7 ANNUAL
REPORT
1
0
2
FINANCIAL HIGHLIGHTS
2014
2015 1
2016
2017
Exchange Volume:
In Millions
$878
$1,456
$2,137
$2,835
33%
Year Over Year
2014
2015
2016
2017
Total Revenue:
In Millions
$22.0
$24.1
$26.8
$32.5
21 %
Year Over Year
2014
2015
2016
2017
Total Assets:
In Millions
$39.7
$52.1
$62.2
$64.0
3%
Year Over Year
All amounts in this report are stated in USD and are based on fiscal year end unless otherwise noted.
2014
2015
2016
2017
Corporate Customers and Transacting Locations
Key Ratios
2014
20151
2016
2017
Company-Owned
Branch Locations
Wholesale Company
Relationships
32
36
38
41
469
521
928
977
Transacting Locations
8,274
10,157
13,603
15,026
Quarterly Stock Price (TSX:CXI)
TSX stock prices are quoted in Cdn$
Q1
Ended 1/31/2017
Q2
Ended 4/30/2017
Q3
Ended 7/31/2017
Q4
Ended 10/31/2017
$27.03
$21.91
$24.00
$26.64
1
Currency Exchange International: Annual Report 2017
2016
2017
Earnings Per Share
$0.58
$0.61
Return On Assets
6.4%
6.0%
Return On Equity
7.5%
6.8%
Operating Margin
25.6%
24.4%
1Restatement made in Fiscal Year 2015 to correct the
presentation of a gain on foreign exchange along
with its corresponding income tax impact which was
required to be presented under IFRS as other income.
The foreign exchange gain was previously disclosed
under comprehensive income with no corresponding
tax provision. The restatement does not impact the
Company’s revenues, operating expenses, or net operating
income.
PRESIDENT’S LETTER
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, 2017.
Randolph W. Pinna
President and Chief Executive Officer
CXI’s Growth in 2017
In fiscal year 2017, CXI completed its 10th full year in business
with significant growth in both customers and corporate
structure. CXI continued to expand its foreign currency
exchange and international payments services with 49 new
wholesale client companies representing more than 1,400
transacting locations. This raises the total number of locations
processed and served by CXI across North America to more
than 15,000, a year over year increase of more than 10%.
Exchange Bank of Canada (EBC), CXI’s wholly owned
subsidiary in Canada, had its first full year of operations as a
Schedule 1 Bank. Besides having many banknote customers,
EBC now has over 40 established corporations utilizing its
international payment services. Additionally, EBC is a valuable
asset to CXI given its ability to establish correspondent
relationships with other banks worldwide and thus, providing
the ability to source currency at “interbank pricing”. EBC
is building these relationships, which will lead to savings
by lowering FX transaction sourcing and processing costs,
as well as, providing enhanced client servicing capabilities.
Although the effects from correspondent relationships were
not noticeable in the 2017 year, a strong foundation has been
established for 2018 and beyond.
CXI’s company-owned retail branch network added three new
locations in fiscal year 2017, bringing the total retail branch
network in the U.S. to 41 locations. Two of these locations
opened in the established CXI markets of San Diego, California
and New York City, New York, while the third location
opened in Portland, Oregon. In addition, CXI’s Westfield
Century City branch in Los Angeles, California reopened after
being temporarily closed for more than two years during the
mall’s $1 billion renovation and expansion project. Year over
year the company-owned locations continued their increase
in total transactions conducted and gross income generated
at healthy retail exchange margins. CXI plans to maintain
the growth rate of its company-owned branch network by
opening locations selectively in areas that are well-suited for a
new FX retail solution.
The expansion of retail and wholesale locations serviced by
CXI and EBC allowed for revenues to grow to US $32.5 million,
up 21% from the previous fiscal year. Net operating income
increased to US $7.92 million up from US $6.88 million the
previous year. The slower growth in the net operating income
was largely due to higher operating costs, including significant
one-time costs at EBC and investments into expanding CXI’s
and EBC’s international payment business. This has resulted
in a lower operating margin, which is expected to return to
higher sustainable levels as revenue increases.
CXI’s strategic plan continues
to commit significant
investment into expanding its current payment business with
enhancements to both CXI’s processing capabilities and the
sales team driving this expansion. Specifically, in the fourth
quarter of fiscal year 2017 EBC experienced a noticeable
increase in its payments business from corporate clients.
New customers generated through the sales team and savings
enacted by the processing enhancements will allow CXI to see
greater positive impact in both top and bottom line income.
Experienced Talent
In fiscal year 2017, one-time costs in the form of payroll at both
businesses impacted the company’s expenses. CXI appointed
industry veteran Mr. Stephen Fitzpatrick as Chief Financial
Officer (CFO) of the company and its subsidiary, EBC. Mr.
Fitzpatrick (CPA, CGA, MBA) brought a significant amount
of financial services experience to CXI and EBC, combining
financial and business perspectives in the CFO role.
Currency Exchange International: Annual Report 2017
2
PRESIDENT’S LETTER
Boosting the strength in sales, trading, IT and compliance
departments continue to be a priority with EBC and CXI
recruiting additional proven human resources. U.S. and Canada
both saw new hires in these departments, which have already
made positive contributions. As the business grows, there
is always a focus in doing so within a culture of sales and
compliance, thus additional investments will be made to both
our sales and compliance teams.
Additional strengthening of the operations departments will
also occur in the current year to ensure quality customer
support with low risk, allowing the CXI group to continue an
aggressive expansion while strengthening its quality reputation.
Strategic Growth
CXI reinvests in its technology and resources to be a leader
in the foreign currency exchange industry. Commitment
to an unparalleled service level when providing banknote
and payment processing for financial institutions and select
corporations is necessary to grow the company’s market
share. CXI’s proprietary software, CEIFX, is being developed
with increased connectivity to outside systems allowing for
streamlined processes through integrated technology. Strategic
integrations allow the company’s market reach to expand
significantly.
Developing solutions to digitally process cheque items is
another area that the company is focused on to expand FX
volumes/revenues. The initiative utilizes the latest technology
in the banking sectors to securely and quickly transmit data for
processing.
FX ATMs and multi-currency cards, while being smaller
businesses, are areas that CXI has maintained a pulse on within
the industry. As opportunities evolve, the potential to ramp up
either one of these businesses is a distinct option.
Positioned for Continued Growth
With an enhanced management team and software, combined
with Exchange Bank of Canada’s ability to be a leading FX bank,
our board of directors and management team are confident in
its ability to execute on its FINTECH expansion plan.
We are proud of the accomplishments of the past year while we
stay focused on the growth of revenues and profits in the years
ahead. I am proud of the loyal team of almost 300 employees
across the U.S. and Canada who will all work together to grow
our group to record levels of trading and profits.
I personally thank all of CXI’s customers, employees,
shareholders, and friends for their continued support of
Currency Exchange International. I always remain available for
feedback and to discuss our company and its business with you
personally.
Randolph W. Pinna
President and Chief Executive Officer
Sh a r eholde r Pe rf or manc e Grap h
Currency Exchange International, Corp.
S&P/TSX Composite Index
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$5 6.5
$50 .8
$4 6.8
Shar eholder’s Equity
$ Millions
October 31,
201 7
October 31,
201 6
October 31,
201 5
October 31,
201 4
November 1,
2012
October 31,
2013
October 31,
2014
October 31,
2015
October 31,
2016
October 31,
2017
$3 3.0
CXI/TSX
S&P/TSX Composite Index
11/1/12
10/31/13
10/31/14
10/31/15
10/31/16
10/31/17
$100
$100
$175.00
$107.73
$291.41
$118.04
$368.44
$109.28
$476.56
$117.20
$416.25
$129.44
All amounts in this re por t are sta ted in
USD unless otherwise noted.
This graph compares the yearly percentage change in the cumulative total shareholder return for C$100 invested in Common
Shares on November 1, 2012 against the cumulative total shareholder return of the S&P/TSX Composite Index for the most
recently completed financial years of Currency Exchange International, Corp. since it became listed on the Toronto Stock
Exchange (“TSX”), assuming the reinvestment of all dividends. Currency Exchange International, Corp. has never paid any
dividends, and will only pay dividends in the future as the board of directors deems appropriate.
3
Currency Exchange International: Annual Report 2017
2007 - 2009
Operations at CXI commence when
it purchased eight retail branches of
Foreign Currency Exchange Corp.,
a subsidiary of the Bank of Ireland
Group.
2010 - 2012
Three vaults are established in the U.S.
with the main currency processing
center in Miami, Florida and regional
vaults in New York and California.
2013 - 2015
98% of Common Share Purchase
Warrants and Broker Compensation
Units from CXI’s IPO are exercised
for total gross proceeds of Cdn$11.3
million.
2016 - 2017
CXI exchanges more than $2.8 billion
in total exchange volume and ends the
year with more than $64.0 million in
assets.
COMPANY SNAPSHOT
CXI officially launches its proprietary,
web-based FX software - CEIFX.
CXI commences services for financial
institutions, allowing
its wholesale
partnerships to grow rapidly.
CXI Canada is established and its
Toronto vault begins operations.
CXI completes its IPO on the
Toronto Stock Exchange (TSX).
CXI Canada files an application to
be continued as a new Schedule I
Canadian Bank.
CXI buys certain assets of U.S.
Exchange House in the U.S. and
Canada, merging them within
its
business operations.
CXI’s west coast vault in California
moves to Los Angeles, increasing
service capacity
and operational
support.
CXI owns and operates 41 branch
locations.
CXI Canada continues as a new
Schedule I Bank in Canada called
Exchange Bank of Canada in English
and Banque de change du Canada in
French.
is
accepted
EBC
membership expanding
payment capabilities.
for
SWIFT
its global
KEY ACTIVITIES
Forei gn Banknote Exchange
International Payments
Forei gn Cheque Clear ing
billions
exchanges
Overview
Banknotes are a core service offering
from CXI and EBC. The company
of
group
dollars’ worth of currency annually.
Currencies
than 90
for more
countries are available for exchange.
There has been no noticeable decline
in demand for cash through current
clients or prospective clients at this
time.
payments
Overview
International
include
international wires, Global EFT,
and foreign bank draft issuance.
Payments are available to be sent to
more than 120 countries. Enhanced
are
correspondent
service
increasing
capabilities. The
for
international payments continues
to increase through the U.S. and
Canada.
relationships
group’s
demand
the
Clients
Company-owned locations
Corporate clients
Financial institutions
Clients
Corporate clients
Financial institutions
Overview
The foreign cheque clearing process
is becoming more
streamlined
each year. Enhanced technological
solutions for bulk processing and
upcoming image capture solutions
for Canadian dollar cheques, pave
the way for a streamlined service.
This drives key benefits, speed and
security, to the forefront of this
service.
Clients
Corporate clients
Financial institutions
Currency Exchange International: Annual Report 2017
4
BUSINESS OPERATIONS
Business Highlights
390,000+
company-owned branch
transactions in fiscal year 2017
580,000+
wholesale relationship
transactions in fiscal year 2017
38%
in total transactions in fiscal
year 2017 vs in fiscal year 2016
Business Overview
Company-Owned Branch Network
in North America
the company’s
CXI’s growth as a foreign currency and international
is based on
payments provider
resources and
successfully pairing
relationships. Through strategic planning, both have
continued to expand, allowing the company to further
support and gain new clients. Clients of CXI find the
company is adept at working closely with them to identify
their needs or challenges and provide solutions that address
their unique situation.
CXI built a scalable foreign exchange business as it became
an industry leader. The company services hundreds of
financial institutions, ranging from top 10 U.S. banks, as
ranked by number of locations, to banker’s banks that roll
CXI’s services down to their own set of financial institution
customers. Exchange Bank of Canada acts as a banker’s
bank in Canada and continues developing the group’s
global network of correspondents. In all, CXI services
more than 15,000 transacting locations that interact with
CXI or EBC as their currency exchange provider.
In the U.S., CXI’s company-owned branches provide a
balance of higher margin currency trades with individuals.
The branch network is a source of foreign currencies the
company can then make available through its network
of relationships. CXI’s operational synergy, 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.
CXI’s expertise in foreign exchange, as well as its experience
and technology, builds a foundation to enhance its clients’
operations. Whether it’s a financial institution, corporation,
or individual, CXI creates mutually beneficial relationships
as clients experience convenience, high quality customer
service, industry best practices, cost-savings and business
efficiencies.
CXI’s company-owned branch network continues its
positive growth trajectory within the company providing
significant and consistent revenue. These locations are
an established engine for brand awareness in the local
communities it serves. Through hundreds of thousands of
walk-up transactions a year, consumers are introduced to
CXI’s brand and experience the company’s commitment to
delivering a quality product with a high level of customer
service. Company-owned branch locations utilize their
own localized websites and managed online presence to
optimized search results. The local websites and corporate
website combined are served more than 750,000 times a
year.
In the 2017 fiscal year, CXI added three company-owned
locations increasing its total from 38 branches to 41. The
new branch openings spanned coast-to-coast as branches
opened in Portland, Oregon (Washington Square), San
Diego, California (Westfield North County) and New
York, New York (Queens Center Mall). Washington
Square opened in a new market for CXI, while Westfield
North County and Queens Center Mall both opened near
established company-owned locations. CXI’s Westfield
Century City branch in Los Angeles, California resumed
operations at the end of the fiscal 3rd quarter after it
temporarily closed for more than two years during the mall’s
massive renovation and expansion project.
Management is committed to finding additional location
opportunities each year. It is judicious in selecting when
and where CXI opens company-owned locations moving
forward in markets and environments with the most positive
indicators of success based on its internal evaluation
process. Resources, personnel and capital investment at
the opening and early stages of the branch’s launch are
required to successfully make it profitable. CXI’s market
selection process and marketing strategy have proven time
and time again to provide positive return for the company.
5
Currency Exchange International: Annual Report 2017
United States Business Environment
During the 2017 fiscal year, CXI added 26 new client
relationships representing 1,400 new transacting locations
across the United States. These relationships are with
financial institutions, MSBs and corporate clients. CXI
has seen clients trending toward taking advantage of the
company’s ability to service multiple foreign exchange
services all on one online platform - CEIFX software.
Utilizing the CEIFX software opens the door for clients to
offer the service directly downstream to clients of their own
such as corporations initiating wire payments or banker’s
banks having client banks enter their own transactions.
The software’s white labeled environment, client hierarchy
and user scope make it an easy product to enable a wide
range of setups. Each relationship varies in the services
utilized ranging from one or more of the following: foreign
currency banknotes, international payments, issuing foreign
drafts and clearing foreign denominated cheques.
There are a number of factors that come into play when
considering why businesses switch to CXI. New clients
quickly find what makes CXI different from its competition
and why existing clients remain loyal to the company. CXI’s
employees work within a company culture valuing the
highest level of customer service in every interaction and is
fully committed to building long lasting client relationships
that help clients succeed in their business.
Canadian Business Environment
Exchange Bank of Canada completed its first full year
of operations in 2017’s fiscal year. EBC’s emergence as a
foreign exchange and international payments specialty bank
gives clients the trust that they are working with a federally
regulated Schedule I Canadian Bank, while maintaining
a relationship with a dedicated foreign exchange and
international payments team.
A high priority for EBC has been growing the bank’s
global network of correspondent and client relationships
not previously available to the company when operating
as a Canadian money service business. The growth of
its banknote and international payment correspondent
network allows the company group to expand its service
capabilities and improve efficiencies.
EBC’s ability to streamline services through its software and
correspondent relationships can produce resource and cost
savings. As EBC increases its client base, these connections
will realize their potential for EBC and its clients.
BUSINESS OPERATIONS
CEIFX Software Advantage
Viewed as a leading application in foreign currency
exchange, the CEIFX software is a major component in
the success of CXI and EBC. Both CXI and EBC utilizes
the software in their own deployments locally known as
CEIFX and EBCFX. The software continues to generate
interest with new and potential clients, while the company
group is dedicated to maintaining an active development
cycle. Investing in the development of the CEIFX software
is a high priority as it delivers routine maintenance, security
upgrades, new features and client request fulfillment.
The web-based software accommodates all product
lines offered by CXI and EBC. The core features allow
for fully customized customer setups and integration,
instinctual user interface, user management and robust
reporting capabilities. A key feature is the software’s
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 helps the group
and its clients maintain compliance with certain applicable
U.S. and Canadian regulations.
An emphasis for CEIFX’s ongoing development is
increasingly connecting the system through software
integrations. Integrations to outside systems allow CEIFX
to effectively and seamlessly improve clients’ workflow
within their current processes. Facilitating an online
environment where clients’ existing core banking software,
enterprise resource planning software, and data exchanges
can access CEIFX with APIs (application programing
interfaces) allows for simplified operational, financial and
regulatory compliance, thereby cultivating more interest
in the online platform by other institutions and creating
strategic opportunities for CXI. As well as data flowing
in from client sources, integrations allow for data to flow
out of the software for automated end-to-end processing.
Even with such robust capabilities, the system remains
flexible for many setup types and deployment needs.
The ability to white label the software for other financial
institutions to facilitate their downstream clients expands
where and how the software can be used. CEIFX is a
sophisticated tool that helps clients be better at their own
business by simplifying foreign exchange and payments
through enhanced efficiencies, risk management and
powerful validations. As such, CEIFX remains an integral
part of the company’s competitive advantage.
Currency Exchange International: Annual Report 2017
6
CURRENCY EXCHANGE INTERNATIONAL, CORP.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
FOR THE THREE MONTHS AND
YEAR ENDED OCTOBER 31, 2017
AND 2016
7 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
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 subsidiary (the “Company,” or "CXI") for the
three months and year ended October 31, 2017 and 2016, 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 9, 2018 in accordance with International Financial
Reporting Standards (“IFRS) issued by the International Accounting Standards Board (“IASB”) and
interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) and should
be read in conjunction with the audited consolidated financial statements of the Company for the years
ended October 31, 2017 and 2016 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 for the year ended October 31, 2017. The functional currency of the Company is the U.S.
Dollar. The functional currency of the Company’s Canadian subsidiary, Exchange Bank of Canada
(“EBC”), 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 subsidiary, EBC.
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 year ended October 31, 2017 and 2016
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
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 “Risk Factors”
section in the Company’s MD&A for the year ended October 31, 2017. 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 year ended October 31, 2017 and 2016
Overview
CXI is a publicly traded company ( T SX : C X I ; O T CB B :C UR N) specializing in providing currency
exchange and related products to financial institutions, 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.
Issuance of banking license
On November 23, 2012, the Company submitted its application to continue its wholly-owned Canadian
subsidiary, Currency Exchange International of Canada Corp (“CXIC”), as a new Canadian Schedule I
bank. In September of 2016, the Office of the Superintendent of Financial Institutions (“OSFI”) and the
Minister of Finance, issued letters patent for the bank and CXIC is now Exchange Bank of Canada (“EBC”).
The head office of EBC is located in Toronto, Ontario, Canada.
The objective of EBC 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
financial institutions 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, as well as collateral reductions with correspondent banks, and enhancing
existing financial institution 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 and certain inventory on consignment
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 year ended October 31, 2017 and 2016
Overview (continued)
•
The Company operates three vaults that serve Canada and the United States as well as two small
vaults that serve local markets on the West Coast and Northeast Regions of the United States and
serve as distribution centers for its branch network as well as order fulfillment centers for its clients
including financial institutions, money service businesses, and other corporate clients. Revenues
generated from vaults have greater scale as the Company maintains a sales force to increase its
geographic customer base. Exchange rate margins vary from customer to customer and are
dependent on criteria such as exchange volumes and customer setup. 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 41 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 and EBC currently maintain inventory in the form of domestic and foreign bank notes in
financial institutions 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, 2017, the Company had inventory on consignment in 703
locations, primarily located inside financial institutions 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 financial institutions and non-bank clients which reduces the need
to source currency through wholesale sources at a greater cost, thus increasing currency
margins.
11 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Overview (continued)
The Company has aggressively grown its branch network as well as the number of wholesale
relationships over the years. Below is a list of the Company’s wholesale company relationships and
transacting locations as well as a listing of its 41 branch locations:
Store
City
State
Start
date
Store
City
State
Apple Bank - Avenue of Americas
Apple Bank - Grand Central Station
Apple Bank - Penn Station
MacArthur Mall
Apple Bank - Union Square
Arundel Mills Mall
Aventura Mall Booth #1
Aventura Mall Booth #2
New York
New York
New York
Norfolk
New York
Hanover
Aventura
Aventura
NY
NY
NY
VA
NY
MD
FL
FL
2011 Mechanics Bank - Berkeley
Berkeley
2011 Mechanics Bank - San Francisco
San Francisco
2013 Mission Valley
2009 Montgomery at Bethesda
2014 North County
2012 Ontario Mills Mall
2008 Potomac Mills Mall
2012 Queens Center
San Diego
Bethesda
Escondido
Ontario
Woodbridge
New York
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
Glendale Galleria
International Market Place
Mainplace at Santa Ana
Los Angeles CA
2009 San Francisco City Center
San Francisco
Denver
CO
2014 San Jose Great Mall
Los Angeles CA
2014 Santa Monica Place
San Jose
Santa Monica
Boston
Miami
Miami
Orlando
Orlando
New York
Paramus
Glendale
Honolulu
Santa Ana
MA
FL
FL
FL
FL
NY
NJ
CA
HI
CA
2009 Sawgrass Mills Mall Booth #1
2009 Sawgrass Mills Mall Booth #2
2009 Shops at Northbridge
2007 SouthCenter
2014 Sunvalley Shopping Center
Sunrise
Sunrise
Chicago
Tukwila
Concord
2014 The Galleria at Fort Lauderdale
Ft. Lauderdale
2015 The Orlando Eye
Orlando
2016 Tyson's Corner Center
Tyson’s Corner
2016 Washington Square Mall
Portland
2013
CA
CA
CA
MD
CA
CA
VA
NY
CA
CA
CA
FL
FL
IL
WA
CA
FL
FL
VA
OR
Start
date
2007
2008
2015
2013
2017
2007
2007
2017
2011
2011
2012
2007
2010
2013
2012
2015
2013
2015
2014
2017
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Company owned branch locations
Wholesale company relationships
Number of transacting locations
14
61
190
15
70
18
123
23
245
26
364
32
469
36
521
38
928
41
977
267
1,983
2,455
5,741
8,274
10,157
13,603
15,026
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 financial institutions and money
service business customers. 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 year ended October 31, 2017 and 2016
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 had 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 Company estimated the likelihood of future revenues to determine the estimated contingent
consideration. During the second quarter of fiscal 2016, the actual amount of contingent consideration was
determined, and the Company recorded a revaluation of contingent consideration of $96,359 for the year
ended October 31, 2016. At the end of that period, contingent consideration was transferred to accounts
payable and was paid in full as of October 31, 2017.
SELECTED FINANCIAL DATA
The below chart summarizes the performance of the Company over the last eight fiscal quarters.
Three-months
ending
Revenue
$
Net operating
income
$
Net income
(loss)
$
Total assets
$
Total equity
$
10/31/2017
7/31/2017
4/30/2017
1/31/2017
10/31/2016*
7/31/2016*
9,355,315
9,862,335
7,172,429
6,087,142
7,692,144
7,708,332
2,609,517
3,597,678
1,424,291
290,024
2,219,101
2,603,843
1,337,947
1,944,247
625,052
(85,776)
1,379,937
1,484,257
63,968,227
71,348,901
66,875,712
60,399,965
62,196,008
71,027,239
56,492,618
55,545,083
52,111,070
51,438,703
50,752,352
49,568,941
Earnings
(loss) per
share
(diluted)
$
$0.21
$0.39
$0.09
($0.01)
0.22
0.24
5,854,925
5,572,055
4/30/2016*
1/31/2016*
* Restatement made in Fiscal Year 2015 to correct the presentation of a gain on foreign exchange along with its corresponding income tax impact
which was required to be presented under IFRS as other income. The foreign exchange gain was previously disclosed under comprehensive
income with no corresponding tax provision. The restatement does not impact the Company’s revenues, operating expenses, or net operating
income.
48,527,966
46,308,790
57,181,863
50,313,593
1,160,181
894,364
479,540
298,377
0.08
0.05
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 year ended October 31, 2017 and 2016
Selected Financial Results for the three months and year ended October 31, 2017 and October 31, 2016
Year ended
October 31, 2017
$
Year ended
October 31, 2016
$
Three months ended
October 31, 2017
$
Three months ended
October 31, 2016
$
Revenue
Operating expenses
Net Operating income
Total other income/(expense), net
EBITDA*
Net income
Basic earnings per share
Diluted earnings per share
32,477,220
24,555,711
7,921,509
26,854
7,948,363
3,821,469
0.62
0.61
26,827,456
19,949,967
6,877,489
(138,183)
6,739,306
3,642,111
0.59
0.58
* Earnings before interest, taxes, depreciation and amortization
9,355,315
6,745,797
2,609,517
15,321
2,624,838
1,337,947
0.22
0.21
7,692,144
5,473,043
2,219,101
(16,568)
2,202,533
1,379,937
0.22
0.22
Total assets
Total long term financial liabilities
Total equity
October 31, 2017
October 31, 2016
63,968,227
-
56,492,618
62,196,008
-
50,752,351
Results of operations – year ended October 31, 2017 and 2016
A breakdown of revenues by geographic location is presented below:
Total revenues
United States
Canada
Total
Year ended October 31, 2017 Year ended October 31, 2016
$
$
28,505,302
3,971,918
32,477,220
22,053,195
4,774,261
26,827,456
During the year ended October 31, 2017 total commission revenues increased by 21% to $32,477,220
compared to $26,827,456 for the year ended October 31, 2016. Since October 31, 2016, the Company
has added 49 new wholesale relationships comprising 1,423 locations, of which 26 wholesale
relationships representing 1,400 transacting locations were added in the United States and 23 wholesale
relationships representing 23 transacting locations were added in Canada. During the year ended
October 31, 2017, the number of transactions between the Company and its customers increased 38%
to 974,000 transactions from 704,000 for the same period in the previous year.
During the year ended October 31, 2017, operating expenses increased 23% to $24,555,711 compared to
$19,949,967 for the year ended October 31, 2016, the major components of which are presented below:
14 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Results of operations – year ended October 31, 2017 and 2016 (continued)
Salaries and benefits
Rent
Legal, professional and director's fees
Postage and shipping
Stock based compensation
Executive replacement costs
Software Maintenance
Insurance
Other general and administrative
Total operating expenses
Year ended
October 31, 2017
$
Year ended
October 31, 2016
$
Change
$
Change
%
13,060,957
3,018,722
1,768,647
3,449,837
556,379
299,177
373,954
339,067
1,688,971
24,555,711
10,787,911
2,273,046
2,652,296
1,054,277
2,546,923
650,216
-
340,177
350,185
1,567,982
366,426
714,370
902,914
(93,837)
299,177
33,777
(11,118)
120,989
19,949,967
4,605,744
21%
14%
68%
35%
-14%
N/A
10%
-3%
8%
23%
•
Salaries and benefits increased 21% to $13,060,957 from $10,787,911 which is attributed to
increases in the Company’s employment base for the period. The increase in staffing is a result
of hiring in the areas of compliance, information technology, operations, payments, vault
operations and sales as well as adding 3 company owned branch locations;
• Rent increased 14% to $3,018,722 from $2,652,296. The Company has opened 3 new branch
locations as well as the expansion of the Toronto and Orlando vault locations since October 31,
2016;
•
•
•
•
Legal, professional and directors’ fees increased 68% to $1,768,647 from $1,054,277. The
increase is related primarily to audit and legal fees to support the Company’s wholly owned
subsidiary, EBC;
Postage and shipping increased 35% to $3,449,837 from $2,546,923 and is due to an increase
in the frequency of inbound and outbound shipments. The Company incurs shipping fees from
couriers and armored carriers to transport currency between the Company’s stores and
customers. The Company added 49 new customers representing 1,423 new transacting
locations since October 31, 2016 which has led to a 38% increase in 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 decreased 14% to $556,379 from $650,216 for the vested portion
of stock options granted pursuant to the Company's stock option plan. The decrease is due to
40,069 options that were forfeited in Q3 2017 as well as 22,572 options used in a cashless
option exercise. 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$22.31. There were 442,223 options outstanding at October 31, 2017 compared to 521,592
options outstanding at October 31, 2016;
Executive replacement costs increased to $299,177 from $Nil due to the replacement of two
senior executives in the company;
15 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Results of operations – year ended October 31, 2017 and 2016 (continued)
•
Software maintenance has increased 10% to $373,954 from $340,177 due to increased
investment into the Company’s software, CEIFX; and
• Other general and administrative expenses increased 8% to $1,688,971 from $1,567,982. Other
expenses are comprised of 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 partly due to start up fees for the new bank to join
certain payments associations, increased bank service fees from higher volume of transactions
and the revaluation of foreign currency assets and liabilities.
The ratio of operating expenses to total revenue for the year ended October 31, 2017 was 76%
compared to 74% for the year ended October 31, 2016. Over time, the Company will endeavor to
increase its operating efficiency by the addition of new bank and non-bank financial institutions in
Canada and the United States to redeploy currency purchased by its branches, affiliate partners, and
other clientele.
Other income and expenses are comprised of the following:
Other income (expense)
Revaluation of contingent consideration
Interest and accretion expense
Depreciation and amortization
Income tax expense
Total other expense
Year ended
October 31, 2017
$
Year ended
October 31, 2016
$
26,854
-
(162,554)
(1,324,211)
(2,640,129)
(4,100,041)
(41,824)
(96,359)
(95,758)
(1,311,526)
(1,689,911)
(3,235,378)
• Other income (expense) increased to $26,854 from ($41,824) and relates to interest collected
for surplus cash deposits held at various financial institutions in Canada and the United States
as well as other miscellaneous income and expense. Expenses pertaining to completing the
bank license application decreased to $Nil from $58,683;
• Revaluation of contingent consideration relates to the change in contingent consideration from
customer trading relationships acquired from the USEH acquisition. At January 31, 2016, the
remaining contingent consideration was reassessed and the Company recorded a revaluation of
contingent consideration of $96,359 for the year ended October 31, 2016. At the end of the period,
contingent consideration was transferred to accounts payable;
•
Interest and accretion expense increased to $162,554 from $95,758 and relates to interest
payments on credit lines;
• Depreciation and amortization increased to $1,324,211 from $1,311,526 and relates to
amortization of the Company’s intangible assets and depreciation of fixed assets over their
estimated economic life; and
•
Income tax expense increased to $2,640,129 from $1,689,911 and is a total of federal income
tax as well as various state and provincial taxes for the jurisdictions in which the Company
operates. The effective tax rate for the year ended October 31, 2017 is 38% compared to 28%
for the year ended October 31, 2016. The increase is due to more income being generated in the
United States than in Canada.
16 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Results of operations – three month periods ended October 31, 2017 and 2016
A breakdown of revenues by geographic location is presented below:
Total revenues
Three months ended
October 31, 2017
$
Three months ended
October 31, 2016
$
8,152,456
1,202,859
9,355,315
6,509,599
1,182,545
7,692,144
United States
Canada
Total
During the three month period ended October 31, 2017 total commission revenues increased by 22%
to $9,355,315 compared to $7,692,144 for the three month period ended October 31, 2016. Since
October 31, 2016, the Company has added 49 new wholesale relationships comprising 1,423 locations,
of which 26 wholesale relationships representing 1,400 transacting locations were added in the United
States and 23 wholesale relationships representing 23 transacting locations were added in Canada.
During the three month period ended October 31, 2017, the number of transactions between the
Company and its customers increased 32% to 278,000 transactions from 211,000 for the same period
in the previous year.
During the three month period ended October 31, 2017, operating expenses increased 23% to $6,745,797
compared to $5,473,045 for the three month period ended October 31, 2016, the major components of
which are presented below:
Salaries and benefits
Rent
Legal, professional and director's fees
Postage and shipping
Stock based compensation
Executive replacement costs
Software Maintenance
Insurance
Other general and administrative
Total operating expenses
Three months ended
October 31, 2017
$
Three months ended
October 31, 2016
$
3,694,561
2,848,522
832,203
465,038
867,981
167,258
18,602
46,361
90,697
563,096
6,745,797
708,856
214,178
768,015
174,057
-
99,381
73,850
586,186
5,473,045
Change
$
Change
%
846,039
123,347
279,858
99,966
(6,799)
18,602
(53,020)
16,847
(52,088)
1,272,752
30%
17%
131%
13%
-4%
N/A
-53%
23%
-9%
23%
•
Salaries and benefits increased 30% to $3,694,561 from $2,848,522 which is attributed to
increases in the Company’s employment base for the period. The increase in staffing is a result
of the hiring employees engaged in the areas of compliance, information technology, payments,
operations, vault operations and sales as well as adding 3 company owned branch locations;
• Rent increased 17% to $832,203 from $708,856. The Company has opened 3 new branch
locations as well as the expansion of the Toronto and Orlando vault locations since October 31,
2016;
•
Legal, professional and directors’ fees increased to $465,038 from $214,178. The increase is
related primarily to legal fees to support the Company’s wholly owned subsidiary, EBC;
17 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Results of operations – three month period ended October 31, 2017 and October 31, 2016 (continued)
•
•
•
•
Postage and shipping increased 13% to $867,981 from $768,015 and is due to an increase in
the frequency of inbound and outbound shipments. The Company incurs shipping fees from
couriers and armored carriers to transport currency between the Company’s stores and
customers. The Company added 49 new customers representing 1,423 new transacting
locations since October 31, 2016 which has led to a 38% increase in 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 decreased 4% to $167,258 from $174,057 for the vested portion of
stock options granted pursuant to the Company's stock option plan. The decrease is due to
40,069 options that were forfeited in Q3 2017 as well as 22,572 options used in a cashless
option exercise. 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$22.31. There were 442,223 options outstanding at October 31, 2017 compared to 521,592
options outstanding at October 31, 2016;
Executive replacement costs increased to $18,602 from $Nil due to the replacement of two
senior executives in the company;
Software maintenance has decreased 53% to $46,361 from $99,381 due to increased
capitalization of internally developed software including investments into the Company’s
software, CEIFX, offset by increased costs related to miscellaneous software to support IT and
Finance functions and to non-capitalized software-related expenditures to support the bank
expansion; and
• Other general and administrative expenses decreased 9% to $563,096 from $586,186. Other
expenses are comprised of 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 ratio of operating expenses to total revenue for three month period ended October 31, 2017 was
72% compared to 71% for the three month period ended October 31, 2016. Correspondingly, 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 financial institutions and non-financial institution customers, thus
bypassing currency wholesalers and widening its gross margins. The Company expects this ratio to
remain consistent with the seasonality of the business in the short term. Over time, the Company will
endeavor to increase its operating efficiency by the addition of new bank and non-bank financial
institutions in Canada and the United States to redeploy currency purchased by its branches, affiliate
partners, and other clientele.
18 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Results of operations – three month period ended October 31, 2017 and October 31, 2016 (continued)
Other income and expenses are comprised of the following:
Other income (expense)
Interest and accretion expense
Depreciation and amortization
Income tax expense
Total other expense
Three months ended
October 31, 2017
$
Three months ended
October 31, 2016
$
15,321
(58,817)
(354,710)
(873,364)
(1,271,570)
(16,568)
(37,866)
(308,864)
(475,866)
(839,164)
• Other income (expense) increased to $15,321 from ($16,568) and relates to interest collected
for surplus cash deposits held at various financial institutions in Canada and the United States
as well as other miscellaneous income and expense. Expenses pertaining to completing the
bank license application decreased to $Nil from $19,826;
•
Interest and accretion expense increased to $58,817 from $37,866 and relates to interest
payments on credit lines;
• Depreciation and amortization increased to $354,710 from $308,864 and relates to amortization
of the Company’s intangible assets and depreciation of fixed assets over their estimated
economic life; and
•
Income tax expense increased to $873,364 from $475,866 and is a total of federal income tax
as well as various state and provincial taxes for the jurisdictions in which the Company operates.
The effective tax rate for the three month period ending October 31, 2017 is 37% compared to
23% for the three month period ended October 31, 2016. The increase is due to more income being
generated in the United States than in Canada.
Cash flows
Cash flows from operating activities during the year ended October 31, 2017 resulted in an inflow of
$5,508,783 compared to an inflow of $2,446,143 during the year ended October 31, 2016. The reason
for the increase in operating cash flow was due to a decrease in accounts receivable as well as an
increase in accrued expenses. The actual amount of accounts receivable and accounts payable
fluctuate from period to period due to the volume of activity and timing differences. In most instances
accounts receivable and accounts payable have a settlement cycle of 24 to 48 hours. Operating cash
flow is generated by commission and fee income, and is offset by operating expenses.
Cash used in investing activities during the year ended October 31, 2017 resulted in an outflow of
$976,314 compared to an outflow of $595,863 during the year ended October 31, 2016. This represents
additions to property and equipment and to the internally developed software, CEIFX.
Cash used by financing activities during the year ended October 31, 2017 was $2,428,902 compared to
cash provided by financing of $3,293,301 during the year ended October 31, 2016. The primary reason
for the decrease in inflows relates to a repayment of the line of credit partially offset by the exercise of
executive stock options.
19 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Liquidity and capital resources
At October 31, 2017, the Company had working capital of $52,778,077 (October 31, 2016 -
$47,016,377).
The Company maintains a revolving line of credit with BMO Harris Bank, N.A. which was increased in
March of 2017 to $15,000,000 to assist with its short-term cash flow needs. At October 31, 2017, the
balance outstanding was $Nil (October 31, 2016 - $3,181,805). The line of credit bears interest at Libor
plus 2.0%
In April of 2017, the Company’s wholly-owned Canadian subsidiary, EBC established a revolving line of
credit with Bank of Montreal with available credit of Cdn$3,000,000 ($2,326,844) being secured against
cash assets held in its vaults. The line of credit bears interest at CDN prime plus .5%. At October 31, 2017,
the balance outstanding was $Nil.
The Company had a total available balance of unused lines of credit of $17,326,844 at October 31, 2017
(October 31, 2016 - $9,055,205).
Selected annual 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.
Revenues
Net operating income (1)
Net income
Basic earnings per share
Diluted earnings per share
Total assets
Total liabilities
Total non-current financial liabilities
Working capital
Notes:
Year ended
October 31, 2017
$
Year ended
October 31, 2016
$
Year ended
October 31, 2015
$
Year ended
October 31, 2014
$
32,477,220
7,921,509
3,821,469
$0.62
$0.61
63,968,227
7,475,609
-
26,827,456
6,877,489
3,642,111
0.59
0.58
62,196,008
11,443,657
-
24,075,775
7,137,444
4,665,985
0.80
0.77
52,112,593
5,352,490
-
52,778,077
47,016,377
42,674,895
22,005,953
7,189,769
4,249,225
0.78
0.77
39,709,302
6,982,895
585,144
28,935,018
1. Operating income for prior periods has been adjusted to exclude depreciation and amortization expense.
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.
20 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Commitments and contingencies (continued)
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 $5,532,896 and
are payable as follows:
Within 1 year 1 to 5 years after 5 years
Total
October 31, 2017
2,256,996
3,275,900
$
$
$
0
$
5,532,896
October 31, 2016
2,351,712
3,805,658
246,359
6,403,729
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.
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 credit to any of its customers, other than through
industry standard settlement terms.
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 (paid)/received by the
Company if the forward contracts were terminated at October 31, 2017 was $17,858 - (October 31, 2016 -
$44,771).
At October 31, 2017 and October 31, 2016 approximately $1,972,168 and $1,240,694, 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 year ended October 31, 2017
and October 31, 2016 were as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
Year ended
October 31, 2017
$
2,308,625
99,332
676,565
3,084,522
October 31, 2016
$
1,826,519
62,146
640,251
2,528,916
The Company incurred legal and professional fees in the aggregate of $145,404 for the year ended October
31, 2017 (2016 - $23,530) charged by entities controlled by directors or officers of the Company.
21 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Transactions with related parties (continued)
Advances between CXI and EBC are provided under a Revolving Line of Credit, renewed May 31, 2017;
loans attract interest at LIBOR + 2%, are repayable on demand, and are unsecured. At October 31, 2017,
the intercompany loan balance was $1,100,000 (2016 - $Nil).
Option grants
The Company adopted an incentive stock option plan dated April 28, 2011 (the "Plan"). The Plan is a
rolling stock option plan, under which 10% of the outstanding shares at any given time are available for
issuance thereunder. The purpose of the Plan is to promote the profitability and growth of the Company by
facilitating the efforts of the Company to attract and retain directors, senior officers, employees and
management. Vesting terms under the Plan will occur 1/3 upon the first anniversary, 1/3 upon the second
anniversary and 1/3 upon the third anniversary of the grant unless otherwise specified by the Board of
Directors.
Below is information related to each option grant:
Date of
Grant
29-Oct-13
29-Oct-13
9-Jul-14
30-Oct-14
30-Oct-14
11-Mar-15
30-Oct-15
30-Oct-15
16-Jan-16
11-Mar-16
28-Mar-16
26-Oct-16
26-Oct-16
6-Jun-17
26-Oct-17
26-Oct-17
Expiry Date
29-Oct-18
29-Oct-18
9-Jul-19
30-Oct-19
30-Oct-19
11-Mar-20
30-Oct-20
30-Oct-20
16-Jan-21
11-Mar-21
28-Mar-21
25-Oct-21
25-Oct-21
6-Jun-22
26-Oct-22
26-Oct-22
Share price at
grant date (Cdn$)
10.86
10.86
13.24
18.00
18.00
28.40
23.50
23.50
17.89
21.30
23.15
32.96
32.96
20.79
26.84
26.84
Amount
granted
35,640
114,420
1,762
87,215
24,144
2,726
28,972
89,435
17,600
4,182
2,261
22,757
66,820
9,865
25,039
76,981
Risk-free
interest rate
1.29%
1.29%
1.70%
1.61%
1.61%
1.62%
1.47%
1.47%
1.46%
1.45%
1.37%
1.30%
1.30%
1.71%
2.07%
2.07%
*Exercise price determined by average share price for previous 20 trading days
Expected
volatility
35%
35%
29%
27%
27%
25%
32%
32%
33%
34%
34%
34%
34%
37%
36%
36%
Exercise
Price (Cdn$)
10.86
10.86
13.24
16.21*
16.21*
28.15*
24.64*
24.64*
17.79*
22.78*
22.45*
30.75*
30.75*
21.53*
25.52*
25.52*
Fair value of option
at grant date ($)
3.44
3.44
3.58
4.97
4.97
5.75
5.10
5.10
3.86
4.78
5.87
8.46
8.46
5.27
7.69
7.69
The outstanding options at October 31, 2017 and the respective changes during the periods are
summarized as follows:
Number of options Weighted average price
#
Cdn$
Outstanding at October 31, 2015
Granted
Exercised
Outstanding at October 31, 2016
Granted
Exercised
Cancelled through cashless exercise
Forfeited
Outstanding at October 31, 2017
424,866
113,620
(16,894)
521,592
111,885
(128,613)
(22,572)
(40,069)
442,223
15.49
28.28
8.61
18.50
25.17
9.99
17.28
25.54
22.31
22 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Option grants (continued)
The following options are outstanding and exercisable at October 31, 2017:
Grant Date
Exercise
price (Cdn$)
Number
outstanding
Average remaining
contractual life
(years)
Number exercisable
29-Oct-13
29-Oct-13
30-Oct-14
30-Oct-14
11-Mar-15
30-Oct-15
30-Oct-15
16-Jan-16
11-Mar-16
26-Oct-16
26-Oct-16
6-Jun-17
26-Oct-17
26-Oct-17
10.86
10.86
16.21
16.21
28.15
24.64
24.64
17.79
22.78
30.75
30.75
21.53
25.52
25.52
17,820
40,013
59,365
20,120
2,726
28,972
70,657
11,733
4,182
19,506
55,244
9,865
25,039
76,981
0.99
0.99
2.00
2.00
2.36
3.00
3.00
3.21
3.36
3.99
3.99
4.60
4.99
4.99
Total
442,223
Subsequent events
17,820
40,013
59,365
20,120
1,817
28,972
47,106
-
1,394
19,506
18,415
-
-
-
254,528
On December 22, 2017, the President of the United States signed tax reform legislation, which includes a
broad range of tax reform proposals affecting businesses, including corporate tax rates, business
deductions, and international tax provisions. Many of these provisions significantly differ from current US
tax law, resulting in pervasive financial reporting implications.
Had the tax reform legislation been signed prior to October 31, 2017, the estimated effect on the Company’s
consolidated financial statements for 2017 would have been a decrease in current tax expense of $931,000
and a one-time increase in deferred tax expense of $308,000 for a net decrease in overall tax expense of
$623,000. The increase in deferred tax expense arises from a reduction in deferred tax assets of identical
amount. The deferred tax asset was generated on the basis of the former higher tax rate and will be
liquidated over time at the lower rate now in effect. This change represents an estimated reduction in the
statutory tax rate in the United States from 38.5% to 26.7%.
The estimated one-time increase in deferred tax expense is expected to be recognized by the Company
in the first quarter of the 2018 year. Income before income taxes will be taxed at the lower statutory rate on
a prospective basis from the date the tax reform legislation was signed. There will also be an impact on
deferred taxes related to the repatriation of funds from the Company’s wholly-owned Canadian subsidiary,
of which the quantitative impact cannot yet be reasonably estimated.
23 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
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, 2017 and 2016.
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.
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.
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.
24 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Credit Risk
Credit risk is the risk of financial loss associated with a counterparty’s inability to fulfill its payment
obligations. The Company’s credit risk is primarily attributable to cash in bank accounts, accounts
receivable and forward contracts from hedging counterparties.
All 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.
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 financial institutions and money service
business customers. The company has longstanding relationships with most of its money service business
customers and has a strong repayment history. For the purpose of risk control, the customers are grouped
as follows: domestic and international financial institutions, money service businesses, and other
customers. Credit limits are established for each customer, whereby the credit limit represents the
maximum open amount without requiring payments in advance. 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:
Customer type
Domestic and international financial institutions
Money service businesses
Other
Total
At October 31, 2017
At October 31, 2016
$
3,625,821
2,674,168
144,042
6,444,031
$
3,562,076
4,405,212
118,973
8,086,261
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 tills, vaults and in transit at October 31, 2017 was approximately $7,930,000 (October 31,
2016 - $6,400,000). The amount of currency that is unhedged and that is not pegged to the U.S. Dollar is
approximately $5,320,000 (October 31, 2016 - $3,250,000). 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 +$106,000/-$106,000 (October 31, 2016 gain/loss of approximately +$65,000/-
$65,000).
25 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
Foreign Currency Risk (continued)
On a consolidated basis, the Company is also exposed to foreign currency fluctuations between the U.S.
Dollar and the Canadian Dollar, being the functional currency of its Canadian subsidiary. The Company
does not hedge its net investment in its Canadian subsidiary and the related foreign currency translation of
its earnings.
Interest Rate Risk
At October 31, 2017, the Company had access to interest bearing financial instruments in cash, short term
accounts payable and line of credit. 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 12 of the consolidated financial statements.
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, 2017 would have been approximately +$11,600/-11,600 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
Carrying amount
Estimated contractual
amount
This fiscal year
Future fiscal
years
At October 31, 2017
Accounts payable
Accrued expenses
Income taxes payable
$
4,939,749
2,115,943
419,917
$
4,939,749
1,885,351
$
4,939,749
1,885,351
419,917
419,917
At October 31, 2016
$
$Nil
$Nil
$Nil
Non-derivative financial liabilities
Carrying amount
Estimated contractual
amount
Next fiscal year
Future fiscal
years
Accounts payable
Accrued expenses
Income taxes payable
Line of credit
$
5,984,751
1,509,411
767,690
3,181,805
$
5,984,751
1,285,606
767,690
$
5,984,751
1,285,606
767,690
3,181,805
3,181,805
$
$Nil
$Nil
$Nil
$Nil
26 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
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.
Current assets
Current liabilities
Working capital
At October 31, 2017
60,253,686
(7,475,609)
52,778,077
At October 31, 2016
58,460,034
(11,443,657)
47,016,377
The Company monitors its capital structure and makes adjustments according to market conditions in an
effort to meet its objectives given the current outlook of the business and industry in general. The Company
may manage its capital structure by issuing new shares, obtaining loan financing, adjusting capital
spending, or disposing of assets. The capital structure is reviewed by management and the Board of
Directors on an ongoing basis.
Product Development and Rapid Technological Change
The advent of the “cashless society” may erode the physical bank note currency markets resulting in a
significant adverse effect upon the Company’s continued growth and profitability. While the enabling
technology has existed for over a decade, the development of a truly cashless society continues to be
slowed by such factors as issues respecting infrastructure, cultural resistance, distribution problems and
patchwork regulations. Nevertheless, the success of the Company could be seriously affected by a
competitor’s ability to develop and market competing technologies.
To remain competitive, the Company must continue to enhance and improve the responsiveness,
functionality and features of its technology and website, CEIFX. The Internet and the e-commerce
industry are characterized by rapid technological change, changes in user and customer requirements
and preferences, frequent new product and service introductions embodying new technologies and the
emergence of new industry standards and practices that could render the Company’s existing operations
and proprietary technology and systems obsolete. The Company’s success will depend, in part, on its
ability to develop leading technologies useful in its business, enhance its existing services, develop new
services and technology that address the increasingly sophisticated and varied needs of its existing and
prospective customers and respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. The development of Internet based and other proprietary
technology entails significant technical, financial and business risks. There can be no assurance that the
Company will successfully implement new technologies or adapt its website, proprietary technology and
transaction-processing systems to customer requirements or emerging industry standards. If the
Company is unable to adapt in a timely manner in response to changing market conditions or customer
requirements for technical, legal, financial or other reasons, the Company’s business could be materially
adversely affected.
Intellectual Property
Proprietary rights are important to the Company’s success and its competitive position. Although the
Company seeks to protect its proprietary rights, its actions may be inadequate to protect any trademarks
and other proprietary rights or to prevent others from claiming violations of their trademarks and other
proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or
limited in certain countries, and the global nature of the Internet makes it impossible to control the
ultimate protection of the Company’s intellectual work product. Any of these claims, with or without merit,
could subject the Company to costly litigation and the diversion of the time and attention of its technical
management personnel.
27 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
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
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.
Risk of System Failure or Inadequacy
to protect
its systems against damage
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.
28 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
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.
29 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2017 and 2016
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.
30 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the years ended October 31, 2017 and 2016
(Expressed in U.S. Dollars)
31 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the years ended October 31, 2017 and 2016
(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
33-34
35
36
37
38
39-58
32 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, 2017 and October 31, 2016, 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
made by management, as well as evaluating the overall presentation of the consolidated
An audit involves performing procedures to obtain audit evidence
financial statements.
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
33
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,
2017 and October 31, 2016, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.
Toronto, Canada
January 9, 2018
Chartered Professional Accountants
Licensed Public Accountants
34 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Financial Position
October 31, 2017 and 2016
(Expressed in U.S. Dollars)
Current assets
Cash (Note 6)
Accounts receivable (Note 15)
Restricted cash held in escrow (Note 7)
Forward contract assets (Note 16)
Other current assets (Note 21)
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
Line of credit (Note 13)
Accrued expenses
Income taxes payable
Total current liabilities
Total liabilities
Equity
Share capital
Equity reserves
Retained earnings
Total equity
Total liabilities and equity
ASSETS
October 31, 2017
October 31, 2016
$
51,147,685
6,444,031
1,972,168
17,858
671,944
60,253,686
1,003,639
1,510,665
90,923
1,109,314
$
48,435,544
8,086,261
1,240,694
44,771
652,764
58,460,034
719,254
2,171,501
91,106
754,113
LIABILITIES AND EQUITY
63,968,227
62,196,008
4,939,749
-
2,115,943
419,917
7,475,609
7,475,609
6,263,428
26,671,628
23,557,562
56,492,618
63,968,227
5,984,751
3,181,805
1,509,411
767,690
11,443,657
11,443,657
6,134,815
24,881,443
19,736,093
50,752,351
62,196,008
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.
35 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Income and Comprehensive Income
Years ended October 31, 2017 and 2016
(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
Revaluation of contingent consideration (Note 4)
Total other income (expense)
Earnings before interest, taxes, depreciation and amortization
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
Exchange differences on translating foreign operations
Total other comprehensive income
Earnings per share (Note 18)
Year ended
October 31, 2017
October 31, 2016
$
$
30,462,663
25,147,376
2,014,557
1,680,080
32,477,220
24,555,711
26,827,456
19,949,967
7,921,509
6,877,489
26,854
-
(41,824)
(96,359)
26,854
(138,183)
7,948,363
162,554
1,324,211
6,461,598
2,640,129
3,821,469
6,739,306
95,758
1,311,526
5,332,022
1,689,911
3,642,111
3,821,469
3,642,111
609,519
4,430,988
(411,575)
3,230,536
-basic
-diluted
$0.62
$0.61
$0.59
$0.58
Weighted average number of common shares outstanding (Note 18)
-basic
-diluted
6,198,775
6,266,840
6,121,985
6,277,080
The accompanying notes are an integral part of these consolidated financial statements.
36 y
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37
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Cash Flows
Years ended October 31, 2017 and 2016
(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 fair value of forward contract positions (Note 16)
Deferred taxes
Increase (decrease) in cash due to change in:
Accounts receivable
Restricted cash held in escrow
Other assets
Accounts payable, accrued expenses, contingent consideration and income
taxes payable
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
Proceeds from the exercise of stock options
Net (payments) borrowings on line of credit
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
Year ended
Year ended
October 31, 2017
October 31, 2016
$
$
3,821,469
3,642,111
1,324,211
1,311,526
556,379
24,051
650,216
165,433
(352,316)
(395,509)
1,724,792
(731,474)
(16,470)
(841,859)
5,508,783
(748,334)
(227,980)
(976,314)
752,903
(3,181,805)
(2,428,902)
2,103,567
(5,291,382)
(460,111)
(155,754)
2,979,613
2,446,143
(387,949)
(207,914)
(595,863)
111,496
3,181,805
3,293,301
5,143,581
48,435,544
43,690,996
608,574
(399,033)
51,147,685
48,435,544
2,299,009
1,858,707
122,909
13,427
95,758
16,859
The accompanying notes are an integral part of these consolidated financial statements.
38 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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”) in the United States 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 maintains a head office and five vaults as
well as 41 branch locations. The Company’s registered head office is located at 6675 Westwood Boulevard,
Suite 300, Orlando, Florida, 32821, United States of America. In September 2016, the Company’s wholly
owned Canadian Subsidiary, Currency Exchange International of Canada Corp (“CXIC”) received letters
patent to continue as a schedule 1 Bank. The continued entity, Exchange Bank of Canada (“EBC”) is a
non-deposit taking, non-lending financial institution engaged in foreign exchange services.
Basis of presentation
The presentation currency of the Company's consolidated financial statements is the U.S. Dollar. The
accounting policies set out in Note 2 have been applied consistently to all periods presented in these
consolidated financial statements. These consolidated financial statements have been prepared on a
historical cost basis, except for the following assets and liabilities which are stated at their fair value: financial
instruments classified as fair value through profit or loss (“FVTPL”), foreign currency forward contracts and
share-based payment plans. In addition, these consolidated financial statements have been prepared using
the accrual basis of accounting, except for cash flow information.
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorized for issue and approved by the Board of Directors
on January 9, 2018.
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.
39 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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.
40 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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 20.
2.
Accounting Policies
Principles of consolidation
The consolidated financial statements comprise the financial statements of the Company and its wholly-
owned subsidiary, EBC, a Schedule 1 bank in Canada. In October 2017, the Company merged its wholly-
owned US subsidiary, Currency Exchange International America Corp. (“CXIA”) into its operations. This
common control transaction had no impact on the Company’s consolidated financial statements from either
an accounting or tax perspective.
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 at October 31, 2017 and 2016,
respectively.
41 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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 its 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, 2017 and
2016, 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 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 occurs on a trade date basis 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 at the time the transaction occurs 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 EBC is the Canadian Dollar
and the functional currency of the Company 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 functional currency 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 the
consolidation 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 in income immediately in the
consolidated statement of income and comprehensive income.
42 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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
43
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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 (forward
contracts) 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.
44 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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.
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.
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
45 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
2.
Accounting Policies (continued)
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.
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 performed a preliminary assessment and does not expect the adoption of IFRS 9 to have a
significant impact 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 performed a preliminary assessment and does not expect
the adoption of IFRS 15 to have a significant impact on its consolidated financial statements.
IFRS 16 Leases (“IFRS 16”) was issued in January 2016. IFRS 16 replaces IAS 17 Leases. IFRS 16
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all
leases with a term of more than twelve months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. IFRS 16 is effective for fiscal periods beginning
on or after January 1, 2019, with early adoption permitted. The Company has not yet determined the impact
of IFRS 16 on its consolidated financial statements.
46 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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 paid
$2,350,000 in cash on closing and had 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 contingent
payments were 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. During the second quarter of fiscal 2016, the actual amount of contingent consideration was
determined, and the Company recorded a revaluation of contingent consideration of $96,359 for the year
ended October 31, 2016. At the end of that period, contingent consideration was transferred to accounts
payable and was paid in full as of October 31, 2017.
5.
Geographical Segments
The Company operates in the United States and Canada. The Company's revenue from external customers
and information about its assets by geographical location are detailed below:
Year ended October 31, 2017
Year ended October 31, 2016
United States
28,505,302
22,053,195
Revenues ($)
Canada
3,971,918
4,774,261
Total
32,477,220
26,827,456
Assets
Cash
At October 31, 2017
At October 31, 2016
United States
Canada
Total United States
Canada
Total
$
$
$
$
$
$
34,935,125
16,212,560
51,147,685
32,320,063
16,115,481 48,435,544
Accounts receivable
4,272,920
2,171,111
6,444,031
6,051,174
2,035,087
8,086,261
Restricted cash held in escrow
1,972,168
Forward contract assets
Other current assets
Property and equipment
Intangible assets
Other assets
17,858
576,351
799,758
-
-
95,593
1,972,168
1,240,694
-
1,240,694
17,858
671,944
102,159
(57,388)
44,771
607,694
45,070
652,764
203,881
1,003,639
655,096
64,158
719,254
1,200,712
309,953
1,510,665
1,642,755
528,746
2,171,501
90,923
-
90,923
91,106
-
91,106
Net deferred tax asset
1,001,597
107,717
1,109,314
701,851
52,262
754,113
Total assets
44,867,412
19,100,815
63,968,227
43,412,592
18,783,416 62,196,008
6.
Cash
Included within cash of $51,147,685 at October 31, 2017 (2016 - $48,435,544) are the following
balances:
Cash held in transit, vaults, tills and consignment
locations
Cash deposited in bank accounts in jurisdictions
in which the Company operates
Total
At October 31, 2017
$
At October 31, 2016
$
43,786,752
41,385,819
7,360,933
51,147,685
7,049,725
48,435,544
47 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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
$1,972,168 at October 31, 2017 (2016 - $1,240,694).
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, 2017 was $3,018,722 (2016 - $2,652,296).
The following is a schedule of future minimum rental payments under these lease agreements:
October 31, 2017
October 31, 2016
Within 1 year
1 to 5 years
after 5 years
$
2,256,996
2,351,712
$
3,275,900
3,805,658
$
0
246,359
Total
$
5,532,896
6,403,729
9.
Property and Equipment
Property and equipment consist of the following:
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
Total
Cost
Balance, October 31, 2015
Additions
Net exchange differences
Balance, October 31, 2016
Additions
Net exchange differences
$
48,601
31,646
-
80,247
-
-
Balance, October 31, 2017
80,247
$
226,055
28,001
(645)
253,411
56,668
1,435
311,514
$
428,223
100,699
(1,840)
527,082
220,445
5,541
753,068
$
$
1,278,617
1,981,496
227,153
(2,906)
1,502,864
471,221
5,956
387,499
(5,391)
2,363,604
748,334
12,932
1,980,041
3,124,870
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
Depreciation
Balance, October 31, 2015
Additions
Net exchange differences
Balance, October 31, 2016
Additions
Net exchange differences
Balance, October 31, 2017
$
33,381
16,612
-
49,993
16,188
-
66,181
$
168,405
38,489
(523)
206,371
39,221
1,036
246,628
$
245,185
96,515
(1,385)
340,315
142,780
2,751
485,846
$
812,338
237,317
(1,984)
Total
$
1,259,309
388,933
(3,892)
1,047,671
1,644,350
270,876
4,029
469,065
7,816
1,322,576
2,121,231
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
Carrying amounts
Balance, October 31, 2016
Balance, October 31, 2017
$
30,254
14,066
$
47,040
64,886
$
186,767
267,222
$
455,193
657,465
Total
$
719,254
1,003,639
48 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
10.
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 USEH (Note 4).
Amortization for intangibles is computed on an individual basis over the estimated useful life using the
straight-line method as follows:
Internally developed software
Software purchased from USEH
Customer trading relationships
5 years
2 years
5 years
Intangible assets consist of the following at October 31, 2017 and 2016:
Cost
Balance, October 31, 2015
Additions
Balance, October 31, 2016
Additions
Balance, October 31, 2017
Amortization
Balance, October 31, 2015
Amortization
Net exchange differences
Balance, October 31, 2016
Amortization
Net exchange differences
Balance, October 31, 2017
Internally developed
software
Acquired
software
Customer trading
relationships
$
980,224
207,913
1,188,137
227,980
1,416,117
$
480,000
-
480,000
-
480,000
$
3,288,283
-
3,288,283
-
3,288,283
Internally developed
software
Acquired
software
Customer trading
relationships
$
404,665
201,308
-
605,973
231,159
-
837,132
$
380,000
100,000
-
480,000
-
-
480,000
$
1,041,452
621,285
36,209
1,698,946
633,688
23,969
2,356,603
Internally developed
software
Acquired
software
Customer trading
relationships
Carrying amounts
Balance, October 31, 2016
Balance, October 31, 2017
$
582,164
578,985
$
-
-
$
1,589,337
931,680
Total
$
4,748,507
207,913
4,956,420
227,980
5,184,400
Total
$
1,826,117
922,593
36,209
2,784,919
864,847
23,969
3,673,735
Total
$
2,171,501
1,510,665
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, 2017 and 2016 consist of the following:
October 31, 2017
$
October 31, 2016
$
Deferred tax assets
Accrued expenses
Stock based compensation
Other
Net intangible assets
Total deferred tax assets
Deferred tax liabilities
Net property and equipment
Total deferred tax liabilities
Net deferred tax asset
351,924
677,083
21,263
298,280
1,348,550
(239,236)
(239,236)
1,109,314
91,809
591,012
78,787
180,070
941,678
(187,565)
(187,565)
754,113
49
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
11.
Income Taxes (continued)
Reconciliation of the provision for income taxes to the amount calculated using the Company’s statutory
tax rate for the year ended October 31, 2017 and 2016 are as follows:
Income before taxes
Statutory tax rate
Tax expense at statutory rate
Recovery on exercise of director and employee stock options
Foreign tax rate adjustment
Other non-deductible differences
Income tax expense
October 31, 2017
$
6,461,598
38.50%
2,487,715
(24,092)
84,329
92,177
2,640,129
October 31, 2016
$
5,332,022
38.5%
2,052,828
(52,379)
(290,531)
(20,007)
1,689,911
The enacted tax rates in the United States of 38.5% (2016 - 38.5%) and Canada of 26.5% (2016 – 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, 2017 and 2016 consists of the following:
Current tax expense
Deferred tax benefit
Income tax expense
October 31, 2017
$
2,995,330
(355,201)
2,640,129
October 31, 2016
$
2,084,438
(394,527)
1,689,911
12.
Seasonality of Operations
Seasonality is reflected in the timing of when foreign currencies are in greater or lower demand. In a normal
operating year there is some seasonality to the Company's operations with higher commissions generally
from March until September and lower commissions from October to February. This coincides with peak
tourism seasons in North America when there are generally more travelers entering and leaving the United
States and Canada.
13.
Lines of Credit
The Company maintains 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 $15,000,000. 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, 2017 – 1.26% (2016 – 2.53%)]. At October 31, 2017, the balance outstanding was $Nil
(2016 - $3,181,805).
In April of 2017, the Company’s wholly-owned Canadian subsidiary, EBC established a revolving line of
credit with Bank of Montreal with available credit of Cdn$3,000,000 ($2,326,844) being secured against
cash assets held in its vaults. The line of credit bears interest at CDN prime plus .5%. At October 31, 2017,
the balance outstanding was $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.
50 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
14.
Fair Value Measurement of Financial Instruments (continued)
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, 2017 and 2016.
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 assets
Cash
Forward contract assets
Total assets
Level 1
$
At October 31, 2017
Level 2
$
Level 3
$
Total
$
51,147,685
-
51,147,685
-
17,858
17,858
Level 1
$
At October 31, 2016
Level 2
$
Level 3
$
48,435,544
48,435,544
-
44,771
44,771
-
-
-
-
-
51,147,685
17,858
51,165,543
Total
$
48,435,544
44,771
48,480,315
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,
2017 and 2016.
Forward contract positions (Level 2)
The Company’s forward contract positions are not traded in active markets. The fair value of these
instruments has been determined using observable forward exchange rates. The effects of non-observable
inputs are not significant for foreign contract positions.
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, line of credit, accrued expenses, and income taxes payable/receivable
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.
51 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
15.
Risk Management (continued)
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.
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 money service
business customers and has a strong repayment history. For the purpose of risk control, the customers
are grouped as follows: domestic and international banks, money service businesses, and other customers.
Credit limits are established for each customer, whereby the credit limit represents the maximum open
amount without requiring payments in advance. These limits are reviewed regularly by senior management.
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, 2017 At October 31, 2016
Customer type
Domestic and international banks
Money service businesses
Other
Total
$
3,625,821
2,674,168
144,042
6,444,031
$
3,562,076
4,405,212
118,973
8,086,261
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, 2017 was approximately $7,930,000 (2016 -
$6,400,000). The amount of currency that is unhedged and that is not pegged to the U.S. Dollar is
approximately $5,320,000 (2016 - $3,250,000). 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 +$106,000/-$106,000 (2016 gain/loss of approximately +$65,000/-$65,000).
52 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
15.
Risk Management (continued)
On a consolidated basis, the Company is also exposed to foreign currency fluctuations between the U.S.
Dollar and the Canadian Dollar, being the functional currency of its Canadian subsidiary. The Company
does not hedge its net investment in its Canadian subsidiary and the related foreign currency translation of
its earnings.
Interest Rate Risk
At October 31, 2017, the Company had access to interest bearing financial instruments in cash, short term
accounts payable and line of credit. 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, 2017 would have been approximately +$11,600/-$11,600 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
Carrying
amount
Accounts payable
Accrued expenses
Income taxes payable
$
4,939,749
2,115,943
419,917
Non-derivative financial
liabilities
Carrying
amount
Accounts payable
Accrued expenses
Income taxes payable
Contingent consideration
$
5,984,751
1,509,411
767,690
3,181,805
At October 31, 2017
Estimated
contractual amount
$
4,939,749
1,885,351
419,917
At October 31, 2016
Estimated
contractual amount
$
5,984,751
1,285,606
767,690
3,181,805
Next fiscal year
Future fiscal
years
$
4,939,749
1,885,351
419,917
$
$Nil
$Nil
$Nil
Next fiscal year
Future fiscal
years
$
5,984,751
1,285,606
767,690
3,181,805
$
$Nil
$Nil
$Nil
$Nil
The Company had available unused lines of credit amounting to $17,326,844 at October 31, 2017.
53 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
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.
Current assets
Current liabilities
October 31, 2017 October 31, 2016
60,253,686
(7,475,609)
58,460,034
(11,443,657)
Working capital
52,778,077
47,016,377
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, 2017 was $17,858 (2016 - $44,771).
At October 31, 2017 and October 31, 2016 approximately $1,972,168 and $1,240,694, 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. The options exercised during the current and prior periods are summarized as follows:
Period Exercised Num of Shares
13,894
Q3 2016
3,000
Q4 2016
15,000
Q1 2017
83,363
Q2 2017
5,594
Q3 2017
47,229
Q4 2017
USD value
94,686
16,810
85,376
652,742
57,077
407,929
$
$
$
$
$
$
Cdn$
120,885
22,500
112,500
871,666
75,757
513,709
$
$
$
$
$
$
54 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
17.
Equity (continued)
Stock options
The Company adopted an incentive stock option plan dated April 28, 2011 (the "Plan"). The Plan is a
rolling stock option plan, under which 10% of the outstanding shares at any given time are available for
issuance thereunder. The purpose of the Plan is to promote the profitability and growth of the Company by
facilitating the efforts of the Company to attract and retain directors, senior officers, employees, and
management. Vesting terms under the Plan will occur 1/3 upon the first anniversary, 1/3 upon the second
anniversary and 1/3 upon the third anniversary of the grant unless otherwise specified by the Board of
Directors.
The outstanding options at October 31, 2017 and 2016 and the respective changes during the periods are
summarized as follows:
Date of
Grant
Expiry Date
Share price at
grant date
(Cdn$)
29-Oct-13
29-Oct-18
29-Oct-13
29-Oct-18
9-Jul-14
9-Jul-19
30-Oct-14
30-Oct-19
30-Oct-14
30-Oct-19
11-Mar-15
11-Mar-20
30-Oct-15
30-Oct-20
30-Oct-15
30-Oct-20
16-Jan-16
16-Jan-21
11-Mar-16
11-Mar-21
28-Mar-16
28-Mar-21
26-Oct-16
25-Oct-21
26-Oct-16
25-Oct-21
6-Jun-17
6-Jun-22
26-Oct-17
26-Oct-22
26-Oct-17
26-Oct-22
10.86
10.86
13.24
18.00
18.00
28.40
23.50
23.50
17.89
21.30
23.15
32.96
32.96
20.79
26.84
26.84
Amount
granted
35,640
114,420
1,762
87,215
24,144
2,726
28,972
89,435
17,600
4,182
2,261
22,757
66,820
9,865
25,039
76,981
Risk-free
interest
rate
Expected
volatility
Exercise
Price (Cdn$)
Fair value of
option at
grant date ($)
1.29%
1.29%
1.70%
1.61%
1.61%
1.62%
1.47%
1.47%
1.46%
1.45%
1.37%
1.30%
1.30%
1.71%
2.07%
2.07%
35%
35%
29%
27%
27%
25%
32%
32%
33%
34%
34%
34%
34%
37%
36%
36%
10.86
10.86
13.24
16.21*
16.21*
28.15*
24.64*
24.64*
17.79*
22.78*
22.45*
30.75*
30.75*
21.53*
25.52*
25.52*
3.44
3.44
3.58
4.97
4.97
5.75
5.10
5.10
3.86
4.78
5.87
8.46
8.46
5.27
7.69
7.69
*Exercise price determined by average share price for previous 20 trading days
Number of options Weighted average price
#
Cdn$
Outstanding at October 31, 2015
Granted
Exercised
Outstanding at October 31, 2016
Granted
Exercised
Cancelled through cashless exercise
Forfeited
Outstanding at October 31, 2017
424,866
113,620
(16,894)
521,592
111,885
(128,613)
(22,572)
(40,069)
442,223
15.49
28.28
8.61
18.50
25.17
9.99
17.28
25.54
22.31
55 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
17.
Equity (continued)
The following options are outstanding and exercisable at October 31, 2017:
Grant Date
Exercise
price
(Cdn$)
Number
outstanding
Average remaining
contractual life
(years)
Number
exercisable
29-Oct-13
29-Oct-13
30-Oct-14
30-Oct-14
11-Mar-15
30-Oct-15
30-Oct-15
16-Jan-16
11-Mar-16
26-Oct-16
26-Oct-16
6-Jun-17
26-Oct-17
26-Oct-17
10.86
10.86
16.21
16.21
28.15
24.64
24.64
17.79
22.78
30.75
30.75
21.53
25.52
25.52
17,820
40,013
59,365
20,120
2,726
28,972
70,657
11,733
4,182
19,506
55,244
9,865
25,039
76,981
0.99
0.99
2.00
2.00
2.36
3.00
3.00
3.21
3.36
3.99
3.99
4.60
4.99
4.99
17,820
40,013
59,365
20,120
1,817
28,972
47,106
-
1,394
19,506
18,415
-
-
-
Total
442,223
254,528
18.
Earnings per Share
The calculation of earnings per share is presented below. Diluted earnings per share for the year ended
October 31, 2017 and 2016 included all stock option grants with the exception of the options granted March
11, 2015, October 31, 2016 and October 31,2017 as the strike price exceeded the average stock price from
the date of the option grant.
Year ending
October 31, 2017 October 31, 2016
Basic
Net income
Weighted average number of shares outstanding
Basic earnings per share
Diluted
Net income
Weighted average number of shares outstanding
Diluted earnings per share
$3,821,469
6,198,775
$0.62
$3,821,469
6,266,840
$0.61
3,642,111
6,121,985
$0.59
3,642,111
6,277,080
$0.58
56 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
19.
Operating expenses
Salaries and benefits
Rent
Legal and professional
Postage and shipping
Stock based compensation
Executive replacement costs
Software maintenance
Insurance
Other general and administrative
Operating expenses
Year ended
October 31, 2017
$
13,060,957
3,018,722
1,768,647
3,449,837
556,379
299,177
373,954
339,067
1,688,971
24,555,711
October 31, 2016
$
10,787,911
2,652,296
1,054,277
2,546,923
650,216
-
340,177
350,185
1,567,982
19,949,967
20.
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, 2017 and
2016 was as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
October 31, 2017
October 31, 2016
Year ended
$
2,308,625
99,332
676,565
3,084,522
$
1,826,519
62,146
640,251
2,528,916
The Company incurred legal and professional fees in the aggregate of $145,404 for the year ended October
31, 2017 (2016 - $23,530) 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.
Advances between CXI and EBC are provided under a Revolving Line of Credit, renewed May 31, 2017;
loans attract interest at LIBOR + 2%, are repayable on demand, and are unsecured. At October 31, 2017,
the intercompany loan balance was $1,100,000 (2016 - $Nil) and was eliminated upon consolidation.
21.
Other current assets
Prepaid rent
Prepaid insurance
Prepaid Advertising
Other assets
Total
At October 31, 2017
$
224,067
134,847
79,625
233,405
671,944
At October 31, 2016
$
186,463
143,545
25,886
296,870
652,764
57 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2017 and 2016
22.
Subsequent Events
On December 22, 2017, the President of the United States signed tax reform legislation, which includes a
broad range of tax reform proposals affecting businesses, including corporate tax rates, business
deductions, and international tax provisions. Many of these provisions significantly differ from current US
tax law, resulting in pervasive financial reporting implications.
Had the tax reform legislation been signed prior to October 31, 2017, the estimated effect on the Company’s
consolidated financial statements for 2017 would have been a decrease in current tax expense of $931,000
and a one-time increase in deferred tax expense of $308,000 for a net decrease in overall tax expense of
$623,000. The increase in deferred tax expense arises from a reduction in deferred tax assets of identical
amount. The deferred tax asset was generated on the basis of the former higher tax rate and will be
liquidated over time at the lower rate now in effect. This change represents an estimated reduction in the
statutory tax rate in the United States from 38.5% to 26.7%.
The estimated one-time increase in deferred tax expense is expected to be recognized by the Company in
the first quarter of the 2018 year. Income before income taxes will be taxed at the lower statutory rate on a
prospective basis from the date the tax reform legislation was signed. There will also be an impact on
deferred taxes related to the repatriation of funds from the Company’s wholly-owned Canadian subsidiary,
of which the quantitative impact cannot yet be reasonably estimated.
58 BOARD OF DIRECTORS
Randolph W. Pinna
CEO, President, Chairman of the Board of CXI, Director of EBC
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
Chirag Bhavsar
Mark D. Mickleborough
Director of CXI
Director of EBC
Independent Board Member
Lead Director of CXI
Chairman of the Board of EBC
Independent Board Member
Director of CXI
Director of EBC
Board Member
V. James Sardo
Linda Stromme
James D.A. White
Director of CXI
Director of EBC
Independent Board Member
Director of CXI
Director of EBC
Independent Board Member
Director of CXI
Director of EBC
Independent Board Member
Shareholder Information
Annual Meeting of Shareholders
Shareholders are invited to attend the annual meeting
of Currency Exchange International, Corp. to be held
on March 15, 2018 at 4:30 p.m. (EST) at:
333 Bay Street, 46th Floor,
Toronto, Ontario, Canada M5H 2S5
Investor Relations
Financial Analysts, portfolio managers and other
investors requiring financial information may contact
our Investor Relations’ departments:
Transfer Agent
Computershare Investor Services
100 University Ave, 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.
(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
Auditors
Grant Thornton LLP
Chartered Professional Accountants
Licensed Professional Accountants
Mississauga, Canada
Shareholder Services
For information or assistance regarding your
share account, including dividends, changes of
address or ownership, lost certificates, to eliminate
duplicate mailings or to receive shareholder material
electronically, please contact our Transfer Agents in
Canada.
Currency Exchange International: Annual Report 2017
60
Currency Exchange International, Corp.
6675 Westwood Boulevard, Suite 300
Orlando, Florida 32821
U.S.A.
www.ceifx.com
U.S.A.
(888) 998 3948
Exchange Bank of Canada
390 Bay Street
Toronto, Ontario M5H 2Y2
Canada
www.ebcfx.com
Canada (888) 223 3934