Currency Exchange International
2015 Annual Report
FINANCIAL HIGHLIGHTS
Exchange Volume:
In Millions
Total Revenue:
In Millions
Total Assets:
In Millions at Fiscal Year End
2012
$605
$12.3
$18.2
2013*
2014
2015
$878
$1,456
$1,636
$16.0
$33.7
$22.0
$39.7
$24.1
$52.2
All amounts in this report are stated in USD unless otherwise noted.
Exchange Volum e
$ Millions
12%
Year Over Year
Tota l R evenue
$ Millions
9%
Year Over Year
Total Assets
$ Millions
31%
Year Over Year
$1,636
$1,456
$24.1
$22.0
$878
$605
$16.0
$12.3
$52.2
$39.7
$33.7
$18.2
2012
2013*
2014
2015
2012
2013*
2014
2015
2012
2013*
2014
2015
C orporate Custome rs a nd Tran s ac ti ng L ocation s
Key R atios
2012
2013*
2014
2015
2014
2015
Company-Owned
Branch Locations
Wholesale Company
Relationships
23
26
32
36
Earnings Per Share
$0.62
$0.59
245
364
469
521
Transacting Locations
2,455
5,741
8,274
10,157
Return On Assets
9.2%
7.8%
Qua rterly Stock Pric e (TSX:CXI )
Return On Equity
11.0%
8.8%
Q1
Q2
Q3
Q4
Ended 1/31/2015
Ended 4/30/2015
Ended 7/31/2015
Ended 10/31/2015
$25.76
$32.68
$36.38
$23.58
Operating Margin
32.7%
29.6%
TSX stock prices are quoted in Cdn$
*13 month period-ended October 31, 2013
1
CXI Annual Report 2015
PRESIDENT’S LETTER
Randolph W. Pinna
President and Chief Executive Officer
Dear CXI Shareholders, Customers, Employees and Friends,
I am pleased to present the progress and achievements of Currency Exchange International, Corp. for
our year ended October 31, 2015.
CXI’s Growth in 2015
During the last fiscal year, CXI commenced currency exchange
services with more than 50 new wholesale companies representing
over 1,800 new transacting locations for the company. This raises
the total number of transacting locations served by CXI across
North America to more than 10,000.
CXI also added four new company-owned branch locations during
the last fiscal year and now operates a total of 36 locations in the
United States. It is our plan to add more company-owned branches
during the coming year in strategic locations throughout the United
States. CXI does not intend to open company-owned branches in
Canada. We do expect to continue to grow significantly in Canada
as CXI progresses toward obtaining its Canadian banking license,
and our expansion will include more wholesale FX relationships
across all of Canada.
In addition to these company-owned branches and wholesale
relationships, CXI provides
inventory on consignment to
customers in 267 locations throughout the United States and
Canada, mostly in banks and select high traffic locations. These
locations are able to provide immediate currency exchange
services to their retail customers and are very profitable for CXI,
as there are no occupancy or payroll costs associated with this
business.
The rise of the U.S. dollar in 2015 against the other major world
currencies caused challenges to CXI continuing its historical
pattern of strong growth. Despite impressive growth in CXI’s
number of transactions and transacting locations, volumes
and income only grew slightly, as the foreign currency volumes
translated to less U.S. dollars per transaction. Despite this
challenge, it is clear that CXI continued to expand during 2015,
as total exchange volume increased by 12.4% compared to the
previous year, to $1.636 billion. Revenues also grew, increasing
by $2.1 million or 9% to $24.1 million compared to $22.0 million
for the previous year. Compared to the previous year, total assets
increased from $39.7 million to $52.2 million, an increase of
31.5%, due to an equity raise and stock option conversions, while
shareholder’s equity increased from $33.0 million to $47.4 million.
Net income also grew slightly to $3.6 million up from $3.4 million
in the previous year.
Application for CXI Canada to Continue as Exchange
Bank of Canada
the Office of
CXI Canada has been working with
the
Superintendent of Financial Institutions in Canada throughout
the year and believes that progress made on the bank application
has been significant and positive. CXI Canada is well positioned
to commence operations as a bank in 2016. The objectives of
becoming a Canadian bank headquartered in Toronto is to expand
All amounts in this report are stated in USD unless otherwise noted.
CXI Annual Report 2015
2
PRESIDENT’S LETTER
current and future business opportunities and become a leading
banker’s bank for foreign exchange products and services. By
obtaining a bank license, the company will gain access to a source
of stable, cost-effective funds by trading in the “interbank”
market. In addition, there will be greater opportunity to enhance
the company’s existing bank relationships globally. Exchange
Bank of Canada will not be taking deposits or making loans.
The company appointed a Chief Compliance Officer, Angela
Shaffer, with large financial institution experience in 2015. The
board has nominated to appoint a new Independent Director,
Bryan Osmar, to be elected at the 2016 Annual Meeting of
Shareholders. Previously, Mr. Osmar was the Managing Director
and Head, Market Infrastructure, RBC Capital Markets.
Strategic Initiatives
During 2016, CXI intends to continue investing resources to
enhance its core, proprietary operating software CEIFX. While
maintaining security protocols and improving on its current
functionality, a primary focus will be addressing the needs
of clients in order to aggressively expand in the international
payments sector and positioning the CEIFX software as a leading
platform for international payments. During the first quarter of
2016, the Company announced the appointment of Bob Dowd as
Senior Vice President of Sales and Marketing. Mr. Dowd brings
extensive payments industry experience to CXI to ensure that the
company’s strategic initiative into the payments business has the
leadership necessary to be successful in the coming years.
International
grow
exponentially. As a specialist in foreign exchange products, CXI is
payments worldwide
continues
to
ready to grow into this space with an experienced, highly skilled
team backed by the company’s powerful web-based software and
reputation for being operationally superior by providing leading
customer service.
Positioned for Growth in the Years Ahead
The entire board of directors and CXI management team are
extremely optimistic about the opportunities the company
expects to capitalize on in the coming years and I believe we are
well positioned to successfully navigate the continued expansion
of our business. I am also very proud of the achievements made
during the last year with the help and support of our outstanding
customers, employees and shareholders. We continue to bring in
new, prestigious banking clients and we believe that this growth
will be further accelerated once the bank license is obtained.
I personally thank all of CXI’s customers, employees, shareholders
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 Chief Executive Officer
Shareholder’s Equ ity
$ Millions
Octob er 31, 2015
$47.4
Octob er 31, 2014
$33.0
Octob er 31, 2013
$29.8
September 30, 2012
$16.2
3
CXI Annual Report 2015
S hareh ol der Per for mance Graph
Currency Exchange International, Corp.
S&P/TSX Composite Index
$400
$350
$300
$250
$200
$150
$100
$50
September 30,
2012
October 31,
2013
October 31,
2014
October 31,
2015
09/03/12
30/09/12
31/10/13
31/10/14
31/10/15
CXI/TSX
S&P/TSX Composite Index
$100
$100
$100
$98.51
$168.42
$106.86
$280.45
$116.87
$354.59
$111.96
This graph compares the yearly percentage change in the cumulative total shareholder return for Cdn$100
invested in Currency Exchange International, Corp. Common Shares on March 9, 2012, against the cumulative
total shareholder return of the S&P/TSX Composite Index for the four most recent completed financial year
ends of CXI, Corp., assuming the reinvestment of all dividends.
COMPANY SNAPSHOT
2007
Operations at CXI commence
when Randolph Pinna purchases
eight retail branches of Foreign
Currency Exchange Corp. from
the Bank of Ireland Group.
200 8
CXI
launches
proprietary, web-based
software - CEIFX.
officially
its
FX
2 00 9
CXI commences services for
financial institutions, allowing
its wholesale partnerships to
grow rapidly.
2010
Three vaults are established in
the U.S. with the main currency
in Miami,
processing center
Florida and regional vaults in
New York and California.
201 1
CXI Canada
is established
and its Toronto vault begins
operations.
of
Common
2013
98%
Share
Purchase Warrants and Broker
Compensation Units from CXI’s
IPO are exercised for total gross
proceeds of Cdn$11.3 million.
2014
CXI buys certain assets of U.S.
Exchange House in the U.S. and
Canada, merging them within
its business operations.
2 01 2
CXI completes its IPO on the
Toronto Stock Exchange (TSX).
CXI Canada files an application
to be continued as a new
Schedule 1 Bank in Canada.
2 01 5
CXI exchanges more than $1.6
billion in total exchange volume
and ends the year with more
than $52 million in assets.
CXI owns and operates 36
branch locations.
KEY ACTIVITIES
CXI’s primary business channels service customers through its company-owned branch locations and foreign exchange partnerships
with financial institutions, money service businesses and corporations. CXI’s products and services include foreign currency exchange,
travelers cheques, multi-currency prepaid cards, foreign cheque clearing, issuing foreign bank drafts, and international wire transfers.
All services are available through CXI’s proprietary, web-based software - CEIFX.
Company-Owne d
Bra nches
Foreign Banknote
Relationships
International Wire
Transfers
Forei gn Cheque
Clear ing
Foreign Draft
Payments
Locations:
High traffic areas,
tourist destinations, and
affluent neighborhoods
Most popular service
provided
More than 80 foreign
currencies available
Services Offered:
Foreign banknote
exchange, multi-
currency Cash Passport*,
travelers cheques,
payroll cheque cashing*,
attraction tickets*, and
international phone
cards
*Available at select branches
Clients: Financial
institutions, money
service businesses,
hotels, theme parks, and
travel companies
Customizable Service
Models: On consignment
inventory, bulk
shipments, and non-
inventory shipments
Foreign currency wire
transfers to more than
120 countries
Comprehensive list
of foreign currencies
available to be cleared
Alternate payment
method to international
wire transfers
Quick foreign payments
around the world
Clear cheques as cash
letters or on collection
Dodd-Frank Reg-E
compliant system
Clients: Financial
institutions
Clients: Financial
institutions and
corporations
Typically less fees than
international wire
transfers
Clients: Financial
institutions
CXI Annual Report 2015
4
BUSINESS OPERATIONS
Busi ne ss Over view
Company-Owned Branch Network
CXI’s foreign currency services, at its core, are based on successfully
pairing the company’s resources and relationships. Knowing
each and every customer and how they operate let’s CXI apply its
expertise in the specialized field of foreign exchange for benefit of
its customers. Whether it’s a financial institution, money service
business (MSB), corporation, or individual, CXI is committed to
delivering value to its customers through convenience, high quality
customer service, cost-savings and technology.
As an industry leader in foreign exchange, CXI has built a scalable
currency exchange business with a focus on servicing financial
institutions. The company’s customer portfolio includes top 10 U.S.
banks, as ranked by number of locations, and comprises more than
10,000 transacting locations that interact with CXI as their currency
exchange provider. In direct to consumer business through the
company-owned locations, the company has developed a highly rated
national branch network within the U.S.. Each year more consumers
in markets across the U.S. are experiencing why exchanging money
with CXI is the best option as year over year transaction continue to
increase for the company.
In the U.S., CXI’s company-owned branches act as a net buyer of
foreign currency providing an influx of foreign currency. CXI can
then make the excess foreign currency available for sale through its
wholesale network relationships. This synergy, which CXI effectively
creates, affords the company the ability to offer its customers and
clients highly competitive rates, helping grow the business, while
enjoying larger margins in its business lines.
The value CXI has shown by providing a high quality service and its
dedication to building mutually beneficial relationships continues
to attract and retain new customers in the form of financial
institutions, MSBs and other corporate clients in the United States
and Canada. CXI fully commits its time and energy into expanding
its customer base and services without sacrificing the quality of its
service to any customer.
As a consistent and significant contributor to CXI’s revenues, the
company-owned branch network continues to be a focus of growth
within the company. CXI increased the number of transacting
locations it owns from 32 branches to 36 in the 2015 fiscal year.
Management is always cognizant of new opportunities to build
partnerships and evaluate new potential locations. CXI is judicious
in opening company-owned locations, selecting to move forward in
markets and settings with the most likelihood to successfully take
root based on its internal evaluation process.
Beyond looking for brick-and-mortar expansion, CXI has dedicated
time and resources to finding new products to leverage its company-
owned branch footprint. Key criteria for new product offerings
are that they must complement the current business and drive
new revenue. CXI has a partnership to offer the Cash Passport
MasterCard® product, a prepaid foreign currency travel card, at
nearly all of its branches this fiscal year. The travel card can hold
six foreign currencies at once and provides security and access
to emergency funds for international travelers. As the market
for travelers cheques continue to shrink, this is a way to provide
additional peace of mind for consumers when traveling. CXI will
continue to evaluate its product offerings to provide more value to
its customers, deliver more revenue from its network of company-
owned branches and expose the brand to a larger audience.
CXI opened its first expansion location of 2015 at SunValley Shopping
Center in Concord, California. The shopping center is in a major
suburb of East Bay within the San Francisco Bay area and widens
CXI’s reach to many affluent suburbs in this market. The location
adds to CXI’s established presence in the overall Bay Area, which
includes two San Francisco branches, one Berkeley branch and one
San Jose branch.
In the third quarter of the 2015 fiscal year, CXI began transacting
at three new company-owned branches across three states: The
Orlando Eye in Orlando, Florida, Westfield Garden State Plaza in
Co mpa ny- O wned Bra nc he s
Cu stomer Relationships
Net buyer of foreign currency
Wider margins on transactions
Smaller transaction size
Varying amounts of capital investment to
open
36 locations in high tourist or affluent-
traveling markets across ten states
Financial institutions, MSBs and
corporations
Net seller of foreign currency
Smaller margins with larger volume trades
Little to no investment upfront
521 company relationships accounting for
10,121 transacting locations
*All trademarks, registered trademarks, product names, and brands are property of their respective owners.
5
CXI Annual Report 2015
BUSINESS OPERATIONS
Paramus, New Jersey and Westfield Mission Valley in San Diego,
California.
The Orlando Eye is a new attraction in Orlando, Florida built along
a major tourist corridor known as International Drive. The main
attraction hosts a giant Ferris wheel and other popular attractions
such as Madame Tussauds Wax Museum and Sea Life Aquarium, as
well as shopping and dining options. CXI’s branch is located in the
main attraction’s terminal. The International Drive district receives
5.4 million overnight visitors annually and many more coming to
visit Universal Orlando® Resort, SeaWorld Parks & Resorts Orlando®
and the second largest convention center in the U.S. - all within a two
mile radius of the Orlando Eye complex.
CXI opened its first company-owned branch in New Jersey at the
Westfield Garden State Plaza in the city of Paramus. The upscale
shopping center is the largest in the state and is uniquely positioned
as the closest traditional mall to Manhattan, New York. It is a highly
accessible mall near the interchange of three major highways and
affluent communities. New Jersey is the tenth state with a CXI
company-owned branch.
The Westfield Mission Valley branch in San Diego, California began
transacting at the end of July 2015. San Diego has been a desirable
market to move into for some time. The timing and circumstance
was finally right, allowing CXI to open in the second largest city by
population in California. The city offers many characteristics CXI
looks for in a new market including its tourist attractions and U.S.
Navy and Marine Corps bases hosting thousands of troops.
a company culture ingrained with the belief it is in business to create
mutually beneficial relationships. The goal of such relationships
is to ensure all parties involved are better off than prior to their
interaction.
Canadian Business Environment
The CXI Canada team has seen growth over the past fiscal year in
both the number of customers it services and its executive staff.
The newest executive brought on to strengthen the team was Angela
Shaffer as General Counsel, Chief Compliance Officer and Corporate
Secretary. Ms. Shaffer has extensive experience advising financial
institutions and their boards of directors on strategic, regulatory,
compliance, commercial, transactions, and corporate governance
matters.
In today’s regulatory environment, compliance is at the forefront of
every conversation. CXI Canada is committed to 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 Canada
team has developed the company’s operations with policies and
procedures 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 the company and all of its customers the confidence
that it is fully compliant with its regulatory obligations.
CEIFX Software Advanta ge
Company-owned branches take dedicated time and concerted effort
to open. Resources, personnel and capital investment at the opening
and early stages of the branch’s launch are required to successfully
turn it profitable. CXI’s market selection process and marketing
strategy have proven time and time again to provide positive return
for the company.
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 integration, instinctual user interface,
user management and robust reporting capabilities.
United States Business Environment
1,800 new
During the 2015 fiscal year, CXI added more than 45 new customer
relationships representing
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 more of the following:
foreign currency banknotes, international wire transfers, issuing
foreign drafts, and clearing foreign denominated cheques.
transacting
There are a number of factors that come into play when considering
why companies switch to CXI. 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’s employees work within
The web-based software accommodates all product lines offered by
CXI. 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 company is dedicated
to maintaining and continually enhancing its software to keep its
place as the leading foreign currency software in the industry. As
such, CEIFX remains an integral part of the company’s competitive
advantage.
CXI Annual Report 2015
6
CURRENCY EXCHANGE INTERNATIONAL, CORP.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
FOR THE THREE MONTHS AND
YEARS ENDED OCTOBER 31, 2015
AND 2014
7 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
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 months and years ended October 31, 2015 and 2014, 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 as at January 12, 2016 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 years ended October 31, 2015 and 2014,
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”).
8
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
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 CXIC 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
Sensitivity analyses relating to
foreign currencies and interest
rates
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 19 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.
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.
9
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Overview
CXI is a publicly traded company ( T SX : C X I ; O T CB B :C UR N) spec ializing 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, restricted access to both the software and its source code, 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 of the Company.
On November 23, 2012, CXI submitted its application to continue its wholly-owned Canadian 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 (Canada and the Minister of Finance (Canada), the
new bank will be called "Exchange Bank of Canada" and will have its head office in Toronto.
The objective of the Exchange Bank of Canada is to continue 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 providing a domestic
alternative for foreign exchange services to banks in Canada. The foreign currency bank note market for
financial institutions in Canada is primarily serviced by foreign financial 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.
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; and
● Fee revenue is comprised of the following:
○ Fees generated at the Company’s branch locations from foreign currency (bank note)
exchange, foreign traveler’s cheques, and fees collected on payroll cheque cashing; and
o Fees collected on foreign wire transfers, foreign drafts, and foreign cheque collection
transactions.
The following are some of the characteristics of the Company’s revenue streams:
10
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Overview (continued)
• The Company operates three vaults that serve Canada and the United Sates as well as two small
vaults that serve local markets on the West Coast and Northeast Regions of the United States
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 requires 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 36 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, 2015, the Company had inventory on consignment in 267 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 generally act as a net seller. Excess currency collected via the
branch network can be redeployed to banks and non-bank clients which reduces the need to
source currency through wholesale sources at a greater cost, thus increasing currency margins.
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 36 branch locations:
11
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Overview (continued)
Store
City
State
Start
date
Store
City
State
Apple Bank - Avenue of Americas
New York
Apple Bank - Grand Central Station New York
Apple Bank - Penn Station
MacArthur Mall
Apple Bank - Union Square
Arundel Mills Mall
Aventura Mall Booth #1
Aventura Mall Booth #2
New York
Norfolk
New York
Hanover
Aventura
Aventura
NY
NY
NY
VA
NY
MD
FL
FL
2011 Mainplace at Santa Ana
Santa Ana
2011 Mechanics Bank - Berkeley
Berkeley
2013 Mechanics Bank - San Francisco San Francisco
2009 Mission Valley
2014 Montgomery at Bethesda
2012 Ontario Mills Mall
2008 Potomac Mills Mall
San Diego
Bethesda
Ontario
Woodbridge
2012 San Francisco City Center
San Francisco
Century City Mall
Cherry Creek
Citadel Outlets
Copley Place Mall
Dadeland Mall
Dolphin Mall
Florida Mall Booth #1
Florida Mall Booth #2
Apple Bank - Upper East Side
Garden State
Los Angeles CA
2009 San Jose Great Mall
Denver
CO
2014 Santa Monica Place
San Jose
Santa Monica
Los Angeles CA
2014 Sawgrass Mills Mall Booth #1
Boston
Miami
Miami
Orlando
Orlando
New York
Paramus
MA
FL
FL
FL
FL
NY
NJ
2009 Sawgrass Mills Mall Booth #2
2009 Shops at Northbridge
2009 SouthCenter
2007 Sunvalley Shopping Center
Sunrise
Sunrise
Chicago
Tukwila
Concord
2014 The Galleria at Fort Lauderdale
Ft. Lauderdale
2014 The Orlando Eye
Orlando
2015 Tyson's Corner Center
Tyson’s Corner VA
CA
CA
CA
CA
MD
CA
VA
CA
CA
CA
FL
FL
IL
WA
CA
FL
FL
Start
date
2013
2007
2008
2015
2013
2007
2007
2011
2011
2012
2007
2010
2013
2012
2015
2013
2015
2014
Company owned branch locations
Wholesale company relationships
Number of transacting locations
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015
36
32
26
18
15
23
14
9
26
88
61
190
70
267
123
245
364
469
521
1,983
2,455
5,741
8,274
10,157
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. 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, money service business
customers and other financial institutions. The company has longstanding relationships with most of its
customers and has a strong repayment history.
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.
12
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Overview (continued)
Bought deal private placement
On March 12, 2015 the Company entered in to an agreement with a syndicate of underwriters who
purchased 540,000 common shares of the Company on a bought deal private placement offering
(“Offering”), at a price of $21.06 (Cdn$26.75) per Common Share for aggregate gross proceeds of
$11,371,104 (Cdn$14,445,000). In connection with the Offering, the Company paid commission to the
agents in the amount of $596,983 and incurred other professional fees and expenses of $108,516 for
a total cost of $705,499. $650,715 of the fees were deducted from the gross proceeds resulting in net
proceeds of $10,720,389 from the Offering. $58,720 related to the listing of the common shares were
expensed.
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 and payable within sixty days of
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.
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.
Three-
months
ending
Revenue
$
Net operating
income*
Net income
Total assets
Total equity
Earnings per
share (diluted)
$
$
$
$
31-Oct-15
6,882,336
2,330,425
505,780
52,241,996
47,436,566
31-Jul-15
6,688,467
2,231,642
2,087,038
50,835,334
46,922,010
30-Apr-15
5,311,102
1,333,013
661,818
49,633,902
44,582,384
31-Jan-15
5,193,869
1,242,367
353,574
38,859,547
32,456,426
31-Oct-14
6,552,184
2,279,682
1,045,192
39,709,302
33,025,175
31-Jul-14
6,839,330
2,830,097
1,456,004
42,044,018
32,185,439
30-Apr-14
4,487,432
1,109,212
466,774
37,244,354
30,586,996
31-Jan-14
4,127,007
970,779
451,156
32,844,973
29,835,415
* Excludes depreciation and amortization expense
$
0.08
0.33
0.11
0.06
0.19
0.26
0.09
0.08
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.
13
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Selected Financial Results for the three months and years ended October 31, 2015 and October 31, 2014
Revenue
Operating expenses
Net Operating income
Total other income, net
EBITDA*
Net income
Basic earnings per share
Diluted earnings per share
Year ended
October 31, 2015
$
Year ended
October 31, 2014
$
Three months ended Three months ended
October 31, 2015
$
October 31, 2014
$
24,075,775
16,938,331
7,137,444
22,005,953
14,816,184
7,189,769
(269,539)
(177,226)
6,867,905
3,608,210
0.62
0.59
7,012,543
3,419,125
0.63
0.62
6,882,336
4,551,911
2,330,425
(229,764)
2,100,661
505,780
0.08
0.08
6,552,184
4,272,502
2,279,682
(17,851)
2,261,831
1,045,192
0.19
0.19
* Earnings before interest, taxes, depreciation and amortization
Total assets
October 31, 2015
October 31, 2014
52,241,996
39,709,302
Total long term financial liabilities
-
585,144
Total equity
47,436,566
33,025,175
Results of operations – year ended October 31, 2015
A breakdown of revenues by geographic location is presented below:
Total revenues
Year ended October 31, 2015 Year ended October 31, 2014
$
$
United States
Canada
Total
17,694,904
6,380,871
24,075,775
11,949,822
10,056,131
22,005,953
Beginning in May of 2015, the Company shifted away from utilizing an intercompany inventory on
consignment model resulting in a shift in income from Canada to the United States. During the year
ended October 31, 2015 total commission revenues increased by 9% to $24,075,775 compared to
$22,005,953 for the year ended October 31, 2014. The year ended October 31, 2015 includes
revenue derived from customer trading relationships acquired from USEH compared to seven months
revenue for the year ended October 31, 2014. Since October 31, 2014, the Company has added 52
new wholesale relationships comprising 1,883 locations, of which 45 wholesale relationships
representing 1,850 transacting locations were added in the United States and 7 wholesale
relationships representing 33 transacting locations were added in Canada. During the year ended
October 31, 2015, the number of transactions between the Company and its customers increased
14% to 562,000 transactions from 495,000 from the previous year.
14
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Results of operations – year ended October 31, 2015 (continued)
During the year ended October 31, 2015, operating expenses increased 14% to $16,938,331 compared
to $14,816,184 for the year ended October 31, 2014, 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
Year Ended
October 31, 2015
$
Year Ended
October 31, 2014
$
Change
$
Change
%
9,247,602
2,435,837
907,806
1,974,032
585,600
1,787,454
7,363,075
1,884,527
2,024,290
411,547
915,745
(7,939)
1,729,684
244,348
567,055
18,545
2,216,335
(428,881)
16,938,331
14,816,184
2,122,147
26%
20%
-1%
14%
3%
-19%
14%
• Salaries and benefits increased 26% to $9,247,602 from $7,363,075 which is attributed to
increases in the Company’s employment base for the period. As of October 31, 2015, the
Company employed 231 full and part-time employees in the United States and Canada
compared to 195 full and part-time employees at October 31, 2014. The increase in staffing is
a result of adding four 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 positions,
particularly to support the bank application process;
• Rent increased 20% to $2,435,837 from $2,024,290. The Company has opened 4 new branch
locations since October 31, 2014 and has relocated and enlarged its vault and administrative
facilities in Toronto, Canada Los Angeles, California, Miami, Florida and Orlando, Florida;
• Legal, professional and directors fees decreased 1% to $907,806 from $915,745;
• Postage and shipping increased 14% to $1,974,032 from $1,729,684 and is due to an
increase in the frequency of inbound and outbound shipments. Transaction volume is up 14%
over 2014. The Company incurs shipping fees from couriers and armored carriers to transport
currency between the Company’s stores and customers. The Company added 1,883 new
transacting locations since October 31, 2014 which has led to 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 $585,600 from $567,055 for the vested portion of
stock options granted pursuant to the Company's stock option plan. The options have an
expiry date of 5 years from the date of the grant, unless otherwise stated by the Board of
Directors, and have a weighted average exercise price of Cdn$15.49. There were 424,866
options outstanding at October 31, 2015 compared to 486,581 options outstanding at October
31, 2014; and
15
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Results of operations – year ended October 31, 2015 (continued)
• Other general and administrative expenses decreased 19% to $1,787,454 from $2,216,335.
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 decrease is a result of foreign exchange
gains compared to the comparable period on the revaluation of foreign financial assets and
liability balances, and non-capitalized costs for opening or expanding new offices in Toronto,
Canada, Orlando, and Miami in 2014, as well as higher expenditures in 2014 to support the
expansion of the Company’s branch network.
The ratio of operating expenses to total revenue for year ended October 31, 2015 was 70% compared
to 67% for the year ended October 31, 2014. The ratio traditionally is higher during the winter months
and decreases as the fiscal year progresses. This is due to the cyclical nature of the business as the
Company has more exchange volumes from March to September and the Company is 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
margins. The Company expects this ratio to remain 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 to redeploy excess currency purchased by its branches, affiliate
partners, and other clientele.
Other income and expenses are comprised of the following:
Year ended
October 31, 2015
$
Year ended
October 31, 2014
$
Other income
19,191
90,225
Revaluation of contingent consideration
68,777
-
Expenses related to asset acquisition
-
(141,353)
Expenses related to bought deal
Interest and accretion expense
(58,720)
-
(13,980)
(66,482)
Expenses related to bank application
(298,787)
(126,098)
Depreciation and amortization
(1,354,565)
(924,225)
Income tax expense
Total other expense, net
(1,891,150)
(2,602,711)
(3,529,234)
(3,770,644)
• Other income decreased to $19,192 from $90,225 and relates to interest collected for surplus
cash deposits and held at various financial institutions in Canada and the United States as
well as other miscellaneous income;
• Revaluation of contingent consideration relates to the change in contingent consideration from
customer trading relationships acquired from the USEH acquisition. The Company originally
estimated the first anniversary payment at $892,723 but the actual amount of contingent
consideration paid to USEH was $767,684. As a result, the Company realized a revaluation
adjustment of $125,039 to the first year’s contingent consideration within the statement of
income and comprehensive income. At the end of the reporting period, the remaining
contingent consideration was reassessed and the Company recorded a revaluation of
contingent consideration of $56,262 resulting a net revaluation of contingent consideration of
$68,777 for the year ended October 31, 2015.
16
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Results of operations – year ended October 31, 2015 (continued)
• Expenses related to asset acquisition consist of legal and professional fees incurred in
connection with the purchase of certain assets of USEH in March of 2014;
• Expenses related to bought deal consist of legal and professional fees resulting from the
listing of 540,000 Common Shares on a bought deal private placement completed on March
12, 2015 at a price of Cdn$26.75 for aggregate gross proceeds of Cdn$14,445,000;
•
Interest and accretion expense decreased to $13,980 from $66,482 and relates to interest
payments on credit lines;
• Expenses pertaining to completing the bank license application increased to $298,787 from
$126,098;
• Depreciation and amortization increased to $1,354,565 from $924,225 and relates to
amortization of the Company’s intangible assets and depreciation of fixed assets over their
estimated economic life. Approximately $349,000 of the increase was attributable to 12
months of amortization of the assets acquired from USEH for the year ended October 31,
2015 compared to only 7 months of amortization during the year ended October 31, 2014; and
•
Income tax expense decreased to $1,891,909 from $2,602,711 and is a total of federal income
tax as well as various state and provincial taxes for the jurisdictions in which the Company
operates. During the year ended October 31, 2015, 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 was recorded in its entirety in the first quarter of 2015. In June of 2015,
176,174 employee and director stock options were exercised for proceeds of $1,197,028
(Cdn$1,495,164). Upon exercise of the options, the Company deducted the difference
between the fair market value of the options and the option strike price from taxable income
resulting in a reduction in current income tax payable of $989,700 during the year ended
October 31, 2015. In the 4th quarter of 2015, the Company transferred capital from its
Canadian subsidiary to the parent company, resulting in a one-time income tax expense of
$600,000.
Results of operations – three month period ended October 31, 2015
A breakdown of revenues by geographic location is presented below:
Three months ended October 31, 2015
$
Three months ended October 31, 2014
$
Total revenues
United States
Canada
Total
6,172,652
709,684
6,882,336
3,590,745
2,961,439
6,552,184
Beginning in May of 2015, the Company shifted away from utilizing an intercompany inventory on
consignment model resulting in a shift in income from Canada to the United States. During the three
month period ended October 31, 2015 revenues increased by 5% to $6,882,336 compared to
$6,552,184 for the three month period ended October 31, 2014. During the three month period ended
October 31, 2015, the number of transactions between the Company and its customers increased 8%
to 156,000 transactions from 144,000 from the same period of the previous year. Since October 31,
2014, the Company has added 52 new wholesale relationships comprising 1,883 locations, of which
45 wholesale relationships representing 1,850 transacting locations were added in the United States
and 7 wholesale relationships representing 33 transacting locations were added in Canada.
17
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Results of operations – three month period ended October 31, 2015 (continued)
During the three month period ended October 31, 2015, operating expenses increased 7% to
$4,551,911 compared to $4,272,502 for the three month period ended October 31, 2014, 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, 2015
$
Three months ended
October 31, 2014
$
Change
$
Change
%
2,406,976
2,130,256
276,720
661,729
266,264
602,315
143,227
471,400
591,201
255,056
560,668
125,114
610,207
4,551,911
4,272,502
70,528
11,208
41,647
18,113
-138,807
279,409
13%
12%
4%
7%
14%
-23%
7%
• Salaries and benefits increased 13% to $2,406,976 from $2,130,256 which is attributed to
increases in the Company’s employment base for the period. As of October 31, 2015, the
Company employed 231 full and part-time employees in the United States and Canada
compared to 195 full and part-time employees at October 31, 2014. The increase in staffing is
a result of adding four company owned branch locations 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, particularly to support the
bank application process;
• Rent increased 12% to $661,729 from $591,201 due to the opening of 4 new branch locations
since October 31, 2014;
• Legal, professional and directors fees increased 4% to $266,264 from $255,056;
• Postage and shipping increased 7% to $602,315 from $560,668 and is due to an increase in
the frequency of inbound and outbound shipments. Transactional volume is up 8% over 2014.
The Company incurs shipping fees from couriers and armored carriers to transport currency
between the Company’s stores and customers. The Company added 1,883 new transacting
locations since October 31, 2014 which has led to 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 $143,227 from $125,114 for the vested portion of
stock options granted pursuant to the Company's stock option plan. The options have an
expiry date of 5 years from the date of the grant, unless otherwise stated by the Board of
Directors, and have a weighted average exercise price of Cdn$15.49. There were 424,866
options outstanding at October 31, 2015 compared to 486,581 options outstanding at October
31, 2014; and
18
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Results of operations – three month period ended October 31, 2015 (continued)
• Other general and administrative expenses decreased 23% to $471,400 from $610,207.
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 gains
compared to the comparable period on the revaluation of foreign financial assets and liability
balances, and non-capitalized costs for opening or expanding new offices in Toronto, Canada,
Orlando, and Miami in 2014, as well as higher expenditures in 2014 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, 2015
was 66% compared to 65% for the three month period ended October 31, 2014. 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:
Three months ended
October 31, 2015
$
Three months ended
October 31, 2014
$
Other income
Revaluation of contingent consideration
3,211
4,876
(56,262)
-
Expenses related to asset acquisition
-
(3,340)
Expenses related to bought deal
Interest and accretion expense
Expenses related to bank application
Depreciation and amortization
Income tax expense
(3,936)
-
2,029
(21,485)
(172,778)
(344,155)
(19,387)
(335,806)
(1,252,755)
(859,348)
• Other income decreased to $3,211 from $4,876 and relates to interest collected for surplus
cash deposits and held at various financial institutions in Canada and the United States as
well as other miscellaneous income;
• Revaluation of contingent consideration relates to the change in contingent consideration from
customer trading relationships acquired from the USEH acquisition. The Company originally
estimated the first anniversary payment at $892,723 but the liability was reduced by $125,039
based upon the amount of revenue generated from the customer trading relationships
acquired. During the three month period ended October 31, 2015, the Company reassess the
contingent consideration payable and increased the liability by $56,262;
• Expenses related to asset acquisition consist of legal and professional fees incurred in
connection with the purchase of for certain assets of USEH in March of 2014;
•
Interest and accretion expense decreased to $2,029 from $21,485 and relates to interest
payments on credit lines;
• Expenses pertaining to completing the bank license application increased to $172,778 from
$19,387;
19
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Results of operations – three month period ended October 31, 2015 (continued)
• Depreciation and amortization
to
amortization of the Company’s intangible assets and depreciation of fixed assets being
depreciated over their estimated economic life; and
from $335,806 and relates
to $344,155
increased
•
Income tax expense was $1,253,513 compared to $859,348 and is a total of federal income
tax as well as various state and provincial taxes for the jurisdictions in which the Company
operates. In the 4th quarter of 2015, the Company transferred capital from its Canadian
subsidiary to the parent company, resulting in a one-time income tax expense of $600,000.
Cash flows
Cash flows from operating activities during the year ended October 31, 2015 resulted in an inflow of
$4,356,745 compared to an inflow of $2,216,775 during the year ended October 31, 2014. The
reason for the increase in operating cash was due to a decrease in accounts receivable offset by
increases
taxes payable, and contingent
consideration 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.
in accounts payable, accrued expenses,
income
Cash used in investing activities during the year period ended October 31, 2015 resulted in an outflow
of $643,006 compared to an outflow of $3,035,843 during the year ended October 31, 2014. The
primary reason for the variance is due to the acquisition of certain assets of USEH in March of 2014.
Cash provided by financing activities during the year ended October 31, 2015 was $11,962,606
resulting from the exercise of employee stock options as well as financing from the bought deal
offering completed on March 12, 2015. During the year ended October 31, 2014, cash provided by
financing activities was $31,264 resulting from proceeds from the exercise of employee stock options.
Liquidity and capital resources
At October 31, 2015, the Company had working capital of $43,351,358 (October 31, 2014 -
$28,973,117).
The Company maintains a revolving line of credit with BMO Harris Bank, N.A. for up to $10,000,000 to
assist with its short-term cash flow needs. The Company had total available unused lines of credit of
$10,000,000 at October 31, 2015.
20
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
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
Year ended
Thirteen months ended
Year ended
October 31, 2015 October 31, 2014
October 31, 2013 (1)
September 30, 2012
$
$
$
$
Revenues
24,075,775
22,005,953
15,990,434
12,314,473
Net operating income (2)
7,137,444
7,189,769
4,392,515
3,822,328
Net income
3,608,210
3,419,125
2,641,694
2,717,652
Basic earnings per share
Diluted earnings per share
0.62
0.59
0.63
0.62
0.64
0.64
0.83
0.83
Total assets
Total liabilities
52,241,996
39,709,302
33,681,819
18,225,628
4,805,430
6,684,127
3,917,843
1,998,654
Total non-current financial liabilities
-
585,144 - -
Working capital
43,351,358
28,973,117
28,935,018
15,651,326
Notes:
1. The Company changed its year-end to October 31, and reported on the thirteen month period ended October 31, 2013.
2. Operating income for prior periods has been adjusted to exclude depreciation and amortization expense.
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.
Three-months ending
Revenue
Net Operating income*
Total assets
31-Oct-15
31-Jul-15
30-Apr-15
31-Jan-15
31-Oct-14
31-Jul-14
30-Apr-14
31-Jan-14
*Excludes depreciation and amortization expense
$
6,882,336
6,688,467
5,311,102
5,193,869
6,552,184
6,839,330
4,487,432
4,127,007
$
2,330,425
2,231,642
1,333,013
1,242,367
2,279,682
2,830,097
1,109,212
970,780
$
52,241,996
50,835,334
49,633,902
38,859,547
39,709,302
42,044,018
37,244,354
32,844,973
21
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
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
$5,351,103 and are payable as follows:
October 31, 2015
October 31, 2014
Within 1 year 1 to 5 years after 5 years
$
$
1,887,044
1,512,998
$
3,440,553
2,685,856
Total
$
23,506 5,351,103
7,380 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 estimated the likelihood of future revenues to determine the estimated contingent
consideration. Management 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 wholly to customer trading relationships. Subsequent to the first anniversary of the
closing, the actual amount of contingent consideration paid to USEH was $767,684. As a result, the
Company realized a revaluation adjustment of $125,039 to the first year’s contingent consideration within
the statement of income and comprehensive income. At the end of the reporting period, the remaining
contingent consideration was reassessed and the Company recorded a revaluation of contingent
consideration of $56,262 resulting a net revaluation of contingent consideration of $68,777 for the year
ended October 31, 2015. 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
second year’s anniversary contingent consideration by approximately $230,000.
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.
22
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
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 from trading 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.
The fair value of forward contracts, which represents the amount that would be received/(paid) by the
Company if the forward contracts were terminated at October 31, 2015 was $210,367 (2014 - $117,732).
At October 31, 2015 and 2014 approximately $780,583 and $714,121, 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 months and years ended
October 31, 2015 and October 31, 2014 were as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
Year ended
Three months ended
October 31, 2015
October 31, 2014
October 31, 2015
October 31, 2014
$
1,100,460
50,499
559,717
1,710,677
$
1,275,100
30,123
542,876
1,848,099
$
160,692
15,720
124,464
300,875
$
608,642
21,650
120,298
750,590
The Company incurred legal and professional fees in the aggregate of $6,750 and $42,409 for the three
months and year ended October 31, 2015, respectively (October 31, 2014 - $6,867 and $138,218,
respectively) charged by entities controlled by directors or officers of the Company.
23
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Option grants
The Company adopted an incentive stock option plan dated April 28, 2011 (the "Plan"). The Plan is a
rolling stock option plan, under which 10% of the outstanding shares at any given time are available for
issuance thereunder. The purpose of the Plan is to promote the profitability and growth of the Company
by facilitating the efforts of the Company to attract and retain directors, senior officers, employees and
management. Vesting terms under the Plan will occur 1/3 upon the first anniversary, 1/3 upon the second
anniversary and 1/3 upon the third anniversary of the grant unless otherwise specified by the Board of
Directors.
Below is information related to each option grant:
Date of
Grant
4-May-12
17-Dec-12
3-May-13
29-Oct-13
29-Oct-13
9-Jul-14
30-Oct-14
30-Oct-14
11-Mar-15
30-Oct-15
30-Oct-15
Expiry
Date
4-May-17
18-Dec-17
3-May-18
29-Oct-18
29-Oct-18
9-Jul-19
30-Oct-19
30-Oct-19
11-Mar-20
30-Oct-20
30-Oct-20
Share price at
grant date
(Cdn$)
Amount
granted
7.30
6.75
7.35
10.86
10.86
13.24
18.00
18.00
28.40
23.50
23.50
90,000
116,000
22,000
35,640
114,420
1,762
87,215
24,144
2,726
28,972
89,435
Risk-free
interest rate
0.78%
0.74%
0.73%
1.29%
1.29%
1.70%
1.61%
1.61%
1.62%
1.47%
1.47%
Expected
volatility
45%
49%
38%
35%
35%
29%
27%
27%
25%
32%
32%
Exercise
Price (Cdn$)
7.50
7.50
7.65
10.86
10.86
13.24
16.21*
16.21*
28.15*
24.64*
24.64*
*Exercise price determined by average share price for previous 20 trading days
Fair value of
option at grant
date ($)
2.84
2.66
2.42
3.44
3.44
3.58
4.97
4.97
5.75
5.10
5.10
The outstanding options at October 31, 2015 and October 31, 2014 and the respective changes during
the periods are summarized as follows:
Outstanding at October 31, 2013
Granted
Exercised
Outstanding at October 31, 2014
Granted
Exercised
Outstanding at October 31, 2015
Number of options Weighted average price
#
378,060
113,121
(4,600)
486,581
121,133
(182,848)
424,866
Cdn$
8.84
16.16
7.50
10.54
24.72
8.49
15.49
The following options are outstanding and exercisable at October 31, 2015:
Grant Date
4-May-12
17-Dec-12
3-May-13
29-Oct-13
29-Oct-13
30-Oct-14
30-Oct-14
11-Mar-15
30-Oct-15
30-Oct-15
Total
Exercise price
(Cdn$)
7.50
7.50
7.65
10.86
10.86
16.21
16.21
28.15
24.64
24.64
Number
outstanding
45,000
40,001
7,333
23,760
76,280
87,215
24,144
2,726
28,972
89,435
424,866
Average remaining contractual life
(years)
1.51
2.13
2.51
3.00
3.00
4.00
4.00
4.36
5.00
5.00
Number
exercisable
45,000
1,334
-
23,760
38,140
29,071
24,144
-
-
-
161,449
24
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Subsequent events
The Company evaluated subsequent events through January 12, 2016, the date these financial
statements were issued. There were no material subsequent events that required recognition or
additional disclosure in the financial statements.
Accounting standards and policies
The Company's accounting policies are described in Note 2 to the Company's audited consolidated
financial statements for the years ended October 31, 2015 and 2014.
Risk factors
The operations of the Company are speculative due to the high-risk nature of its business. These risk
factors could materially affect the Company’s financial condition and/or future operating results and could
cause actual events to differ materially from those described in forward-looking statements relating to the
Company. Although the following are major risk factors identified by management, they do not comprise a
definitive list of all risk factors related to the Company, and other risks and uncertainties not presently
known by management could impair the Company and its business in the future.
Limited operating history
The Company has only a limited operating history upon which an evaluation of the Company and its
prospects can be based. Although the Company anticipates increases in revenues, it is also incurring
substantial expenses in the establishment of its business. To the extent that such expenses do not result
in appropriate revenue increases, the Company’s long-term viability may be materially and adversely
affected.
A significant portion of the Company’s financial resources have been and will continue to be, directed to
the development of its business and marketing activities. The success of the Company will ultimately
depend on its ability to generate cash from its business. There is no assurance that the future expansion
of the Company’s business will be sufficient to 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 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.
25
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Risk factors (continued)
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 may experience rapid growth in the scope of its operations. 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.
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, money service business customers
and other financial institutions. The company has longstanding relationships with most of its 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. Due to
seasonality, amounts in accounts receivable are usually at their highest during peak periods. A
breakdown of accounts receivable by category is set out below:
Customer type
Domestic and international banks
Money service businesses
Other
Total
At October 31, 2015 At October 31, 2014
$
2,953,383
1,204,410
20,765
4,178,558
$
1,217,511
1,600,658
19,520
2,837,689
26
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Risk Factors (continued)
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 too cost prohibitive to hedge. In order to mitigate the risks associated with
holding these foreign currencies, the Company assigns wider bid/ask spreads and maintains specific
inventory targets to minimize the impact of exchange rate fluctuations. These targets are reviewed
regularly and are increased or decreased to accommodate demand. The amount of unhedged inventory
held in vaults, tills and in transit at October 31, 2015 was approximately $5,475,000 (2014 - $5,725,000).
The amount of currency that is unhedged and that is not pegged to the U.S. Dollar is approximately
$3,660,000 (2014 - $4,090,000). A 2% increase/decrease in the market price for the aggregate of the
Company's unhedged/un-pegged
in an exchange gain/loss of
foreign currencies would result
approximately +$73,000/-$73,000 (2014 gain/loss of approximately +$80,000/-$80,000).
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
currency 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 the financial statements for the year
ended October 31, 2015.
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 year ended October 31, 2015 would have been approximately +$1,800/-$1,800 higher/lower
as a result of credit lines held at variable interest rates (2014 - +$4,500/-$4,500 higher/lower).
27
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Risk factors (continued)
Liquidity Risk
Liquidity Risk is the risk that the Company will not be able to meet its financial obligations as they fall due.
The CFO informs the CEO, the Board of Directors, and the Audit Committee of capital and liquidity issues
as they occur in accordance with established policies and guidelines. The Company targets to have a
cash reserve or credit lines greater than 15% of the Company's prior year's revenues.
The following are non-derivative contractual financial liabilities:
Non-derivative financial liabilities
Accounts payable
Accrued expenses
Contingent consideration
At October 31, 2015
Carrying
amount
Estimated contractual
amount
$
3,190,957
973,067
641,406
$
3,190,957
770,361
641,406
At October 31, 2014
Next fiscal
year
$
3,190,957
770,361
641,406
Future fiscal
years
$
$Nil
$Nil
$Nil
Non-derivative financial liabilities
Carrying
amount
Estimated contractual
amount
Next fiscal
year
Future fiscal
years
Accounts payable
Accrued expenses
Contingent consideration
$
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
The Company had available unused lines of credit amounting to $10,000,000 at October 31, 2015.
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.
28
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Risk factors (continued)
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.
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. The Company has a robust
regulatory compliance management regime, overseen by experienced, Board-appointed Officers leading
a well-resourced staff. The Company and its subsidiaries are regularly subject to regulatory as well as
internal and/or external audits. 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 operations may someday institute regulations to prohibit non-banks from providing
foreign currency exchange services.
29
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Risk factors (continued)
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.
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. 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 Management 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.
30
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Risk factors (continued)
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 22%, net of options, 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.
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.
31
Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and years ended October 31, 2015 and 2014
Risk factors (continued)
International Issuer, Management and Directors
The Company is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or
resides outside of Canada. 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.
32
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the years ended October 31, 2015 and 2014
(Expressed in U.S. Dollars)
33
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the years ended October 31, 2015 and 2014
(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
35-36
37
38
39
40
41-61
34 Independent auditor’s report
Grant Thornton LLP
Suite 501
201 City Centre Drive
Mississauga, ON
L5B 2T4
T +1 416 369 7076
F +1 905 804 0509
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, 2015 and October 31, 2014, 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 years then ended, and a summary of significant accounting
statements of Currency Exchange International, Corp., which
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
35
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,
2015 and October 31, 2014, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.
Mississauga, Canada
January 12, 2016
Chartered Professional Accountants
36 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Financial Position
October 31, 2015 and 2014
(Expressed in U.S. Dollars)
ASSETS
October 31, 2015
October 31, 2014
Current assets
Cash (Note 6)
Accounts receivable
Restricted cash held in escrow (Note 7)
Forward contract assets (Note 16)
Income taxes receivable (Note 11)
Other current assets (Note 22)
Total current assets
Property and equipment (Note 9)
Intangible assets (Note 10)
Other assets
Net deferred tax asset (Note 11)
Total assets
Current liabilities
Accounts payable
Accrued expenses
Income taxes payable
Contingent consideration - current (Note 4)
Total current liabilities
Contingent consideration - long term (Note 4)
Total liabilities
Equity
Share capital
Equity reserves
Retained earnings
Total equity
Total liabilities and equity
$
43,690,996
2,837,689
780,583
210,367
129,403
507,750
48,156,788
722,187
2,922,390
81,045
359,586
52,241,996
LIABILITIES AND EQUITY
3,190,957
973,067
-
641,406
4,805,430
-
4,805,430
6,117,921
27,112,536
14,206,109
47,436,566
52,241,996
$
29,630,744
4,178,558
714,121
117,732
-
430,945
35,072,100
668,080
3,730,374
69,650
169,098
39,709,302
2,903,669
1,239,367
1,063,224
892,723
6,098,983
585,144
6,684,127
5,395,073
17,032,203
10,597,899
33,025,175
39,709,302
Approved on behalf of Board of Directors:
(signed) "Randolph Pinna", Director
(signed) "Chirag Bhavsar", Director
The accompanying notes are an integral part of these consolidated financial statements.
37
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Income and Comprehensive Income
Years ended October 31, 2015 and 2014
(Expressed in U.S. Dollars)
Revenues
Commissions from trading
Fee income
Total revenues (Note 5)
Operating expenses (Note 19)
Net operating income
Other income (expense)
Other income
Year ended
October 31, 2015
October 31, 2014
$
$
22,430,121
20,442,242
1,645,654
1,563,711
24,075,775
22,005,953
16,938,331
14,816,184
7,137,444
7,189,769
19,191
90,225
Revaluation of contingent consideration (Note 4)
68,777
-
Expenses related to asset acquisition (Note 4)
-
(141,353)
Expenses related to bank application (Note 20)
(298,787)
(126,098)
Expenses related to bought deal (Note 17)
(58,720)
-
Total other income (expense)
(269,539)
(177,226)
Earnings before interest, taxes, depreciation and amortization
6,867,905
7,012,543
Interest and accretion
Depreciation and amortization
Income before income taxes
Income tax expense (Note 11)
Net income for the period
Other comprehensive income, after tax
Net income for the period
Items that may subsequently be reclassified to profit or loss
13,980
66,482
1,354,565
924,225
5,499,360
6,021,836
1,891,150
2,602,711
3,608,210
3,419,125
3,608,210
3,419,125
Exchange differences on translating foreign operations
(1,745,025)
(756,245)
Total other comprehensive income
1,863,185
2,662,880
Earnings per share (Note 18)
-basic
-diluted
$0.62
$0.59
$0.63
$0.62
Weighted average number of common shares outstanding (Note 18)
-basic
-diluted
5,806,235
6,068,226
5,391,053
5,509,753
The accompanying notes are an integral part of these consolidated financial statements.
38
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39
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Cash Flows
Years ended October 31, 2015 and 2014
(Expressed in U.S. Dollars)
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
Change in forward contract positions (Note 16)
Deferred taxes
Revaluation of contingent consideration
Increase (decrease) in cash due to change in:
Accounts receivable
Restricted cash held in escrow
Other assets
Year ended
October 31, 2015
October 31, 2014
$
$
3,608,210
3,419,125
1,354,565
585,600
(96,119)
924,225
567,055
(34,302)
(193,855)
(217,232)
(68,777)
-
1,161,518
(3,188,445)
(66,462)
(90,821)
(513,414)
(102,811)
Accounts payable, accrued expenses, and income taxes payable
(1,098,138)
1,362,574
Contingent consideration
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property and equipment
Purchase of intangible assets
Net cash outflow from investing activities
Cash flows from financing activities
(738,976)
-
4,356,745
2,216,775
(389,789)
(502,350)
(253,217)
(2,533,493)
(643,006)
(3,035,843)
Net proceeds from bought deal financing, net of share issuance costs (Note 17)
10,720,389
Proceeds from exercise of stock options
Net cash flows 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
Cash received during the year for interest
1,242,217
11,962,606
15,676,345
29,630,744
-
31,264
31,264
(787,804)
31,130,866
(1,616,093)
(712,318)
43,690,996
29,630,744
3,267,318
13,980
17,187
1,900,273
20,448
-
The accompanying notes are an integral part of these consolidated financial statements.
40
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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 Business Corporation 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 the United Sates 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 36 branch locations. The Company’s
registered head office is located at 6675 Westwood Boulevard, Suite 300, Orlando, Florida, 32821, United
States of America.
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”). Certain
comparative figures within the consolidated financial statements have been reclassified to conform with the
presentation adopted in the current period.
The consolidated financial statements were authorized for issue and approved by the Board of Directors
on January 12, 2016.
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.
41
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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 (i) within the Company’s control,
(ii) feasible, and (iii) 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
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 17. 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.
42
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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, 8 and 21.
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, 2015 and 2014,
respectively.
43
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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 majority of the Company's receivables reside with banks, money service
business customers and other financial institutions. The Company has longstanding relationships with most
of 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 the allowance for doubtful accounts was $Nil as of October 31, 2015 and
2014, 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.
44
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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
45
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
2.
Accounting Policies (continued)
Residual values and useful lives are reviewed at each reporting date.
Share-based payments
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 as effective 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 profit or loss. 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.
46
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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,
income taxes 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.
47
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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
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. The Company has adopted this standard for the annual
period commencing November 1, 2014. The adoption of this standard had no impact on the Company’s
financial results.
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. The Company has adopted this standard for the annual period commencing November 1,
2014. The adoption of this standard had no impact on the Company’s financial results.
48
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
3.
New Accounting Policies and Future Accounting Pronouncements (continued)
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 Financial
Instruments: Recognition and Measurement. 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 has not yet determined 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; changes the basis for deciding whether
revenue is to be recognized over time or at a point in time; provides new and more detailed guidance on
specific topics; and expands and improves disclosures about revenue. In July 2015, the IASB approved a
one-year deferral of the effective date of IFRS 15 to fiscal periods beginning on or after January 1, 2018,
with early adoption permitted. The Company has not yet determined the impact of IFRS 15 on its
consolidated financial statements.
4.
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. The Company paid $2,350,000 in cash on closing and has two additional
contingent payments of up to a maximum of $1,325,000 each and payable within sixty days of the first and
second anniversary after closing. The additional payments are based on the amount of revenue generated
from the customer trading relationships acquired. During the year ended October 31, 2015, the Company
recorded expenses of $Nil in legal and other professional fees to complete the transaction (2014 - $141,353).
The Company estimated the likelihood of future revenues to determine the estimated contingent
consideration. Management 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 wholly to customer trading relationships. Subsequent to the first anniversary of the
closing, the actual amount of contingent consideration paid to USEH was $767,684. As a result, the
Company realized a revaluation adjustment of $125,039 to the first year’s contingent consideration within the
statement of income and comprehensive income. At the end of the reporting period, the remaining contingent
consideration was reassessed and the Company recorded a revaluation of contingent consideration of
$56,262 resulting a net revaluation of contingent consideration of $68,777 for the year ended October 31,
2015. 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 second year’s anniversary
contingent consideration by approximately $230,000.
49
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
4.
Purchase of assets from U.S. Exchange House, Inc. (continued)
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
$3,288,283
Property and Equipment and prepaid assets
59,584
Acquired software
Total
480,000
$3,827,867
5.
Geographical Segments
The Company operates in the United States and Canada. The Company's revenue from external customers
and information about its assets by geographical location are detailed below:
Revenues ($)
United States
Canada
Total
Year ended October 31, 2015
17,694,904
6,380,871 24,075,775
Year ended October 31, 2014
11,949,822 10,056,131 22,005,953
Assets
Cash
At October 31, 2015
At October 31, 2014
United States
Canada
Total
United States
Canada
Total
$
$
$
$
$
$
32,102,749 11,588,247
43,690,996
2,241,023 27,389,721 29,630,744
Accounts receivable
1,456,074
1,381,615
2,837,689
19,610
4,158,948
4,178,558
Restricted cash held in escrow
780,583
-
780,583
-
714,121
714,121
Forward contract assets
147,426
62,941
210,367
-
117,732
117,732
Income taxes receivable
257,166
(127,763)
129,403
-
-
-
Other current assets
Property and equipment
Intangible assets
Other assets
496,980
634,800
10,770
87,387
507,750
722,187
273,774
157,171
430,945
528,048
140,032
668,080
2,175,015
747,375
2,922,390
2,675,720
1,054,654
3,730,374
81,045
-
81,045
34,137
35,513
69,650
Net deferred tax asset
332,850
26,736
359,586
174,890
(5,792)
169,098
Total assets
38,464,688 13,777,308
52,241,996
5,947,202 33,762,100 39,709,302
50
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
6.
Cash
Included within cash of $43,690,996 at October 31, 2015 (2014 - $29,630,744) are the following
balances:
Cash held in transit, vaults, tills and
consignment locations
29,745,213
21,826,848
At October 31, 2015
At October 31, 2014
$
$
Cash deposited in bank accounts in
jurisdictions in which the Company operates
Total
13,945,783
43,690,996
7,803,896
29,630,744
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
$780,583 at October 31, 2015 (2014 - $714,121).
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, 2015 was $2,435,837 (2014 - $2,024,290).
The following is a schedule of future minimum rental payments under these lease agreements:
Within 1 year 1 to 5 years after 5 years
$
$
$
Total
$
October 31, 2015
October 31, 2014
1,887,044
1,512,998
3,440,553
2,685,856
23,506 5,351,103
7,380 4,206,234
51
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
9.
Property and Equipment
Property and equipment consist of the following:
Cost
Balance, October 31, 2013
Additions
Disposals
Net exchange differences
Balance, October 31, 2014
Additions
Disposals
Net exchange differences
Balance, October 31, 2015
Depreciation
Balance, October 31, 2013
Depreciation
Disposals
Net exchange differences
Balance, October 31, 2014
Depreciation
Disposals
Net exchange differences
Balance, October 31, 2015
Carrying amounts
Balance, October 31, 2014
Balance, October 31, 2015
Vehicles
$
48,203
16,918
-
-
65,121
-
(16,520)
-
48,601
Vehicles
$
18,551
15,150
-
-
33,701
16,200
(16,520)
-
33,381
Vehicles
$
31,420
15,220
Computer
equipment
$
132,236
86,157
(2,891)
(1,506)
213,996
15,463
-
(3,404)
226,055
Computer
equipment
$
91,836
42,339
(2,891)
(655)
130,629
40,057
-
(2,281)
168,405
Computer
equipment
$
83,367
57,650
Furniture and
equipment
$
198,292
118,853
-
(3,628)
313,517
125,845
-
(11,139)
428,223
Furniture and
equipment
$
131,620
49,502
-
(2,146)
178,976
72,673
-
(6,464)
245,185
Furniture and
equipment
$
134,541
183,038
Leasehold
improvements
$
828,133
277,164
(43,692)
(7,928)
1,053,677
246,151
-
(21,211)
1,278,617
Leasehold
improvements
$
503,584
173,534
(43,692)
1,499
634,925
189,260
-
(11,849)
812,338
Leasehold
improvements
Total
$
1,206,864
499,092
(46,583)
(13,062)
1,646,311
387,459
(16,520)
(35,754)
1,981,496
Total
$
745,591
280,525
(46,583)
(1,302)
978,231
318,190
(16,520)
(20,594)
1,259,309
Total
$
418,752
466,279
$
668,080
722,187
10.
Intangible assets
Intangible assets consist of the following:
Cost
Balance, October 31, 2013
Additions
Balance, October 31, 2014
Additions
Balance, October 31, 2015
Amortization
Balance, October 31, 2013
Amortization
Net exchange differences
Balance, October 31, 2014
Amortization
Net exchange differences
Balance, October 31, 2015
Carrying amounts
Balance, October 31, 2014
Balance, October 31, 2015
Internally developed
software
$
492,387
234,620
727,007
253,217
980,224
Internally developed
software
$
121,257
119,864
-
241,121
163,544
-
404,665
Internally developed
software
$
485,886
575,559
Acquired
software
$
-
480,000
480,000
-
480,000
Acquired
software
$
-
140,000
-
140,000
240,000
-
380,000
Acquired
software
Customer trading
relationships
$
-
3,288,283
3,288,283
-
3,288,283
Customer trading
relationships
$
-
383,836
(41)
383,795
632,831
24,826
1,041,452
Customer trading
relationships
$
340,000
100,000
$
2,904,488
2,246,831
Total
$
492,387
4,002,903
4,495,290
253,217
4,748,507
Total
$
121,257
643,700
(41)
764,916
1,036,375
24,826
1,826,117
Total
$
3,730,374
2,922,390
52
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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, 2015 and 2014 consist of the following:
Deferred tax assets
Accrued expenses
Stock based compensation
Other
Net intangible assets
Total deferred tax assets
Deferred tax liabilities
Net Intangible assets
Net property and equipment
Total deferred tax liabilities
Net deferred tax asset
October 31, 2015 October 31, 2014
$
$
70,459
383,692
59,176
58,133
571,460
45,444
340,748
27,811
-
414,003
-
(211,874)
(211,874)
359,586
(187,175)
(57,730)
(244,905)
169,098
Reconciliation of the provision for income taxes to the amount calculated using the Company’s statutory
tax rate for the year ended October 31, 2015 and 2014 are as follows:
Income before taxes
Statutory tax rate
Tax expense at statutory rate
Tax on intercompany return of capital
Tax on sale of subsidiary to related party
Recovery on exercise of director and employee stock options
Withholding tax payment
Foreign tax rate adjustment
Other non-deductible differences
Income tax expense
October 31, 2015
$
5,499,360
38.5%
2,117,254
600,000
190,000
(989,700)
-
(130,762)
104,358
1,891,150
October 31, 2014
$
6,021,836
38.5%
2,318,407
210,192
-
-
79,541
(70,252)
64,823
2,602,711
The enacted tax rates in the United States of 38.5% (2014 - 38.5%) and Canada of 26.5% (2014 – 26.5%)
where the Company operates are applied in the in the tax provision calculation.
The provision for income taxes for the year ended October 31, 2015 and 2014 consists of the following:
Current tax expense
Deferred tax (benefit) expense
Income tax expense
October 31, 2015
$
2,081,638
(190,488)
1,891,150
October 31, 2014
$
2,819,943
(217,232)
2,602,711
53
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
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.
Line of credit
The Company maintains a line of credit for access to capital during peak business periods. The Company
has a revolving line of credit with BMO Harris Bank, N.A. for up to $10,000,000. 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, 2015 – 2.19%). At October 31, 2015, the balance outstanding was $Nil (2014 - $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.
There were no transfers between Level 1 and Level 2 during the year ended October 31, 2015 and 2014.
The following table shows the Levels within the hierarchy of financial assets and liabilities measured at fair
value.
Financial assets
Cash
Forward contract assets
Total assets
Financial Liabilities
Contingent consideration
Total liabilities
Financial assets
Cash
Forward contract assets
Total assets
Financial Liabilities
Contingent consideration
Total liabilities
At October 31, 2015
Level 1
$
Level 2
$
Level 3
$
Total
$
43,690,996
-
43,690,996
-
210,367
210,367
-
-
-
43,690,996
210,367
43,901,363
-
-
-
-
641,406
641,406
641,406
641,406
At October 31, 2014
Level 1
$
Level 2
$
Level 3
$
Total
$
29,630,744
-
29,630,744
-
117,732
117,732
-
-
-
29,630,744
117,732
29,748,476
-
-
-
-
1,477,867
1,477,867
1,477,867
1,477,867
54
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
14. Fair Value Measurement of Financial Instruments (continued)
Cash (Level 1)
The Company’s cash balances 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,
2015 and 2014.
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 3, is
estimated based on the amount of revenue expected to be 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, 2015, see Note 4. The fair value estimate
of cash outflows is $641,406 at October 31, 2015. This reflects management’s best estimate of a retention
rate of key acquired customers.
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, accrued expenses, and income taxes receivable payable
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.
Financial risk management is carried out by the Chief Financial Officer (“CFO”) under policies approved by
senior management and the Board of Directors. Policies are in place to evaluate and monitor risk and in
some cases, prescribe that the Company hedge its financial risks.
The analysis below presents information about the Company's exposure to each of the risks arising from
financial instruments and the Company's objectives, policies and processes for measuring and managing
these risks.
Credit Risk
Credit risk is the risk of financial loss associated with counterparty’s inability to fulfill its payment obligations.
The Company’s credit risk is primarily attributable to cash in bank accounts, accounts receivable and
forward contracts from hedging counterparties.
All banking relationships are negotiated by senior management. The Company maintains accounts in high
quality financial institutions. At various times, the Company's bank balances exceed insured limits.
55
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
15.
Risk Management (continued)
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, money service business customers
and other financial institutions. The company has longstanding relationships with most of its 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. Due to
seasonality, amounts in accounts receivable are usually at their highest during peak periods.
A breakdown of accounts receivable by category is below:
At October 31, 2015 At October 31, 2014
Customer type
Domestic and international banks
Money service businesses
Other
Total
$
1,217,511
1,600,658
19,520
$
2,953,383
1,204,410
20,765
2,837,689
4,178,558
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 too cost prohibitive to hedge. In order to mitigate the risks associated with holding these foreign
currencies, the Company assigns wider bid/ask spreads and maintains specific inventory targets to
minimize the impact of exchange rate fluctuations. These targets are reviewed regularly and are increased
or decreased to accommodate demand within acceptable risk tolerances. The amount of unhedged
inventory held in vaults, tills and in transit at October 31, 2015 was approximately $5,475,000 (2014 -
$5,725,000). The amount of currency that is unhedged and that is not pegged to the U.S. Dollar is
approximately $3,660,000 (2014 - $4,090,000). A 2% increase/reduction in the market price for the
aggregate of the Company's unhedged/un-pegged foreign currencies would result in an exchange gain/loss
of approximately +$73,000/-$73,000 (2014 gain/loss of approximately +$80,000/-$80,000).
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.
The Company does not hedge its net investment in its Canadian subsidiary and the related foreign currency
translation of its earnings.
56
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
15.
Risk Management (continued)
Interest Rate Risk
At October 31, 2015, 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 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 year ended October 31, 2015 would have been approximately +$1,800/-$1,800 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.
The CFO informs the Chief Executive Officer, 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
Accounts payable
Accrued expenses
Contingent consideration
Non-derivative financial liabilities
Accounts payable
Accrued expenses
At October 31, 2015
Carrying
amount
Estimated
contractual
amount
Next fiscal
year
$
$
$
3,190,957
3,190,957
3,190,957
973,067
641,406
770,361
770,361
641,406
641,406
At October 31, 2014
Future fiscal years
$
$Nil
$Nil
$Nil
Carrying
amount
Estimated
contractual
amount
Next fiscal
year
Future fiscal years
$
$
$
$
2,903,669
2,903,669
2,903,669
$Nil
1,239,367
1,093,044
1,093,044
$Nil
Contingent consideration
1,477,867
1,477,867
892,723
585,144
The Company had available unused lines of credit amounting to $10,000,000 at October 31, 2015.
57
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
15.
Risk Management (continued)
Capital Management
The Company manages capital through its financial and operational forecasting processes. The Company
defines working capital as total current assets less 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, 2015 October 31, 2014
Current assets
48,156,788
35,072,100
Current liabilities
(4,805,430)
(6,098,983)
Working capital
43,351,358
28,973,117
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 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
from trading 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.
The fair value of forward contracts, which represents the amount that would be received/(paid) by the
Company if the forward contracts were terminated at October 31, 2015 was $210,367 (2014 - $117,732).
At October 31, 2015 and October 31, 2014 approximately $780,583 and $714,121, 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.
17.
Equity
Share Capital
The authorized share capital consists of 100,000,000 common shares. The common shares have a par
value of $1.00.
In January of 2015, 6,674 employee stock options were exercised for proceeds of $45,188 (Cdn$56,577).
58
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
17.
Equity (continued)
On March 12, 2015, the Company completed a bought deal private placement offering (“Offering”) by
issuing 540,000 common shares at a price of $21.06 (Cdn$26.75) for aggregate gross proceeds of
$11,371,104 (Cdn$14,445,000). In connection with the Offering, the Company paid commission to the
agents in the amount of $596,983 and incurred other professional fees and expenses of $108,516 for a
total cost of $705,499. $650,715 of the fees were deducted from the gross proceeds resulting in net
proceeds of $10,720,389 from the offering. $58,720 related to the listing of the common shares was
expensed in the period.
In June of 2015, 176,174 employee and director stock options were exercised for proceeds of $1,197,029
(Cdn$1,495,164). Upon exercise of the options, the Company deducted the difference between the fair
market value of the options and the option strike price from taxable income resulting in a reduction in current
income tax payable of $989,700 during the year ended October 31, 2015. See Note 11.
Stock options
The Company adopted an incentive stock option plan dated April 28, 2011 (the "Plan"). The Plan is a
rolling stock option plan, under which 10% of the outstanding shares at any given time are available for
issuance thereunder. The purpose of the Plan is to promote the profitability and growth of the Company by
facilitating the efforts of the Company to attract and retain directors, senior officers, employees, and
management. Vesting terms under the Plan will occur 1/3 upon the first anniversary, 1/3 upon the second
anniversary and 1/3 upon the third anniversary of the grant unless otherwise specified by the Board of
Directors.
Below is information related to each option grant:
Date of
Grant
4-May-12
17-Dec-12
3-May-13
29-Oct-13
29-Oct-13
9-Jul-14
30-Oct-14
30-Oct-14
11-Mar-15
30-Oct-15
30-Oct-15
Expiry Date
4-May-17
18-Dec-17
3-May-18
29-Oct-18
29-Oct-18
9-Jul-19
30-Oct-19
30-Oct-19
11-Mar-20
30-Oct-20
30-Oct-20
Share price at
grant date
(Cdn$)
Amount granted
7.30
6.75
7.35
10.86
10.86
13.24
18.00
18.00
28.40
23.50
23.50
90,000
116,000
22,000
35,640
114,420
1,762
87,215
24,144
2,726
28,972
89,435
Risk-free
interest rate
0.78%
0.74%
0.73%
1.29%
1.29%
1.70%
1.61%
1.61%
1.62%
1.47%
1.47%
Expected
volatility
45%
49%
38%
35%
35%
29%
27%
27%
25%
32%
32%
Exercise
Price (Cdn$)
7.50
7.50
7.65
10.86
10.86
13.24
16.21*
16.21*
28.15*
24.64*
24.64*
Fair value of
option at
grant date ($)
2.84
2.66
2.42
3.44
3.44
3.58
4.97
4.97
5.75
5.10
5.10
*Exercise price determined by average share price for previous 20 trading days
The outstanding options at October 31, 2015 and 2014 and the respective changes during the periods are
summarized as follows:
Outstanding at October 31, 2013
Granted
Exercised
Outstanding at October 31, 2014
Granted
Exercised
Outstanding at October 31, 2015
Number of options Weighted average price
#
378,060
113,121
(4,600)
486,581
121,133
(182,848)
424,866
Cdn$
8.84
16.16
7.50
10.54
24.72
8.49
15.49
59
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
17.
Equity (continued)
The following options are outstanding and exercisable at October 31, 2015:
Grant Date
4-May-12
17-Dec-12
3-May-13
29-Oct-13
29-Oct-13
30-Oct-14
30-Oct-14
11-Mar-15
30-Oct-15
30-Oct-15
Total
Exercise price
(Cdn$)
Number
outstanding
7.50
7.50
7.65
10.86
10.86
16.21
16.21
28.15
24.64
24.64
45,000
40,001
7,333
23,760
76,280
87,215
24,144
2,726
28,972
89,435
424,866
Average remaining contractual life
(years)
1.51
2.13
2.51
3.00
3.00
4.00
4.00
4.36
5.00
5.00
Number
exercisable
45,000
1,334
-
23,760
38,140
29,071
24,144
-
-
-
161,449
18.
Earnings per Common Share
The calculation of earnings per share is presented below. Diluted earnings per share for the year ended
October 31, 2015 and 2014 2014 included all stock options outstanding with the exception of the most
recent grant on October 30, 2015.
Year ending
October 31, 2015 October 31, 2014
Basic
Net income
Weighted average number of shares outstanding
Basic earnings per share
$3,608,210
5,806,235
$0.62
3,419,125
5,391,053
$0.63
Diluted
Net income
Weighted average number of shares outstanding
Diluted earnings per share
$3,608,210
6,068,226
$0.59
3,419,125
5,509,753
$0.62
19.
Operating expenses
Salaries and benefits
Rent
Legal, professional and director’s fees
Postage and shipping
Stock based compensation
Other general and administrative
Operating expenses
Year Ended
October 31, 2015
$
9,247,602
2,435,837
907,806
1,974,032
585,600
1,787,454
16,938,331
October 31, 2014
$
7,363,075
2,024,290
915,745
1,729,684
567,055
2,216,335
14,816,184
60
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2015 and 2014
20.
Expenses Related to Bank Application
On November 23, 2012, the Company submitted its application to continue its wholly-owned Canadian
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” 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, 2015, the Company recognized legal and administrative expenses of $298,787 in
relation to the application process (2014 – $126,098).
21.
Compensation of Key Management Personnel and Related Party Transactions
In accordance with IAS 24 Related Party Disclosures, key management personnel are those persons
having authority and responsibility for planning, directing and controlling activities of the Company directly
or indirectly, including any directors (executive and non-executive) of the Company. The remuneration of
directors and other members of key management personnel during the year ended October 31, 2015 and
2014 was as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
Year ended
October 31, 2015
$
1,212,147
39,025
559,717
1,810,889
October 31, 2014
$
1,275,100
30,123
542,876
1,848,099
The Company incurred legal and professional fees in the aggregate of $42,409 for the year ended October
31, 2015 (2014 - $138,218) charged by entities controlled by directors or officers of the Company.
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.
22.
Other current assets
Prepaid rent
Prepaid insurance
Due on debit and credit cards
Other assets
Total
Year ended
October 31, 2015
$
175,128
105,187
85,554
141,881
507,750
October 31, 2014
$
171,428
105,522
40,177
113,818
430,945
23.
Subsequent Events
The Company evaluated subsequent events through January 12, 2016, the date these financial statements
were issued. There were no material subsequent events that required recognition or additional disclosure
in the financial statements.
61
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 listed 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
V. James Sardo
Director of CXI
Independent Board
Member
Linda Stromme
Director of CXI
Independent Board
Member
James D.A. White
Director of CXI
Independent Board
Member
CXI Annual Report 2015
62
Currency Exchange International, Corp.
6675 Westwood Boulevard, Suite 300
Orlando, FL 32821
U.S.A.
www.ceifx.com
U.S.A. (888) 998 3948
Currency Exchange International of Canada Corp.
390 Bay Street
Toronto, Ontario M5H 2Y2
Canada
www.ceifx.com
Canada (888) 223 3934
Transfer Agent
Computershare Investor Services
100 University Avenue, 8th Floor, South Tower
Toronto, Ontario Canada M5J 2Y1
Telephone: (800) 564 6253 (Toll Free)
Facsimile: (888) 453 0330 (Toll Free)
Web Site: www.computershare.com
Computershare offices are also located in Calgary,
Halifax, Montreal, Richmond Hill and Vancouver.
Auditors
Grant Thornton LLP
Chartered Professional Accountants
Licensed Professional Accountants
Mississauga, Canada
Shareholder Information
Annual Meeting of Shareholders
Shareholders are invited to attend the annual
meeting of Currency Exchange International, Corp.
to be held on March 9, 2016 at 4:30 p.m. (EST ) at:
333 Bay Street, 46th Floor,
Toronto, Ontario, Canada M5H 2S5
financial
Investor Relations
Financial Analysts, portfolio managers and other
investors requiring
information may
contact our Investor Relations’ departments:
(USA) Telephone: (407) 240 0224
(USA) Toll-Free: (888) 998 3948
(USA) Email: InvestorRelations@ceifx.com
(CANADA) Telephone: (416) 479 9547
(CANADA) Email: bill.mitoulas@ceifx.com
Shareholder Services
For information or assistance regarding your share
account, including dividends, changes of address
or ownership,
to eliminate
lost certificates,
duplicate mailings or to receive shareholder
material electronically, please contact our Transfer
Agents in Canada.