A N N U A L
R E P O R T
2020
¥£££££ Financial Highlights
Exchange Volume:
In Billions
$2.8
$4.2
$4.9
$3.8
2017
2018
2019
2020
22 %
Year Over Year
Revenue by Business Segment
86%
Banknotes
14%
Payments
78%
United States
22%
Canada
Total Revenue:
In Millions
$32.5 $39.1 $41.7 $25.0
2017
2018
2019
2020
40 %
Year Over Year
Revenue by Geography
Total Assets:
In Millions
$64.0 $73.3 $82.7 $85.8
2017
2018
2019
2020
4%
Year Over Year
All amounts in this report are stated in USD and are based on fiscal year end unless otherwise noted.
Corporate Customers and Transacting Locations
2017
2018
2019
2020
Company-Owned Branch Locations
Wholesale Company Relationships*
41
954
43
46
35
1,267
1,878
1,667
Transacting Locations*
14,587
17,017
21,595
14,787
*These numbers show the companies and locations that transacted within the period specified.
Quarterly Stock Price (TSX:CXI)
TSX stock prices are quoted in Cdn$
Key Ratios
2019
2020
Earnings Per Share
$0.46
-$1.33
Q1
Q2
Q3
Q4
Ended 1/31/2020
Ended 4/30/2020
Ended 7/31/2020
Ended 10/31/2020
Return On Assets
3.5%
-9.9%
$18.10
$13.60
$10.50
$9.00
Return On Equity
4.4%
-14.6%
1
Currency Exchange International: Annual Report 2020
Operating Margin
14.7%
-15.9%
Response to COVID-19
Key Activities
CXI’s Response to Novel Coronavirus (COVID-19)’s Impact on Business and
Communities
On March 3, 2020, CXI created a COVID-19 Committee to respond to COVID-19. This committee of senior
employees was created to lead our group in traversing these unusual, challenging times. The committee
reports directly to CXI’s CEO and meets regularly to proactively address the evolving situation.
CXI remains committed to ensuring continuous service to our customers during these most trying times.
The company’s ability to maintain a high level of service is reflective of its preparation and execution of its
planning. The company successfully continued its service in a safe and secure way for its customers and
employees. CXI’s IT team successfully had 90% of the possible employees working from home within one
week and all within two weeks. During this time, CXI’s IT security team ramped up its monitoring of company
systems and employee security. All security policies are being maintained. Additionally, CXI kept in constant
contact with its customers and critical suppliers to keep information flowing.
As we look to the future, CXI revisited the way forward with its 2021-2023 strategic plan. Its focus gave
clear direction to scaling the business with attainable and sustainable growth that will return the company
to profitability. We are proud of the essential role we provide by supporting the needs of businesses in the
global market through our expansion in international payments. We stand ready to assist our commercial
customers and international travelers when they decide travel is right for them once again.
CXI Inks Largest Agent Program with Retail Foreign Currency at US Borders
CXI Announces Strategic Relationship with Duty Free Americas, Inc. as Its Exclusive
Foreign Currency Provider
In December 2019, CXI announced an exclusive foreign currency provider relationship with Duty Free
Americas, Inc (DFA) operating as an agent of CXI. The first phase was successfully launched at the US and
Canadian borders by the end of January. The promising start was significantly impacted by the closure of
the US and Canadian border by the US and Canadian governments. Expanding to DFA’s additional US and
Mexican border stores is planned for the 2021 fiscal year.
Acquisition of a Canadian International Payments Business
CXI Announces Exchange Bank of Canada Closes Its Transaction with a Canadian
International Payments Business
In July 2020, Exchange Bank of Canada (EBC) closed its acquisition of the assets of a Canadian international
payments business that operated 24 years in Québec. The business’s assets were successfully integrated
into EBC’s business and are contributing in line with financial expectations. The retained employees are an
experienced group that has helped transition its corporate customers to EBC.
Currency Exchange International: Annual Report 2020
2
Message from the CEO
Randolph W. Pinna
President and Chief Executive Officer
CXI is very focused on its strategic initiatives, including its international
payments business, which diversifies the company from the volatility
in the travel and tourism industry. The benefit of this diversification
is evident by CXI’s payments business revenue increasing to US $3.4
million in 2020 from $2.6 million in 2019, a 29% increase. Overall,
CXI’s payments business contributed 14% of the company’s revenues.
This, in addition to EBC’s acquisition, helped
CXI transact with more than 600 new financial
institutions and businesses and helps to
better position CXI’s banknote business when
international travel returns.”
During the 2020 fiscal year, CXI saw an increase in market share
propelled by the closure or exiting of competitors in the foreign
banknotes industry and winning new accounts in its sales pipeline.
This, in addition to EBC’s acquisition, helped CXI transact with more
than 600 new financial institutions and businesses and helps to better
position CXI’s banknote business when international travel returns.
The result of diminished international travel and demand in foreign
currency, reduced CXI’s overall revenue to US $25 million, down 40%
from the previous fiscal year. Net operating income decreased to a
US $4 million loss from a $6.2 million gain in the previous fiscal year.
The company reduced its operating expenses by 19%, with the largest
reductions attributed to salaries, rent, and shipping costs.
CXI’s proactive management and focus on its strategic initiatives
helped sustain our vital resilience through the remainder of 2020.
Setting the Stage for 2021
Uncertainty and change have dominated 2020, and there are no
quick fixes. Throughout these difficult times, CXI’s employees have
worked tirelessly to support our customers and overcome business
obstacles. CXI’s executives and board of directors dedicated the
time to revisit the way forward by developing a three-year strategic
plan that builds on its strengths while diversifying for the future. The
In the past year, the world has been gripped by unprecedented
challenges. First, a global health emergency, followed shortly by
an economic crisis. As I write this, these are ongoing events with
their final path undefined. The operational and financial impact of
this has been substantial. However, it also displayed the resolve
and character of CXI and its people and should not overshadow our
2020 achievements. In March 2020, as the severity of the pandemic
progressed, CXI took immediate measures to protect the health and
safety of our employees while also focusing on the needed changes
to keep our business operating as efficiently as possible and to
preserve capital.
Our employees’ response to the situation has been a reflection of
their care, skill, and adaptability. The workplace and how we interact
with our customers has certainly changed, but our commitment to
support our customers with our customer-first approach continues to
be one of our key priorities.
Resiliency in 2020
CXI’s 2020 fiscal year began with a strong first quarter and generated
nearly US $9.9 million in revenue. Unfortunately, the momentum
changed drastically in the second quarter when the economic
disruption caused by the pandemic and its repercussions unfolded.
In CXI’s second quarter, as the economic impact became evident, the
world began to enact measures to contain the spread of the novel
coronavirus, including travel bans, quarantines, social distancing, and
closures of nonessential services. By mid-March, CXI temporarily
closed all its retail branches which were closely followed by the
closure of most of its wholesale customer locations.
While CXI is well-capitalized to go through a traumatic economic event,
it was determined that permanently closing some retail branches
was necessary. CXI has permanently closed the 12 branches since
the pandemic was announced. The closed branches were those
estimated to have the longest road to recovery accompanied by a
limited contribution to revenue. Cost reductions were also secured
through rent abatements with a number of landlords. This resulted
in a total reduction in staff of more than 100 employees both in retail
and at head offices. Though difficult to lose so many employees,
this positioned the company to maintain a strong balance sheet and
flexibility moving forward.
3
Currency Exchange International: Annual Report 2020
Message from the CEO
strategic plan’s initiatives allow the company to focus on what it does
well, building strong personal relationships that put the customer first
and deploying technology to simplify business for our customers.
Banks and credit unions’ ability to utilize CXI as their one provider for
all foreign exchange needs creates a unique value for their institution.
The diversification of these business lines will ensure CXI is creating
innovative ways to support its customers and drive business
efficiency. Still, core to the company is its foreign banknotes business.
CXI continues to be the leader in this category and sees ambitious
ways to maximize its market share and expand into new markets. In
February 2020, CXI launched OnlineFX Home Delivery, a consumer-
facing e-commerce website for buying foreign currency. The website
successfully continued servicing customers as the company’s retail
branches closed and extends CXI’s direct-to-consumer offering beyond
brick-and-mortar locations. Currently, through OnlineFX, CXI can serve
customers in 25 states, covering approximately 212 million people.
CXI is also expanding its bulk wholesale business globally to select
countries and financial institutions. The interest in dealing with CXI
and EBC around the globe has seen CXI begin relationships with banks
in 10 countries. The company’s expertise provides banks outside of
the US and Canada a secure global logistics partner and access to a
spectrum of competitively priced foreign currency.
CXI’s three-year running strategy is built on the company’s vision to be
the preferred financial services provider of foreign exchange solutions
tailored to customer needs.
Our Shared Future
CXI’s ambitions are grounded in the strength of its people and the
company’s culture. Our collective customer focus, collaboration,
innovation, integrity, and passion is how the company achieves
success. We’ve been agile in how we’ve responded to COVID-19,
moving all available personnel remote within two weeks, while still
providing a high level of personalized service.
I personally want to take the time to applaud and thank our employees
and customers for embracing the moment with care for each other
and working together through this crisis. Our board of directors and
executive team are confident in our ability to execute our plan. Thank
you to our loyal 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.
One way CXI is making foreign exchange simple
for its financial institution customers is by
integrating into core banking software.”
CXI’s dedication to diversification was exhibited by EBC’s acquisition
of a Québec-based international payments business’s assets. The
acquisition brought in FX traders with more than 20 years of experience
and a solid portfolio of long-time customers. To date, the revenues
generated from the acquisition have met management’s expectations.
Additionally, in early fiscal year 2021, EBC expanded its payments
sales team with talented new hires proven to build strong personal
relationships with customers.
In 2021 and beyond, CXI is focusing on deploying technology to
deliver simplification to its customers. One way CXI is making foreign
exchange simple for its financial institution customers is by integrating
into core banking software. CXI successfully integrated into Fiserv’s
WireXchange in 2019 and in 2020 began to service numerous banks
and credit unions who use this platform. CXI has identified additional
core banking software that will assist in expanding the company’s
payments services to existing banknote customers and new prospects.
Shareholder’s Equity
$ Millions
October 31, 20 20
$58.2
October 31, 20 19
$66.3
Octob er 31, 2018
$62.7
October 31, 20 17
$56 .5
All amounts in thi s repor t are sta ted i n US D u n l es s oth er w i se
noted.
Randolph W. Pinna
President and Chief Executive Officer
Currency Exchange International: Annual Report 2020
4
Mission and Purpose
For more than 10 years, CXI has been driven by our commitment to be Customer-First. We are a diverse community
of experts who channel a shared passion and collaborative approach into the excellence of Customer-First service.
Inclusion is what we celebrate, integrity is our source of pride, and innovation is how we transform the future.
Strategic Priorities
Expand FX with US Banks
and Credit Unions
Be the best solution for all the foreign
exchange needs of banks and credit
unions. One Provider. One Platform.
Global Expansion of
Wholesale Banknotes
Be the foreign banknote provider of
choice for leading banks around the
world.
Build Scale in Corporate
International Payments
Make foreign exchange easy for
businesses with personalized
service backed by the expertise
and security of Exchange Bank
of Canada. Canada’s Foreign
Exchange BankTM.
Our Mission
Make foreign exchange simple and
secure by combining technology, industry
expertise, and highly personal service.
Our Vision
Be the preferred financial services
provider of foreign exchange solutions
tailored to client needs.
Strengthen and Optimize
Corporate Infrastructure
Enable the business to scale to
support growth and manage risk.
Our values are our commitments
Maximize Direct-to-
Consumer Offering
Deliver convenient, cost-effective
ways to exchange foreign
currency for US residents and
international travelers visiting the
US.
Customer First
Collaborative
Innovative
Integrity
Passionate
Earn the right to be
our customer’s first
choice.
Win as a team.
Find new methods to
deliver change and
advance technology
to the industry.
Hold ourselves to the
highest standard to
build trust.
Driven to be the best
in class.
5
Currency Exchange International: Annual Report 2020
Expand FX Services with US Banks and Credit Unions
Many US banks, banker’s banks, and credit unions are outsourcing
foreign exchange services and consolidating their foreign exchange
providers. They want providers with technology that integrates with
their core banking system, is easy for staff to use, and has strong
Anti-Money Laundering (AML) safeguards to reduce risk.
Despite increased demand for outsourcing foreign exchange
transaction processing, some traditional providers have exited the
business and the US market. Unlike many large bank providers,
CXI is exclusively focused on foreign exchange. Our proprietary
CEIFX technology platform enables clients to process international
payments, foreign banknotes, and foreign checks on the same
platform. This “One Provider. One Platform.” proposition, combined
with a reputation for great customer service, resonates well with the
increasing number of banks looking to outsource and consolidate
foreign exchange providers.
While CXI has doubled the number of banks it serves over the past
two years, its share of US banks and credit unions with multiple
foreign exchange services remains small. There is significant
growth potential as is evident by the company’s strong sales
pipeline. CXI will capitalize on this growth potential by investing
in core banking system integrations and sales resources. CXI’s
success in expanding FX services with US banks and credit unions
will be a key driver of growing its international payments business
and achieving its goal of diversifying the business.
Build Scale in Corporate International Payments
Corporate international payments are a large, growing segment
of the foreign exchange industry driven by international trade and
e-commerce. Unlike banknotes, corporate international payments
are not impacted by international travel, making it an important
market segment for CXI to grow to diversify its business.
Most Canadian companies use their bank for foreign exchange and
international transactions because they are safe and secure. While
Canada’s big banks may serve large companies well, many small
and medium enterprises (SMEs) are left to use self-serve platforms
with little personal service. Many SMEs are not aware there are
alternatives. Exchange Bank of Canada (EBC), a wholly-owned
subsidiary of CXI, is a federally regulated Schedule 1 Canadian
bank focused exclusively on foreign exchange. EBC provides small
and mid-size companies the safety and security of a bank, with
competitive pricing and personal service that is tailored to their
business needs.
CXI is investing to scale up EBC’s corporate payment business
quickly by building a strong team of experienced FX traders to
deliver highly personal service, as well as investing in technology
and exploring acquisitions to make foreign exchange and payments
easy for SMEs.
Strategic Priorities
Global Expansion of Wholesale Banknotes
Despite the shift toward electronic payment options, there is a large
global wholesale banknote market. Many traditional wholesale
banknote providers either are not investing in, or are exiting, the
business at a time when banks around the world are outsourcing
the management of foreign banknotes. Furthermore, banks in
certain regions such as the Caribbean, Mexico, and South America
have excess USD and want to deal with a provider that has strong
Anti-Money Laundering (AML) practices.
CXI and EBC can provide banks in select countries its customizable
CEIFX platform that is easy to use, embedded with strong AML
compliance practices, supported by global logistics experience,
relationships with currency suppliers around the world, and
exceptional service. To expand its business beyond the US and
Canada, EBC is pursuing a USD distribution agreement with the
New York Federal Reserve Bank and focusing sales resources on
growing business in key regions globally.
Maximize Direct-to-Consumer Offering
CXI is well-positioned to grow its direct-to-consumer currency
exchange business as international travel returns to pre-pandemic
levels. CXI has a strong presence in the top US tourism markets
serving US residents and international travelers through its
company-owned retail branch locations, and agent locations owned
and operated by CXI’s wholesale customers. Given the company’s
strong financial position, it has not only been able to retain prime
locations, but has opportunities to acquire prime locations of
competitors who’ve exited the market.
As retail shifts online and mall traffic declines, CXI is expanding
its consumer business by serving US consumers online, avoiding
the costs of operating a physical branch. CXI’s OnlineFX Home
Delivery website provides US residents the ability to purchase
foreign currency and have it delivered to their homes. This
service is currently available for consumers in 25 states and we
are actively working to expand to more states. Additionally, CXI’s
agent relationships supplement the company’s direct-to-consumer
network without adding labor costs and rent. Utilizing CXI’s license,
compliance regime, and technology, these customers can be found
in airports, shopping centers, and tourist attractions across the US.
Strengthen and Optimize Corporate Infrastructure
CXI’s strategic priorities have a multi-pronged approach to grow
the business, diversify its revenue, and become more efficient. To
support the planned growth, CXI will invest in initiatives that create
significant operational efficiencies that will enable the company to
effectively scale its business. These efficiencies will come from
automating processes and workflows in its finance, risk, operations,
compliance, and IT teams. Enhancing the company’s processes
will also improve service levels for CXI’s customers by enabling
better access to business data, generating advanced insights, and
delivering a differentiated customer experience.
Currency Exchange International: Annual Report 2020
6
CURRENCY EXCHANGE INTERNATIONAL, CORP.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
FOR THE THREE-MONTHS AND
YEAR-ENDED ENDED OCTOBER
31, 2020 AND 2019
8 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Scope of Analysis
This Management Discussion and Analysis (“MD&A”) covers the results of operations, and financial
condition of Currency Exchange International, Corp. and its subsidiaries (together, the “Company,” or
"CXI") for the three-months and year ended October 31, 2020, 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 27, 2021 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 year ended
October 31, 2020 and 2019 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, 2020. The functional currency of the Company and its wholly owned
subsidiary eZforex.com, Inc (“eZforex”) is the U.S. Dollar. The functional currency of the Company’s
wholly owned 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 wholly owned subsidiaries, eZforex and 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, 2020 and 2019
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
Sensitivity analyses relating to
foreign currencies and interest
rates
Assumptions
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
Risk factors
Exchange rate and interest
rate fluctuations
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 beginning on page 22. 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, 2020 and 2019
Overview
CXI is a publicly traded company (T S X: C X I ; O T CB B : C UR N) , and is a reporting issuer in the
provinces of British Columbia, Alberta, and Ontario. It specializes in providing currency exchange and
related products to financial institutions, money service businesses, travel companies, and other
commercial clients through its proprietary payments’ platform, company owned branches and vaults,
and inventory on consignment locations, throughout the United States and Canada, by utilizing the
Company’s sophisticated software application, 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.
Including 7 on furlough, CXI had 268 employees at October 31, 2020, of which 77 were part-time.
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, which continued operations as Exchange Bank of
Canada (“EBC”). The head office of EBC is located in Toronto, Ontario, Canada.
The objective of EBC is to 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.
Background
The Company has the following sources of revenues which are reported as commissions and fees:
Commission revenue comprises 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 open foreign exchange positions to market value, together with the net gain or loss from
foreign currency forward and option 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 comprises the following:
i.
ii.
Fees generated at the Company’s branch locations and certain inventory on consignment locations
from foreign currency (bank note) exchange, traveler’s cheques, currency price protection and
fees collected on payroll cheque cashing; and
Fees collected on foreign-denominated wire transfers, drafts, and cheque clearing transactions.
11 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Overview (continued)
The following are some of the characteristics of the Company’s revenue streams:
The Company operates four main vaults (one of which is temporarily closed), 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:
i.
ii.
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;
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;
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, 2020, the Company had inventory on consignment in 823 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.
The Company operates 35 branch locations that are located in typically high tourist traffic areas across
the United States, staffed by CXI employees. 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. 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. On or around March
24, 2020 all of the retail branches were closed due to government-imposed shutdowns as a result of
COVID-19 pandemic. The majority of the retail employees were furloughed as a result. Beginning in
May 2020, some of the branches have reopened as restrictions have been relaxed in some regions.
As of January 27, 2021, 35 retail branch locations were open and 11 have been permanently closed
(see page 12).
12 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Overview (continued)
Prior to the COVID-19 pandemic, the Company had steadily grown its branch network to 46 locations,
as well as the number of wholesale relationships over the years. Below is a summary of the Company’s
wholesale company relationships and transacting locations as well as a listing of its 35 remaining branch
locations following the permanent closure or pending closure of 11 locations at October 31, 2020.
Store
City
State
Start
date
Store
City
State
Alderwood Mall
Lynnwood
WA
2019 Mechanics Bank - Berkeley
Berkeley
Apple Bank - Avenue of Americas
New York
Apple Bank - Grand Central Station
New York
Apple Bank - Penn Station
Apple Bank - Upper East Side
Apple Bank - Union Square
Arundel Mills Mall
Aventura Mall
Cherry Creek
Citadel Outlets
Copley Place Mall
Dadeland Mall
Dolphin Mall
Florida Mall Booth #1
Garden State Plaza
International Market Place
MacArthur Mall
New York
New York
New York
Hanover
Aventura
Denver
Los Angeles
Boston
Miami
Miami
Orlando
Paramus
Honolulu
Norfolk
Mainplace at Santa Ana
Santa Ana
NY
NY
NY
NY
NY
MD
FL
CO
CA
MA
FL
FL
FL
NJ
HI
VA
CA
2011 Mechanics Bank - San Francisco
San Francisco
2011 Mission Valley
2013 Montgomery at Bethesda
2014 North County
2014 Ontario Mills Mall
2012 Pearl Ridge
2008 Potomac Mills Mall
2014 San Francisco City Center
2014 San Jose Great Mall
2009 Santa Monica Place
2009 Sawgrass Mills Mall Booth #1
2009 Shops at Northbridge
2007 SouthCenter
San Diego
Bethesda
Escondido
Ontario
Aiea
Woodbridge
San Francisco
San Jose
Santa Monica
Sunrise
Chicago
Tukwila
2015 The Galleria at Fort Lauderdale
Ft. Lauderdale
2016 The Orlando Eye
Orlando
2009 Tyson's Corner Center
Tyson’s Corner VA
2013
CA
CA
CA
MD
CA
CA
HA
VA
CA
CA
CA
FL
IL
WA
FL
FL
Start
date
2007
2008
2015
2013
2017
2007
2019
2007
2011
2011
2012
2007
2013
2012
2013
2015
2014
Company owned branch locations
Wholesale company relationships*
Number of transacting locations*
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019
36
556
9,494
38
927
11,975
41
954
14,587
43
1,267
17,017
46
1,878
21,595
FY 2020
35
1,667
14,787
*These numbers show the companies and locations that transacted within the period specified.
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 notes 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. The counterparty risk is
generally low, 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, with one exception (see note 21 to the consolidated financial statements).
13 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Overview (continued)
The Company has also reduced its settlement exposure for all clients given the current economic
environment.
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.
SELECTED FINANCIAL DATA
The below chart summarizes the performance of the Company over the last eight fiscal quarters.
Three-months
ending
10/31/2020
7/31/2020
4/30/2020
1/31/2020
10/31/2019
7/31/2019
4/30/2019
1/31/2019
Revenue
$
4,935,917
3,879,873
6,323,344
9,874,289
11,469,079
12,402,484
9,460,809
8,451,671
Net operating
income (loss)
$
Net income
(loss)
$
Total assets
$
Total equity
$
Earnings (loss)
per share
(diluted)
$
(1,852,195)
(1,993,117)
(2,316,356)
1,162,930
1,863,442
2,935,899
1,081,292
271,410
(3,465,632)
(2,274,719)
(2,942,948)
159,274
769,393
1,820,768
507,370
(172,811)
85,758,517
96,105,961
99,263,039
108,319,219
82,729,714
81,719,233
82,267,884
82,045,951
58,229,735
61,462,798
62,965,874
66,323,630
66,329,035
65,447,949
63,022,825
62,678,990
(0.54)
(0.35)
(0.43)
0.02
0.13
0.28
0.08
(0.03)
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
through September and lower revenues from October through February. This coincides with peak tourism
seasons in North America when there are generally more travelers entering and leaving the United States
and Canada.
On March 11, 2020 the World Health Organization officially declared COVID-19, the disease caused by a
novel coronavirus (“COVID-19”), a pandemic. The spread of COVID-19 has severely impacted many local
economies around the globe. In many countries, including Canada and the United States of America,
businesses have been forced to cease or limit operations for long or indefinite periods of time. Measures
have been taken to contain the spread of the virus, including travel bans, quarantines, social distancing,
and closures of nonessential services. These measures have triggered significant disruptions to business
worldwide, resulting in reduced economic activity. Governments and central banks have responded with
monetary and fiscal interventions to stabilize economic conditions. In response to measures implemented
to curtail the effects of COVID-19, the Company closed all of its retail locations on or around March 24,
2020, re-opening a number of them over the course of the third quarter. At October 31, 2020 11 locations
were permanently closed, or in the process of being closed. In addition, many of the Company’s commercial
customers have been impacted by the pandemic, resulting in reduced demand for banknotes. The
Company has also closed one vault temporarily due to the low volume of activity. While the Company
continues to operate, it is not possible to reliably estimate the duration and severity of these consequences
as well as their impact on the financial position and results of future periods.
14 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Selected Financial Results for the three-months and year ended October 31, 2020 and 2019
The Company successfully completed its acquisition of a payments business called Denarius Financial
Group (“DFG”) based in Montreal, Canada on July 29, 2020. The Company acquired approximately 450
new corporate customer relationships in the acquisition, significantly increasing the Company’s payments
segment in Canada. Despite a strong start to its fiscal year, the government-imposed shutdowns beginning
in March related to COVID-19 have had a material negative impact. Consolidated revenue was 40% lower
in the year ended October 31, 2020 than in the same period in the previous year. The growth experienced
in the first quarter of 2020 was not enough to offset the extreme reduction in demand for foreign currency
as a result of the restrictions on mobility that have affected travel and tourism during the pandemic. The
decline in the Canadian region is lower than that of the United States (19% as compared to 44%), which is
reflective of the impact of the retail locations, all of which were closed for various periods during the year
ended October 31, 2020. The acquisition of DFG contributed $286,631 in revenue from July 29, 2020
through October 31, 2020. Since October 31, 2019, the Company has added 759 new customer
relationships comprising 1,281 locations, of which 537 relationships representing 1,036 locations were
added in the United States and 222 relationships representing 245 locations were added in Canada.
82% of the new customer relationships in Canada were attributable to the DFG acquisition.
During the year ended October 31, 2020, the number of transactions between the Company and its
customers decreased 61% to 475,000 transactions from 1,210,000 for the same period in the previous
year. During the three-month period ended October 31, 2020, the number of transactions between the
Company and its customers decreased 86% to 49,000 transactions from 351,000 for the same period
in the previous year. By line of business, Payments increased 29% or $777,991 over the prior year, and
banknotes decreased by 45% or $17,548,611. In response to the significant decline in revenue, the
Company has enacted a number of cost-saving initiatives that included expense reductions, the closure of
11 branch locations, and the elimination of 106 employment positions since March 15, 2020. As a result of
the actions taken, the Company has recognized restructuring expenses, including impairment charges of
$1,072,471 in the year ending October 31, 2020. In addition, the Company has reduced credit limits to limit
its settlement exposure since and has implemented daily credit monitoring of its customer base. CXI has
a strong capital base and liquidity position to continue to meet its financial obligations. Management
completed a three-year strategic plan in October 2020, in which it developed a multi-pronged approach to
return to profitability through increased penetration in a consolidating market, continued acquisition of
corporate payment clients, and expansion in the international marketplace.
Year ended
October 31, 2020
$
Year ended
October 31, 2019
$
Three-months ended
October 31, 2020
$
Three-months ended
October 31, 2019
$
Revenue
Operating expenses
Net Operating income
Other (loss) income
Government grants
Provision for loss
EBITDA*
Net (loss) income
Basic (loss) earnings per share
Diluted (loss)earnings per share
25,013,423
28,999,214
(3,985,791)
(3,265)
761,533
(1,693,207)
(4,920,730)
(8,524,029)
(1.33)
(1.33)
41,784,043
35,632,001
6,152,042
29,339
-
-
6,181,381
2,924,720
0.46
0.46
* Earnings before interest, taxes, depreciation and amortization
4,935,917
6,778,116
(1,842,199)
(12,648)
343,818
-
(1,511,029)
(3,296,835)
(0.51)
(0.51)
11,469,079
9,605,638
1,863,442
13,884
-
-
1,877,326
769,393
0.12
0.12
Total assets
Total long-term financial liabilities
Total equity
October 31, 2020
85,758,518
266,163
58,229,735
October 31, 2019
82,729,714
-
66,329,035
15 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Results of operations – year ended October 31, 2020 and 2019
A breakdown of revenue by geographic location is presented below:
Year ended
October 31, 2020
$
Year ended
October 31, 2019
$
Change
Change
$
%
Revenues by Geography
19,601,984
5,411,439
35,137,626
6,646,417
25,013,423
41,784,043
Revenues by Product Line
21,595,790
3,417,633
39,144,401
2,639,642
25,013,423
41,784,043
(15,535,642)
(1,234,978)
(16,770,620)
(17,548,611)
777,991
(16,770,620)
-44%
-19%
-40%
-45%
29%
-40%
United States
Canada
Total
Banknotes
Payments
Total
During the year ended October 31, 2020, operating expenses decreased 19% to $28,999,214 compared
to $35,632,001 for the year ended October 31, 2019. Normalizing for the impact of IFRS 16, which was
implemented on November 1, 2019 using the modified retrospective approach, operating expenses would
have decreased by 12% to $31,263,987. The major components of operating expenses are presented in
the table below, with commentary for significant variances:
Year ended
October 31, 2020
$
Year ended
October 31, 2019
$
Change
$
Change
%
Salaries and benefits
Rent
Legal and professional
Postage and shipping
Stock based compensation
Travel and entertainment
Bank service charges
Information technology
Losses and shortages
Insurance
Other general and administrative
Operating expenses
16,866,772
1,152,141
2,824,561
2,373,942
1,005,903
386,739
1,234,725
1,330,994
276,556
497,701
1,049,180
28,999,214
18,298,892
3,780,465
2,930,426
5,094,817
743,391
702,207
856,589
1,119,280
426,385
440,493
1,239,058
35,632,001
(1,432,120)
(2,628,324)
(105,865)
(2,720,874)
262,512
(315,468)
378,136
211,713
(149,828)
57,208
(189,877)
(6,632,787)
-8%
-70%
-4%
-53%
35%
-45%
44%
19%
-35%
13%
-15%
-19%
Salaries and benefits decreased 8% to $16,866,772 from $18,298,892 which reflects the impact of a
year-over-year reduction in headcount by 66 as the employment base fell from 334 at October 31, 2019
to 272 at October 31, 2020, though there had been an increase in the employment base by 40 positions
up to March 15, 2020. In addition, there was a reduction in salaries compensation by $426,041 in the
year ended October 31, 2020 as bonuses were significantly reduced due to the Company’s financial
performance. Partially offsetting these savings was $100,164 in incremental accrued vacation expense
as the pandemic affected the ability for employees to use their vacation entitlement.
Rent expense decreased 70% to $1,152,141 from $3,780,465 This decrease is primarily attributable to
the adoption of IFRS 16 on November 1, 2019. Had the new accounting standard not been implemented,
rent expense would have decreased only 10% to $3,398,171 from $3,780,465, which is reflective of
$281,334 in rent abatements received from landlords related to certain retail locations that were required
to close in response to state or local orders during the COVID-19 pandemic.
16 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Results of operations – year ended October 31, 2020 and 2019 (continued)
Legal and professional fees decreased 4% to $2,824,561 from $2,930,426. This includes $196,873 in
non-recurring fees incurred relative to a key strategic initiative for EBC, being an application for a direct
relationship with the Federal Reserve. The expenses also include $171,692 in costs incurred related to
the acquisition of DFG on July 29, 2020. Excluding these non-recurring costs, the legal and professional
fees on a comparable basis were $2,445,996, representing a decrease of approximately 17%. This
reflects a conscious effort to reduce spending on advisors;
Postage and shipping decreased 53% to $2,373,942 from $5,094,817 and is primarily a result of
decreased revenue associated with the banknotes segment since the beginning of the pandemic;
Stock-based compensation increased 35% to $1,005,903 from $743,391. While there were a slightly
higher number of stock options outstanding compared to the prior year (732803 at October 31, 2020
versus 708,366 at October 31, 2019), the increase was also impacted by the following atypical factors:
(i)
(ii)
the Company recorded expenses of $113,740 related to an option exchange program in
which 241,463 options were cancelled on July 31, 2020 and replaced by a grant of 30,182
options on October 29, 2020 (see note 18 to the consolidated financial statements).
the Company recorded an expense of $41,872 for 22,369 options granted on June 24,
2020 to certain officers that voluntarily agreed to a temporary salary reduction.
Bank service charges increased 44% to $1,234,725 from $856,589. The increase is related primarily
to increased volumes for payments related activity. These charges are offset partially by fees
collected on wire payments, which are captured in revenues;
Information technology expenses increased 19% to $1,330,994 from $1,119,280, reflecting the adoption
of additional technology platforms over the past year to support various functions, including treasury,
compliance, finance, and payments, as well as the eZforex platform that was acquired on September 6,
2019. The Company has increased its investment in cyber security technology in addition to
collaboration and communication tools, such as Zoom, to facilitate remote work during the pandemic.
Losses and shortages decreased 35% to $276,556 from $426,385. This represents amounts that are
lost in transit, theft or errors in processing by the vaults. When normalized for one unusual loss related
to an employee theft in the amount of $67,017, the losses have declined 51%, consistent with the
reduced sales volume, and within acceptable tolerances.
Other general and administrative expenses decreased 15% to $1,049,180 from $1,239,056. Other
expenses comprise licenses and fees, utilities, office supplies, foreign exchange gain and losses, and
other general and administrative expenses. The principal reasons for the decrease of $201,285 was a
$221,533 increase in foreign exchange gains on the translation of foreign denominated balances.
The ratio of operating expenses to total revenue for the year ended October 31, 2020 was 116%
compared to 85% for the year ended October 31, 2019, reflecting the significant reduction in revenue
due to the COVID-19 pandemic. Excluding the reduction in operating expenses related to the adoption
of IFRS 16, this ratio would have been 125% in the year ended October 31, 2020. As a result of cost
reduction actions taken in FY2020, the operating leverage should improve as banknote revenue is
expected to increase when the ongoing risk of virus transmission is significantly reduced to enable the
removal of international travel restrictions.
17 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Results of operations – year ended October 31, 2020 and 2019 (continued)
Other income
Government grants
Provision for loss
Gain on sale of assets
Other expenses
Interest expense
Interest on lease liabilities
Depreciation and amortization
Depreciation of right-of-use-assets
Restructuring and Impairment charges
Income tax benefit (expense)
Total other expense
Year ended
October 31, 2020
$
Year ended
October 31, 2019
$
10,773
761,533
(1,693,207)
390
(14,428)
(473,242)
(272,687)
(1,621,121)
(1,982,474)
(1,072,472)
1,818,697
(4,538,239)
23,564
-
-
5,775
-
(303,218)
-
(1,330,258)
-
-
(1,623,186)
(3,227,322)
The government grant income relates to the Company’s subsidiary, Exchange Bank of Canada that
received support from two federal programs during the year ended October 31, 2020. The Canada
Emergency Wage Subsidy (“CEWS”) program became effective for periods beginning on March 15, 2020
to support organizations that have been significantly impacted by the COVID-19 pandemic. Under this
program, EBC received a subsidy of up to 75% of qualified employees’ wages in each qualifying four-week
period that it met certain tests for revenue reduction. Through October 31, 2020 EBC qualified for $745,190
in grants under the program, of which $198,990 was a receivable as of the reporting date. The Canada
Emergency Rent Subsidy (“CERS”) program became effective for periods beginning on September 27,
2020. Under this program, EBC received a subsidy for up to 68% of qualified rent expenses. Through
October 31, 2020 EBC qualified for $16,343, which was a receivable as of the reporting date. There are
no obligations, commitments or conditions associated with the programs that could create a requirement to
repay all or a part of the grants;
A wholesale customer of the Company that owed money filed a Notice of Intention to Make a Proposal
to its creditors under the Bankruptcy and Insolvency Act (Canada) (“BIA”) on April 30, 2020. At April
30, 2020 the Company recorded a loss provision of $1,012,946 for amounts owed to it by the customer.
Such customer subsequently failed to make a proposal to its creditors and was automatically placed
into Bankruptcy on June 30, 2020, resulting in the Company becoming an unsecured creditor of the
bankrupt customer’s estate. Subsequent to September 9, 2020 the Trustee in Bankruptcy has claimed
that three payments that the customer made to the Company in April 2020 that total $1,000,000 were
made within 90 days of the date of bankruptcy, and therefore were preferential, in contravention of the
BIA. At October 31, 2020 CXI has recorded an additional provision of $675,000 as a reasonable
estimate of the expected future cash outflows with respect to this customer’s bankruptcy. As of January
27, 2020, no legal action has been commenced by the Trustee;
Interest expense increased to $473,242 from $303,218, primarily as a result of a higher borrowing base
over the prior year. The Company significantly increased its borrowing on credit facilities in March 2020
to ensure a high amount of liquidity in the event that the pandemic led to a credit crisis similar to the
one that followed the financial crisis in 2008. In Q4 2020, when management was confident that the
probability of such an outcome was unlikely given the monetary stimulus provided by central
governments, the Company applied excess funds against its credit facilities to return its borrowing base
to levels consistent with the needs required by its business activity;
Interest on lease liabilities reflects the notional interest expense associated with real estate lease
payments made during the period. There was no amount for the comparative period as the adoption of
IFRS 16 was made on a modified retrospective basis as of November 1, 2019;
18 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Results of operations – year ended October 31, 2020 and 2019 (continued)
Depreciation and amortization increased to $1,621,121 from $1,330,258 primarily driven by the addition
of $2,670,000 in identifiable intangible assets related to the acquisition of eZForex.com on September
6, 2019 (see note 5b to the consolidated financial statements), and $2,580,424 in intangible assets,
excluding goodwill, related to the acquisition of Denarius on July 29, 2020 (see note 5a to the
consolidated financial statements). The incremental expense associated with the additions is partially
offset by the elimination of depreciation and amortization on assets that became fully depreciated after
April 30, 2019;
Depreciation on right-of-use assets reflects the amortization of amounts related to the real estate assets
used during the period in accordance with IFRS 16. There is no amount for the comparative period as
the standard was adopted on November 1, 2019 using a modified retrospective approach;
The COVID-19 pandemic crisis and measures enacted to curtail the effects of COVID-19 have posed
significant challenges to the Company and has brought uncertainties for the business. The Company has
enacted several measures in response to the pandemic to reduce costs and maintain liquidity. These
measures have comprised a number of restructuring actions, including the permanent closure of 11 of its
retail branch locations, reduced operating hours at its remaining branches, elimination of 112 employment
positions since the beginning of the crisis, including the consolidation of certain management positions. As
a result, the Company has recognized restructuring expenses of $1,072,472 in the year-ended October 31,
2020, (2019 - $Nil). These expenses represent both obligations incurred as a result of the actions taken in
addition to impairment charges on tangible, intangible and right-of-use assets that have been impaired as
a result of the actions taken and the impact of the pandemic (see note 21 to the consolidated financial
statements);
Income tax benefit of $1,818,697 in the year ended October 31, 2020 compares to an expense of
$1,623,186 for the prior year and is reflective of the change from a profit to a loss position. The income
tax benefit includes the initial recognition of a deferred tax asset of $110,207 arising from the adoption
of IFRS 16. The income tax benefit represents an effective tax rate of 17.6% compared to the statutory
tax rate of 26.5%. The primary reason for the variance relates to $993,662 in future benefits that relate
to net operating losses of EBC that were not recognized, in accordance with IAS 12. This is due to the
fact that the pandemic has created uncertainty around the ability to generate future taxable income
against which the losses would need to be applied in order to realize a benefit;
To assist in understanding the impact of IFRS 16 on the consolidated financial statements, and for
comparability purposes, the following table depicts the adjustments necessary to present select financial
information for the year ended October 31, 2020 on a proforma basis as if the Company had accounted
for its leases in all material respects under the previous accounting standard, IAS 17, as follows:
19 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Results of operations – three-month periods ended October 31, 2020 and 2019
Revenue for the three-month period ended October 31, 2020 declined by 57% over the same period in
the prior year. The declines were similar in both Canada and the U.S., reflecting the significant impact
that pandemic-related travel restrictions have had on consumer demand for banknotes. By October 31,
2020, the Company had permanently closed or was in the process of closing 11 branch locations. In
addition, many of the Company’s financial institution clients were operating at reduced capacity during
the quarter. While the number of banknote transactions has declined by approximately 86% over the
same quarter in 2019, the Company managed to partially offset this from growth in its customer base
and increasing margins, such that overall revenue declined by 57% over the prior year. The Company
expects consumer demand for foreign banknotes to be weak until such time as the risk of transmission
from the coronavirus is reduced to an acceptable level that stimulates international travel and tourism.
However, the Company continues to grow the payment business, which increased by 52% in Q4 2020
as compared to Q4 2019, as the increase in the customer base, in part due to the acquisition of DFG,
more than offset weakness from the economic contraction as a result of pandemic related actions.
A breakdown of revenues by geographic location is presented below:
Three-months ended
October 31, 2020
$
Three-months ended
October 31, 2019
$
Change
Change
$
%
Revenues by Geography
4,034,114
901,803
4,935,917
9,564,465
1,904,615
(5,530,351)
(1,002,812)
11,469,079
(6,533,163)
Revenues by Product Line
3,861,151
1,074,766
4,935,917
10,763,817
705,262
(6,902,666)
369,504
11,469,079
(6,533,163)
-58%
-53%
-57%
-64%
52%
-57%
United States
Canada
Total
Banknotes
Payments
Total
During the three-month period ended October 31, 2020, operating expenses decreased 29% to
$6,778,117 compared to $9,605,638 for the three-month period ended October 31, 2019. Normalizing for
the impact of IFRS 16, which was implemented on November 1, 2019 using the modified retrospective
approach, operating expenses would have decreased by 24% to $7,312,976.
The major components of operating expenses are presented in the table below, with commentary for
significant variances:
Salaries and benefits
Rent
Legal and professional
Postage and shipping
Stock based compensation
Travel and entertainment
Bank service charges
Information technology
Losses and shortages
Insurance
Other general and administrative
Operating expenses
Three months ended
October 31, 2020
$
Three months ended
October 31, 2019
$
3,776,658
305,229
913,018
348,745
175,339
48,855
325,410
368,317
(6,617)
145,256
387,903
6,788,112
4,827,339
991,167
837,186
1,456,884
195,317
204,892
247,835
307,080
82,283
103,417
352,239
9,605,638
Change
$
(1,050,682)
(685,938)
75,833
(1,108,139)
(19,977)
(156,037)
77,575
61,237
(88,900)
41,839
35,664
(2,817,525)
Change
%
-22%
-69%
9%
-76%
-10%
-76%
31%
20%
100%
40%
10%
-29%
20 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Results of operations – three-month periods ended October 31, 2020 and 2019 (continued)
Salaries and benefits decreased 22% to $3,776,658 from $4,827,339 which is attributed to a net
reduction in year-over-year employment by 19% or 66 positions;
Rent expense decreased 69% to $305,229 from $991,167. This decrease is primarily attributable to the
adoption of IFRS 16 on November 1, 2019 using the modified retrospective approach. On a comparable
basis under the previous standard, IAS 17, rent expense would have decreased 16% to $831,591 in the
three-months ending October 31, 2020 from $991,167 in the prior period, which includes $10,593 in
abatements received from landlords for retail locations that were closed for certain periods during the
year;
Legal and professional fees increased 9% to $913,018 from $837,186. This includes $196,873 in non-
recurring fees incurred relative to a key strategic initiative for EBC, an application for a direct relationship
with the Federal Reserve. When normalized for these costs, professional fees on a comparable basis
decreased by 14%, reflective of a conscious effort to reduce the use of external advisors;
Postage and shipping decreased 76% to $348,745 from $1,456,884 primarily driven by the decrease in
banknote activity associated with the impact of COVID-19 discussed above. Shipping fees recovered
from customers are netted against shipping charges charged to the Company;
Stock based compensation decreased 10% to $175,339 from $195,317, which is primarily a result of the
option exchange program in which 241,463 options granted in prior years were cancelled, accelerating the
expense associated with those options into the period ended July 31, 2020. The Company recorded $2,509
in expense related to the replacement grants in the three-month period ended October 31, 2020 (see note
18 to the consolidated financial statements);
Travel and entertainment decreased 76% to $48,855 from $204,892 as business travel virtually ceased
due to the pandemic;
Bank service charges increased 31% to $325,410 from $247,835. The increase is related primarily to
increased volumes for payments related activity. These charges are offset partially by fees collected on
wire payments, which are captured in revenues;
Other general and administrative expenses increased 10% to $387,903 from $352,238. These expenses
comprise licenses and fees, utilities, office supplies, foreign exchange gain and losses, and other
general and administrative expenses. There were declines in all categories, but the larger variances
included an increase of $83,861 in foreign exchange losses on the translation of foreign denominated
balances during the quarter, and an increase of $44,459 in miscellaneous taxes and penalties. These
increases were partially offset by a $59,745 decrease in office supplies due to a lower utilization of the
office space during the pandemic, and a $24,512 decrease in license and fees as the Company changed
its capitalization policy to expense all items below $3,000 effective November 1, 2019. As most license
renewals occur early in the fiscal year, the majority of the fees related to FY2020 have been expensed
in previous periods. There was no significant change in licenses and fees on a full-year basis.
The ratio of operating expenses to total revenue for three-month period ended October 31, 2020 was
138% compared to 84% for the three-month period ended October 31, 2019, reflecting the significant
reduction in revenue as a result of COVID-19. Excluding the reduction in operating expenses related
to the adoption of IFRS 16, this ratio would have been 148% in the three-month period ended October
31, 2020. The Company expects this ratio to improve as a result of the cost reduction actions
implemented coupled with anticipated growth in revenue. It is expected that wholesale banknote
revenue will recover slowly until the risk of transmission from the coronavirus is reduced to an acceptably
low level to enable the resumption of international travel.
21 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Results of operations – three-month periods ended October 31, 2020 and 2019 (continued)
Other income and expenses comprise the following:
Other income
Government grants
Provision for loss
Gain on sale of assets
Other expenses
Interest expense
Interest on lease liabilities
Depreciation and amortization
Depreciation of right-of-use-assets
Restructuring and Impairment charges
Income tax benefit (expense)
Total other expense
Three months ended
October 31, 2020
$
Three months ended
October 31, 2019
$
1,390
343,818
(680,261)
390
(14,428)
(45,508)
(62,147)
(479,780)
(475,495)
(1,072,472)
871,055
(1,613,437)
10,084
-
-
3,800
-
(46,006)
-
(334,841)
-
-
(727,085)
(1,094,048)
The government grant income relates to the previously discussed support programs that the Company’s
subsidiary, Exchange Bank of Canada received support (see page 11). In the three-month period ended,
October 31, 2020 EBC qualified for $327,475 in grants under the Canada Emergency Wage Subsidy
program, of which $86,447 was a receivable as of the reporting date, and $16,343 under the Canada
Emergency Rent Subsidy, which was a receivable as of the reporting date;
The provision for loss relates to the additional provision taken in the three-month period ended October 31,
2020 related to the bankruptcy of one of the Company’s wholesale customers (see page 11);
Other expenses are related to financing fees incurred for the new credit facility with Desjardins Group (see
Note 14 to the consolidated financial statements);
Interest expense was essentially flat at $45,508 versus $46,006, as a higher borrowing base for part of
the quarter was offset by lower interest rates;
Interest on lease liabilities reflects the notional interest expense associated with real estate lease
payments made during the period. There was no amount for the comparative period as the adoption of
IFRS 16 was made on a modified retrospective basis as of November 1, 2019;
Depreciation and amortization increased to $479,780 from $334,841 primarily driven by the addition of
$2,670,000 in identifiable intangible assets related to the acquisition of eZForex.com on September 6,
2019 (see note 5 to the consolidated financial statements), and $2,580,424 in intangible assets,
excluding goodwill, related to the acquisition of Denarius on July 29, 2020 (see note 5a to the
consolidated financial statements). The incremental expense associated with the additions is partially
offset by the elimination of depreciation and amortization on assets that became fully depreciated after
April 30, 2019;
Depreciation on right-of-use assets reflects the amortization of amounts related to the real estate assets
used during the period in accordance with IFRS 16. There is no amount for the comparative period as
the standard was adopted on November 1, 2019 using a modified retrospective approach;
The restructuring and impairment charges are identical to those in the full-year commentary (see page
12);
22 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Results of operations – three-month periods ended October 31, 2020 and 2019 (continued)
Income tax benefit for the three-month period ended October 31, 2020 of $871,055 changed from an
expense of $727,085 in the three-month period ended October 31, 2019 and is reflective of the change
from a profit to a loss position. The income tax benefit represents an effective tax rate of 33.6%
compared to the statutory tax rate of 26.5%. The primary reason for the variance relates to the expected
recovery on filing for a research and development tax credit related to previous years in the amount of
$121,883. In addition, there was an adjustment in Q4 2020 related to the implementation of a new
transfer pricing methodology between CXI and its subsidiary, Exchange Bank of Canada, that was
retroactive to November 1, 2020. These increases were partially offset by the income tax benefit
associated with net operating losses in EBC that were not recognized, in accordance with IAS 12, as
discussed in the full-year commentary (see page 12).
To assist in understanding the impact of IFRS 16 on the consolidated financial statements, and for
comparability purposes, the following table depicts the adjustments necessary to present select financial
information for the three-month period ended October 31, 2020 on a proforma basis as if the Company
had accounted for its leases in all material respects under the previous accounting standard, IAS 17, as
follows:
Cash flows
Cash flows from operating activities during the year ended October 31, 2020 resulted in an outflow of
$1,183,000, compared to an inflow of $10,952,224 during the year ended October 31, 2019.
Approximately one-quarter of the decrease in operating cash flow was due to the impact of the net loss
adjusted for non-cash items, while the remainder was due to changes in working capital, as sales volume
declined significantly.
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, 2020 resulted in an outflow of
$3,110,196 compared to an outflow of $4,942,662 during the year ended October 31, 2019. The primary
reason for the outflow was the $3,461,265 in cash consideration paid to acquire the assets of DFG. In
2019, the outflows represented additions to property and equipment, largely related to the opening of
the Montreal vault location and internally developed software as well as proceeds.
Cash provided by financing activities during the year ended October 31, 2020 was $795,043 compared
to $508,955 during the year ended October 31, 2019. The Company increased usage of its line of credit
to $3,305,605 on October 31, 2020 to ensure a high amount of liquidity, compared to a balance of
$472,736 on October 31, 2019.
23 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Liquidity and capital resources
At October 31, 2020, the Company had working capital of $47,755,695 (October 31, 2019 -
$58,932,941).
The Company maintains a line 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, 2020 – 2.15% (2019 – 2.1%)]. At October
31, 2020, the balance outstanding was $Nil (October 31, 2019 - $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
($4,505,181) being secured against cash assets held in its vaults. The line of credit bears interest at
CDN prime plus 0.5% [at October 31, 2020 – 2.95% (2019 – 4.45%)]. At October 31, 2020, the balance
outstanding was $3,305,605 (October 31, 2019 - $472,736).
the Company’s wholly-owned Canadian subsidiary, EBC, established a
In October of 2020,
CDN$2,000,000 revolving line of credit with Desjardins Group (“Desjardins”), being secured against
collateral of CDN$2,000,000 posted at October 31, 2020.The line of credit bears interest at CDN prime rate
plus 0.25% (at October 31, 2020 - 2.70%). At October 31, 2020, the balance outstanding was $Nil
The Company had a total available balance of unused lines of credit of $22,701,303 at October 31,
2020 (October 31, 2019 - $24,086,534).
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 consolidated
financial statements for the relevant period and notes related thereto. The operating results for any past
period are not necessarily indicative of results for any future period. The selected financial information
set out below has been derived from the consolidated financial statements of the Company.
Year ended
October 31, 2020
$
25,013,423
(3,985,791)
(8,524,029)
($1.33)
($1.33)
85,758,518
27,528,783
4,065,164
47,755,694
Year ended
October 31, 2019
$
41,784,043
6,152,042
2,924,720
$0.46
$0.46
82,729,716
16,400,679
-
58,932,941
Year ended
October 31, 2018
$
39,098,141
8,137,804
Year ended
October 31, 2017
$
32,477,220
7,921,509
4,227,243
3,821,469
$0.67
$0.67
73,267,274
10,545,337
-
$0.62
$0.61
63,968,227
7,475,609
-
59,483,137
52,778,077
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
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.
24 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Forward and option contract activity
The Company enters into non-deliverable foreign currency forward and option contracts on a daily basis to
mitigate the risk of fluctuations in the exchange rates of its holdings of major currencies. Changes in the
fair value of the contracts and the corresponding gains or losses are recorded daily and are included in
commissions from trading on the consolidated statements of income and comprehensive income. The
Company’s management strategy is to reduce the risk of fluctuations associated with foreign exchange rate
changes. The foreign currency forward contracts can be closed immediately resulting in the collateral being
liquidated.
The fair value of forward and option contracts, which represents the amount that would be (paid) received
by the Company if the forward contracts were terminated at October 31, 2020 was $92,447 (October 31,
2019 - $1,735).
At October 31, 2020 and October 31, 2019 approximately $2,963,474 and $644,657, 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 years ended October 31, 2020
and 2019 were as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
October 31, 2020
October 31, 2019
$
2,824,853
72,710
1,005,912
3,903,475
$
2,535,331
99,795
706,831
3,341,957
The Company incurred legal and professional fees in the aggregate of $210,795 for the year ended October
31, 2020 (2019 - $299,000) charged by entities controlled by directors or officers of the Company.
The Company has clients that are considered related parties through two of its directors. The Company
generated $59,000 in revenue from these clients’ activities in the year ended October 31, 2020 (October
31, 2019 – $130,000). As at October 31, 2020, net accounts receivable included $57,714 from related
parties (2019 - $228,000).
On October 1, 2011, the Company entered into an employment agreement with the President and CEO
of the Company. Such agreement contains clauses requiring additional payments of a minimum of
$450,000 to be made upon the occurrence of certain events such as a change of control of the Company
or termination for reasons other than cause. As the likelihood of a change of control of the Company is
not determinable, the contingent payments have not been reflected in the consolidated financial
statements.
Advances between CXI and EBC are provided under a Revolving Line of Credit, renewed May 31, 2018;
loans attract interest at LIBOR + 2%, are repayable on demand, and are unsecured. At October 31, 2020,
the intercompany loan balance was $8,565,000 (October 31, 2019 - $11,250,000) and was eliminated upon
consolidation.
Key management personnel and directors occasionally conduct transactions with the Company as
individuals. Such transactions are immaterial individually and in total, including for the years ending October
31, 2020 and 2019, and are conducted pursuant to the Company’s policies.
25 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Transactions with related parties (continued)
All transactions with related parties as noted above are carried out in the normal course of business and at
prevailing market rates.
Option grants
The Company offers an incentive stock option plan which was established on April 28, 2011 and was
amended most recently October 20, 2017 (the "Plan"). The Plan is a rolling stock option plan, under which
10% of the outstanding shares at any given time are available for issuance thereunder. The purpose of the
Plan is to promote the profitability and growth of the Company by facilitating the efforts of the Company to
attract and retain directors, senior officers, employees, and management. Under the terms of the Plan,
vesting of options occur 1/3 upon the first anniversary, 1/3 upon the second anniversary and 1/3 upon the
third anniversary of the grant, and the options have a five-year term, unless otherwise specified by the
Board of Directors. Below is information related to each option grant:
Date of
Grant
Expiry Date
Share price at
grant date
(CAD$)
Amount
granted
Risk-free
interest rate
Expected
volatility
Exercise
Price
(CAD$)*
Fair value of
option at grant
date ($)
6-Jun-17
6-Jun-22
9-Aug-18
9-Aug-23
23-Jan-19
23-Jan-24
4-Mar-19
4-Mar-24
4-Mar-19
4-Mar-24
4-Jun-19
4-Jun-24
23-Oct-19
23-Oct-24
23-Oct-19
23-Oct-24
24-Jun-20
24-Jun-25
24-Jun-20
24-Jun-25
29-Jul-20
29-Jul-25
20.79
30.93
30.14
25.98
17.03
17.03
17.03
17.03
12.50
12.50
10.98
9,865
10,200
4,127
13,316
30,000
5,837
72,376
228,754
7,586
22,369
18,000
1.71%
2.80%
2.60%
2.50%
1.58%
1.58%
1.58%
1.58%
0.33%
0.33%
0.26%
37%
31%
27%
27%
24%
24%
24%
24%
23%
23%
23%
29-Oct-20
*Exercise price is determined by the volume-weighted average share price for the previous 20 trading days
29-Oct-30
322,352
0.34%
10.00
23%
21.53
30.69
28.23
25.83
17.36
17.36
17.36
17.36
12.74
12.74
10.83
10.83
5.27
7.74
7.18
5.65
3.07
3.07
3.07
3.07
1.87
1.87
1.76
1.33
The outstanding options at October 31, 2020 and the respective changes during the periods are
summarized as follows:
Outstanding at October 31, 2019
Granted
Exercised
Forfeited/Cancelled/Expired
Outstanding at October 31, 2020
Number of
options
#
Weighted average
price
CAD$
708,366
370,307
-
(345,870)
732,803
22.52
10.98
-
29.14
14.01
26 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Option grants (continued)
The following options were outstanding and exercisable at October 31, 2020:
Grant Date
6-Jun-17
9-Aug-18
23-Jan-19
4-Mar-19
23-Oct-19
6-Apr-19
23-Oct-19
23-Oct-19
24-Jun-20
24-Jun-20
29-Jul-20
29-Oct-20
Total
Exercise
price
(Cdn$)
Number
outstanding
21.53
30.69
28.23
25.83
17.36
17.36
17.36
17.36
12.74
12.74
10.83
10.00
5,586
2,500
4,127
13,316
30,000
5,837
72,376
228,754
22,369
7,586
18,000
322,352
732,803
Average remaining
contractual life
(years)
1.60
2.77
3.23
3.34
3.34
3.59
3.98
3.98
4.65
4.65
4.75
10.00
Number exercisable
5,586
-
1,375
4,439
10,000
5,837
72,376
76,251
22,369
-
18,000
-
216,233
The October 23, 2019 grant of 228,754 options was made outside of the Company’s stock option plan, and
in accordance with the policies of TSX was approved by the shareholders on March 25, 2020.
On June 24, 2020 grants totaling 40,369 options were made to several officers of the Company that
voluntarily reduced their salaries from June 1, 2020 through August 31, 2020. The options were fully vested
on the date of grant, and the amount of the stock-based compensation recorded is equivalent to the gross
salary that was forfeited by the officers.
On July 28, 2020, the Company offered an option replacement program whereby holders of certain
“underwater” options were given a limited opportunity to surrender for cancelation such options and receive
as compensation a significantly lower number of new options (the “Replacement Program”). The
Replacement Program only applied to options granted to officers and directors on October 26, 2016,
October 26, 2017, August 9, 2018 and October 23, 2018 who remained employed by the Company on the
date that the Replacement Program was offered. Participants in the Replacement Program are eligible to
receive one new option in exchange for every eight options tendered for cancelation. The replacement
options may not be granted until 90 days has passed since the cancellation of the options tendered for
cancelation and must have an exercise price equivalent to the fair market value of the common shares at
the date of grant. All of the eligible option holders elected to participate in the Replacement Program. As a
result, 241,463 options to purchase common shares were cancelled on July 31, 2020, and 19,450 options
were cancelled on September 28, 2020. A grant of 30,182 replacement options was issued on October 29,
2020 related to the options that were cancelled on July 31, 2020. The Company recorded expenses of
$113,740 related to the Replacement Program in on the year ended October 31, 2020 (see note 18 to the
consolidated financial statements).
On October 29, 2020, 322,352 options were granted to officers and directors, which had a weighted
average exercise price of CAD$10.83 and an expiry date of 10 years from the date of grant. At October
31, 2020, 75,810 options granted to officers on October 30, 2015 expired. No options were exercised before
expiry.
27 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Subsequent events
The Company evaluated subsequent events through January 27, 2021, the date this MD&A was prepared.
The Company changed its long-term incentive plan (LTIP) for Directors and Officers to comprise a mix of
stock options coupled with Deferred Share Units (“DSUs”) for Directors or Restricted Stock Units (“RSUs”)
for Officers and management, collectively referred to as the "Plans". The DSUs and RSUs that may be
granted under the respective Plans can be realized in cash only and may not be converted into common
shares of the Company. The purpose of these Plans 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 Plans, vesting of RSUs awarded to management
awarded under the Plans will occur 1/3 upon the first anniversary, 1/3 upon the second anniversary and 1/3
upon the third anniversary of the grant, while vesting of DSUs awarded to directors under the Plans will
occur equally on a quarterly basis in the first year after the grant. The RSUs and DSUs have a three-year
term, unless otherwise specified by the Board of Directors. On November 1st, 2020, the Company granted
certain RSU and DSU awards made under the Plans in the amount of $388,000 and $220,000 respectively.
On January 25, 2021, the Company extinguished its revolving line of credit with Bank of Montreal. In its
place, the Company established a fully collateralized revolving line of credit with Desjardins (see note 14 in
the consolidated financial statements).
There were no other material subsequent events that required recognition or additional disclosure in the
consolidated 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, 2020 and 2019. On November 1, 2019, the Company adopted
IFRS 16 Leases (“IFRS 16”) which contained new guidance for the recognition of leases. The new Standard
has been applied using the modified retrospective approach, with the cumulative effect of adoption as at
November 1, 2019 being recognized as a single adjustment to retained earnings. For a full breakdown of
the impact of the adoption of IFRS, refer to note 3 to the consolidated financial statements.
Financial Risk factors
Outbreak of Infectious Diseases
The Company’s banknote business, which represents a significant portion of commissions revenue, is
highly correlated to international travel patterns by consumers. The Company’s business has been and is
expected to continue to be adversely affected by the effects of the widespread outbreak of respiratory illness
caused by COVID-19 in its primary North American market, as well as by travel restrictions imposed by
governments on limit the effects of COVID-19 on health of local and global population, including restrictions
on air travel to and from North America. The Company cannot accurately predict the impact COVID-19 will
have on its future revenue and business undertaking, due to uncertainties relating to the ultimate
geographic spread of COVID-19, the severity of the disease, the duration of the pandemic, and the length
of travel and quarantine restrictions imposed by governments of affected countries. As a result, the
Company cannot be assured that measures it has taken, or may take in the future, for business continuity
and cost containment will be effective as it is not possible to predict how the Company may be affected if
COVID-19 pandemic persists for an extended period of time or in the event of similar health crises in the
future.
28 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
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 and option 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. 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, with one exception (see note 21 to the consolidated financial statements).
Due to seasonality, amounts in accounts receivable are usually at their highest during peak periods. They
are atypically low at October 31, 2020 due to the reduction in economic activity caused by COVID-19 related
impacts. A breakdown of accounts receivable by category is below:
Customer type
Domestic and international financial institutions
Money service businesses
Other
Total
At October 31, 2020
$
2,923,202
846,168
2,141,993
5,911,363
At October 31, 2019
$
2,575,497
7,274,152
693,603
10,543,252
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
Foreign Currency Risk (continued)
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 and option
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, 2020 was approximately $6,010,000 (October 31,
2019 - $6,860,000). The amount of currency that is unhedged and that is not pegged to the U.S. Dollar is
approximately $4,672,000 (2019 - $5,464,000). 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 +$93,000/-$93,000 (October 31, 2019 gain/loss of approximately +$109,000/-$109,000).
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.
29 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Interest Rate Risk
At October 31, 2020, the Company had access to interest bearing financial instruments in cash, short term
accounts payable and its 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, 2020 would have been approximately +$19,500/-$19,500 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 Chief Financial Officer informs the Chief Executive Officer, the Board of Directors, and the Audit
Committee of capital and liquidity issues as they occur in accordance with established policies and
guidelines. The Company targets to have a cash reserve or credit lines greater than 15% of the Company's
prior year's revenues.
The following are non-derivative contractual financial liabilities:
Non-derivative financial
liabilities
Accounts payable
Line of credit
Accrued expenses
Contingent consideration
Contract liability
Carrying amount
At October 31, 2020
Estimated
contractual amount
$
14,690,553
3,305,605
2,467,453
703,560
163,901
$
14,690,553
3,305,605
2,519,167
703,560
163,901
This fiscal year
Future fiscal
years
$
14,690,553
3,305,605
2,467,453
$Nil
$Nil
$
$Nil
$Nil
$Nil
703,560
163,901
At October 31, 2019
Non-derivative financial
liabilities
Carrying amount
Accounts payable
Line of credit
Accrued expenses
Contract liability
$
12,583,741
472,736
2,767,711
266,392
Estimated
contractual amount
$
12,583,741
472,736
2,437,831
266,392
Next fiscal year
Future fiscal
years
$
12,583,741
472,736
2,437,831
$Nil
$
$Nil
$Nil
$Nil
266,392
30 Management Discussion and Analysis
(All amounts expressed in U.S. Dollars unless otherwise noted)
For the three-months and year ended October 31, 2020 and 2019
Capital Management
The Company manages capital through its financial and operational forecasting processes. The Company
defines working capital as total current assets less total 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, 2020
$
71,219,313
(23,463,619)
47,755,694
At October 31, 2019
$
75,333,620
(16,400,679)
58,932,941
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.
31 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Financial Statements
For the years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
32 TABLE OF CONTENTS
Independent Auditor’s Report
Consolidated Statements of Financial Position
Consolidated Statements of Operations and Comprehensive (Loss) Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
34-36
37
38
39
40
41-76
33 Independent auditor’s report
Grant Thornton LLP
11th Floor
200 King Street West
Toronto, ON
M5H 3T4
T +1 416 366 0100
F +1 416 360 4949
To the shareholders of
Currency Exchange International, Corp.
Opinion
We have audited the consolidated financial statements of Currency Exchange International, Corp. and its
subsidiaries (“the Group”), which comprise the consolidated statements of financial position as at October 31,
2020, and October 31, 2019 and the consolidated statements of operations and comprehensive (loss) income,
consolidated statements of changes in equity and consolidated statements of cash flows for the years then
ended, and notes to the consolidated financial statements, including a summary of significant accounting
policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at October 31, 2020 and October 31, 2019, and its consolidated
financial performance and its consolidated cash flows for the years then ended in accordance with International
Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the
Consolidated Financial Statements section of our report. We are independent of the Group in accordance with
the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Information Other than the Consolidated Financial Statements and Auditor’s Report Thereon
Management is responsible for the other information. The other information comprises the Management
Discussion and Analysis but does not include the consolidated financial statements and our auditor's report
thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Audit | Tax | Advisory
© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
34
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with International Financial Reporting Standards (IFRSs), 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.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or
has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures
in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely responsible
for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
Audit | Tax | Advisory
© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
35 We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor's report is Grant Cuylle.
Toronto, Canada
January 27, 2021
Chartered Professional Accountants
Licensed Public Accountants
Audit | Tax | Advisory
© Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd
36 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Financial Position
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
ASSETS
October 31, 2020
October 31, 2019
Current assets
Cash (Note 7)
Accounts receivable (Note 16)
Restricted cash held in escrow (Note 8)
Forward and option contracts (Note 17)
Income taxes receivable
Other current assets (Note 23)
Total current assets
Property and equipment (Note 9)
Intangible assets (Note 10)
Goodwill (Note 10)
Other assets
Right-of-use assets (Note 11)
Net deferred tax asset
Total assets
$
59,311,553
5,911,363
2,963,474
92,447
1,829,664
1,110,812
71,219,313
873,643
5,938,900
2,207,733
103,187
4,389,091
1,026,651
85,758,518
LIABILITIES AND EQUITY
Current liabilities
Line of credit (Note 14)
Accounts payable
Accrued expenses
Contract liability
Income taxes payable
Loss provision (Note 24)
Contingent consideration (Note 5)
Lease Liabilities (Note 11)
Total current liabilities
Long term liabilities
Contingent consideration (Note 5)
Lease liabilities (Note 11)
Other long-term liabilities
Total long-term liabilities
Total liabilities
Equity
Share capital
Equity reserves
Retained earnings
Total equity
Total liabilities and equity
3,305,605
14,690,553
2,519,167
163,901
-
675,000
359,666
1,749,727
23,463,619
343,894
3,455,107
266,163
4,065,164
27,528,783
6,414,936
29,967,681
21,847,118
58,229,735
85,758,518
$
62,873,873
10,543,252
644,657
1,735
-
1,270,103
75,333,620
1,552,941
3,910,749
1,238,319
101,686
-
592,403
82,729,718
472,736
12,583,741
2,767,711
266,392
310,099
-
-
-
16,400,679
-
-
-
-
16,400,679
6,414,936
29,204,578
30,709,525
66,329,037
82,729,718
The accompanying notes are an integral part of these consolidated financial statements.
37 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Operations and Comprehensive (Loss) Income
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
Revenues
Commissions revenue
Fee revenue
Total revenues (Note 6)
Operating expenses (Note 20)
Net operating (loss) income
Other (loss) income
Interest revenue
Government grants (Note 2)
Provision for loss (Note 24)
Gain on sale of assets
Restructuring expenses and impairment loss (Note 21)
Other expenses
Interest expense (Note 14)
Interest on lease liabilities (Note 11)
Depreciation and amortization
Depreciation of right-of-use-assets (Note 11)
(Loss) Income before income taxes
Income tax (recovery) expense
Net (loss) income for the period
Other comprehensive income, after tax
Net (loss) income for the period
Year ended
October 31, 2020
October 31, 2019
$
23,300,609
1,712,814
25,013,423
28,999,214
$
39,251,501
2,532,542
41,784,043
35,632,001
(3,985,791)
6,152,042
10,773
761,533
(1,693,207)
390
(1,072,472)
(14,428)
473,242
272,687
1,621,121
1,982,474
(10,342,726)
(1,818,697)
(8,524,029)
23,564
-
-
5,775
-
-
6,181,381
303,218
-
1,330,258
-
4,547,905
1,623,185
2,924,720
Earnings before interest, taxes, depreciation and amortization
(5,993,202)
(8,524,029)
2,924,720
Items that may subsequently be reclassified to profit or loss
Exchange differences on translating foreign operations
Total other comprehensive (loss) income
(274,561)
(8,798,590)
(Loss) earnings per share (Note 19)
-basic
-diluted
($1.33)
($1.33)
Weighted average number of common shares outstanding (Note 19)
-basic
-diluted
6,414,936
6,414,936
(101,699)
2,823,021
$0.46
$0.46
6,412,593
6,415,629
The accompanying notes are an integral part of these consolidated financial statements.
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39
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Consolidated Statements of Cash Flows
Years ended October 31, 2020 and 2019
(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
Depreciation of right-of-use assets
Stock based compensation
Change in forward and option contract positions (Note 15)
Loss (gain) on disposal, impairment of assets and leases
Deferred taxes
Increase (decrease) in cash due to change in:
Accounts receivable
Restricted cash held in escrow
Income taxes receivable
Other assets
Contract liability
Loss provision (Note 24)
Accounts payable, accrued expenses, deposits and income taxes payable (Note 21)
Net cash flows from operating activities
Cash flows from investing activities
Purchase of property and equipment
Purchase of intangible assets
Acquisitions, net of cash acquired (Note 5)
Contingent liabilities
Proceeds from sale of long-term asset
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from exercise of stock options (Note 18)
Repayment of leasing liabilities
Interest on leasing liabilities
Net borrowing on line of credit (Note 14)
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
October 31, 2020
October 31, 2019
$
(8,524,029)
1,621,121
1,982,474
1,005,903
(90,608)
614,596
(436,907)
4,518,684
(2,295,460)
(1,298,634)
157,287
(194,249)
680,261
1,321,066
(938,495)
(123,175)
(469,305)
(3,461,265)
699,046
-
$
2,924,720
1,330,258
-
743,391
9,119
(5,775)
(542,799)
(917,471)
1,354,286
(183,087)
(143,819)
265,939
-
6,117,462
10,952,224
(1,205,437)
(529,421)
(3,226,616)
-
18,812
(3,354,699)
(4,942,662)
-
(2,288,112)
272,513
2,810,641
795,042
(3,498,152)
62,873,873
(64,168)
59,311,553
1,613,148
745,929
10,773
40,685
-
-
468,270
508,955
6,518,517
56,402,979
(47,623)
62,873,873
1,275,469
303,218
23,564
The accompanying notes are an integral part of these consolidated financial statements.
40 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
1.
Nature of Operations and Basis of Presentation
Nature of operations
Currency Exchange International, Corp. (the "Company") was originally incorporated under the name
Currency Exchange International, Inc. under the Florida 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 and payments business that provides currency exchange, wire transfer, and cheque
cashing services from its locations in the United States and Canada. The Company maintains a head office
and five vaults as well as 35 branch locations (see Note 11), and 272 employees. 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
registered as a non-deposit taking, non-lending “Schedule 1” bank engaged in foreign exchange services.
Basis of presentation
The presentation currency of the Company's consolidated financial statements is the U.S. Dollar. The
accounting policies set out in Note 2 have been applied consistently to all periods presented in these
consolidated financial statements. These consolidated financial statements have been prepared on a
historical cost basis, except for the following assets and liabilities which are stated at their fair value: financial
instruments classified as fair value through profit or loss (“FVTPL”), foreign currency forward and option
contracts, contingent consideration 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”).
These consolidated financial statements were authorized for issue and approved by the Board of Directors
on January 27, 2021.
2.
Accounting Policies
Principles of consolidation
The consolidated financial statements comprise the financial statements of the Company and its wholly-
owned subsidiaries, EBC, a Schedule 1 bank in Canada, and eZforex.com, Inc. (“eZforex”), a Texas-based
money service business. 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.
Recently adopted accounting standards
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, including
IFRIC 23 Uncertainty Over Income Tax Treatments, and have been excluded.
41 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
In 2020, the Company adopted the new guidance for the recognition of leases under IFRS Leases (“IFRS
16”) (see Note 3). The new Standard has been applied using the modified retrospective approach, with the
cumulative effect of adoption as at November 1, 2019 being recognized as a single adjustment to retained
earnings. Accordingly, the Company is not required to present a third statement of financial position as at
that date.
In June 2020, the International Accounting Standards Board (“IASB”) published an amendment ‘COVID-19
Related Rent Concessions (amendment to IFRS 16)’ (the “amendment”). The amendment adds a practical
expedient to IFRS 16 which provides relief for lessees in assessing whether specific COVID-19 rent
concessions are considered to be lease modifications. Instead, if this practical expedient is applied, these
rent concessions are treated as if they are not lease modifications. The Company has adopted this
amendment for the year ended October 31, 2020 (see Note 3 and Note 11)
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 amended standards and interpretations have not yet been adopted and
are not expected to have a significant impact on the Company’s consolidated financial statements:
- Amendments to References to Conceptual Framework in IFRS Standards;
- Definition of a Business (Amendments to IFRS 3);
- Definition of Material (Amendments to IAS 1 and IAS 8); and
-
IFRS 17 Insurance Contracts.
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 at customer locations on consignment;
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, 2020 and 2019,
respectively.
Accounts receivable
Trade accounts receivable are stated net of an allowance for doubtful accounts. Accounts receivable
consist primarily of bulk currency trades with a settlement cycle of 24 to 48 hours. The amount of accounts
receivable varies widely from period to period due to the volume of activity and timing differences. The
Company applies a simplified approach in accounting for the allowance for doubtful accounts as lifetime
expected credit losses. These consider the potential for default during the life of the financial instrument
and are the expected shortfalls in contractual cash flows. To estimate the expected shortfall, the Company
considers specific customers, historical information, external indicators and forward-looking information.
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. Therefore, the allowance for doubtful
accounts was not impacted by the adoption of IFRS 9 Financial Instruments (“IFRS 9”). The Company
does not accrue interest on past due receivables. Management determined that the allowance for doubtful
accounts was $Nil as of October 31, 2020 and 2019, respectively.
42 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Revenue recognition
IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) provides a comprehensive framework for the
recognition, measurement, and disclosure of revenue from contracts with customers. To determine whether
to recognize revenue, the Company follows a five-step process whereby the Company: (1) identifies the
contract with the customer; (2) identifies the performance obligations; (3) determines the transaction price;
(4) allocates the transaction price to the performance obligations; and (5) recognizes revenue when or as
performance obligations are satisfied.
Commission revenues are the difference between the cost and selling price of foreign currency products,
including bank notes, wire payments, 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 and option 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 contracts are short term in nature and generally have a single
performance obligation. Revenue is recognized at a point in time, being at the time each transaction occurs,
and the performance obligation is satisfied, generally when the currency is delivered, or at the end of each
reporting period when revaluations of foreign exchange positions take place. Consideration received from
a customer prior to the satisfaction of the performance obligation is included as a contract liability in the
statement of financial position.
Fee income includes fees collected on cheque cashing, wire transfers, cheque collections, and currency
exchange transactions. These revenue contracts are short term in nature and generally have a single
performance obligation with revenue being recognized at a point in time being the time the transaction
occurs, and the performance obligation is satisfied, generally when the currency is delivered.
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 and eZforex is the United States 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 and option contracts
Foreign currency forward and option 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.
43 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Property and equipment
Property and equipment are 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.
Goodwill and intangible assets
Goodwill, representing the excess of the purchase price over the fair value of the net assets acquired, is
carried at its original value based on the acquisition, less impairment losses determined subsequent to the
acquisition.
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 business combinations
or asset purchase transactions. Costs that are directly attributable to a project’s development phase are
recognized as intangible assets, provided they have met the following recognition requirements:
the development costs can be measured reliably;
the project is technically and commercially feasible;
the Company intends to and has sufficient resources to complete the project;
the Company has the ability to use or sell the software; and
the software will generate probable future economic benefits.
Development costs not meeting these criteria for capitalization are expensed as incurred.
Amortization for intangibles is computed on an individual basis over the estimated economic life using the
straight-line method as follows:
Internally developed software
Acquired software
Customer trading relationships
Tradename, Non-competition agreements
5 years
2 years
5-10 years
5 years
Residual values and useful lives are reviewed at each reporting date.
44
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Business combinations
Business combinations are accounted for by applying the acquisition method. The acquisition method
involves the recognition of the acquiree’s identifiable assets and liabilities, including contingent liabilities,
regardless of whether they were recorded in the financial statements prior to acquisition. The acquiree’s
identifiable assets and liabilities that meet the conditions for recognition under IFRS 3 Business
Combinations (“IFRS 3”), are recognized at their fair value at the acquisition date.
The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured
at acquisition date fair value. Transaction costs related to the acquisition are expensed as they are incurred.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration that is determined
to be a financial asset or liability will be recognized in accordance with IFRS 9 Financial Instruments, at fair
value through profit or loss. Contingent consideration that is classified as equity is not re-measured, and its
subsequent settlement is accounted for within equity.
Goodwill arising on acquisition is recognized as an asset that represents the excess of acquisition cost over
the fair value of the Company’s share of the identifiable net assets of the acquiree on the date of the
acquisition. Any excess of identifiable net assets over the acquisition cost is recognized in net income
immediately after acquisition.
Where goodwill forms part of a cash generating unit (“CGU”) and part of the operation within that unit is
disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of
the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this
circumstance is measured based on the relative fair value of the operation disposed of and the portion of
the CGU retained.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which
the combination occurs, the Company reports provisional amounts for the items for which the accounting
is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets
or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed
at the acquisition date that, if known would have affected the amounts recognized at that time.
The measurement period may be up to one year from the acquisition date. Upon conclusion of the
measurement period or final determination of the values of assets acquired and liabilities assumed
whichever occurs first, any subsequent adjustments are recorded to income within the consolidated
statement of operations.
For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition
date and may extend its review and evaluation of these pre-acquisition contingencies throughout the
measurement period to obtain sufficient information to assess these contingencies as part of acquisition
accounting, as applicable.
45 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Provisions
Provisions are recognized when, (a) the Company has a present obligation (legal or constructive) as a
result of a past event, and (b) it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Where the Company expects some or all of a provision to be reimbursed, for example under an insurance
contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the consolidated statement of income and
comprehensive income net of any reimbursement. If the effect of the time value of money is material,
provisions are discounted using a current pretax 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.
No liability is recognized if an outflow of economic resources as a result of present obligations is not
probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.
Restructuring provisions
Provisions for legal disputes, onerous contracts or other claims are recognized when the Company has a
present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic
resources will be required from the Company and amounts can be estimated reliably. The timing or amount
of the outflow may still be uncertain.
Restructuring provisions are recognized only if a detailed formal plan for the restructuring exists and
management has either communicated the plan’s main features to those affected or started implementation.
Provisions are not recognized for future operating losses.
Holding and prepayment accounts
Holding and prepayment accounts represent funds received from customers that are held in the functional
currency of the Company on behalf of the customer, who has the unilateral right to transfer out or convert
the funds at any time. Amounts are initially measured at fair value, net of any transaction costs directly
attributable to the issuance of the instrument.
Holding and prepayment accounts are subsequently measured at amortized cost, using the effective
interest rate method. As at October 31, 2020, $1,595,364 related to these holding and prepayment accounts
were included in accounts payable (2019 - $386,837).
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.
46 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Financial instruments
Financial assets and financial liabilities are recognized on the consolidated statement of financial position
when the Company becomes a party to the contractual provisions of the financial instrument. The Company
is required to initially recognize all of its financial assets and liabilities, including derivatives and embedded
derivatives in certain contracts, 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.
Classification and measurement of financial assets
IFRS 9 provides guidance on the classification and measurement of financial assets and introduces an
‘expected credit loss’ model for the impairment of financial assets. IFRS 9 also contains new requirements
on the application of a hedging model to align hedge accounting more closely with entities’ risk management
activities.
IFRS 9 includes a new classification and measurement approach for financial assets that considers the
business model in which the assets are managed and their cash flow characteristics. Subsequent to initial
recognition, financial assets are not reclassified unless the Company adopts changes in its business model
in managing those assets. Financial assets, other than those designated and effective as hedging
instruments, are classified into the following categories: amortized cost; fair value through profit or loss
(“FVTPL”); or fair value through other comprehensive income (“FVTOCI”). The adoption of IFRS 9 did not
result in significant changes in the classification, measurement or carrying amount of financial assets.
Classification and measurement of financial liabilities
IFRS 9’s requirements for financial liabilities remains largely consistent compared to IAS 39. Subsequent
to initial recognition, financial liabilities are measured at amortized cost using the effective interest method,
except for derivatives and financial liabilities designated at FVTPL, which are carried subsequently at fair
value with gains or losses recorded in the statement of income. The adoption of IFRS 9 did not result in
significant changes in the classification, measurement or carrying amounts of financial liabilities.
The Company’s financial assets and liabilities are classified and measured as follows:
Cash
Accounts receivable
Restricted cash held in escrow
Forward and option contract assets
Accounts payable
Contract liability
Line of credit
Contingent consideration
Fair value through profit and loss
Amortized cost
Amortized cost
Fair value through profit and loss
Amortized cost
Amortized cost
Amortized cost
Fair value through profit and loss
Transaction costs other than those related to financial instruments classified as FVTPL or FVTOCI, which
are expensed as incurred, are added to or deducted from the fair value of the financial asset or financial
liability, as appropriate, on initial recognition and amortized using the effective interest method.
47 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Impairment of financial assets
IFRS 9’s impairment requirements use the ‘expected credit loss’ (“ECL”) model. The ECL model replaces
IAS 39’s ‘incurred loss model’ and uses forward-looking information to recognize expected credit losses.
Instruments within the scope of the new requirements included loans and other debt-type financial assets
measured at amortized cost and FVOCI, trade receivables, contract assets recognized and measured under
IFRS 15 and loan commitments and some financial guarantee contracts that are not measured at fair value
through profit or loss.
Under the new standard, the Company considers a wider range of information when assessing credit risk
and measuring expected credit losses, including past events, current conditions, and reasonable
projections that impact the collectability of the future cash flows of the instrument. The adoption of IFRS 9
and the ECL model had no impact on the Company’s consolidated financial statements.
Accounts receivable
The Company applies a simplified approach in accounting for the loss allowance for receivables and
contract assets as lifetime expected credit losses. These consider the potential for default during the life of
the financial instrument and are the expected shortfalls in contractual cash flows. To estimate the expected
shortfall, the Company considers specific customers, historical information, external indicators and forward-
looking information. Due to the longstanding relationships with most of its customers, strong repayment
history and the short-term nature of the financial assets, the loss allowance for receivables was not
impacted by the adoption of IFRS 9.
Derivative financial instruments and hedge accounting
Derivative financial instruments are accounted for at FVTPL, except for derivatives designated as hedging
instruments in cash flow hedge relationships, which require a specific accounting treatment. To qualify for
hedge accounting, the hedging relationship must meet all of the following requirements: there is an
economic relationship between the hedged item and the hedging instrument; the effect of credit risk does
not dominate the value changes that result from that economic relationship; and the hedge ratio of the
hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually
hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of
hedged item. As the Company does not apply hedge accounting, the consolidated financial statements
were not impacted by the new hedging requirements under IFRS 9.
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.
48 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
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.
Accounting for government grants and assistance
The Canada Emergency Wage Subsidy (“CEWS”) program became effective for periods beginning on
March 15, 2020 to support organizations that have been significantly impacted by the COVID-19 pandemic.
Under this program, EBC received a subsidy of up to 75% of qualified employees’ wages in each qualifying
four-week period that it met certain tests for revenue reduction. Through October 31, 2020 EBC qualified
for $745,190 in grants under the program, of which $198,990 was a receivable as of the consolidated
statement of financial position date. The Canada Emergency Rent Subsidy (“CERS”) program became
effective for rent periods beginning on September 27, 2020. Under this program, EBC received a subsidy
for up to 68% of qualified rent expenses. Through October 31, 2020 EBC qualified for $16,343, which was
a receivable as of the consolidated statement of financial position date. There are no obligations,
commitments or conditions associated with the programs that could create a requirement to repay all or a
part of the grants. The grant revenue has been recognized by the Company separately as other income
within the statement of operations.
49 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
2.
Accounting Policies (continued)
Through October 31, 2020 the Company qualified to defer $266,163 in Social Security taxes. Under
sections 2302(a)(1) and (a)(2) of the Coronavirus Aid, Relief and Economic Security Act (“CARES”),
employers may defer deposits of the employer's share of Social Security tax due during the "payroll tax
deferral period" and payments of the tax imposed on wages paid during that period. The payroll tax deferral
period commenced on March 27, 2020 and ends December 31, 2020. Repayment of the deferred amount
is not required prior to December 31, 2021 and therefore is classified in ‘other long-term liabilities.’
Impairment testing of goodwill, other intangible assets and property, plant and equipment
For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely
independent cash inflows (cash-generating units). As a result, some assets are tested individually for
impairment and some are tested at the cash-generating unit (“CGU”) level. Goodwill is allocated to those
cash-generating units that are expected to benefit from synergies of a related business combination and
represent the lowest level within the Company at which management monitors goodwill. CGUs to which
goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-
generating units are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s (or cash-generating unit’s) carrying
amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-
in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-
generating unit and determines a suitable discount rate in order to calculate the present value of those cash
flows. The data used for impairment testing procedures are directly linked to the Company’s latest approved
budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements.
Discount factors are determined individually for each cash-generating unit and reflect current market
assessments of the time value of money and asset-specific risk factors. Impairment losses for cash-
generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any
remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the
exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss
previously recognized may no longer exist. An impairment loss is reversed if the asset’s or cash-generating
unit’s recoverable amount exceeds it carrying amount.
3.
IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Interpretations (IFRIC 4 ‘Determining whether
an Arrangement contains a Lease’, SIC 15 ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the
Substance of Transactions Involving the Legal Form of a Lease’).
The adoption of this new Standard has resulted in the Company recognizing a right-of-use asset and related
lease liability in connection with all former operating leases except for those identified as low-value or leases
having substantive substitution rights.
The new Standard has been applied using the modified retrospective approach, with the cumulative effect
of adopting IFRS 16 being recognized in equity as an adjustment to the opening balance of retained
earnings for the current period. Prior periods have not been restated.
The Company has elected not to include initial direct costs in the measurement of the right-of-use asset for
operating leases in existence at the date of initial application of IFRS 16, being November 1, 2019. At this
date, the Company has also elected to measure the right-of-use assets at an amount equal to the lease
liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.
50 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
3.
IFRS 16 ‘Leases’ (continued)
Instead of performing an impairment review on the right-of-use assets at the date of initial application, the
Company has relied on its historic assessment as to whether leases were onerous immediately before the
date of initial application of IFRS 16.
On transition, for leases of low-value assets the Company has applied the optional exemptions to not
recognize right-of-use assets but to account for the lease expense on a straight-line basis over the
remaining lease term.
On transition to IFRS 16 the weighted average incremental borrowing rate applied to all lease liabilities
recognized under IFRS 16 was 5.0%.
The Company has applied historical experience in determining the estimated lease terms when considering
options to extend and terminate leases.
The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at November
1, 2019:
Right-of-use-assets
Lease liabilities
Total
Carrying Amount at
October 31,2019
Remeasurement
IFRS 16 carrying amount
at November 1, 2019
$
-
-
-
$
5,481,031
(6,092,927)
(611,896)
$
5,481,031
(6,092,927)
(611,896)
The following is a reconciliation of total operating lease commitments at October 31, 2019 to the lease
liabilities recognized at November 1, 2019:
Total operating lease commitments disclosed at October 31, 2019
Recognition exemptions:
Leases with substantive substitution rights
Leases with remaining lease term of less than 12 months
Variable lease payments not recognized
Other minor adjustments relating to commitment disclosers
(1,795,241)
(149,864)
(2,223,340)
-
Reasonably certain extension options
Operating lease liabilities before discounting
Discounted using incremental borrowing rate
Operating lease liabilities
Foreign currency translation
Total Lease liabilities recognized under IFRS 16 at November 1, 2019
6,306,225
(4,168,444)
5,062,692
7,200,473
(1,054,857)
6,145,616
(52,689)
6,092,927
Additional information with respect to the IFRS 16 changes can be found in Note 11.
51 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
4.
Significant management judgment in applying accounting policies and estimation uncertainty
When preparing the consolidated financial statements, management undertakes a number of judgments,
estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses.
The actual results may differ from judgments, estimates and assumptions made by management, and will
seldom equal the estimated results.
The judgments, estimates and assumptions applied in the consolidated financial statements, including the
key sources of estimation uncertainty, have been updated based on information at October 31, 2020 and
with particular respect to the analysis of potential impairment of the Company’s assets and its ability to
continue as a going concern.
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.
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, intercompany
allocations in accordance with its transfer pricing policy, 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.
Impairment of 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.
52 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
4.
(continued)
Significant management judgment in applying accounting policies and estimation uncertainty
Impairment of non-financial assets
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.
Goodwill is tested for impairment at least annually and at other times when such indicators exist.
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 18. Such judgments and
assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates.
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.
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.
53 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
4.
(continued)
Significant management judgment in applying accounting policies and estimation uncertainty
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 5 and Note 24.
5.
Acquisitions
5(a). Denarius Financial Group Inc.
On July 29, 2020 the Company’s wholly-owned subsidiary, Exchange Bank of Canada (“EBC”), acquired
certain assets of Denarius Financial Group Inc. (“DFG”), a payments business operating in the province of
Quebec for approximately 22 years. The assets that EBC acquired included a total of approximately 450
corporate customers that are engaged in international payments. 6 employees were retained and employed
in EBC’s Montreal Office. The Company determined that this acquisition met the definition of a business
and accounted for the transaction as a business combination under the acquisition method of accounting in
accordance with IFRS 3 Business Combinations.
EBC paid $2,748,290 (CAD 3,660,000) in cash on closing, and EBC’s parent company Currency Exchange
International (“CXI”) issued 18,000 fully vested stock options to the shareholders of the vendor on the date
of acquisition. In addition, there are two contingent payments of up to a maximum of $375,432 (CAD
500,000) each and payable on the first and second anniversary after closing. The additional payments will
be based on the amount of revenue generated from the customer trading relationships acquired. The
Company has estimated the likelihood of future revenues to determine the estimated contingent
consideration. Management had estimated these payments for the first and second anniversary at $343,894
(CAD 457,998) and $359,666 (CAD 479,003) respectively, for total contingent consideration of $727,130
(CAD 968,392). The Company allocated this contingent consideration to customer trading relationships.
An increase (decrease) in the estimate of the amount of revenue generated from the customer trading
relationships acquired of +/- 10% would not affect the fair value of the contingent consideration.
Assets assumed in the acquisition have been recorded at their fair values as at the date of acquisition. Due
to the timing of this acquisition, these amounts were provisional and subject to change at July 31, 2020.
Subsequently, the Company completed its measurement process once the necessary information was
obtained.
It was determined that the fair value of the purchase price was overstated by $23,570 (CAD 31,391) at July
31, 2020 as a result of a reduction in the long-term contingent consideration due to a change in estimate as
at the date of acquisition related to the discount rate applied. In addition, there was a reallocation of the value
of customer relationships by $923,105 (CAD 1,229,391). This was offset by an increase in the fair value of
the non-compete agreements and implied goodwill. The final fair value of these intangibles at the date of
acquisition was $3,430,402 (CAD 4,568,609). The final purchase price of Denarius acquisition was
$3,483,615 (CAD 4,639,481).
54 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
5.
Acquisitions (continued)
The provisional purchase price allocation (“PPA”), adjustments and final allocation of the purchase
consideration with the fair value of net assets acquired is as follows:
USD
CAD
Provisional PPA
Net tangible asset
Trade name
Unpatented technology
Customer relationships
Non-compete agreements
Implied goodwill
Total assets acquired at July 31, 2020
Provisional Purchase Consideration
Cash
Stock Options
Contingent Consideration
Contingent Consideration - long term
Total consideration at July 31, 2020
PPA allocation adjustments
Customer relationships
Non-compete agreements
Implied goodwill
Total adjustments at October 31, 2020
Contingent Consideration - long term
Total adjustments at October 31, 2020
Final PPA allocation
Net tangible asset
Trade name
Unpatented technology
Customer relationships
Non-compete agreements
Implied goodwill
Balance at October 31, 2020
Final Purchase Consideration
Cash
Stock Options
Contingent Consideration
Contingent Consideration - long term
Balance at October 31, 2020
5,158
37,543
10,512
3,153,627
225,259
75,086
3,507,185
2,748,290
31,765
359,666
367,464
3,507,185
(923,105)
76,588
822,947
(23,570)
(23,570)
(23,570)
5,158
37,543
10,512
2,230,522
301,847
898,033
3,483,615
2,748,290
31,765
359,666
343,894
3,483,615
6,872
50,000
14,000
4,200,000
300,000
100,000
4,670,872
3,660,000
42,480
479,003
489,389
4,670,872
(1,229,391)
102,000
1,096,000
(31,391)
(31,391)
(31,391)
6,872
50,000
14,000
2,970,609
402,000
1,196,000
4,639,481
3,660,000
42,480
479,003
457,998
4,639,481
The consolidated statements of operations and comprehensive (loss) income for the year ended October 31,
2020 include $288,234 (CAD 383,870) in revenue, and $446,259 (CAD 594,328) in expenses for a net pre-
tax loss of $158,025 (CAD 210,458) from the Denarius business after the date of acquisition. Expenses
include legal and professional fees associated with the transaction of $172,801 (CAD 230,136) and
amortization of $123,107 (CAD 163,954).
5(b). eZforex.com, Inc.
On September 6, 2019 the Company completed a share acquisition of eZforex.com, Inc. (“eZforex”). The
Company acquired 100% of the issued and outstanding shares of eZforex in exchange for cash consideration
of $4,180,993.
55 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
5.
Acquisitions (continued)
The Company determined that this acquisition met the definition of a business and accounted for the
transaction as a business combination using the acquisition method of accounting in accordance with IFRS 3
Business Combinations. Assets assumed in the acquisition have been recorded at their fair values as at the
date of acquisition. The excess of the consideration transferred over the fair value of the assets acquired has
been included in goodwill.
The acquisition is expected to contribute to the profitability of the Company through key customer contracts
acquired and synergies identified and expected to be realized in the elimination of redundant expenditures
including staff and overheads. In determining the fair market value of the assets acquired, synergies are not
factored in in order to assess a fair market participant value. As a result, goodwill was created which
represents the synergistic benefits to be realized by the Company starting immediately following acquisition.
The goodwill acquired is not expected to be deductible for tax purposes.
The allocation of the purchase consideration and the fair value of net assets acquired is as follows:
Net working capital, including cash
Computer software
Trade name
Customer trading relationships
Non-compete agreements
Deferred tax liability
Goodwill
Consideration paid
$954,377
90,000
470,000
1,910,000
200,000
(681,703)
1,238,319
$4,180,993
6.
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:
Year ended October 31, 2020
Year ended October 31, 2019
Revenues by Geography
United States
19,601,984
35,137,626
Canada
5,411,439
6,646,417
Total
25,013,423
41,784,043
Revenues by Product Line
Year ended October 31, 2020
Year ended October 31, 2019
Banknotes
21,595,790
39,144,401
Payments
3,417,633
2,639,642
Total
25,013,423
41,784,043
56 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
6.
Segments (continued)
Assets
Cash
At October 31, 2020
At October 31, 2019
United
States
$
Canada
Total
$
$
United
States
$
Canada
Total
$
$
39,322,593
19,988,960 59,311,553
37,760,599 25,113,274 62,873,873
Accounts receivable
5,187,707
723,656
5,911,363
4,961,794
5,581,458 10,543,252
Restricted cash held in escrow
Other current assets
Property and equipment
581,693
572,830
430,284
2,381,781
2,963,474
644,657
-
644,657
537,982
1,110,812
1,001,960
268,143
1,270,103
443,359
873,643
904,475
648,466
1,552,941
3,307,050
2,631,850
5,938,900
3,692,019
218,730
3,910,749
Intangible assets
Goodwill
Other assets
Forward and option contracts
Right-of-use assets
2,358,751
2,030,340
4,389,091
Income taxes receivable
1,829,664
-
1,829,664
1,309,700
898,033
2,207,733
1,238,319
103,187
55,232
-
37,215
103,187
92,447
101,686
-
-
1,238,319
101,686
-
-
-
-
-
-
-
-
-
Net deferred tax asset
805,307
221,344
1,026,651
368,399
224,002
592,401
Total assets
55,863,998
29,894,520
85,758,518
50,663,529 32,066,187 82,729,716
7.
Cash
Included within cash of $59,311,553 at October 31, 2020 (October 31, 2019 - $62,873,873) are the
following balances:
Cash held in transit, vaults, tills and consignment locations
Cash deposited in bank accounts in jurisdictions in which
the Company operates
Total
At October 31, 2020
$
34,340,751
At October 31, 2019
$
49,714,265
24,970,802
59,311,553
13,159,608
62,873,873
8.
Restricted Cash Held in Escrow
Certain of the Company's secured transactions and derivative contracts require the Company to post cash
collateral or maintain minimum cash balances in escrow. The foreign currency forward contracts can be
closed immediately resulting in the collateral being liquidated. The Company has also been required to post
the collateral associated with its new credit facility with Desjardins Group (see Note 14). At October 31, 2020
the Company had cash collateral balances of $2,963,474, represented by $1,461,747 (October 31, 2019 -
$644,657) being held as collateral on forward contracts and $1,501,727 (October 31, 2019 - $Nil) being held
on collateral on the Desjardins credit facility. These balances are reflected as restricted cash held in escrow
in the consolidated statements of financial position.
57 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
9.
Property and Equipment and Impairment of Asset
The Company has applied IAS 36 Impairment of Assets to ensure the assets are carried at no more than
their recoverable amount (see Note 21). Property and equipment consisted of the following:
Cost
Balance, October 31, 2018
Additions
Disposals
Net exchange differences
Balance, October 31, 2019
Additions
Disposals (Note 21)
Vehicles
Computer
equipment
Furniture and
equipment
Leasehold
improvements
Total
$
81,239
17,723
(32,988)
-
$
408,305
326,611
-
432
$
859,348
179,542
-
405
$
2,213,576
681,561
-
3,666
$
3,562,468
1,205,437
(32,988)
4,503
65,974
735,348
1,039,295
2,898,803
4,739,420
Net exchange differences
-
(1,646)
Balance, October 31, 2020
65,974
766,503
Vehicles
Computer
equipment
2,628
(2,628)
32,801
-
32,375
(654)
(4,055)
63,762
131,566
(244,504)
(247,786)
(8,372)
(14,073)
1,066,960
Furniture and
equipment
2,709,690
4,609,127
Leasehold
improvements
Total
Depreciation
Balance, October 31, 2018
Additions
Disposals
Net exchange differences
Balance, October 31, 2019
$
51,287
13,473
(19,952)
-
$
292,432
104,306
-
266
$
633,436
169,055
-
542
$
1,594,939
345,953
-
742
$
2,572,094
632,787
(19,952)
1,550
44,808
397,004
803,033
1,941,634
3,186,479
Additions
12,321
159,338
132,977
Impairment of asset (Note 21)
Disposals (Note 21)
Net exchange differences
-
(872)
(7)
-
-
(1,085)
-
(496)
(7,434)
368,376
120,926
673,012
120,926
(232,603)
(233,971)
(2,436)
(10,962)
Balance, October 31, 2020
56,250
555,257
Vehicles
Computer
equipment
928,080
Furniture and
equipment
2,195,897
3,735,484
Leasehold
improvements
Total
Carrying amounts
$
$
$
$
$
Balance, October 31, 2019
21,166
338,344
236,262
957,169
1,552,941
Balance, October 31, 2020
9,724
211,246
138,880
513,793
873,643
58 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
10.
Goodwill and Intangible Assets
Intangible assets comprise 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 as
well as the purchase of eZforex and DFG (see Note 5). 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
Tradename, Non-compete agreements
5 years
2 years
5-10 years
5 years
Internally
developed
software
Acquired
software
$
$
2,241,771
480,000
526,260
93,161
(217)
-
Customer
trading
relationships
Trade Name,
Non-Compete
& Unpatented
Tech Cost
Goodwill
Total
$
3,288,283
1,910,000
-
$
$
-
670,000
-
1,238,319
-
-
$
6,010,054
4,437,740
(217)
2,767,814
573,161
5,198,283
670,000
1,238,319
10,447,578
396,489
1,435
2,216,211
347,657
963,652
3,925,441
(3,202)
-
14,311
2,245
5,762
19,116
3,161,101
574,596
7,428,805
Internally
developed
software
Acquired
software
$
$
Customer
trading
relationships
$
1,090,916
480,000
3,014,260
1,019,902
Trade Name,
Non-Compete
& Unpatented
Tech Cost
$
-
378,823
6,750
292,098
19,800
488
-
15,375
-
1,470,227
486,750
3,321,733
19,800
533,110
45,000
236,000
134,000
(2,800)
919
358
405
2,000,537
532,669
3,558,091
154,205
2,207,733
14,392,135
Goodwill
Total
$
-
-
-
-
-
-
-
$
4,585,176
697,471
15,863
5,298,510
948,110
(1,118)
6,245,502
Internally
developed
software
Acquired
software
$
$
Customer
trading
relationships
Trade Name,
Non-Compete
& Unpatented
Tech Cost
Goodwill
Total
$
$
$
1,297,587
86,411
1,876,550
650,200
1,238,319
1,160,564
41,927
3,870,714
865,697
2,207,733
$
5,149,068
8,146,633
Cost
Balance, October 31,
2018
Additions
Net exchange
differences
Balance, October 31,
2019
Additions
Net exchange
differences
Balance, October 31,
2020
Amortization
Balance, October 31,
2018
Amortization
Net exchange
differences
Balance, October 31,
2019
Amortization
Net exchange
differences
Balance, October 31,
2020
Carrying amounts
Balance, October 31.
2019
Balance, October 31,
2020
59
CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
10.
Goodwill and Intangible Assets (continued)
The movements in the net carrying amount of goodwill are as follows:
Gross carrying amount
Balance October 31, 2019
Adjustment to the fair value of the eZforex.com
goodwill on acquisition
Acquired through business combination with DFG
Balance October 31, 2020
Accumulated impairment
Balance October 31, 2019
Impairment loss recognized
Balance October 31, 2020
October 31, 2020
$
1,238,320
71,380
898,033
2,207,733
-
-
-
Carrying amount at October 31, 2020
2,207,733
Impairment testing
There were no indicators of impairment at October 31, 2020 or 2019. The Company performs an annual
impairment test; however, no test was performed in fiscal 2019 as the goodwill arose from the acquisition
which occurred in Q4 2019 (see Note 5b).
For the purpose of annual impairment testing, goodwill is allocated to the cash generating units expected
to benefit from the synergies of the business combinations in which the goodwill arises as set out below
and is compared to its recoverable value.
Goodwill allocated to cash generating units
eZforex
Denarius
Total
Recoverable amount of cash generating units
eZforex
Denarius
October 31, 2020
$
1,309,700
898,033
2,207,733
October 31, 2020
$
5,174,373
5,136,689
The recoverable amount of each cash generating unit (“CGU”) was determined based on value-in-use
calculations, covering a detailed three-year forecast, followed by an extrapolation of expected cash flows
for the remaining useful lives using a declining growth rate determined by management. The present value
of the expected cash flows of each CGU is determined by applying a suitable discount rate reflecting current
market assessments of the time value of money and risks specific to the CGU.
eZforex
Denarius
Growth Rates
Discount Rates
October 31, 2020
2%
2%
October 31, 2020
20%
20%
60 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
10.
Goodwill and Intangible Assets (continued)
Growth rates
The growth rates reflect management’s best estimate of the average long-term growth rates from the
product mix and industry of the cash generating units. The growth rates are in-line with general standards
and are conservative in nature when compared to historical growth rates due to potential uncertainty.
Discount rates
The discount rates are pre-tax rates and reflect appropriate adjustments relating to market risk and specific
risk factors of each cash generating unit.
Cash flow assumptions
The key cash flow assumptions are based on the expected margins of each cash generating unit, which
have been determined based on a combination of past experience in the markets in which the Company
operates as well as historical information and the expected growth in the forecast period for the specific
cash generating units. The Company’s management believes that this is the best available input for
forecasting these markets. Cash flow projections reflect profit margins achieved immediately before the
most recent budget period as well as those utilized to value the recent acquisitions to which goodwill relates.
No material efficiency improvements have been taken into account.
Other than the considerations described in determining the recoverable amount of the cash generating
units described above, there are no other key assumptions.
11.
Leases
Lease liabilities are presented in the statement of financial position as follows:
Current lease liabilities
Non-current lease liabilities
Total
October 31, 2020
$
1,749,727
3,455,107
5,204,834
October 31, 2019
$
-
-
-
The Company has leases for corporate offices as well as its retail store locations. With the exception of
short-term leases and leases of low-value underlying assets, each lease, meeting the definition under IFRS
16, is reflected on the statements of financial position as a right-of-use asset and a lease liability. Variable
lease payments which do not depend on an index or a rate (such as lease payments based on a percentage
of Company sales) are excluded from the initial measurement of the lease liability and asset. The Company
classifies its right-of-use assets in a consistent manner to its property, plant and equipment (see Note 9).
Each lease generally imposes a restriction that, unless there is a contractual right for the Company to sublet
the asset to another party, the right-of-use asset can only be used by the Company. Leases are either non-
cancellable or may only be cancelled by incurring a substantial termination fee. Some leases contain an
option to extend the lease for a further term. The Company is prohibited from selling or pledging the
underlying leased assets as security. For leases over corporate offices and retail store locations, the
Company must keep those properties in a good state of repair and return the properties in their original
condition at the end of the lease.
61 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
11.
Leases (continued)
The table below describes the nature of the Company’s leasing activities by type of right-of-use asset
recognized on balance sheet:
Right-of-use asset
No of right-of-
use assets
leased
Range of
remaining
term
Average
remaining
lease term
No of
leases with
extension
options
No of
lease with
options to
purchase
No of leases
with variable
payments
linked to an
index
No of leases
with
termination
options
Equipment
Corporate offices
Retail store locations
Total
1
11
20
32
4 years
0-13 years
0-7 years
0-13 years
3
4
1
2
1
5
1
7
-
-
-
0
-
-
-
0
-
-
1
1
The lease liabilities are secured by the related underlying assets. Future minimum lease payments at
October 31, 2020 were as follows:
Within 1 year
1-2 years
2-3 years
3-4 years
4-5 years
After 5 years
Total
Lease payments
Finance charges
Net PV
1,943,911
194,315
1,749,596
1,057,761
132,477
925,284
554,976
106,145
448,831
418,154
89,831
328,323
388,546
75,824
312,722
1,671,417
231,339
1,440,078
6,034,765
829,931
5,204,834
The Company has elected not to recognize a lease liability for short term leases (leases with an expected
term of 12 months or less) or for leases of low value assets. In addition, the Company has not recognized
a right-of-use asset or lease liability with respect to leases identified where the lessor was determined to
have substantive substitution rights. Payments made under such leases are expensed on a straight-line
basis. In addition, certain variable lease payments are not permitted to be recognized as lease liabilities
and are expensed as incurred.
The expense relating to payments not included in the measurement of the lease liability is as follows:
Leases with substantial substitution rights
Short-term leases
Variable lease payments
Total
Year ended
October 31, 2020
October 31, 2019
$
608,314
187,196
328,969
1,124,479
$
-
-
-
-
At October 31, 2020, the Company was committed to short-term leases and the total commitment at that
date was $187,196. Through October 31, 2020 rent abatements of $281,334 were recorded as a reduction
to rent expense in accordance with the practical expedient for lessees under IFRS 16, as they are a
direct consequence of the COVID-19 pandemic. These abatements were related to certain retail
locations that were required to close in response to state or local orders during the pandemic. At October
31, 2020 the Company recorded restructuring expenses of $222,039 related to lease impairment on 3
retail store locations and 2 corporate offices as the consequence of COVID-19 pandemic (see Note 21).
This is included in restructuring and impairment expenses in the consolidated statement of operations.
62 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
11.
Leases (continued)
Total cash outflow for leases for the year ended October 31, 2020 was $2,288,112.
Additional information on the right-of-use assets by class of assets is as follows:
Carrying Amount
Depreciation
Expense
Impairment
$
4,528
2,452,245
1,932,318
4,389,091
$
1,873
597,779
1,382,822
1,982,474
$
-
86,326
135,713
222,039
Equipment
Corporate offices
Retail store locations
Total right-of-use assets
12.
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, 2020 and 2019 consist of the following:
Deferred tax assets
Accrued expenses
Stock based compensation
Other
Net property and equipment
Net leasing assets
Net intangible assets
Net operating loss
Total deferred tax assets
Deferred tax liabilities
Net property and equipment
Net intangible assets
Other
Total deferred tax liabilities
Net deferred tax asset
October 31, 2020
$
October 31, 2019
$
187,782
669,675
13,721
103,083
158,598
110,744
308,918
1,552,521
(131,069)
(345,906)
(48,895)
(525,870)
1,026,651
308,632
525,503
185,964
-
-
-
1,020,099
(129,004)
(298,692)
-
(427,696)
592,403
Reconciliation of the provision for income taxes to the amount calculated using the Company’s statutory
tax rate for the year ended October 31, 2020 and 2019 are as follows:
Income before taxes
Statutory tax rate
Tax expense at statutory rate
Recovery on exercise of director and employee stock options
Foreign tax rate adjustment
Other non-deductible differences
Initial recognition of right-of-use assets
Research and development tax credits related to prior years
Benefit not recognized on EBC operating losses
Income tax (benefit) expense
October 31, 2020
$
(10,342,726)
26.53%
(2,744,244)
-
-
163,975
(110,207)
(121,883)
993,662
(1,818,697)
October 31, 2019
$
4,457,905
25.53%
1,138,103
(2,283)
474,741
12,624
-
-
-
1,623,185
63 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
12.
Income Taxes (continued)
The enacted tax rates in the United States of 21% (2019 - 22%) and Canada of 26.5% (2019 – 26.5%)
where the Company operates are applied in the in the tax provision calculation.
The Company did not recognize a benefit related to net operating losses incurred in the year-ended October
31, 2020, in its Canadian subsidiary, Exchange Bank of Canada, due to uncertainty as to its ability to
generate future taxable income against which the losses may be applied. The estimated benefit not
recognized, based on the statutory tax rate in effect on the reporting date is $993,662. The losses may be
carried forward for up to twenty years.
The provision for income taxes for the year ended October 31, 2020 and 2019 consists of the following:
Current tax expense
Deferred tax expense
Income tax (expense) benefit
October 31, 2020
$
(1,382,079)
(436,618)
(1,818,697)
October 31, 2019
$
2,140,029
(516,844)
1,623,185
13.
Seasonality of Operations and Impact of Global Pandemic
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.
On March 11, 2020 the World Health Organization officially declared COVID-19, the disease caused by a
novel coronavirus (“COVID-19“), a pandemic. The spread of COVID-19 has severely impacted many local
economies around the globe. In many countries, including Canada and the United States of America,
businesses have been forced to cease or limit operations for long or indefinite periods of time. Measures
have been taken to contain the spread of the virus, including travel bans, quarantines, social distancing,
and closures of nonessential services. These measures have triggered significant disruptions to business
worldwide, resulting in reduced economic activity.
In response to measures implemented to curtail the effects of COVID-19, the Company closed all of its
retail locations on or around March 24, 2020 and began to re-open stores in May 2020. Certain locations
that re-opened were subsequently closed again due to a resurgence of COVID-19 in their respective states.
The Company chose to permanently close 11 of its branches, reducing its total number of locations to 35
at October 31, 2020, and eliminating 66 employees. This resulted in lease and asset impairment charges
of $664,647 and other restructuring charges of $407,825 in the year ending October 31, 2020 (2019 - $nil)
(see Note 21). In addition, many of the Company’s commercial customers have been impacted by COVID-
19, and the Company has also closed one vault temporarily due to the low volume of demand for banknotes.
Governments and central banks have responded with monetary and fiscal interventions to stabilize
economic conditions (see Note 2 and Note 11). While the Company continues to operate, it is not possible
to reliably estimate the duration and severity of these consequences as well as their impact on the financial
position and results of future periods.
64 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
14.
Lines of Credit
The Company maintains a line of credit to meet borrowing needs during peak business periods. The
Company has a revolving line of credit with BMO Harris Bank, N.A. with a limit of $20,000,000. The credit
line is secured against the Company’s cash and other assets. The line of credit bears interest at LIBOR
plus 2.0% (at October 31, 2020 – 2.15% (2019 – 2.1%)). At October 31, 2020, the balance outstanding
was $Nil (October 31, 2019 - $Nil).
The Company’s wholly-owned Canadian subsidiary, EBC, maintains a revolving line of credit with Bank of
Montreal with a limit of CAD 6,000,000 ($4,505,181) being secured against cash assets held in its vaults.
The line of credit bears interest at CAD prime plus 0.5% [at October 31, 2020 – 2.95% (2019 – 4.45%)]. At
October 31, 2020, the balance outstanding was $3,305,605 (October 31, 2019 - $472,736). On October
19, 2020, EBC established a CAD 2,000,000 revolving line of credit with Desjardins Group (“Desjardins”),
being secured against collateral of CAD 2,000,000. The line of credit bears interest at CAD prime rate plus
0.25% (at October 31, 2020- 2.70%). At October 31, 2020, the balance outstanding was $Nil.
On April 21, 2020 the Company received a loan in the amount of $2,397,000 from the Small Business
Administration (SBA) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. On May 14,
2020 the Company elected to make early repayment of the entire principal amount of the loan for
$2,398,506, including interest, thereby extinguishing all of its obligations under the CARES Act in respect
of this loan.
Interest expense relates to interest payments on lines of credit. Interest expense for year ended October
31, 2020 was $473,242 (October 31, 2019 - $303,218).
15.
Fair Value Measurement of Financial Instruments
IAS 34 requires that financial statements include certain disclosures about the fair value of financial
instruments as set out in IFRS 13 and IFRS 7. These disclosures include the classification of fair values
within a three-Level hierarchy. The three Levels are defined based on the observation of significant inputs
to the measurement, as follows:
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
Level 3: unobservable inputs for the asset or liability
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, 2020 and the year
ended October 31, 2019. The following table shows the Levels within the hierarchy of financial assets and
liabilities measured at fair value.
65 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
15.
Fair Value Measurement of Financial Instruments (continued)
Financial assets
Cash
Forward and option contract assets
Total Assets
Financial liabilities
Contingent consideration
Total liabilities
Financial assets
Cash
Forward and option contract assets
Total Assets
At October 31, 2020
Level 1
$
Level 2
$
Level 3
$
Total
$
59,311,553
-
59,311,553
-
92,447
92,447
- 59,311,553
92,447
59,404,000
-
-
-
-
703,560
703,560
-
At October 31, 2019
Level 1
$
Level 2
$
Level 3
$
Total
$
62,873,873
-
62,873,873
-
1,735
1,735
- 62,873,873
1,735
62,875,608
-
-
The long-term contingent consideration total was reduced by $23,419 (CAD31,391) at October 31, 2020 due
to a change in estimate related to the discount rate applied at the date of acquisition, July 29, 2020. (see Note
5).
Cash (Level 1)
The Company’s cash balances consisting of local and foreign currency notes held in tills, vaults, bank
accounts, and in transit are based upon foreign exchange rates quoted in active markets as of October 31,
2020 and October 31, 2019.
Forward and option 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.
Contingent consideration (Level 3)
The fair value of contingent consideration, related to the DFG business combination described in Note 5, is
estimated based on the amount of revenue generated from the acquired customer trading relationships.
The significant input for the fair value estimate is management’s estimate of revenues from acquired
customers to continue transacting with the Company. For information about the sensitivity of the fair value
measurement to the changes in the input at October 31, 2020 (see Note 5). The fair value estimate of cash
outflows is $2,730,528 at October 31, 2020. This reflects management’s best estimate of a retention rate
of key acquired customers in year 1 and in year 2.
66 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
15.
Fair Value Measurement of Financial Instruments (continued)
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;
Contract liability
Accounts payable and accrued expenses;
Lines of credit; and
16.
Risk Management
The Company's activities expose it to a variety of financial risks: 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 these financial 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. The majority of the Company's
receivables reside with banks, money service business customers and other financial institutions. Due to
seasonality, amounts in accounts receivable are usually at their highest during peak periods. They are
lower than normal at October 31, 2020 due to the reduction in activity caused by the pandemic. The
company has longstanding relationships with most of its money service business customers and has a
strong repayment history, with one exception (see Note 24).
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.
67 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
16.
Risk Management (continued)
A breakdown of accounts receivable by category is below:
Customer type
Domestic and international banks
Money service businesses
Other
Total
At October 31, 2020
$
2,923,202
846,168
2,141,993
5,911,363
At October 31, 2019
$
2,575,497
7,274,152
693,603
10,543,252
The maximum exposure to credit risk is represented by the carrying amount of each financial asset on the
statement of financial position. There are no commitments that could increase this exposure to more than
the carrying amount.
Foreign Currency Risk
The volatility of the Company's foreign currency holdings may increase as a result of the political and
financial environment of the corresponding issuing country. Several currencies have limited exchange rate
exposure as they are pegged to the U.S. Dollar, the reporting currency of the Company. Management
believes its exposure to foreign currency fluctuations is mitigated by the short-term nature and rapid
turnover of its foreign currency inventory, as well as the use in certain instances of forward contracts to
offset these fluctuations. Due to their nature, some minor and exotic foreign currencies cannot be hedged
or are too cost prohibitive to hedge.
In order to mitigate the risks associated with holding these foreign currencies, the Company assigns wider
bid/ask spreads and maintains specific inventory targets to minimize the impact of exchange rate
fluctuations. These targets are reviewed regularly and are increased or decreased to accommodate
demand within acceptable risk tolerances. The amount of unhedged inventory held in tills, vaults and in
transit at October 31, 2020 was approximately $6,010,000 (October 31, 2019 - $6,860,000). The amount
of currency that is unhedged and that is not pegged to the U.S. Dollar is approximately $4,672,000 (October
31, 2019- $5,464,000). 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 +$93,000/-
$93,000 (October 31, 2019 gain/loss of approximately +$109,000/-$109,000).
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, 2020, 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
68 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
16.
Risk Management (continued)
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.
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, 2020 would have been approximately +$19,500/-$19,500 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.
Management has assessed the Company’s cash position at October 31, 2020 and determined that it is
sufficient to meet its financial obligations despite the reduction in revenue related to COVID-19.
The following are non-derivative contractual financial liabilities:
Non-derivative financial
liabilities
Accounts payable
Line of credit
Accrued expenses
Contingent consideration
Contract liability
Carrying amount
At October 31, 2020
Estimated
contractual amount
This fiscal year
Future fiscal years
$
14,690,553
3,305,605
2,519,167
703,560
163,901
$
14,690,553
3,305,605
2,467,453
703,560
163,901
$
14,690,553
3,305,605
2,467,453
$Nil
$Nil
$
$Nil
$Nil
$Nil
703,560
163,901
Non-derivative financial
liabilities
Carrying amount
At October 31, 2019
Estimated
contractual amount
Next fiscal year
Future fiscal years
Accounts payable
Line of credit
Accrued expenses
Contract liability
$
12,583,741
472,736
2,767,711
266,392
$
12,583,741
472,736
2,437,831
266,392
$
12,583,741
472,736
2,437,831
$Nil
$
$Nil
$Nil
$Nil
266,392
The Company had available unused lines of credit amounting to $22,701,303 at October 31, 2020
(October 31, 2019 - $24,086,534).
69 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
16.
Risk Management (continued)
Capital Management
The Company manages capital through its financial and operational forecasting processes. The Company
defines working capital as total current assets less current liabilities. The Company reviews its working
capital and forecasts its cash flows based on operating expenditures, and other investing and financing
activities related to its daily operations.
Current assets
Current liabilities
Working capital
At October 31, 2020
At October 31, 2019
71,219,313
(23,463,619)
47,755,694
75,333,620
(16,400,679)
58,932,941
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.
17.
Foreign Currency Forward and Option Contracts
The Company enters into foreign currency forward and purchase put option contracts to mitigate the risk of
fluctuations in the exchange rates of its holdings of major currencies. Changes in the fair value of the
contracts and the corresponding gains or losses are recorded daily and are included in commission
revenues on the consolidated statements of operations and other 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 foreign currency option contracts are held to maturity and are either exercised for a net gain
or expire at no obligation to the Company.
The fair value of forward and option contracts, which represents the amount that would be received/(paid)
by the Company if the forward contracts were terminated at October 31, 2020 was $92,447 (October 31,
2019 - $1,735).
At October 31, 2020 the Company had cash collateral balances related to forward contracts being held of
$1,461,747 (October 31, 2019 - $644,657). They are reflected as restricted cash held in escrow in the
consolidated statements of financial position (see Note 8).
70 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
18.
Equity
Share Capital
The authorized share capital consists of 100,000,000 common shares. The common shares have a par
value of $1.00. The options exercised during the current and prior periods are summarized as follows:
Period Exercised
Number of shares
USD value
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
6,424
-
-
845
-
-
-
-
63,272
-
-
61,316
-
-
-
-
Stock options
The Company offers an incentive stock option plan which was established April 28, 2011 and was amended
most recently October 20, 2017 (the "Plan"). The Plan is a rolling stock option plan, under which 10% of
the outstanding shares at any given time are available for issuance thereunder. The purpose of the Plan
is to promote the profitability and growth of the Company by facilitating the efforts of the Company to attract
and retain directors, senior officers, employees, and management. Under the terms of the Plan, vesting for
management under the Plan will occur 1/3 upon the first anniversary, 1/3 upon the second anniversary and
1/3 upon the third anniversary of the grant, while vesting for directors under the plan will occur equally on
a quarterly basis in the first year after the grant. All the options have a five-year term, unless otherwise
specified by the Board of Directors.
The outstanding options at October 31, 2020 and the respective changes during the periods are
summarized as follows:
Outstanding at October 31, 2019
Granted
Exercised
Forfeited/Cancelled/Expired
Outstanding at October 31, 2020
Number of options
Weighted average price
#
CAD$
708,366
370,307
-
(345,870)
732,803
22.52
10.98
-
29.14
14.01
71 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
18.
Equity (continued)
The following options are outstanding and exercisable at October 31, 2020:
Grant Date
6-Jun-17
9-Aug-18
23-Jan-19
4-Mar-19
23-Oct-19
6-Apr-19
23-Oct-19
23-Oct-19
24-Jun-20
24-Jun-20
29-Jul-20
29-Oct-20
Total
Exercise price
(CAD$)
Number
outstanding
21.53
30.69
28.23
25.83
17.36
17.36
17.36
17.36
12.74
12.74
10.83
10.00
5,586
2,500
4,127
13,316
30,000
5,837
72,376
228,754
22,369
7,586
18,000
322,352
732,803
Average
remaining
contractual
life (years)
1.60
2.77
3.23
3.34
3.34
3.59
3.98
3.98
4.65
4.65
4.75
10.00
Number exercisable
5,586
-
1,35
4,439
10,000
5,837
72,376
76,251
22,369
-
18,000
-
216,233
The October 23, 2019 grant of 228,754 options was made outside of the Company’s stock option plan, and
in accordance with the policies of TSX and was approved by the shareholders on March 25, 2020.
On June 24, 2020 grants totaling 22,369 options were made to several officers of the Company that
voluntarily reduced their salaries from June 1, 2020 through August 31, 2020. The options were fully vested
on the date of grant, and the amount of the stock-based compensation recorded is equivalent to the gross
salary that was forfeited by the officers.
On July 29, 2020, the Company offered an option replacement program whereby holders of certain
“underwater” options were given a limited opportunity to surrender for cancelation such options and receive
as a compensation a significantly lower number of new options (the” Replacement Program”). The
Replacement Program only applied to options granted to officers and directors on October 26, 2016,
October 26, 2017, August 9, 2018 and October 23, 2018 who remained employed by the Company on the
date that the Replacement Program was offered. Participants in the Replacement Program are eligible to
receive one new option under the Company’s stock option plan in exchange for every eight options tendered
for cancelation. The replacement options may not be granted until 90 days has passed since the
cancellation of the options tendered for cancelation and must have an exercise price equivalent to the fair
market value of the common shares at the date of grant. All of the eligible option holders elected to
participate in the Replacement Program. As a result, 241,463 options to purchase common shares were
cancelled on July 31, 2020 and 19,450 options were cancelled on September 28, 2020. A grant of 30,182
replacement options was issued on October 29, 2020 related to the options that were canceled on July 31,
2020. The Company recorded expenses of $113,740 related to the Replacement Program in the year
ending October 31, 2020.
On October 29, 2020, 322,352 options were granted to officers and directors which have a weighted
average exercise price of CAD10.83 and an expiry date of 10 years from the date of grant. At October
31, 2020, 75,810 options granted to officers on October 30, 2015 expired. No options were exercised prior
to expiration.
72 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
19.
(Loss) earnings per Share
The calculation of earnings per share is presented below. Diluted earnings per share for the year ended
October 31, 2020 include all stock option grants with the exception of the options granted October 30, 2015,
March 11, 2016, October 26, 2016, June 6, 2017, October 26, 2017, August 9, 2018, October 23, 2018,
January 23, 2019, March 4, 2019, and October 23, 2019 as the strike price exceeded the average stock
price for the period.
Basic
Net (loss) income
Weighted average number of shares outstanding
Basic earnings (loss) per share
Diluted
Net (loss) income
Weighted average number of shares outstanding
Diluted earnings (loss) per share
Year ending
October 31, 2020
October 31, 2019
($8,524,029)
$2,924,720
6,414,936
($1.33)
6,412,593
$0.46
($8,524,029)
$2,924,720
6,414,936
($1.33)
6,415,629
$0.46
20.
Operating Expenses
The table below identifies the composition of the nature and amounts included within the operating
expenses presented on the Statement of Operations for the years ending October 31, 2020 and 2019.
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
Year ending
October 31, 2020
October 31, 2019
$
16,866,772
1,152,141
2,824,561
2,373,942
1,005,903
386,739
1,234,725
1,330,994
276,556
497,701
$
18,298,892
3,780,465
2,930,426
5,094,817
743,391
702,207
856,589
1,119,280
426,385
440,493
Other general and administrative
1,049,180
1,239,058
Operating expenses
28,999,214
35,632,001
Rent expense was impacted by the adoption to IFRS 16 under the modified retrospective approach on
November 1, 2019 and is not directly comparable to the year ended October 31, 2020 (see Note 3).
73 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
21.
Restructuring Expenses and Impairment Loss
The COVID-19 pandemic crisis and measures enacted to curtail the effects of COVID-19 have posed
significant challenges to the Company and has brought uncertainties for the business. The Company has
enacted several measures in response to the pandemic to reduce costs and maintain liquidity. These
measures have been comprised of a number of restructuring actions, including the permanent closure of
11 of its retail branch locations, reduced operating hours at its remaining branches, the elimination of 106
employment positions since the beginning of the pandemic, including a consolidation of certain
management positions. As a result, the Company has recognized restructuring expenses and impairment
loss of $1,072,472 in the year-ended October 31, 2020, (2019 - $Nil), which are included in the consolidated
statement of operations. These expenses represent both obligations incurred as a result of specific actions
taken in addition to impairment charges on tangible, intangible and right-of-use assets that have been
impaired as a result of the actions taken and/or the impact of the pandemic. Some of the amounts
measured involve management estimates (see Notes 2,3,4,9,11 and 13).
The significant elements of the restructuring expense are identified in the table below.
Rent related to periods subsequent to closure
Lease impairment
Impairment of property and equipment assets
Operating expense
Termination benefits
Loss on disposal of asset
Loss on lease termination
Total restructuring expense and impairment loss
October 31, 2020
172,774
222,039
120,926
42,747
365,078
13,757
135,151
1,072,472
At October 31, 2020 the Company recorded $172,774 related to future rent expense and $222,039 in
impairment charges on right-of-use assets for 4 retail branch locations that were closed or in the process
of closing as well as 2 leases for certain office space that were determined to be surplus at October 31,
2020. In addition, impairment charges were recognized on property and equipment assets related to these
leases, primarily leasehold improvements, of $120,926. The Company also recorded $42,747 in operating
expenses associated with the closures. Termination benefits relates to employees that were severed as
part of the restructuring.
22.
Compensation of Key Management Personnel and Related Party Transactions
In accordance with IAS 24 Related Party Disclosures, key management personnel are those persons
having authority and responsibility for planning, directing and controlling activities of the Company directly
or indirectly, including any directors (executive and non-executive) of the Company. The remuneration of
directors and other members of key management personnel during the year ended October 31, 2020 and
2019 was as follows:
Short-term benefits
Post-employment benefits
Stock based compensation
Year ending
October 31, 2020
October 31, 2019
$
2,824,853
72,710
1,005,912
3,903,475
$
2,535,331
99,795
706,831
3,341,957
74 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
22.
Compensation of Key Management Personnel and Related Party Transactions (continued)
The Company incurred legal and professional fees in the aggregate of $211,000 for the year ended October
31, 2020 (2019 - $299,000) charged by entities controlled by directors or officers of the Company.
The Company has clients that are considered related parties through two of its directors. The Company
generated $59,000 in revenue from these clients’ activities for the twelve-month period ended October 31,
2020 (2019 – $130,000). As at October 31, 2020, accounts receivable included $189,000 from related
parties (2019 - $228,000).
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 interim consolidated financial
statements.
Advances between CXI and EBC are provided under a $20,000,000 Revolving Line of Credit, renewed July
1, 2018 loans attract interest at LIBOR + 2%, are repayable on demand, and are unsecured. At October
31, 2020, the intercompany loan balance was $8,565,000 (October 31, 2019 - $11,250,000) and was
eliminated upon consolidation.
Key management personnel and directors occasionally conduct transactions with the Company as
individuals. Such transactions are immaterial individually and in total, including for the years ending October
31, 2020 and 2019, and are conducted pursuant to the Company’s policies.
All transactions with related parties as noted above are carried out in the normal course of business and at
prevailing market rates.
23.
Other Current Assets
Prepaid rent
Prepaid personnel
Prepaid computer software
Prepaid insurance
Prepaid advertising
Other current assets
Total
At October 31, 2020
At October 31, 2019
$
248,682
53,494
101,786
86,286
20,833
599,731
$
296,102
-
175,517
315,992
20,833
461,659
1,110,812
1,270,103
24.
Loss provision and contingent liability
A wholesale customer of the Company that owed money filed a Notice of Intention to Make a Proposal to
its creditors under the Bankruptcy and Insolvency Act (Canada) (“BIA”) on April 30, 2020. At April 30, 2020
the Company recorded a loss provision of $1,012,946 for amounts owed to it by the customer. Such
customer subsequently failed to make a proposal to its creditors and was automatically placed into
Bankruptcy on June 30, 2020, resulting in the Company becoming an unsecured creditor of the bankrupt
customer’s estate. Subsequent to September 9, 2020 the Trustee in Bankruptcy has claimed that three
payments that the customer made to the Company in April 2020 that total $1,000,000 were made within 90
75 CURRENCY EXCHANGE INTERNATIONAL, CORP.
Notes to the Consolidated Financial Statements
Years ended October 31, 2020 and 2019
(Expressed in U.S. Dollars)
24.
Loss provision and contingent liability (continued)
days of the date of bankruptcy, and therefore were preferential, in contravention of the BIA. At October 31,
2020 the Company has recorded an additional provision of $675,000 as a reasonable estimate of the
expected future cash outflows with respect to this customer’s bankruptcy. As at January 27, 2021, no legal
action has been commenced by the Trustee.
25.
Subsequent events
The Company evaluated subsequent events through January 27, 2021 the date these consolidated financial
statements were issued.
On November 1, 2020 the Company offered Deferred Share Unit “DSU” Plan and Restricted Stock Unit
“RSU” Plan (the "Plans"). The awards that may be granted under each of the Plans can be realized in cash
only and may not be converted into common shares of the Company. The purpose of these Plans 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 Plans, vesting of the
awards that may be granted under the Plans for management will occur 1/3 upon the first anniversary, 1/3
upon the second anniversary and 1/3 upon the third anniversary of the grant, while vesting for awards that
may be granted under the Plans for directors will occur equally on a quarterly basis in the first year after
the grant. All the awards have a three-year term, unless otherwise specified by the Board of Directors. On
November 1st, 2020, the Restricted Stock Unit “RSU” and Deferred Stock Unit “DSU” awards made total of
$388,000 and $220,000 respectively.
.
On January 25, 2021, the Bank extinguished its revolving line of credit with Bank of Montreal. In its place,
the Bank established a fully collateralized revolving line of credit with Desjardins (see Note 14).
There were no other material subsequent events that required recognition or additional disclosure in the
financial statements.
76 Board of Directors
Joseph August
Chirag Bhavsar
Johanne Brossard
Director of CXI
Director of EBC
Committees: Governance Committee
Member, Risk Committee Member
Independent board member since 2011
Chair of the Board of CXI
Director of EBC
Committees: Audit & Conduct Review
Committee Member, Governance
Committee Member, Risk Committee
Member
Independent board member since 2012
Director of CXI
Director of EBC
Committees: Chair of the Governance
Committee, Risk Committee Member
Independent board member since 2018
Chitwant Kohli
Stacey Mowbray
Director of CXI
Chair of the Board of EBC
Committees: Chair of the Audit &
Conduct Review Committee, Risk
Committee Member
Independent board member since 2018
Director of CXI
Director of EBC
Committees: Audit & Conduct Review
Committee Member, Governance
Committee Member
Independent board member since 2019
Mark D. Mickleborough
Director of CXI
Director of EBC
Board member since 2007
Randolph W. Pinna
Director of CXI
Director of EBC
President and CEO of CXI
President and CEO of EBC
Board member since 2007
Shareholder Information
V. James Sardo
Daryl Yeo
Director of CXI
Director of EBC
Committees: Audit & Conduct Review
Committee Member, Governance
Committee Member
Independent board member since 2012
Director of CXI
Director of EBC
Committees: Chair of the Risk
Committee, Audit & Conduct Review
Committee Member
Independent board member since 2019
Annual Meeting of Shareholders
Shareholders are invited to attend the virtual annual
meeting of Currency Exchange International, Corp. to
be held on March 17, 2021 at 12:00 p.m. (EST).
address or ownership, lost certificates, to eliminate
duplicate mailings or to receive shareholder material
electronically, please contact our Transfer Agents in
Canada.
Details on how to attend via webcast or telephone will
be listed on CXI’s investor relations webpage:
www.ceifx.com/investor-relations
Transfer Agent
Computershare Investor Services
100 University Ave, 8th Floor, South Tower
Toronto, Ontario Canada M5J 2Y1
Investor Relations
Financial Analysts, portfolio managers and other
investors requiring financial information may contact
our Investor Relations’ departments:
Telephone: (800) 564 6253 (Toll Free)
Facsimile: (888) 453 0330 (Toll Free)
Web Site: www.computershare.com
(USA) Telephone: (407) 240 0224
(USA) Toll-Free: (888) 998 3948
(USA) Email: InvestorRelations@ceifx.com
(CANADA) Telephone: (416) 479 9547
(CANADA) Email: bill.mitoulas@ceifx.com
Shareholder Services
For
share account,
information or assistance
your
including dividends, changes of
regarding
Computershare offices are also located in Calgary,
Halifax, Montreal, Richmond Hill and Vancouver.
Auditors
Grant Thornton LLP
Chartered Professional Accountants
Licensed Professional Accountants
Mississauga, Canada
Currency Exchange International: Annual Report 2020
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