ANNUAL
REPORT
2018
€$£¥€$£¥€$£¥€$£¥ Financial Highlights
2015 1
2016
2017
2018
Exchange Volume:
In Millions
$1,456
$2,137
$2,835
$4,157
47 %
Year Over Year
20151 2016
2017
2018
Total Revenue:
In Millions
$24.1
$26.8
$32.5
$39.1
20 %
Year Over Year
20151 2016
2017
2018
Total Assets:
In Millions
$52.1
$62.2
$64.0
$73.3
1 5%
Year Over Year
All amounts in this report are stated in USD and are based on fiscal year end unless otherwise noted.
20151 2016
2017
2018
Corporate Customers and Transacting Locations
Key Ratios
20151
2016
2017
2018
Company-Owned
Branch Locations
Wholesale Company
Relationships
36
38
41
43
521
928
977
1,337
Transacting Locations
10,157
13,603
15,026
17,482
2017
2018
Earnings Per Share
$0.61
$0.67
Return On Assets
6.0%
5.8%
Return On Equity
6.8%
6.7%
Operating Margin
24.4%
20.8%
Quarterly Stock Price (TSX:CXI)
TSX stock prices are quoted in Cdn$
Q1
Ended 1/31/2018
Q2
Ended 4/30/2018
Q3
Ended 7/31/2018
Q4
Ended 10/31/2018
$23.89
$30.01
$30.90
$27.90
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.
1
Currency Exchange International: Annual Report 2018
Message from the CEO
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, 2018.
Randolph W. Pinna
President and Chief Executive Officer
CXI’s Growth in 2018
In fiscal year 2018, CXI completed many strategic milestones in pursuit
of growing into a leading-edge international bank group focused on
foreign exchange. These achievements set the foundation for CXI
to implement and deliver innovative foreign exchange solutions by
utilizing integrated technologies. CXI continued to expand its foreign
currency exchange and international payments services, adding a
record 360 new wholesale client companies representing more than
2,700 transacting locations. This raises the total number of locations
served by CXI across North America to more than 17,400, a year over
year increase of more than 16%.
CXI’s added three new company-owned retail branch locations to
its network, while closing one branch in fiscal year 2018, bringing
the total retail branch network to 43 locations. The openings in
New Orleans, Louisiana and Stamford, Connecticut represent new
markets for CXI’s retail footprint. The third location opened in Los
Angeles, California. In Aventura, Florida, CXI closed one of its two
branches operating in the Aventura Mall. The company-owned
locations continued to generate gross income at healthy retail
exchange margins, conducting more than 430,000 transactions, for
a year over year increase of more than 10%. CXI plans to maintain
the growth of its company-owned branch network, opening locations
selectively in areas that are ripe for a new FX retail solution.
CXI’s wholly owned subsidiary, the Exchange Bank of Canada
(EBC), completed its second full year of operations as a Schedule
1 Bank. EBC has continued to gain wholesale banknote clients and
now has over 80 established corporations utilizing its international
payment services. As a Schedule 1 Canadian Bank, EBC facilitates
further expansion of CXI’s worldwide correspondent banking
relationships, allowing for a more comprehensive suite of offered
services and increased operational efficiencies. EBC has specifically
leveraged these relationships in the area of inventory management,
combining the use of inventory on consignment with the opening of
a processing center in Montreal to lower FX transaction sourcing
and processing costs, while providing enhanced client servicing
capabilities. Resources are also being devoted toward workflow
automation technology to reduce manual processes. With many
correspondent relationships operationalized in 2018, EBC is poised
for growth in 2019 and beyond.
CXI and EBC’s expanding retail and wholesale footprint grew revenues
to US $39.1 million, up 20% from the previous fiscal year. Payments
revenues specifically grew 51.1% year over year, to US $1.7 million.
Net operating income increased to US $8.14 million, up 4% from the
previous fiscal year. The net operating income experienced slower
growth than revenues largely due to increased salaries, software
development costs, and professional fees in line with the strategic
goal of growing the payments business. This has resulted in a lower
operating margin, which is expected to return to higher sustainable
levels as payments revenues increase.
Consistent with CXI’s strategic plan, the Company continues to
commit significant resources to expanding its current payment
business with enhancements to both CXI’s processing capabilities
and expansions to the sales team driving these products. These
processing enhancements and sales efforts are intended to support
growth in CXI’s top and bottom lines.
Strategic Growth
CXI reinvests in its technology and human resources to be a leader
in the foreign 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;
Currency Exchange International: Annual Report 2018
2
I personally thank all of CXI’s customers, employees, shareholders,
and friends for their continued support of Currency Exchange
International. As always, I remain available for feedback and to
discuss our company and its business with you personally.
Randolph W. Pinna
President and Chief Executive Officer
Message from the CEO
integrations with strategic partners allow the company to expand its
market reach.
The company is also focused on expanding FX volumes/revenues
through digital cheque processing. This initiative utilizes the latest
technology in the banking sectors to securely and quickly transmit
data for processing.
Additionally, CXI has completed its APIs (application programming
interfaces) for banknotes and payments allowing for seamless,
straight through processing with the systems and companies
it integrates with for both international payments and banknote
transactions.
Positioned for Continued Growth
We are very pleased with the accomplishments of the past year as
we stay focused on the growth of revenues and profits in the years
ahead. I am particularly proud of the loyal team of more than 350
employees across the US and Canada who are all working together to
grow our group long-term featuring our unique software platform and
best in class customer service.
With an experienced management team and robust 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
their ability to execute on the expansion plan.
Shareholder’s Equity
$ Millions
O ctober 31, 2018
$62.7
O ctober 31, 2017
$56.5
October 31, 2016
$50.8
Shareholder Performance Graph
Currency Exchange International, Corp.
S&P/TSX Composite Index
$300
$250
$200
$150
$100
$50
O ctober 31, 2015
$46 .8
CXI/TSX
S&P/TSX Composite Index
11/1/13
10/31/14
10/31/15
10/31/16
10/31/17
10/31/18
$100
$100
$166.52
$109.57
$210.54
$101.44
$272.32
$108.79
$237.86
$120.15
$249.11
$112.67
November 1,
2013
October 31,
2014
October 31,
2015
October 31,
2016
October 31,
2017
October 31,
2018
All amoun ts in this repor t are sta ted i n US D
un less oth er wise noted.
This graph compares the yearly percentage change in the cumulative total shareholder return for C$100 invested in Common Shares on
November 1, 2013 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 2018
Company Snapshot
THEN
NOW
2007 - 2009
2010 - 2012
2013 - 2015
CXI, under Randolph Pinna, purchases the
eight retail branches of Foreign Currency
Exchange Corp. from the Bank of Ireland
Group
CXI launches its proprietary, web-based
foreign currency software solution
-
CEIFX.
CXI focuses on establishing its backend
processes for wholesale operations, while
growing retail operations.
CXI commences services for financial
its wholesale
institutions, allowing
partnerships to grow rapidly.
Three vaults are established in the U.S. to
better service clients nationwide.
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 Schedule I Canadian Bank.
CXI group surpasses servicing 10,000
transacting locations and is a provider
for national financial institutions in the US
and Canada.
CXI acquires US Exchange House in the
US and Canada, merging them within its
business.
CXI’s West Coast vault
in California
moves to Los Angeles, increasing service
capacity and operational support.
2018
2017
2016
At 2018 fiscal year end, CXI exchanges
more than USD $4.2 billion worth of
currency, and services 1,300+ companies
at 17,000+ transacting locations.
CXI owns and operates 43 branch
locations.
CXI has USD $73.3 million in assets.
Exchange Bank of Canada is accepted for
SWIFT membership, the world’s leading
provider of secure financial messaging
services, expanding its global payment
capabilities.
EBC’s corporate trading desk opens in
Toronto providing live trading support and
market analysis.
September 2016, the Minister of Finance
in Canada approves the continuance
of Currency Exchange
International
of Canada Corp. as “Exchange Bank
of Canada” in English and “Banque de
change du Canada” in French.
CXI services 25% of the top 20 banks (in
asset size) in the US.
Key Activities
Foreign Banknote Exchange
International Payments
Foreign Cheque Clearing
Overview
Banknotes are a core service offering
from CXI and EBC. The group exchanges
billions of dollars’ worth of currency
annually. Currencies for more than 90
countries are available for exchange.
payments
Overview
International
include
international wires, Global EFT, and
foreign bank draft issuance. Payments
can be sent to more than 120 countries.
CXI launched a payment platform in 2018
to support its business goals.
Overview
Foreign cheque clearing processing was
enhanced through bulk processing and
image capture solutions for Canadian
dollar cheques integrated into CEIFX.
This increased speed and security while
reducing manual elements of the service.
Clients
Company-owned locations
Corporate clients
Financial institutions
Clients
Corporate clients
Financial institutions
Clients
Corporate clients
Financial institutions
Currency Exchange International: Annual Report 2018
4
Business Operations
430,000+
company-owned branch
transactions in fiscal year 2018
685,000+
wholesale relationship
transactions in fiscal year 2018
15%
in total transactions in fiscal year
2018 vs in fiscal year 2017
Business Overview
Company-Owned Branch Network
CXI’s growth as a foreign currency and international payments
technology and service provider in North America is based on its
vision to be a leading international banking group focused on
innovative currency exchange solutions. This vision includes going
beyond simply servicing clients with the products that address their
needs today. It focuses on innovative currency exchange solutions
to address the needs of financial institutions, businesses and
individual travellers of the future.
Expanding the company’s resources and relationships has been
integral to driving CXI’s innovation and success in the market. CXI’s
resources continue to evolve with the business through its investment
in technology, data and personnel each year. The company sees
connecting CXI systems through integrations that can enhance
product offerings, streamline and reduce manual processes and
create new opportunities as key catalysts to spur innovation.
Developing open ecosystems for technology can only go so far
though. Core to CXI’s corporate culture is cultivating mutually
beneficial relationships, keeping a customer centric point-of-view,
and delivering world-class customer service. CXI’s ability to execute
on these elements allows it to bring its currency exchange solutions
to their maximum potential.
CXI has the expertise to address just about any currency exchange
need, large or small through its experience successfully servicing
more than a thousand financial institutions and businesses, including
some of the largest banks in the US, credit unions and banker’s
banks. Exchange Bank of Canada’s status as the only Schedule 1
bank in Canada specializing exclusively in foreign currency solutions
has opened up pathways to expand the group’s global network of
correspondents. In all, more than 17,000 transacting locations
interact with CXI or EBC as their currency exchange provider.
Whether it’s a financial institution, corporation, or individual, CXI
creates positive client experiences. CXI’s dedication to not only
be a leader today, but help build the future through solutions that
improve processes and create financial efficiencies, creates tighter
bonds with clients and attracts new clients. CXI knows technology,
relationships and service are at the center of this future.
In the US, CXI’s company-owned branches provides higher margin
individuals compared to the wholesale
currency trades with
business. The company is able to utilize its branch network as a
source of foreign currencies, which it can then make available
through its network of relationships. This operational synergy is
leveraged to offer CXI’s clients highly competitive rates, helping grow
the business, while enjoying larger margins in its business lines.
In 2018, CXI added three company-owned locations, while closing
one branch, increasing its total branches from 41 to 43. The new
branch openings were spread out across the country as branches
opened in Stamford, Connecticut (Stamford Town Center); New
Orleans, Louisiana (The Outlet Collection at Riverwalk); and Los
Angeles, California (Beverly Center). Stamford Town Center and The
Outlet Collection at Riverwalk opened in new markets for CXI, while
Beverly Center opened near established company-owned locations.
CXI closed a branch at the Aventura Mall, where it was operating two
company-owned locations. After review, the company’s management
concluded the mall would be sufficiently serviced by one currency
exchange branch.
Keeping focus on providing modern, positive customer experiences,
CXI launched its foreign currency reservation website, OnlineFX, in
fiscal year 2018. OnlineFX allows individuals to submit a foreign
currency reservation through its web-based system to be picked up
at any one of CXI’s locations. The reservation system acts as the
first stage of CXI’s planned home delivery initiative. As consumers
trend toward more online shopping activities, CXI plans to simplify
the ordering of foreign currency through this convenient e-commerce
system. OnlineFX supports CXI’s obligations to strict Know Your
Customer (KYC) requirements and compliance reporting through its
integration with CEIFX, CXI’s core FX system.
Management is committed to finding additional location opportunities
and ways to service consumers each year. All new branch openings
go through an internal evaluation process to determine the best
available markets and scenarios. The opening and early stages of
a new company-owned location requires resources, personnel and
capital investment to position it for profitability. The company-owned
branch network continues its positive growth trajectory, providing
significant and consistent revenue.
5
Currency Exchange International: Annual Report 2018
United States Business Environment
During the 2018 fiscal year, CXI added 310 new client relationships
representing more than 2,700 new transacting locations across
the United States. 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. CXI continues to see clients
take advantage of the company’s ability to service multiple foreign
exchange services all on one online platform (CEIFX).
CXI’s most popular service utilized by financial institutions, foreign
banknotes, maintains its status as a market driver for the company.
As institutions gain familiarity with CXI’s service level and the benefits
of its CEIFX software, an increasing amount choose additional CXI
services. CXI’s new digital remote deposit solution enables financial
institutions to clear cheques drawn on Canadian banks directly in
CEIFX with cheque scanners most institutions already have in use.
Additionally, the flexibility of the CEIFX software opens the door for
clients to offer the service directly to their clients, a key need for
many banker’s banks or other correspondent institutions.
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 corporate
culture that values the level of customer service in every interaction
and is fully committed to building long-lasting relationships that help
clients succeed in their business.
Canadian Business Environment
Exchange Bank of Canada completed its second full year of
operations in fiscal 2018. EBC’s emergence as a foreign exchange
international payments specialty bank gives clients the
and
confidence 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 strategic goal 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. EBC’s newest correspondents have allowed the company
group to expand its service capabilities and improve efficiencies.
The bank’s ability to expand its correspondent network and strategic
relationships will be a goal it retains going forward.
EBC fully operationalized its international payments trade desk in
fiscal 2018 along with the company group’s treasury management
system (TMS). The established trade desk is a direct resource to
all corporate payment clients with the tools and expertise that have
Business Operations
already earned it outstanding reviews from clients. Additionally,
EBC opened a processing center in Montreal aimed at lowering
the operational costs and enhancing services to the bank’s large
contingent of clients in Québec.
Software & Technology
CXI built a scalable foreign exchange business as it became an
industry leader. Its foundational piece for this has been its proprietary
web-based software, CEIFX. As the business has become more
robust in its foreign exchange solutions, CXI has identified ways to
streamline processes through a more integrated and open software
development ecosystem. This includes an emphasis for CEIFX’s
ongoing development to increasingly connect the system through
software integrations, such as the recently implemented TMS.
Integrations to outside systems allow CEIFX to effectively and
seamlessly improve clients’ workflow within their current processes.
CEIFX now boasts the ability to connect to almost any modern
system through its use of APIs and maintains flexible file integration
capabilities. Through strategic partnerships, system integrations
have opened up CXI to previously unavailable clients who rely on
core banking software, enterprise resource planning software and
data exchanges. Facilitating an online environment where clients
can receive the benefits of working with CXI, while maintaining their
core business systems allows for simplified operational, financial
and regulatory compliance management.
CXI’s backend TMS was developed with the long-term vision of a fully
integrated ecosystem. The TMS integrates with CEIFX enabling a
more automated end-to-end payment process and reducing manual
costs. This coincides with the larger evolution in the digital payments
industry as businesses expect faster and simpler ways to fulfill their
global payment obligations. The TMS also provides the foundation
for a corporate-focused international payment portal and suite of
tools. All systems can be interconnected, so all payment flows are
easily managed.
CXI’s systems provide strong capabilities, yet remain flexible for
many client setup types and deployment needs. The emergence of
financial service technologies and their popularity with both financial
institutions and businesses has made CXI’s technology strategy an
integral part of its competitive advantage. Pillars of the strategy are
that CXI’s technology helps clients be better at their own business
by simplifying foreign exchange and payments through enhanced
efficiencies, risk management and powerful validations. CXI’s
success lies in its innovation of currency exchange solutions through
comprehensive services, dedication to customer service and the
development of sophisticated, integrated solutions.
Currency Exchange International: Annual Report 2018
6
CURRENCY EXCHANGE INTERNATIONAL, CORP.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
FOR THE THREE MONTHS AND
YEAR ENDED OCTOBER 31, 2018
AND 2017
8 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
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, 2018 and 2017, 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 22, 2019 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, 2018 and 2017 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, 2018. 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”).
9 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
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, 2018. 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.
10 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
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 vaults, 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 and commercial entities 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:
11 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
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 43 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, 2018, the Company had inventory on consignment in 665
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 is
generally a net seller to its bank and non-bank clients. 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.
12 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
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 43 branch locations:
Store
City
State
Start
date
Store
Apple Bank - Avenue of Americas
Apple Bank - Grand Central Station
Apple Bank - Penn Station
Apple Bank - Upper East Side
Apple Bank - Union Square
Arundel Mills Mall
Aventura Mall
Beverly Center
Century City Mall
Cherry Creek
Citadel Outlets
Copley Place Mall
Dadeland Mall
Dolphin Mall
Florida Mall Booth #1
Florida Mall Booth #2
Garden State
Glendale Galleria
International Market Place
MacArthur Mall
Mainplace at Santa Ana
Mechanics Bank - Berkeley
NY
New York
NY
New York
NY
New York
NY
New York
NY
New York
MD
Hanover
Aventura
FL
Los Angeles CA
Los Angeles CA
CO
Denver
Los Angeles CA
MA
Boston
FL
Miami
FL
Miami
FL
Orlando
FL
Orlando
NJ
Paramus
CA
Glendale
HI
Honolulu
VA
Norfolk
CA
Santa Ana
CA
Berkeley
2011 Mechanics Bank - San Francisco
2011 Mission Valley
2013 Montgomery at Bethesda
2014 North County
2014 Ontario Mills Mall
2012 Potomac Mills Mall
2008 Queens Center
2018 Riverwalk
2009 San Francisco City Center
2014 San Jose Great Mall
2014 Santa Monica Place
2009 Sawgrass Mills Mall Booth #1
2009 Sawgrass Mills Mall Booth #2
2009 Shops at Northbridge
2007 SouthCenter
2014 Stamford Town Center
2015 Sunvalley Shopping Center
2016 The Galleria at Fort Lauderdale
2016 The Orlando Eye
2009 Tyson's Corner Center
2013 Washington Square Mall
2007
City
San Francisco
San Diego
Bethesda
Escondido
Ontario
Woodbridge
New York
New Orleans
San Francisco
San Jose
Santa Monica
Sunrise
Sunrise
Chicago
Tukwila
Stamford
Concord
Ft. Lauderdale
Orlando
Tyson’s Corner
Portland
State
Start
date
CA
CA
MD
CA
CA
VA
NY
LA
CA
CA
CA
FL
FL
IL
WA
CN
CA
FL
FL
VA
OR
2008
2015
2013
2017
2007
2007
2017
2018
2011
2011
2012
2007
2010
2013
2012
2018
2015
2013
2015
2014
2017
Company owned branch locations
Wholesale company relationships
Number of transacting locations
FY 2009
14
61
190
FY
2010
15
70
267
FY
2011
FY
2012
23
245
1,983 2,455
18
123
FY
2013
26
364
5,741
FY
2014
FY
2015
32
469
36
521
8,274 10,157
FY
2016
38
928
13,603
FY
2017
41
977
15,026
FY
2018
43
1337
17,482
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.
13 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 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
10/31/2018
7/31/2018
4/30/2018
1/31/2018
10/31/2017
7/31/2017
4/30/2017
1/31/2017
$
10,270,233
11,537,280
8,887,772
8,402,855
9,355,315
9,862,335
7,172,429
6,087,142
$
1,724,576
3,533,642
1,115,289
1,764,296
2,609,517
3,597,678
1,424,291
290,024
Total
equity
$
Earnings (loss)
per share
(diluted)
$
$
$
995,967
2,407,522
73,267,274
86,860,274
62,721,937
61,629,104
507,606
84,714,970
57,789,679
316,148
79,794,495
57,809,076
1,337,947
63,968,227
56,492,618
1,944,247
71,348,901
55,545,083
625,052
66,875,712
52,111,070
0.17
0.37
0.08
0.05
$0.21
$0.31
$0.10
(85,776)
60,399,965
51,438,703
($0.01)
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.
Selected Financial Results for the three months and year ended October 31, 2018 and October 31, 2017
In 2018, the Company invested significant resources in growing its core bank note business in both Canada
and the U.S., started to diversify its revenue streams by expanding its capability to offer global foreign
currency exchange payments, and agreed to acquire a longstanding payments company in Montreal,
Canada. CXI successfully launched a payments platform that will support the Company’s Payments
business goals. The new system enhances compliance, treasury risk oversight, and mark-to-market
processes, and positions the Company to offer additional FX payments products such as currency hedging.
CXI is well positioned in the market with a strong capital base from which to capitalize on potential growth
opportunities.
Year ended
October 31, 2018
$
Year ended
October 31, 2017
$
Three months ended
October 31, 2018
$
Three months ended
October 31, 2017
$
Revenue
Operating expenses
Net Operating income
Total other income/(expense), net
EBITDA*
Net income
Basic earnings per share
39,098,141
30,960,337
8,137,804
12,707
8,150,511
4,227,243
0.67
0.67
* Earnings before interest, taxes, depreciation and amortization
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
10,270,233
8,545,657
1,724,576
3,422
1,727,999
995,967
0.17
0.17
9,355,315
6,745,797
2,609,517
15,321
2,624,838
1,337,947
0.22
0.21
Total assets
Total long term financial liabilities
Total equity
October 31, 2018
October 31, 2017
73,267,274
-
62,721,937
63,968,227
-
56,492,618
14 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Results of operations – year ended October 31, 2018 and 2017
A breakdown of revenues by geographic location is presented below:
United States
Canada
Total
Total revenues
Year ended October 31, 2018 Year ended October 31, 2017
$
$
33,234,379
5,863,762
39,098,141
28,505,302
3,971,918
32,477,220
During the year ended October 31, 2018 total commission revenues increased by 20% to $39,098,141
compared to $32,477,220 for the year ended October 31, 2017. Since October 31, 2017, the Company
has added 360 new customer relationships comprising 2,724 locations, of which 310 relationships
representing 2,626 transacting locations were added in the United States and 50 relationships
representing 98 transacting locations were added in Canada. During the year ended October 31, 2018,
the number of transactions between the Company and its customers increased 15% to 1,118,000
transactions from 974,000 for the same period in the previous year.
During the year ended October 31, 2018, operating expenses increased 26% to $30,960,337 compared to
$24,555,711 for the year ended October 31, 2017, the major components of which are presented below:
Salaries and benefits
Rent
Legal and professional
Postage and shipping
Stock based compensation
Travel and entertainment
Bank service charges
Software maintenance
Losses and shortages
Insurance
Other general and administrative
Total operating expenses
Year ended
October 31, 2018
$
Year ended
October 31, 2017
$
15,847,680
3,381,155
2,671,996
4,560,283
629,550
664,823
757,230
685,320
307,029
361,270
1,094,000
30,960,337
13,286,617
3,018,722
1,842,163
3,449,837
556,379
550,276
344,991
373,954
167,993
339,067
625,712
24,555,711
Change
$
2,561,062
362,433
829,833
1,110,447
73,171
114,547
412,239
311,367
139,036
22,204
468,288
6,404,626
Change
%
19%
12%
45%
32%
13%
21%
119%
83%
83%
7%
75%
26%
•
Salaries and benefits increased 19% to $15,847,680 from $13,286,617 which is attributed to
increases in the Company’s employment base for the period. The increase in staffing is a result
of the hiring of employees engaged in the areas of compliance, information technology,
payments, operations, vault operations and sales as well as opening 3 company owned branch
locations;
• Rent increased 12% to $3,381,155 from $3,018,722. The Company has opened 3 new branch
locations and expanded the Toronto and Orlando locations since October 31, 2017;
15 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Results of operations – year ended October 31, 2018 and 2017 (continued)
•
•
•
•
•
•
•
Legal and professional fees increased 45% to $2,671,996 from $1,842,163. The increase is
related primarily to legal, professional, and accounting fees incurred in support of operational
and strategic initiatives of the Company;
Postage and shipping increased 32% to $4,560,283 from $3,449,837 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 314 new customers representing 2,630 new transacting
locations since October 31, 2017 which has led to a 15% 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 increased 13% to $629,550 from $556,379 for the vested portion of
stock options granted pursuant to the Company's stock option plan. The options have an expiry
date of 5 years from the date of the grant, unless otherwise stated by the Board of Directors,
and have a weighted average exercise price of Cdn$27.42. There were 424,495 options
outstanding at October 31, 2018 compared to 442,223 options outstanding at October 31, 2017.
Also, in Q4 2018, 25,310 options were forfeited and 1,991 options were used in a cashless
option exercise;
Travel and entertainment increased 21% to $664,823 from $550,276. The increase is related
primarily to an expanded salesforce and consequent increased sales efforts for payments and
banknote activity;
Bank service charges increased to $757,230 from $344,991. The increase is related primarily
to increased volumes for payments related activity As volumes increase pricing efficiencies may
be realized;
Software maintenance has increased 83% to $685,320 from $373,945 due to expanded usage
of software applications purchased to support Sales, Operations, Payments, IT, and Finance
functions in the Company;
Losses and shortages increased to $307,029 from $167,993. The increase is related primarily
to the growth in banknote volumes and typically ranges from 0.5-1% of revenues; and
• Other general and administrative expenses increased 75% to $1,094,000 from $625,712. Other
expenses are comprised of licenses and fees, utilities, office supplies, foreign exchange gains
and losses through profit and loss, and other general and administrative expenses.
The ratio of operating expenses to total revenue for the year ended October 31, 2018 was 79%
compared to 76% for the year ended October 31, 2017. The Company endeavors to increase its
operating efficiency through the continued 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.
16 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Results of operations – year ended October 31, 2018 and 2017 (continued)
Other income and expenses are comprised of the following:
Other income
Interest expense
Depreciation and amortization
Income tax expense
Total other expense
Year ended
October 31, 2018
$
Year ended
October 31, 2017
$
12,707
(369,724)
(1,371,256)
(2,182,288)
(3,910,561)
26,854
(162,554)
(1,324,211)
(2,640,129)
(4,100,040)
• Other income decreased to $12,707 from 26,854 and relates to interest collected for surplus
cash deposits held at various financial institutions in Canada and the United States;
•
Interest expense increased to $369,724 from $162,554 and relates to interest payments on
credit lines;
• Depreciation and amortization increased to $1,371,256 from $1,324,256 and relates to
amortization of the Company’s intangible assets and depreciation of fixed assets over their
estimated economic life; and
For the year ended October 31, 2018, income tax expense decreased to $2,182,288 from $2,640,129
for year ended October 31, 2017 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 decrease is attributable
principally to a lower statutory tax rate in the United States in 2018 compared to 2017, related to the
Tax Cuts and Jobs Act of 2017. On December 22, 2017, the President of the United States signed tax
reform legislation, which included 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 previous US tax law, resulting in pervasive financial reporting implications. The 2018
income tax expense includes a one-time increase in deferred tax expense of $308,000 which arose from a
reduction in deferred tax assets of an 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 22.0%. The
2018 income tax expense includes an additional one-time expense related to a “repatriation” tax on
earnings generated outside of the United States since 2011; this expense is $80,000 related to retained
earnings in EBC and its predecessor company CXIC. Without these one-time adjustments the effective tax
rate for the year ended October 31, 2018 would have been 28.0% instead of the actual 34.0% effective
rate, both compared to 38% for the year ended October 31, 2017.
17 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Results of operations – three-month period ended October 31, 2018 and October 31, 2017 (continued)
A breakdown of revenues by geographic location is presented below:
Total revenues
Three months ended
October 31, 2018
$
Three months ended
October 31, 2017
$
8,630,105
1,640,128
10,270,233
8,152,456
1,202,859
9,355,315
United States
Canada
Total
During the three-month period ended October 31, 2018 total commission and fee revenues increased
by 10% to $10,270,233 compared to $9,355,315 for the three-month period ended October 31, 2017.
Since October 31, 2017, the Company has added 360 new customer relationships comprising 2,724
locations, of which 310 wholesale relationships representing 2,724 transacting locations were added in
the United States and 50 relationships representing 98 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 15% to 320,000 transactions from 278,000 for the same period
in the previous year.
During the three-month period ended October 31, 2018, operating expenses increased 25% to $8,451,339
compared to $6,745,797 for the three-month period ended October 31, 2017, the major components of
which are presented below:
Salaries and benefits
Rent
Legal and professional
Postage and shipping
Stock based compensation
Travel and entertainment
Bank service charges
Software maintenance
Insurance
Other general and administrative
Operating expenses
Three months ended
October 31, 2018
$
Three months ended
October 31, 2017
$
Change
$
Change
%
4,266,130
874,070
778,290
1,379,326
95,854
161,532
306,606
237,709
90,830
355,311
8,545,657
3,694,561
571,569
832,203
41,868
512,638
265,652
867,981
511,345
167,258
(71,404)
167,269
(5,737)
100,272
206,335
46,361
90,697
191,348
132
266,558
88,753
6,745,797
1,799,860
15%
5%
52%
59%
-43%
-3%
206%
413%
0%
33%
27%
•
Salaries and benefits increased 15% to $4,266,130 from $3,694,561 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 and opening 3 company owned branch locations;
• Rent increased 5% to $874,070 from $832,203. The Company has opened 3 new branch
locations and expanded the Toronto and Orlando locations since October 31, 2017;
•
Legal and professional fees increased to $778,290 from $512,638. The increase is related
primarily to legal, professional, and accounting fees incurred in support of operational and
strategic initiatives of the Company;
18 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Results of operations – three-month period ended October 31, 2018 and October 31, 2017 (continued)
•
•
•
•
Postage and shipping increased 59% to $1,379,326 from $867,981 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 314 new wholesale banknote customers representing 2,630
new transacting locations since October 31, 2017 which has led to a 15% 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 43% to $95,854 from $167,258 for the vested portion of
stock options granted pursuant to the Company's stock option plan. The decrease is due to
25,310 options that were forfeited in Q4 2018 and 1,991 options that were cancelled 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$27.42. There were 424,495 options outstanding at October 31, 2018 compared to
442,223 options outstanding at October 31, 2017;
Bank service charges increased to $306,606 from $100,272. The increase is related primarily
to increased volumes for payments related activity. As volumes increase pricing efficiencies
may be realized;
Software maintenance has increased to $237,709 from $46,361 due to expanded usage of
software applications purchased to support Sales, Operations, Payments, IT, and Finance
functions in the Company; and
• Other general and administrative expenses increased 33% to $355,310 from $266,558. 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, 2018 was
83% compared to 72% for the three-month period ended October 31, 2017, reflecting investment in
human and other resources to complete several strategic initiatives in the quarter. 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 endeavors to increase its
operating efficiency through the continued 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.
19 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Results of operations – three-month period ended October 31, 2018 and October 31, 2017 (continued)
Other income and expenses are comprised of the following:
Other income
Interest expense
Depreciation and amortization
Income tax expense
Total other expense
Three months ended
October 31, 2018
$
Three months ended
October 31, 2017
$
3,422
(30,957)
(357,775)
(343,300)
(728,610)
15,321
(58,817)
(354,710)
(873,364)
(1,271,571)
• Other income decreased to $3,422 from $15,321 and relates to interest collected for surplus
cash deposits held at various financial institutions in Canada and the United States;
•
Interest expense decreased to $30,957 from $58,817 and relates to interest payments on credit
lines;
• Depreciation and amortization increased to $357,775 from $354,710 and relates to amortization
of the Company’s intangible assets and depreciation of fixed assets over their estimated
economic life; and
•
Income tax expense decreased to $343,300 from $873,364 and is a total of federal income tax
as well as various state and provincial taxes for the jurisdictions in which the Company operates
and reflects the new US rate of 22%.
Cash flows
Cash flows from operating activities during the year ended October 31, 2018 resulted in an inflow of
$5,071,971 compared to an inflow of $5,508,783 during the year ended October 31, 2017. The decrease
in operating cash flow was due largely to an increase in accounts receivable partially offset by an
increase in accounts payable and in net income. 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, 2018 resulted in an outflow of
$1,314,515 compared to an outflow of $976,314 during the year ended October 31, 2017. This
represents additions to property and equipment and to the internally developed software, CEIFX.
Cash provided by financing activities during the year ended October 31, 2018 was $1,707,588 compared
to cash used for financing of ($2,428,902) during the year ended October 31, 2017. The primary reason
for the increase in inflows relates to additional shares issued through the exercise of executive stock
options.
Liquidity and capital resources
At October 31, 2018, the Company had working capital of $59,483,137 (October 31, 2017 -
$52,778,007).
The Company maintains a revolving line of credit with BMO Harris Bank, N.A. which was increased in July
of 2018 to $20,000,000 to assist with its short-term cash flow needs. At October 31, 2018, the balance
outstanding was $Nil (October 31, 2017 $Nil). The line of credit bears interest at Libor plus 2.0% [at October
31, 2018 – 2.3% (2017 – 1.26%)].
20 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Liquidity and capital resources (continued)
In April of 2017, the Company’s wholly-owned Canadian subsidiary, EBC established a CDN$3,000,000
revolving line of credit with Bank of Montreal which was increased in June of 2018 to CDN$6,000,000
($4,565,515) being secured against cash assets held in its vaults. The line of credit bears interest at CDN
prime plus 0.5%. [at October 31, 2018 – 3.95% (2017 – 3.2%)]. At October 31, 2018, the balance
outstanding was $Nil (October 31, 2017 - $Nil).
The Company had a total available balance of unused lines of credit of $24,565,515 at October 31, 2018
(October 31, 2017 - $17,326,844).
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
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, 2018
$
39,098,141
8,137,804
4,227,243
$0.67
$0.67
73,267,274
10,545,337
-
58,642,924
Year ended
October 31, 2017
$
32,477,220
7,921,509
3,821,469
$0.62
$0.61
63,968,227
7,475,609
-
52,778,077
Year ended
October 31, 2016
$
26,827,456
6,877,489
3,642,111
$0.59
$0.58
62,196,008
11,443,657
-
47,016,377
Year ended
October 31, 2015
$
24,075,775
7,137,444
4,665,985
0.80
0.77
52,112,593
5,352,490
-
42,674,895
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.
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 $7,208,470 and
are payable as follows:
Within 1 year
1 to 5 years
after 5 years
Total
October 31, 2018
October 31, 2017
$
2,604,237
2,256,996
$
4,604,233
3,275,900
$
0
0
$
7,208,470
5,532,896
21 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
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
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 commission
revenue 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, 2018 was $10,857 - (October 31, 2017 -
$17,858).
At October 31, 2018 and October 31, 2017 approximately $1,998,942 and $1,972,168, 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, 2018
and October 31, 2017 were as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
October 31, 2018
October 31, 2017
Year ended
$
2,677,716
82,242
521,918
3,281,876
$
2,308,625
99,332
676,565
3,084,522
The Company incurred legal and professional fees in the aggregate of $348,421 for the year ended October
31, 2018 (2017 - $145,404) charged by entities controlled by directors or officers of the Company.
Advances between CXI and EBC are provided under a $20,000,000 Revolving Line of Credit, renewed May
31, 2017; loans attract interest at LIBOR + 2%, are repayable on demand, and are unsecured. At October
31, 2018, the intercompany loan balance was $5,663,276 (2017 - $1,100,000).
Option grants
The Company adopted an incentive stock option plan dated April 28, 2011 (the "Plan"). The Plan is a
rolling stock option plan, under which 10% of the outstanding shares at any given time are available for
issuance thereunder. The purpose of the Plan is to promote the profitability and growth of the Company by
facilitating the efforts of the Company to attract and retain directors, senior officers, employees and
management. Vesting terms under the Plan will occur 1/3 upon the first anniversary, 1/3 upon the second
anniversary and 1/3 upon the third anniversary of the grant unless otherwise specified by the Board of
Directors.
22 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Option grants (continued)
Below is information related to each option grant:
Date of
Grant
30-Oct-14
30-Oct-14
30-Oct-15
30-Oct-15
16-Jan-16
11-Mar-16
26-Oct-16
26-Oct-16
6-Jun-17
26-Oct-17
26-Oct-17
9-Aug-18
23-Oct-18
23-Oct-18
Expiry Date
30-Oct-19
30-Oct-19
30-Oct-20
30-Oct-20
16-Jan-21
11-Mar-21
25-Oct-21
25-Oct-21
6-Jun-22
26-Oct-22
26-Oct-22
9-Aug-23
23-Oct-23
23-Oct-23
Share price at
grant date
(Cdn$)
Amount
granted
Risk-free
interest rate
Expected
volatility
Exercise Price
(Cdn$)*
Fair value of
option at grant
date ($)
18.00
18.00
23.50
23.50
17.89
21.30
32.96
32.96
20.79
26.84
26.84
30.93
28.01
28.01
87,215
24,144
28,972
89,435
17,600
4,182
22,757
66,820
9,865
19,673
67,213
10,200
32,501
111,111
1.61%
1.61%
1.47%
1.47%
1.46%
1.45%
1.30%
1.30%
1.71%
2.07%
2.07%
2.80%
3.10%
3.10%
27%
27%
32%
32%
33%
34%
34%
34%
37%
36%
36%
31%
29%
29%
16.21
16.21
24.64
24.64
17.79
22.78
30.75
30.75
21.53
25.52
25.52
30.69
30.77
30.77
4.97
4.97
5.10
5.10
3.86
4.78
8.46
8.46
5.27
7.69
7.69
7.74
5.92
5.92
*Exercise price determined by average share price for previous 20 trading days
The outstanding options at October 31, 2018 and the respective changes during the periods are
summarized as follows:
Number of options
#
Weighted average price
Cdn$
Outstanding at October 31, 2016
Granted
Exercised
Cancelled through cashless exercise
Forfeited
Outstanding at October 31, 2017
Granted
Exercised
Cancelled through cashless exercise
Forfeited
Outstanding at October 31, 2018
521,592
111,885
(128,613)
(22,572)
(40,069)
442,223
153,812
(144,239)
(1,991)
(25,310)
424,495
18.50
25.17
9.99
17.28
25.54
22.31
30.76
15.61
20.61
26.35
27.42
The following options are outstanding and exercisable at October 31, 2018:
Grant Date
30-Oct-14
30-Oct-14
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
9-Aug-18
9-Aug-18
23-Oct-18
23-Oct-18
Total
Exercise price
(Cdn$)
Number outstanding
16.21
16.21
24.64
24.64
17.79
22.78
30.75
30.75
21.53
25.52
25.52
30.69
30.69
30.77
30.77
9,971
8,048
20,148
55,662
11,733
4,182
16,255
52,212
5,586
19,673
67,213
9,084
1,116
32,501
111,111
424,495
Average remaining contractual life
(years)
1.00
1.00
2.00
2.00
2.21
2.36
2.99
2.99
3.60
3.99
3.99
4.78
4.78
4.98
4.98
Number exercisable
9,971
8,048
20,148
55,662
5,866
2,788
16,255
34,808
1,862
19,673
22,404
-
-
-
-
197,485
23 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Potential Transaction
On July 9, 2018 the Company announced its wholly-owned subsidiary EBC has entered into a definitive
agreement to acquire the assets of a business operating 22 years primarily in the province of Quebec
from the private family owners who were advised by Laurentian Bank Securities. These assets include a
total of approximately 400 corporate customers that are engaged in international payments. It is expected
that approximately 10 employees will be retained and employed in EBC’s new Montreal Office. The
transaction is subject to regulatory approval and will not close until all approvals have been obtained.
Subsequent events
The Company evaluated subsequent events through January 22, 2018, the date these condensed interim
consolidated financial statements were issued. There were no material subsequent events that required
recognition or additional disclosure in the financial statements.
Accounting standards and policies
The Company's accounting policies are described in Note 2 to the Company's audited consolidated
financial statements for the years ended October 31, 2018 and 2017.
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 who have been traditionally providing
currency exchange services, 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
24 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Competition (continued)
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.
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, 2018
At October 31, 2017
$
4,883,305
4,611,497
145,095
9,639,897
$
3,625,821
2,674,168
144,042
6,444,031
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.
25 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
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, 2018 was approximately $7,440,000 (October 31,
2017 - $7,930,000). The amount of currency that is unhedged and that is not pegged to the U.S. Dollar is
approximately $5,360,000 (October 31, 2017 - $5,320,000). 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 +$107,000/-$107,000 (October 31, 2017 gain/loss of approximately +$106,000/-
$106,000).
On a consolidated basis, the Company is also exposed to foreign currency fluctuations between the U.S.
Dollar and the Canadian Dollar, being the functional currency of its Canadian subsidiary. The Company
does not hedge its net investment in its Canadian subsidiary and the related foreign currency translation of
its earnings.
Interest Rate Risk
At October 31, 2018, 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 14 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, 2018 would have been approximately +$42,200/-42,200 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.
26 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Liquidity Risk (continued)
The following are non-derivative contractual financial liabilities:
Non-derivative
financial liabilities
Accounts payable
Accrued expenses
Carrying amount
$
8,312,778
2,232,559
At October 31, 2018
Estimated
contractual amount
$
8,312,778
2,045,707
This fiscal year
$
8,312,778
2,045,707
Future fiscal years
$
$Nil
$Nil
Non-derivative
financial liabilities
Carrying amount
Accounts payable
Accrued expenses
Income taxes payable
$
4,939,749
2,115,943
419,917
At October 31, 2017
Estimated
contractual amount
$
4,939,749
1,885,351
419,917
Next fiscal year
$
4,939,749
1,885,351
419,917
Future fiscal years
$
$Nil
$Nil
$Nil
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, 2018
70,028,474
(10,545,337)
59,483,137
At October 31, 2017
60,253,686
(7,475,609)
52,778,077
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 cash substitution 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 is 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
27 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Product Development and Rapid Technological Change (continued)
and proprietary technology and systems obsolete. The Company’s success will depend, in part, on its ability
to develop leading technologies useful in its business, enhance its existing services, develop new
services and technology that address the increasingly sophisticated and varied needs of its existing and
prospective customers and respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. The development of Internet based and other proprietary
technology entails significant technical, financial and business risks. There can be no assurance that the
Company will successfully implement new technologies or adapt its website, proprietary technology and
transaction-processing systems to customer requirements or emerging industry standards. If the
Company is unable to adapt in a timely manner in response to changing market conditions or customer
requirements for technical, legal, financial or other reasons, the Company’s business could be materially
adversely affected.
Intellectual Property
Proprietary rights are important to the Company’s success and its competitive position. Although the
Company seeks to protect its proprietary rights, its actions may be inadequate to protect any trademarks
and other proprietary rights or to prevent others from claiming violations of their trademarks and other
proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or
limited in certain countries, and the global nature of the Internet makes it impossible to control the
ultimate protection of the Company’s intellectual work product. Any of these claims, with or without merit,
could subject the Company to costly litigation and the diversion of the time and attention of its technical
management personnel.
Government Regulation and Compliance
Any non-compliance with regulatory currency licensing and transaction reporting procedures could result
in significant financial penalties and the possibility of criminal prosecution. The Company has a robust
regulatory compliance management regime, overseen by experienced, Board-appointed Officers leading
a well-resourced staff. The Company and its subsidiaries are regularly subject to regulatory as well as
internal and/or external audits. Several countries prohibit non-banks from providing currency exchange
transaction services. While the Company believes the possibility is remote, the risk does exist that the
jurisdictions in which it operations may someday institute regulations to prohibit non-banks from providing
foreign currency exchange services
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
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
its systems against damage
fire, natural disaster, power
from
28 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Risk of System Failure or Inadequacy (continued)
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.
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.
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 21%, 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
influence over all matters
the Company, Mr. Pinna has
to exercise significant
the power
29 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three months and year ended October 31, 2018 and 2017
Control of the Company (continued)
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 Mr. Pinna of a substantial number of Common Shares could cause the
market price of Common Shares to decline.
influence over
Mr. Pinna's
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.
is mitigated by
the control of
the Company
Global Economic and Financial Market Conditions
Market events and conditions, including disruption in the U.S. and Canadian, international credit markets
and other financial systems and the deterioration of U.S. and Canadian, global economic conditions,
could, among other things, impact tourism and impede access to capital or increase the cost of capital,
which would have an adverse effect on the Company's ability to fund its working capital and other capital
requirements.
Market disruptions could, among other things, make it more difficult for the Company to obtain, or
increase its cost of obtaining, capital and financing for its operations. The Company's access to additional
capital may not be available on terms acceptable to the Company or at all.
Market Price and Volatile Securities Markets
Market forces may render it difficult or impossible for the Company to secure purchasers to purchase its
securities at a price which will not lead to severe dilution to existing shareholders, or at all. In addition,
shareholders may realize less than the original amount paid on dispositions of their Common Shares
during periods of such market price decline.
International Issuer, Management and Directors
The Company is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or
resides outside of Canada. 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, 2018 and 2017
(Expressed in U.S. Dollars)
31 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 Thorton LLP
Suite 501
201 City Centre Drive
Mississauga, ON
L5B 2T4
T + 1 416 369 7076
F + 1 905 804 0509
www. GrantThorton.ca
To the shareholders of
Currency Exchange International, Corp.
We have audited the accompanying consolidated financial statements of Currency Exchange International,
Corp., which comprise the consolidated statements of financial position as at October 31, 2018 and October
31, 2017, and the consolidated statements of income and comprehensive income, consolidated statements of
changes in equity and consolidated statements of cash flows for the years then ended, and a summary of
significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis
for our audit opinion.
33 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, 2018 and October 31, 2017,
and its financial performance and its cash flows for the years then ended in accordance with International
Financial Reporting Standards.
Toronto, Canada
January 22, 2019
Chartered Professional Accountants
Licensed Public Accountants
34
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Financial Position
October 31, 2018 and 2017
(Expressed in U.S. Dollars)
ASSETS
October 31, 2018
October 31, 2017
Current assets
Cash (Note 5)
Accounts receivable (Note 14)
Restricted cash held in escrow (Note 6)
Forward contract assets (Note 13)
Income taxes receivable
Other current assets (Note 20)
Total current assets
Property and equipment (Note 8)
Intangible assets (Note 9)
Other assets
Net deferred tax asset (Note 10)
Total assets
$
56,402,979
9,639,897
1,998,942
10,857
840,213
1,135,586
70,028,474
990,374
1,424,879
93,280
730,267
$
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
73,267,274
63,968,227
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Accrued expenses
Income taxes payable
Total current liabilities
Total liabilities
Equity
Share capital
Equity reserves
Retained earnings
Total equity
Total liabilities and equity
8,312,778
2,232,559
-
10,545,337
10,545,337
6,407,667
28,529,465
27,784,805
62,721,937
73,267,274
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
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, 2018 and 2017
(Expressed in U.S. Dollars)
Revenues
Commission revenue
Fee income
Total revenues (Note 4)
Operating expenses (Note 18)
Net operating income
Interest revenue
Earnings before interest, taxes, depreciation and amortization
Interest expense (Note 12)
Depreciation and amortization
Income before income taxes
Income tax expense (Note 10)
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 17)
Year ended
October 31, 2018
October 31, 2017
$
36,722,112
2,376,029
39,098,141
30,960,337
8,137,804
12,707
8,150,511
369,724
1,371,256
6,409,531
2,182,288
4,227,243
$
30,462,663
2,014,557
32,477,220
24,555,711
7,921,509
26,854
7,948,363
162,554
1,324,211
6,461,598
2,640,129
3,821,469
4,227,243
3,821,469
(335,061)
3,892,182
609,519
4,430,988
-basic
-diluted
$0.67
$0.67
$0.62
$0.61
Weighted average number of common shares outstanding (Note 17)
-basic
-diluted
6,300,026
6,344,557
6,198,775
6,266,840
The accompanying notes are an integral part of these consolidated financial statements.
36 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Changes in Equity
Years ended October 31, 2018 and 2017
(Expressed in U.S Dollars)
Share Capital
Equity Reserves
Retained
Earnings
Total Equity
Shares
Amount
Share
premium
Accumulated Other
Comprehensive
Income (Loss)
Stock Options
Amount
Amount
Balance at November 1, 2017
6,263,428
6,263,428 30,208,552
(5,154,332)
442,223
1,617,408
23,557,562
56,492,618
#
$
$
$
#
$
$
$
Stock based compensation (Note 16)
-
-
-
Issue of share capital and share premium
on exercise of stock options (Note 16)
144,239
144,239
2,219,026
Forfeited options (Note 16)
Loss on foreign currency translation
Net income
-
-
-
-
-
-
-
-
-
-
-
-
153,812
807,539
(146,230)
(655,678)
(25,310)
(177,989)
(335,061)
-
-
-
-
-
-
-
-
-
807,539
1,707,587
(177,989)
(335,061)
4,227,243
4,227,243
Balance, October 31, 2018
6,407,667
6,407,667 32,427,578
(5,489,393)
424,495
1,591,280
27,784,805
62,721,937
Balance at November 1, 2016
6,134,815
6,134,815 29,082,296
(5,763,851)
521,592
1,562,998
19,736,093
50,752,351
Stock based compensation (Note 16)
-
-
-
128,613
128,613
1,126,256
Issue of share capital and share premium
on exercise of stock options (Note 16)
Forfeited options (Note 16)
Gain on foreign currency translation
Net income
-
-
-
-
-
-
609,519
-
-
-
-
-
-
-
111,885
703,042
(151,185)
(40,069)
(501,969)
(146,663)
-
-
-
703,042
752,900
(146,663)
609,519
3,821,469
3,821,469
Balance, October 31, 2017
6,263,428
6,263,428 30,208,552
(5,154,332)
442,223
1,617,408
23,557,562
56,492,618
The accompanying notes are an integral part of these consolidated financial statements.
37 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Cash Flows
Years ended October 31, 2018 and 2017
(Expressed in U.S. Dollars)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash flows from operating activities
Depreciation and amortization
Stock based compensation
Change in forward contract positions (Note 15)
Deferred taxes
Increase (decrease) in cash due to change in:
Accounts receivable
Restricted cash held in escrow
Other assets
Accounts payable, accrued expenses, and income taxes payable
Net cash 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 exercise of stock options (Note 16)
Net payments on line of credit (Note 12)
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, 2018
October 31, 2017
$
$
4,227,243
3,821,469
1,371,256
629,550
6,569
377,133
(3,323,832)
(26,774)
(472,603)
2,283,429
5,071,971
(483,282)
(831,233)
(1,314,515)
1,707,588
-
1,707,588
5,465,044
51,147,685
(209,750)
56,402,979
3,083,321
369,724
12,707
1,324,211
556,379
24,051
(352,316)
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
48,435,544
608,574
51,147,685
2,299,009
122,909
13,427
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, 2018 and 2017
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 43 branch locations. The Company’s registered head office is located at 6675 Westwood Boulevard,
Suite 300, Orlando, Florida, 32821, United States of America. The Company’s wholly owned Canadian
Subsidiary, Exchange Bank of Canada (“EBC”) is a non-deposit taking, non-lending financial institution
engaged in foreign exchange services and is registered as a Schedule 1 bank.
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 22, 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, 2018 and 2017
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 16. 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.
Depreciation and Amortization expense
The Company's property and equipment and intangible assets are depreciated and 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 depreciation or amortization
and in the assets' carrying amounts.
40 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
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 Note 19.
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. 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 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, 2018 and 2017,
respectively.
41 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
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, 2018 and
2017, respectively.
Revenue recognition
Commission revenues 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 commission revenues 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 as 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 presentation 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, 2018 and 2017
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 acquired through an asset purchase
transaction. 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:
43 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
2.
Accounting Policies (continued)
Internally developed software
Acquired software
Customer trading relationships
5 years
2 years
5 years
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.
44 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
2.
Accounting Policies (continued)
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
current asset or current liability unless it is not expected to be realized or settled within the next 12 months.
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,
restricted cash held in escrow and financial instruments included in other current assets 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 and accrued expenses. 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 statement 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.
45 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
2.
Accounting Policies (continued)
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
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 an assessment and determined that the adoption of IFRS 9 will not have a
significant impact on its consolidated financial statements. The Standard was adopted effective November
1, 2018.
46 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
3.
Future Accounting Pronouncements (continued)
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 an assessment and determined that the
adoption of IFRS 15 will not have a significant impact on its consolidated financial statements. The Standard
was adopted effective November 1, 2018.
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 full
impact of IFRS 16 on its consolidated financial statements. The Company believes that the most significant
impact will be the recognition of a right-of-use asset and a corresponding lease liability on the statement of
financial position for certain facilities currently treated as operating leases.
4.
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 and product line are detailed below:
Revenues ($)
United States
Canada
Total
Year ended October 31, 2018
Year ended October 31, 2017
33,234,379
28,505,302
5,863,762
3,971,918
39,098,141
32,477,220
Revenues by Product Line
Banknotes
Payments
Total
Year ended October 31, 2018
Year ended October 31, 2017
37,393,050
31,348,651
1,705,091
1,128,569
39,098,141
32,477,220
Assets
Cash
At October 31, 2018
At October 31, 2017
United States
Canada
Total
United States
Canada
Total
$
$
$
$
$
$
39,064,052
17,338,927 56,402,979
34,935,125 16,212,560 51,147,685
Accounts receivable
3,451,715
6,188,182
9,639,897
4,272,920
2,171,111
6,444,031
Restricted cash held in escrow
1,998,942
-
1,998,942
1,972,168
Forward contract assets
Other current assets
Property and equipment
Intangible assets
Other assets
Income taxes receivable
Net deferred tax asset
(35)
10,892
10,857
817,927
694,331
317,659
1,135,586
296,043
990,374
17,858
576,351
799,758
-
-
1,972,168
17,858
95,593
671,944
203,881
1,003,639
1,077,270
347,609
1,424,879
1,200,712
309,953
1,510,665
93,280
426,084
630,516
-
414,129
99,751
93,280
840,213
730,267
90,923
-
-
-
90,923
-
1,001,597
107,717
1,109,314
Total assets
48,254,082
25,013,192 73,267,274
44,867,412 19,100,815 63,968,227
47 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
5.
Cash
Included within cash of $56,402,979 at October 31, 2018 (2017 - $51,147,685) 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
6.
Restricted Cash Held in Escrow
At October 31, 2018
At October 31, 2017
$
$
44,609,002
43,786,752
11,793,977
56,402,979
7,360,933
51,147,685
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
$1,998,942 at October 31, 2018 (2017 - $1,972,168).
7.
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, 2018 was $3,381,155 (2017 - $3,018,722).
The following is a schedule of future minimum rental payments under these lease agreements:
October 31, 2018
October 31, 2017
Within 1 year
1 to 5 years
after 5 years
$
2,604,237
2,256,996
$
4,604,233
3,275,900
$
-
-
Total
$
7,208,470
5,532,896
8
Property and Equipment
Property and equipment consist of the following:
Cost
Balance, October 31, 2016
Additions
Net exchange differences
Balance, October 31, 2017
Additions
Disposals
Net exchange differences
Balance, October 31, 2018
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
$
80,247
-
-
80,247
33,987
(32,995)
-
81,239
$
253,411
56,668
1,435
311,514
98,641
-
(1,850)
408,305
$
527,082
220,445
5,541
753,068
111,597
-
(5,317)
859,348
$
1,502,864
471,221
5,956
1,980,041
239,057
-
(5,522)
2,213,576
Total
$
2,363,604
748,334
12,932
3,124,870
483,282
(32,995)
(12,689)
3,562,468
48 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
8
Property and Equipment (continued)
Depreciation
Balance, October 31, 2016
Additions
Net exchange differences
Balance, October 31, 2017
Additions
Disposals
Net exchange differences
Balance, October 31, 2018
Carrying amounts
Balance, October 31, 2017
Balance, October 31, 2018
9.
Intangible Assets
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
$
49,993
16,188
-
66,181
18,101
(32,995)
-
51,287
$
206,371
39,221
1,036
246,628
46,617
-
(813)
292,432
$
340,315
142,780
2,751
485,846
150,718
-
(3,128)
633,436
$
1,047,671
270,876
4,029
1,322,576
275,094
-
(2,731)
1,594,939
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
$
14,066
29,952
$
64,886
115,873
$
267,222
225,912
$
657,465
618,637
Total
$
1,644,350
469,065
7,816
2,121,231
490,531
(32,995)
(6,672)
2,572,094
Total
$
1,003,639
990,374
Intangible assets are comprised of the Company's internally developed software (“CEIFX”) and its related
modules as well as software and customer trading relationships acquired through an asset purchase
transaction. Amortization for intangibles is computed on an individual basis over the estimated useful life
using the straight-line method as follows:
Internally developed software
Acquired software
Customer trading relationships
5 years
2 years
5 years
Intangible assets consist of the following at October 31, 2018 and 2017:
Cost
Balance, October 31, 2016
Additions
Balance, October 31, 2017
Additions
Net exchange differences
Balance, October 31, 2018
Amortization
Balance, October 31, 2016
Amortization
Net exchange differences
Balance, October 31, 2017
Amortization
Net exchange differences
Balance, October 31, 2018
Carrying amounts
Balance, October 31, 2017
Balance, October 31, 2018
Internally developed
software
$
1,188,137
227,980
1,416,117
831,233
(5,579)
2,241,771
Internally developed
software
$
605,973
231,159
-
837,132
253,784
-
1,090,916
Internally developed
software
$
578,985
1,150,855
Acquired
software
$
480,000
-
480,000
-
-
480,000
Acquired
software
$
480,000
-
-
480,000
-
-
480,000
Acquired
software
$
-
-
Customer trading
relationships
$
3,288,283
-
3,288,283
-
-
3,288,283
Customer trading
relationships
$
1,698,946
633,688
23,969
2,356,603
626,941
30,716
3,014,260
Customer trading
relationships
$
931,680
274,024
Total
$
4,956,420
227,980
5,184,400
831,233
(5,579)
6,010,054
Total
$
2,784,919
864,847
23,969
3,673,735
880,725
30,716
4,585,176
Total
$
1,510,665
1,424,879
49 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
10.
Income Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities as of October 31, 2018 and 2017 consist of the following:
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
October 31, 2018
$
October 31, 2017
$
246,198
349,829
28,873
212,958
837,858
(107,591)
(107,591)
730,267
351,924
677,083
21,263
298,280
1,348,550
(239,236)
(239,236)
1,109,314
Reconciliation of the provision for income taxes to the amount calculated using the Company’s statutory
tax rate for the year ended October 31, 2018 and 2017 are as follows:
Income before taxes
Statutory tax rate
Tax expense at statutory rate
Sec. 965 Repatriation Tax - Current
Recovery on exercise of director and employee stock options
Foreign tax rate adjustment
Other non-deductible differences
Income tax expense
October 31, 2018
$
6,409,531
28.41%
1,820,648
80,000
(267,990)
538,978
10,652
2,182,288
October 31, 2017
$
6,461,598
38.50%
2,487,715
-
(24,092)
84,329
92,177
2,640,129
The enacted tax rates in the United States of 22% (2017 - 38.5%) and Canada of 26.5% (2017 – 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, 2018 and 2017 consists of the following:
Current tax expense
Deferred tax benefit
Income tax expense
October 31, 2018
$
1,803,241
379,047
2,182,288
October 31, 2017
$
2,995,330
(355,201)
2,640,129
11.
Seasonality of Operations
Seasonality is reflected in the timing of when foreign currencies are in greater or lower demand. In a normal
operating year there is some seasonality to the Company's operations with higher commissions generally
from March until September and 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.
50 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
12.
Lines of Credit
The Company maintains lines of credit to meet borrowing needs during peak business periods. The
Company has a revolving line of credit with BMO Harris Bank, N.A, which was increased in July of 2018 to
$20,000,000. 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, 2018 – 2.3% (2017 – 1.26%)). At October 31,
2018, the balance outstanding was $Nil (2017 - $Nil).
In April of 2017, the Company’s wholly-owned Canadian subsidiary, EBC established a CDN$3,000,000
revolving line of credit with Bank of Montreal which was increased in June of 2018 to CDN$6,000,000
($4,565,515) being secured against cash assets held in its vaults. The line of credit bears interest at CDN
prime plus 0.5% (at October 31, 2018 – 3.95% (2017 – 3.2%)). At October 31, 2018, the balance
outstanding was $Nil (2017 - $Nil).
Interest expense relates to interest payments on lines of credit. Interest expense was $369,724 at October
31, 2018 (2017- $162,554).
13.
Fair Value Measurement of Financial Instruments
Financial assets and financial liabilities measured at fair value in the consolidated statement of financial
position are grouped into three Levels of a fair value hierarchy. The three Levels are defined based on the
observability of significant inputs to the measurement, as outlined in Note 2.
The fair value determination is the estimated amount that the Company would receive to sell a financial
asset or pay to transfer a financial liability in an orderly transaction between market participants at the
measurement date.
There were no transfers between Level 1 and Level 2 during the year ended October 31, 2018 and 2017.
The following table shows the Levels within the hierarchy of financial assets and liabilities measured at fair
value.
Level 1
$
At October 31, 2018
Level 2
$
56,402,979
-
56,402,979
-
10,857
10,857
Level 1
$
At October 31, 2017
Level 2
$
51,147,685
-
51,147,685
-
17,858
17,858
Level 3
$
Level 3
$
Total
$
56,402,979
10,857
56,413,836
Total
$
51,147,685
17,858
51,165,543
-
-
-
-
-
-
Financial assets
Cash
Forward contract assets
Total Assets
Financial assets
Cash
Forward contract assets
Total assets
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,
2018 and 2017.
51 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
13.
Fair Value Measurement of Financial Instruments (continued)
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 and accrued expenses
14.
Risk Management
The Company's activities expose it to a variety of financial risk: credit risk, foreign currency risk, interest
rate risk, and liquidity risk. The Company's risk management policies are designed to minimize the potential
adverse effects on the Company's financial performance.
Financial risk management is carried out by the Chief Financial Officer (“CFO”) under policies approved by
senior management and the Board of Directors. Policies are in place to evaluate and monitor risk and in
some cases, prescribe that the Company hedge its financial risks.
The analysis below presents information about the Company's exposure to each of the risks arising from
financial instruments and the Company's objectives, policies and processes for measuring and managing
these risks.
Credit Risk
Credit risk is the risk of financial loss associated with counterparty’s inability to fulfill its payment obligations.
The Company’s credit risk is primarily attributable to cash in bank accounts, accounts receivable and
forward contracts from hedging counterparties.
All banking relationships are negotiated by senior management. The Company maintains accounts in high
quality financial institutions. At various times, the Company's bank balances exceed insured limits.
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.
52 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
14.
Risk Management (continued)
A breakdown of accounts receivable by category is below:
Customer type
Domestic and international financial
institutions
Money service businesses
Other
Total
At October 31, 2018
At October 31, 2017
$
4,883,305
4,611,497
145,095
9,639,897
$
3,625,821
2,674,168
144,042
6,444,031
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, 2018 was approximately $7,440,000 (2017 -
$7,930,000). The amount of currency that is unhedged and that is not pegged to the U.S. Dollar is
approximately $5,360,000 (2017 - $5,320,000). 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 +$107,000/-$107,000 (2017 gain/loss of approximately +$106,000/-$106,000).
On a consolidated basis, the Company is also exposed to foreign currency fluctuations between the U.S.
Dollar and the Canadian Dollar, being the functional currency of its Canadian subsidiary. The Company
does not hedge its net investment in its Canadian subsidiary and the related foreign currency translation of
its earnings.
Interest Rate Risk
At October 31, 2018, 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.
53 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
14.
Risk Management (continued)
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, 2018 would have been approximately +$42,200/-$42,200 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
At October 31, 2018
Estimated contractual
amount
Accounts payable
Accrued expenses
$
8,312,778
2,232,559
$
8,312,778
2,045,707
This fiscal year
Future fiscal
years
$
8,312,778
2,045,707
$
$Nil
$Nil
Non-derivative financial
liabilities
Carrying amount
At October 31, 2017
Estimated contractual
amount
Next fiscal year
Future fiscal
years
Accounts payable
Accrued expenses
Income taxes payable
$
4,939,749
2,115,943
419,917
$
4,939,749
1,885,351
419,917
$
4,939,749
1,885,351
419,917
$
$Nil
$Nil
$Nil
The Company had available unused lines of credit amounting to $24,565,515 at October 31, 2018 (October
31, 2017 - $17,326,844).
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, 2018
At October 31, 2017
70,028,474
60,253,686
(10,545,337)
(7,475,609)
59,483,137
52,778,077
54 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
14.
Risk Management (continued)
The Company monitors its capital structure and makes adjustments according to market conditions in an
effort to meet its objectives given the current outlook of the business and industry in general. The Company
may manage its capital structure by issuing new shares, obtaining loan financing, adjusting capital
spending, or disposing of assets. The capital structure is reviewed by management and the Board of
Directors on an ongoing basis.
15.
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 commission
revenues 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, 2018 was $10,857 (2017 - $17,858).
At October 31, 2018 and October 31, 2017 approximately $1,998,942 and $1,972,168, respectively, were
being held as collateral on these contracts and are reflected as restricted cash held in escrow in the
consolidated statements of financial position. See Note 6.
16.
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
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Number of shares
15,000
83,363
5,594
47,229
-
-
132,258
11,981
$
$
$
$
$
$
USD value
85,376
652,742
57,077
407,929
-
-
1,495,848
211,740
CDN$ value
112,500
871,666
75,757
513,709
-
-
1,957,765
280,767
$
$
$
$
$
$
Stock options
The Company adopted an incentive stock option plan dated April 28, 2011 and was amended most recently
October 20, 2017 (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. Under the terms of the Plan, vesting 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, and the options have a five-year term, unless otherwise specified by the Board of
Directors.
55 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
16.
Equity (continued)
The outstanding options at October 31, 2018 and 2017 and the respective changes during the periods are
summarized as follows:
Date of Grant
30-Oct-14
30-Oct-14
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
9-Aug-18
23-Oct-18
23-Oct-18
Expiry Date
30-Oct-19
30-Oct-19
30-Oct-20
30-Oct-20
16-Jan-21
11-Mar-21
25-Oct-21
25-Oct-21
6-Jun-22
26-Oct-22
26-Oct-22
9-Aug-23
23-Oct-23
23-Oct-23
Share price
at grant
date
(CDN$)
18.00
18.00
23.50
23.50
17.89
21.30
32.96
32.96
20.79
26.84
26.84
30.93
28.01
28.01
Amount
granted
87,215
24,144
28,972
89,435
17,600
4,182
22,757
66,820
9,865
19,673
67,213
10,200
32,501
111,111
Risk-free
interest rate
1.61%
1.61%
1.47%
1.47%
1.46%
1.45%
1.30%
1.30%
1.71%
2.07%
2.07%
2.80%
3.10%
3.10%
*Exercise price determined by average share price for previous 20 trading days
Expected
volatility
27%
27%
32%
32%
33%
34%
34%
34%
37%
36%
36%
31%
29%
29%
Exercise
Price
(Cdn$)*
16.21
16.21
24.64
24.64
17.79
22.78
30.75
30.75
21.53
25.52
25.52
30.69
30.77
30.77
Fair value of
option at grant
date ($)
4.97
4.97
5.10
5.10
3.86
4.78
8.46
8.46
5.27
7.69
7.69
7.74
5.92
5.92
Number of options Weighted average price
#
CDN$
Outstanding at October 31, 2016
Granted
Exercised
Cancelled through cashless exercise
Forfeited
Outstanding at October 31, 2017
Granted
Exercised
Cancelled through cashless exercise
Forfeited
Outstanding at October 31, 2018
521,592
111,885
(128,613)
(22,572)
(40,069)
442,223
153,812
(144,239)
(1,991)
(25,310)
424,495
18.50
25.17
9.99
17.28
25.54
22.31
30.76
15.61
20.61
26.35
27.42
The following options are outstanding and exercisable at October 31, 2018:
Grant Date
30-Oct-14
30-Oct-14
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
9-Aug-18
9-Aug-18
23-Oct-18
23-Oct-18
Total
Exercise
price
(CDN$)
Number
outstanding
16.21
16.21
24.64
24.64
17.79
22.78
30.75
30.75
21.53
25.52
25.52
30.69
30.69
30.77
30.77
9,971
8,048
20,148
55,662
11,733
4,182
16,255
52,212
5,586
19,673
67,213
9,084
1,116
32,501
111,111
424,495
Average
remaining
contractual life
(years)
1.00
1.00
2.00
2.00
2.21
2.36
2.99
2.99
3.60
3.99
3.99
4.78
4.78
4.98
4.98
Number exercisable
9,971
8,048
20,148
55,662
5,866
2,788
16,255
34,808
1,862
19,673
22,404
-
-
-
-
197,485
56 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
17.
Earnings per Share
The calculation of earnings per share is presented below. Diluted earnings per share for the years ended
October 31, 2018 and 2017 included all stock option grants with the exception of the options granted on
October 26, 2016, August 9, 2018, and October 23, 2018, as the strike price exceeded the average stock
price for the 12-month period ending October 31, 2018.
Basic
Net income
Weighted average number of shares outstanding
Basic earnings per share
Diluted
Net income
Weighted average number of shares outstanding
Diluted earnings per share
Year ended
October 31, 2018
October 31, 2017
$4,227,243
6,300,026
$0.67
$4,227,243
6,344,557
$0.67
$3,821,469
6,198,775
$0.62
$3,821,469
6,266,840
$0.61
18.
Operating expenses
Year ended
October 31, 2018
October 31, 2017
$
$
Salaries and benefits
15,847,680
13,286,617
Rent
Legal and professional
Postage and shipping
Stock based compensation
Travel and entertainment
Bank service charges
Software maintenance
Losses and shortages
Insurance
3,381,155
2,671,996
4,560,283
629,550
664,823
757,230
685,320
307,029
361,270
Other general and administrative
1,094,000
3,018,722
1,842,163
3,449,837
556,379
550,276
344,991
373,954
167,993
339,067
625,712
Operating expenses
30,960,337
24,555,711
19.
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 years ended October 31, 2018 and
2017 were as follows:
57 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2018 and 2017
19.
Compensation of Key Management Personnel and Related Party Transactions (continued)
Short-term benefits
Post-employment benefits
Stock based compensation
Year ended
October 31, 2018
October 31, 2017
$
2,677,716
82,242
521,918
3,281,876
$
2,308,625
99,332
676,565
3,084,522
The Company incurred legal and professional fees in the aggregate of $348,421 for the year ended October
31, 2018 (2017 - $145,404) 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 $20,000,000 Revolving Line of Credit, renewed May
31, 2017; loans attract interest at LIBOR + 2%, are repayable on demand, and are unsecured. At October
31, 2018, the intercompany loan balance was $5,660,000 (2017 - $1,100,000) and was eliminated upon
consolidation.
20.
Other current assets
Prepaid rent
Prepaid personnel
Prepaid computer software
Prepaid insurance
Prepaid advertising
Other current assets
Total
At October 31, 2018
At October 31, 2017
$
251,855
110,414
171,271
263,429
45,834
292,783
1,135,586
$
224,067
9,755
52,758
134,847
79,625
170,892
671,944
21.
Potential Transaction
On July 9, 2018 the Company announced its wholly-owned subsidiary EBC has entered into a definitive
agreement to acquire the assets of a business operating 22 years primarily in the province of Quebec from
the private family owners who were advised by Laurentian Bank Securities. These assets include a total of
approximately 400 corporate customers that are engaged in international payments. It is expected that
approximately 10 employees will be retained and employed in EBC’s new Montreal Office. The transaction
is subject to regulatory approval and will not close until all approvals have been obtained.
22.
Subsequent Events
The Company evaluated subsequent events through January 22, 2019, the date these condensed interim
consolidated financial statements were issued. There were no material subsequent events that required
recognition or additional disclosure in the financial statements.
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
Johanne Brossard
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
Independent Board Member
Chitwant Kohli
Mark D. Mickleborough
V. James Sardo
Linda Stromme
Director of CXI
Director of EBC
Independent Board Member
Director of CXI
Director of EBC
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 7, 2019 at 12:30 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
information or assistance
Shareholder Services
your
For
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.
regarding
Currency Exchange International: Annual Report 2018
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