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Currency Exchange International
2014 Annual Report
FINANCIAL HIGHLIGHTS
2014
2013*
Exchange Volume:
In Millions
Total Revenue:
In Millions
Total Assets:
In Millions at Fiscal Year-End
$1,456
$22.0
$39.7
$878
$16.0
$33.7
All amounts in this report are stated in USD unless otherwise noted.
2012
$605
$12.3
$18.2
2011
$409
$8.7
$9.9
Exchange Volume
$ Millions
66%
Year Over Year
Total Revenue
$ Millions
3 8%
Year Over Year
Total Assets
$ Millions
18%
Year Over Year
2014
2013*
2012
2011
2014
2013*
2012
2011
2014
2013
2012
2011
$300 $600 $900 $1,200 $1,500
$5
$10
$15
$20
$25
$8
$16
$24
$32
$40
Key Ratios
Corporate Customers and Transacting Locations
2014
2013*
2014
2013*
2012
2011
Earnings Per Share
$0.62
$0.49
Return On Assets
9.2%
9.1%
Return On Equity
11.0%
10.4%
Company-Owned
Branch Locations
Wholesale Company
Relationships
32
26
23
18
469
364
245
123
Efficiency Ratio
67.3%
72.5%
2013 Key Ratios exclude a one-time non-cash gain
of $458,241 from the revaluation of the Company’s
income has been
warrant
annualized to conform to a twelve month period.
liability and net
*13 month period-ended October 31, 2013
Transacting Locations
8,274
5,741
2,455
1,983
Quarterly Stock Price (TSX:CXI)
TSX stock prices are quoted in Cdn$
Q4
Ended 10/31/2014
Q3
Ended 7/31/2014
Q2
Ended 4/30/2014
Q1
Ended 1/31/2014
$18.65
$13.15
$13.30
$11.72
CXI Annual Report 2014
1
PRESIDENT’S LETTER
Dear CXI Shareholders,
Employees and Customers
I am pleased to present the
progress and achievements of
Currency Exchange International
for our fiscal year-ended October
31, 2014.
All amounts expressed in USD unless otherwise noted.
Continuing CXI’s Strong Growth
During the last fiscal year, CXI commenced currency
exchange services with more than 100 new wholesale
companies, including several large financial institutions,
representing over 2,500 new transacting locations for
the company. This growth is attributable to adding new
customers and increasing market-share combined with the
company’s acquisition of certain assets of U.S. Exchange
House in March 2014.
CXI also added six new wholly-owned branch locations
during the last fiscal year and now operates a total of 32
branches in the United States. We expect to continue to
increase the number of branches during the coming year
in strategic locations throughout the United States. CXI’s
dedication to growing its branch network is attributed
to the contributions the locations bring to the company’s
financial assets.
In addition to these company-owned and operated branches,
CXI provides inventory on consignment to customers in 180
locations throughout the United States and Canada, mostly
in banks and select high-traffic locations. These locations
2
CXI Annual Report 2014
Randolph W. Pinna
President & CEO
are able to provide immediate currency exchange services
to their retail customers and are profitable for CXI, as there are
no occupancy or payroll costs associated with this business.
As a result of this impressive expansion, total exchange
volume increased by 66% compared to the previous year,
to just under $1.5 billion. Revenues also showed strong
growth,
increasing by $6.0 million to $22.0 million
compared to $16.0 million for the previous year. Compared
to the previous year, total assets increased to $39.7 million
from $33.7 million, an increase of 18%, while shareholder’s
equity increased to $33.0 million from $29.8 million. Net
income grew to $3.4 million up from $2.6 in the previous
year.
Shareholder’s Equity
$ Millions
October 31, 2014
October 31, 2013
September 30, 2012
September 30, 2011
$33.0
$29.8
$16.2
$6.2
PRESIDENT’S LETTER
Strategic Initiatives
During 2014, CXI continued to invest resources to enhance
its core, proprietary operating software - CEIFX.com. This
web-based application is the core system of the company
and is used to manage inventory, conduct foreign currency
exchange transactions, clear foreign cheques, send wire
payments, as well as provide for mandated regulatory
reporting and record keeping. During 2014, the company
continued to customize the software to meet the unique
needs of its client base, as well as to win customers away
from competitors. In addition, the company continued to
make significant investments in its web-based platform to
enhance the security and functionality of the system and
satisfy the stringent requirements of our many financial
institution clients.
Shareholder Performance Graph
Currency Exchange International, Corp.
S&P/TSX Composite Index
$300
$250
$200
$150
$100
$50
March 9,
2012
September 30,
2012
October 31,
2013
October 31,
2014
09/03/12
30/09/12
31/10/13
31/10/14
CXI/TSX
S&P/TSX Composite Index
$100
$100
$100
$98.51
$168.42
$106.86
$280.45
$116.87
This graph compares the yearly percentage change in the cumulative total shareholder return for
Cdn$ invested in Currency Exchange International, Corp. on March 9, 2012, against the cumulative
total shareholder return of the S&P/TSX Composite Index for the three most recently completed
financial years of CXI, Corp., assuming the reinvestment of all dividends.
Application for CXI Canada to Continue as Exchange
Bank of Canada
CXI submitted an application to the Office of the
Superintendent of Financial Institutions (OSFI) in Canada
in November 2012 to continue its wholly-owned subsidiary,
Currency Exchange International of Canada Corp., as a
Canadian Schedule 1 Bank. If approved, the bank will be
known as “Exchange Bank of Canada” in English and “Banque
d’échange du Canada” in French. CXI has been consistently
working with OSFI throughout the year and believes that
the progress made has been very positive. During the year,
CXI appointed a new independent director with extensive
executive level experience in personal and commercial
banking, finance, audit and risk management. In addition,
CXI appointed a new Chief Anti-Money Laundering Officer
during the last fiscal year. These appointments enable the
company to effectively manage its risk and compliance with
all regulatory requirements now and for the anticipated
significant growth forecasted over the next three years.
The objective of becoming a Toronto based bank is to
expand current and future business opportunities and
become a leading banker’s bank for foreign exchange
products and services. By obtaining a bank charter, the
company will be able to bank with central banks, which will
provide the company with a source of stable, cost-effective
funds, in addition to enhancing the company’s existing
bank relationships. Exchange Bank of Canada will not take
deposits or make loans.
Positioned for Growth in the Years Ahead
The board of directors and CXI management team are
extremely proud of the achievements made during the
last year with the help and support of our outstanding
employees, customers, and shareholders.
I am personally very optimistic about the opportunities that
the company expects to capitalize on in the coming years
and I believe that we are well positioned to successfully
navigate the continued expansion of our business. We
continue to bring in new, prestigious banking clients and
we believe that this growth will be further accelerated if
the bank license is approved. In view of the current status
of these initiatives, we believe that 2015 will be another
profitable growth year and that our stock will continue to
reflect the company’s strong performance.
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.
Sincerely,
Randolph W. Pinna
President and CEO
CXI Annual Report 2014
3
company snapshot
CXI launches its proprietary, web-based FX software solution: CEIFX.
Three vaults are established in the U.S.: CXI’s main currency processing
center in Miami, Florida and regional vaults in New York and California.
CXI Canada opens for business and its Toronto vault is established.
CXI completes its IPO on the Toronto Stock Exchange (TSX).
Expiration of the Regulation S restriction 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$11.3 million.
CXI begins operations: Randolph Pinna purchases eight retail branches
of Foreign Currency Exchange Corp. from the Bank of Ireland Group.
CXI commences services for financial institutions, allowing its
wholesale partnerships to grow rapidly.
CXI Canada files application to continue as a new Schedule 1 Bank in
Canada.
CXI purchases assets of U.S. Exchange House in U.S. and Canada.
Market cap surpasses Cdn$ 100 million mark.
CXI grows to 469 customers at 8,274 transacting locations.
$1.5 billion worth of currency is exchanged through CXI.
cxi key activities
New Appointme nt to Board of D ire c tors a nd Chief
Anti-M oney Launde ring Officer
financial institutions. Ms. Houlihan holds the Certified Anti-
Money Laundering Specialist (CAMS) designation.
Ms. Linda A. Stromme joined CXI’s board of directors as
an independent director and was appointed to the Audit
Committee in July 2014. Ms. Stromme brings to CXI a
successful 23 year career with the Bank of Montreal, with
executive level roles in personal and commercial banking,
finance, audit and risk management. Ms. Stromme is now the
Principal and Founder of End Result Coaching & Consulting
Inc., providing consulting services to financial institutions.
Ms. Stromme graduated with a Bachelor of Commerce
(Honours) from the University of Manitoba, is a Chartered
Professional Accountant (CPA, CA), and holds a Certification
in Risk Management Assurance (CRMA).
Ms. Stromme replaced Dr. Sanford Pinna, who retired from
the board after several years of service to its shareholders.
As the original founder of Foreign Currency Exchange Corp.
(FCE) in 1987, Dr. Pinna along with his son Randolph, grew FCE
from a small operation in Tampa, Florida to an international,
publicly-traded company,
later merging with Bank of
Ireland in 2003. In 2007, Randolph Pinna purchased the
retail currency exchange division of FCE to create Currency
Exchange International, Corp. where Dr. Pinna has provided
insight and strategic advice as a valued director.
Ms. Laura M. Houlihan joined CXI as Vice President and
Chief Anti-Money Laundering Officer (CAMLO) of CXIC in
July 2014. Ms. Houlihan was previously VP & Senior Global
Financial Crimes Compliance Specialist at Bank of America.
Ms. Houlihan brings to CXI more than 15 years of anti-
money laundering (AML) and anti-terrorist financing (ATF)
compliance experience in the financial services industry. In
previous roles, she was responsible for developing, executing
and maintaining AML/ATF compliance programs for Canadian
4
4
CXI Annual Report 2014
CXI Closes Purchase Agreement w ith U.S.
Exchange House
During the year, CXI acquired certain assets of U.S. Exchange
House, Inc. (USEH) pertaining to the wholesale bank note
operations located in the United States and Canada. CXI paid
$2.35 million in cash on closing along with two additional
contingent payments of up to $1.325 million payable on the
first and second anniversary after closing. These additional
payments will be based on the amount of revenue generated
from the customers acquired.
The assets acquired from USEH have been merged and
integrated into CXI’s current banknote business and will
continue to use the CXI brand name. Operational efficiencies
were achieved due to the similar business operations and
overlap of back office functions. CXI retained some of USEH’s
currency trading staff, who have been used to open CXI’s Los
Angeles, California vault in order to service the company’s
U.S. based west coast operations.
CXI Ends Fiscal Year with Reco rd Market Cap
CXI ended October 31, 2014 with a stock price of Cdn$18.65
and 5,395,073 shares outstanding resulting in a market
capitalization of more than Cdn$100 million on the Toronto
Stock Exchange. This is a record fiscal year-end market cap
for the company that began trading on the Toronto Stock
Exchange after its IPO in March 2012 with an opening price of
Cdn$6.65. Since that time, the stock has continued to increase
in value year-over-year. The market cap underscores the
market’s confidence in CXI’s business.
cxi operations
Bu siness Over v iew
At its core, CXI is a business that successfully pairs its resources
and relationships to provide the specialized service of foreign
exchange to its customers. Whether it’s a financial institution,
money-service business (MSB) or individual, CXI provides its
services in a manner that leaves both the company and its clients
better off. As an industry leader in foreign exchange, CXI has built
a scalable currency exchange business that services financial
institutions including top 10 U.S. banks, as ranked by number of
locations, comprising of more than 8,200 transacting locations
that interact with CXI as their currency exchange provider. The
company has developed the highest consumer-rated* national
foreign currency exchange branch network within the U.S., with
more markets experiencing why exchanging with CXI is the best
option each year. The company continues to fully dedicate its
time and energy into expanding its customer base and services
without sacrificing the quality of its service to any customer.
The impressive growth of the company has been spurred on by
its ability to continue to attract and retain new customers in the
form of financial institutions, MSBs and other corporate clients
in the United States and Canada. The company-owned branch
network provides a balance of higher margin currency trades with
individuals. Since the branch network is a net buyer of foreign
currency for the company’s vaults, the higher margin transactions
serve as a way to source foreign currencies that the company can
then make available through its network of relationships, such
as financial institutions, who are generally net sellers of foreign
currency. Reducing the need for CXI to sell-off excess currency
affords the company wider margins in all aspects of its bank note
business.
Company-Owne d Branch Netwo rk
In the first quarter of the 2014 fiscal year, CXI opened the doors
for two branches: one branch at Tysons Corner Center, a super-
regional shopping mall in Tysons Corner, Virginia and another
at The Florida Mall in Orlando, Florida, the second branch in the
mall for CXI. Tysons Corner Center, located in northern Virginia,
had a WMATA metro line open shortly after the CXI branch
began transacting. This has linked the mall with Washington
D.C. and provides better accessibility to the branch for those in
the city center and those traveling through Washington Dulles
International Airport. The Florida Mall marks the third shopping
center where CXI has established a second exchange booth within
the same mall. The Florida Mall has long been one of the highest
trafficked locations and the expansion within the mall has given
more exposure to CXI from mall patrons.
The third location opened during the fiscal year, saw CXI
retake ownership of the Citadel Outlets branch in Commerce,
California. After transferring ownership of the branch to the
mall management for eight months, an agreement was reached
for CXI to once again run the branch operations. The next branch
location was a first for CXI as it opened in a new market, Denver,
Colorado in May 2014. CXI selected downtown Denver’s Cherry
Creek Shopping Center as the site for its branch marking the
ninth state to house a company-owned location.
In the final three months of the 2014 fiscal year, CXI set its sights
on one of its most successful markets, Manhattan, New York, by
beginning to transact at two new Apple Bank implant locations.
CXI’s Union Square location opened first in August 2014 with the
Upper East Side location following in October. The partnerships
established by CXI in New York City have confirmed to the
company that there is still plenty of market-share opportunity in
the largest tourist city in the United States.
The CXI branch network currently consists of 32 company-owned
currency exchange locations across the United States. These
locations service clients in heavily touristed or affluent traveling
regions of the U.S. targeting inbound foreign travelers, outbound
locals traveling internationally, or in the best markets both. CXI
branches are established in popular regional shopping centers or
implanted within bank branches within these target markets. In
the 2014 fiscal year, the company opened six branches in five states.
The expansion of the company-owned branch network at the
current rate displays the dedication to the strategic growth plan
the company’s management team and board of directors have been
crafting by expanding into areas beyond its previously existing
markets, as well as pin-pointing opportunities within known
markets. Every branch opening requires up-front investments in
both personnel and capital. These internal investments have over
time continuously proven their positive return for the company.
5
0
5
0
5
0
5
0
5
0
5
0
CURRENCY EXCHANGE
Com pany-Ow ned Branch es
0
5
0
5
5
0
5
0
5
0
0
5
0
5
0
5
0
5
Customer Relationships
5
0
5
0
5
0
0
5
0
5
0
5
0
5
0
5
0
5
CURRENCY EXCHANGE
Net buyer of foreign currency
Wider margins on transactions
Smaller transaction size
Varying amounts of capital investment to open
32 locations in high tourist or affluent-
BANK BRANCH
traveling markets across nine states
BANK BRANCH
Financial institutions, MSBs, and corporations
Net seller of foreign currency
Smaller margins with larger volume trades
Little to no investment upfront
469 company relationships accounting for
8,274 transacting locations
* As an aggregate company average rate online through Google My Business and Yelp as rated by
consumers of a currency exchange specific company operating in at least nine states within the U.S..
CXI Annual Report 2014
5
Uni ted States Business Env ironme nt
the company and all of its customers the confidence that it is fully
compliant with its regulatory obligations.
cxi operations
CXI changed the landscape of the foreign currency exchange
marketplace when it completed the purchase of certain assets of
U.S. Exchange House (USEH). At the time of the purchase, USEH
was a strong competitor in the foreign bank note market in both
the U.S. and Canada. The consolidation of customers underneath
the CXI umbrella enabled the company to solidify a number of
longstanding relationships and keep its business development
team focused on financial institutions, which has been the main
organic growth area for the company. New customers, either
acquired or cultivated through business development channels,
quickly find what makes CXI different from its competition and
why existing customers remain loyal to the company. CXI fully
embodies the belief that it is in business to create mutually
beneficial relationships, in which all parties involved are better
off than prior to their interaction.
Between the acquisition of USEH and the business development
process, CXI added more than 75 new customer relationships
exceeding 2,400 new transacting locations across the United
States. These relationships are with financial institutions, MSBs
and other corporate clients. Each relationship varies in utilized
services ranging from one or all of the following: foreign currency
banknotes, international wire transfers, issuing foreign drafts,
and clearing foreign denominated cheques.
New and existing customers find numerous advantages when
switching or starting foreign exchange programs with CXI. Not
only is the pricing competitive for those dealing with CXI, the
company is uniquely positioned to provide industry leading
FX software, versatile service options, and service experience
that combines to bring the best product to the table for clients.
Whether a client’s situation calls for extensive integration into
their current service offering by implementing CXI’s software to
every station or as simple as calling in bulk shipments to traders,
CXI has the resources, experience and knowledge to deliver the
best service experience possible.
Canadi an Business Env ironment
The CXIC team has seen growth over the past fiscal year in both
the customers it services and its executive staff. The newest
executive brought on to enhance the team was Laura Houlihan,
Vice President and Chief Anti-Money Laundering Officer. There
has never been a time when compliance has been stressed to the
degree as it is in today’s regulatory environment. CXI understands
the responsibilities that come with working in the financial
industry where “Know Your Customer” and other regulations
mean tightly scrutinizing all customers who exchange with
the company. The CXI team is always committed to following
all oversight provisions determined by the various regulating
bodies. The compliance staff within the company, its procedures
and the tools at their disposal through the CEIFX software, gives
6
CXI Annual Report 2014
The other aspect of growth for the company was found in the
number of customers taking advantage of the services provided
by CXIC. The business has been active in the market gaining more
than 25 new customer relationships with north of 125 distinct
locations, which began to fully transact in fiscal year 2014. As
more customers join CXI, the company creates new advocates
for the transparent and customer-friendly manner in which it
conducts its business.
CEIFX Software Advantage
Viewed as a leading application in foreign currency exchange,
the CEIFX software continues to generate interest with new and
potential customers. The core features allow for fully customized
customer setups, compliance
instinctual user
interface, user management and robust reporting capabilities.
integration,
The web-based software accommodates all product lines offered
by CXI including banknotes, traveler’s cheques, foreign cheque
clearing, foreign draft issuance, multi-currency prepaid cards,
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 it 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. The company is
dedicated to maintaining and continually enhancing its software
to keep its place 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.
Wholesale Customers and Transacting Locations
Wholesale Customers
Transacting Locations
500
400
300
200
100
s
r
e
m
o
t
s
u
C
e
l
a
s
e
l
o
h
W
10,000
8,000
6,000
4,000
2,000
s
n
o
i
t
a
c
o
L
g
n
i
t
c
a
s
n
a
r
T
Sept. 30,
2011
Sept. 30,
2012
Oct. 31,
2013
Oct. 31,
2014
Wholesale Customers
Transacting Locations
2011
123
1,983
2012
245
2,455
2013
364
5,741
2014
469
8,274
7 CURRENCY EXCHANGE INTERNATIONAL, CORP.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
FOR THE THREE MONTH PERIOD
AND YEAR ENDED OCTOBER 31,
2014 AND FOUR MONTH AND
THIRTEEN MONTH PERIODS
ENDED OCTOBER 31, 2013
8 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Scope of Analysis
This Management Discussion and Analysis (“MD&A”) covers the results of operations, and financial
condition of Currency Exchange International, Corp. and its subsidiaries (the “Company,” or "CXI") for
the three month period and year ended October 31, 2014 and the four month and thirteen month periods
ended October 31, 2013, including the notes thereto. This document is intended to assist the reader in
better understanding and assessing operations and the financial results of the Company.
This MD&A has been prepared a s at January 13, 2015 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 year ended October 31, 2014 and the thirteen
month period ended October 31, 2013, 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. (“CXIA”), is the U.S. Dollar. The functional currency of the Company’s
Canadian subsidiary, Currency Exchange International of Canada Corp. (“CXIC”), 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, CXIC and CXIA.
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
(“CEIFX”).
9 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
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 beginning on page 21 in the Company’s MD&A. 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.
10 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
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.
Change in reporting period
Effective February 2013, CXI changed its fiscal year end to October 31, 2013 to conform with the same
change in fiscal year end made by its wholly-owned Canadian subsidiary corporation, CXIC, to comply
with the reporting period for Canadian chartered banks as part of the ongoing process of CXIC applying
for a bank license in Canada. As a result, the audited consolidated financial statements are presented as
the year ended October 31, 2014 and the thirteen month period ended October 31, 2013. The MD&A is
presented as the three month period and year ended October 31, 2014 compared to the four month and
thirteen month periods ended October 31, 2013.
Overview
CXI is a publicly traded company (T SX : C X I ; OTC BB:CURN ) specializing in providing currency
exchange and related products to banks, money service businesses, 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. 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, CXIC, 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 d'échange 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 benefits the Canadian banking system by becoming a domestic alternative in providing
foreign exchange services to banks in Canada. The currency market for financial institutions in Canada is
primarily serviced by foreign institutions. 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.
11 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Overview (continued)
On October 31, 2013 the Company added additional capital into CXIC as part of its bank application
process.
The Company 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:
○ Fees generated at the Company’s branch locations from foreign currency (bank note)
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.
12 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Overview (continued)
The following are some of the characteristics of the Company’s revenue streams:
The Company operates five 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 banking 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. On-boarding of new
clients, specifically banking clients, normally require an upfront investment, such as training, and
currency signage, as well as additional one-time shipping costs to distribute start-up materials.
The Company also normally absorbs information technology costs to customize the CEIFX
software for specific client use during the customer implementation phase. 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 bank note trading. Trades of this nature are generally executed at lower
margins as the cost per transaction is low and the average value is high. The customer
implementation phase is normally shorter and the costs of on-boarding clients is low;
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 customer implementation phase is normally longer in a decentralized setup
and the cost of client on-boarding is higher as these clients normally require additional
training and support;
● The Company operates 32 branch locations which are located in high tourist 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
the transactions occurring at 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. Foreign exchange currency is placed in these locations on a consignment basis.
At October 31, 2014, the Company had inventory on consignment in 180 locations, primarily
located inside banks across the United States and Canada. To encourage inventory turnover, the
Company pays commissions as a percentage on volumes generated by these locations; and
● Company owned branch locations generally act as a net buyer of foreign currency whereas CXI's
bank and non-bank clients act as a net seller. Excess currency collected via the branch network
can be redeployed to banks and non-bank clients which reduce the need to source currency
through wholesale sources at a greater cost, thus increasing currency margins.
13 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Overview (continued)
The Company has aggressively grown its branch network as well as the number of wholesale
relationships over the years. Below is a list of the Company’s wholesale company relationships and
transacting locations as well as a listing of its 32 branch locations:
Store
City
State
Apple Bank - Avenue of Americas
New York
Apple Bank - Grand Central Station
New York
Apple Bank - Penn Station
Apple Bank - Union Square
New York
New York
Apple Bank - Upper East Side
New York
NY
NY
NY
NY
NY
Start
Date
(Fiscal
Year)
Store
City
State
2011 MacArthur Mall
Norfolk
2011 Mainplace at Santa Ana
Santa Ana
2013 Mechanics Bank - Berkeley
Berkeley
VA
CA
CA
2014 Mechanics Bank - San Francisco San Francisco
CA
2014 Montgomery at Bethesda
Bethesda
Arundel Mills Mall
Hanover
MD
2012 Ontario Mills Mall
Ontario
Aventura Mall Booth #1
Aventura Mall Booth #2
Aventura
Aventura
FL
FL
2008 Potomac Mills Mall
Woodbridge
2012 San Francisco City Center
San Francisco
CA
Century City Mall
Los Angeles CA
2009 San Jose Great Mall
San Jose
CA
Cherry Creek
Citadel Outlets
Denver
CO
2014 Santa Monica Place
Santa Monica
CA
Los Angeles CA
2014 Sawgrass Mills Mall Booth #1
Sunrise
Copley Place Mall
Boston
MA
2009 Sawgrass Mills Mall Booth #2
Sunrise
Dadeland Mall
Dolphin Mall
Florida Mall Booth #1
Florida Mall Booth #2
Miami
Miami
Orlando
Orlando
FL
FL
FL
FL
2009 Shops at Northbridge
2009 SouthCenter
Chicago
Tukwila
2007 The Galleria at Fort Lauderdale
Ft. Lauderdale
FL
2014 Tyson's Corner Center
Tyson’s Corner VA
MD
CA
VA
FL
FL
IL
WA
Start
Date
(Fiscal
Year)
2009
2013
2007
2008
2013
2007
2007
2011
2011
2012
2007
2010
2013
2012
2013
2014
Company owned branch locations
Wholesale company relationships
Number of transacting locations
FY
2008
9
26
88
FY
2009
FY
2010
14
61
190
15
70
267
FY
2011
18
123
1,983
FY
2012
23
245
2,455
FY
2013
26
364
5,741
FY
2014
32
469
8,274
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 consignment locations to facilitate the buying
and selling of foreign currency, as well as foreign currency held at the Company's' vaults, branch
locations, consignment locations, or cash inventory in transit between Company 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 o f o n e t o 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.
14 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
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 ($548,264) and
1,435,725 warrants were exercised for proceeds of Cdn$10,767,938 ($10,384,109). Funds received
were used to finance an asset acquisition, increase 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.
Purchase of assets from U.S. Exchange House, Inc.
On March 28, 2014 the Company purchased certain assets of U.S. Exchange House, Inc. (“USEH”),
pertaining to its bank note operations located in the United States and Canada. The Company acquired
USEH’s customer trading relationships, certain prepaid and fixed assets and the USEH trading software
used to operate the bank note business. CXI paid $2,350,000 in cash on closing and will have two
additional contingent payments of up to a maximum of $1,325,000 each on the first and second
anniversary after closing. The additional payments will be based on the amount of revenue generated
from the customer trading relationships acquired. The Company recorded expenses of $141,353 in legal
and other professional fees to complete the transaction.
SELECTED FINANANCIAL DATA
The below chart summarizes the performance of the Company over the last eight fiscal quarters.
Operating income for prior periods has been adjusted to exclude the effects of depreciation and
amortization.
Date
Period
(unaudited)
Three months ending
Three months ending
Three months ending
Three months ending
Four months ending
Three months ending
Three months ending
Three months ending
* Excludes depreciation and amortization expense
31-Oct-14
31-Jul-14
30-Apr-14
31-Jan-14
31-Oct-13
30-Jun-13
31-Mar-13
31-Dec-12
$
6,552,184
6,839,330
4,487,432
4,127,007
6,463,406
3,799,683
2,919,292
2,808,053
Revenue Operating income* Net income Total assets Total equity
$
2,279,682
2,830,097
1,109,212
970,779
2,341,712
1,168,754
505,207
376,843
$
1,045,192
1,456,004
466,774
451,156
1,669,609
1,466,835
(575,087)
80,338
$
39,709,302
42,044,018
37,244,354
32,844,973
33,681,819
19,997,719
18,709,964
19,929,308
$
33,025,175
32,185,439
30,586,996
29,835,415
29,763,976
17,607,201
16,255,314
16,734,553
Earnings
per
share
(diluted)
$
0.19
0.26
0.09
0.08
0.39
0.38
(0.15)
0.02
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 revenues generally
from March until September and lower revenues 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.
15 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Selected Financial Results for the three months and year ended October 31, 2014 and the four month
and thirteen month period ended October 31, 2013
Revenue
Operating expenses*
Net operating income
Total other income (expense),
net
EBITDA**
Net income
Basic earnings per share
Diluted earnings per share
Three Months
October 31, 2014
(Unaudited)
$
6,552,184
4,272,502
2,279,682
(17,851)
2,261,831
1,045,192
0.19
0.19
Four months ended
October 31, 2013
(Unaudited)
$
Year ended
October 31, 2014
(Audited)
$
Thirteen month period ended
October 31, 2013
(Audited)
$
6,463,406
4,121,694
2,341,712
232,146
2,573,858
1,669,609
0.39
0.39
22,005,953
14,816,184
7,189,769
(177,226)
7,012,543
3,419,125
0.63
0.62
15,990,434
11,597,919
4,392,515
199,363
4,591,878
2,641,694
0.64
0.64
* Excludes depreciation and amortization expense
** Earnings before interest, taxes, depreciation and amortization
Total assets
Total long term financial liabilities
Total equity
October 31, 2014 October 31, 2013
(audited)
$
39,709,302
585,144
33,025,175
(audited)
$
33,681,819
-
29,763,976
Results of operations – year ended October 31, 2014 compared to thirteen month period ended
October 31, 2013
A breakdown of revenues by geographic location is presented below:
Total revenues
Year ended October 31, 2014
$
Thirteen month period ended
October 31, 2013
$
United States
Canada
Total
11,949,822
10,056,131
22,005,953
14,382,012
1,608,422
15,990,434
During the year ended October 31, 2014 revenues increased by 38% to $22,005,953 compared to
$15,990,434 for the thirteen month period ended October 31, 2013. Revenue growth resulted from
establishing six new Company-owned branch locations as well as 105 new wholesale relationships, of
which 61 were added as a result of the acquisition of customer trading relationships from USEH,
making up 2,533 new locations since October 31, 2013.
Additionally, there was a continuation of higher trading volumes of exotic currencies, such as the Iraqi
Dinar and the Vietnamese Dong which are primarily speculative in nature. Due to their speculative
nature, the Company charges a premium when buying and selling these currencies.
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. For the year ended October 31, 2014, the Company realized revenues of $7,291,089 in its
Canadian subsidiary that would have previously been recognized in the United States operating company.
16 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Results of operations – year ended October 31, 2014 compared to thirteen month period ended
October 31, 2013 (continued)
If the aforementioned revenues of $7,291,089 (as stated above) were to be subtracted from Canada and
added back to the United States for the year ended October 31, 2014, commission revenue would
increase 34% to $19,240,911 from $14,382,012 compared to the thirteen month period ended October
31, 2013 and relate primarily to new revenue generated from the Company's branch locations, increases
in same store sales, instituting an increased pricing strategy during peak periods on the weekends,
establishing new relationships with bank and non-bank locations, and increases in volumes of exotic
currencies. Since October 31, 2013, the Company has added six Company-owned branch locations and
also added 78 new wholesale relationships representing nearly 2,407 locations in the United States.
After adjusting revenues downward by $7,291,089 (as stated above), revenues increased 72% in Canada
to $2,765,042 during the year ended October 31, 2014 from $1,608,422 for the thirteen month period
ended October 31, 2013; and are related to the growth of the Canadian wholesale operation. CXIC has
added 27 new wholesale relationships with 126 locations since October 31, 2013.
During the year ended October 31, 2014, operating expenses increased 28% to $14,816,184 compared
to $11,597,919 for the thirteen month period ended October 31, 2013, the major components of which are
presented below:
Year ended
October 31, 2014
$
Thirteen month period ended
October 31, 2013
$
Salaries and benefits
Rent
Legal, professional and director's fees
Postage and shipping
Stock based compensation
Other general and administrative
Total operating expenses
7,363,075
2,024,290
915,745
1,729,684
567,055
2,216,335
14,816,184
5,742,923
1,683,547
1,089,853
1,187,081
289,019
1,605,496
11,597,919
Change
$
1,620,152
340,743
(174,108)
542,603
278,036
610,839
3,218,265
Change
%
28%
20%
-16%
46%
96%
38%
28%
Salaries and benefits increased 28% to $7,363,075 from $5,742,923 which is attributed to
increases in the Company’s employment base for the period. As of October 31, 2014, the
Company employs 195 full and part-time employees in the United States and Canada
compared to 161 full and part-time employees at October 31, 2013. The increase in staffing is
a result of adding six company owned branch locations and opening a new Los Angeles vault
as well as the addition of employees engaged in the areas of compliance, information
technology, operations,
including vault operations, sales, management, and other
administrative positions. The Company also had increases in remuneration to key employees
as part of its short-term incentive plan;
Rent increased 20% to $2,024,290 from $1,683,547 due to the opening of new branch outlets
and the addition of one new vault location in Los Angeles. The Company has opened six
outlets since October 31, 2013 and has relocated and enlarged its vault facilities in Toronto
and Miami and also moved its corporate headquarters in Orlando, Florida;
Legal, professional and directors fees decreased 16% to $915,745 from $1,089,081. During
the thirteen month period ended October 31, 2013, the Company incurred costs of $49,789 in
connection with registering its shares for listing on the Over the Counter Bulletin Board
(“OTCBB”) and additional legal and consulting fees of $66,856 relating to the restructuring of
its operations;
17 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Results of operations – year ended October 31, 2014 compared to thirteen month period ended
October 31, 2013 (continued)
Postage and shipping increased 46% to $1,729,684 from $1,187,081 and is due to an
increase in the frequency of inbound and outbound shipments. The Company incurs shipping
fees from couriers and armored carriers to transport currency between the Company’s stores
and customers. During the year ended October 31, 2014, the Company added several new
transacting locations which have increased transactional activity thus increasing shipping
costs. Additionally, the Company has increased the frequency of inbound and outbound
armored shipments due to an increase in high value, bulk shipments to centralized clients.
Shipping fees collected by the Company are netted against shipping charges charged to the
Company;
Stock based compensation increased to $567,055 from $289,019 for the vested portion of
stock options granted pursuant to the Company's stock option plan. The options have an
expiry date of five years from the date of the grant, unless otherwise stated by the Board of
Directors, and have a weighted average exercise price of Cdn$10.54. There were 486,581
options outstanding at October 31, 2014 compared to 378,060 options outstanding at October
31, 2013; and
Other general and administrative increased 38% to $2,216,335 from $1,605,496. Other
expenses are comprised of insurance, travel and lodging, software maintenance, utilities, bank
service charges, foreign exchange gains and losses through profit and loss, and other general
and administrative expenses. The increase is a result of foreign exchange losses on the
revaluation of foreign financial assets and liability balances, non-capitalized costs for opening
new offices in Toronto, Canada, Orlando, Florida, and Miami, Florida as well as expenditures
to support the expansion of the Company’s branch network.
The ratio of operating expenses to total revenue for the year ended October 31, 2014 was 67%
compared to 73% for the thirteen month period ended October 31, 2013. The ratio traditionally is
higher during the winter months and lower during the summer months due to higher exchange volume.
This is due to the cyclical nature of the business as the Company typically experiences higher
exchange volumes from March to September resulting in the Company being better able to redeploy
the currency it purchases in the summer months from its branch locations and resell it to other ban k
and non-bank customers, thus bypassing currency wholesalers and widening its gross margin. The
Company expects this ratio to remain relatively steady in the short term. 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 and by redeploying excess currency purchased by its branches,
affiliate partners, and other clientele.
18 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Results of operations – year ended October 31, 2014 compared to thirteen month period ended
October 31, 2013 (continued)
Other income and expenses are comprised of the following:
Other income (expense)
Fair value change in warrant liability
Interest and accretion expense
Expenses related to bank application
Expenses related to USEH asset acquisition
Depreciation and amortization
Income tax expense
Total other income/(expense)
Year ended
October 31, 2014
$
Thirteen month period ended
October 31, 2013
$
90,225
-
(66,482)
(126,098)
(141,353)
(924,225)
(2,602,711)
(3,770,644)
13,126
458,241
(37,874)
(272,004)
-
(347,052)
(1,565,258)
(1,750,821)
Other income increased to $90,225 from $13,126 and relates primarily to interest collected for
surplus cash deposits held at various financial institutions in Canada and the United States;
Fair value change in warrant liability is $Nil during the year ended October 31, 2014 from a
gain of $458,241 for the thirteen month period ended October 31, 2013 and relates to a
marked to market adjustment of the Company’s issued and outstanding warrant liability. On
September 8, 2013 warrants that had not been exercised expired, and the fair value adjusted
liability was extinguished at that time;
Interest and accretion expense increased to $66,483 from $37,874 and relates to interest
payments on credit lines;
Expenses pertaining to filing and processing the bank license application decreased to
$126,098 from $272,004;
Expenses related to asset acquisition increased to $141,353 from $Nil for legal and other
professional fees incurred to complete the acquisition of the assets of the bank note business of
USEH;
Depreciation and amortization
to
amortization of the Company’s intangible assets as well as fixed assets being depreciated
over their estimated economic life. Approximately $525,000 of the increase was attributable to
amortization of the assets acquired from USEH; and
from $347,052 and relates
to $924,225
increased
Income tax expense increased to $2,602,711 from $1,565,258 and is a total of federal income
tax as well as various state and provincial taxes for the jurisdictions in which the Company
operates.
19 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Results of operations – three month period ended October 31, 2014 compared to the four month
period ended October 31, 2013
A breakdown of revenues by geographic location is presented below:
Total revenues
Three months ended October 31,
2014
$
Four months ended October
31, 2013
$
United States
Canada
Total
3,590,745
2,961,439
6,552,184
5,840,939
622,467
6,463,406
During the three month period ended October 31, 2014 revenues increased 1% to $6,552,184
compared to $6,463,406 for the four month period ended October 31, 2013 due primarily to using
three month and four month comparative periods. Revenue growth resulted from establishing six new
Company owned branch locations as well as establishing new wholesale relationships with 105
companies representing 2,533 new locations since October 31, 2013.
Additionally, there was a continuation of higher trading volumes of exotic currencies, such as the Iraqi
Dinar and the Vietnamese Dong which are primarily speculative in nature. The Company charges a
premium when buying and selling these currencies.
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. Additionally for the three month period ended October 31, 2014, the Company realized
revenues of $2,163,513 in its Canadian subsidiary that would have previously been classified as being
recognized in the United States operating company.
If the aforementioned revenues of $2,163,513 (as stated above) were to be subtracted from Canada and
added back to the United States, commission revenue would decrease 2% to $5,727,258 from
$5,840,939 for the four month period ended October 31, 2013. Slower revenue growth was due primarily
to using three month and four month comparative periods. Since October 31, 2013, the Company has
added six Company-owned branch locations and also added 78 new wholesale relationships representing
2,407 new locations in the United States.
After adjusting revenues downward by $2,163,513 (as stated above), revenues increased 28% in Canada
to $797,926 during the three month period ended October 31, 2014 from $622,467 for the four month
period ended October 31, 2013 and are related to the growth of the Canadian wholesale operation. Since
October 31, 2013, the Company has added 27 new customers representing approximately 126 new
locations in Canada.
20 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Results of operations – three month period ended October 31, 2014 compared to the four month
period ended October 31, 2013 (continued)
During the three month period ended October 31, 2014, operating expenses increased 4% to $4,272,502
compared to $4,121,694 for the four month period ended October 31, 2013, the major components of
which are presented below:
Salaries and benefits
Rent
Legal, professional and director's fees
Postage and shipping
Stock based compensation
Other general and administrative
Total operating expenses
Three months ended
October 31, 2014
$
Four months ended
October 31, 2013
$
2,130,256
591,201
255,056
560,668
125,114
610,207
4,272,502
2,077,222
562,584
447,357
429,718
93,911
510,902
4,121,694
Change
$
53,034
28,617
(192,301)
130,950
31,203
99,305
150,808
Change
%
3%
5%
-43%
30%
33%
19%
4%
Salaries and benefits increased 3% to $2,130,256 from $2,077,222 which is attributed to
increases in the Company’s employment base for the period. As of October 31, 2014, the
Company employs 195 full and part-time employees in the United States and Canada
compared to 161 full and part-time employees at October 31, 2013. The increase in staffing is
a result of adding six company owned branch locations and opening a new Los Angeles vault
as well as the addition of employees engaged in the areas of compliance, information
technology, operations,
management, and other
administrative positions. The Company also had increases in remuneration to key employees
as part of its short-term incentive plan;
including vault operations, sales,
Rent increased to $591,201 from $562,584 due to the opening of new branch outlets and the
addition of one new vault location in Los Angeles, California. The Company has opened six
outlets since June 30, 2013 and has relocated and enlarged its vault facilities in Toronto and
Miami, and also moved its corporate headquarters in Orlando;
Legal, professional and directors fees decreased 43% to $255,056 from $447,357. During the
four months ended October 31, 2013, the Company incurred one-time costs in connection with
registering its shares for listing on the OTCBB and additional legal and consulting fees of $66,856
relating to the restructuring of its operations;
Postage and shipping increased to $560,668 from $429,718 and are due to an increase in the
frequency of inbound and outbound shipments. The Company incurs shipping fees from
couriers and armored carriers to transport currency between the Company’s stores and
customers. During the three month period ended October 31, 2014, the Company added
several new transacting locations which have increased transactional activity thus increasing
shipping costs. Additionally, the Company has increased the frequency of inbound and
outbound armored shipments due to an increase in high value, bulk shipments to centralized
clients. Shipping fees collected by the Company are netted against shipping charges charged
to the Company;
Stock based compensation increased to $125,114 from $93,911 for the vested portion of stock
options granted pursuant to the Company's stock option plan. The options have an expiry
date of five years from the date of the grant, unless otherwise stated by the Board of Directors,
and have a weighted average exercise price of Cdn$10.54. There were 486,581 options
outstanding at October 31, 2014 compared to 378,060 options outstanding at October 31,
2013; and
21 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Results of operations – three month period ended October 31, 2014 compared to the four month
period ended October 31, 2013 (continued)
Other general and administrative increased to $610,207 from $510,902. Other expenses are
comprised of insurance, travel and lodging, software maintenance, utilities, bank service
charges, foreign exchange gains and losses through profit and loss, and other general and
administrative expenses. The increase is a result of foreign exchange losses on the
revaluation of foreign financial assets and liability balances, non-capitalized costs for opening
new offices in Toronto, Canada, Orlando, Florida, and Miami, Florida, as well as expenditures
to support the expansion of the Company’s branch network.
The ratio of operating expenses to total revenue for the three month period ended October 31, 2014
was 65% compared to 64% for the four month period ended October 31, 2013. The ratio traditionally
is higher during the winter months and lower during the summer months due to higher exchange
volume. This is due to the cyclical nature of the business as the Company typically experiences
higher exchange volume from March to September resulting in the Company being better able to
redeploy the currency it purchases in the summer months from its branch locations and resell it to
other bank and non-bank customers, thus bypassing currency wholesalers and widening its gross
margin.
Other income and expenses are comprised of the following:
Other income (expense)
Fair value change in warrant liability
Interest and accretion expense
Expenses related to bank application
Expenses related to USEH asset acquisition
Depreciation and amortization
Income tax expense
Total other income/(expense)
Three months ended
October 31, 2014
$
Four months ended
October 31, 2013
$
4,876
-
(21,485)
(19,387)
(3,340)
(335,806)
(859,348)
(1,234,490)
4,890
278,288
(22,875)
(51,032)
-
(134,295)
(747,079)
(672,103)
Other income decreased to $4,876 from $4,890 and relates primarily to income collected for
surplus cash deposits held at various financial institutions in Canada and the United States;
Fair value change in warrant liability is $Nil during the three month period ended October 31,
2014 from a gain of $278,288 for the four month period ended October 31, 2013 and relates to
a marked to market adjustment of the Company’s issued and outstanding warrant liability. On
September 8, 2013 warrants that had not been exercised expired, and the liability was
extinguished at that time;
Interest and accretion expense increased to $21,486 from $22,875 and relates to interest
payments on credit lines;
Expenses pertaining to filing and processing the bank license application decreased to
$19,387 from $51,032;
22 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Results of operations – three month period ended October 31, 2014 compared to the four month
period ended October 31, 2013
Depreciation and amortization
to
amortization of the Company’s intangible assets as well as fixed assets being depreciated
over their economic life. Approximately $225,000 of the increase was attributable to
amortization of assets acquired from USEH; and
from $134,295 and relates
to $335,806
increased
Income tax expense increased to $859,348 from $747,079 and is a total of federal income tax
as well as various state and provincial taxes for the jurisdictions in which the Company
operates.
Cash flows
Cash flows from operating activities year ended October 31, 2014 resulted in an inflow of $2,216,775
compared to an inflow of $4,556,326 during thirteen month period ended October 31, 2013. The
reason for the decrease in operating cash was due to increases in accounts receivable. The actual
amount of accounts receivable and accounts payable fluctuate from period to period due to the
volume of activity and timing differences. In most instances accounts receivable and accounts
payable have a settlement cycle of 24 to 48 hours. Operating cash flow is generated by commission
and fee income, and is offset by operating expenses.
Cash used in investing activities during the year ended October 31, 2014 resulted in an outflow of
$3,035,843 compared to an outflow of 598,182 during the thirteen month period ended October 31,
2013. During the year ended October 31, 2014, the Company paid $2,350,000 to acquire USEH’s
customer trading relationships, prepaid and fixed assets, and software.
Cash provided by financing activities during the year ended October 31, 2014 was $31,264 resulting
from 4,600 options exercised at a price of Cdn$7.50. During the thirteen month period ended October
31, 2013 cash provided from financing activities was $10,932,373 resulting from the exercise 82,680
broker options at a price of Cdn$6.65 per option and 1,435,725 warrants exercised at a price of
Cdn$7.50.
Liquidity and capital resources
At October 31, 2014, the Company had working capital of $28,973,117 (October 31, 2013 -
$28,935,018).
The Company maintains a Cdn$2,000,000 credit line with a shareholder and a revolving line of credit
with BMO Harris Bank, N.A. for up to $6,000,000 to assist with its short-term cash flow needs. The
Company had total available unused lines of credit of $8,000,000 at October 31, 2014.
23 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Selected annual and quarterly financial 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 for the relevant period and notes related 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.
Year ended
October 31,
2014
Audited
$
22,005,953
7,189,769
3,419,125
0.63
0.62
39,709,302
6,684,127
585,144
28,973,117
Thirteen months ended
October 31, 2013 (1)
Year ended
September 30, 2012
Audited
$
Audited
$
15,990,434
4,392,515
2,641,694
0.64
0.64
33,681,819
3,917,843
-
28,935,018
12,314,473
3,822,328
2,717,652
0.83
0.83
18,225,628
1,998,654
-
15,651,326
Year ended
September 30,
2011
Audited
$
8,683,705
2,949,260
1,489,686
0.66
0.66
9,914,292
3,754,954
110,924
5,861,804
Revenues
Net operating income (2)
Net income
Basic earnings per share (3)
Diluted earnings per share (3)
Total assets
Total liabilities
Total non-current financial
liabilities
Working capital
Notes:
1.
2. Operating income for prior periods has been adjusted to exclude depreciation and amortization expense.
3.
Adjusted for a 2:1 share split effective June 28, 2011.
The Company changed its year-end to October 31, and reported on the thirteen month period ended October 31, 2013.
The following is a summary of unaudited financial data for the most recently completed eight quarters.
The Company has restated operating expenses and operating income to exclude the effects of
depreciation and amortization.
Period
(unaudited)
Three months ending
Three months ending
Three months ending
Three months ending
Four months ending
Three months ending
Three months ending
Three months ending
Date
Revenue
Operating income*
Total assets
$
$
31-Oct-14
6,552,184
31-Jul-14
6,839,330
30-Apr-14
4,487,432
31-Jan-14
4,127,007
31-Oct-13
6,463,406
30-Jun-13
3,799,683
31-Mar-13
2,919,292
31-Dec-12
2,808,053
2,279,682
2,830,097
1,109,212
970,779
2,341,712
1,168,754
505,207
376,843
$
39,709,302
42,044,018
37,244,354
32,844,973
33,681,819
19,997,719
18,709,964
19,929,308
*Excludes depreciation and amortization expense
1. 4 month period ended October 31, 2013.
24 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Commitments and contingencies
On October 1, 2011, the Company entered into an employment agreement with the President and
CEO of the Company. Such agreement contains clauses requiring additional payments of a minimum
of $450,000 to be made upon the occurrence of certain events such as a change of control of the
Company or termination for reasons other than cause. As the likelihood of a change of control of the
Company is not determinable, the contingent payments have not been reflected in the consolidated
financial statements.
The Company has entered into 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
$4,206,234 and are payable as follows:
Year ended
Remaining minimum
payments required
October 31, 2015
October 31, 2016
October 31, 2017
October 31, 2018
October 31, 2019 and there after
Total
$1,512,998
$1,012,842
$891,438
$559,577
$229,379
$4,206,234
On March 28, 2014 the Company purchased certain assets of USEH. The Company paid $2,350,000
in cash on closing and will have two additional contingent payments of up to a maximum of
$1,325,000 each and payable on the first and second anniversary after closing. The additional
payments will be based on the amount of revenue generated from the customer trading relationships
acquired.
The Company has estimated the likelihood of future revenues to determine the estimated contingent
consideration. Management has estimated these payments for the first and second annivers ary at
$892,723 and $585,144, respectively, for total contingent consideration of $1,477,867.
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.
25 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Hedging activity
Other than as noted below, the Company does not engage in any form of hedged, derivative or
leveraged trading. 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 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.
At October 31, 2014 and October 31, 2013 approximately $714,121 and $200,707, 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 key management personnel during the three month period and year
ended October 31, 2014 and the four and thirteen month periods ended October 31, 2013 were as
follows:
Three months
ended
October 31, 2014
Four months
ended
October 31, 2013
Year ended
October 31, 2014
Thirteen month period
ended
October 31, 2013
$
$
$
$
Short-term benefits
Post-employment benefits
Stock based compensation
608,642
21,650
120,298
750,590
664,728
1,275,100
8,250
81,052
30,123
542,876
754,030
1,848,099
1,090,856
18,700
255,535
1,365,091
The Company incurred legal and professional fees in the aggregate of $6,867 and $138,218 for the three
month period and year ended October 31, 2014 (four and thirteen month periods ended October 31, 2013
$42,736 and $86,171, respectively) charged by entities controlled by directors or officers of the Company.
26 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Option grants
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 and
management. 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 Board of
Directors.
Below is information related to each option grant:
Date of Grant
Expiry Date
Share price at
grant date
Amount
granted
Risk-
free
interest
rate
May 4, 2012
May 4, 2017
Cdn$7.30
90,000
0.78%
Dec. 17, 2012
Dec. 18, 2017
Cdn$6.75
116,000
0.74%
May 3, 2013
Oct. 29, 2013
Oct. 29, 2013
July 9, 2014
Oct. 30, 2014
Oct. 30, 2014
May 3, 2018
Cdn$7.35
22,000
0.73%
Oct. 29, 2018
Cdn$10.86
35,640
1.29%
35%
Cdn$10.86
Oct. 29, 2018
Cdn$10.86
114,420
1.29%
35%
Cdn$10.86
July 9, 2019
Cdn$13.24
1,762
1.70%
29%
Cdn$13.24
Oct. 30, 2019
Cdn$18.00
87,215
1.61%
27% Cdn$16.21*
* Exercise price determined by average share price for previous 20 trading days
Oct. 30, 2019
Cdn$18.00
24,144
1.61%
27% Cdn$16.21*
Expected
volatility
Exercise
Price
45%
49%
38%
Cdn$7.50
Cdn$7.50
Cdn$7.65
Fair value
of option
at grant
date
$2.84
$2.66
$2.42
$3.44
$3.44
$3.58
$4.97
$4.97
The outstanding options at October 31, 2014 and October 31, 2013 and the respective changes during
the periods are summarized as follows:
Outstanding at October 1, 2012
Granted
Outstanding at October 31, 2013
Granted
Exercised
Outstanding at October 31, 2014
Number of options Exercise price
#
Cdn$
90,000
288,060
378,060
113,121
(4,600)
486,581
7.50
9.26
8.84
16.16
7.50
10.54
27 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Option grants (continued)
The following options are outstanding and exercisable at October 31, 2014
Options Outstanding and Exercisable
Grant Date
Exercise price
Number
outstanding
Average
remaining
contractual life
Number
exercisable
May 4, 2012
December 17, 2012
May 3, 2013
October 29, 2013
October 29, 2013
July 9, 2014
October 30, 2014
Total
Cdn$
$7.50
$7.50
$7.65
$10.86
$10.86
$13.24
$16.21
#
(years)
90,000
111,400
22,000
35,640
114,420
1,762
87,423
462,645
2.51
3.13
3.50
3.99
3.99
4.69
5.00
#
60,000
34,066
7,333
35,640
38,140
1,762
-
176,941
Subsequent events for the year ended October 31, 2014
On November 1, 2014, the Company completed a reorganization of its corporate structure resulting in a
one-time increase in income taxes of approximately $190,000. This tax liability occurred as a result of the
fair value increase in its investment in a subsidiary and will be recorded in the first quarter of 2015.
Accounting standards and policies
The Company's accounting policies are described in Note 2 to the Company's audited consolidated
financial statements for the year ended October 31, 2014.
Risk factors
The operations of the Company are speculative due to the high-risk nature of its business and its 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.
28 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Risk factors (continued)
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 cover the related operational cost as well as costs
associated with continuing 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 opportunities 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, the Company
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.
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 compliance and management information systems, as well as hire,
manage and retain its employees and maintain its compliant 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.
29 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Risk Factors (continued)
Credit Risk
Credit risk is the risk of financial loss associated with a 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 customer relationships are negotiated by senior management. The Company maintains accounts in
high quality financial institutions. At various times, the Company's bank balances exceed the federally
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. The
Company has longstanding relationships with most of its money service business customers and has a
strong repayment history. For the purpose of risk control, the customers are grouped as follows:
domestic and international banks, 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. These limits are reviewed regularly by senior management.
A breakdown of accounts receivable by category is set out below:
At October 31, 2014 At October 31, 2013
Customer type
Domestic and international banks
Money service businesses
Other
Total
$
2,953,383
1,204,410
20,765
$
443,739
584,109
5,511
4,178,558
1,033,359
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.
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 in certain instances of forward
contracts to offset these fluctuations. Due to their nature, some minor and exotic foreign currencies
cannot be hedged or are 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, 2014 was approximately $5,725,000 (2013 - $3,040,000). The amount of
currency that is unhedged and that is not pegged to the U.S. Dollar is approximately $4,090,000 (2013 -
$1,550,000). A 2% increase/decrease 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
+$80,000/-80,000 (2013 gain/loss of approximately +$30,000/-$30,000).
30 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Risk factors (continued)
On a consolidated basis, the Company is also exposed to foreign currency fluctuations between the U.S.
Dollar and the Canadian Dollar, being the functional currency of its Canadian subsidiary, CXIC.
The Company does not hedge its net investment in its Canadian subsidiary and the related foreign cur-
rency translation of local earnings.
Interest Rate Risk
At October 31, 2014, the Company had access to interest bearing financial instruments in cash and short
term accounts payable. A significant amount of the Company's cash is held as foreign currency bank
notes 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 13 in its financial statements for the year
ended October 31, 2014.
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 should be arranged
at either 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 year ended October 31, 2014 would have been approximately +$4,500/-$4,500 higher/lower
as a result of credit lines held at variable interest rates (October 31, 2013 - +$1000/-$1,000 higher/lower).
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:
Non-derivative financial liabilities
Carrying
amount
Estimated contractual
amount
Next fiscal
year
Future fiscal
years
At October 31, 2014
Accounts payable
Accrued expenses
Contingent consideration
Non-derivative financial liabilities
Accounts payable
Accrued expenses
$
2,903,669
1,239,367
1,477,867
$
2,903,669
1,093,044
1,477,867
$
2,903,669
1,093,044
892,723
$
$Nil
$Nil
585,144
At October 31, 2013
Carrying
amount
$
2,918,054
801,166
Contractual amount
Next fiscal
year
Future fiscal
years
$
2,918,054
757,237
$
2,918,054
757,237
$
$Nil
$Nil
The Company had available unused lines of credit amounting to $8,000,000 at October 31, 2014
(October 31, 2013 - $4,000,000).
31 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Risk factors (continued)
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.
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 “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.
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 based 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 protection of the Company’s intellectual work product. 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.
32 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Risk factors (continued)
Government Regulation and Compliance
Any non-compliance with regulatory currency licensing and 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 bank’s own internal compliance reporting
procedures, effectively relieving the Company of this reporting 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 jurisdictions in which it
operates 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.
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
order and
loss,
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 maintains a fully integrated, offsite, backup server farm 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.
33 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Risk factors (continued)
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’s Risk Committee oversees 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 $4.5 million.
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
approximately 25% of the issued and outstanding Common Shares.
By virtue of his status as the principal shareholder of the Company and by being a director and officer of
the Company, 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.
34 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three month period and year ended October 31, 2014 and the four month and thirteen month
periods ended October 31, 2013
Risk factors (continued)
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 of Directors and its Committees.
Global Economic and Financial Market Conditions
Market events and conditions, including disruption in the U.S. and Canadian, international credit markets
and other financial systems and the deterioration of U.S. and Canadian, 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.
Market 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
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 paid on dispositions of their Common Shares
during periods of such market price decline.
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 and directors 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.
35 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the year ended October 31, 2014 and the thirteen month period ended October 31, 2013
(Expressed in U.S. Dollars)
36 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the year ended October 31, 2014 and the thirteen month period ended October 31, 2013
(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
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
38-39
40
41
42
43
44-65
37 Independent auditor’s report
Grant Thornton LLP
Suite 300
3600 Dundas Street
Burlington, ON
L7M 4B8
T +1 289 313 0300
F +1 289 313 0355
www.GrantThornton.ca
To the shareholders of
Currency Exchange International, Corp.
We have audited the accompanying consolidated financial statements of Currency Exchange
To the shareholders of
International, Corp., which comprise the consolidated statements of financial position as at
Currency Exchange International, Corp.
October 31, 2014 and October 31, 2013, and the consolidated statements of income and
comprehensive income, consolidated statements of changes in equity and consolidated
We have audited the accompanying consolidated financial
statements of cash flows for the year and thirteen-month period then ended, and a summary of
statements of Currency Exchange International, Corp., which
significant accounting policies and other explanatory information.
comprise the consolidated statements of financial position as at
October 31, 2014 and October 31, 2013, and the consolidated
statements of income and comprehensive income, consolidated
Management’s responsibility for the financial statements
statements of changes in equity and consolidated statements of
Management is responsible for the preparation and fair presentation of these consolidated
cash flows for the year and thirteen-month period then ended, and
financial statements in accordance with International Financial Reporting Standards, and for
a summary of significant accounting policies and other explanatory
such internal control as management determines is necessary to enable the preparation of
information.
consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
Management’s responsibility for the financial
statements
Auditor’s responsibility
Management is responsible for the preparation and fair
Our responsibility is to express an opinion on these consolidated financial statements based on
presentation of these consolidated financial statements in
our audits. We conducted our audit in accordance with Canadian generally accepted auditing
accordance with International Financial Reporting Standards, and
standards. Those standards require that we comply with ethical requirements and plan and
for such internal control as management determines is necessary to
perform the audit to obtain reasonable assurance about whether the consolidated financial
enable the preparation of consolidated financial statements that are
statements are free from material misstatement.
free from material misstatement, whether due to fraud or error.
An audit involves performing procedures to obtain audit evidence about the amounts and
Auditor’s responsibility
disclosures in the consolidated financial statements. The procedures selected depend on the
Our responsibility is to express an opinion on these consolidated
auditor’s judgment, including the assessment of the risks of material misstatement of the
financial statements based on our audits. We conducted our audit
consolidated financial statements, whether due to fraud or error. In making those risk
in accordance with Canadian generally accepted auditing standards.
assessments, the auditor considers internal control relevant to the entity’s preparation and fair
Those standards require that we comply with ethical requirements
presentation of the consolidated financial statements in order to design audit procedures that
and plan and perform the audit to obtain reasonable assurance
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
about whether the consolidated financial statements are free from
effectiveness of the entity’s internal control. An audit also includes evaluating the
material misstatement.
appropriateness of accounting policies used and the reasonableness of accounting estimates
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
38
2
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,
2014 and October 31, 2013, and its financial performance and its cash flows for the year and
thirteen-month period then ended in accordance with International Financial Reporting
Standards.
Burlington, Canada
January 13, 2015
Chartered Accountants
Licensed Public Accountants
39 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Financial Position
October 31, 2014 and October 31, 2013
(Expressed in U.S. Dollars)
Current assets
Cash (Note 6)
Accounts receivable (Note 15)
Restricted cash held in escrow (Note 7)
Other current assets (Note 23)
Total current assets
Property and equipment (Note 9)
Intangible assets (Note 10)
Other assets
Net deferred tax asset (Note 11)
ASSETS
October 31, 2014
October 31, 2013
$
29,630,744
4,178,558
714,121
548,677
35,072,100
668,080
3,730,374
69,650
169,098
$
31,130,866
1,033,359
200,707
439,795
32,804,727
461,273
371,130
44,689
-
Total assets
39,709,302
33,681,819
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Accrued expenses
Income taxes payable (Note 11)
Contingent consideration - current (Note 4)
Total current liabilities
Contingent consideration - long term (Note 4)
Deferred tax liability (Note 11)
Total liabilities
Equity
Share capital
Equity reserves
Retained earnings
Total equity
Total liabilities and equity
Commitments and contingencies (Notes 4 and 22)
Subsequent events (Note 24)
Approved on behalf of Board of Directors:
2,903,669
1,239,367
1,063,224
892,723
6,098,983
585,144
-
2,918,054
801,166
150,489
-
3,869,709
-
48,134
6,684,127
3,917,843
5,395,073
17,032,203
10,597,899
33,025,175
39,709,302
5,390,473
17,194,729
7,178,774
29,763,976
33,681,819
(signed) "Randolph Pinna", Director
(signed) "Chirag Bhavsar", Director
The accompanying notes are an integral part of these consolidated financial statements.
40
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Income and Comprehensive Income
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
(Expressed in U.S. Dollars)
Revenues
Commissions from trading
Fee income
Total revenues (Note 5)
Operating expenses (Note 20)
Net operating income
Other income (expense)
Other income
Fair value change in warrant liability (Note 17)
Expenses related to asset acquisition (Note 4)
Expenses related to bank application (Note 21)
Total other income (expense)
Earnings before interest, taxes, depreciation and
amortization
Interest and accretion expense
Depreciation and amortization
Income before income taxes
Income tax expense (Note 11)
Year ended
Thirteen month period ended
October 31, 2014
October 31, 2013
$
20,442,242
1,563,711
22,005,953
14,816,184
7,189,769
90,225
-
(141,353)
(126,098)
(177,226)
7,012,543
(66,482)
(924,225)
6,021,836
(2,602,711)
$
14,674,438
1,315,996
15,990,434
11,597,919
4,392,515
13,126
458,241
-
(272,004)
199,363
4,591,878
(37,874)
(347,052)
4,206,952
(1,565,258)
Net income for the period
3,419,125
2,641,694
Other comprehensive income, after tax
Net income
Items that may subsequently be reclassified to profit or loss
Exchange differences on translating foreign operations
Total other comprehensive income
Earnings per share (Note 19)
-Basic
-Diluted
Weighted average number of common shares outstanding (Note 19)
-Basic
-Diluted
3,419,125
(756,245)
2,662,880
$0.63
$0.62
5,391,053
5,509,753
2,641,694
(286,670)
2,355,024
$0.64
$0.64
4,126,996
4,133,075
The accompanying notes are an integral part of these consolidated financial statements.
41 l
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42
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Cash Flows
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation and amortization
Stock based compensation (Note 18)
Gain on disposal of assets
Deferred taxes
Year ended
Thirteen month
period ended
October 31, 2014
October 31, 2013
$
$
3,419,125
2,641,694
924,225
567,055
-
(217,232)
347,052
289,019
(6,380)
11,524
Fair value change in warrant liability
-
(458,241)
Increase/(Decrease) in cash due to change in:
Accounts receivable
Restricted cash held in escrow
Other assets
Accounts payable, accrued expenses, and income taxes payable
Net cash inflows from operating activities
Cash flows from investing activities
Purchase of property and equipment
Purchase of intangible assets
Proceeds from sale of equipment
Net cash outflows from investing activities
Cash flows from financing activities
Proceeds from exercise of stock options, broker options and share
warrants (Note 18)
Net cash inflows from financing activities
Net change in cash
Cash, beginning of period
Exchange difference on foreign operations
Cash, end of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes
Cash paid during the period for interest, net
(3,188,445)
(513,414)
(137,113)
1,362,574
2,216,775
(502,350)
(2,533,493)
-
(3,035,843)
31,264
31,264
(787,804)
31,130,866
(712,318)
29,630,744
1,900,273
20,448
(461,760)
(73,530)
(140,794)
2,407,741
4,556,326
(355,693)
(260,797)
18,308
(598,182)
10,932,373
10,932,373
14,890,517
16,564,453
(324,104)
31,130,866
1,540,733
19,797
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Warrants issue on conversion of broker options
-
39,414
43 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
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 three vaults that
serve Canada and United States as well as two small vaults that serve local markets on the West Coast
and Northeast regions of the United States. The Company also operates 32 branch locations. The
Company’s registered head office is located at 6675 Westwood Boulevard, Suite 300, Orlando, Florida,
32821, United States of America.
Change in reporting period
Effective February 2013, the Company changed its fiscal year end to October 31st to conform to the
reporting period for Canadian chartered banks.
Basis of presentation
The presentation 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
consolidated financial statements. These consolidated financial statements have been prepared on a
historical cost basis, except for the following assets and liabilities which are stated at their fair value:
financial instruments classified as fair value through profit or loss (“FVTPL”), foreign currency forward
contracts and share-based payment plans. In addition, these consolidated financial statements have
been prepared using the accrual basis of accounting, except for cash flow information.
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorized for issue and approved by the Board of Directors
on January 13, 2015.
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 internally developed software
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.
44 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
1.
Nature of Operations and Basis of Presentation (continued)
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.
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. The determination of the most
appropriate valuation model is dependent on the terms and conditions of the grant. 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. The assumptions and
models used for estimating fair value for share-based payment transactions are disclosed in Note 18.
Such judgments and assumptions are inherently uncertain. Changes in these assumptions affect the fair
value estimates.
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 that 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 best 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.
45 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
1.
Nature of Operations and Basis of Presentation (continued)
Fair value measurement
Management uses valuation techniques to determine the fair value of certain financial instruments (where
active market quotes are not available). This involves developing estimates and assumptions consistent
with how market participants would price the instrument. Management bases its assumptions on
observable data as much as possible but this is not always available. In that case management uses the
best information available. Estimated fair values may vary from the actual prices that would be achieved
in an arm’s length transaction at the reporting date.
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 4 and 22.
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 Business Corporation 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 fair value based on foreign exchange rates as of October 31, 2014 and 2013,
respectively.
46 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
2.
Accounting Policies (continued)
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. The Company has longstanding relationships with most of its
money service business customers and has a strong repayment history. 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, 2014 and 2013, 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. The amount of this
spread is based on competitive conditions and the convenience and value added services offered. 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 currency translation
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 CXIC is the
Canadian Dollar and the functional currency of the Company and CXIA 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 of the Canadian subsidiary are included in accumulated other comprehensive
income. On disposal of a foreign operation, the related cumulative translation differences recognized in
equity reserves are reclassified to profit or loss and are recognized as part of the gain or loss on disposal.
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.
47 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
2.
Accounting Policies (continued)
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 depreciated over its estimated useful life. Cost
includes expenditures which are directly attributable to bringing the asset into working condition for its
intended use. Depreciation is calculated on a straight line basis, as follows:
Vehicles
Computer equipment
Furniture and equipment
Leasehold improvements
3 years
3 years
3 years
lesser of the lease term or useful life
When parts of an asset have different useful lives, depreciation 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 the Company's internally developed software (“CEIFX”) and its related
modules as well as software and customer trading relationships purchased from U.S. Exchange House,
Inc. (“USEH”) (Note 4). Costs that are directly attributable to a project’s development phase are recognized
as intangible assets, provided they have met the following recognition requirements:
the development costs can be measured reliably;
the project is technically and commercially feasible ;
the Company intends to and has sufficient resources to complete the project;
the Company has the ability to use or sell the software; and
the software will generate probable future economic benefits.
Development costs not meeting these criteria for capitalization are expensed as incurred.
Amortization for intangibles is computed on an individual basis over the estimated economic life using the
straight-line method as follows:
Internally developed software
Software purchased from USEH
Customer trading relationships
5 years
2 years
5 years
48
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
2.
Accounting Policies (continued)
Residual values and useful lives are reviewed at each reporting date.
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 instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the
contractual provisions of the financial instrument and are measured initially at fair value adjusted for
transaction costs, except for those carried at FVTPL which are measured initially at fair value. Subsequent
measurement of financial assets and financial liabilities is described below.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset
expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial
liability is derecognized when it is extinguished, discharged, cancelled or expires.
Financial assets
Financial assets within the scope of International Accounting Standards (“IAS”) 39 Financial Instruments:
Recognition and Measurement (“IAS 39”) are classified as financial assets at FVTPL, loans and
receivables, held-to-maturity investments or available-for-sale financial assets for purposes of subsequent
measurement. The Company determines the classification of its financial assets at initial recognition. Note
that the Company does not hold any held-to-maturity or available-for-sale financial assets.
All financial assets except for those at FVTPL are reviewed for impairment at least at each reporting date to
identify whether there is any objective evidence that a financial asset or group of financial assets is
impaired. Different criteria to determine impairment are applied for each category of financial assets, which
are described below.
Fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets that are either classified as held
for trading or they meet certain conditions and are designated at FVTPL upon initial recognition. All
derivative financial instruments fall into this category, except for those designated and effective as hedging
instruments, for which the hedge accounting requirements apply. Assets within this category are initially
recognized at fair value with changes in fair value recorded through income. The fair values of financial
assets in this category are determined by reference to active market transaction or using a valuation
technique where no active market exists. Cash in local and foreign currencies held in tills, vaults, or in
transit as well as derivatives are included in this category of financial assets.
Derivatives are initially recognized 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 recognized
in profit or loss immediately. A derivative with a positive fair value is recognized as a financial asset
whereas a derivative with a negative fair value is recognized 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 realized or settled within 12 months. Other derivatives are presented as
current assets or current liabilities.
49 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
2.
Accounting Policies (continued)
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an
active market. 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.
Individually significant receivables are considered for impairment when they are past due or when objective
evidence is received that a specific counterparty will default. Receivables that are not considered to be
individually impaired are reviewed for impairment in groups, which are determined by reference to the type
of counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on
recent historical counterparty default rates for each identified group.
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 and contingent consideration. All financial liabilities
are classified as other financial liabilities, with the exception of contingent consideration, which 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.
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: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly or indirectly; and
Level 3: unobservable inputs for the asset or liability.
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.
50 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
2.
Accounting Policies (continued)
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. 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 generally recognized
in full, although IAS 12 Income Taxes (“IAS 12”) specifies limited exemptions. 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.
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 Policies and Future Accounting Pronouncements
New accounting policies
IFRS 10 Consolidated Financial Statements (“IFRS 10”) supersedes IAS 27 Consolidated and Separate
Financial Statements (“IAS 27”) and SIC 12 Consolidation – Special Purpose Entities. IFRS 10 revises
the definition of control and provides extensive new guidance on its application. These new requirements
have the potential to affect which of the Company’s investees are considered to be subsidiaries and
therefore to change the scope of consolidation. The requirements on consolidation procedures,
accounting for changes in non-controlling interests and accounting for loss of control of a subsidiary are
unchanged. The Company has adopted this standard for the annual period commencing November 1,
2013. The adoption of this standard had no measurement impact on the Company’s financial results.
IFRS 12 Disclosure of Involvement with Other Entities (“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. The Company has adopted this standard for the annual period commencing November 1, 2013.
The adoption of this standard had no disclosure impact on the Company’s financial results.
51 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
3.
New Accounting Policies and Future Accounting Pronouncements (continued)
FRS 13 Fair Value Measurement (“IFRS 13”) defines fair value, sets out in a single IFRS a framework for
measuring fair value and identifies required disclosures about fair value measurements. The Company
has adopted this standard for the annual period commencing November 1, 2013. The adoption of this
standard had no measurement impact on the Company’s financial results. Enhanced disclosures have
been included in Note 14 of the consolidated financial statements.
Future accounting pronouncements
Certain pronouncements were issued by the 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 Financial Instruments (“IFRS 9”) was issued in July 2014. IFRS 9 replaces IAS 39. The new
standard includes guidance on recognition and derecognition of financial assets and financial liabilities,
impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1,
2018, with early adoption permitted. The Company is currently evaluating the impact of IFRS 9 on its
consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) was issued in May 2014. IFRS 15 replaces
IAS 18 Revenue, IAS 11 Construction Contracts, and some revenue related Interpretations. IFRS 15
establishes a new control-based revenue recognition model and is effective for annual periods beginning
on or after January 1, 2017, with early adoption permitted. The Company is currently evaluating the
impact of IFRS 15 on its consolidated financial statements.
IFRIC 21 Levies (“IFRIC 21”) was issued in May 2013 and is an interpretation of IAS 37 Provisions,
Contingent Liabilities and Contingent Assets. A levy is an outflow of resources embodying economic
benefits that is imposed by government on entities in accordance with legislation, other than income taxes
within the scope of IAS 12 and fines or other penalties imposed for breaches of legislation. IFRIC 21
clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the
relevant legislation that triggers the payment of the levy. IFRIC 21 is effective for annual periods
beginning on or after January 1, 2014, with early adoption permitted. The Company is currently evaluating
the impact of IFRIC 21 on its consolidated financial statements.
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 effective for annual periods beginning on or after
January 1, 2014, with early adoption permitted. The Company is currently evaluating the impact of the
amendments to IAS 32 on its consolidated financial statements.
52 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
4.
Purchase of assets from U.S. Exchange House, Inc.
On March 28, 2014 the Company purchased certain assets of USEH, pertaining to its bank note operations
located in the United States and Canada. The Company acquired USEH’s customer trading relationships,
certain prepaid and fixed assets and the USEH trading software used to operate the bank note business.
The Company paid $2,350,000 in cash on closing and will have two additional contingent payments of up to
a maximum of $1,325,000 each and payable on the first and second anniversary after closing. The
additional payments will be based on the amount of revenue generated from the customer trading
relationships acquired.
The Company has estimated the likelihood of future revenues to determine the estimated contingent
consideration. Management has estimated these payments for the first and second anniversary at
$892,723 and $585,144, respectively, for total contingent consideration of $1,477,867. The Company
allocated this contingent consideration to customer trading relationships. An increase (decrease) in the
estimate of the amount of revenue generated from the customer trading relationships acquired of +/- 10%
would increase (decrease) the fair value of the contingent consideration by approximately $480,000.
This transaction did not meet the criteria of an acquisition of a business under IFRS 3 thus the transaction
did not result in any goodwill being recognized. The Company allocated the purchase price and contingent
consideration of $3,827,867 as follows:
Customer trading relationships
Fixed and prepaid assets
Computer software
Total
$3,288,283
59,584
480,000
$3,827,867
The Company recorded expenses of $141,353 in legal and other professional fees to complete the
transaction.
53 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
5.
Geographical Segments
The Company only has a single reportable segment, but operates in both the United States and Canada.
The Company's revenue from external customers and information about its assets by geographical location
are detailed below:
Revenues ($)
United
States
Canada
Total
Year ended October 31, 2014
11,949,822 10,056,131 22,005,953
Thirteen months ended October 31, 2013
14,382,012
1,608,422 15,990,434
Assets
Cash
At October 31, 2014
At October 31, 2013
United
States
Canada
Total
United
States
Canada
Total
$
$
$
$
$
$
2,241,023 27,389,721 29,630,744
6,451,236
24,679,630 31,130,866
Accounts receivable
19,610
4,158,948
4,178,558
59,640
973,719
1,033,359
Restricted cash held in escrow
-
714,121
714,121
-
200,707
200,707
Other current assets
273,774
274,903
548,677
297,838
141,957
439,795
Property and equipment
528,048
140,032
668,080
348,001
113,272
461,273
Intangible assets
2,675,720
1,054,654
3,730,374
371,130
-
371,130
Other assets
34,137
35,513
69,650
31,636
13,053
44,689
Deferred tax asset
174,890
(5,792)
169,098
-
-
-
Total assets
5,947,202 33,762,100 39,709,302
7,559,481
26,122,338 33,681,819
On October 31, 2013 the Company restructured its operations to add additional capital into its wholly-
owned subsidiary, CXIC, as part of its bank application process. As a result, cash and capital in CXIC
increased substantially. Additionally, for the year ended October 31, 2014 the Company realized revenues
of $7,291,089 in its Canadian subsidiary that would have previously been recognized in the United States
operating company.
6.
Cash
Included within cash of $29,630,744 at October 31, 2014 (2013 - $31,130,866) are the following
balances:
At October 31, 2014
At October 31, 2013
Cash held in transit, vaults, tills and
consignment locations
Cash deposited in bank accounts in
jurisdictions in which the Company operates
Total
$
21,826,848
7,803,896
29,630,744
$
15,427,028
15,703,838
31,130,866
54 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
7.
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 amounts
of $714,121 at October 31, 2014 (2013 - $200,707).
8.
Operating Leases
The Company and its subsidiary companies 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
year ended October 31, 2014 was $2,024,290 (thirteen month period ended October 31, 2013 -
$1,683,547).
The following is a schedule of future minimum rental payments under these agreements as of October 31,
2014:
Year ended
October 31, 2015
October 31, 2016
October 31, 2017
October 31, 2018
October 31, 2019 and thereafter
Total
Remaining minimum
payments required
$1,512,998
$1,012,842
$891,438
$559,577
$229,379
$4,206,234
The Company is also responsible for its proportionate share of operating costs.
9.
Property and equipment
Property and equipment consisted of the following at October 31, 2014:
Cost
Balance, September 30, 2012
Additions
Disposals
Balance, October 31, 2013
Additions
Disposals
Net exchange differences
Balance, October 31, 2014
Depreciation
Balance, September 30, 2012
Depreciation
Disposals
Balance, October 31, 2013
Depreciation
Disposals
Net exchange differences
Balance, October 31, 2014
Carrying amounts
Balance, October 31, 2013
Balance, October 31, 2014
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
Total
$
66,373
31,683
(49,853)
48,203
16,918
-
-
65,121
$
124,484
33,564
(25,812)
132,236
86,157
(2,891)
(1,506)
213,996
$
171,826
33,327
(6,861)
198,292
118,853
-
(3,628)
313,517
$
$
952,170
589,487
353,532
254,958
(98,838)
(16,312)
828,133 1,206,864
499,092
277,164
(46,583)
(43,692)
(13,062)
(7,928)
1,053,677 1,646,311
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
$
42,246
14,231
(37,926)
18,551
15,150
-
-
33,701
Vehicles
$
29,652
31,420
$
86,644
31,003
(25,811)
91,836
42,339
(2,891)
(655)
130,629
$
96,748
41,733
(6,861)
131,620
49,502
-
(2,146)
178,976
$
335,407
184,489
(16,312)
503,584
173,534
(43,692)
1,499
634,925
Computer
equipment
Furniture and
equipment
Leasehold
improvements
$
40,400
83,367
$
66,672
134,541
$
324,549
418,752
Total
$
561,045
271,456
(86,910)
745,591
280,525
(46,583)
(1,302)
978,231
Total
$
461,273
668,080
55 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
10.
Intangible assets
Intangible assets consisted of the following at October 31, 2014:
Acquired
software
Internally developed
software
Customer trading
relationships
Total
Cost
Balance, September 30, 2012
Additions
Balance, October 31, 2013
Additions
Balance, October 31, 2014
Amortization
Balance, September 30, 2012
Amortization
Balance, October 31, 2013
Amortization
Net exchange differences
Balance, October 31, 2014
$
231,590
260,797
492,387
234,620
727,007
$
-
-
-
480,000
480,000
$
-
-
-
$
231,590
260,797
492,387
3,288,283 4,002,903
3,288,283 4,495,290
Internally developed
software
Acquired
software
Customer trading
relationships
$
45,661
75,596
121,257
119,864
-
241,121
$
-
-
-
140,000
-
140,000
$
-
-
-
383,836
(41)
383,795
Internally developed
software
Acquired
software
Customer trading
relationships
Total
$
45,661
75,596
121,257
643,700
(41)
764,916
Total
Carrying amounts
Balance, October 31, 2013
Balance, October 31, 2014
$
371,130
485,886
$
-
340,000
$
-
$
371,130
2,904,488 3,730,374
11.
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, 2014 and 2013 consist of the following:
Deferred tax assets
Accrued expenses
Stock based compensation
Other
Total deferred tax assets
Deferred tax liabilities
Intangible assets
Net property and equipment
Total deferred tax liabilities
Net deferred tax asset/(liability)
October 31, 2014 October 31, 2013
$
$
45,444
340,748
27,811
414,003
(187,175)
(57,730)
(244,905)
169,098
63,468
137,837
-
201,305
(144,741)
(104,698)
(249,439)
(48,134)
Reconciliation of the provision for income taxes to the amount calculated using the Company’s statutory
tax rate for the year ended October 31, 2014 and the thirteen month period ended October 31, 2013 are
as follows:
Income before taxes
Statutory tax rate
Tax expense at statutory rate
Tax on dividend income
Withholding tax payment
Foreign tax rate adjustment
Other non-deductible differences (benefit)
Income tax expense
October 31, 2014
$
6,021,836
38.5%
2,318,407
210,192
79,541
(70,252)
64,823
2,602,711
October 31, 2013
$
4,206,952
38%
1,598,642
-
-
-
(33,384)
1,565,258
56 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
11.
Income taxes (continued)
The enacted tax rates in Canada of 26.5% (2013 – 26.5%) and in the United States of 38.5% (2013 –
38%) where the Company operates are applied in the tax provision calculation. The Canadian rate
remained unchanged, whereas the increase in the United States rate was due to change in income
allocations amongst the states.
The provisions for income taxes for the year ended October 31, 2014 and the thirteen month period
ended October 31, 2013 consists of the following:
Current tax expense
Deferred tax (benefit) expense
Income tax expense
October 31, 2014 October 31, 2013
$
1,553,734
11,524
1,565,258
$
2,819,943
(217,232)
2,602,711
12.
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 lower 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.
13.
Lines of credit
The Company maintains two lines of credit for liquidity during peak business periods. The Company has a
revolving line of credit with BMO Harris Bank, N.A. for up to $6,000,000. The credit line is secured
against the Company’s cash and other non-cash assets. The line of credit bears interest at Libor plus
2.0% (at October 31, 2014 – 2.16%). At October 31, 2014, the balance outstanding was $Nil (2013 -
$Nil).
On January 4, 2011, the Company entered into an unsecured Master Purchasing Agreement with a
shareholder of the Company. The Company has available credit of Cdn$2,000,000 under the agreement.
Specific repayment terms and interest rates are negotiated when drawings are made. Any and all
drawings from the credit facility are subordinate to the line of credit with BMO Harris Bank, N.A. At
October 31, 2014, the balance outstanding was $Nil (2013 - $Nil).
14.
Fair Value Measurement of Financial Instruments
Financial assets and financial liabilities measured at fair value in the consolidated statement of financial
position are grouped into three Levels of a fair value hierarchy. The three Levels are defined based on
the observability of significant inputs to the measurement, as outlined in Note 2.
The fair value determination is the estimated amount that the Company would receive to sell a financial
asset or pay to transfer a financial liability in an orderly transaction between market participants at the
measurement date.
57 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
14.
Fair Value Measurement of Financial Instruments (continued)
The following table shows the Levels within the hierarchy of financial assets and liabilities measured at
fair value at October 31, 2014:
Financial assets
Cash
Forward contract positions
Total assets
Financial Liabilities
Contingent consideration
Total liabilities
Financial assets
Cash
Forward contract positions
Total assets
Level 1
$
Level 2
$
Level 3
$
Total
$
At October 31, 2014
29,630,744
-
29,630,744
-
-
-
117,732
117,732
-
-
-
-
-
1,477,867
1,477,867
At October 31, 2013
29,630,744
117,732
29,748,476
1,477,867
1,477,867
Level 1
$
Level 2
$
Level 3
$
Total
$
31,130,866
-
31,130,866
-
83,430
83,430
-
-
-
31,130,866
83,430
31,214,296
*There were no transfers between Level 1 and Level 2 during the year ended October 31, 2014.
Cash (Level 1)
The Company’s cash consisting of local and foreign currency notes held in vaults, tills, bank accounts,
and in transit are based upon foreign exchange rates quoted in active markets as of October 31, 2014
and 2013, respectively.
Forward contract positions (Level 2)
The Company’s forward contract positions are not traded in active markets. These have been fair valued
using observable forward exchange rates. The effects of non-observable inputs are not significant for
foreign contract positions
Contingent Consideration (Level 3)
The fair value of contingent consideration, related to the USEH asset acquisition described in Note 4, is
estimated based on the amount of revenue generated from the acquired customer trading relationships.
The significant input for the fair value estimate is management’s estimate of revenues from acquired
customers to continue transacting with the Company. For information about the sensitivity of the fair
value measurement to the changes in the input at October 31, 2014, see Note 4. The fair value estimate
of cash outflows is $1,477,867 at October 31, 2014. This reflects management’s best estimate of a
retention rate of key acquired customers in year 1 and in year 2.
Due to their short term nature, the carrying value of the following financial instruments approximates their
fair value at the balance sheet date:
Accounts receivable
Restricted cash held in escrow
Accounts payable and accrued expenses
15.
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.
58 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
15.
Risk Management (continued)
Financial risk management is carried out by the Chief Financial Officer (“CFO”) under policies approved
by the 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 a counterparty’s inability to fulfill its payment
obligations. The Company’s credit risk is primarily attributable to cash in bank accounts, accounts
receivable, and forward contracts from hedging counterparties.
All customer relationships are negotiated by senior management. The Company maintains accounts in
high quality financial institutions. At various times, the Company's bank balances 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. The
company has longstanding relationships with most of its money service business customers and has a
strong repayment history. For the purpose of risk control, the customers are grouped as follows:
domestic and international banks, 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. These limits are reviewed regularly by senior management.
A breakdown of accounts receivable by category is below:
At October 31, 2014 At October 31, 2013
Customer type
Domestic and international banks
Money service businesses
Other
Total
$
2,953,383
1,204,410
20,765
$
443,739
584,109
5,511
4,178,558
1,033,359
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.
59 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
15.
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 in certain instances of forward
contracts to offset these fluctuations. Due to their nature, some minor and exotic foreign currencies
cannot be hedged or are 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 within acceptable risk tolerances The amount of
unhedged inventory held in vaults, tills and in transit at October 31, 2014 was approximately $5,725,000
(2013 - $3,040,000). The amount of currency that is unhedged and that is not pegged to the U.S. Dollar
is approximately $4,090,000 (2013 - $1,550,000). A 2% increase/decrease 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 +$80,000/-80,000 (2013 - gain/loss of approximately +$30,000/-$30,000).
On a consolidated basis, the Company is also exposed to foreign currency fluctuations between the U.S.
Dollar and the Canadian Dollar, being the functional currency of its Canadian subsidiary, CXIC.
The Company does not hedge its net investment in its Canadian subsidiary and the related foreign cur-
rency translation of local earnings.
Interest Rate Risk
At October 31, 2014, the Company had access to interest bearing financial instruments in cash and short
term accounts payable. 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 13.
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 twelve month period ended October 31, 2014 would have been approximately +$4,500/-
$4,500 higher/lower (October 31, 2013 +$1,000/-$1,000 higher/lower) as a result of credit lines held at
variable interest rates.
Liquidity Risk
Liquidity Risk is the risk that the Company will not be able to meet its financial obligations as they fall due.
CFO informs the Chief Executive Officer (“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 minimum cash reserve or credit lines greater than 15% of the Company's
prior year's revenues.
60 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
15.
Risk Management (continued)
The following are non-derivative contractual financial liabilities:
Non-derivative financial liabilities
Carrying
amount
Estimated contractual
amount
Next fiscal
year
Future fiscal
years
At October 31, 2014
Accounts payable
Accrued expenses
Contingent consideration
Non-derivative financial liabilities
Accounts payable
Accrued expenses
$
2,903,669
1,239,367
1,477,867
$
2,903,669
1,093,044
1,477,867
$
2,903,669
1,093,044
892,723
$
$Nil
$Nil
585,144
At October 31, 2013
Carrying
amount
$
2,918,054
801,166
Contractual amount
Next fiscal
year
Future fiscal
years
$
2,918,054
757,237
$
2,918,054
757,237
$
$Nil
$Nil
The Company had available unused lines of credit amounting to $8,000,000 at October 31, 2014
(2013 - $4,000,000).
Capital Management
The Company manages working capital through its financial and operational forecasting processes. The
Company defines working capital as total current assets less other current liabilities. 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.
October 31, 2014 October 31, 2013
Current assets
35,072,100
32,804,727
Current liabilities
(6,098,983)
(3,869,709)
Capital
28,973,117
28,935,018
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.
16.
Foreign Currency Forward Contracts
The Company enters into non-deliverable foreign currency forward contracts 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.
At October 31, 2014 and 2013, $714,121 and $200,707, 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 7. The fair value of the forward positions on October 31, 2014 and 2013
were $117,732, and $83,430, respectively (Note 23).
61 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
17.
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 18). 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 18 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 18 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 18 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 year
ended October 31, 2014, the Company realized a non-cash gain of $Nil on the revaluation and expiration
of the liability (thirteen-month period ended October 31, 2013 - non-cash gain of $458,241).
18.
Equity
Share Capital
The authorized share capital consists of 100,000,000 common shares. The common shares have a par
value of $1.00.
During the thirteen month period ended October 31, 2013, 82,680 broker compensation units were
exercised at a price of Cdn$6.65 per unit, for proceeds of $548,264 (Cdn$549,822).
In August and September of 2013, 1,435,725 common share purchase warrants were exercised, each for
one common share of stock at a price of Cdn$7.50, for proceeds of $10,384,109 (Cdn$10,767,938).
In September of 2014, 4,600 employee stock options were exercised at a price of Cdn$7.50, for proceeds
of $31,264 (Cdn$34,500).
62 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
18.
Equity (continued)
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, and
management. 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 Board of
Directors.
Below is information related to each option grant:
May 4, 2017
Expiry Date
Date of Grant
May 4, 2012
December 17, 2012 December 18, 2017
May 3, 2013
October 29, 2013
October 29, 2013
July 9, 2014
October 30, 2014
October 30, 2014
May 3, 2018
October 29, 2018
October 29, 2018
July 9, 2019
October 30, 2019
October 30, 2019
Share price at
grant date
Cdn$7.30
Cdn$6.75
Cdn$7.35
Cdn$10.86
Cdn$10.86
Cdn$13.24
Cdn$18.00
Cdn$18.00
Amount
granted
90,000
116,000
22,000
35,640
114,420
1,762
87,215
24,144
Risk-
free
interest
rate
0.78%
0.74%
0.73%
1.29%
1.29%
1.70%
1.61%
1.61%
Expected
Exercise
volatility
Price
45%
Cdn$7.50
49%
Cdn$7.50
38%
Cdn$7.65
35%
Cdn$10.86
35%
Cdn$10.86
Cdn$13.24
29%
27% Cdn$16.21*
27% Cdn$16.21*
Fair value
of option
at grant
date
$2.84
$2.66
$2.42
$3.44
$3.44
$3.58
$4.97
$4.97
* Exercise price determined by average share price for previous 20 trading days
The outstanding options at October 31, 2014 2013 and the respective changes during the periods are
summarized as follows:
Outstanding at October 1, 2012
Granted
Outstanding at October 31, 2013
Granted
Exercised
Outstanding at October 31, 2014
Number of options Exercise price
#
Cdn$
90,000
288,060
378,060
113,121
(4,600)
486,581
7.50
9.26
8.84
16.16
7.50
10.54
The following options are outstanding and exercisable at October 31, 2014:
Options Outstanding and Exercisable
Grant Date
Exercise price
Number
outstanding
May 4, 2012
December 17, 2012
May 3, 2013
October 29, 2013
October 29, 2013
July 9, 2014
October 30, 2014
Total
Cdn$
$7.50
$7.50
$7.65
$10.86
$10.86
$13.24
$16.21
#
90,000
111,400
22,000
35,640
114,420
1,762
111,359
486,581
Average
remaining
contractual
life
(years)
2.51
3.13
3.50
3.99
3.99
4.69
5.00
Number
exercisable
#
60,000
34,066
7,333
35,640
38,140
1,762
-
176,941
63 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
19.
Earnings per Share
The calculation of earnings per share is presented below. Diluted earnings per share for the year ended
October 31, 2014 and for the thirteen month period ended October 31, 2013 included all stock options
outstanding.
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
Year ended
Thirteen month
period ended
October 31, 2014
October 31, 2013
$3,419,125
5,391,053
$0.63
$3,419,125
5,509,753
$0.62
$2,641,694
4,126,996
$0.64
$2,641,694
4,133,075
$0.64
20.
Operating expenses
Year ended
Thirteen month period ended
October 31, 2014
October 31, 2013
Salaries and benefits
Rent
Legal and professional
Postage and shipping
Stock based compensation
$
7,363,075
2,024,290
915,745
1,729,684
567,055
Other general and administrative
2,216,335
$
5,742,923
1,683,547
1,089,853
1,187,081
289,019
1,605,496
Operating expenses
14,816,184
11,597,919
21.
Expenses Related to Bank Application
On November 23, 2012, the Company submitted its application to continue its wholly-owned subsidiary,
CXIC, 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”) and the Minister of Finance, the new bank
will be called "Exchange Bank of Canada" in English and "Banque d'échange du Canada" in French and
will have its head office in Toronto. The Company continues to hold regular communications with OSFI in
pursuit of its banking license. During the year ended October 31, 2014, the Company recognized legal
and administrative expenses of $126,098 in relation to the application process (thirteen month period
ended October 31, 2013 – $272,004).
64 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to Consolidated Financial Statements
Year ended October 31, 2014 and thirteen month period ended October 31, 2013
22.
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 the year ended October 31, 2014 and
the thirteen month period ended October 31, 2013 was as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
Year ended
Thirteen month period
ended
October 31, 2014
October 31, 2013
$
1,275,100
30,123
542,876
1,848,099
$
1,090,856
18,700
255,535
1,365,091
On October 1, 2011, the Company entered into an employment agreement with the President and CEO of
the Company. Such agreement contains clauses requiring additional payments of a minimum of $450,000
to be made upon the occurrence of certain events such as a change of control of the Company or
termination for reasons other than cause. As the likelihood of a change of control of the Company is not
determinable, the contingent payments have not been reflected in the consolidated financial statements.
The Company incurred legal and professional fees in the aggregate of $138,218 for the year ended
October 31, 2014 (thirteen month period ended October 31, 2013 $86,171) charged by entities controlled
by directors or officers of the Company.
23.
Other current assets
Prepaid rent
Prepaid insurance
Due on debit and credit cards
Forward contract positions
Other assets
Total
At October 31, 2014
At October 31, 2013
$
171,428
105,522
40,177
117,732
113,818
548,677
$
131,034
92,871
33,447
83,430
99,013
439,795
24.
Subsequent Events
On November 1, 2014, the Company completed a reorganization of its corporate structure
resulting in a one-time increase in income taxes of approximately $190,000. This tax liability
occurred as a result of the fair value increase in its investment in a subsidiary and will be recorded in
the first quarter of 2015.
65 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, Florida to an international, 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 CXI
Independent Board Member
Chirag Bhavsar
Lead Director of CXI
Independent Board Member
Mark D. Mickleborough
Director of CXI
Board Member
Linda Stromme
Director of CXI
Independent Board Member
V. James Sardo
Director of CXI
Independent Board Member
James D.A. White
Director of CXI
Independent Board Member
CXI Annual Report 2014
66
Currency Exchange International
6675 Westwood Boulevard, Suite 300
Orlando, FL 32821
USA
www.ceifx.com
U.S.A. (888) 998 3948
Canada (888) 223 3934
Email: InvestorRelations@ceifx.com
Currency Exchange International of Canada
390 Bay Street
Toronto, Ontario M5H 2Y2
Canada
www.ceifx.com