the global nature of the Internet makes it impossible to control the
ultimate designation of the Company’s work. Any of these claims, with or without merit, could subject the
Company to costly litigation and the diversion of the time and attention of its technical management
personnel.
Government Regulation and Compliance
Any non-compliance with U.S. Treasury Department currency transaction reporting procedures could
result in significant financial penalties and the possibility of criminal prosecution. While the Company is
largely exempt from these procedures given that (i) transactions originating with hospitality sector clients
are subject to certain floor limits that represent a small fraction of the reporting threshold limits, and (ii)
transactions originating with banks are subject to the banks own internal compliance reporting
procedures, effectively relieving the Company of this responsibility, the risk is nevertheless present.
Several countries prohibit non-banks from providing currency exchange transaction services. While the
Company believes the possibility is remote, the risk does exist that the United States government may
someday institute regulations to prohibit non-banks from providing foreign currency exchange services.
Network Security Risks
Despite the implementation of network security measures by the Company, its infrastructure is potentially
vulnerable to computer break-ins and similar disruptive problems. Concerns over Internet security have
been, and could continue to be, a barrier to commercial activities requiring consumers and businesses to
send confidential information over the Internet. Computer viruses, break-ins or other security problems
could lead to misappropriation of proprietary information and interruptions, delays or cessation in service
to the Company’s clients. Moreover, until more comprehensive security technologies are developed, the
security and privacy concerns of existing and potential clients may inhibit the growth of the Internet as a
medium for commerce.
37
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Risk factors (continued)
to protect
its systems against damage
Risk of System Failure or Inadequacy
The Company’s operations are dependent on its ability to maintain its equipment in effective working
loss,
order and
telecommunications failure or similar events. In addition, the growth of the Company’s customer base
may strain or exceed the capacity of its computer and telecommunications systems and lead to
degradations in performance or systems failure. The Company may in the future experience failure of its
information systems which may result in decreased levels of service delivery or interruptions in service to
its customers. While the Company continually reviews and seeks to upgrade its technical infrastructure
and provides for certain system redundancies and backup power to limit the likelihood of systems
overload or failure, any damage, failure or delay that causes interruptions in the Company’s operations
could have a material and adverse effect on the Company’s business.
fire, natural disaster, power
from
In addition, some of the Company’s applications are hosted by third parties. Any failure on the part of third
parties to maintain their equipment in good working order and to prevent system disruptions could have a
material and adverse effect on the Company’s business.
Theft and Risk of Physical Harm to Personnel
The Company stores and transports bank notes as part of its daily business and faces the risk of theft and
employee dishonesty.
The Company maintains a crime insurance policy which provides coverage against theft and employee
dishonesty, but any particular claim is subject to verification that it is within policy limits which may not be
assured and may require legal proceedings to enforce coverage. Of particular concern are circumstances
where employees could collude with customers to engage in theft by evasion of internal and other controls
and cause damage which may not be predictable or within the terms of existing insurance coverage. The
Company’s Audit Committee monitors internal controls and the CEIFX technology monitors and accounts
for all fund balances in real time.
In addition, employees and agents of the Company are potentially subject to physical harm if subjected to a
forcible robbery. The Company has an internal risk committee which manages the deployment of a
comprehensive security program which includes surveillance cameras, alarms, safe/vault equipment
alarms and additional intrusion protection devices, as well as multiple staff on site at all times.
Reliance on Key Personnel
The Company currently has a small senior management group, which is sufficient for the Company's
present level of activity. The Company's future growth and its ability to develop depend, to a significant
extent, on its ability to attract and retain highly qualified personnel. The Company relies on a limited
number of key employees, consultants and members of senior management and there is no assurance
that the Company will be able to retain such key employees, consultants and senior management. The
loss of one or more of such key employees, consultants or members of senior management, if not
replaced, could have a material adverse effect on the Company's business, financial condition and
prospects.
The development of the Company is dependent upon its ability to attract and retain key personnel,
particularly the services of the President and CEO, Randolph W. Pinna. The loss of Mr. Pinna’s services
could have a materially adverse impact on the business of the Company. There can be no assurance
that the Company can retain its key personnel or that it can attract and train qualified personnel in the
future. The Company currently has key person insurance on Mr. Pinna of $2.5 million.
38
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Risk factors (continued)
Control of the Company
Randolph W. Pinna, the Chief Executive Officer and Chairman of the Company, is the principal
shareholder of the Company and the promoter of the Company. Mr. Pinna beneficially owns 25% of the
issued and outstanding Common Shares.
Dr. Sanford Pinna is one of seven directors of the Company and owns 6,350 Common Shares
representing approximately 0.1% of the Common Shares issued and outstanding. Dr. Pinna is not an
independent director as he is an immediate family member of Randolph W. Pinna.
By virtue of his status as the principal shareholder of the Company, by being a director and officer of the
Company and having an immediate family member who is also a director and a shareholder, Randolph
W. Pinna has the power to exercise significant influence over all matters requiring shareholder approval,
including the election of directors, amendments to the Company’s articles and by-laws, mergers, business
combinations and the sale of substantially all of the Company’s assets. As a result, the Company could
be prevented from entering into transactions that could be beneficial to the Company or its other
shareholders. Also, third parties could be discouraged from making a take-over bid. As well, sales by
Randolph W. Pinna of a substantial number of Common Shares could cause the market price of Common
Shares to decline.
Mr. Randolph Pinna's influence over the control of the Company is mitigated by the Company's
appointment of a Lead Independent Director, Chirag Bhavsar, on December 7, 2012 as well as the
independent majority of its board and its committees.
Global Economic and Financial Market Conditions
Recent market events and conditions, including disruption in the Canadian, U.S. and international credit
markets and other financial systems and the deterioration of Canadian, U.S. and global economic
conditions, could, among other things, impact tourism and impede access to capital or increase the cost
of capital, which would have an adverse effect on the Company's ability to fund its working capital and
other capital requirements.
Notwithstanding various actions by U.S., Canadian and foreign governments, concerns about the general
condition of the capital markets, financial instruments, banks, investment banks, insurers and other
financial institutions have caused the broader credit markets to deteriorate. In addition, general economic
indicators have deteriorated, including declining consumer sentiment, increased unemployment and
declining economic growth and uncertainty about corporate earnings. These disruptions in the current
credit and financial markets have had a significant material adverse impact on a number of financial
institutions and have limited access to capital and credit for many companies, such as the Company.
These disruptions could, among other things, make it more difficult for the Company to obtain, or increase
its cost of obtaining, capital and financing for its operations. The Company's access to additional capital
may not be available on terms acceptable to the Company or at all.
Market Price and Volatile Securities Markets
Worldwide securities markets have been experiencing a high level of price and volume volatility and
market prices of securities of many companies have experienced unprecedented declines in prices which
have not necessarily been related to the operating performance, underlying asset values or prospects of
such companies. Market forces may render it difficult or impossible for the Company to secure purchasers
to purchase its securities at a price which will not lead to severe dilution to existing shareholders, or at all.
In addition, shareholders may realize less than the original amount invested on dispositions of their
Common Shares during periods of such market price decline.
39
Management Discussion and Analysis
(All amounts expressed in U.S. dollars unless otherwise noted)
For the thirteen-month period ended October 31, 2013 and year ended September 30, 2012
Risk factors (continued)
International Issuer, Management and Directors
The Company is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or
resides outside of Canada. Substantially all of the Company’s assets are located outside of Canada.
Certain of the officers, directors and the promoter of the Company reside outside of Canada. Although the
Company and such persons have appointed Peterson Law Professional Company as their agents for
service of process in Canada, it may not be possible for investors to enforce judgments obtained in
Canada against the Company or such persons.
40
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended September 30, 2012
(Expressed in U.S. Dollars)
41
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended September 30, 2012
(Expressed in U.S. Dollars)
TABLE OF CONTENTS
Independent auditor’s report
Consolidated Statements of Financial Position
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
43-44
45
46
47
48
49-71
42
Independent auditor’s report
Grant Thornton LLP
Suite 300
3600 Dundas Street
Burlington, ON
L7M 4B8
T (289) 313-0300
F (289) 313-0355
www.GrantThornton.ca
To the members of the Audit Committee of
Currency Exchange International, Corp.
We have audited the accompanying consolidated financial statements of Currency Exchange
International, Corp., which comprise the consolidated statement of financial position as at
October 31, 2013, and the consolidated statement of income and comprehensive income,
consolidated statement of changes in equity and consolidated statement of cash flows for the
thirteen-month period then ended, and a summary of significant accounting policies and other
explanatory information
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards, and for
such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on
our audit. We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
43
effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Currency Exchange International, Corp. as at October 31,
2013, and its financial performance and its cash flows for the thirteen-month period then ended
in accordance with International Financial Reporting Standards.
Other matters
The consolidated financial statements of Currency Exchange International, Corp. for the year
ended September 30, 2012 were audited by another auditor who expressed an unmodified
opinion on those statements on December 10, 2012.
Burlington, Canada
January 8, 2014
Chartered accountants
Licensed Public Accountants
44
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Financial Position
As at October 31, 2013 and September 30, 2012
(Expressed in U.S. Dollars)
Current assets
Cash (Note 5)
Accounts receivable
ASSETS
October 31, 2013
September 30, 2012
$
$
31,130,866
16,564,453
1,033,359
603,602
Restricted cash held in escrow (Note 6)
200,707
132,340
Other current assets (Note 22)
439,795
312,975
Total current assets
32,804,727
17,613,370
Property and equipment (Note 8)
461,273
391,125
Intangible assets (Note 9)
371,130
185,929
Other assets
Total assets
44,689
35,204
33,681,819
18,225,628
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Accrued expenses
Income taxes payable
Warrant liability (Note 15)
Total current liabilities
Deferred tax liability (Note 10)
Total liabilities
Equity
Share capital (Note 17)
Equity reserves (Note 17)
Broker options (Note 17)
Stock options (Note 17)
Retained earnings
2,918,054
682,572
801,166
714,207
150,489
146,438
-
418,827
3,869,709
48,134
1,962,044
36,610
3,917,843
1,998,654
5,390,473
3,872,068
17,127,971
7,623,905
-
129,512
353,428
64,409
7,178,774
4,537,080
Accumulated other comprehensive loss
(286,670)
-
Total equity
29,763,976
16,226,974
Total liabilities and equity
33,681,819
18,225,628
Commitments and contingencies (Notes 7 and 21)
Subsequent events (Note 23)
Approved on behalf of Board of Directors:
(signed) "Randolph Pinna", Director
(signed) "Chirag Bhavsar", Director
Refer to accompanying notes to the consolidated financial statements.
45
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Income and Comprehensive Income
Thirteen-months ended October 31, 2013, and year ended September 30, 2012
(Expressed in U.S. Dollars)
Revenues
Commissions from trading
Fee income
Total revenues (Note 4)
Operating expenses (Note 19)
Net operating income
Other income (expense)
Other income/(expense)
Gain on forward contract (Note 14)
Thirteen-months ended
Year ended
October 31, 2013
September 30, 2012
$
$
14,674,438
11,245,366
1,315,996
1,069,107
15,990,434
12,314,473
11,944,971
8,740,852
4,045,463
3,573,621
13,126
(2,373)
-
92,343
Fair value change in warrant liability (Note 15)
458,241
962,408
Interest and accretion (Note 12)
(37,874)
(150,988)
Expenses related to Exchange Bank of Canada (Note 20)
(272,004)
(114,673)
Warrant issue costs
-
(124,171)
Costs related to initial public offering (Note 17)
-
(231,720)
Total other income (expense)
161,489
430,826
Income before income taxes
4,206,952
4,004,447
Income tax expense (Note 10)
(1,565,258)
(1,286,795)
Net income
2,641,694
2,717,652
Other comprehensive income for the year, after tax
Net Income
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations
Total comprehensive income
Earnings per share (Note 18)
- basic
- diluted
Weighted average number of common shares outstanding (Note 18)
- basic
-diluted
2,641,694
2,717,652
(286,670)
2,355,024
-
2,717,652
$0.64
$0.64
4,126,996
4,133,075
$0.83
$0.83
3,268,789
3,271,454
Refer to accompanying notes to the consolidated financial statements.
46
CURRENCY EXCHANGE INTERNATIONATIONAL, CORP.
Consolidated Statements of Changes in Equity
(Expressed in U.S Dollars)
Common Stock
Broker Options
Stock Options
Accumulated
Other
Comprehensive
Income
Broker
Options
Amount
Stock
Options
Amount
Retained
Earnings
Balance at September 30, 2011
2,492,068
2,492,068
1,847,842
Shares
Amount Equity Reserves
#
$
$
Issuance of shares (Note 17)
1,380,000
1,380,000
6,479,701
Issuance of broker options (Note 17)
Issuance of stock options (Note 17)
Share issue costs (Note 17)
Net income
-
-
-
-
-
-
-
-
-
-
(703,638)
-
Balance, September 30, 2012
3,872,068
3,872,068
7,623,905
Issuance of shares (Note 17)
1,518,405
1,518,405
9,413,968
Exercise of broker options (Note 17)
Expiry of broker options (Note 17)
Issuance of stock options (Note 17)
Loss on foreign currency translation
Net income
-
-
-
-
-
-
-
-
-
-
89,910
188
-
-
-
$
-
-
-
-
-
-
-
-
-
-
-
(286,670)
-
Balance, October 31, 2013
5,390,473
5,390,473
17,127,971
(286,670)
#
$
$
Total
$
-
-
1,819,428
6,159,338
-
-
-
7,859,701
#
-
-
$
-
-
-
-
-
-
-
82,800
129,512
-
-
90,000
64,409
-
-
129,512
64,409
-
-
-
(703,638)
-
-
-
2,717,652
2,717,652
82,800
129,512
90,000
64,409
4,537,080
16,226,974
-
-
(82,680)
(129,324)
(120)
(188)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
288,060
289,019
-
-
-
-
-
10,932,373
-
-
-
-
(39,414)
-
289,019
(286,670)
2,641,694
2,641,694
378,060
353,428
7,178,774
29,763,976
Refer to accompanying notes to the consolidated financial statements.
47
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Cash Flows
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
flows from operating activities
Amortization
Stock based compensation
Non cash warrant issue cost
(Gain) loss on disposal of assets
Deferred taxes
Thirteen-months ended
Year ended
October 31, 2013
September 30, 2012
$
$
2,641,694
2,717,652
347,052
248,707
289,019
64,409
-
124,171
(6,380)
4,281
11,524
(61,085)
Foreign exchange loss on short term note payable
-
108,347
Foreign exchange gain on forward contract
-
(92,343)
Accretion expense
Fair value change in warrant liability
(Decrease) increase in cash due to change in:
Accounts receivable
Restricted cash held in escrow
Other assets
-
42,873
(458,241)
(962,408)
(461,760)
(363,668)
(73,530)
(32,822)
(140,794)
147,586
Accounts payable and accrued expenses
2,407,741
316,136
Net cash flows from operating activities
4,556,326
2,261,836
Cash flows from investing activities
Purchase of property and equipment
Purchase of intangible assets
Proceeds from sale of equipment
(355,693)
(257,240)
(260,797)
(82,389)
18,308
-
Net cash outflow from investing activities
(598,182)
(339,629)
Cash flows from financing activities
Proceeds from exercise of broker options and share warrants
10,932,373
9,240,936
Share Issue costs
Repayment of long-term debt
-
-
(698,297)
(222,141)
Repayment on lines of credit and notes payable
-
(2,099,904)
Repayment of shareholder loan payable
Net cash flows from financing activities
Net change in cash
Cash, beginning of period
Exchange difference on foreign operations
Cash, end of period
-
(167,010)
10,932,373
6,053,584
14,890,447
7,975,791
16,564,453
8,588,662
(324,104)
-
31,130,866
16,564,453
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes
1,540,733
1,211,223
Cash paid during the period for interest
Cash received during the year for interest
26,954
108,115
7,157
1,688
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Warrants issued on conversion of broker options (Note 17)
Broker options issued for services (Note 17)
39,414
-
-
129,512
Refer to accompanying notes to the consolidated financial statements.
48
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
1.
Nature of Operations and Basis of Presentation
Nature of operations
Currency Exchange International, Corp. (the "Company") was originally incorporated under the name
Currency Exchange International, Inc. under the Florida Corporations Act on April 7, 1998. The Company
changed its name to Currency Exchange International, Corp. on October 19, 2007 and commenced its
current business operations at that time. The Company is a public corporation whose shares are listed
and posted for trading on the Toronto Stock Exchange (TSX) under the symbol "CXI" and the over the
counter market (OTCBB) under the symbol CURN. The Company operates as a money service business
and provides currency exchange, wire transfer, and cheque cashing services at its locations in the United
States and Canada. The Company currently maintains a head office and four vaults as well as 26 branch
locations. The Company’s registered head office is located at 4901 Vineland Road, Suite 580, Orlando,
Florida, 32811, United States of America.
Change in reporting period
Effective February 2013, Currency Exchange International, Corp. changed its fiscal year end to October
31, 2013 to conform to the reporting period for Canadian chartered banks.
Basis of presentation
The presentational currency of the Company's consolidated financial statements is the U.S. dollar. The
accounting policies set out in Note 2 have been applied consistently to all periods presented in these
financial statements. These consolidated financial statements have been prepared on a historical cost
basis, with exception to certain financial instruments measured at fair value. In addition, these
consolidated financial statements have been prepared using the accrual basis of accounting, except for
cash flow information.
Statement of compliance
The policies applied in these consolidated financial statements are based on International Financial
Reporting Standards (IFRS) issued and outstanding as of October 31, 2013. The Board of Directors
approved the consolidated financial statements on January 8, 2014.
Significant management judgment in applying accounting policies and estimation uncertainty
When preparing the financial statements, management makes a number of judgments, estimates, and
assumptions about the recognition and measurement of assets, liabilities, income and expense.
Significant management judgment
The following are significant management judgments in applying the accounting policies of the Company
and have the most significant effect on the financial statements:
Carrying value of intangible assets
The Company makes significant judgments about the value of its proprietary software, www.ceifx.com.
Once the scope of a project is deemed technologically feasible, the Company capitalizes costs incurred
for the planning, development, and testing phases of modules developed within its software. Subsequent
to the completion of the software development cycle, each module is amortized over its estimated useful
economic life, which has been assessed as a period of five years. Costs relating to software
maintenance, regular software updates, and minor software customizations are expensed as incurred.
The Company reviews completed software modules within www.ceifx.com for impairment on an ongoing
basis.
49
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
1.
Nature of Operations and Basis of Presentation (continued)
Share-based payments including broker options
Management determines the overall expense for share-based payments using market-based valuation
techniques. The fair value of the market-based and performance-based share awards are determined at
the date of grant using generally accepted valuation techniques. Assumptions are made and judgment
used in applying valuation techniques. These assumptions and judgments include estimating the future
volatility of the stock price, expected dividend yield, future employee turnover rates, future employee
stock option exercise behaviors and corporate performance. Such judgments and assumptions are
inherently uncertain. Changes in these assumptions affect the fair value estimates.
Income taxes and recoverability of potential deferred tax assets
In assessing the probability of realizing income tax assets recognized, management makes estimates
related to expectations of future taxable income, applicable tax planning opportunities, expected timing of
reversals of existing temporary differences and the likelihood that tax positions taken will be sustained
upon examination by applicable tax authorities. In making its assessments, management gives additional
weight to positive and negative evidence that can be objectively verified. Estimates of future taxable
income are based on forecasted cash flows from operations and the application of existing tax laws in
each jurisdiction. The Company considers whether relevant tax planning opportunities are within the
Company’s control, are feasible, and are within management’s ability to implement. Examination by
applicable tax authorities is supported based on individual facts and circumstances of the relevant tax
position examined in light of all available evidence. Where applicable tax laws and regulations are either
unclear or subject to ongoing varying interpretations, it is reasonably possible that changes in these
estimates can occur that materially affect the amounts of income tax assets recognized. Also, future
changes in tax laws could limit the Company from realizing the tax benefits from the deferred tax assets.
The Company reassesses unrecognized income tax assets at each reporting period.
Estimation uncertainty
Estimates and underlying assumptions are reviewed on an ongoing basis. Information about estimates
and assumptions that have the most significant effect on recognition and measurements of assets,
liabilities, income and expenses is provided below. Actual results may be substantially different.
Assets’ carrying values and impairment charges
In the determination of carrying values and impairment charges, management looks at the higher of
recoverable amount or fair value less costs to sell (in the case of non-financial assets) and at objective
evidence, for a significant or prolonged decline of fair value on financial assets indicating impairment.
These determinations and their individual assumptions require that management make a decision based
on the best available information at each reporting period. The Company reviews property and equipment
and intangible assets for impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable.
Amortization expense
The Company's property and equipment and intangible assets are amortized over their estimated useful
economic lives. Useful lives are based upon management's estimates of the length of time that the assets
will generate revenue, which is reviewed at least annually for appropriateness. Changes to these
estimates can result in variations in the amounts charged for amortization and in the assets' carrying
amounts.
50
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
1.
Nature of Operations and Basis of Presentation (continued)
Contingencies
The Company is subject to contingencies that are not recognized as liabilities because they are either:
possible obligations that have yet to be confirmed whether the Company has a present
obligation that could lead to an outflow of resources embodying economic benefits; or
present obligations that do not meet recognition criteria because either it is not probable that
an outflow of resources embodying economic benefits will be required to settle the obligation,
or a sufficiently reliable estimate of the amount of the obligation cannot be made.
Refer to Notes 7 and 21.
Comparative figures
Comparative figures have been reclassified to conform to the current period's presentation.
2.
Accounting Policies
Principles of consolidation
The consolidated financial statements comprise the financial statements of the Company and its wholly-
owned subsidiaries, Currency Exchange International of Canada Corp. (“CXIC”) a corporation incorporated
under the Canada Business Corporations Act and Currency Exchange International America Corp
(“CXIA”)., a corporation incorporated under the Florida Corporations Act.
Subsidiaries are entities over which the Company has control, where control is defined as the power to
govern financial and operating policies of an entity so as to obtain benefit from its activities. Subsidiaries are
fully consolidated from the date control is transferred to the Company, and are de-consolidated from the
date control ceases. All material intercompany transactions are eliminated on consolidation.
Cash
Cash includes, but is not limited to:
local and foreign currency notes;
local and foreign currencies held in tills and vaults;
local and foreign currencies in transit;
local and foreign currencies in branches or distribution centers; and
cash in bank accounts.
Foreign cash is recorded at market value based on foreign exchange rates as of October 31, 2013 and
September 30, 2012, respectively.
Accounts receivable
Trade accounts receivable are stated net of an allowance for doubtful accounts. Accounts receivable
consist primarily of bulk currency trades with a settlement cycle of 24 to 48 hours. The amount of
accounts receivable varies widely from period to period due to the volume of activity and timing
differences. There is minimal counter-party risk as the bulk of the Company's receivables reside with
banks and other financial institutions. Management estimates the allowance based on an analysis of
specific customers, taking into consideration the age of past due accounts and an assessment of the
customer's ability to pay. The Company does not accrue interest on past due receivables. Management
determined that allowance for doubtful accounts was $Nil as of October 31, 2013 and September 30
2012, respectively.
51
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Revenue recognition
Commissions from trading are the difference between the cost and selling price of foreign currency
products, including bank notes, wire transmissions, cheque collections and draft issuances (foreign
currency margin) and the revaluation of open foreign exchange positions to market value, together with
the net gain or loss from foreign currency forward contracts used to offset the changes in foreign
exchange positions and commissions paid on the sale and purchase of currencies. These revenue
streams are all reflected in commissions from trading and are recognized at the time each transaction
takes place or at the end of each reporting period when revaluations of foreign exchange positions take
place.
Fee income includes fees collected on cheque cashing, wire transfers, cheque collections, and currency
exchange transactions. Fee income is recognized when the transaction is made on a trade date basis.
Foreign currencies
Transactions denominated in foreign currencies are translated at the exchange rate at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the consolidated
statement of financial position date are translated at rates at that date. Exchange gains and losses,
which arise from normal trading activities, are included in operating expenses in the consolidated
statements of income and comprehensive income when incurred. The functional currency of Currency
Exchange International of Canada Corp. is the Canadian dollar and the functional currency of the parent
and Currency Exchange International America Corp. is the U.S. dollar.
In situations where the functional currency is not the same as the presentation currency, foreign currency
denominated assets and liabilities are translated to their U.S. dollar equivalents using foreign exchange
rates in effect at the consolidated statement of financial position date. Revenues and expenses are
translated at average rates of exchange during the period. Exchange gains or losses arising on foreign
currency translation are included in accumulated other comprehensive income.
Foreign currency forward contracts
Foreign currency forward contracts are recognized on the Company's consolidated statement of financial
position when the Company becomes a party to the contractual provisions of the instrument. The
instrument is derecognized from the consolidated statement of financial position when the contractual
rights or obligations arising from that instrument expire or are extinguished. Forward currency contracts
are recognized at fair value. The gain or loss on fair value is recognized immediately in the consolidated
statement of income and comprehensive income.
Leases
The Company has entered into various operating leases. Payments on operating lease agreements are
recognized and expensed on a straight-line basis over the term of the lease. Associated costs, such as
maintenance and insurance, are expensed as incurred.
52
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Property and equipment
Property and equipment is initially recorded at its cost and amortized over its estimated useful life. Cost
includes expenditures which are directly attributable to bringing the asset into working condition for its
intended use. Amortization is calculated on a straight line basis, as follows:
Vehicles
Computer equipment
Furniture and equipment
Leasehold improvements
3 years
3 years
3 years
over the term of the lease
When parts of an asset have different useful lives, amortization is calculated on each separate part. In
determining the useful lives of the component parts, the Company considers both the physical condition
of the parts as well as technological life limitations. Estimates of remaining useful lives and residual
values are reviewed annually. Changes in estimates are accounted for prospectively.
Provisions
Provisions are recognized when, (a) the Company has a present obligation (legal or constructive) as a
result of a past event, and (b) it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Where the Company expects some or all of a provision to be reimbursed, for example under an insurance
contract, the reimbursement is recognized as a separate asset but only when the reimbursement is
virtually certain. The expense relating to any provision is presented in the consolidated statement of
income and comprehensive income net of any reimbursement. If the effect of the time value of money is
material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks
specific to the liability. Where discounting is used, the increase in the provision due to the passage of
time is recognized as a finance cost.
Intangible assets
Intangible assets are comprised of internally developed software. Costs related to the development of
software prior to technological feasibility are expensed. Once the Company concludes that technological
feasibility has been obtained and the Company intends to use the software, all subsequent development
costs are capitalized and reported at cost less any accumulated amortization and any accumulated losses.
Amortization is calculated on a straight line basis over the estimated useful life of 5 years.
Share-based payments including broker options
The Company's share option plan allows certain employees, directors and consultants to acquire shares of
the Company. Equity settled share based payments to employees and others providing similar services
are measured at the fair value of the equity instruments at the grant date. The fair value determined at the
grant date of the equity-settled share-based payments is expensed on a graded vesting basis over the
period during which the employee, director or consultant becomes unconditionally entitled to the equity
instruments, based on the Company's estimate of equity instruments that will eventually vest. At the end of
each reporting period, the Company revises its estimate of the number of equity instruments expected to
vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
Financial assets
Financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement are
classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity
investments, available-for-sale financial assets, or derivatives. The Company determines the classification
of its financial assets at initial recognition.
53
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Fair value through profit and loss
Financial assets at fair value through profit and loss are initially recognized at fair value with changes in fair
value recorded through income. Cash in local and foreign currencies held in tills, vaults, or in transit are
included in this category of financial assets.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an
active market. Such assets are initially recognized at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the
effective interest method, less any impairment losses. Financial assets including accounts receivable,
financial instruments included in other current assets and restricted cash held in escrow are all classified as
loans and receivables.
Derivative financial instruments
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are
subsequently re-measured to their fair value at each reporting date. The resulting gain or loss is
recognised in profit or loss immediately. A derivative with a positive fair value is recognised as a financial
asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is
presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is
more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives
are presented as current assets or current liabilities.
Financial liabilities
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit
or loss or other financial liabilities. The Company determines the classification of its financial liabilities at
initial recognition. All financial liabilities are recognized initially at fair value. The Company's financial
liabilities include accounts payable, accrued expenses, shareholder loan payable, and short term note
payable which are all classified as other financial liabilities. Warrant liability is classified as fair value
through profit or loss.
Other financial liabilities
Other financial liabilities are recognized initially at fair value net of any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the
effective interest method. The effective interest method is a method of calculating the amortized cost of a
financial liability and of allocating interest and any transaction costs over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash payments through the expected life of
the financial liability or (where appropriate) to the net carrying amount on initial recognition. Other financial
liabilities are derecognized when the obligations are discharged, cancelled or expired.
54
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Financial instruments recorded at fair value
Financial instruments recorded at fair value in the consolidated statements of financial position are
classified using a fair value hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices); and
Level 3 - valuation techniques using inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
As of October 31, 2013 and September 30, 2012, cash including foreign currencies held in tills and vaults
and the warrant liability are classified as Level 1 financial instruments.
Earnings per share
The Company presents basic and diluted earnings per share data for its common shares, calculated by
dividing the earnings attributable to common shareholders of the Company by the weighted average
number of common shares outstanding during the period. Diluted earnings per share is determined by
adjusting the earnings attributable to common shareholders and the weighted average number of common
shares outstanding for the effects of all dilutive warrants and options outstanding that may add to the total
number of common shares.
Income taxes
Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities
relating to the current or prior reporting period, that are unpaid at the consolidated statement of financial
position date.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is
generally provided on the difference between the carrying amounts of assets and liabilities and their tax
bases. Tax losses available to be carried forward as well as other income tax credits are assessed for
recognition as deferred tax assets.
Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective
period of realization, provided they are enacted or substantively enacted at the consolidated statement of
financial position date. This provision is not discounted. Deferred tax liabilities are always provided for in
full. Deferred tax assets are recognized to the extent that it is probable that they will be able to be offset
against future taxable income.
Management bases its assessment of the probability of future taxable income on the Company's latest
approved forecasts, which are adjusted for significant non-taxable income and expenses and specific
limits to the use of any unused tax loss or credit. The specific tax rules in the numerous jurisdictions in
which the Company operates are also carefully taken into consideration. If a positive forecast of taxable
income indicates the probable use of a deferred tax asset, that deferred tax asset is recognized in full.
The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties
is assessed individually by management based on the specific facts and circumstances.
55
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Changes in deferred tax assets and liabilities are recognized as a component of tax expense in the
consolidated statement of income and comprehensive income, except where they relate to items that are
charged or credited directly to equity in which case the related deferred tax is also charged or credited
directly to equity.
3.
New Accounting Polices and Future Accounting Pronouncements
Future accounting pronouncements
Certain pronouncements were issued by the International Accounting Standards Board (“IASB”) or
International Financial Reporting Interpretations Committee (“IFRIC”). Many are not applicable or do not
have a significant impact to the Company and have been excluded. The following standards have not yet
been adopted and are being evaluated to determine their impact on the Company.
IFRS 9 (2009) Financial Instruments (“IFRS 9 (2009)”) was issued in November 2009 and contained
requirements for financial assets. The standard addresses classification and measurement of financial
assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a
new mixed measurement model having only two categories: amortized cost and fair value through profit
or loss. IFRS 9 (2009) also replaces the models for measuring equity instruments, and such instruments
are either recognized at fair value through profit or loss or at fair value through other comprehensive
income. IFRS 9 (2009) amends some of the requirements of IFRS 7 including added disclosures about
investments in equity instruments designated through fair value of other comprehensive income.
IFRS 9 (2010) Financial Instruments (“IFRS 9 (2010)”) was issued in October 2010 and contains all of the
requirements in IFRS 9 (2009), as well as requirements for financial liabilities. Most of the guidance in
IFRS 9 (2010) related to the recognition and measurement of financial liabilities remains unchanged from
current IFRS. This standard is required to be applied for accounting periods beginning on or after
January 1, 2015, with earlier adoption permitted. The Company has not yet determined the impact of the
amendments to IFRS 9 on its consolidated financial statements.
IFRS 10 Consolidated Financial Statements (“IFRS 10”) provides a single model to be applied in the
control analysis for all investees, including entities that currently are special purpose entities in the scope
of SIC 12 Consolidation – Special purpose entities. In addition, the consolidation procedures are carried
forward substantially unmodified from IAS 27 Consolidated and Separate Financial Statements. The
Company has adopted this standard for the annual period commencing November 1, 2013. The
Company has determined that there is no impact at this time.
IFRS 12 Disclosure of Involvement with Other Entities (“IFRS 12”) was issued in May 2011. IFRS 12
requires a parent company to disclose information about significant judgments and assumptions it has
made in determining whether it has control, joint control, or significant influence over another entity and
the type of joint arrangement when the arrangement has been structured through a separate vehicle. An
entity should also provide these disclosures when changes in facts and circumstances affect the entity’s
conclusion during the reporting period. This standard is effective for annual periods beginning on or after
October 1, 2013, and early adoption is permitted. The Company has adopted this standard for the annual
period commencing November 1, 2013. The Company has determined that there is no impact at this
time.
IFRS 13 Fair Value Measurement (“IFRS 13”) was issued in May, 2011 and provides guidance on how to
measure fair value, as well as requiring specific disclosures related to fair value measurements
recognized and in the financial statements. IFRS 13 is effective for annual periods beginning on or after
January 1, 2013, with early adoption permitted. The Company has adopted this standard for the annual
period commencing November 1, 2013. The Company has determined that there is no impact at this
time.
56
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
3.
New Accounting Polices and Future Accounting Pronouncements (continued)
IAS 32 Financial Instruments - Presentation ("IAS 32") was amended to clarify the criteria that should be
considered in determining whether an entity has a legally enforceable right of set off in respect of its
financial instruments. Amendments to IAS 32 are applicable to annual periods beginning on or after
January 1, 2014 with retrospective application required. Earlier application is permitted. The Company
has not yet determined the impact of IAS 32 on its consolidated financial statements.
4.
Operating Segments
The Company operates in the United States and Canada. The Company's revenue from external
customers and information about its assets by geographical location are detailed below:
Revenues ($)
United States
Canada
Total
Thirteen-months ended October 31, 2013
14,382,012
1,608,422
15,990,434
Year ended September 30, 2012
11,477,160
837,313
12,314,473
October 31, 2013
September 30, 2012
Assets
United
States
Canada
Total
United
States
Canada
$
$
$
$
$
Total
$
Cash
6,451,236
24,679,630
31,130,866
10,018,626
6,545,827
16,564,453
Accounts receivable
59,640
973,719
1,033,359
389,754
213,848
603,602
Restricted cash held in escrow
-
200,707
200,707
132,340
-
132,340
Other current assets
297,838
141,957
439,795
304,019
8,956
312,975
Property and equipment
348,001
113,272
461,273
301,405
89,720
391,125
Intangible assets
Other assets
Total assets
371,130
31,636
-
371,130
185,929
-
185,929
13,053
44,689
28,819
6,385
35,204
7,559,481
26,122,338
33,681,819
11,360,892
6,864,736
18,225,628
On October 31, 2013 the Company restructured its operations to add additional capital into CXIC as part of
its bank application process. As a result, the cash and capital in the Canadian subsidiary increased
substantially.
Cash
5.
Included within cash of $31,130,866 (September 30, 2012 - $16,564,453) are the following balances:
Cash held in transit, vaults, tills and consignment
locations
Cash deposited in bank accounts in jurisdictions in
which it operates
Total
October 31, 2013
$
September 30, 2012
$
15,427,028
15,703,838
31,130,866
15,026,294
1,538,159
16,564,453
57
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
6.
Restricted Cash Held in Escrow
Certain of the Company's secured transactions and derivative contracts require the Company to post cash
collateral or maintain minimum cash balances in escrow. The foreign currency forward contracts can be
closed immediately resulting in the collateral being liquidated. The Company had cash collateral in escrow
of $200,707 as of October 31, 2013 (September 30, 2012 - $132,340)
7.
Operating Leases
The Company has entered into non-cancellable operating leases with terms in excess of one year for the
use of certain facilities. The rent expense associated with these leases for the thirteen-months ended
October 31, 2013 was $1,683,547(year ended September 30, 2012 - $1,344,777).
The following is a schedule of future minimum rental payments and license fees required under these
agreements as of October 31, 2013:
Year ended
Remaining minimum
payments required
October 31, 2014
October 31, 2015
October 31, 2016
October 31, 2017
October 31, 2018
October 31, 2019 and thereafter
Total
$1,193,131
$833,896
$548,236
$523,228
$344,434
$98,689
$3,541,614
The Company is also responsible for its proportionate share of operating costs.
58
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
8.
Property and Equipment
Property and equipment consisted of the following as of October 31, 2013 and September 30, 2012:
Cost
Balance, September 30, 2011
Additions
Disposals
Balance, September 30, 2012
Additions
Disposals
Balance, October 31, 2013
Amortization
Balance, September 30, 2011
Amortization
Disposals
Balance, September 30, 2012
Amortization
Disposals
Balance, October 31, 2013
Carrying amounts
Balance, September 30, 2012
Balance, October 31, 2013
Vehicles
$
51,567
14,806
-
66,373
31,683
(49,853)
48,203
Vehicles
$
30,146
12,100
-
42,246
14,231
(37,926)
18,551
Vehicles
$
24,127
29,652
Computer
equipment
$
88,062
44,183
(7,761)
124,484
33,564
(25,812)
132,236
Computer
equipment
$
64,623
25,501
(3,480)
86,644
31,003
(25,811)
91,836
Computer
equipment
$
37,840
40,400
Furniture and
equipment
$
100,927
70,899
-
171,826
33,327
(6,861)
198,292
Furniture and
equipment
$
66,753
29,995
-
96,748
41,733
(6,861)
131,620
Furniture and
equipment
$
75,078
66,672
Leasehold
improvements
$
462,135
127,352
-
589,487
254,958
(16,312)
828,133
Leasehold
improvements
Total
$
702,691
257,240
(7,761)
952,170
353,532
(98,838)
1,206,864
Total
$
185,057
150,350
$
346,579
217,946
- -
561,045
271,456
(86,910)
745,591
335,407
184,489
(16,312)
503,584
Leasehold
improvements
$
254,080
324,549
Total
$
391,125
461,273
9.
Intangible Assets
Intangible assets are comprised of the Company's internally developed software and its related modules.
Amortization is computed on an individual product basis over the estimated economic life of the product
using the straight-line method. The balance of intangible assets as of October 31, 2013 and September
30, 2012 consisted of:
Balance, September 30, 2011
Additions
Balance, September 30, 2012
Additions
Balance, October 31, 2013
Cost
Amortization
Net Book Value
$
149,201
82,389
231,590
260,797
492,387
$
14,900
30,761
45,661
75,596
121,257
$
134,301
51,628
185,929
185,201
371,130
59
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
10.
Income taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities as of October 31, 2013 and September 30, 2012 consist of the following:
Deferred tax assets
Accrued expenses
Stock based compensation
Listing expenses
Total deferred tax assets
Deferred tax liabilities
Intangible assets
Net property and equipment
Currency translation
Total deferred tax liabilities
Net deferred tax liabilities
October 31, 2013
September 30, 2012
$
$
63,468
137,837
-
201,305
50,063
24,875
89,490
164,428
144,741
104,698
-
249,439
71,806
70,961
58,271
201,038
48,134
36,610
Reconciliation of the provision for income taxes to the amount calculated using the Company’s statutory
tax rate for the thirteen-months ended October 31, 2013 and year ended September 30, 2012 are as
follows:
October 31, 2013 September 30, 2012
$
$
Income before taxes
Statutory tax rate
4,206,952
38%
4,004,447
39%
Tax expense at statutory rate
1,598,642
1,561,734
Permanent difference (benefit)
(71,269)
(323,005)
Other
37,885
48,066
Income tax expense
1,565,258
1,286,795
The enacted tax rates in Canada of 26.5% (2012 – 26.9%) and in the United States of 38% (2012 – 39%)
where the Company operates are applied in the tax provision calculation. The Canadian rate was reduced
due to a scheduled rate reduction, whereas the decrease in the United States rate was due to change in
income allocations amongst the states.
60
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
10.
Income taxes (continued)
The provisions for income taxes for the thirteen-months ended October 31, 2013 and year ended
September 30, 2012 consist of the following:
October 31, 2013 September 30, 2012
$
$
Current tax expense
1,553,734
1,347,880
Deferred tax (benefit) expense
11,524
(61,085)
Income tax expense
1,565,258
1,286,795
11.
Seasonality of Operations
Seasonality is reflected in the timing of when foreign currencies are in greater or lower demand. In a
normal operating year there is some seasonality to the Company's operations with higher commissions
generally from March until September and fewer commissions from October to February. This coincides
with peak tourism seasons in North America when there are generally more travelers entering and leaving
the United States and Canada.
12.
Lines of Credit
The Company maintains two lines of credit for access to capital during peak business periods. In May of
2012, the Company entered into a line of credit agreement with Branch Banking and Trust Company for a
principal amount of up to $1,000,000 for a one-time fee of $10,000. The line of credit bears interest at the
bank's prime rate (as of October 31, 2013 3.25%) and is secured against the Company's cash and non-
cash assets and renews annually. Any and all future debt is subordinate to the credit line. In May of
2013, the Company amended the note to increase the principal to an amount of up to $2,000,000 for a
one-time fee of $10,000. At October 31 2013, the balance on the line of credit was $Nil (September 30,
2012 - $Nil). During the thirteen-month period ended October 31, 2013, the Company recognized interest
expense of $6,715 respectively (year ended September 30, 2012 - $3,290).
On January 4, 2011, the Company entered into a Master Purchasing Agreement to borrow up to
Cdn$5,000,000 with a shareholder of the Company. On December 14, 2011, the Company amended the
terms of the Master Purchasing Agreement to reduce the available credit from Cdn$5,000,000 to
Cdn$2,000,000 upon completion of the offering described in Note 17. The Master Purchasing Agreement
is subordinate to the credit line held with Branch Banking and Trust Company described below and is
unsecured. Specific repayment terms and interest rates are negotiated when drawings are made.
During the thirteen-month period ended October 31, 2013, the Company recognized interest and
accretion expense of $19,618 (year ended September 30, 2012 - $131,237).
61
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
13.
Risk Management
The Company's activities expose it to a variety of financial risk: credit risk, foreign currency risk, interest
rate risk and liquidity risk. The Company's risk management policies are designed to minimize the
potential adverse effects on the Company's financial performance.
Financial risk management is carried out by the CFO under policies approved by senior management and
the Board of Directors. Policies are in place to evaluate and monitor risk and in some cases, prescribe
that the Company hedge its financial risks.
The analysis below presents information about the Company's exposure to each of the risks arising from
financial instruments and the Company's objectives, policies and processes for measuring and managing
these risks.
Credit Risk
Credit risk is the risk of financial loss associated with counterparty’s inability to fulfill its payment
obligations. The Company’s credit risk is primarily attributable to cash in bank accounts and accounts
receivable.
All domestic and international banking relationships are approved by senior management. The Company
maintains accounts in high quality financial institutions. At various times, the Company's bank balances
may exceed the federally or provincially insured limits.
The credit risk associated with accounts receivable is limited, as the Company's receivables consist
primarily of bulk currency trades with a settlement cycle of 24 to 48 hours. There is minimal counterparty
risk as the majority of the Company's receivables reside with banks and other financial institutions. For
the purpose of risk control, the customers are grouped as follows: domestic and international financial
institutions, money service businesses and other customers. Credit limits are established for each
customer, whereby the credit limit represents the maximum open amount without requiring payments in
advance. A breakdown of accounts receivable by category is below:
Customer type
Domestic and international banks
Money service businesses
Other
Total
October 31, 2013
September 30, 2012
$
443,739
584,109
5,511
1,033,359
$
215,114
377,839
10,649
603,602
These limits are reviewed regularly by senior management.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset on the
statement of financial position. There are no commitments that could increase this exposure to more than
the carrying amount.
62
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
13.
Risk Management (continued)
Foreign Currency Risk
The volatility of the Company's foreign currency holdings may increase as a result of the political and
financial environment of the corresponding issuing country. Several currencies have limited exchange
rate exposure as they are pegged to the U.S. Dollar, the reporting currency of the Company.
Management believes its exposure to foreign currency fluctuations is mitigated by the short-term nature
and rapid turnover of its foreign currency inventory, as well as the use of forward contracts to offset these
fluctuations. Due to their nature, some minor and exotic foreign currencies cannot be hedged or are too
cost prohibitive to hedge. In order to mitigate the risks associated with holding these foreign currencies,
the Company assigns wider bid/ask spreads and maintains specific inventory targets to minimize the
impact of exchange rate fluctuations. These targets are reviewed regularly and are increased or
decreased to accommodate demand. The amount of unhedged inventory held in vaults, tills and in transit
at October 31, 2013 was approximately $3,040,000. The amount of currency that is unhedged and that is
not pegged to the U.S. Dollar is $1,550,000. A 2% increase/reduction in the market price for the
aggregate of the Company's unhedged/un-pegged foreign currencies would result in an exchange
gain/loss of approximately +$30,000/-$30,000.
On a consolidated basis, the Company is also exposed to foreign currency fluctuations between the US
dollar and the functional currencies of its subsidiaries. The major foreign currency giving rise to this cur-
rency risk is the Canadian dollar.
The Company does not hedge its net investment in its foreign subsidiary and the related foreign currency
translation of local earnings.
Interest Rate Risk
As of October 31, 2013, the Company had access to interest bearing financial instruments in cash and
short term note payables. A significant amount of the Company's cash is held as foreign currency
banknotes in tills and vaults. These amounts are not subject to interest rate risk. Cash held in some of
the Company’s accounts are interest bearing; however, since prevailing interest rates are low there is
minimal interest rate risk. Borrowings bear interest at fixed and variable rates. Cash and borrowings
issued at variable rates expose the Company to cash flow interest rate risk. For the interest rate profile of
the Company's interest bearing financial liabilities, refer to Note 12.
The Company manages interest rate risk in order to reduce the volatility of the financial results as a
consequence of interest rate movements. For the decision whether new borrowings shall be arranged at
a variable or fixed interest rate, senior management focuses on an internal long-term benchmark interest
rate and considers the amount of cash currently held at a variable interest rate. Currently the interest rate
exposure is un-hedged.
If Interest rates had been 50 basis points higher/lower with all other variables held constant, after tax
profit for the thirteen-months ended October 31, 2013 would have been approximately +$1,000/-$1,000
higher/lower as a result of credit lines held at variable interest rates.
63
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
13.
Risk Management (continued)
Liquidity Risk
Liquidity Risk is the risk that the Company will not be able to meet its financial obligations as they fall due.
The CFO informs the CEO, the Board of Directors, and the Audit Committee of capital and liquidity issues
as they occur in accordance with established policies and guidelines. The Company targets to have a
cash reserve or credit lines greater than 15% of the Company's prior year's revenues.
The following are non-derivative contractual financial liabilities:
As of October 31, 2013
Non-derivative financial liabilities Carrying amount Contractual amount Next fiscal year
$
2,918,054
757,237
Accounts payable
Accrued expenses
$
2,918,054
757,237
$
2,918,054
801,165
Future fiscal years
$
-
-
As of September 30, 2012
Non-derivative financial liabilities Carrying amount Contractual amount Next fiscal year Future fiscal years
$
-
-
Accounts payable
Accrued expenses
$
682,572
714,207
$
682,572
690,212
$
682,572
690,212
The Company had unused lines of credit amounting to $4,000,000 as of October 31, 2013
(September 30, 2012 - $3,000,000).
The Company manages capital through its financial and operational forecasting processes. The
Company reviews its working capital and forecasts its cash flows based on operating expenditures, and
other investing and financing activities related to its daily operations.
The Company monitors its capital structure and makes adjustments according to market conditions in an
effort to meet its objectives given the current outlook of the business and industry in general. The
Company may manage its capital structure by issuing new shares, obtaining loan financing, adjusting
capital spending, or disposing of assets. The capital structure is reviewed by management and the Board
of Directors on an ongoing basis.
14.
Foreign Currency Forward Contracts
The Company enters into non-deliverable foreign currency forward contracts on a daily basis to mitigate
the risk of fluctuations in the exchange rates of its holdings of major currencies. Changes in the fair value
of the contracts and the corresponding gains or losses are recorded daily and are included in
commissions on the consolidated statements of income and comprehensive income. The Company’s
management strategy is to reduce the risk of fluctuations associated with foreign exchange rate changes.
The foreign currency forward contracts can be closed immediately resulting in the collateral being
liquidated. For the thirteen-months ended October 31, 2013, the change in foreign currency value was a
gain of $369,834 (year ended September 30, 2012 - loss of $36,273), and the net change from foreign
currency forward contracts related to foreign currency inventory holdings was a loss of $282,973 (year
ended September 30, 2012 - gain - $11,046).
At October 31, 2013 and September 30, 2012, management has assessed that the fair value of the above
foreign currency forward contracts was a nominal amount, given their short-term nature.
64
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
14.
Foreign Currency Forward Contracts (continued)
As of October 31, 2013 and September 30, 2012 approximately $200,707 and $132,340, respectively,
were being held as collateral on these contracts and are reflected as restricted cash held in escrow in the
consolidated statements of financial position. See Note 6.
In December of 2011, the Company entered into a forward contract to purchase Cdn$2,000,000 to
mitigate the foreign currency exchange risk relating to a short term Cdn$2,000,000 loan entered in to
under the Master Purchasing Agreement described in Note 12. The forward contract expired on the date
of the Company's public offering. During the thirteen-months ended October 31, 2013, the Company
realized an exchange gain on the forward contract of $Nil (year ended September 30, 2012 - gain of
$92,343).
15.
Warrant Liability
On March 9, 2012, the Company completed a public offering by issuing 1,380,000 units for gross
proceeds of Cdn$9,177,000 (Note 17). Each unit was comprised of one common share and one common
share purchase warrant and expired on September 12, 2013. The grant date fair value of $1,381,235
was allocated to the warrants based on the Black-Scholes option pricing model using the following inputs:
Risk-free interest rate
Expected volatility
Expected dividend yield
Expected life (years)
Fair value of common share at grant date
March 9, 2012
0.20%
59%
Nil
1.5
Cdn$5.66
Warrants issued by the Company to purchase common shares, for a fixed price stated in Canadian
dollars, a currency other than the Company’s functional currency of US dollars, and not offered pro rata to
all existing shareholders of the same class at the time of issuance, are considered derivative financial
liabilities under IFRS. Such warrants are required to be measured and recognized at fair value as a
liability with changes subsequent to initial recognition included in the consolidated statement of income
and comprehensive income. Subsequently, the warrants became publically traded and the fair value of
the warrants is based on the quoted market price of the warrants at each reporting date. The warrant
liability is classified as Level 1 within the fair value hierarchy.
On December 24, 2012, 59,634 broker compensation options described in Note 17 were exercised
enabling each option holder one common share and one common share purchase warrant.
In February 2013, 40 broker compensation options described in Note 17 were exercised enabling each
option holder one common share and one common share purchase warrant.
In March of 2013, 23,006 broker compensation options described in Note 17 were exercised enabling
each option holder one common share and one common share purchase warrant.
Prior to the expiry date, a total of 1,435,725 warrants were converted in to common shares and 26,955
warrants remained outstanding. At the time of expiry, the warrant liability was extinguished and the gain
was recognized on the consolidated statement of income and comprehensive income. During the
thirteen-months ended October 31, 2013, the Company realized a non-cash gain of $458,241 on the
revaluation and expiration of the liability (year ended September 30, 2012 - gain - $962,408).
65
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
16.
Retirement Plan
The Company has a defined contribution 401(k) retirement plan which covers substantially all employees
in the United States who are twenty-one years of age and have achieved 1,000 hours of service with the
Company in a period of twelve consecutive months. Participating employees may elect to defer a portion
of their compensation on a before or after tax basis in accordance with Section 401(k) of the Internal
Revenue Code. The Company makes matching dollar for dollar contributions of up to 4% of each plan
participant's gross wages. For the thirteen-months ended October 31, 2013 the Company's matching
contribution expense was $99,985 (year ended September 30, 2012 - $57,390).
17.
Shareholders' Equity
Share Capital
The authorized share capital consists of 100,000,000 common shares. The common shares have a par
value of $1.00.
On March 9, 2012, the Company completed a public offering by issuing 1,380,000 units at a price of
Cdn$6.65 per unit for gross proceeds of Cdn$9,177,000 ($9,240,936). Each unit was comprised of one
common share and one common share purchase warrant. Each warrant entitled its holder to purchase
one additional share at a price of Cdn$7.50 until September 8, 2013. An amount of $1,381,235 was
allocated as a warrant liability on the date of issue as described in Note 15. In connection with the
offering, officers and directors combined to purchase 8,100 common shares.
The Company issued broker compensation options entitling the agents to acquire a maximum of 82,800
units at Cdn$6.65 per unit until March 11, 2013. Each unit consists of one common share and one
common share purchase warrant exercisable at a price of Cdn$7.50 until September 12, 2013. The grant
date fair value of the broker options of $129,512 was determined based on the Black-Scholes option
pricing model using the assumptions as presented below:
Risk-free interest rate
Expected volatility
Expected dividend yield
Expected life (years)
Fair value of unit at grant date
Fair value of option at grant date
0.18%
59%
Nil
1
Cdn$6.65
$1.56
In connection with the offering, the Company also paid cash commission to the agents in the amount of
$555,135, and incurred other professional fees and expenses of $272,674 for a total cost of $827,809 of
which $703,638 was allocated to common shares and $124,171 related to warrants was expensed.
66
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
17.
Shareholders' Equity (continued)
During the thirteen-months ended October 31, 2013, 82,680 broker compensation units were exercised at
a price of Cdn$6.65 per unit, for proceeds of Cdn$549,822 ($548,264).
Broker Options Remaining Expected Weighted Average
Value
#
Life (years)
Exercise Price Cdn$
$
Balance, September 30, 2011
-
-
-
-
Issued, March 9, 2012
Balance, September 30, 2012
82,800
82,800
Exercised, December 24, 2012
(59,634)
Exercised, February 2013
(40)
-
-
-
-
6.65
6.65
129,512
129,512
6.65
(93,276)
6.65
(63)
Exercised, March 2013
(23,006)
-
6.65
(35,985)
Expired, March 2013
(120)
-
6.65
(188)
Balance, October 31, 2013
-
-
-
-
In August and September of 2013, 1,435,725 common share purchase warrants were exercised for one
common share of stock at a price of Cdn$7.50 for proceeds of Cdn$10,767,938 ($10,384,109)
Stock options
The Company adopted an incentive stock option plan dated April 28, 2011 (the "Plan"). The Plan is a
rolling stock option plan, under which 10% of the outstanding shares at any given time are available for
issuance thereunder. The purpose of the Plan is to promote the profitability and growth of the Company
by facilitating the efforts of the Company to attract and retain directors, senior officers, employees,
management and consultants. Vesting terms under the Plan will occur 1/3 upon the first anniversary, 1/3
upon the second anniversary and 1/3 upon the third anniversary of the grant unless otherwise specified
by the Company’s board of directors.
Below is information related to each option grant:
Date of Grant
May 4, 2012 December 17, 2012 May 3, 2013 October 29, 2013 October 29, 2013
Expiry Date
Vesting Schedule
Amount granted
Exercise Price
Risk-free interest rate
Expected volatility
Expected dividend yield
Expected life (years)
Fair value of share at grant date
Fair value of option at grant date
Amount vested for the thirteen-
May 4, 2017 December 18, 2017 May 3, 2018 October 29, 2018 October 29, 2018
1/3 annually
1/3 annually
114,420
90,000
Cdn$10.86
Cdn$7.50
1.29%
0.78%
35%
45%
Nil
Nil
5
5
Cdn$10.86
Cdn$7.30
$3.44
$2.84
1/3 annually
116,000
Cdn$7.50
0.74%
49%
Nil
5
Cdn$6.75
$2.66
1/3 annually
22,000
Cdn$7.65
0.73%
38%
Nil
5
Cdn$7.35
$2.42
1 year
35,640
Cdn$10.86
1.29%
35%
Nil
5
Cdn$10.86
$3.44
months ended October 31, 2013
$118,658
$155,366
$12,335
$1,343
$1,317
67
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
17.
Shareholders' Equity (continued)
The outstanding options as of October 31, 2013 and September 30, 2012 and the respective changes
during the periods are summarized as follows:
October 31, 2013
September 30, 2012
Weighted
average
exercise
price
Number of
options
Vesting
attributable
to period
Number
of options
Weighted
average
exercise
price
Vesting
attributable
to period
#
Cdn$
Cdn$
#
Cdn$
Cdn$
90,000
288,060
7.50
9.26
64,409
-
-
-
289,019
90,000
7.50
64,409
-
-
-
-
- -
-
-
-
-
- -
Outstanding, beginning of period
Granted
Exercised
Expired
Outstanding, end of period
378,060
8.84
353,428
90,000
7.50
64,409
The following options are outstanding and exercisable at October 31, 2013:
Exercise price Number outstanding Average remaining contractual life Number exercisable
Options Outstanding and Exercisable
Cdn$
7.50
7.50
7.65
10.86
10.86
#
90,000
116,000
22,000
35,640
114,420
(years)
3.51
4.13
4.51
5.00
5.00
#
30,000
-
-
-
-
18.
Earnings per Common Share
The calculation of earnings per share is presented below.
Basic
Net income
Weighted average number of shares outstanding
Basic earnings per share
Diluted
Net income
Weighted average number of shares outstanding
Diluted earnings per share
Thirteen-months ended
October 31, 2013
Year ended
September 30, 2012
$2,641,694
4,126,996
$0.64
$2,641,694
4,133,075
$0.64
$2,717,652
3,268,789
$0.83
$2,717,652
3,271,454
$0.83
68
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
19.
Operating Expenses
Salaries and benefits
Rent
Legal and professional
Postage and shipping
Stock based compensation
Amortization
Other general and administrative
Operating expenses
Thirteen-months ended
October 31, 2013
Year ended
September 30, 2012
$
5,742,923
1,683,547
1,089,853
1,187,081
289,019
347,052
1,605,496
11,944,971
$
4,060,630
1,344,777
616,725
878,711
64,409
248,707
1,526,893
8,740,852
20.
Exchange Bank of Canada
On November 23, 2012, the Company submitted its application to continue its wholly-owned subsidiary,
Currency Exchange International of Canada Corp., as a new Canadian Schedule I bank. Subject to
review and approval of the application by the Office of the Superintendent of Financial Institutions
(Canada) and the Minister of Finance (Canada), the new bank will be called "Exchange Bank of Canada"
in English and "Banque de Change du Canada" in French and will have its head office in Toronto. During
the thirteen-months ended October 31, 2013, the Company recognized legal and administrative expenses
of $272,004 in relation to the application process (year ended September 30, 2012 - $114,673). In 2014,
the Corporation expects that it will continue to work towards receiving approval to continue its Canadian
subsidiary, Currency Exchange International Canada Corp., as a Schedule I licensed bank.
69
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
21.
Compensation of Key Management Personnel and Related Party Transactions
In accordance with IAS 24 Related Party Disclosures, key management personnel are those persons
having authority and responsibility for planning, directing and controlling activities of the Company directly
or indirectly, including any directors (executive and non-executive) of the Company. The remuneration of
directors and other members of key management personnel during thirteen-months ended October 31,
2013 and year ended September 30, 2012 was as follows:
Thirteen-months
ended
Year ended
October 31, 2013
September 30 2012
$
$
Short-term benefits
1,090,856
604,073
Post-employment benefits
Stock based compensation
18,700
255,535
9,348
64,409
1,365,091
677,830
On October 1, 2011, the Company entered into an employment agreement with the President and CEO of
the Company. Pursuant to this agreement, the Company is committed to pay an annual base salary of
$160,500 per annum indefinitely until such time as the agreement is terminated. In October, 2013, the
Compensation Committee of the Board of Directors agreed to increase the base salary to $225,000 per
annum with a maximum cash bonus of up to 62.5% of the annual base salary as part of the Company's
short term incentive plan ("STIP"). This contract contains clauses requiring additional payments of a
minimum of $321,000 to be made upon the occurrence of certain events such as a change of control or
termination for reasons other than cause. As the likelihood of a change on control is not determinable, the
contingent payments have not been reflected in the consolidated financial statements.
On October 29, 2013, the Compensation Committee of the Board of Directors approved STIP for key
officers and executives of the Company. The maximum amount of STIP payable for key officers and
executives for the fiscal year beginning November 1, 2013 will be $416,000 and will be paid upon the
achievement of performance objectives.
The Company incurred legal and professional fees in the aggregate of $86,171 for the thirteen-months
ended October 31, 2013 (year ended September 30, 2012 - $78,792) charged by entities controlled by
directors or officers of the Company. During thirteen-months ended October 31, 2013, the Company
incurred an expense of $255,535 from stock options granted to officers and directors (year ended
September 30, 2013 - $64,409).
On March 9, 2012 the Company completed its public offering described in Note 17. Officers and directors
who participated in the offering combined to purchase a total of 8,100 units.
70
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
For the thirteen-month period ended October 31, 2013, and year ended
September 30, 2012 (Expressed in U.S. Dollars)
22.
Other Current Assets
Prepaid rent
Prepaid insurance
Forward escrow deposits
Due on debit and credit cards
Forward contract positions
Other assets
Total
23.
Subsequent Events
October 31, 2013
September 30, 2012
$
131,034
92,871
2,836
33,447
83,430
96,177
439,795
$
107,752
57,879
5,083
89,111
8,999
44,151
312,975
On November 12, 2013 the Company entered in to a lease agreement for a new corporate headquarters
in Orlando, Florida. The lease calls for total minimum payments of $668,365 and expires on July 31,
2018.
71
CURRENCY EXCHANGE INTERNATIONAL
Board of Directors
Randolph W. Pinna
CEO, President, Chairman of the Board
Mr. Pinna was appointed the Chief Executive
Officer, President, and Director of CXI when it began
operating in October 2007. From 1989 to 2003, Mr.
Pinna was President, Chief Executive Officer, and
Director of Foreign Currency Exchange Corp. and
remained in this role after the friendly acquisition
by Bank of Ireland Group until October 2007. Mr.
Pinna was responsible for the growth of Foreign
Currency Exchange Corp. from a small, one location
operation in Tampa Bay, Florida to a multinational
publicly-traded company on the TSX. Mr. Pinna has
more than 25 years of experience in international
banking with an emphasis on foreign exchange.
Joseph August
Director of Currency Exchange International
Independent Board Member
Chirag Bhavsar
Lead Director of Currency Exchange International
Independent Board Member
Mark D. Mickleborough
Director of Currency Exchange International
Board Member
Dr. Sanford Pinna, M.D.
Director of Currency Exchange International
Board Member
V. James Sardo
Director of Currency Exchange International
Independent Board Member
James D.A. White
Director of Currency Exchange International
Independent Board Member
Local
U.S.A.
Fax
Email
Web
(407) 240 0224
(888) 998 3948
(407) 240 0217
InvestorRelations@ceifx.com
www.ceifx.com
6675 Westwood Boulevard Suite 300, Orlando, Florida 32821
CXI Annual Report 2013 72
(407) 240 0224
Local
Fax
(407) 240 0217
U.S.A. (888) 998 3948
Email
InvestorRelations@ceifx.com
Corporate Office:
6675 Westwood Boulevard Suite 300
Orlando, Florida 32821
www.ceifx.com