-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TrBYXmTKxcxo6rTzf8+aaq5AsYjRBsCuuzzjHwDHQkb9VBsp/xPz+mziC/f01Fiu S2GIz/2DB5/AQKSb6KKClg== 0001169232-07-003914.txt : 20071015 0001169232-07-003914.hdr.sgml : 20071015 20071015160410 ACCESSION NUMBER: 0001169232-07-003914 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20071015 DATE AS OF CHANGE: 20071015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLURA INTERNATIONAL INC CENTRAL INDEX KEY: 0001082741 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-JEWELRY, WATCHES, PRECIOUS STONES & METALS [5094] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 000-30228 FILM NUMBER: 071172075 BUSINESS ADDRESS: STREET 1: 736 GRANVILLE STREET STREET 2: 8TH FL CITY: VANCOUVER BC CANADA STATE: A1 ZIP: 00000 MAIL ADDRESS: STREET 1: 1555 W 8TH AVE CITY: VANCOUVER BC STATE: A1 ZIP: 9999999999 FORMER COMPANY: FORMER CONFORMED NAME: IBB INTERNATIONAL BULLION & METAL BROKERS CANADA LTD DATE OF NAME CHANGE: 19990901 20-F 1 d72820_20-f.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934: For the Fiscal Year Ended March 31, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED): For the transition period from _____________ to _____________. [ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring the shell company report: Commission File Number: 0-30228 ALLURA INTERNATIONAL INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) N/A - -------------------------------------------------------------------------------- (Translation of Registrant's name into English) CANADA - -------------------------------------------------------------------------------- (Jurisdiction of incorporation or organization) 1555 WEST 8TH AVENUE, VANCOUVER, B.C., CANADA, V6J 1T5 - -------------------------------------------------------------------------------- (Address of Principal executive office) Securities registered or to be registered pursuant to Section 12(b) of the Act: NOT APPLICABLE Securities registered or to be registered pursuant to Section 12(g) of the Act: COMMON SHARES, WITHOUT PAR VALUE Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE Number of outstanding shares of each of the issuer's classes of capital or common stock as of MARCH 31, 2007: 5,080,100.69 COMMON SHARES, WITHOUT PAR VALUE Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes [ ] No [X] If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934: Yes [X] No [ ] Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES [X] NO [ ] Indicate by check mark whether filer is a large accelerated filer, an accelerated filer or a non-accelerated filer: Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark which financial statement item the Registrant has elected to follow: Item 17 [X] Item 18 [ ] Page 1 of 71 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b - 2 of the Exchange Act). Yes [ ] No [X] (APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court: YES [ ] NO [ ] TABLE OF CONTENTS
PAGE ---- PART I Item 1. Identity of Directors, Senior Management and Advisers..................................3 Item 2. Offer Statistics and Expected Timetable................................................3 Item 3. Key Information........................................................................3 Item 4. Information on the Company............................................................10 Item 5. Operating and Financial Review and Prospects..........................................18 Item 6. Directors, Senior Management and Employees............................................26 Item 7. Major Shareholders and Related Party Transactions.....................................29 Item 8. Financial Information.................................................................31 Item 9. The Offer and Listing.................................................................32 Item 10. Additional Information................................................................31 Item 11. Quantitative and Qualitative Disclosures about Market Risk............................36 Item 12. Description of Securities other than Equity Securities................................37 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies.......................................37 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds..........38 Item 15. Controls and Procedures...............................................................38 Item 16A. Audit Committee Financial Expert......................................................40 Item 16B. Code of Ethics........................................................................41 Item 16C. Principal Accountants Fees and Services...............................................41 Item 16D. Exemption from the Listing Standards for Audit Committees.............................41 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers................41 Item 17. Financial Statements..................................................................42 Item 18. Financial Statements..................................................................67 Item 19. Exhibits..............................................................................67 Signatures............................................................................68 Index to Exhibits Filed...............................................................69
Page 2 of 71 PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and accordingly, the information called for in Item 1 is not required. Please refer to "Item 6 - Directors, Senior Management and Employees -Directors and Senior Management". ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and accordingly, the information called for in Item 2 is not applicable to this report. ITEM 3. KEY INFORMATION A. SELECTED FINANCIAL DATA. The following consolidated table sets forth, for the periods and the dates indicated, selected financial and operating data for Allura International Inc. ("Company" or "Allura" or "Allura Group"), for the fiscal years ended March 31, 2007, 2006, 2005, 2004 and 2003. This information should be read in conjunction with the Company's Financial Statements and Notes thereto, and "Operating and Financial Review and Prospects" included elsewhere herein. The selected financial data provided below are not necessarily indicative of the future results of operations or financial performance of the Company. During September 2005, the Company declared and paid a US $0.01 per share dividend (Equivalent to US $0.03 per share after consolidation) to all shareholders on record as at September 6, 2005. Four of the Company's largest shareholders waived their rights to receive this dividend. The payment of dividends in the future will depend on the earnings and financial condition of the Company and such other factors as the Board of Directors of the Company may consider appropriate. The Company is still in an expansion stage therefore it may be unlikely that it will pay a dividend in the near future. The Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). There are no material differences between Canadian GAAP and the accounting principles that are generally accepted in the United States ("U.S. GAAP") as applied to the Company, including disclosure items, as disclosed in the financial statements under note 15. The following tables set forth information in Canadian dollars. Page 3 of 71
- -------------------------------------------------------------------------------------------------------------------------- 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------- Net Sales $ 22,638,034 $ 17,719,672 $ 18,252,286 $ 16,114,338 $ 17,031,936 - -------------------------------------------------------------------------------------------------------------------------- Gross Profit $ 5,598,399 $ 4,067,365 $ 5,098,045 $ 3,957,544 $ 4,023,355 - -------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 200,272 $ (389,759) $ 322,708 $ 327,681 $ 398,084 - -------------------------------------------------------------------------------------------------------------------------- Earnings (Loss) Per Common Share (a) $ 0.04 ($0.08) $ 0.06 $ 0.06 $ 0.08 - -------------------------------------------------------------------------------------------------------------------------- Outstanding Shares (a) (c) 5,080,100.69 (b) 5,080,100.69 5,080,100.69 5,080,100.69 5,080,100.69 - -------------------------------------------------------------------------------------------------------------------------- Total Assets $ 18,886,989 $ 16,276,552 $ 16,824,370 $ 11,539,964 $ 12,285,925 - -------------------------------------------------------------------------------------------------------------------------- Working Capital $ 2,708,789 $ 2,513,418 $ 2,936,292 $ 2,582,063 $ 2,250,619 - -------------------------------------------------------------------------------------------------------------------------- Long Term Liabilities $ 227,699 -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Total Liabilities $ 15,973,737 $ 13,563,572 $ 13,689,730 $ 8,728,032 $ 9,752,174 - -------------------------------------------------------------------------------------------------------------------------- Non Controlling Interest -- -- -- -- -- - -------------------------------------------------------------------------------------------------------------------------- Shareholder's Equity $ 2,913,252 $ 2,712,980 $ 3,134,640 $ 2,811,932 $ 2,533,751 - -------------------------------------------------------------------------------------------------------------------------- Dividends declared per share -- $ 0.03 USD -- -- -- - --------------------------------------------------------------------------------------------------------------------------
(a) Earnings per share are on basic and fully diluted basis. (b) On September 30, 2005, the Company's shareholders approved a reverse stock split of the Company's 15,240,302 outstanding common shares, on the basis of 3 (old) for each 1 (new) common share. The new common shares were issued on March 26, 2007 to complete the reverse stock split. (c) Subsequent to year-end, at the Annual General Meeting of the Company ("AGM"), which took place on September 26th 2007, Shareholders of record voted to round all fractional shares held by individual Shareholders up to one whole share. As at that date the Outstanding Shares of the Company became a total of 5,080,150 CURRENCY EXCHANGE RATE INFORMATION The Company's accounts are maintained in Canadian dollars. In this Annual Report all dollar amounts are expressed in Canadian dollars except where otherwise indicated. All exchange rates disclosed in this statement is based on rates published on Bank of Canada's website. We do not represent that the Canadian dollar or the US dollar amounts could be converted into US dollars or Canadian dollars, as the case may be at any particular rate, the rates set forth below, or at all. (a) On September 30, 2007 the month end closing rate per Bank of Canada was $1.00 US = $0.9948 Canadian. (b) The following table sets forth the intra-day high and low exchange rates for each month during the previous six months per Bank of Canada: Page 4 of 71 Canadian Dollar/US Dollar Month Low High August 2007 $1.0830 $1.0462 July 2007 $1.0701 $1.0341 June 2007 $1.0760 $1.0536 May 2007 $1.1163 $1.0666 April 2007 $1.1600 $1.1048 March 2007 $1.1817 $1.1500 (c) The following table sets forth the average rates for each period, calculated by using the average of the exchange rates on the last day of each month during the period: Canadian Dollar/US Dollar Fiscal Year Ended Average Rate March 31, 2007 $1.1524** March 31, 2006 $1.1574 March 31, 2005 $1.2161 March 31, 2004 $1.3284 March 31, 2003 $1.4764 **(Note: Bank of Canada site only specifies the High Low for the day, not the average. This is the mid point rate for the day) B. CAPITALIZATION AND INDEBTEDNESS. This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and accordingly, the information called for in this Item 3.B is not required C. REASONS FOR THE OFFER AND USE OF PROCEEDS. This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, and accordingly, the information called for in Item 3.C is not applicable to this report. D. RISK FACTORS. The Company's business is subject to a number of risk factors that are set forth below. Additional risks and uncertainties not now known to us or that we think are immaterial may also adversely impact or impair our business. If any of the following risks actually occur, our business, results of operations, or financial condition would likely suffer. COMPANY IS DEPENDANT ON THIRD PARTY MANUFACTURERS AND SUPPLIERS Outside manufacturers manufacture all of the Company's products, in whole or in part. These outside manufacturers typically are small to medium-sized, privately owned companies. During fiscal 2007, the Company purchased gold and silver products from over 100 suppliers, with the five largest suppliers accounting for approximately 25% of the Company's total gold and silver purchases. In the diamond jewellery, loose stone and coloured stone area, the Company purchased products from approximately 100 suppliers, while the five largest suppliers accounted for 55% of the Company's total purchases in this area. Page 5 of 71 A substantial portion of the Company's purchases are concentrated within a small number of suppliers. One particular supplier's products accounted for 23% of IBB purchases and 6% of ADL purchases during the year. The loss of this particular supplier would have a material adverse effect on business. Aside from this one supplier the Company does not believe the loss of any other supplier would have a material adverse effect on its business. The Company's five largest suppliers account for 38% of the merchandise purchases during the year. Alternative sources of supply for the finished goods purchased by the Company are available. The Company has no long-term contractual relationship with any of its suppliers. Risks generally inherent in the use of outside manufacturers include security at the manufacturer's facility, transport of materials to and from the manufacturer theft by the manufacturer or its employees and bankruptcy or other financial problems of the manufacturer. FLUCTUATIONS IN THE PRICE OF GOLD AND DIAMONDS MAY AFFECT THE COMPANY'S PROFITABILITY. Prices for the Company's products generally are determined by reference to the current market price of gold or diamonds. Consequently, the Company's sales could be affected by significant increases, decreases or volatility in the price of gold or diamonds. If the price of gold or diamonds were to move substantially above or substantially below current price levels and remain at such levels for a prolonged period of time, such increase or decrease could have an adverse effect on the Company's results of operations. In addition, the Company's results of operations may be adversely affected during the periods of extreme volatility in the price of gold or diamonds since many customers may elect to defer purchases until the price of the commodities become relatively stable again. THE COMPANY'S BUSINESS IS HIGHLY SEASONAL AND ACCORDINGLY, THE COMPANY'S REVENUES MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER. The Company's business is highly seasonal. The third and fourth fiscal quarters, which include the Christmas shopping season, generally produce the strongest results, and the second calendar quarter generally produces the weakest results. In past years the fourth quarter has been subject to stock returns by customers due to products being discontinued by them or from overstocking of running products, however, in recent years this has been apparent in the first quarter as well as the early second quarter. The Company's sales and income also may vary from quarter to quarter as a consequence of general economic and industry conditions that affect consumer spending and purchases by retailers. THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED IF IT WERE TO LOSE THE SERVICES OF MR. JEREMY BOWMAN AND/OR OTHER KEY EMPLOYEES. The Company's business is substantially dependent on the efforts and abilities of Jeremy Bowman, its Chief Executive Officer. The loss of Mr. Bowman's services may have a material adverse effect on the Company's business. An employment agreement with Mr. Bowman was finalized, signed and is in place. The Company does not maintain any key man life insurance on Mr. Bowman's life. The Company's success will depend upon recruiting and maintaining other qualified personnel to staff its operations. The Company believes that such personnel currently are available at reasonable salaries and wages. There can be no assurance, however, that such personnel will always be available in the future. In addition, it cannot be predicted whether the Company's work force will be unionized. The success of the operations and activities of the Company is dependent to a significant extent on the efforts and abilities of its management. Although the Company has employment agreements with certain of its key employees, the loss of services of any of its management personnel could have a material adverse affect on the Company. See "Directors, Senior Management and Employees." THE COMPANY FACES COMPETITION FROM A NUMBER OF DIFFERENT COMPANIES SOME OF WHICH HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN THE COMPANY. The Company's business is highly competitive, and the distribution channels in which the Company markets its products frequently involve different competitive factors. Some companies in the jewelry industry may have greater financial and other resources than the Company. See "Information on the Company- Business Overview - Competition." Page 6 of 71 THE COMPANY DOES NOT HAVE ANY LONG-TERM CONTRACTS WITH ITS CUSTOMERS. The Company has no long-term contractual relationships with any of its customers, nor are any of the Company's customers subject to any contractual provisions or other restrictions, which preclude them from purchasing products from the Company's competitors. The Company does have consignment agreements in place with certain buying groups, which only clarify special terms and conditions of how the consignment is managed. Additionally the Company has similar consignment agreements with certain individual major customers. Such agreements do not preclude customers from buying product from the Company's competitors nor do they guarantee the sale of the Company's products to those customers or groups. As a gesture of goodwill the Company also provides a stock balancing service, primarily to large retailers, in order to assist them with maintaining inventory levels in an efficient way. In most cases stock balancing transactions involve taking back products for resorting and redistribution to other stores within the retailers group, in other cases it involves taking back product, which is replaced with different styles and not redistributed. CONCENTRATION OF OWNERSHIP AMONG OUR DIRECTORS, EXECUTIVE OFFICERS, AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS. Based upon beneficial ownership as of Sept 30, 2007, the Company's directors, executive officers, holders of more than 5% of our common stock, and their affiliates will, in the aggregate, beneficially own approximately 86% of our outstanding common shares. As a result, these stockholders, subject to any fiduciary duties owed to our other stockholders under Canadian law, will be able to exercise a controlling influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have significant control over our management policies. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your interests. The concentration of ownership could delay or prevent a change in control of our company or otherwise discourage a potential acquirer from attempting to obtain control of our company, which in turn could reduce the price of our common stock. In addition, these stockholders, some of whom are directors or who have representatives sitting on the Company's board of directors, could use their voting influence to maintain the Company's existing management and directors in office, delay or prevent changes of control of our company, or support or reject other management and board proposals that are subject to stockholder approval, such as amendments to the Company's employee stock plans and approvals of significant financing transactions. STOCKHOLDERS MAY FIND IT DIFFICULT TO SELL THEIR SHARES SINCE THERE IS NO MARKET FOR THE COMPANY'S COMMON STOCK. There is no current trading market for the shares of the Company's Common Stock and there can be no assurance that a trading market will develop, or, if such a trading market does develop that it will be sustained. The shares of the Company's Common Stock, to the extent that a market develops for the shares of the Company's Common Stock at all, of which there can be no assurance, will likely appear in what is customarily known as the "pink sheets" or on the "FINRA" formally "NASD" Over the Counter Electronic Bulletin Board, which may limit the marketability and liquidity of the shares of the Company's Common Stock. Thus, stockholders may find it difficult to sell their shares. To date, neither the Company nor anyone acting on its behalf has taken any affirmative steps to request or encourage any broker/dealer to act as a market maker for the Company's Common Stock. Further, there have been no discussions or understandings, preliminary or otherwise, between the Company or anyone acting on its behalf and any market maker regarding the participation of any such market maker in the future trading market, if any, for the Company's Common Stock. Under Rule 15g-9 of the Exchange Act, a broker or dealer may not sell a "penny stock" to, or affect the purchase of a penny stock by, any person unless: (a) such sale or purchase is exempt from Rule 15g-9; (b) prior to the transaction the broker or dealer has (1) approved the person's account for transactions in penny stocks in accordance with Rule 15g-9, and (2) received from the person a written agreement to the transaction setting forth the identity and quantity of the penny stock to be Page 7 of 71 purchased; and (c) the purchaser has been provided an appropriate disclosure statement as to penny stock investment. The United States Securities and Exchange Commission (the "Commission") adopted regulations that generally define a penny stock to be any equity security other than a security excluded from such definition by Rule 3a51-1. Such exemptions include, but are not limited to (1) an equity security issued by an issuer that has (i) net tangible assets of at least US$2,000,000, if such issuer has been in continuous operations for at least three years, (ii) net tangible assets of at least US$5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average revenue of at least US$6,000,000 for the preceding three years; (2) except for purposes of Section 7(b) of the Exchange Act and Rule 419, any security that has a price of US$5.00 or more; and (3) a security that is authorized or approved for authorization upon notice of issuance for quotation on the "FINRA" formally "NASD", Automated Quotation System. It is likely that shares of the Company's Common Stock, assuming a market were to develop therefore, will be subject to the regulations on penny stocks; consequently, the market liquidity for the Company's Common Stock may be adversely affected by such regulations limiting the ability of broker/dealers to sell the Company's Common Stock and the ability of stockholders to sell their securities in the secondary market. Moreover, the Company's shares may only be sold or transferred by its stockholders in those jurisdictions in which an exemption for such "secondary trading" exists or in which the shares may have been registered. ASSUMING A MARKET FOR THE COMPANY'S COMMON STOCK WAS TO DEVELOP, RESALES OF ISSUED AND OUTSTANDING RESTRICTED STOCK PURSUANT TO RULE 144 MAY ADVERSELY AFFECT THE PRICE OF THE COMPANY'S COMMON STOCK. There are presently issued and outstanding 5,080,150 shares and an additional 1,000,000 shares reserved for issuance upon the exercise of any incentive Stock Options issued in the future; all but 143,290 of which, are "restricted securities" as that term is defined under the Securities Act of 1933, as amended (the "Act"), and in the future may be sold in compliance with Rule 144 of the Act, pursuant to an a Registration Statement filed under the Act, or other applicable exemptions from registration thereunder. Rule 144 provides, in essence, that a person holding restricted securities for a period of one year may sell those securities in unsolicited brokerage transactions or in transactions with a market maker, in an amount equal to one percent of the Company's outstanding Common Stock every three months. Additionally, Rule 144 requires that an issuer of securities make available adequate current public information with respect to the issuer. Such information is deemed available if the issuer satisfies the reporting requirements of Sections 13 or 15(d) of the Exchange Act and of Rule 15c2-11 thereunder. Rule 144 also permits, under certain circumstances, the sale of shares by a person who is not an affiliate of the Company and who has satisfied a two-year holding period without any quantity limitation and whether or not there is adequate current public information available. Investors should be aware that sales under Rule 144, or pursuant to a Registration Statement filed under the Act, might have a depressive effect on the market price of the Company's Common Stock in any market that may develop for such shares. SINCE THE COMPANY IS A CANADIAN CORPORATION IT MAY BE DIFFICULT FOR US SHAREHOLDERS TO EFFECT SERVICE OF PROCESS OR TO ENFORCE JUDGMENTS OBTAINED IN THE US. The Company is a Canadian corporation. All of its directors and officers are residents of jurisdictions other than the United States and a significant part of its assets are, or will be, located outside of the United States. As a result, it may be difficult for shareholders resident in the United States to effect service within the United States upon the Company, and/or such directors or officers who are not residents of the United States, or to realize in the United States upon judgments of courts of the United States predicated upon civil liability of any of the Company, or such directors or officers, under the United States federal securities laws. The Company has been advised by its Canadian counsel that there is substantial doubt as to whether Canadian courts would (i) enforce judgments of the United States courts of competent jurisdiction obtained against the Company, or such directors or officers, predicated upon the civil liabilities provisions of such securities laws, or (ii) impose liabilities in original actions against the Company or its directors or officers predicated solely upon such securities laws. Accordingly, United States shareholders may be forced to bring actions against the Company and its directors and officers under Canadian law and in Canadian courts in order to enforce any claims that they may have against the Company or its directors or Page 8 of 71 officers. Subject to necessary registration under applicable provincial corporate statutes in the case of a corporate shareholder, Canadian courts do not restrict the ability of non-resident persons to sue in their courts. THE COMPANY'S PROFITABILITY MAY BE AFFECTED BY CURRENCY RISK. The Company is exposed to currency risk as most of its accounts payable are denominated in currencies other than the Canadian dollar. Unfavorable changes in the applicable exchange rates may result in a decrease or increase in foreign exchange gain or loss. The Company earns revenue and incurs operating expenses predominantly in Canadian dollars. The Company does not use derivatives to reduce its exposure to foreign currency risk. THE COMPANY'S PROFITABILITY AND CASH FLOW MAY BE AFFECTED BY INTEREST RATE RISKS. The Company's bank indebtedness bears floating interest rates. This exposes the Company to the risk of changing interest rates that may have a detrimental affect on its earnings and cash flow in future periods. THE COMPANY'S PROFITABILITY MAY BE AFFECTED BY CREDIT RISKS. Credit risk arises from the possibility that the entities to which the Company sells products may experience financial difficulty and be unable to fulfill their contractual obligations. THE COMPANY'S PROFITABILITY MAY BE AFFECTED BY COMMODITY PRICE SENSITIVITY. The future revenue and profitability of the Company will be dependent, to a significant extent, upon prevailing spot market prices for gold and diamonds. In the past, gold and diamond prices have been volatile. Prices are subject to wide fluctuations in response to changes in supply and demand for gold and diamonds, market uncertainty and a variety of additional factors that are beyond the control of the Company. The Company does not engage in any hedging activities. RECENTLY ENACTED AND PROPOSED CHANGES IN SECURITIES LAWS AND REGULATIONS ARE LIKELY TO INCREASE OUR COSTS. In July 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 ("SOX"). The purpose of the SOX is to, among other things; protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws. We expect these developments to increase the legal and financial compliance costs, and to make some activities more difficult. For example, we expect these developments to make it more difficult and more expensive for public companies to obtain director and officer liability insurance. These developments could make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on an audit committee, and qualified executive officers. We are presently evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result. Furthermore, proposed changes in the accounting rules could increase the expenses that we report under GAAP and adversely affect our operating results. While we will endeavor to establish the requisite procedures and structure our corporate governance in accordance with SOX and the rules and regulations thereunder, as issued by the SEC from time to time, we cannot assure you that we will be successful in this regard or that the costs we incur in doing so will not prove material and adversely affect our profitability. VIOLATIONS OF BANKING TERMS AND COVENANTS The Company's demand overdraft loan agreement facility has terms and covenants that the Company must meet to maintain this facility. If the Company is in default of its terms and covenants, there can Page 9 of 71 be no assurance that the bank and management will be able to renegotiate its arrangements to bring the Company into compliance. As at March 31, 2007, the Company was in default of its terms and covenants on this overdraft loan facility; however, the terms and covenants were renegotiated. As at July 31, 2007, the Company was in compliance with these terms and covenants, however there can be no assurance that it will be in the future. ITEM 4. INFORMATION ON THE COMPANY A. HISTORY, DEVELOPMENT AND ORGANIZATIONAL STRUCTURE OF THE COMPANY. CORPORATE STRUCTURE Allura International Inc. (the "Company" or "Allura") was incorporated on April 13, 1988 under the laws of Canada under the name "IBB International Bullion and Metal Brokers (Canada) Limited." The Company changed its name to "Allura International Inc." on April 1, 1999 and simultaneously effected a corporate restructuring (the "Restructuring") by selling and transferring all of its assets, other than its 50% interest in Allura Diamonds Limited, a Canadian corporation ("ADL") to IBB International (Canada) Ltd., a Canadian corporation ("IBB") in exchange for shares of the capital stock of IBB. IBB was newly formed for the purpose of affecting the Restructuring and as a result of the Restructuring, became a wholly owned subsidiary of the Company. At the same time, the Company acquired the balance of the issued and outstanding shares of capital stock of ADL in exchange for 250,000 shares of the Company's common stock. During May 2000, the Company incorporated a new company, Bygo Inc. ("Bygo"). During March 2006, the Company sold all its outstanding shares of Bygo to its ADL. At the same time, Bygo was wound up into ADL. Collectively, IBB and ADL are referred to as the "Jewellery Division", which is the Company's only division; together with the Company, is the "Allura Group." The Company, through the Jewellery Division, is primarily in the business of wholesaling gold, sterling silver and diamond jewellery in Canada. Its customer base is comprised of large national chains as well as independent retailers. Bygo had business-to-business and business-to-consumer Internet commerce sites. Prior to being wound up in March 2006, Bygo had earned minimal revenues since it had primarily devoted its efforts and resources to develop the software and hardware necessary to execute its business plan. Bygo operated as an on-line e-commerce facilitator of jewellery, paper goods and giftware distribution. The Company's head-office is located at 1555 West 8th Avenue, Vancouver, B.C., V6J 1T5. Its telephone number is (604) 683-5700, and its fax number is (604) 683-5900. IBB operates out of the Vancouver facility, however ADL has its principal office in Halifax at Unit 104, 276 Bedford Highway, Halifax, N.S., B3M 2K6. The telephone number for ADL is (902) 457-7654 and the fax number is (902) 443-8414. Subsequent to the fiscal 2006 year, the Company opened a new office in Toronto to engage in sales functions of the Company. The primary focus of the Toronto office is on the Company's majors customer group, however, it also covers all independent sales, marketing and order input. The office is located at 1 Valleybrook Drive, Suite #100 & 101, Toronto, Ontario, M3B 2S7. The telephone number for the Toronto office is (416) 422-5500 and the fax number is (416) 422 - 5508. BUSINESS HISTORY The Company was initially formed to import European jewellery into Canada. The objective of the Company has been to be a specialized supplier of gold, silver and diamond jewelry within the following principal sectors: Department stores Catalogue retailers Mass merchants Major discounters Major jewellery retailers Page 10 of 71 Independent jewellery stores Subsequent to the fiscal 2006 year end, the Company acquired new business solution software to integrate its operations and management systems. The first phase of implementation for ADL was completed in fiscal 2007. The final phase of implementation of this software for the Jewellery Division is expected to be completed by fiscal 2008. The Company expects to achieve cost and operating efficiencies resulting from the implementation of this software. B. BUSINESS OVERVIEW CURRENT OPERATIONS The Company conducts its jewelry wholesaling operations through the Jewellery Division comprising of IBB and ADL. The Company's mass marketing jewellery operations are conducted through IBB, while ADL's primary focus is the independent jewellery sector. THE ACTIVITIES OF IBB As the "average" Canadian gold importer will normally only buy what is available from the manufacturers, IBB believes that it is different, in that it has many of its products manufactured distinctly to its own specifications. IBB has created a niche for its products through innovative selling and display techniques and through the use of trade marked names, such as Little Loves Gold Jewellery TM, Golden Moments TM, Earresistables TM, Tuscany Gold Collection TM, and Tuscany Silver TM. The range of products that IBB sells consists mainly of chains, bracelets, bangles, and earrings in 10, 14 and 18 karat gold. IBB also markets lower value diamond and silver jewellery to major retailers and jewellery chains. Subsequent to fiscal 2006 year end, the Company developed the new diamond business focusing on lower value items than it has done in the past. This business increased overall sales for fiscal 2007 and enabled IBB to enter into new markets beyond the large retailers. IBB's sales are divided approximately 90% to major retail and jewellery store chains and 10% to independent jewelry stores. IBB has created a strong and resourceful management team and continues to invest more to develop and improve on management information systems and computer equipment. During the current fiscal year, the Company invested in new business solution software to replace its existing legacy systems, which is being integrated in phases. This strategy continues to permit the company to build a strong management infrastructure, ready to handle possible expansion throughout the North American markets. THE ACTIVITIES OF ADL ADL was established in 1994 as a premier diamond house to market finished diamond jewelry and loose diamonds. ADL currently specializes in finer diamond jewellery. ADL sales are divided approximately 36% to major retail and jewelry store chains and 64% to independent jewellery stores. ADL's lower priced diamond jewellery to major retailers is marketed through IBB and such sales comprise 13% of ADL's total sales. In 2002, ADL incorporated the "Canadian Diamond" into its range of products. Then in 2004 ADL introduced a new "Diamond Collection Certificate" certifying rings within this product category as a true Canadian made product. This certificate accompanies all products within the "Hearts and Arrows" and "Ideal Cut Diamond" collections. The Company also markets a line of gemstone products to the independent jewelry stores trademarked as Dreamcatchers TM. Subsequent to year-end the Dreamcatchers TM line has been transferred to IBB for sale and distribution through its Vancouver office. THE ALLURA GROUP The Allura Group offers its customers a large selection of jewellery styles, consistent product quality, and prompt delivery of product orders and provides a wide range of specialized services. The Company's retail Page 11 of 71 customers include THE BAY, WAL-MART CANADA CORP., ZELLERS INC., SEARS CANADA LTD., BEN MOSS JEWELLERS AND CHARM DIAMOND CENTRES. These customers are among the Company's largest customers, accounting for approximately 69% of the Company's sales in fiscal 2007, 61% in fiscal 2006 and 62% in fiscal 2005. They are representative of the customers to which the Jewellery Division's marketing efforts are directed. The Company continues to expand its customer base. While the Allura Group focused its primary marketing efforts on a relatively small number of retailers, in fiscal 2007, sales were made to approximately 400 customers, with over 1372 retail locations, and with no single customer accounting for more than approximately 22% of net sales. The Company's six largest customers accounted for approximately 69% of sales in fiscal 2007, 61% in fiscal 2006 and 62% in fiscal 2005. The Company does not have any long-term contractual arrangements with any of its customers; and any of its customers may purchase similar products from the Company's competitors. MARKETING PHILOSOPHY In implementing its business strategy, the Company originally introduced the idea of "concept selling," whereby a group of products, effectively a collection of jewellery, could be offered to a customer as a complete concept, including a full merchandise package. With a master assortment in place, the Allura Group, through discussions with the customers regarding their respective market demographics and prior marketing successes and failures, is able to tailor a unique collection of merchandise to suit the individual needs of each customer. As the customer's individualized collection is assembled, the Company's professional team of experts develops innovative displays together with complementing marketing material that will assist the retailer to execute its sales plan. The Allura Group's staff follow up with telephonic and in persons conferences and discussions, fine tuning and refining the program on a continuing basis to ensure an ongoing positive relationship with customers. In July 2006, the Company opened its third office in Canada in the city of Toronto. The primary focus of the Toronto office is to improve our customer service to our largest customers; most of whom are headquartered in Toronto however the office also markets to independent customers and processes sales orders. BUSINESS STRATEGY The Company expects that its market share of the business generated by large jewelry retailers will continue to trend upwards as manufacturers and distributors with the size and sophistication to satisfy the specialized service needs of these large retailers become increasingly in demand. The specialized services required by these retailers include bar coding, individualized packaging, "drop-shipping" to individual locations and the ability to participate in electronic data interchange ("EDI") programs. The Company believes these services are not available from all suppliers within the industry. Currently, the Company has the capability and resources to provide such services and has done so for customers that have requested for such services. The Company believes that in the increasingly competitive environment in which it operates, the ability to provide specialized customer services, deliver product in a timely fashion and offer a broad line of moderately priced products with a perceived high value will become increasingly important marketing factors. The Company has formulated a business strategy that it believes will enable it to take advantage of these developing trends in the jewellery industry. Further, the Company believes that its business strategy will allow it to leverage the expertise and customer base it has established in the Canadian market to create future sales in the much larger markets of the United States. The Company believes that the most important elements of its business strategy are: FOCUSED CUSTOMER BASE. While the Company has developed a broad customer base, the Company targets its marketing efforts towards large retailers, such as mass merchandisers, department stores, jewelry retail chains, and other major discount stores. These customers typically require a high level of service, and the Company seeks to build long-term relationships by making it convenient and cost-effective for these customers to rely on the Company for essential services such as product design, inventory control and on time delivery. CUSTOMER SERVICE. The Company offers prompt and reliable order fulfillment and a wide range of specialized services, including individualized packaging of jewellery products, price-tagging, bar coding, delivery to individual customer Page 12 of 71 locations and computer generated reports which aid customers in inventory control, purchasing decisions and the identification of market trends. The Company has also participated in EDI programs with certain customers. The Company believes these specialized services, which are particularly important in marketing to large retailers, enhance the Company's ability to attract and retain customers and serve to differentiate the Company from many of its competitors. SUCCESSFUL PRODUCT LINE DIVERSIFICATION.The Allura Group offers its customers a large selection of jewellery styles and range of products that include precious and semi precious stones, gold jewellery and silver jewellery. PRODUCT DIVERSITY, INNOVATION AND VALUE PRICING. The Company seeks to provide its customers with a full line of high quality gold jewelry products that incorporate traditional styles and designs. While the Company regularly updates its product lines and offers new products, it seeks to avoid designs incorporating high fashion trends that are expected to have short life cycles. The Company currently offers approximately 2,460 styles of chains, earrings, bracelets and rings. The Company's products are moderately priced, with the majority of its products retailing at prices between $30 and $800. The relatively more expensive product line offered by ADL is intended to appeal to consumers who are value-conscious as well as fashion-conscious. IBB has established a minimal amount of sales in silver jewelry and plans to try and expand sales in this area. The Company currently offers approximately 55 styles of silver product. A principal focus of the Company's design program is to maximize the perceived value of the Company's products through design and manufacturing innovations that enhance the appearance of its jewellery without corresponding increases in product costs. The Company also works closely with major customers to develop products, which are sold exclusively by those customers. SALES AND MARKETING The Company's sales and marketing operations are directed at retail stores of all types and sizes such as department stores, catalogue retailers, mass merchants, major discounters, major jewellery retailers and independent jewellery stores. The Company's retail customers include THE BAY, WAL-MART CANADA CORP., ZELLERS INC., SEARS CANADA LTD., BEN MOSS JEWELLERS AND CHARM DIAMOND CENTRES. These customers are among the Company's largest customers, accounting for approximately 69% of the Company's net sales in fiscal 2007, 61% in fiscal 2006 and 62% in fiscal 2005. The company has two customers (2006: one; 2005: two), with sales that exceeded 10% of the total sales. They are representative of the customers to which the Jewellery Division's marketing efforts are directed. The Company continues to expand its customer base. The Company believes that providing exceptional customer services is a key element of its marketing program. The Company's marketing efforts emphasize its ability to fill orders in a prompt and reliable fashion. The Company maintains an extensive inventory of finished goods, which enable it to rapidly fill customer orders often within 24 hours of receipt. The Company has worked hard to build its computer programs to help anticipate customers' needs. In addition to prompt and reliable order fulfillment, the Company offers a wide variety of customer support services designed to meet the individual needs of its customers. The Company targets large retailers who require a high level of service, and the Company seeks to build long-term relationships by making it convenient and cost-effective for customers to rely on the Company for essential services. For many of these customers, the Company prepackages, price-tags and bar codes individual pieces of jewellery and then ships an assortment of many prepackaged items to individual retail locations. Other services provided by the Company include advertising and merchandising support and, point of sale displays. The Company provides computer-generated reports analyzing the customers' sales and inventory levels by category, style and price point. These reports assist the Company and its customers to increase sales, manage inventory and project demand. The Company believes the reports are a valuable marketing tool, and a substantial portion of the efforts of the Company's marketing staff is devoted to the review and analysis of the reports with representatives of the Company's major retail customers. These discussions provide a basis for subsequent purchasing decisions by customers. Marketing of the Company's products is conducted through its offices in Vancouver, Toronto and Halifax. In July 2006, the Company opened a new office in Toronto to engage in sales functions of the Company. The primary focus of the Toronto office is on the Company's largest customers (such customers are Page 13 of 71 defined as having thirty plus retail stores and are otherwise known as "Majors"); most of these are headquartered in Toronto, however, it also markets to Independent customers and does order processing. The Company also has a Senior V.P stationed in Toronto, and eight regional independent customer service representatives who market to independent retail customers and majors. In addition, the Company's products are promoted through the use of printed brochures and trade show exhibitions. The Company does not advertise its products directly to consumers, prices charged to individual customers vary based on the services required by the customer and the customer's sales volume. Most sales are made under terms that require payment to the Company of the full purchase price within 90 days of the date of invoice. During the Christmas holiday season, payment terms for certain customers may be extended. The Company also makes sales on a consignment basis (transactions in which products are delivered to customers for more than 90 days under terms which permit the customer to defer paying for the products until they are sold to its customers and allows them to return any unsold product). Such sales are subject to the terms of a consignment agreement, which may be cancelled at any time upon return of the product, or alternatively may be automatically renewed if required. Such agreements do not preclude the customer from purchasing products from the Company's competitors. The amounts of consignment sales in the past three fiscal years have exceed $6.million per year. The Company accepts returns of products with defects in materials or workmanship. The Company also accepts returns of certain items, primarily from large retailers, in order to maintain customer goodwill and as part of promotional programs. Returns of products which are not defective, generally, are made as part of stock balancing transactions in which the returned products are replaced with products better suited to the customer's particular market needs. While the Company sold its products to approximately 400 customers in fiscal 2007, sales of the Company's six largest customers accounted for approximately 69% of sales in fiscal 2007 and 61% in fiscal 2006 and 62% in fiscal 2005. All of the Company's active customers are Canadian except Zales Corporation and Birks/Mayors Corporation. PRODUCTS The Company seeks to provide its customers with a full line of high quality 10, 14 and 18 karat gold, silver jewellery and diamond jewellery products that incorporate traditional styles and designs. While the Company regularly updates its product lines and offers new products, it seeks to avoid designs incorporating high fashion trends that are expected to have short life cycles. The Company currently offers approximately 2,460 styles of chains, earrings, bracelets and rings. In addition the Company carries approximately 160 loose diamonds and coloured stones of varying qualities and weights. The Company's products are moderately priced, with the majority of its gold products retailing at prices between $30 and $800 and are intended to appeal to consumers who are value-conscious as well as fashion-conscious. Through ADL, the Company sells items of relatively higher price points, however with the introduction of the Dreamcatchers and Golden Moments collections, which include mid point diamond products, the average high price point for the company was $820. Loose stones vary in price depending on market at a price reflective of quality and karat weight. Such stones represent a relatively small portion of the ADL inventory held, however these stones in isolation carry a higher average price point relative to the balance of the inventory. The Company has an extensive selection of products to offer its customers. Some of these are available exclusively from the Company. These products include neckwear, chains, bracelets, bangles, earrings, rings, lockets, pendants and charms. At the same time, through ADL, the Company sells loose diamonds. The Company works closely with its manufacturers to put together some product ranges that are exclusive and often unique in design. The Company's marketing and merchandising staff work in partnership with major customers to develop products that are sold exclusively by the Company to those customers. The Company's product line includes approximately 1,695 karat gold, 710 diamond and colored stone and 55 sterling silver products that are a regular part of its product line. These products are traditionally designed diamond and colored stone set items, karat gold and sterling silver chains and other jewelry products for which there has been consistent demand. The Company continually strives to update the balance of its product line with innovative, new styles. New styles primarily are introduced at the Page 14 of 71 beginning of each calendar year, and replace older styles whose performance has declined. The Company closely monitors sales of its new styles and promptly discontinues any style that fails to achieve desired sales levels. When major customers plan to discontinue items from their programs, including those that have been on consignment programs, these items are sold down to minimize the quantities returned to the Company. When the items are returned, they are typically offered to other customers for regular margins. At times during the year, the Company may offer such discontinued items at discount values to generate cash flow and these are typically sold at reduced margins. Additionally the Company may melt such product; in which case it will recover the raw metal value at market price, and in the case of Import product; it may apply for recovery of applicable duties and taxes paid thereon. Such product will be written down to the estimated recovery value, which; depending on the market price of the base metal, could be lower than cost. Typically melted product would include, but is not limited to, samples and styles that have been discontinued and which are not desired by other customers. Styles are discontinued when a supplier or manufacturer has discontinued an item from their offering and we are unable to replace the product or the customers' performance for the item has not met their targets. The Company's experience is that such discontinued products do not have to be significantly written down as its expected recovery from subsequent sales is above costs. When on occasion the Company has done a melt of certain product, the appropriate write down has been recorded in the accounts and would be more significant. Customers' selling prices and the Company's price book are updated annually to ensure prices reflect market conditions and costs of doing business. Certain customer prices lists are priced to allow for adjustments to gold price fluctuations. Gold price is monitored on a daily basis to ensure such price lists are updated to reflect current gold levels. It is the Company's experience that some items significantly written down are later sold, at less reduced prices, however the equivalent dollar amounts are not material. The Company's estimates that during fiscal 2007, sales for melt accounted for approximately $500,000 of the total revenues of the Company and were sold at book value. As at March 31, 2007 the Company had a total provision for inventory obsolescence of $329,000 ($401,000: 2006, $213,000: 2005). A principal goal of the Company's new product program is to optimize the perceived value of the Company's products through design and manufacturing innovations that enhance the appearance of the jewelry without incurring corresponding increases in product costs. PURCHASING The Company purchases finished products from suppliers located principally in North America, the Middle East, the Far East and the European Economic Community ("EEC"). The principal items purchased by the Company through IBB are machine and handmade gold and silver chains; other gold and silver items purchased as finished goods include rings, bracelets, bangles, lockets, earrings, pendants and charms. The principal items purchased by the Company through ADL are loose diamond stones and finished diamond and coloured stone jewelry, including rings, bracelets, pendants and earrings. The world's principal sourcing of rough diamonds is through De Beers Consolidated Mines, Limited ("De Beers"), a South African company. The continuing availability of diamonds to the jewelry industry is dependent, to some degree, on a continuous supply from De Beers. While several other countries are major suppliers of diamonds, in the event of an interruption of supply from South Africa, the jewelry industry, as a whole, could be adversely affected, which could impact the supply of diamonds to the Company. During fiscal 2007, the Company purchased gold and silver products from over 100 suppliers, with the five largest suppliers accounting for approximately 25% of the Company's total gold and silver purchases. In the diamond jewelry, loose stone and coloured stone area, the company purchased products from approximately 100 suppliers, while the five largest suppliers accounted for 55% of the Company's total Page 15 of 71 purchases in this area. A substantial portion of the Company's purchases are concentrated within a small number of suppliers. One particular supplier's products accounted for 23% of IBB purchases and 6% of ADL purchases during the year. The loss of this particular supplier would have a material adverse effect on business. Aside from this one supplier, the Company does not believe the loss of any other supplier would have a material adverse effect on its business. The Company's five largest suppliers account for 38% of the merchandise purchases during the year. Alternative sources of supply for the finished goods purchased by the Company are available. The Company has no long-term contractual relationship with any of its suppliers. In order to maintain consistent product quality, the Company carefully selects its suppliers and continually monitors the quality of their performance. The Company has strict internal control procedures of all jewelry from inspecting all materials sent and received from outside suppliers, monitoring the location and status of all inventory to ensuring government rules and regulations are followed through the entire purchasing and receiving process. A complete physical inventory of gold, silver and gemstones is taken at the Company's distribution and administrative facilities on an annual basis. The Company does not presently engage in hedging when purchasing gold, silver or diamonds. The Company believes the risk of price fluctuations can be mitigated by changes in the prices the Company charges its customers and in the nature of its contracts negotiated with its largest customers. Increases in the price of diamonds, silver or gold, however, could adversely affect the profit of the company. A decrease in the price of gold, silver or diamonds could also have an adverse affect in the valuation of the Company's inventories. COMPETITION The jewelry industry in North America is highly fragmented and characterized by a large number of small to medium-sized manufacturers, wholesalers and distributors. The Company's business is highly competitive, and the Company's competitors include domestic and foreign jewellery manufacturers, wholesalers and importers who may operate on a national, regional or local scale. The Company believes that competition is based primarily on product availability, timeliness of shipment, customer service, product quality, design and price. The diverse distribution channels through which the Company markets its products frequently involve different competitive factors. The ability to provide specialized services is a particularly important competitive factor in sales to certain large retailers such as mass merchandisers, discount stores and catalogue retailers. Product availability and the ability to offer consistent product quality at competitive prices tend to be the key competitive factors to key customers that the Company serves. Some of the Company's competitors may specialize in sales to particular distribution channels and may have relationships with customers in those distribution channels that make competition by the Company more difficult. The Company believes that the trend towards consolidation at the retail level in the jewellery industry will increase the level of competition in the markets in which the Company competes. The Company believes its primary competitors to include PAJ Canada (Canada and USA), Bel-Oro (Canada and USA), Chateau D'Argent (Canada) and R & B Manufacturing (Canada and USA), and for ADL to include Corona (Canada and USA), Master Design (Canada and USA), J.S.N (Canada and USA) and Libman (Canada and USA). INSURANCE The Company maintains primarily all-risk insurance, with limits normally in excess of the Company's current inventory levels, to cover loss and damage caused by fire and/or theft of inventory located at the Company's facilities and insurance on goods in transit. The Company also maintains insurance covering loss and damage caused by fire and/or theft of inventory located at the premises of suppliers and while in the possession of its sales representatives. While the amount of available coverage generally is in excess of the value held by a particular supplier or sales representative, at times the amount of value held by a supplier may temporarily exceed the amount of available coverage. These temporary differences between the amount of available coverage and the value held have not been material to the Company's financial condition or results of operations. The Company has fidelity insurance, which provides a level of coverage against theft or embezzlement by employees of the Company. The Company has an insurance policy to cover liability against its directors and officers and a separate Business Interruption policy. Additionally, the Company carries credit insurance, which covers most of the independent and a Board Page 16 of 71 approved acceptable portion of major customer receivables. TRADEMARKS The Company maintains certain Canadian and US registered trademarks. The level of protection available to the Company for proprietary designs varies depending on a number of factors, including the degree of originality and the distinctiveness of the designs. No assurance can be given that the Company's patent, copyrights and other proprietary rights will preclude competitors from developing substantially equivalent products. IBB uses trademarks in the sale of some of its products to further create an exclusive identity for its customers. The following are some of the Canadian registered trademarks used: Dreamcatchers TM, Little Loves Gold Jewellery TM, Golden Moments TM, Earresistables TM, Tuscany Gold Collection TM, and Tuscany Silver TM. Under Allura Inc. the Company has registered the trademark name bygo.com for its exclusive use in Canada and the USA. Additionally, the Company has registered the following trademark names for its exclusive use in the USA: BYGO and BYGO.NET The Company does not have, nor does it rely on patents to establish or protect its market position. EMPLOYEES At March 31, 2007, the Company employed thirty-eight persons on a full time basis. As at September 15, 2007, there were forty-four persons employed on a full time basis and one on a permanent part-time basis. The full time employees comprise of ten employees in finance and administration, sixteen in sales and merchandising, and eighteen in inventory warehouse. Four full time employees are employed in the Halifax office, eight are employed in the Toronto office, and thirty-two are employed in the Vancouver office. The permanent part-time employee is in finance and administration. As at Sept 15, 2007 the Company employed seven people on a temporary part time basis. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its relations with its employees to be good. GOVERNMENTAL REGULATION The tax laws of the Federal Government of Canada and the Provinces of British Columbia, Ontario and Nova Scotia govern the Company. Specifically, it is bound by income, custom and excise tax rules and regulations regarding customs, all of which are regulated by the federal government of Canada. In addition, the Company is subject to the sales tax and employment laws of the Provinces of British Columbia, Ontario and Nova Scotia. Changes in the tax rates governed by these authorities may have a significant impact on the cash flows of the Company. The Company is also required to comply with the reporting requirements under Canadian securities laws and the reporting requirements for foreign issuers under the securities laws of the United States regulated by the Securities and Exchange Commission. C. ORGANIZATIONAL STRUCTURE Please refer to "Item 4 - History of the Company - Corporate Structure" and "Business Overview." D. PROPERTY AND EQUIPMENT. REAL PROPERTY The Company operates from leased premises in Vancouver, Halifax and Toronto. The Company's Vancouver office is located on 1555 West 8th Avenue, Vancouver, B.C., V6J 1T5, Canada, the Halifax office is located on Unit 104, 276 Bedford Highway, Halifax, N.S., B3M 2K6, Canada and the Toronto Page 17 of 71 office is located at Suite 100, 1 Valleybrook Drive, North York, ON, M3B 2S7. The Vancouver premises cover 8,557 square feet and give the Company a self-contained headquarters building from which to operate. The premises have an underground parking garage. The Company leases the Vancouver premise for $9,400 per month plus expenses. The Halifax premises cover 1,136 square feet of office space. The Company leases the Halifax premises for $1,100 per month plus applicable taxes. The North York ("Toronto") premises cover 3,430 square feet of office space. Starting in July 2006 the Company leased an office in North York ("Toronto") on a five year fixed term at $4,421 per month plus applicable taxes. In July 2007 the cost of the lease was reduced to $4,136 per month for the balance of the term, and starting in August 2007 a further 1,148 square feet were leased for an additional $1,148 per month, bringing the total cost of the lease to $5,284 per month. In May 2008 the lease cost will go up by $813 per month for the balance of the lease. The Company believes that its current premises are adequate for the Company's current operating level and presently foreseeable growth. PROPERTY AND EQUIPMENT The Company also owns a variety of office equipment consisting of computers, photocopiers and other office equipment. The software costs included are for software development and acquisition costs in the Company's subsidiaries of IBB International (Canada) Ltd. and Allura Diamonds Limited. These subsidiaries generate significant revenues and cash flow from the use of this software in their operations. An evaluation of impairment was conducted by evaluating these subsidiaries, and the Company has concluded that there has been no impairment to the software carrying value. During the year the Company has upgraded its computer infrastructure with newer technology and acquired new software, Microsoft Dynamics (Navision). When fully phased in the Company expects these improvements to increase the effectiveness and efficiencies of its operations. The capital cost of this software has been reflected as an obligation under Note 8 of the Company's financial statements. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This discussion should be read in conjunction with the audited consolidated financial statements of the Company and related notes thereto included herein. A. OPERATING RESULTS FISCAL 2007 V. FISCAL 2006 Sales for the fiscal year ended March 31, 2007 ("Fiscal 2007") were $22,638,034 compared to $17,719,672 for the fiscal year ended March 31, 2006 ("Fiscal 2006"), an increase of $4,918,362 or 28%. The significant increase is primarily a result of: o significant sales from the new diamond programs that we obtained during the year with Wal-Mart and Sears; and o enhanced sales efforts during the year which led to increased sales in higher-end diamond products to our major customers. The Company expects to see moderate growth in overall sales volumes in fiscal 2008, with an increase of 3% projected as compared to fiscal 2007. Cost of sales for Fiscal 2007 was $17,039,635 with a gross margin of 24.7% compared to $13,652,307 with a gross margin of 23% for Fiscal 2006. The increase in cost of sales is largely consistent with the increased sales for the year. Due to significant upward movements in gold prices Page 18 of 71 during the year, product costs increased. However, the Company was able to increase the selling prices to offset the increased costs. In addition, the abolishment of the exercise tax during the year means the Company was able to recognise some economies in purchasing. As a result, the gross profit margin improved from that of fiscal 2006. Cost of sales includes the cost of inventory sold, inbound freight, duties, taxes and brokerage, jewellery packaging sold with the product, agency fees, and the gain/loss on settlement of inventory purchases as discuss above. The Company's gross margin may not be comparable to others as the costs of freight and shipping are included in our selling, general, and administrative expenses. Freight and shipping totaled $310,721compared to $315,966 in the prior year. General administrative costs increased by $337,128 or 11% from $2,950,967 in Fiscal 2006 to $3,288,095 in Fiscal 2007. The changes were primarily a result of o Salary and Wages: an increase of $419,899 or 23%. The increase is a combination of a few factors. The main reason being, that during the year the Company opened a new sales office in Toronto. With the exception of one staff member, all the staff in the Toronto office was newly hired during fiscal 2007. In addition, due to increased sales, we employed more warehouse casual staff and more overtime was also incurred. Lastly, there was a salary increase to the CFO/VP Operations effective April 1, 2006. o Rent: an increase of $55,672 or 31%. Again, the establishment of the Sales Office in Toronto during the year contributed to the increase in rent. o Legal and accounting: an increase of $99,110 or 63%. The increase is mainly due to audit fees for fiscal 2006 being much higher than what was accrued in fiscal 2006. Thus, the under-accrued portion was expensed in the current year. In addition, legal fees also increased as a result of new consignment agreements with some of our major customers. o Bad debts: There was a credit balance of $108,546 as compared to a debit balance of $127,180 in 2006. This significant decrease in bad debt expense offset the above increases to a large extent. The decrease in bad debts is a result of write back of previous years' provisions as well as recovery of some accounts, which were provided for in 2007. Overall, as a percentage of sales, administrative expenses decreased to 14.5% 2007 from 16.7% in 2006. Selling and delivery expenses increased by $149,461 or 18% to $970,720 in Fiscal 2007 from $821,259 in fiscal 2006, as a result of: o Sales Commission - increased by $118,788 or 49% in fiscal 2007 mainly due to an overall general increase in sales during the year and a sum of commission paid to establish the Quebec sales territory. o Advertising - increased by $62,172 or 101%. The Company spent higher costs in advertising costs, for example, high-end catalogues were produced to promote the Golden Moments and Dream Catchers programs during the year. In addition, tradeshow activities were also expanded during the year. Overall, as a percentage of sales, selling and delivery expenses decreased to 4.3% from 4.6% in 2006. Interest and bank charges for Fiscal 2007 increased $212,115 or 28% to $964,633 when compared to the Fiscal 2006 amount of $752,518. The Company continued to rely on its increased banking facilities throughout fiscal 2007. The average balance in its bank line increased during fiscal 2007 by approximately $145,403. The higher banking facilities were required to finance the increased inventory levels to support the increased sales volumes during the year. The average interest rate paid by the Company for its banking facilities increased from 5.69% in Fiscal 2006 to 6.98% in Fiscal 2007. The Company had a net income before provision for income taxes of $294,741. This represents a Page 19 of 71 significant improvement from fiscal 2006, which recorded a loss before tax recovery of $492,621. The improved gross profit margin coupled with a decrease as a percentage of sales in both administrative expenses and selling and delivery expenses resulted in the overall positive net income before tax. Tax expense or recovery is determined by entity-based results. Tax expense for the current year is comprised of two portions. During the year, Allura Diamonds Limited was subject to a tax audit by Canada Revenue Agency ("CRA"). As a result, the Company was reassessed for a total of $76,469 in additional income tax payable relating to its fiscal years 2004, 2005 & 2006. Interest and penalties totaling $14,882 were also levied by the CRA. Subsequent to the year-end, the Company filed an objection notice on the reassessment and claimed for a refund of the full amount assessed. Subsequent to the release of the Audited Financial Statements the CRA advised that it has reviewed the Company's claim and has confirmed that there will be a reversal in full for the disallowed interest, accounting fees and audit fees. The final re-assessment has not yet been received however at that time it is expected that installment interest and penalties will also be reversed. The balance of $18,000 is the provision for income tax expense arising from Allura International Inc. taxable income estimated for the current year. As disclosed in Note 7 to the Company's consolidated financial statements, the Company has substantial tax losses that could be used to offset future taxable income. However, the tax benefit of these losses has been offset by a valuation allowance of the same amount due to the uncertainty of their realization. The Company's net income of $200,272 represents a significant improvement from the net loss of $389,759 in fiscal 2006. FISCAL 2006 V. FISCAL 2005 Sales for the fiscal year ended March 31, 2006 ("Fiscal 2006") were $17,719,672 compared to $18,252,286 for the fiscal year ended March 31, 2005 ("Fiscal 2005"), a decrease of $532,614 or 3%. The Fiscal 2006 sales decrease is not significant but is primarily a result of: o uncertainty in the market due to volatility in the gold price which significantly impacts the price of gold based jewellery and o in fiscal 2005 there were two significant roll out of programs to two major customers; in fiscal 2006, there were replenishment of sales of items from these programs but not at the same rates as its initial year of roll out The Company expects to see sales return to the fiscal 2005 levels in fiscal 2007 with new product lines introduced into its major customer group. Cost of sales for Fiscal 2006 was $13,652,307 with a gross margin of 23% compared to $13,154,241 with a gross margin of 28% for Fiscal 2005. The increase in cost of sales of $498,066 or 4% in spite of a decrease in sales was a result of the Company taking write downs on discontinued inventory to recovery value from an expected melt of its product and a result of the increase cost of gold price. Additionally, as the Company was selling down its gold inventory which was acquired at higher costs partially due to foreign exchange conversion rates, the resulting impact is a higher cost of sales for the fiscal year relative to the selling price of the gold inventory. The Company expected the gold price to continue to increase into fiscal 2007 and adjusted its selling price to reflect the increased gold price. Cost of sales includes the cost of inventory sold, inbound freight, duties, taxes and brokerage, jewellery packaging sold with the product, and the gain/loss on settlement of inventory purchases as discuss above. The Company's cost of sales may not be comparable to others as the costs associated with purchasing and receiving and warehousing are included in our selling, general and administrative expenses as the amounts are not material. Purchasing and receiving costs approximate $48,000 (2005: $48,000) and warehousing costs approximate $16,000 (2005: $16,000). The Company's gross margin may not be comparable to others as the costs of freight and shipping Page 20 of 71 are included in our selling, general, and administrative expenses. Freight and shipping totaled $315,966 compared to $254,267 in the prior year. General administrative costs decreased by $297,229 or 9% from $3,248,196 in Fiscal 2005 to $2,950,967 in Fiscal 2006. The changes were primarily a result of o Salary and Wages: a decrease in salaries and wages by $221,579 or 11%. The decrease is result of two senior finance position being eliminated and decrease in temporary staffing. Shortly after fiscal 2006 year end, the Company's corporate accountant and controller resigned; their positions were not replaced as the work was reallocated to junior accounting staff and the CFO and new junior clerks. During Fiscal 2005, the Company had increased its temporary staffing during the third and fourth quarter to manage and roll out new programs and these additional staff was not recalled in fiscal 2006. Included in salaries and wages are the labour costs of the purchasing and receiving staff which were approximately $48,000 (2005: $48,000). Selling and delivery expenses increased by $36,083 or 5% to $821,259 in Fiscal 2006 from $785,176 in fiscal 2005, as a result of: o Freight and Shipping - in addition some of the Company's new customers have multiple locations requiring drop shipments. The company does not charge back the costs of shipping except for small deliveries. The amount of such charges amount to less than $15,000 annually. o Sales Commission - increased in fiscal 2006 due to additional sales representative hired for one of its territory previously covered by the National Sales manager. Interest and bank charges for Fiscal 2006 increased $185,519 or 34% to $752,518 when compared to the Fiscal 2005 figure of $562,999. The Company continued to rely on its increased banking facilities from the later half of fiscal 2005 into fiscal 2006; the average balance in its bank line increased during fiscal 2006 by approximately $1,500.000. The higher banking facilities were required to finance the increased inventory levels to service the replenishment of programs that were developed in the last few years. The average interest rate paid by the Company for its banking facilities increased from 4.02% in Fiscal 2005 to 4.69% in Fiscal 2006. The Company had a loss before tax recovery of $492,621. The loss was primarily attributed to a reduction in sales and increased price of gold which the company did not benefit from as a large portion of its sales was based on fixed prices. The Company's purchases were at current gold prices. Tax expense or recovery is determined by entity-based results and as such, the Company's tax recovery is result of the its loss carry back provisions in IBB available under Canadian taxation laws. Allura's and ADL's (Bygo's losses that transferred to ADL from its corporate reorganization as describe below) e-commerce start-up costs have created losses that may be used in future periods to reduce taxable income. As disclosed in Note 7 to the Company's consolidated financial statements, the tax benefit of these losses has been offset by a valuation allowance of the same amount due to the uncertainty of their realization. The Company's net loss for the year of $389,579 reflects a significant change over fiscal 2005's net earnings of $322,708. B. LIQUIDITY AND CAPITAL RESOURCES During fiscal 2001, the Company (i) completed a private offering of 1,070,298 common shares from which it realized net proceeds of $1,535,004, (ii) completed a second private offering of 400,000 shares from which it realized net proceeds of $588,000, (iii) issued 340,136 common shares pursuant to an investment agreement, ("Investment Agreement") to a venture capital group, Business Development Page 21 of 71 Bank of Canada, ("BDC") on July 25, 2000, ("BDC Investment Date") for which it realized proceeds of $500,000 less issue costs of $23,867 and (iv) issued 114,753 common shares to MacDonald Dettwiler & Associates ("MDA") in exchange for contracted services in developing Bygo's web site for value of $167,539. During Fiscal 2003, the shares issued to MDA were returned to and cancelled by the Company as part of a Settlement Agreement. On September 30, 2005, the shareholders approved a 3 to 1 share consolidation for shareholders on record at September 30, 2005. On March 31, 2006, Bygo was sold to ADL for book value and its assets and operations were wound up into ADL. INVESTMENT AGREEMENT The Company entered into an Investment Agreement on July 25, 2000 with BDC. Pursuant to such Investment Agreement, BDC acquired 340,136 units consisting of one common share, one common share call option and one common share put option from the Company for an aggregate purchase price of $500,000 less issue costs of $23,867. Each common share call option expired on July 25, 2001 unexercised. The put options are exercisable after July 25, 2005 and will expire upon the closing of certain qualified initial public offerings. The put options entitle the holders to put the shares to the Company for the lesser of their fair value (estimated at $57,600 at March 31, 2007 (2006: $52,600; 2005: $64,000)) and the original proceeds received under the unit offering ($500,000). The common share put options were outstanding as at September 15, 2007. The Company has presented its obligation under this put as a current liability as disclosed in Note 2. BANK FINANCING The Company's subsidiaries IBB and ADL (collectively the "Borrowers") currently have "Revolving Demand Loan" credit facilities ("Overdraft Loan") with HSBC to a combined maximum principal of $11,000,000 (2006: $6,500,000) with a $1,400,000 onetime bulge ("Onetime Bulge") in effect March 31, 2006 to March 31, 2007 and with an annual $1,100,000 bulge in effect from July 1 to December 31 each year (the "Seasonal Bulge"). In fiscal 2006, the Company also had available an additional $900,000 one time bulge from July 15, 2004 to June 30, 2005 ("Additional Bulge"), plus a secondary additional $1,600,000 one time bulge from March 31, 2005 to June 31, 2005 ("Secondary Additional Bulge") Subsequent to year-end, the demand overdraft loan facilities totaling $11,000,000 were retroactively renewed except that the Onetime Bulge was extended to May 1, 2007 and the Annual Seasonal Bulge was provided on a one-time basis from May 1, 2007 to December 31, 2007. The credit facilities are subject to certain margin requirements as defined in the Overdraft Loan offer letter from HSBC dated July 14, 2000, amended on August 9, 2001, and subsequently amended on August 28, 2002, October 8, 2002, March 18, 2003, July 31, 2003, July 2, 2004, July 19, 2004, March 31, 2005, July 13, 2005, April 12, 2006, July 28, 2006, November 21, 2006, April 4, 2007 and May 28, 2007 collectively referred to as the Company's "Banking Agreement". The margin requirements as defined by the Banking Agreement are as follows: The amount outstanding under the overdraft loan will not, at any time, exceed the sum of: o 50% of the value of Acceptable Inventory, up to a maximum margin contribution of $4,000,000 for the period of January 1 - June 30 Annually, including a $1,500,000 sub-limit for Allura Diamonds Limited and increased to $4,550,000 for July 1 - December 31 annually (amended on a one-time basis to $5,050,000 for the period of May 1, 2007 to Page 22 of 71 December 31, 2007); plus o 50% of consignment inventory limited to a maximum of $1,700,000 subject to the following sub limits; Bay/Zellers $1,500,000; Sears $1,000,000, Charm $100,000; Ben Moss $175,000; plus o 75% of the amount of Acceptable Accounts Receivable; plus 80% of the amount of Acceptable Accounts Receivable approved by the Bank as a "Major" account, and insured by Euler American Credit Indemnity Company ("Euler"), plus 90% of the amount of Acceptable Accounts receivable insured by Euler for 100% of the account receivable for a 90% pay out; plus o 100% of the sum of Acceptable Credit Instruments; o An $800,000 allowance for the mortgages given in support of the guarantee. The Company's borrowings bear interest at a rate equal to Canadian prime plus 1/8% on the first $1,000,000 (Fiscal 2006: $1,000,000) and prime plus 1% on the balance. The prime interest rate on these loans at year-end was 6.0% (Fiscal 2006: 5.5%) and 6.25% as at September 15, 2007. The loans are collateralized by a general security agreement creating a first floating charge over all assets, a general assignment of book debts, an assignment of inventory under Section 427 of the Bank Act, a guarantee from a shareholder for $4,000,000 supported by a standby letter of credit for $1,000,000 (Fiscal 2006: $1,000,000), guarantees by certain other shareholders to a maximum of $800,000, collateralized by certain of these shareholders' residential real estate and an assignment of insurance on the life of the president in the amount of $800,000. The terms of the demand overdraft loan agreement facility requires the Company to maintain certain covenants which include Debt to Tangible Net Worth and Current Ratios. These covenants are amended from time to time by the bank. During fiscal 2007, the Company was required to inject shareholders' equity and/or debt subordinate to its bank indebtedness in the minimum amount of $500,000 (decreased from an originally requested injection of $1,500,000) prior to March 31, 2007. On April 4, 2007, a company controlled by one of the Company's shareholders provided a standby letter of credit expiring October 10, 2007; subsequently amended to expire November 1,2007, in favour of the Company's bank. This letter of credit satisfied the bank's requirement for additional shareholders' equity and/or subordinated debt. Under the terms of the demand overdraft loan facilities, the Company must maintain a Debt to Tangible Net Worth ratio not exceeding 2.5 to 1 (amended to 3.0 to 1 subsequent to the year-end) and Ratio of Current Assets to Current Liabilities not less than 1.3 to 1 on a consolidated entity basis as defined by the bank at each year-end when the loan is outstanding. As at March 31, 2007, the Debt to Tangible Net Worth Ratio and ratio of Current Assets to Current Liabilities were 3.64 to 1 and 1.17 to 1 (2006: 3.58 to 1 and 1.19 to 1), respectively. Notwithstanding this technical default, the Bank has currently agreed not to take any steps with regard to this default, although this does not constitute a waiver nor does it prejudice any of the bank's other rights and remedies under the facilities. There can be no assurance that the Company's bank will continue to forebear rather than exercise the remedies available to it under these facilities. The Company expects to see cash flow improvement but will continue to rely on its bank financing to maintain operations and to finance potential increases in revenues and expansion of customer programs. The Company expects cash flow to be provided by operations in fiscal 2008. However, it will continue to depend on bank financing at its current level to expand its business into new areas. For the year ended March 31, 2007, the combined overdraft loan amounted to $11,579,643. ACCOUNTS RECEIVABLE The Company's account receivables net of allowances for doubtful accounts as at March 31, 2007 were $4,479,708. The balance in accounts receivable represented 19.8% of net sales for Fiscal 2007. Page 23 of 71 INVENTORY The Company's inventory as at March 31, 2007 was $13,532,378 or 59.8% of net sales for Fiscal 2007 compared to $12,087,351 or 68.2% of net sales for Fiscal 2006. Inventory continues to reflect a high percentage of net sales because it reflects (i) the Company's commitment to ensure customers orders can be turned around in a short period from the time the order is placed with the Company to the time it is delivered, (ii) the increases in replenishment programs with customers from Fiscal 2005 have continued through Fiscal 2006 and 2007, and with these programs the Company must ensure sufficient inventory is available at all times to achieve maximum ship value on each order (iii) the customers' higher fulfillment targets for each purchase order delivered and (iv) Fiscal 2005's increase of $1 million in consignment goods under consignment agreements resulting from customers store and program expansion have continued into Fiscal 2006 and 2007. ADL continues to expand and develop its product line to increase selection and availability in the market place. Inventory has increased over the prior year as a result of a new diamond program offered to some of the Company's major customers and increased sales in high-end diamond products to its major/mini major customers. The Company expects its inventory levels to reduce significantly in future periods as the Company works to liquidate some of the old inventory and towards a just-in-time purchasing system. Subsequent to the fiscal year end, the Company sold/melted for scrap approximately $517,000 of overstock inventory at book value to reduce its inventory levels. The recovered gold was subsequently sold to the refiner for the then market price. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The Company's accounts payable and accrued liabilities as at March 31, 2007 were $3,931,860 compared to $4,197,618 for Fiscal 2006. The Company made an effort to keep supplier accounts up to date and to ensure it fulfils its obligations in a timely manner. The Company does not anticipate any difficulties in settling these obligations. OBLIGATION UNDER CAPITAL LEASE During the year, the Company sold certain equipment. There was no material gain on the transaction. The Company then immediately leased back this equipment by entering into a lease agreement. The capital lease has a four-year term, expiring in 2011, with imputed interest rate of approximately 6.25% per annum. The leased equipment is amortized on a straight-line basis over the lease term. Details can be found under Tabular Disclosure of Contractual Obligations in F below. CAPITAL COMMITMENTS Except for anticipated aggregate lease payments for both IBB and ADL of approximately $709,000 over the next five years, the Company has no other significant capital commitments as of September 30, 2007. The Company anticipates that cash flow from operations, as well as borrowings available under current Overdraft Loan Facilities will be sufficient to satisfy the operating needs for the next twelve months. U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES There are no material differences between Canadian GAAP and U.S. GAAP as applicable to the Company's operations and financial statements, including disclosure items as disclosed in Note 15 to the Company's consolidated financial statements. C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. The Company does not conduct research and development and holds no patents or licenses. Page 24 of 71 D. TREND INFORMATION See "Item 4. - Information on the Company, - Part B., Business Overview" E. OFF-BALANCE SHEET ARRANGEMENTS There are no known significant off-balance sheet arrangements other than those disclosed in Item 10 Section 3 under "Investment Agreement" and as disclosed in Note 10 of our audited consolidated financial statements for the year ended March 31, 2007. F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS The following table summarizes all of the outstanding obligations of the Company's continuing operations as of March 31, 2007 by the year that they become due. We expect to fund these obligations from operating income and equity/debt financing:
- --------------------------------------------------------------------------------------------------------------------------- PAYMENTS DUE BY PERIOD CONTRACTUAL OBLIGATIONS ----------------------------------------------------------------- LESS THAN 1 MORE THAN 5 TOTAL YEAR 1-3 YEARS 3-5 YEARS YEARS - --------------------------------------------------------------------------------------------------------------------------- Short-Term Debt Obligations $11,579,643 $11,579,643 -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Long-Term Debt Obligations -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Capital (Finance) Lease Obligations $ 342,384 $ 92,702 $ 171,142 $ 78,540 -- - --------------------------------------------------------------------------------------------------------------------------- Operating Lease Obligations $ 708,525 $ 191,834 $ 387,746 $128,945 -- - --------------------------------------------------------------------------------------------------------------------------- Purchase Obligations -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Other Long-Term Liabilities Reflected on the Company's Balance Sheet under the GAAP of the primary financial statements -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- TOTAL $12,630,552 $11,864,179 $ 558,888 $207,485 -- - ---------------------------------------------------------------------------------------------------------------------------
G. SAFE HARBOR Some of the information in this report contains forward-looking statements. Forward-looking statements represent our current expectations or forecasts of future events and are based on our management's beliefs, as well as assumptions made by and information currently available to them. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include the words "anticipate," "believe," "budget," "estimate," "expect," "intend," "objective," "plan," "probable" "possible," "potential," "project" and other words and terms of similar meaning in connection with any discussion of future operating or financial performances. Any or all of our forward-looking statements in this Form 20-F may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many of these Page 25 of 71 factors, including the risks outlined under "Risk Factors," will be important in determining our actual future results, which may differ materially from those contemplated in any forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this prospectus. Our forward-looking statements speak only as of the date made. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement. H. LEGAL PROCEEDINGS As at September 30, 2007, there are no legal proceedings to which the Company is a party or to which its properties are subject. The Company does not know of any legal proceedings that are contemplated. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. DIRECTORS AND SENIOR MANAGEMENT The following table sets out the full name, age, and function in the Company of the directors, executive officers and key employees of the Company as of September 15, 2007. On September 26th, 2007, the Directors on the Board of Directors were re-nominated to stand for election to the Board. All nominated Directors were re-appointed effective September 26th, 2007.
- ---------------------------------------------------------------------------------------------------- POSITION NAME AGE POSITIONS HELD SINCE - ---------------------------------------------------------------------------------------------------- Jeremy Bowman 56 Director, President, CEO and acting CFO (1) of Allura 1988 International Inc. - ---------------------------------------------------------------------------------------------------- Sheila Bowman 49 Director, Secretary, and Treasurer 1988 - ---------------------------------------------------------------------------------------------------- Frank Kovacs 54 Director 1998 - ---------------------------------------------------------------------------------------------------- Thomas Weckman 53 Director and V.P. of Allura Diamonds Limited 1994 - ---------------------------------------------------------------------------------------------------- Tina VanderHeyden 55 Director 1999 - ---------------------------------------------------------------------------------------------------- Dave Wall 56 Director 2003 - ---------------------------------------------------------------------------------------------------- Cameron Gillies 42 Senior V.P 2006 - ---------------------------------------------------------------------------------------------------- Lan Shangguan 37 V.P of Finance 2007 - ---------------------------------------------------------------------------------------------------- Emily Tsen 41 Chief Financial Officer /V.P. Operations 1996 - ----------------------------------------------------------------------------------------------------
Page 26 of 71 Jeremy Bowman has been the President, CEO and Director of the Company since 1988. He is also a 25% Owner/Director of The Black Bear Pub Limited in Nanaimo, B.C., Canada, a restaurant, bar and liquor store. (1) Mr. Bowman was appointed acting CFO effective June 30th 2007 Sheila Bowman has been the Secretary and Treasurer and a Director of the Company since 1988. She is also a 25% Owner/Director of The Black Bear Pub Limited in Nanaimo, B.C., Canada, a restaurant, bar and liquor store. Frank Kovacs is the Managing Director of International Bullion & Metal Brokers (London) Limited, incorporated in the United Kingdom, a leading jewellery distribution company with over 30 years trading history. He has also been a Director of the Company since 1988. Thomas Weckman has been the Vice-President of ADL since 2005, (previously its President) and a Director of the Company since 1999. He has also served as President of Baird Weckman Sales Ltd., a private trading company incorporated under federal laws of Canada since 1997. Tina VanderHeyden has been the President of T. VanderHeyden Associates Inc., a company incorporated under the laws of the Province of British Columbia, for the past 27 years and has served on the Company's Board of Directors since 1999. She is also a director for The Canadian Film Centre. Dave Wall has been a Director since September 30th, 2003. Mr. Wall joined Norpac Controls Ltd. ("Norpac") in 1973 and became President of Norpac in June 2000. In addition, Mr. Wall serves on the Emerson Process Management Representative Presidents' Executive Committee and the Control Systems Division Advisory Committee. He also sits on two B.C.I.T. advisory Boards: the UBC Chemical Engineering Industry Advisory Board and the Association for Professional Engineers and Geo Scientists. He is a corporate campaign Executive for United Way and in prior years served as Board President for the North Shore Neighborhood House. Mr. Wall is a director of Norpac, Artemis Industrial Networks Ltd. and Norpac Employee Owners Ltd. Emily Tsen has served as the Chief Financial Officer of the Company since 1999 and previously as its Controller since 1996. In December 2003 she was further given the title of Vice President Operations. She received her Chartered Accountant designation in British Columbia in 1993. Cameron Gillies joined the Company in October 2006 as Senior Vice President. He is currently responsible for sales and marketing for the Company, together with management of the Halifax and Toronto offices. Lan Shangguan joined the Company as V.P Finance in March of 2007. She is responsible for undertaking all duties of the Company relating to Finance and Accounting and for the overall running of the accounting department. Her position currently reports to the CFO/VP Operations. She received her Australian CPA designation in 1996 and her Chartered Accountant designation in British Columbia in 2002. Each director serves until the next annual meeting of shareholders and until his successor shall have been duly elected and qualified or until such earlier time as such director may resign or be removed. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. There are no arrangements or understandings between the director and any other person regarding such director or officers election to serve in his or her official capacity on behalf of the Company. The Shareholders' Agreement entitles Business Development Bank of Canada ("BDC') to select a nominee for the Board of Directors as long as BDC holds at least 300,000 Common Shares in the Company. As at September 15, 2007, BDC has not selected a nominee for the Board of Directors. The Company has employment agreements with all of its senior management. The Company's business is substantially dependent on the efforts and abilities of Jeremy Bowman, its Chief Executive Officer. The loss of Mr. Bowman's services may have a material adverse effect on the Company's business. The Company has an employment agreement currently in place with Mr. Bowman. The Company does not maintain any key man life insurance on Mr. Bowman's life. Page 27 of 71 B. COMPENSATION OUTSTANDING The Company paid aggregate compensation of $514,000, $492,000, and $607,500 to all directors and officers as a group during the fiscal years ended March 31, 2007, 2006, and 2005, for services in all capacities. There were no funds set aside by the Company during the fiscal year ended March 31, 2007 to provide pension, retirement or similar benefits for officers or directors. On October 30, 1999, the Company approved stock options to be issued to employees and consultants of the Company. Total options granted by the Company and still outstanding as at March 31, 2007 were, 140,000 and were granted to a director of the Company. Each option is convertible into a share of the Company's common stock. As at March 31st 2007 the options, which have a weighted average exercise price of CDN$1.58 had a 0.28 weighted average remaining life. As at Sept 30, 2007 the 140,000 options had expired. The Company has a standard arrangement for the payment of fees to three directors of the Company for acting in such capacity. Directors are reimbursed for all expenses necessary for travel and attendance at meetings. Total payments of $18,200 during Fiscal 2007 to directors for acting in such capacity are included in the aggregate compensation disclosure discussed above. C. BOARD PRACTICES Each director serves until the next annual meeting of shareholders and until his successor shall have been duly elected and qualified or until such earlier time as such director may resign or be removed. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. The Board of Directors holds meetings four times each year. There are no directors' service contracts with the Company or any of its subsidiaries that provide for benefits upon termination of employment. Although some directors are subject to employment contracts with the Company, such contracts are not applicable to their services in the capacity of directors. The Board of Directors has elected members to an Audit Committee and a Compensation and Human Resource Committee. The Audit Committee is comprised of the following members as at September 30, 2007: Sheila Bowman, Tina VanderHeyden, Dave Wall and Frank Kovacs. The Audit Committee chair is Sheila Bowman. The Audit Committee holds meetings four times a year and its primary mandate is to facilitate the Company's corporate governance and protect the interest of shareholders by overseeing the financial reporting process and monitoring the responsibilities of the Company's management team as well as its Board of Directors. The Compensation and Human Resource Committee is comprised of the following members as at September 30, 2007: Tina VanderHeyden, Frank Kovacs, and Dave Wall. The Compensation and Human Resource Committee chair is Tina VanderHeyden. The Compensation and Human Resource Committee holds meetings four times a year and its primary mandate is to monitor and review the Company's management structure and their performance, to review the Company's philosophies and compensation and human resource policies, to administer the Company's incentive plans and stock option plan and to monitor and review the Board of Directors' composition and performance. D. EMPLOYEES At March 31, 2007, the Company employed thirty-eight persons on a full time basis. As at September 15, 2007, there were forty-four persons employed on a full time basis and one on a permanent part-time basis. The full time employees comprise of ten employees in finance and administration, sixteen in sales and merchandising, and eighteen in inventory warehouse. Four full time employees are employed in the Page 28 of 71 Halifax office, eight are employed in the Toronto office, and thirty-two are employed in the Vancouver office. The permanent part-time employee is in finance and administration. As at Sept 15, 2007 the Company employed seven people on a temporary part time basis.. None of the Company's employees are covered by a collective bargaining agreement. The Company considers its relations with its employees to be good. As at March 2007 the company employed a V.P of Finance to provide oversight and undertake management duties for the Finance and Accounting departments. In October 2006 the company employed a Senior Vice President to be responsible for sales and marketing for the Company, together with management of the Halifax and Toronto offices. As at October 4, 2006, the Company employed a Corporate Accountant to undertake responsibilities in the finance and accounting department. During Fiscal 2007, on average the Company employed twelve temporary part time employees to cover off seasonal requirements. E. SHARE OWNERSHIP The share ownership of the persons set forth in Item 6.B above is disclosed in "Item 7. Major Shareholders and Related Party Transactions - Major Shareholders" below. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS As far as is known to the Company, the Company is not directly or indirectly owned or controlled by another corporation or by any foreign government. The following table sets forth certain information, as at September 30, 2007, concerning (i) persons and companies that own of record or are known by the Company to own beneficially, directly or indirectly, more than 5% of the outstanding Common Shares and (ii) beneficial ownership of outstanding Common Shares by all directors and executive officers of the Company.
- -------------------------------------------------------------------------------------------------- Number of Shares Percentage of Name of Shareholder Beneficially or Directly Class Owned - -------------------------------------------------------------------------------------------------- International Bullion & Metal Brokers Ltd.(1) 2,083,334 41.01% - -------------------------------------------------------------------------------------------------- Bowman Family Trust ("Trust")(2) 1,775,000 34.94% - -------------------------------------------------------------------------------------------------- Jeremy C. Bowman(3) 154,167 3.03% - -------------------------------------------------------------------------------------------------- Sheila P. Bowman(4) 154,167 3.03% - -------------------------------------------------------------------------------------------------- Thomas Weckman(6) 83,334 1.64% - -------------------------------------------------------------------------------------------------- B.D.C Capital Inc(5) 113,379 2.23% - -------------------------------------------------------------------------------------------------- Emily Tsen (7) 9,334 (*) - -------------------------------------------------------------------------------------------------- Executive Officers and Directors as a group (7) 4,372,715 86.07% - --------------------------------------------------------------------------------------------------
Page 29 of 71 (1) International Bullion & Metal Brokers Limited ("International Bullion") is a corporation formed under the laws of England of which Frank Kovacs is a Director. Frank Kovacs is also a Director of the Company. (2) Although not a beneficiary of the trust, Jeremy Bowman, the Company's President and CEO, is one of the three Trustees of the Trust. Sheila Bowman is a beneficiary of the Bowman Family Trust. The other beneficiaries are the children of Mr. Bowman. (3) Jeremy Bowman is the Company's President, CEO and a Director. (4) Sheila Bowman is the Secretary, Treasurer and a Director of the Company. (5) The Business Development Bank of Canada through B.D.C Capital Inc is a venture capital shareholder owning 113, 379, or 2.2% of outstanding shares. B.D.C has the right to appoint a representative to the Board of Directors of the Company. Currently it has not exercised the right to do so. (6) Thomas Weckman is Allura Diamonds Limited's Vice-President and a Director. (7) Emily Tsen is the CFO, and VP Operations * Less than 1% of class. The Company's major shareholders do not have different voting rights. However, some of these shareholders are subject to a shareholders agreement as described below. There has been no significant change in the percentage ownership held by any major shareholders during the past three years. As at September 30, 2007 there was no trading market for the Common Shares in the United States or Canada. The following table indicates the approximate number of record holders of Common Shares, the number of record holders of Common Shares with United States addresses and the portion and percentage of Common Shares so held in the United States.
- -------------------------------------------------------------------------------------- TOTAL NUMBER NUMBER OF US REGISTERED NUMBER OF US COMMON REGISTERED HOLDERS SHARES PERCENTAGE OF CLASS - -------------------------------------------------------------------------------------- 114 45 30,156 0.59% - --------------------------------------------------------------------------------------
The computation of the number and percentage of Common Shares held in the United States is based upon the number of Common Shares held by record holders with United States addresses. United States residents may beneficially own Common Shares held of record by non-United States residents. SHAREHOLDERS' AGREEMENT The Company has entered into a shareholders' agreement ("Shareholders Agreement") with shareholders individually holding at least 5% of the outstanding shares of the Company on July 25, 2000. The Shareholders' Agreement requires that board approval be obtained prior to: o issuance or redemption of the Company's shares, o changes to the authorized share capital, o declaration or payment of dividends, o distribution of shares to the public or listed for trading on a recognized securities exchange, o business combinations between the Company or any of its subsidiaries with any other persons, Page 30 of 71 o disposition of any subsidiaries, o loaning of any money, providing guarantees or assuming liability for the debts or obligations of any other persons or paying any shareholder, and o changing the nature of the Company's business outside of the ordinary course of business of the Company. The Shareholders' Agreement had provided that as long as BDC hold at least 300,000 shares (after consolidation equivalent to 100,000 shares), the Company was to proceed with any of the following matters only with prior written consent of BDC: o declare or pay dividends, redeem or repurchase any shares or make any distribution in respect of shares, o loan any money, provide guarantees or assume liability for the debts or obligations of any other persons or pay any shareholder, or o any initial public offering by the Company. The Shareholders' Agreement also provided that, subject to the satisfaction of certain conditions, until the earlier of the first anniversary of the date of the Shareholders' Agreement, being July 25, 2000 or the occurrence of an initial public offering by the Company, (the "initial preemptive date") and subject further to BDC holding at least 300,000 shares (After consolidation equivalent to 100,000 shares), if the Company proposed to effect an offer and sale of its securities, the Company was obliged to first offer BDC the opportunity to purchase, and BDC, in its sole discretion could purchase, all or a portion of such securities from the Company up to a maximum of $2,000,000 of the proposed aggregate offering price. BDC did not exercise this right within the specified time frame therefore the option expired. After the initial preemptive date and prior to the termination of the Shareholders' Agreement by virtue of the Company completing a qualified public offering, BDC has the right, except for certain excepted transactions, to participate pro-rata in any securities offerings affected by the Company. As far as is known to the Company, there are no arrangements the operations of which may at a subsequent date result in a change of control of the Company. B. RELATED PARTY TRANSACTIONS No key management personnel of the Company or any shareholder of record owns either beneficially, directly or indirectly, more than 5 percent of the issued and outstanding Common Shares (including options) of the Company, or any of their respective associates or affiliates, had any material interest, directly or indirectly, in any transaction with the Company except for those in the normal course of the business and as disclosed in the Company's financial statements, or in any proposed transaction, since the beginning of the Company's last fiscal year up to the date of the Report. C. INTERESTS OF EXPERTS AND COUNSEL This form is being filed as an Annual Report under the Securities Exchange Act 0f 1934, accordingly the information called for by this Item 7.C. is not required. ITEM 8. FINANCIAL INFORMATION A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION See Item 17 for the Company's Financial Statements. The Company knows of no contemplated or pending legal or arbitration proceedings including those relating to bankruptcy, governmental receivership or similar proceeding and those involving any third party against it, nor is the Company involved as a plaintiff in any material pending litigation. Page 31 of 71 The Company knows of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to the Company or its subsidiaries or has a material interest adverse to the Company or its subsidiaries. The Company declared its first dividend on September 6, 2005 for all shareholders on record as at September 6, 2005. The dividend of USD$.01 per share (Equivalent to USD$.03 after consolidation) was paid September 8, 2005. The Company's four largest shareholders waived their dividends choosing to retain the funds in the Company to grow the business B. SIGNIFICANT CHANGES No significant changes have occurred since the date of the annual financial statements included in the Report. ITEM 9. THE OFFER AND LISTING A. OFFER AND LISTING DETAILS/MARKETS There is no trading market for the Company's Common Stock and there can be no assurance that a trading market will develop, or, if such a trading market does develop that it will be sustained. To the extent that a market develops for the Common Stock at all, of which there can be no assurance, it will likely appear in what is customarily known as the "pink sheets" or on the "FINRA" formally know as "NASD" Over the Counter Electronic Bulletin Board, which may limit the marketability and liquidity of the Company's Common Stock. B. PLAN OF DISTRIBUTION This Form 20F is being filed as an Annual Report under the Securities Exchange Act of 1934, and accordingly, the information called for by this Item 9.B. is not applicable to this report. C. SELLING SHAREHOLDERS This Form 20F is being filed as an Annual Report under the Securities Exchange Act of 1934, and accordingly, the information called for by this Item 9.C. is not applicable to this report. D. DILUTION This Form 20F is being filed as an Annual Report under the Securities Exchange Act of 1934, and accordingly, the information called for by this Item 9.D. is not applicable to this report. E. EXPENSES OF THE ISSUE This Form 20F is being filed as an Annual Report under the Securities Exchange Act of 1934, and accordingly, the information called for by this Item 9.E. is not applicable to this report. ITEM 10. ADDITIONAL INFORMATION A. SHARE CAPITAL This Form 20F is being filed as an Annual Report under the Securities Exchange Act of 1934, and Page 32 of 71 accordingly, the information called for by this Item 10.A. is not required. B. MEMORANDUM AND ARTICLES OF ASSOCIATION The Company's Certificate of Incorporation, Bylaws, Articles of Amendment, Certificate of Amendment and Certificate of Change of Name which were included as Exhibits 1.1, 1.2, 1.3, 1.4 and 1.5, respectively, to the Company's Registration Statement on Form 20-F, file number 030228, as amended, are hereby incorporated by reference. There is no limitation imposed by Canadian law or by the constituent documents of the Company on the right of a non-resident to hold or vote common Shares (the "Voting Shares"), other than are provided in the INVESTMENT CANADA ACT (Canada) (the "Investment Act"), as amended by the World Trade Organization Agreement Implementation Act (the "WTOA Act"). The Investment Act generally prohibits implementation of a reviewable investment by an individual, government, or agency thereof, corporation, partnership, trust or joint venture that is not a "Canadian", as defined in the Investment Act (a "non-Canadian"), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. An investment in the Voting Shares of the Company by a non-Canadian (other than a "WTO Investor", as defined below) would be reviewable under the Investment Act if it were an investment to acquire control of the Company and the Company was not, immediately prior to the implementation of the investment, controlled by a WTO Investor, and the value of the assets of the Company were $5.0 million or more. An investment in Voting Shares of the Company by a WTO Investor would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company, and the value of the assets of the Company equaled or exceeded $179 million (threshold amount for 1998). A non-Canadian, whether a WTO Investor or otherwise, would acquire control of the Company for purposes of the Investment Act if he or she acquired a majority of the Voting Shares of the Company. The acquisition of less than a majority, but at least one-third of the Voting Shares of the Company, would be presumed to be an acquisition of control of the Company, unless it could be established that the Company was not controlled in fact by the acquirer through the ownership of the Voting Shares. In general, an individual is a WTO Investor if he or she is a "national" of a country (other than Canada) that is a member of the World Trade Organization ("WTO Member") or has a right of permanent residence in a WTO Member other than Canada. A corporation or other entity will be a WTO Investor if it is a "WTO Investor-controlled entity" pursuant to detailed rules set out in the Investment Act. The United States is a WTO Member. Certain transactions involving Voting Shares of the Company would be exempt from the Investment Act, including: (a) an acquisition of Voting Shares of the Company if the acquisition were made in connection with the person's business as a trader or dealer in securities: (b) an acquisition or control of the Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for the purpose related to the provisions of the Investment Act: and (c) an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remains unchanged. C. MATERIAL CONTRACTS SHAREHOLDERS' AGREEMENT The Company has entered into a shareholders' agreement ("Shareholders' Agreement") with shareholders individually holding at least 5% of the outstanding shares of the Company on July 25, 2000. The Shareholders' Agreement requires that board approval be obtained prior to: o issuance or redemption of the Company's shares, o changes to the authorized share capital, o declaration or payment of dividends, o distribution of shares to the public or listed for trading on a recognized securities exchange, Page 33 of 71 o business combinations between the Company or any of its subsidiaries with any other persons, o disposition of any subsidiaries, o loaning of any money, providing guarantees or assuming liability for the debts or obligations of any other persons or paying any shareholder, and o changing the nature of the Company's business outside of the ordinary course of business of the Company. The Shareholders' Agreement provides that as long as BDC hold at least 300,000 shares, (Equivalent to 100,000 after consolidation) the Company was to proceed with any of the following matters only with prior written consent of BDC: o declare or pay dividends, redeem or repurchase any shares or make any distribution in respect of shares, o loan any money, provide guarantees or assume liability for the debts or obligations of any other persons or pay any shareholder, or o any initial public offering by the Company. After the initial preemptive date and prior to the termination of the Agreement by virtue of the Company completing a qualified public offering, BDC has the right, except for certain excepted transactions, to participate pro-rata in any securities offerings effected by the Company. INVESTMENT AGREEMENT The Company entered into an Investment Agreement on July 25, 2000 with BDC. Pursuant to such Investment Agreement, BDC acquired 340,136 units consisting of one common share, one common share call option and one common share put option from the Company for an aggregate purchase price of $500,000 less issue costs of $23,867, which price is subject to adjustment under certain conditions, including the sale by the Company, during specified period of time, of any shares at a lower price per share price. Each common share call option expired July 25, 2001 unexercised. The put options are exercisable after July 25, 2005 and will expire upon the closing of certain qualified initial public offerings. The put options entitle the holders to put the shares to the company for the lesser of their fair value (estimated at $57,600 at March 31st 2007, 2006: $52,600,2005: $64,000, 2004: $55,600)) and the original proceeds received under the unit offering ($500,000). The common share put option was still outstanding as at September 30, 2007 CAPITAL LEASE During the year, the Company sold certain equipment. There was no material gain on the transaction. The Company then immediately leased back this equipment by entering into a lease agreement. The capital lease has a four-year term, expiring in 2011, with imputed interest rate of approximately 6.25% per annum. The leased equipment is amortized on a straight-line basis over the lease term. The Capital Lease Obligation for the term to 2011 is $303,812 (net of Interest). LEASES FOR PREMISES The Company entered into a lease on June 22, 1998, with a partnership of which Jeremy Bowman, the Company's President, CEO and director, was a partner. The lease was for premises at its Vancouver office on 1555 West 8th Avenue, Vancouver, B.C., V6J 1T5, Canada which it leases for $9,400 per month plus expenses. The Company moved to these premises in June 2000. The lease was renewed with the same terms at the reduced rate of $9,371 during June 2005. In January 2006, Mr. Bowman, sold his interest in the building and the building was then leased from the new owners on an arms length basis. On May 27th, 2002, the Company leased an office in Halifax on a five year fixed term starting July 1st, Page 34 of 71 2002 at $1,100 per month plus applicable taxes. The lease was subsequently renewed for a further term ending June 2009. The Halifax lease has a 90-day cancellation provision for the benefit of ADL only. Previously the premises were leased on commercially agreed terms, from Torrington Bay Investments Limited, in which Tom Weckman, the President of ADL, has an interest. During 2006 , Torrington Bay Investments sold its interest in the building and the building was then leased from the new owners on an arms length basis. The premises in Halifax are located at Unit 104, 276 Bedford Highway, Halifax, N.S., B3M 2K6 and contain 1,136 square feet of office space. Starting in July 2006 the Company leased an office in North York ("Toronto") on a five year fixed term at $4,421 per month plus applicable taxes. In July 2007 the cost of the lease was reduced to $4,136 per month for the balance of the term, and starting in August 2007 a further 1,148 square feet were leased for an additional $1,148 per month, bringing the total cost of the lease to $5,284 per month. In May 2008 the lease cost will go up by $813 per month for the balance of the lease. The premises were leased on commercially agreed terms, from an arms length party. The premises in Toronto are located at Suite #100 and #101, 1 Valleybrook Drive, Toronto Ontario and contain a total of 3,430 square feet of office space. STOCK OPTION PLAN The Company implemented the Allura International Inc. 2000 Stock Option Plan ("Plan") during January 2000. The Company's Board of Directors administers the Plan. The maximum aggregate number of shares, which may be optioned and sold or otherwise awarded under the Stock Option Plan, is 1,000,000 shares. D. EXCHANGE CONTROLS There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of Shares, other than withholding tax requirements. See " TAXATION" below. E. TAXATION A brief description of the provisions of the tax treaty between Canada and the United States is included below, together with a brief outline of the taxes, including withholding provisions to which United States security holders are subject under existing laws and regulations of Canada and the United States; the consequences, if any, of state and local taxes are not considered. Security holders are urged to seek the advice of their own tax advisors, tax counsel or accountants with respect to the applicability or effect of these provisions on their own taxes. The Company has not paid dividends on the Common Shares in any of its last five fiscal years, and has no plans to pay dividends in the immediate future. Canadian federal tax legislation would require a 25% withholding from any dividends paid or deemed to be paid to the Company's non-resident shareholders. However, a company resident in the United States that beneficially owns at least 10% of the voting stock of the Company would have this rate reduced to 5% through the tax treaty between Canada and the United States. The rate of Canadian non-resident withholding may not exceed 15% of the dividend in the case of United States shareholders other than as described above. The amount of stock dividends paid to non-residents of Canada would be subject to withholding tax at the same rate as cash dividends. The amount of a stock dividend (for tax purposes) would be equal to the amount by which the stated capital of the Company had increased by reason of the payment of such a dividend. Interest paid or deemed to be paid on the Company's debt securities held by non-Canadian residents may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable tax treaty. Under the present legislation in the United States, the Company is not subject to United States back-up withholding rules, which would require withholding at a rate of 20% on dividends and interest paid to certain United States persons who have not provided the Company with a taxpayer identification number. Page 35 of 71 Gains derived from a disposition of Common Shares by a non-resident shareholder will be subject to tax in Canada only if not less than 25% of any class of Common Shares was owned by the non-resident shareholder and/or persons with whom the non-resident did not deal at arm's length at any time during the five year period immediately preceding the disposition. In such cases, gains derived by a U.S. shareholder from a disposition of Common Shares would likely be exempt from tax in Canada by virtue of the Canada-U.S. tax treaty, provided that the U.S. shareholder has not resided in Canada in the ten years immediately preceding the disposition. This discussion is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of Common Shares and no opinion or representation with respect to the United States federal income tax consequences to any such holder or prospective holder is made. Holders and prospective holders of Common Shares are urged therefore to consult their own tax advisors with respect to their particular circumstances. F. DIVIDENDS AND PAYING AGENTS This Form 20F is being filed as an Annual Report under the Securities Exchange Act of 1934, accordingly the information called for by this Item 10.F. is not required. G. STATEMENT BY EXPERTS This Form 20F is being filed as an Annual Report under the Securities Exchange Act of 1934, accordingly the information called for by this Item 10.G. is not required. H. DOCUMENTS ON DISPLAY The documents concerning the Company which are referred to in this Report are either annexed hereto as exhibits (SEE "ITEM 19 EXHIBITS") or may be inspected at the principal executive offices of the Company. You may inspect and copy our registration statements, including their exhibits and schedules, and the reports and other information we file with the Securities and Exchange Commission in accordance with the Exchange Act at the public reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549 You may obtain information regarding the Washington D.C. Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330 or by contacting the Securities and Exchange Commission over the Internet at its website at http://www.sec.gov. I. SUBSIDIARY INFORMATION This information is not applicable to this report. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A. QUANTITATIVE INFORMATION ABOUT MARKET RISK The Company does not invest in market risk sensitive instruments such as debt instruments, forwards and futures, options, SWAPs or other derivative financial and commodity instruments. B. QUALITATIVE INFORMATION ABOUT MARKET RISK CURRENCY EXCHANGE RATE SENSITIVITY The Company is exposed to currency risk as some of its accounts payable are denominated in currencies other than the Canadian dollar. The Company earns revenue and incurs operating expenses predominantly in Canadian dollars. Unfavorable changes in the applicable exchange rates may result in a decrease or increase in foreign exchange gain or loss. Page 36 of 71 At March 31, 2007 and 2006, the Company's accounts payable and accrued liabilities included the following foreign currency denominated amounts: 2007 2006 ----------- ----------- U.S. $ 2,512,552 $ 2,499,095 Euro 185,757 389,482 GBP 9,499 4,774 INTEREST RATE SENSITIVITY The Company's bank indebtedness bears floating interest rates. This exposes the Company to the risk of changing interest rates that may have a detrimental affect on its earnings in future periods. The Company has estimated that if interest rates were to increase by 1%, it would have paid an additional $97,800 in interest cost in fiscal year 2007. The Company has not entered into any agreement or purchased any instrument to hedge against possible interest rate risks at this time. The Company's interest earning investments are short term. Thus, any reductions in future income or carrying values due to future interest rate declines are believed to be immaterial. CREDIT RISK Credit risk arises from the possibility that the entities to which the Company sells products may experience financial difficulty and be unable to fulfill their contractual obligations. This risk is mitigated by proactive credit management policies that include regular monitoring of the debtor's payment history and performance, credit insurance, geographic diversification, obtaining security where appropriate, and credit insurance policy coverage. FAIR VALUE The Company has various financial instruments including receivables, bank indebtedness, payables and accruals, capital lease obligations and bonus payables. The carrying value of the capital lease obligation approximates its fair market value due to the fact that the obligation bears interest at a rate which approximates current market rates. The carrying value of the other financial instruments approximates their fair value due to their short-term nature. COMMODITY PRICE SENSITIVITY The future revenue and profitability of the Company will be dependent, to a significant extent, upon prevailing spot market prices for gold and diamonds. In the past, gold and diamond prices have been volatile. Prices are subject to wide fluctuations in response to changes in supply and demand for gold and diamonds, market uncertainty and a variety of additional factors that are beyond the control of the Company. The Company does not engage in any hedging activities. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES This Form 20F is being filed as an Annual Report pursuant to the Securities Exchange Act of 1934, and accordingly, the information called for by this Item 12 is not required. Page 37 of 71 PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. The terms of the demand overdraft loan agreement facility requires the Company to maintain certain covenants which include Debt to Tangible Net Worth and Current Ratios. These covenants are amended from time to time by the bank. During fiscal 2007, the Company was required to inject shareholders' equity and/or debt subordinate to its bank indebtedness in the minimum amount of $500,000 (decreased from an originally requested injection of $1,500,000) prior to March 31, 2007. On April 4, 2007, a company controlled by one of the Company's shareholders provided a standby letter of credit expiring October 10, 2007, subsequently expiring November 1,2007, in favour of the Company's bank. This letter of credit satisfied the bank's requirement for additional shareholders' equity and/or subordinated debt. Under the terms of the demand overdraft loan facilities, the Company must maintain a Debt to Tangible Net Worth ratio not exceeding 2.5 to 1 (amended to 3.0 to 1 subsequent to the year-end) and Ratio of Current Assets to Current Liabilities not less than 1.3 to 1 on a consolidated entity basis as defined by the bank at each year-end when the loan is outstanding. As at March 31, 2007, the Debt to Tangible Net Worth Ratio and ratio of Current Assets to Current Liabilities were 3.64 to 1 and 1.17 to 1 (2006: 3.58 to 1 and 1.19 to 1), respectively. Notwithstanding this technical default, the Bank agreed not to take any steps with regard to this default, although this does not constitute a waiver nor does it prejudice any of the bank's other rights and remedies under the facilities. There can be no assurance that the Company's bank will continue to forebear rather than exercise the remedies available to it under these facilities. Subsequently, as at July 31, 2007 the company was in compliance with Covenants, however, there can be no assurance that it will be in the future. The Company expects to see cash flow improvement but will continue to rely on its bank financing to maintain operations and to finance potential increases in revenues and expansion of customer programs. The Company expects cash flow to be provided by operations in fiscal 2008. For the year ended March 31, 2007, the combined overdraft loan amounted to $11,579,643. The demand overdraft loan agreement facility was renewed on November 21, 2006, April 4, 2007 and subsequently May 28, 2007 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. None. ITEM 15. CONTROLS AND PROCEDURES The Board of Directors has overall responsibility for reviewing the Company's disclosure to ensure the Company provides full and plain disclosure to shareholders and other stakeholders. The Board discharges its responsibilities through its committees, specifically, with respect to financial disclosure to the Audit Committee, which is responsible for reviewing the Company's financial reporting procedures and internal controls to ensure full and accurate disclosure of the Company's financial position. During the annual report period, we carried out an evaluation, under the supervision and with the participation of our senior management, including Chief Executive Officer, Jeremy Bowman (Acting CFO as of June 30, 2007), and the V.P Finance, Lan Shangguan of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Disclosure controls and procedures are designed to ensure that the material financial and non-financial information required to be disclosed in this Form 20-F filed with the SEC is recorded, processed, summarized and reported in a timely manner. Based upon that evaluation, our management, including the Chief Executive Officer, the acting Chief Financial Officer Page 38 of 71 and the V.P Finance concluded that our disclosure controls and procedures, are not effective in alerting them in a timely manner to material information relating to the Company and required to be included in the our periodic SEC filings, given the matters identified below. Since the audit the Company's management has been making changes to the disclosure controls and procedures and continues to do so. During the audit of the 2007 financial statements the Company's management and auditors identified the following MATERIAL WEAKNESSES in internal controls over financial reporting: (I) RECORDING JOURNAL ENTRIES Recording of Journal entries was not restricted to appropriate people and were not always reviewed prior to posting. Given that senior financial personnel are responsible for recording journal entries, adequate review of the entry is not done to ensure proper posting. Without restrictions to appropriate people, unauthorized postings could arise due to fraud or error. Lack of a review and approval process of Journal entries further increases the likelihood of error. Management has a plan in place to review user access rights and user groups to ensure appropriate user restrictions are in place and adequate segregation of duty is upheld. Going forward management will implement a review process for all entries prior to posting and will document and maintain records of approval. (II) INVENTORY COSTING IBB: Variances between the system cost price and the invoice total price on fixed-cost items can arise. There is a lack of consistency both in investigating these differences and in which individual is responsible for doing the investigation. Vendor master files are not reviewed on a consistent basis to ensure current validity of additional costs such as loss, freight, duty and labour. Given the total value of the inventory relative to net income, small valuation errors could significantly impact period net income. ADL: Review of inventory costing noted inconsistencies between standard cost and per unit cost of components when transferred out of raw materials into finished goods. There is no effective comparison between standard cost and unit cost, which could lead to errors in period net income. Accurate inventory valuation is a key component of monitoring margins on product sales and could lead to materially misstated financial statements. IBB:The Accounts Payable clerk is responsible for investigating and resolving all invoice variances. If the variance is greater than 3% Purchasing is consulted and is responsible for verifying the difference and taking appropriate action with the vendor. To be more effective in reviewing individual costing variances between fixed-cost items and vendor invoices, programming changes are required to the current system. Management is looking into program change possibilities and will consider the possibility of completing a review of larger vendors and/or more significant product lines on a more regular basis. ADL standard and unit costing inconsistencies will be addressed by instituting a protocol to standardize the composition of Standard Cost. The possibility of programming changes to the method of costing for valuation purposes and identification of variances will be investigated. An Accounts Payable procedure for investigating and resolving costing differences will be initiated. Page 39 of 71 (III) BANK RECONCILIATIONS Due to staffing constraints the booking of sub-ledger to general ledger entries and reconciliations were being undertaken by the corporate accountant without being reviewed by the CFO in a timely manner. Additionally it was observed that bank reconciliations had not been done adequately for several months prior to the year-end. It appeared that the recording of manual cheques was not being done until the cheque had cleared. Incomplete bank reconciliations can lead to incorrect cut-off for revenue and expenses at period end and may prevent identification of inappropriate bank transactions. Timely recording of manual cheques are essential. Management immediately took steps to complete outstanding bank reconciliations and instituted a policy to perform reconciliations on a monthly basis. Manual cheques are subject to similar control processes as computer generated cheques. The exceptions referred to resulted from an oversight regarding postdated cheques and will be monitored more closely. (IV) ACCOUNTS RECEIVABLE Timely investigation, follow up of outstanding unpaid invoices and investigating discrepancies was not being done promptly at all times. Unresolved discrepancies can be more difficult to reconcile and collect and may result in the requirement for higher provision for bad debt. Plans are in place to implement more stringent controls in the area of AR. In the new fiscal year Management instituted a procedure to review customer's accounts more regularly to identify and resolve issues in a more timely manner. (V) IT OBSERVATIONS A significant number of users had the equivalent of system administration rights in the Encore application. Such privileges make it impossible to implement adequate control of critical functions, commands and menus and to enforce adequate control of segregation of duties in accounting cycles. Lack of segregation of duties may lead to possible fraud, incorrect processing or corruption of data. Management will carry out a review of users in Encore and limit access and functionality to appropriate users to ensure adequate segregation of duties. The material weaknesses above were identified by the auditors Grant Thornton during the March 31, 2007 year-end, and in some cases existed in the prior year's audit. The identified weaknesses are a result of too few members of accounting staff, changes in staff in the accounting department of the company during the prior two years, together with a lack of qualified staff needed to perform segregation of duties and high levels of oversight. In 2006 a Corporate Accountant was hired and in March 2007 a V.P of Finance was brought in to provide the higher level of skills required to remedy the situation. During recent months the CFO has been on extended sick leave, creating a void that was not anticipated. This has caused a setback to the improved oversight and segregation of duties intended. As a result of the CFO's absence effective June 30, 2007 the CEO was appointed acting CFO. Additionally the Audit Chair has been present daily to assist with governance and to perform an independent audit of the new software system to evaluate its functionality and make recommendations to improve its future efficiency and effectiveness in areas of financial reporting and inventory management. The Audit Committee Chair meets regularly with the V.P Finance to review financial results, and then provides consistent reports of findings to the other members of the committee and to the CEO. These reviews provide some degree of compensating controls over the segregation of duties however; do not fully overcome the identified weaknesses that continue to exist at the end of the reporting period. As mentioned above, on March 5th 2007 the company employed a Chartered Accountant as V.P of Finance to enhance its finance and accounting team. In addition to performing the duties required of her position, together with the acting CFO she has been substantially responsible for the annual audit and oversight of the finance and accounting team in the CFO's absence. One of her duties is to Page 40 of 71 manage the internal control documentation project and provide enhanced segregation of duties, which will form the basis of increased internal control over financial reporting. It is the Company's expectation that with the addition of this level of staffing, these material weaknesses can be addressed and will allow the Company to re-evaluate ways to improve upon its systems and processes. As part of the process to put into operations its program for complying with Section 404 of the Sarbanes Oxley Act of 2002 the Company will evaluate and enhance its procedures where the interpretation of GAAP is involved and will take steps to implement improved accounting processes. The Company will continue to review the identified internal control weaknesses and consider implementing compensating controls in an effort to mitigate the potential identified risks. The Company is also looking into the hiring of additional staff members to allow for the appropriate segregation of duties and oversight. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Audit Committee is responsible for reviewing the Company's financial reporting procedures, internal controls and the performance of the Company's auditors as detailed in the Mandate of the Audit Committee. The Audit Committee is also responsible for reviewing all disclosure with respect to financial matters prior to filing or release and for reviewing quarterly and annual financial statements prior to their approval by the full Board. Currently the Company does not have a financial expert on its Audit Committee. No current Board member possesses the necessary qualifications of a financial expert as defined by the Sarbanes Oxley Act of 2002, however the Board is seeking a solution to fulfill this requirement. ITEM 16B. CODE OF ETHICS The Company has not adopted a formal "code of ethics", however, it does maintain standards that are reasonably designed to deter wrong-doing and to promote: 1. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2. Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, regulatory agencies and in other public communications made by the registrant; 3. Compliance with applicable governmental laws, rules and regulations; 4. The prompt internal reporting of violations of the standards to an appropriate person or persons identified in the standards; and 5. Accountability for adherence to the standards. In addition, the Company practices corporate governance in accordance with rules and regulations in Canada. Corporate Governance relates to the activities of the Board of Directors who are elected by and accountable to the Shareholders, and takes into account the role of management who are appointed by the Board of Directors and who are charged with the on-going management of the Company. The Board of Directors of the Company encourages sound corporate governance practices designed to promote the well being and on-going development of the Company, having always as its ultimate objective the best long-term interests of the Company and the enhancement of value for all Shareholders. Currently there is no formal document stating the Company's Corporate Governance policies, however, there are in existence, Board of Directors, Audit Committee and Compensation and Human Resource Committee Mandates. Page 41 of 71 ITEM 16C. PRINCIPAL ACCOUNTANTS FEES AND SERVICES - -------------------------------------------------------------------------------- 2007 2006 AGGREGATE FEES - -------------------------------------------------------------------------------- AUDIT FEES $131,500 **$152,000 $283,500 - -------------------------------------------------------------------------------- AUDIT RELATED FEES $10,350 **$5,000 $15,350 - -------------------------------------------------------------------------------- TAX FEES $22,050 **$25,610 $47,660 - -------------------------------------------------------------------------------- OTHER FEES $0 $0 $0 - -------------------------------------------------------------------------------- TOTAL FEES $163,900 **$182,610 $346,510 - -------------------------------------------------------------------------------- ** Subsequent to the filing date of the 2006 Form 20f final billing for Audit Fees for 2006 were received and paid. Annual Audit Fees reported as a total of $112,736 for the year to date were billed at a total of $152,000, while other fees including the Tax compliance work, SEC specialist review of filing documents and entity review engagements totaled $30,610, for a revised total of $182,610 for 2006. ITEM 16D. EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITEES The information called for by this Item 16D is not applicable to the Company. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFLILIATED PURCHASERS There have been no purchases of equity securities by the Company or affiliated purchasers. ITEM 17. FINANCIAL STATEMENTS The consolidated financial statements of the Company have been prepared on the basis of Canadian GAAP. Reconciliation to U.S. GAAP is included therein under note 15 to the financial statements. The report of independent registered chartered accounting firm, financial statements and notes thereto, schedules thereto as required under Item 17 are found immediately below. The report of independent registered chartered accounting firm is included herein immediately preceding the respective financial statements, notes, schedules, etc. Page 42 of 71 ALLURA INTERNATIONAL INC. CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN CANADIAN DOLLARS) MARCH 31, 2007, 2006 AND 2005 CONTENTS PAGE ---- Report of Independent Registered Chartered Accounting Firm 44 Consolidated Balance Sheets 45 Consolidated Statements of Operations 46 Consolidated Statements of Cash Flows 47 Consolidated Statements of Shareholders' Equity 48 Notes to the Consolidated Financial Statements 49-66 Page 43 of 71 GRANT THORNTON LLP CHARTERED ACCOUNTANTS MANAGEMENT CONSULTANTS GRANT THORNTON [LOGO] REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTING FIRM TO THE SHAREHOLDERS OF ALLURA INTERNATIONAL INC. We have audited the accompanying consolidated balance sheets of Allura International Inc. as of March 31, 2007, and 2006 and the related consolidated statements of operations, cash flows, and shareholders' equity for each of the years ended March 31, 2007, 2006 and 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allura International Inc. as of March 31, 2007 and 2006 and the results of its operations and its cash flows for each of the three years ended March 31, 2007, 2006 and 2005 in accordance with Canadian generally accepted accounting principles. Canadian generally accepted accounting principles vary in certain respects from accounting principles generally accepted in the United States of America. Information related to the nature and effect of such differences is presented in Note 15 to the consolidated financial statements. Vancouver, Canada /s/ "GRANT THORNTON LLP" October 5th 2007 Chartered Accountants Grant Thornton Place Suite 1600 333 Seymour Street Vancouver, BC V6B 0A4 T (604) 687-2711 F (604) 685-6569 E Vancouver@GrantThornton.ca W www.GrantThornton.ca CANADIAN MEMBER OF GRANT THORNTON INTERNATIONAL Page 44 of 71
ALLURA INTERNATIONAL INC. CONSOLIDATED BALANCE SHEETS (expressed in Canadian dollars) March 31 2007 2006 - ------------------------------------------------------------------------------------------------- ASSETS Current Cash $ 191,386 $ 34,810 Receivables, net (Note 3) 4,479,708 3,710,935 Inventories 13,532,378 12,087,351 Income taxes recoverable -- 121,872 Prepaids 251,355 122,022 ------------- ------------- Total current assets 18,454,827 16,076,990 Property and equipment, net (Note 4) 405,192 172,592 Goodwill 26,970 26,970 ------------- ------------- Total assets $ 18,886,989 $ 16,276,552 ============= ============= - ------------------------------------------------------------------------------------------------- LIABILITIES Current Bank indebtedness (Note 5) $ 11,579,643 $ 9,313,354 Accounts payable and accrued liabilities (Note 6) 3,931,860 4,197,618 Income taxes payable 100,822 -- Obligation under capital lease - current portion (Note 8) 76,113 -- Obligation under put option (Note 9) 57,600 52,600 ------------- ------------- Total current liabilities 15,746,038 13,563,572 Obligation under capital lease - Non-current (Note 8) 227,699 -- ------------- ------------- Total liabilities 15,973,737 13,563,572 ------------- ------------- SHAREHOLDERS' EQUITY Capital stock (Note 9) 2,545,765 2,545,765 Retained earnings 367,487 167,215 ------------- ------------- Total shareholders' equity 2,913,252 2,712,980 ------------- ------------- Total liabilities and shareholders' equity $ 18,886,989 $ 16,276,552 ============= ============= - ------------------------------------------------------------------------------------------------- Commitments (Note 10) Subsequent event (Note 16)
See accompanying notes to the consolidated financial statements. Page 45 of 71
ALLURA INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS (expressed in Canadian dollars) Years Ended March 31 2007 2006 2005 - ---------------------------------------------------------------------------------------------------------------------- Net sales $ 22,638,034 100% $ 17,719,672 100% $ 18,252,286 100% Cost of goods sold (Note 2(c)) 17,039,635 75.3 13,652,307 77.0 13,154,241 72.1 ------------- -------- ------------- -------- ------------- -------- Gross profit 5,598,399 24.7 4,067,365 23.0 5,098,045 27.9 ------------- -------- ------------- -------- ------------- -------- Expenses Administrative (Note 17)) 3,288,095 14.5 2,950,967 16.7 3,248,196 17.8 Depreciation and Amortization 76,827 0.3 46,680 0.3 64,874 0.3 Selling and delivery (Note 17)) 970,720 4.3 821,259 4.6 785,176 4.3 ------------- -------- ------------- -------- ------------- -------- 4,335,642 19.1 3,818,906 21.6 4,098,246 22.4 ------------- -------- ------------- -------- ------------- -------- Earnings before other income (expenses) 1,262,757 5.6 248,459 1.4 999,799 5.5 ------------- -------- ------------- -------- ------------- -------- Other income (expenses) Interest, bank charges, and guarantee fee (Note 12(b)) (964,633) (4.3) (752,518) (4.3) (562,999) (3.1) Other income 1,617 -- 38 -- 3,229 -- Change in put option obligation (Note 9) (5,000) -- 11,400 .1 (8,400) -- ------------- -------- ------------- -------- ------------- -------- (968,016) (4.3) (741,080) (4.2) (568,170) (3.1) ------------- -------- ------------- -------- ------------- -------- Earnings (loss) before 294,741 1.3 (492,621) (2.8) 431,629 2.4 income taxes Provision for Income taxes (recovery) (Note 7) 94,469 0.4 (102,862) (0.6) 108,921 0.6 ------------- -------- ------------- -------- ------------- -------- Net (loss) earnings $ 200,272 0.9% $ (389,759) (2.2)% $ 322,708 1.8% ============= ======== ============= ======== ============= ======== Earnings (loss) per share (basic and diluted) $ 0.04 $ (0.08) $ 0.06 ============= ============= ============= Weighted average common shares outstanding (basic and diluted) (Note 9) 5,080,100.69 5,080,100.69 5,080,100.69 - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. Page 46 of 71
ALLURA INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (expressed in Canadian dollars) Years Ended March 31 2007 2006 2005 - ------------------------------------------------------------------------------------------------ Cash and cash equivalents derived from (applied to) Operating Net earnings (loss) $ 200,272 $ (389,759) $ 322,708 Depreciation and amortization 76,827 46,680 64,874 Change in put option obligation 5,000 (11,400) 8,400 Change in non-cash operating working capital (Note 11) (2,386,197) 29,149 (2,926,758) ----------- ---------- ----------- (2,104,098) (325,330) (2,530,776) ----------- ---------- ----------- Financing Bank indebtedness 2,266,289 401,946 2,529,164 Dividend Paid -- (31,901) -- ----------- ---------- ----------- 2,266,289 370,045 2,529,164 ----------- ---------- ----------- Investing Purchase of equipment (309,427) (47,895) (33,353) Proceeds on disposal of equipment 303,812 -- -- ----------- ---------- ----------- (5,615) (47,895) (33,353) ----------- ---------- ----------- Net increase (decrease) in cash 156,576 (3,180) (34,965) Cash Beginning of year 34,810 37,990 72,955 ----------- ---------- ----------- End of year $ 191,386 $ 34,810 $ 37,990 =========== ========== =========== - ------------------------------------------------------------------------------------------------ NON-CASH FINANCING AND INVESTING ACTIVITIES Equipment purchased under capital lease $ 303,812 $ -- $ -- SUPPLEMENTARY CASH FLOW INFORMATION Interest paid $ 934,544 $ 723,959 $ 560,558 Income taxes paid during the year $ -- $ 60,000 $ 120,296 - ------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. Page 47 of 71 ALLURA INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (expressed in Canadian dollars) Years Ended March 31, 2007, 2006 and 2005 - --------------------------------------------------------------------------------
Shares Issued -------------------------- Number of RETAINED SHARES AMOUNT EARNINGS TOTAL Balance March 31, 2004 5,080,100.69 $ 2,545,765 $ 266,167 2,811,932 Net earnings, year ended March 31, 2005 -- -- 322,708 322,708 ------------ ----------- ---------- ----------- Balance March 31, 2005 5,080,100.69 2,545,765 588,875 3,134,640 Dividend paid -- -- (31,901) (31,901) Net loss, year ended March 31, 2006 -- -- (389,759) (389,759) ------------ ----------- ---------- ----------- Balance March 31, 2006 5,080,100.69 2,545,765 167,215 $ 2,712,980 Net earnings, year ended March 31, 2007 -- -- 200,272 200,272 ------------ ----------- ---------- ----------- Balance March 31, 2007 5,080,100.69 $ 2,545,765 $ 367,487 $ 2,913,252 ============ =========== ========== ===========
See accompanying notes to the consolidated financial statements. Page 48 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 1. NATURE OF OPERATIONS The Company operates in one reportable business segment and is in the business of wholesaling gold and diamond jewellery in Canada. Its customer base comprises national chains and independent retailers. - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF PRESENTATION These financial statements are presented in accordance with Canadian generally accepted accounting principles and include the accounts of the Company and its wholly-owned subsidiaries, IBB International (Canada) Ltd. and Allura Diamonds Limited. With effect March 31, 2006, Bygo Inc. was wound up into Allura Diamonds Limited and Bygo's nominal business activities and assets were transferred to Allura Diamonds Limited. The accounting principles used also conform in all material respects to principles generally accepted in the United States of America as disclosed in Note 15. (B) USE OF ESTIMATES In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from management's estimates. (C) FOREIGN CURRENCY The Company considers the Canadian dollar its functional currency. Monetary assets and liabilities resulting from foreign currency transactions are translated into Canadian dollars using the year end conversion rates. Sales, purchases, receipts and payments are translated throughout the year at exchange rates prevailing at the date of the transaction. Exchange gains and losses are included in earnings for the year as part of cost of sales and amounted to a gain of $75,983 (2006: $108,199, 2005: $297,583). (D) CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, the Company considers cash on hand and balances with banks and highly liquid temporary money market instruments with original maturities of three months or less at date of acquisition as cash or cash equivalents. Bank borrowings are considered to be financing activities. (E) INVENTORIES Inventories are comprised of loose gemstones and finished products and are valued at the lower of cost and net realizable value. Cost is calculated using the average cost method. Cost consists of the invoiced price plus applicable duty, excise tax, and freight charges. Net realizable value is based upon estimated selling price less Page 49 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (E) INVENTORIES (CONTINUED) further costs to completion and disposal. 2007 inventories include goods held on consignment by the customers under consignment agreements totalling $ 2,525,146 (2006: $2,596,676, 2005: $2,605,200). The Company's provision for inventory obsolescence has been included in cost of goods sold. Changes in the current balance are as follows: 2007 2006 2005 Opening Balance $ 401,000 $ 213,000 $ 124,000 Add 155,000 222,000 92,000 Deduct (227,000) (34,000) (3,000) -------------------------------------------- Closing Balance $ 329,000 $ 401,000 $ 213,000 ============================================ (F) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment over their useful lives. All property and equipment other than equipment under capital lease and leasehold improvements are depreciated on a 20% declining balance basis. Leasehold improvements are amortized over the shorter of the life of leasehold improvement or term of the lease. Equipment under capital lease is depreciated on a straight-line basis over the term of the lease. (G) TRADEMARKS The Company's trademarks have been recorded at cost less accumulated amortization. Amortization is recorded on a straight-line basis over a five year period. (H) GOODWILL Goodwill arises from the 1999 acquisition of the 50% of Allura Diamonds Limited that the Company did not previously own and represents the excess of the purchase price over the estimated fair value of the net tangible assets acquired. Effective April 1, 2002, the Company adopted, on a prospective basis, the recommendations of the Canadian Institute of Chartered Accountants with respect to the valuation of goodwill. Under the recommendations, goodwill is no longer amortized, but is tested for impairment at least on an annual basis. Had the Company continued to amortize goodwill as it did prior to April 1, 2002, the Company's net earnings and net earnings per share (basic and diluted) would remain the same for all years presented. Page 50 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (I) REVENUE RECOGNITION The Company recognizes revenue when goods have been shipped, title to the goods has passed to the customer, and collection is reasonably assured. Revenue from sales of inventory placed on consignment with third parties is recognized when the consignment inventory is sold to end users or purchased by the third party. (J) ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company establishes an allowance for doubtful accounts through review of open accounts, and historical collection and allowance amounts. The allowance for doubtful accounts is intended to reduce trade accounts receivable to the amount that reasonably approximates their fair value due to their short-term nature. The amount ultimately realized from trade accounts receivable may differ from the amount estimated in the financial statements based on collection experience and actual returns and allowances. (K) WAREHOUSE COSTS The Company includes its warehousing costs in rent. The costs are approximately $16,000 (2006: $16,000, 2005: $16,000). (L) SHIPPING AND HANDLING COSTS Shipping and handling costs incurred related to the sale of products sold are reported as a component of selling and delivery costs. (M) STOCK BASED COMPENSATION The Company has a stock option plan as disclosed in Note 9. The Company follows the Canadian Institute of Chartered Accountants Handbook Section 3870 "STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS" to account for grants under this plan. As recommended by Section 3870, the Company has adopted the fair value method for stock-based compensation granted to employees and non-employees and all direct awards of stock. The fair value of stock options is determined using the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected fair value of the Company's common shares and the expected life of the options. Page 51 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (N) INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and loss carry forwards. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the date of substantive enactment. When it is considered more likely than not that a future tax asset will not be realized, a valuation allowance is provided. (O) ADVERTISING COST The Company expenses all advertising costs as incurred. For the year ended March 31, 2007, total advertising costs were $123,476 (2006: $61,304, 2005: $52,893). (P) EARNINGS PER SHARE The Company uses the treasury stock method to calculate diluted earnings per share. Under this method, all options with an exercise price less than or equal to the average share price for the year are assumed to have been exercised during the period. The effect of the exercise of the 140,000 (2006: 260,000, 2005: 352,500) potentially dilutive options was not included in the dilutive earnings per share amount since the effect would be anti-dilutive. (Q) PUT OPTION The Company accounts for put options issued in connection with certain common shares (Note 9) in accordance with EIC-149, "ACCOUNTING FOR RETRACTABLE OR MANDATORILY REDEEMABLE SHARES". Under EIC-149, the fair value of the Company's obligation under this put option is presented as a current liability. Any change in the fair value of the put obligation is accounted for in the results of operations. (R) CAPITAL STOCK ISSUED FOR CONSIDERATION OTHER THAN CASH Capital stock issued for consideration other than cash is recorded at an estimate of the fair value of the stock issued or issuable or at an estimate of the fair value of the goods or services received (whichever is more readily ascertainable). - -------------------------------------------------------------------------------- 3. RECEIVABLES 2007 2006 -------------- -------------- Receivables $ 4,685,820 $ 3,977,980 Allowance for doubtful accounts (206,112) (267,045) -------------- -------------- $ 4,479,708 $ 3,710,935 ============== ============== Page 52 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT 2007 ------------ Accumulated Depreciation and Net Cost Amortization Book Value ----------- ---------------- ------------ Computer equipment and software $ 412,693 $ 339,054 $ 73,639 Equipment under capital lease (Note 8) 303,812 37,976 265,836 Furniture and equipment 222,087 160,263 61,824 Leasehold improvements 146,758 142,865 3,893 Trademarks 11,840 11,840 -- ----------- ---------------- ------------ $ 1,097,190 $ 691,998 $ 405,192 =========== ================ ============ 2006 ------------ Accumulated Depreciation and Net Cost Amortization Book Value ----------- ---------------- ------------ Computer equipment and software $ 458,729 $ 331,634 $ 127,095 Furniture and equipment 186,277 149,286 36,991 Leasehold improvements 144,315 135,809 8,506 Trademarks 11,840 11,840 -- ----------- ---------------- ------------ $ 801,161 $ 628,569 $ 172,592 =========== ================ ============
- -------------------------------------------------------------------------------- 5. BANK INDEBTEDNESS Bank indebtedness is comprised of demand overdraft loan facilities totalling $11,000,000 (2006: $6,500,000) (subject to certain margining restrictions) with an additional $1,400,000 one time bulge in effect March 31, 2006 to March 31, 2007 (the "OneTime Bulge"). The Company also has available an annual $1,100,000 (2006: $1,100,000) bulge from July 1 to December 31 each year (the "Annual Seasonal Bulge"). In fiscal 2006, the Company also had available an additional $900,000 one time bulge from July 15, 2004 to June 30, 2005 ("Additional Bulge"), plus a secondary additional $1,600,000 one time bulge from March 31, 2005 to June 31, 2005 ("Secondary Additional Bulge") Subsequent to year end, the demand overdraft loan facilities totalling $11,000,000 were retroactively renewed except the OneTime Bulge was extended to May 1, 2007 and the Annual Seasonal Bulge was provided on a one-time basis from May 1, 2007 to December 31, 2007. Page 53 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 5. BANK INDEBTEDNESS (continued) The facility details are summarized in the table below:
Demand Annual Secondary Overdraft Seasonal Additional Additional OneTime Total Loan Facility Bulge Bulge Bulge Bulge Facilities -------------- ------------ ----------- ------------ ------------- ------------ Balance, March 31, 2005 $ 6,500,000 -- 900,000 1,600,000 -- 9,000,000 Decrease on June 30, 2005 -- -- (900,000) -- -- (900,000) Increase July 1, 2005 1,100,000 -- -- -- 1,100,000 Increase on June 30, 2005 -- -- -- -- 3,000,000 3,000,000 Decrease on June 30, 2005 -- -- -- (1,600,000) -- (1,600,000) Decrease March 1, 2006 -- (1,100,000) -- -- -- (1,100,000) -------------- ------------ ----------- ------------ ------------- ------------ Balance, March 31, 2006 $ 6,500,000 $ -- $ -- $ -- $ 3,000,000 $ 9,500,000 Decrease on April 1, 2006 -- -- -- -- (500,000) (500,000) Increase, April 12, 2006 4,500,000 1,100,000 -- -- -- 5,600,000 Decrease April 12, 2006 -- - -- -- (1,100,000) (1,100,000) Expiry, December 31, 2006 -- (1,100,000) -- -- -- (1,100,000) -------------- ------------ ----------- ------------ ------------- ------------ Balance, March 31, 2007 $ 11,000,000 $ -- $ -- $ -- $ 1,400,000 $ 12,400,000 ============== ============ =========== ============ ============= ============
These loans bear interest at prime plus 1/8% on the first $1,000,000 (2006: $1,000,000) and prime plus 1% on the balance. The prime interest rate on these loans at year-end was 6.0% (2006: 5.5%). The loans are collateralized by a general security agreement creating a first floating charge over all assets, a general assignment of book debts, an assignment of inventory under Section 427 of the Bank Act, a guarantee from a shareholder of the Company's parent company for $4,000,000 supported by a standby letter of credit for $1,000,000 (2006: $1,000,000), guarantees by certain other shareholders of the Company to a maximum of $800,000, collateralized by certain of these shareholders' residential real estate and an assignment of insurance on the life of the president in the amount of $800,000. Page 54 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 5. BANK INDEBTEDNESS (continued) During fiscal 2007, the Company was required to inject shareholders' equity and/or debt subordinate to its bank indebtedness in the minimum amount of $500,000 (decreased from an originally requested injection of $1,500,000) prior to March 31, 2007. On April 4, 2007, a company controlled by one of the Company's shareholders provided a standby letter of credit expiring October 10, 2007 in favour of the Company's bank. This letter of credit satisfied the bank's requirement for additional shareholders' equity and/or subordinated debt. Under the terms of the demand overdraft loan facilities, the Company must maintain a Debt to Tangible Net Worth ratio not exceeding 2.5 to 1 (amended to 3.0 to 1 subsequent to the year-end) and Ratio of Current Assets to Current Liabilities not less than 1.3 to 1 on a consolidated entity basis as defined by the bank at each year-end when the loan is outstanding. As at March 31, 2007, the Debt to Tangible Net Worth Ratio and ratio of Current Assets to Current Liabilities were 3.64 to 1 and 1.17 to 1 (2006: 3.58 to 1 and 1.19 to 1), respectively. Notwithstanding this technical default, the Bank has currently agreed not to take any steps with regard to this default, although this does not constitute a waiver nor does it prejudice any of the bank's other rights and remedies under the facilities. There can be no assurance that the Company's bank will continue to forebear rather than exercise the remedies available to it under these facilities. - -------------------------------------------------------------------------------- 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2007 2006 ------------- ------------- Accounts payable $ 2,697,212 $ 3,149,609 Accrued liabilities 1,234,648 1,048,009 ------------- ------------- $ 3,931,860 $ 4,197,618 ============= ============= - -------------------------------------------------------------------------------- 7. INCOME TAXES (a) The provision for income taxes differs from the amount that would be obtained by applying the Canadian corporate income tax substantially enacted statutory rate of tax to the earnings (loss) before taxes. The principal reasons for this difference are as follows:
2007 2006 2005 --------- ---------- --------- Earnings (loss) before income taxes $ 294,741 $ (492,621) $ 431,629 Statutory income tax rate 34% 34% 38% Anticipated income tax (recovery) provision 100,212 (167,491) 164,019 Tax provision effect arising from: Small business deduction (16,399) 48,954 (52,466) Tax losses utilized (109,181) (37,252) (17,015) Tax recovery from loss carried back -- 67,682 -- Additional tax reassessed for prior years 76,469 -- -- Non-deductible expenses and other 21,468 (9,755) 11,936 Change in valuation allowance 21,900 (5,000) 2,447 --------- ---------- --------- $ 94,469 $ (102,862) $ 108,921 ========= ========== =========
Page 55 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 7. INCOME TAXES (continued) During the year, Allura Diamonds Limited was subject to a tax audit by Canada Revenue Agency ("CRA"). As a result, the Company was reassessed for a total of $76,469 in additional income tax payable relating to its fiscal years 2004, 2005 & 2006. Interest and penalties totalling $14,882 were also levied by the CRA. Subsequent to the year end, the Company filed an objection notice on the reassessment and claimed for a refund of the full amount assessed. The CRA is in the process of reviewing the Company's claim. (b) Future income tax assets consist of the following: 2007 2006 ---------- ---------- Property and equipment $ 47,500 $ 24,800 Non-capital loss carry forward 367,200 478,800 Other items 8,600 9,400 Valuation allowance (423,300) (513,000) ---------- ---------- $ Nil $ Nil ========== ========== (b) The operating losses expire as follows: 2007 2006 ---------- ---------- 2008 $ 258,000 $ 550,000 2009 412,000 419,000 2010 103,000 102,000 2014 31,000 31,000 2015 32,000 32,000 2026 244,000 264,000 ---------- ---------- $1,080,000 $1,398,000 ========== ========== - -------------------------------------------------------------------------------- 8. OBLIGATION UNDER CAPITAL LEASE During the year, the Company sold certain equipment. There was no material gain on the transaction. The Company then immediately leased back this equipment by entering into a lease agreement. The capital lease has a four-year term, expiring in 2011, with imputed interest rate of approximately 6.25% per annum. The leased equipment is amortized on a straight-line basis over the lease term. Page 56 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 8. OBLIGATION UNDER CAPITAL LEASE (CONTINUED) The future minimum lease payments required under this capital lease consist of: 2008 $ 92,702 2009 85,571 2010 85,571 2011 78,540 ---------- 342,384 Less: Amount representing interest (38,572) ---------- Capital lease obligation 303,812 Less : Current portion (76,113) ---------- Balance of obligation - Non-current $ 227,699 ========== - -------------------------------------------------------------------------------- 9. CAPITAL STOCK AUTHORIZED: Unlimited number of common shares without par value ISSUED: 2007 2006 ----------- ----------- 5,080,100.69 (2006: 5,080,100.69) common shares $ 2,545,765 $ 2,545,765 =========== =========== On September 30, 2005, the Company's shareholders approved a reverse stock split of the Company's 15,240,302 outstanding common shares, on the basis of 3 (old) for each 1 (new) common share. The new common shares were issued on March 26, 2007 to effect the reverse stock split. The weighted average number of shares and the common shares outstanding have been retroactively adjusted to all prior years presented to reflect the effect of this reverse stock split. - -------------------------------------------------------------------------------- STOCK OPTIONS The Company established a stock option plan ("the Plan") that allows for the issuance of up to 1,000,000 common shares as incentive stock options to current and future key employees and consultants. The Board of Directors administers the Plan and has the authority to determine the terms and restrictions on all options, as well as to interpret any provision of the Plan. Discretionary options, once granted, vest at the discretion of the Board of Directors. A summary of the status of the Company's options is presented below: Page 57 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 9. CAPITAL STOCK (Continued)
Number of Shares --------------------------------------------- Weighted Average Unvested / Vested / Non- Exercise DISCRETIONARY Discretionary TOTAL PRICE ------------- Balance, March 31, 2005 35,000 317,500 352,500 $ 1.56 Expired (35,000) (57,500) (92,500) $ 1.50 ------------- ------------- --------- Balance, March 31, 2006 -- 260,000 260,000 $ 1.58 Expired -- (120,000) (120,000) $ 1.58 ------------- ------------- --------- Balance, March 31, 2007 -- 140,000 140,000 $ 1.58 ============= ============= ========= ========
The weighted average fair value of the options granted during the year was $NIL (2006: $NIL; 2005: $NIL). The following table summarizes information concerning options outstanding at March 31, 2007: TOTAL OUTSTANDING AND EXERCISABLE --------------------------------- WEIGHTED AVERAGE EXERCISE PRICE NUMBER OF REMAINING SHARES LIFE (YEARS) --------- ------------ $1.58 140,000 0.28 =============================== CALL AND PUT OPTIONS During 2001, the Company issued 113,379 (340,136, prior to the reverse stock split) units consisting of one common share, one common share call option and one common share put option. All call options expired unexercised. The put options were exercisable on July 25, 2005 and will expire upon the closing of certain qualified initial public offerings. The put options entitle the holders to put the shares to the Company for the lesser of their fair value (estimated at $57,600 at March 31, 2007 (2006: $52,600; 2005: $64,000)) and the original proceeds received under the unit offering ($500,000). The Company has presented its obligation under this put as a current liability. - -------------------------------------------------------------------------------- Page 58 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 10. COMMITMENTS The Company has entered into three operating lease agreements for office premises which expire in the 2012 fiscal year. The future minimum lease payments under these lease agreements for the next five years are: 2008 191,834 2009 198,823 2010 188,923 2011 110,653 2012 18,292 The operating lease agreement for one office premise was with a partnership in which the president of Allura Diamonds Limited had an interest. - --------------------------------------------------------------------------------
11. CHANGE IN NON-CASH OPERATING WORKING CAPITAL 2007 2006 2005 ----------- ---------- ------------ Receivables $ (768,773) $ (297,111) $ 95,543 Income taxes 222,694 (161,576) 99,694 Inventories (1,445,027) 956,588 (5,436,573) Prepaids (129,333) 8,247 (69,852) Accounts payable and accrued liabilities (265,758) (476,999) 2,384,430 ----------- ---------- ------------ $(2,386,197) $ 29,149 $ (2,926,758) =========== ========== ============
12. RELATED PARTY TRANSACTIONS Related party transactions during the year and balances at year end are summarized as follows:
2007 2006 2005 ----------- ---------- ------------ (A) INTERNATIONAL BULLION AND METAL BROKERS (LONDON) LIMITED Transactions Interest and guarantee fee expenses $ 116,147 $ 115,869 $ 113,896 Balances Accounts payable and accrued liabilities $ -- $ 66,914 $ 26,960 B) OTHER Rent paid to one (2006: two; 2005: two) related partnerships (Note 10) $ 9,900 $ 100,413 $ 126,084 Guarantee fee paid to two significant shareholders $ 64,000 $ 64,000 $ 64,000
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. International Bullion and Metal Brokers (London) Limited is a company controlled by International Bullion and Metal Brokers Ltd., a shareholder in the Company. Page 59 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Company is exposed to the following risks related to its financial assets and liabilities: CURRENCY RISK The Company is exposed to currency risk as some of its accounts payable are denominated in currencies other than the Canadian dollar. The Company earns revenue and incurs operating expenses predominantly in Canadian dollars. Unfavourable changes in the applicable exchange rates may result in a foreign exchange loss. The Company's accounts payable and accrued liabilities are denominated in the following currencies: : 2007 2006 ------------- ------------- Canadian dollar $ 1,224,052 $ 1,304,267 U.S. dollar 2,512,552 2,499,095 Euro 185,757 389,482 GBP 9,499 4,774 ------------- ------------- $ 3,931,860 $ 4,197,618 ============= ============= The Company does not use derivative instruments to reduce its exposure to foreign currency risk. COMMODITY RISK Inventory consists of precious metals and gemstones. These items are susceptible to change in valuation due to market conditions beyond the Company's control. Increase or decreases in the commodity prices of these assets can have positive or negative effects on the Company's future net earnings. The Company does not enter into derivative contracts to mitigate its exposure to commodity risk. INTEREST RATE RISK Bank indebtedness bears floating interest rates which exposes the Company to the risk of changing interest rates that may have a detrimental effect on its earnings in future periods. Page 60 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) CREDIT RISK Credit risk arises from the possibility that the entities to which the Company sells products may experience financial difficulty and be unable to fulfill their contractual obligations. This risk is mitigated by proactive credit management policies that include regular monitoring of the debtor's payment history and performance, geographic diversification, credit insurance and obtaining security when management considers it appropriate. At March 31, 2007, 53% (2006: 49%) of the Company's accounts receivable was owed by 2 customers (2006: 3) as per the table below. 2007 PERCENT 2006 PERCENT ------------- ------- ------------ -------- Company A $ 1,661,388 33% $ 836,499 24% Company B 979,927 20% 460,477 13% Company C -- -- 428,815 12% ------------- ------- ------------ -------- $ 2,641,315 53% $ 1,725,791 49% ============= ======= ============ ======== FAIR VALUE The Company's financial instruments, including cash, receivables, bank indebtedness, accounts payable, accrued liabilities, and income taxes payable/recoverable are carried at amounts which approximate their fair value due to their short-term nature. Lease obligations have been recorded at their fair value at inception and are being amortized using the effective interest rate implicit in the lease. - -------------------------------------------------------------------------------- 14. SIGNIFICANT CUSTOMERS Three major customers account for 50% of sales in 2007 (2006: 32%, 2005: 45%) as follows: 2007 2006 2005 Company A 22% 7% 9% Company B 19% 22% 26% Company C 9% 3% 10% -------- -------- --------- 50% 32% 45% ======== ======== ========= - -------------------------------------------------------------------------------- Page 61 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 15. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES RECENT ACCOUNTING PRONOUNCEMENTS The Company prepares its financial statements in accordance with accounting principles generally accepted in Canada ("Canadian GAAP") which differ in certain respects from those principles and practices that would have been followed had its financial statements been prepared in accordance with accounting principles and practices generally accepted in the U.S. ("U.S. GAAP"). Notwithstanding these differences, the Company's financial statements presented under Canadian GAAP are not materially different than they would be if presented in accordance with US GAAP. CANADIAN GAAP Recent accounting pronouncements affecting the Company's financial reporting under Canadian GAAP are summarized below: (i) Convergence with International Financial Reporting Standards. In 2006, Canada's Accounting Standards Board ratified a strategic plan that will result in Canadian GAAP, as used by public companies, being converged with International Financial Reporting Standards over a transitional period currently expected to be approximately five years. The precise timing of convergence will depend on an Accounting Standards Board progress review to be undertaken by early 2008. Canadian GAAP will be converged with International Financial Reporting Standards through a combination of two methods: as current joint-convergence projects of the United States' Financial Accounting Standards Board and the International Accounting Standards Board are agreed upon, they will be adopted by Canada's Accounting Standards Board and may be introduced in Canada before the complete changeover to International Financial Reporting Standards; and standards not subject to a joint-convergence project will be exposed in an omnibus manner. As this convergence initiative is very much in its infancy as of the date of these consolidated financial statements, it would be premature to currently assess the impact of the initiative, if any, on the Company. (ii) Financial instruments and comprehensive income. Commencing with the Company's 2008 fiscal year, the new recommendations of the CICA for accounting for comprehensive income (CICA Handbook Section 1530), for the recognition and measurement of financial instruments (CICA Handbook Section 3855) and for hedges (CICA Handbook Section 3865) will apply to the Company. In the Company's specific instance, the transitional rules for these sections require prospective implementation at the beginning of a fiscal year. Currently, net income (loss) for the Company is the same as comprehensive income. Page 62 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 15. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES (Continued) (iii) Accounting changes. Commencing with the Company's 2008 fiscal year, the new recommendations of the CICA for accounting changes (CICA Handbook Section 1506) will apply to the Company. Most significantly, the new recommendations stipulate that voluntary changes in accounting policy are made only if they result in the financial statements providing reliable and more relevant information and that new disclosures are required in respect of changes in accounting policies, changes in accounting estimates and correction of errors. The Company is not currently materially affected by the new recommendations. (iv) Business combinations. Possibly commencing in the Company's 2008 fiscal year, the proposed amended recommendations of the CICA for accounting for business combinations will apply to the Company's business combinations, if any, with an acquisition date subsequent to the amended recommendations coming into force. Whether the Company would be materially affected by the proposed amended recommendations would depend upon the specific facts of the business combinations, if any, occurring subsequent to the amended recommendations coming into force. Generally, the proposed recommendations will result in measuring business acquisitions at the fair value of the acquired entities and a prospectively applied shift from a parent company conceptual view of consolidation theory (which results in the parent company recording the book values attributable to non-controlling interests) to an entity conceptual view (which results in the parent company recording the fair values attributable to non-controlling interests). (v) Financial instruments - disclosure and presentation. Commencing with the Company's 2009 fiscal year, the new recommendations of the CICA for financial instrument disclosures and presentation (CICA Handbook Section 3862 and 3863) will apply to the Company. The new recommendations will result in incremental disclosures, relative to those currently, with an emphasis on risks associated with both recognized and unrecognized financial instruments to which an entity is exposed during the period and at the balance sheet date, and how an entity manages those risks. The Company is assessing how it will be affected by these new recommendations. U.S. GAAP. Recent accounting pronouncements affecting the Company's financial reporting under U.S. GAAP are summarized below. (i) In June 2006, FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), effective for fiscal years beginning after December 15, 2006. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," including the recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company plans to adopt FIN 48 on April 1, 2007, as required. The Company is currently evaluating the impact, if any, the adoption of FIN 48 will have on its consolidated financial statements. Page 63 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 15. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES (continued) (ii) In June 2006, FASB ratified the consensus reached by the Emerging Issues Task Force in Issue No. 06-3, "How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That is, Gross Versus Net Presentation)." Issue No. 06-3 requires disclosure of an entity's accounting policy regarding the presentation of taxes assessed by a governmental authority that are directly imposed on a revenue-producing transaction between a seller and a customer, including sales, use, value added and some excise taxes. The adoption of Issue No. 06-3, which is effective for interim and annual reporting periods beginning after December 15, 2006, did not have an impact on the Company's consolidated financial statements. (iii) In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" (SAB 108). SAB 108 was issued to provide consistency between how registrants quantify financial statement misstatements. Historically, there have been two widely-used methods for quantifying the effects of financial statement misstatements. These methods are referred to as the "roll-over" and "iron curtain" method. The roll-over method quantifies the amount by which the current year income statement is misstated. Exclusive reliance on an income statement approach can result in the accumulation of errors on the balance sheet that may not have been material to any individual income statement, but which may misstate one or more balance sheet accounts. The iron curtain method quantifies the error as the cumulative amount by which the current year balance sheet is misstated. Exclusive reliance on a balance sheet approach can result in disregarding the effects of errors in the current year income statement that results from the correction of an error existing in previously issued financial statements. The Company historically used the roll-over method for quantifying identified financial statement misstatements. SAB 108 established an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of the company's financial statements and the related financial statement disclosures. This approach is commonly referred to as the "dual approach" because it requires quantification of errors under both the roll-over and iron curtain methods. SAB 108 allows registrants to initially apply the dual approach either by (1) retroactively adjusting prior financial statements as if the dual approach had always been used or by (2) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of April 1, 2006 for the Company with an offsetting adjustment recorded to the opening balance of retained earnings. Use of this "cumulative effect" transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. The Company applied SAB 108 using the retroactive method in connection with the preparation of its annual financial statements for the year ending March 31, 2007. The adoption of SAB 108 did not result in any adjustment to the Company's consolidated financial statements. (iv) In September 2006, FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after December 15, 2007. The Company plans to adopt SFAS No. 157 beginning in the first quarter of fiscal 2009. The Company is currently assessing the potential impact that adoption of SFAS No. 157 will have on its consolidated financial statements. Page 64 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 15. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES (continued) (v) In February 2007, the FASB issued FASB Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS No. 159). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS No. 159 is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. FASB has indicated it believes that SFAS No. 159 helps to mitigate this type of accounting- induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. For example, SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in FASB Statement No. 157, "Fair Value Measurements" (SFAS No. 157), and FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS No. 107). SFAS No. 159 is effective as of the beginning of a company's first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the company makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157. The Company has not yet completed its evaluation of the Interpretation, but does not currently believe that adoption will have a material impact on its results of operations, financial position or cash flows. - -------------------------------------------------------------------------------- 16. SUBSEQUENT EVENT Subsequent to the year end, the Board of Directors of the Company approved for issuance a total of 575,000 stock options to various employees and directors. These stock options have not yet been issued. - -------------------------------------------------------------------------------- Page 65 of 71 ALLURA INTERNATIONAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (expressed in Canadian dollars) March 31, 2007, 2006 and 2005 - -------------------------------------------------------------------------------- 17. ADMINISTRATIVE AND SELLING AND DELIVERY EXPENSES Years Ended March 31 2007 2006 2005 - ------------------------------------------------------------------------------ Administrative Alarm and security $ 8,517 $ 7,043 $ 5,484 Automobile 9,897 4,649 6,165 Bad debts (108,546) 127,180 140,692 Consulting -- -- 29,134 Insurance 294,717 258,105 311,145 Legal and accounting 256,728 157,618 122,203 Office and miscellaneous 241,638 329,783 301,915 Rent (Note 12(b)) 233,067 177,395 183,145 Salaries and wages 2,224,858 1,804,959 2,026,538 Telephone 51,044 39,890 38,082 Travel, meals and entertainment 76,175 44,345 83,693 ----------- ----------- ----------- $ 3,288,095 $ 2,950,967 $ 3,248,196 =========== =========== =========== Selling and delivery Advertising $ 123,476 $ 61,304 $ 52,893 Freight and shipping 310,721 315,966 254,267 Sales commission 362,813 244,025 185,374 Selling 173,710 199,964 292,642 ----------- ----------- ----------- $ 970,720 $ 821,259 $ 785,176 =========== =========== =========== - -------------------------------------------------------------------------------- Page 66 of 71 ITEM 18. FINANCIAL STATEMENTS The Company has elected to report under Item #17. ITEM 19. EXHIBITS 1.1 Certificate of Incorporation of the Company (incorporated by reference from Exhibit 1.1 to the Company's Registration Statement on Form 20-F, File No. 0-30228 (the "Registration Statement")); 1.2 By-laws of the Company (incorporated by reference from Exhibit 1.2 to the Registration Statement); 1.3 Articles of Amendment of the Company (incorporated by reference from Exhibit 1.3 to the Registration Statement); 1.4 Certificate of Amendment of the Company (incorporated by reference from Exhibit to the Registration Statement); 1.5 Certificate of Change of Name (incorporated by reference from Exhibit 1.5 to the Registration Statement); 4.1 Shareholders Agreement (incorporated by reference from Exhibit 4.1 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000); 4.2 Investment Agreement (incorporated by reference from Exhibit 4.2 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000); 4.3 Lease for 1555 West 8th Avenue (incorporated by reference from Exhibit 4.3 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000) and Lease for Unit 104, 276 Bedford Highway, Halifax, N.S., B3M 2K6, (incorporated by reference from Exhibit 4.4 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2003) 4.4 Stock Option Plan (incorporated by reference from Exhibit 4.4 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000); 4.5 Mutual Release and Settlement Agreement dated May 1, 2002, by and among Allura International, Bygo Inc., MacDonald Dettwiler and Associates Ltd. and certain other parties thereto; ("incorporated by reference from Exhibit 4.5 to the Annual Report on Form 20F for the fiscal year ended March 31st 2003 4.6 Lease for Suite #100, 1 Valleybrook Drive, Toronto, Ontario,M3B 2S7, between Roanne Holdings Limited and IBB International (Canada) Ltd and Amendment to Lease Agreement relating to Suite #101, 1 Valleybrook Drive, Toronto, Ontario. 4.7 Master Equipment Lease between HSBC Bank Canada and IBB International (Canada) Ltd # 231891BC 7.0 List of Subsidiaries (incorporated by reference from Exhibit 7.0 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000). 12.1 Section 302 Certification by C.E.O and acting CFO. 13.1 Section 906 Certification by C.E.O and acting CFO. Page 67 of 71 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf. Allura International, Inc. DATED at Vancouver, British Columbia, Canada, as of October 12, 2007. /s/ "JEREMY BOWMAN" - ------------------------------ Jeremy Bowman, President, CEO and Director Page 68 of 71 ALLURA INTERNATIONAL INC. INDEX TO EXHIBITS FILED 1.1 Certificate of Incorporation of the Company (incorporated by reference from Exhibit 1.1 to the Company's Registration Statement on Form 20-F, File No. 0-30228 (the "Registration Statement")); 1.2 By-laws of the Company (incorporated by reference from Exhibit 1.2 to the Registration Statement); 1.3 Articles of Amendment of the Company (incorporated by reference from Exhibit 1.3 to the Registration Statement); 1.4 Certificate of Amendment of the Company (incorporated by reference from Exhibit 1.4 to the Registration Statement); 1.5 Certificate of Change of Name (incorporated by reference from Exhibit 1.5 to the Registration Statement); 4.1 Shareholders Agreement (incorporated by reference from Exhibit 4.1 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000); 4.2 Investment Agreement (incorporated by reference from Exhibit 4.2 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000); 4.3 Lease for 1555 West 8th Avenue (incorporated by reference from Exhibit 4.3 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000). Lease for Unit 104, 276 Bedford Highway, Halifax, N.S., B3M 2K6, (incorporated by reference from Exhibit 4.4 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2003); 4.4 Stock Option Plan (incorporated by reference from Exhibit 4.4 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000); 4.5 Mutual Release and Settlement Agreement dated May 1, 2002, by and among Allura International, Bygo Inc., MacDonald Dettwiler and Associates Ltd. and certain other parties thereto; ("incorporated by reference from Exhibit 4.5 to the Annual Report on Form 20F for the fiscal year ended March 31st 2003 4.6 Lease for Suite #100, 1 Valleybrook Drive, Toronto, Ontario and Amendment to Lease re Suite #101 dated June 19, 2007: 4.7 Master Equipment Lease between HSBC Bank Canada and IBB International (Canada) Ltd # 231891BC 7.0 List of Subsidiaries (incorporated by reference from Exhibit 7.0 to the Annual Report on Form 20-F for the fiscal year ended March 31, 2000). 12.1 Section 302 Certification by C.E.O and acting CFO 13.1 Section 906 Certification by C.E.O and acting CFO Page 69 of 71 EX-4.6 2 d72820_ex4-6.txt LEASE FOR SUITE #100 EXHIBIT 4.6 LEASE AGREEMENT MADE THIS 10TH DAY OF MAY 2006 BETWEEN: ROANNE HOLDINGS LIMITED (hereinafter called the "Landlord") OF THE FIRST PART; AND: IBB INTERNATIONAL CANADA LTD. (hereinafter called the "Tenant") OF THE SECOND PART. ARTICLE 1 - DEFINITIONS In this Lease, the parties agree that the following words or terms have the meaning set forth below. 1.1 THE COMMERCIAL TENANCIES ACT, R.S.O. 1990, C.L.7 including any amendments or any statute which replaces or supersedes that Act. 1.2 "ADDITIONAL RENT" means any and all money that the Tenant is required to pay to the Landlord under this Lease except for Base Rent, even if such money is not specifically described as Additional Rent in this Lease. Additional Rent is payable in full by the Tenant without deduction or set-off of any kind. Additional Rent is immediately payable on demand by the Tenant to the Landlord. Additional Rent may be estimated by the Landlord from time to time. If the Landlord estimates Additional Rent, the Tenant shall pay Additional Rent to the Landlord in consecutive monthly installments in advance with annual adjustments. Additional Rent accrues on a day to day basis. If a final calculation of Additional Rent is not made until after this Lease expires, the Tenant shall pay such Additional Rent to the Landlord on demand because the Tenant's obligation to pay Additional Rent shall survive the expiration of this Lease. 1.3 "ALTERATIONS" means any and all alterations, adjustments, changes, repairs, renewals, restorations, re-arrangements, remodeling, rehabilitating, retrofitting, relocations, subtractions, reductions, substitutions, deletions, additions, expansions, reconstructions, removals, replacements, modifications, improvements, betterments, installations or decorations. 1.4 "ARCHITECTS" means the Landlord's Architect whose decision shall be final in terms of any certificates that the Architect may issue. 1.5 "BASE RENT" means the annual rent payable by the Tenant to the Landlord as set forth in Article 4 of this Lease which is payable in full without deduction or set-off of any kind. 1.6 "BUILDING" means the building located at, 1 VALLEYBROOK DRIVE, TORONTO, ONTARIO and the lands on which it is situated. 1.7 "CLAIMS" means claims, losses, actions, suit, proceedings, causes of action, demands, damages of any kind, fines, duties, interest, penalties, judgements, executions, liabilities, responsibilities, costs, charges, payments and expenses including professional, consultant, and legal fees on a solicitor and his or her own client basis. 1.8 "COMMON AREAS" or "Common Facilities" mean all lands, buildings, areas, facilities, utilities, improvements, systems, signs, equipment and installations in, upon, or forming part of which serve the building from time to time which are not leased to Tenants and are for the common benefit of all Tenants in the Building. Without limiting the generality of what a Common Area or Common Facility is, Common Areas or Common Facilities include all parking areas (unless they have been separately reserved by the Landlord for the use of one or more Tenants), entrances and exits to the Building, delivery passages, doors, loading docks, communal garbage areas, communal walkways, all lobbies, all roofs including coverings and membranes, all walls including weather walls, exterior and structural components, structural subfloors, structural ceilings, bearing walls and retaining walls, foundations and footings, public service areas, stairways, ramps, public washrooms, utility equipment and service rooms which includes electrical, telephone, computer, meter, mechanical, storage, fan, fire prevention and detection, security, satellite, recycling and disposal rooms, signs, lighting, electrical, plumbing, drainage, 2 sprinkler, mechanical and HVAC systems, as well as the structures housing them. 1.9 "FIXTURING PERIOD" means from the N/A day of N/A, 200_ to the N/A day of N/A, 200_ during which time the Landlord's work and the Tenant's work as described in Schedule "A" shall be completed. The Tenant must have insurance coverage upon occupancy. 1.10 "GST" means any tax, rate, duty, levy, fee, charge, or assessment, whether existing at the commencement of the Lease term or not, that is imposed by any taxing authority with respect to Rent or Additional Rent payable by the Tenant to the Landlord under this Lease or for the rental space or the provision or supply of any goods or services or utilities to the Tenant by the Landlord under this Lease, regardless or whether such tax, rate, duty, levy, fee, charge, or assessment is called or characterized as a sales, use, consumption, value-added, business transfer, or goods and services tax (collective "GST"). 1.11 "HAZARDOUS SUBSTANCE" means any substance which if released into the Building or any part thereof or into the natural environment will cause or is likely to cause material harm to the building, the Premises, the natural environment, or human health and includes any substance declared to be hazardous or toxic under any laws now or hereafter enacted by any authority entitled to set such laws. 1.12 "INDEMNITOR" is the third party and means the person who has executed the Indemnity Agreement at Schedule "B". If there is no indemnitor, all references to the Indemnitor in this Lease shall be of no force and effect. 1.13 "INJURY" means bodily injury, personal discomfort, anguish, shock, sickness, disease, death, false arrest or detention, malicious prosecution, libel, slander, defamation of character, invasion of privacy, wrongful entry or eviction, or unlawful discrimination. 1.14 "JURISDICTION" means the Province of Ontario 1.15 "LAND SURVEYOR" means the Landlord's Land Surveyor whose decision shall be final in all matters pertaining to Land Surveying. 1.16 "LANDLORD" is the first party and its authorized agents and representatives. In any section of this Lease which contains a release or other exculpatory language, the term Landlord includes officers, directors, servants, employees, and agents of the Landlord. 1.17 "LAWS" means all laws, regulations, orders, by-laws, rules, declarations, requirements, and directions of all governmental authorities and quasi-governmental authorities. 1.18 "LEASE" means this Lease, all written modifications, and all written schedules, appendices, riders, or other documents attached to this Lease. 1.19 "LEASEHOLD IMPROVEMENTS" means leasehold improvements in, on, to, for, or which serve the Premises as determined by common law and includes all alterations and equipment constructed or installed by, for, or on behalf of the Tenant (or a previous occupant of the Premises) in, on, to, for, or which serve the Premises, regardless of whether or not they are easily disconnected or movable. Leasehold Improvements include, but are not much limited to (a) partitions, railings, doors, safes, vaults, or hardware (b) mechanical, plumbing, electrical, sprinkler, fire detection or prevention, safety, utility, computer, communication, telecommunication, satellite, heating, humidity, ventilating, and air conditioning systems, facilities, installations, fixtures, devices, controls, pipes, wires, conduits, tanks, machinery, fittings, and equipment (c) carpeting, drapes, and other floor, wall, ceiling, and window coverings and associated hardware (d) light fixtures (e) store fronts (f) security devices (g) counters, cabinets, and other built-in furnishings (h) internal stairways or other transportation equipment and systems (i) ceilings and ceiling panels (j) heaters, furnaces, air conditioners, and all associated controls, fittings, and equipment (k) coolers, freezers, lockers, refrigerators, stoves, washing machines, dishwashers, dryers, 3 appliances, kitchen equipment, and ovens (l) signs, exterior sign boxes, and associated hardware (m) satellite receivers, antennae and base mounts (n) all other items that cannot be removed without damage to the Premises. 1.20 "MANAGEMENT FEE" means a fee for the management/maintenance services provided by the Landlord, calculated as approximately five (5%) percent of gross revenues from building operations and rental revenue 1.21 "MORTGAGEE" means any mortgagee, chargee, or encumbrancer of the building. 1.22 "OPERATING COSTS" means the total of all expenses, costs, fees, rentals, disbursements, and outlays of any kind whatsoever (regardless of whether or not such outlays were known or contemplated at the start of the Lease term) directly or indirectly incurred (including but not limited to accounting, and other professional of consultants fees), accrued, paid, payable, or attributable, whether by or on behalf of the Landlord in each Rental Year of owning (excluding debt financing and acquisition costs), operating, maintaining, servicing, repairing (including major repairs and the establishment of a reserve fund in the Landlord's sole discretion to pay for major repairs), restoring renewing, renovating, improving, rebuilding, replacing, expanding, extending, rehabilitating, remediating, improving, correcting, altering, equipping, insuring(including the payment of deductibles), cleaning, lighting, securing, policing, landscaping, gardening, snow and ice removing, paving, painting, equipment renting, leasing, advertising, supervising, managing and/or administering the Building or any part thereof including Common Areas or Common Facilities calculated as if the Building was fully occupied and fully operational for the whole of such Rental Year. Operating Costs also means the total of all expenses, costs, fees, rentals, disbursements and outlays of any kind whatsoever directly or indirectly incurred, accrued, paid, payable, or attributable, whether by or on behalf of the Landlord in each Rental Year to discharge the Landlord's obligations or exercise any of its rights or remedies under this Lease or under other leases in the Building. The roof replacement would be amortized over a fifteen (15) year period, but not the HVAC unit. 1.23 "PARKING" means the number of parking spaces allotted to the Tenant in relation to the Tenant's rentable area of the building. 1.24 "PERSON" means any individual, partnership, firm, company, corporation, incorporated or unincorporated association, co-tenancy, joint venture, estate, trust, governmental or quasi-governmental body or agency, board, commission, or any other form of entity regardless of how it is designated or constituted. 1.25 "PPSA" means the PERSONAL PROPERTY SECURITY ACT, R.S.O., 1990, c. P.10, including any amendments or any statute which replaces or supersedes the PPSA. 1.26 "PREMISES" means the premises described in Article 3 of this Lease which are leased by the Landlord to the Tenant. 1.27 "PRIME RATE" means the prime rate of interest per annum charged by the Royal Bank of Canada or such other bank as the Landlord may designate on loans made in Canadian Funds to its customers in Canada, as such rate is adjusted from time to time. 1.28 "PROPORTIONATE SHARE" means a fraction which has as its numerator the Rentable Area of the Premises and has as its denominator the Rentable Area of the Building. In this Lease, the Tenant's proportionate share is 3%. If the Rentable Area of the Building changes, the Tenant's proportionate share shall be adjusted accordingly. 1.29 "RENTABLE AREA OF THE BUILDING" means the area expressed in square feet (or square meters if the Landlord prefers to effect measurements in square meters) as certified by the Landlord's Architect or Land Surveyor measured on each floor from the exterior face of exterior walls, doors, and includes all interior space, whether or not occupied by any projections, structures, stairs, 4 elevators, shafts, or other floor openings or columns (whether structural or non-structural). The Rentable Area of the Building may be adjusted from time to time to take into account any alterations to the Building or any change in the leasing pattern in the Building. 1.30 "RENTABLE AREA OF THE PREMISES" means the area expressed in square feet (or square meters if the Landlord prefers to effect measurements in square meters) as certified by the Landlord's Architect or Land Surveyor measured from (a) the exterior face of exterior walls, doors and windows (b) the exterior face of all interior walls, doors, and windows separating the Premises from Common Facilities (c) the centre line of all interior walls separating the Premises from adjoining premises and (d) the exterior edge of any mezzanine floor that is not bounded by a wall. Rentable Area of the Premises includes all interior space, whether or not occupied by any projections, structures, stairs, elevators, shafts, or other floor openings or columns (whether structural or non-structural). The Rentable Area of the Premises, which will include a proportionate share of the common areas and facilities of the Building, shall be established by a certificate from the Landlord's measurement expert in accordance with the current BOMA method of measurement 1.31 "RENTAL YEAR" means a period of time starting on the first day of the Term. In the last Rental Year of the Term (even if it is less than 12 months), the Lease shall terminate on the expiration or earlier termination of this Lease. At the Landlord's sole discretion, the Rental Year may be changed once the Landlord gives the Tenant written notice of such change. If the Rental Year is changed, appropriate adjustments shall be made between the Landlord and Tenant. 1.32 "REPRESENTATIONS" means covenants, promises, assurances, agreements, representations, conditions, warranties, statements and understandings. 1.33 "SIGNS" means any sign, decal, design, picture, advertisement, notice, lettering, numeral, graphic, logo, pennant, projected image, banner, pendant, decoration, shade, awning, marguis, or canopy. 1.34 "STORAGE AREAS" means those area designated by the Landlord, in its sole discretion, from time to time as Storage Area. 1.35 "TAXES" means all real property taxes, surtaxes, service taxes, duties, assessments, excises, fees, rates, (including without limitation local improvement, water, snow, and sewer rates), business education taxes, Business taxes, business improvement area taxes, impost charges and levies, whether general, extraordinary, special, or ordinary, foreseen or unforeseen (collectively "real property taxes") that are imposed against the Landlord and are attributable to or levied, imposed, rated, charged or assessed (collectively "imposed") against the Building or any part thereof from time to time (including but limited to Common Areas or Common Facilities) by any taxing authority calculated as if the Building was fully occupied, or imposed against the Landlord instead of, or in addition to, any such real property taxes (even it such taxes were not in existence at the start of the Term of this Lease). Taxes means any real property taxes imposed against the Landlord on account of its ownership of interest in the building. Taxes further means any large corporations tax, or any other tax that is imposed on the Landlord by any taxing authority. Taxes also means all costs and expenses incurred by the Landlord to the extent that such costs and expenses (including but limited to appraisal, accounting, experts, legal (on a solicitor and his or her own client basis), engineering, and consultants' charges) are incurred in an attempt to minimize or reduce taxes. 1.36 "TENANT" means the second party to this Lease. Tenant includes the directors, officers, servants, employees, contractors, agents, invitees, licensees, and all other persons over whom the Tenant may reasonably be expected to exercise control or who in law the Tenant is responsible for. 1.37 "TERM" means the period described in Article 3 of this Lease. 5 1.38 "TRADE FIXTURES" means trade fixtures at common law and includes the personal chattels of the Tenant installed during the fixturing period which serve the sole purpose of allowing the Tenant to carry on its business. Trade Fixtures do not include Leasehold Improvements or any inventory of the Tenant. ARTICLE 2 - INTENT AND INTERPRETATION 2.1 The Tenant agrees that it is intended that this Lease is a completely carefree absolutely net lease to the Landlord. Except as may expressly be set out in this Lease, the Landlord is not responsible during the Term for any costs, charges, impositions, expenses, and/or outlays (collectively "outlays") of any kind whatsoever (excluding structural repairs) arising from or relating in any way to the Premises. The Tenant will forthwith pay all outlays of every nature and kind, relating in any way to the Premises or the use and occupancy thereof (including but not limited to the Tenant's Proportionate Share of all outlays including Operating Expenses 2.2 Words, phrases, or expressions used in the singular format shall have a corresponding meaning when used in the plural, and visa versa. 2.3 If any item of this Lease is held to be invalid, unenforceable, or illegal, such term shall be deemed to be severed on consent from this Lease. The remainder of this Lease shall not be affected, impaired, or invalidated. 2.4 This Lease sets forth the entire agreement between the Landlord and Tenant. There are no Representations, either oral or written, that are not in this Lease. 2.5 This Lease may not be changed or terminated orally. All alterations, changes and amendments must be in writing signed by an authorized signing officer of the Landlord and Tenant. 2.6 The Tenant agrees that it will immediately sign any future amendments to this Lease required by the Landlord to ensure compliance with any authorities or to maintain this Lease as a completely carefree absolutely net lease to the Landlord. 2.7 This Lease shall be governed by and construed in accordance with the laws of the Jurisdiction. 2.8 Time is of the essence of this Lease. ARTICLE 3 - PREMISES AND TERM 3.1 In consideration of the rents and Representations of the Tenant contained in this Lease, the Landlord leases to the Tenant the following Premises: I VALLEYBROOK DRIVE, SUITE 100, TORONTO M3B 2S7 3.2 The Premises contain an area of approximately 2282 square feet. ---- 3.3 Common Area or Common Facilities within the space enclosed by the boundaries of the Premises do not form part of the Premises. 3.4 The boundaries of the Premises extend to the limits from which the Rentable Area of the Premises is measured and from the top surface of the structural subfloor to the bottom surface of the structural ceiling. 3.5 Subject to the terms of this Lease, the Tenant shall, in connection with its business, have the non-exclusive and non-transferable right to use the Common Areas and Common Facilities for their proper and intended purposes. The Landlord shall have the sole right to alter or designate the use of Common Areas and Common Facilities from time to time, whether on a temporary or permanent basis, for such uses as the Landlord, acting reasonably, deems appropriate including, but not limited to kiosks, displays, entertainment, leasing promotions, and special features or functions. 6 3.6 Unless earlier terminated pursuant to this Lease, the Landlord, commencing on the 1ST day of JULY, 2006 (the "Commencement Date"), leases to the Tenant the Premises for a period of FIVE (5) YEARS until the 30TH day of JUNE, 2011 (the "Expiration Date"). 3.7 The Tenant shall not occupy the Premises prior to the Commencement Date without completing this Lease Agreement. 3.8 Provided (i) the Lease has been executed by the Tenant and delivered to the Landlord; and (ii) the Tenant has delivered to the Landlord in insurance certificate(s) evidencing compliance with the insurance provisions of the Lease, the Tenant shall be granted possession of the Premises ("Early Occupancy Date") until the date preceding the Commencement Date in order to complete Tenant's Work and commence carrying on business in the Premises ("Early Occupancy Period"). During the Early Occupancy Period, the Tenant shall not be obligated to pay Basic Rent, but shall be liable for all other costs and obligations including costs of any additional services in accordance with the Lease, and the Tenant shall be subject to all other terms and conditions of the Lease insofar as they are applicable, including, obligation to maintain insurance, pay Operating costs and Realty Taxes. The Tenant will pay the Landlord $82.83 per day for each day that it occupies the premises prior to July 1, 2006 (Early Occupancy) to cover Operating costs and Realty Taxes (Additional Rent). 3.9 If, for any reason, the Landlord is not able to give possession of the Premises to the Tenant on or before the Commencement Date, the Tenant shall take possession of the Premises within 5 days after the Landlord delivers possession of the Premises to the Tenant. The Landlord shall not be liable to the Tenant for any claims resulting from delay in delivering possession of the Premises to the Tenant. Unless the Landlord's inability to give possession of the Premises to the Tenant is caused by or attributable to the Tenant (or its employees, servants, agents, or independent contractors), no rent shall be payable by the Tenant for the period before the Landlord is able to deliver possession of the Premises to the Tenant. The Commencement Date shall not change nor shall the expiration date of this Lease. If the Landlord is of the opinion that it is unable to deliver possession of the Premises to the Tenant by the expiration of 6 months from the Commencement Date, the Landlord shall have the right to terminate this Lease upon written notice to the Tenant whereupon neither party shall have any liability to the other. The Landlord shall return any money it has received from the Tenant. 3.10 By taking possession of the Premises, and subject to review by the Tenant and providing a deficiency list within 7 days subject to latent defects which are not readily apparent the Tenant acknowledges and agrees that the Premises are in good and satisfactory physical and environmental condition and that all of the Landlord's Representations respecting the condition of the Premises (or completion of the Landlord's work) have been satisfied. 3.11 During the Fixturing Period, the Tenant at its sole expense shall (unless otherwise agreed to in writing) complete in a good and workmanlike manner using first quality new material and equipment the Tenant's work listed in Schedule hereto. The Tenant shall reimburse the Landlord for all costs and expenses incurred by the Landlord in connection with the review and inspection of the Tenant's work plus an administrative fee. If the Tenant does not complete, in a good and workmanlike manner using first quality new material and equipment, the Tenant's work listed in Schedule hereto, the Landlord may terminate this Lease on 10 days written notice to the Tenant whereupon the Tenant shall, upon such termination date, vacate the Premises and forthwith pay to the Landlord as Additional Rent all costs and expenses incurred by the Landlord in performing any work with respect to the Premises. 3.12 The Tenant will have the use of SEVEN (7) undesignated parking Spaces in the surface parking area free of charge. The number of parking spaces is allotted in relation to the total rentable area of the building the tenant occupies. The ratio is three parking spaces per 1000 square feet of rented area. 7 3.13 The Tenant shall have access to the Premises twenty-four (24) hours a day each and every day of the year throughout the Term, except for unforeseen Building emergencies. ARTICLE 4 - RENT 4.1 Base Rent is to be paid on a monthly basis without any abatement or reduction for any reason whatsoever, as outlined below: TERM PER SQ.FT. PER ANNUM MONTHLY July 1/06 - June 30/07 $10.00 $22,820.00 $1,901.66 July 1/07 - June 30/11 $ 8.50 $19,397.00 $1,616.41 NET/NET plus GST on the first day of each and every month in each year of the Term of this Lease and any renewal thereof. 4.2 Additional Rent is estimated to be $13.25 per square foot per annum for year 2006. 4.3 The Tenant shall pay to the Landlord from the Commencement Date advance Base and Additional Rent plus GST payments on the first of each month. 4.4 Upon signing of the Lease, the Tenant shall deliver to the Landlord the equivalent of Three (3) Months Gross Rent (based on Basic Rent of $10.00) plus GST for a total of $13,573.60 as a deposit made payable to CB Richard Ellis Limited "in trust" and to be used as follows: - - First Months Gross Rent + GST = $ 4,730.86 - - Security Deposit (as defined in 4.6) (excl GST) = $ 4,421.37 - - Additional one (1) months gross rent which will be Forfeited if Lease is terminated under Right of Termination clause which amounts to (excl GST) = $ 4,421.37 ---------- $13,573.60 ---------- In the event the Termination clause is waived by the Tenant the Landlord will refund the Additional one months rent deposit of $4,421.37 to the Tenant at that time. 4.5 The Tenant shall have the right to Terminate the Lease ONCE ONLY And only if the Tenant gives three (3) months notice to terminate effective on June 30, 2007 and pays rent until September 30, 2007. Should the Tenant Terminate under this clause the Tenant will pay in addition, as a penalty, one month's Gross rent ($4,421.37 + GST) upon exercising its right to Terminate. Should the Tenant not take up its right to Terminate then the Landlord will allow the Tenant the month of October 2007 Gross Rent free if the Tenant does not Terminate the Lease on September 30, 2007. 4.6 It is understood and agreed that the Security Deposit which is included in the Tenant's first deposit herein is to be held by the Landlord during the Term of the Lease without any liability whatsoever on the part of the Landlord for the payment of interest thereon. If at any time during the Term any of the rent herein reserved or any other sums payable by the Tenant to the Landlord under the Lease shall be overdue and unpaid. Then the Landlord may at its option apply any portion of such deposit to the payment of any such overdue rent or other sum. In the event of default by the Tenant in the performance of any of the terms of this Lease to be performed by the Tenant, the Landlord may at its option, apply the whole or any part of the deposit to compensate the Landlord for all loss or damage sustained due to such breach, but such application shall not be deemed to be in substitution for any claims that the Landlord may have under the Lease or in law. If the whole or any portion of such deposit is applied by the Landlord for the payment of overdue rent of otherwise, the Tenant shall upon written demand forthwith remit to the Landlord a sufficient amount in cash or by certified cheque to restore the said security deposit to the original sum deposited and the failure to do so within five (5) days after receipt of such demand shall constitute a breach of this Lease. Should the Tenant comply with all the terms, covenants and conditions herein contained and promptly pay all rent and additional rent herein provided as they fall due, the said deposit shall be returned in full to the Tenant within thirty (30) days after the expiration of this Lease. 8 4.6 All payments required to be made by the Tenant under and in respect of this Lease shall be made to the Landlord at 1 Valleybrook Drive, Suite 102, Toronto, Ontario M3B 2S7 or to such agent or agents of the Landlord or at such other places as the Landlord shall from time to time direct in writing to the Tenant. 4.7 The Tenant shall have an option to renew this Lease for a further term of FIVE (5) years if the Tenant has continuously adhered to all terms and conditions of this Lease and is not in default thereunder and if the Tenant has delivered a written request for such renewal to the Landlord not less than three (3) months before the Expiration Date. Such renewal term shall be based upon the terms and conditions of the Landlord's then current standard form of lease, save only for Base Rent which shall be renegotiated between the parties at a rate equivalent to fair market rent and provided that the Tenant shall have no further right of renewal. If the Tenant fails to exercise the option to renew this Lease within the time and in the manner as aforesaid, this option shall be null and void. The Termination Right will not apply to the Extension Term. 4.8 If the Landlord and Tenant do not agree in writing as to the amount of the Base Rent for the Renewal Term within 90 days prior to the Expiration Date, then both parties shall, by written notice to the other name an arbitrator, and the two arbitrators so named shall determine the Base Rent for the Renewal Term, and their decision or award shall be made prior to the Expiration Date and such award, or the award of a majority of the arbitrators, shall be binding upon the parties. The expense of the arbitration shall be borne equally between the parties. If either party shall neglect of refuse to name its arbitrator or to proceed with the arbitration, the arbitrator named by the other party shall proceed to fix the Base Rent to be paid for the Renewal Term and his or her award shall be final and binding. 4.9 If the Tenant fails to pay any amount in respect of Base Rent or Additional Rent when due, such unpaid amount shall bear interest from the due date thereof to the date of payment at the rate of five (5%) percent above the Prime Rate at the time of such default. ARTICLE 5 - TAXES 5.1 The Landlord shall, in first instance, pay all Taxes which are imposed against the Building, subject to the Landlord's right to contest or appeal any tax which is imposed upon. 5.2 The Tenant shall pay the Landlord as Additional Rent its Proportionate Share of any and all Taxes that are imposed from time to time against the Building including, without limitation, the Common Areas and Common Facilities regardless of whether or not separate tax bills are issued by any lawful taxing authority. 5.3 The Landlord will at commencement of this Lease and thereafter at Commencement of each tax year, estimate said taxes for the next ensuing year. 5.4 If the Rental Year is less than 365 days, the Tenant's obligation to pay Taxes as Additional Rent shall be pro-rated accordingly. 5.5 The Tenant agrees to pay NINE (9) MONTHLY INSTALLMENTS from January to September in accordance with such estimates at the times at which Additional Rent is payable hereunder. When the final Tax bills in any year have been received the Landlord will adjust such Taxes in accordance with such final Tax bill and period occupied by Tenant. 5.6 In addition to the Taxes payable by the Tenant in the preceding paragraph, the Tenant shall also forthwith pay when due all Taxes that are levied or assessed against the Tenant directly in respect of, but not limited to, Leasehold Improvements, equipment, trade fixtures, personal property, in or about the Premises. 5.7 The Tenant shall also pay at the same time as Base Rent or Additional Rent is payable to the Landlord any GST that is lawfully payable by the Tenant to the Landlord with respect to Base Rent or 9 Additional Rent or the provision or supply of any goods, services, or utilities whatsoever by the Landlord to the Tenant under this Lease. 5.8 The amounts payable by the Tenant under this Article shall be deemed not to be consideration for the supply of space under this Lease, but shall be considered to be Additional Rent for the purposes of determining the Landlord's rights and remedies for non-payment and recovery of any such amounts. ARTICLE 6 - BUILDING, COMMON AREAS, AND COMMON FACILITIES-CONTROL AND PAYMENT 6.1 The Tenant agrees that the Building is at all times subject to the exclusive control, maintenance, management, and operation (collectively "operation") of the Landlord. The Landlord has the right by its control of the operation of the Building and by the establishment of Rules and Regulations and general policies to, without limitation, construct, maintain, operate, and change lighting facilities, heating, ventilation, air conditioning, and energy conservation systems, provide supervision, security, and policing for the Building, close all or a portion of the Building for the purpose of repair, maintenance, construction, or prevention of misuse, exclude persons from the Building, grant and terminate easements, convert portions of the Building from Common Areas or Common Facilities to rentable premises, employ persons to manage the Building, use the Common Areas or Common Facilities from time to time for marketing or merchandising, designate reasonable times and locations for deliveries, designate reasonable parking spaces, prohibit the use of parking in any area on a temporary basis if required for maintenance, control the shipping and receiving of goods, designate the types of permissible refuse containers, make alterations to the Building, construct additional buildings or structures or systems, and do such other acts as the Landlord solely determines to be advisable for the more efficient and proper operation of the Building. The Tenant acknowledges that the exercise by the Landlord of these rights shall not relieve the Tenant of its obligation to continuously and actively carry on its permitted business in the Premises. 6.2 In each Rental Year, the Tenant shall pay to the Landlord, as Additional Rent, the Tenant's Proportionate Share of Operating Costs. 6.3 Within a six (6) month period of time after the end of the period for which the Tenant has been making advance payment of Additional Rent for, among other items, Operating Costs, the Landlord shall provide to the Tenant a statement verifying the actual amount of Operating Costs in the period for which the Tenant has been making the advance payments. If necessary, an adjustment shall be made. If the Tenant has paid in excess of the actual amount due (the "excess amount"), the Landlord will forthwith pay to the Tenant an amount equal to the excess amount. If the Tenant has paid less than the actual amount due (the "underpayment"), the Tenant will forthwith pay to the Landlord an amount equal to the underpayment. ARTICLE 7 - UTILITIES AND HEATING, VENTILATION, AND AIR CONDITIONING ("HVAC") 7.1 The Tenant shall be solely responsible for and shall promptly pay as Additional Rent to the Landlord its Proportionate Share of the aggregate of (a) the total cost of supplying electricity, gas, water, sanitary services, and any other fuel, power of other utilities ("utilities") used or consumed in or with respect to the premises or allocated to them by the Landlord (b) the cost of any other charges levied or assessed in lieu of or in addition to such utilities as determined by the Landlord including all surcharges, rate adjustments, and taxes as determined by the Landlord for the supply and/or usage of utilities in the Premises and (c) all costs incurred by the Landlord in determining the allocation of utilities to the Premises and a management fee. 7.2 The Tenant agrees that the Landlord shall not be held liable for any losses or damages of any kind whatsoever to it or any other person for any injury, loss, or damage from any Claim arising out of an 10 interruption or the cessation of the unavailability of utilities to the Building or the Premises, regardless of whether or not the utilities were supplied by the Landlord or others and whether or not the interruption, cessation, or unavailability is caused by any fault, default, negligence, act, or omission of the Landlord. 7.3 The Landlord shall determine the amount that the Tenant is charged for utilities by allocating the utilities for the Building or any part thereof including Common Areas and Common Facilities and by charging the Tenant its Proportionate Share. The Landlord reserves the right to adjust such charges as it, acting reasonably, deems necessary. 7.4 During the Term, the Tenant shall operate those portions of the HVAC equipment within and serving the Premises in such a manner as to maintain reasonable conditions of temperature and humidity in the Premises so that no direct or indirect appropriation of the HVAC from the Common Areas or Common Facilities occurs. If the Tenant fails to comply with this stipulation or fails to comply with the Landlord's Rules and Regulations pertaining to HVAC, the Landlord (without liability on the Landlord's part) shall be entitled to take such steps as it deems necessary to correct such faults (including, without limitation, entering upon the Premises and assuming control of the HVAC equipment) and the Tenant shall forthwith pay to the Landlord as Additional Rent all costs and expenses of any kind whatsoever relating to such steps and a management fee. The Tenant agrees that this exercise by the Landlord of its rights herein is not a re-entry nor is it a breach of any covenant for quiet enjoyment. 7.5 The Tenant shall pay the Landlord monthly, in advance, as Additional Rent as part of Operating Costs such charges for HVAC as are estimated by the Landlord. In each Rental Year, the total costs for operating, maintaining, repairing, expanding, modifying, and replacing the HVAC system (which is made up of the heating, ventilation, and air conditioning equipment and facilities that are operated and maintained by the Landlord and which include the buildings or areas which house common heating, ventilating, or air-conditioning facilities, the equipment, improvements, installations, and utilities in the Premises, rooftop or window heating and ventilating or air-conditioning units operated or maintained by the Landlord), all fuel and power facilities as well as all distribution piping, air handling units, common fan coil and ventilation units, all monitoring, energy saving, and control systems including thermostats in the Premises) shall be allocated by the Landlord between the Common Areas and Common Facilities and the Premises, based where appropriate on the advice of the Landlord's engineer. The total costs also include but are not limited to costs for labour, including fringe benefits, power, fuel, water, chemicals, lubricants filters, outside maintenance service and contracts, and a management fee. ARTICLE 8 - USE OF THE PREMISES 8.1 The Tenant shall only use the Premises for the purpose of conducting the following business: GENERAL OFFICES AND SHOWROOM The Tenant agrees that it will not permit the Premises to be used for any other purpose without obtaining the Landlord's prior written consent. The Tenant agrees that it will not change the name of the business to be operated in the Premises without obtaining the Landlord's prior written consent. The Tenant has satisfied itself that the Premises can be used for and are zoned for the use stated above. The Tenant will not allow the Premises to be used for any purpose that is contrary to any restrictions registered against and/or running with title to the Building. 8.2 On and after the Commencement Date, the Tenant shall occupy the whole of the Premises and shall therein, in good faith, continuously, actively, and diligently conduct its business in a reputable, clean safe, orderly, properly staffed, first-class, and lawful manner. The Tenant will not permit waste or damage to the Premises. The Tenant will not bring or permit animals and or birds into the Building or its Premises. The Tenant will take steps to ensure that no actions are taken which in the Landlord's opinion would disturb the quiet 11 enjoyment of either the Landlord or other tenants in the Building. The Tenant will not do or permit to be done anything that, in the Landlord's opinion, in any way hinders the flow of traffic (pedestrian or vehicular) in or in the immediate vicinity of the Building. The Tenant will not solicit business except in its own Premises. The Tenant will not install or allow to be installed any transmitting or telecommunications device on the roof or structural walls of the building nor will it allow or allow to be installed any traveling or flashing lights or signs or audio-visual devices in a manner so that they can be seen or heard outside of the Premises without obtaining the Landlord's prior written consent. The Tenant will fully co-operate in all of the Landlord's energy conservation programs. The Tenant will not permit any activity within or about the Premises that in the Landlord's opinion would create an environmental or pollution or safety or moral problem including the utilization of illegal drugs or the display or production of non-family-oriented material (such as pornography), the emission of odours, gases, dust, smoke, fumes, vapours, steam, water, cinders, soot, vibrations, music, noises, electromagnetic rays or fields, Hazardous Substances, or any other effect that is undesirable in the sole opinion of the Landlord. If the Tenant breaches any of these requirements and does not cure such default within 10 days after being provided by the Landlord with written notice of such default (or sooner if the situation, as determined solely by the Landlord, is an emergency), the Landlord, without limiting any of its other rights, may take such steps as it deems necessary to cure such default at the Tenant's expense plus charge a management fee thereon which forthwith shall be paid to the Landlord by the Tenant as Additional Rent. In addition, the Tenant acknowledges that if it breaches any of these requirements and does not cure its default within 10 days as set forth above, the Landlord shall be entitled to obtain injunctive and other equitable relief which claim for relief will not be opposed by the Tenant. Further, the Tenant acknowledges that if it breaches any of these requirements and does not cure its default within 10 days as set forth above, the Landlord shall be entitled to terminate this Lease. 8.3 The Tenant shall observe and abide by all applicable laws, particularly but not limited to laws pertaining to Hazardous Substances. If a clean-up of the Building or the Premises is required as a result of the release or existence of Hazardous Substances by the Tenant or on behalf of the Tenant or which arises, directly or indirectly from the Tenant's use or occupancy of the Premises, the Tenant shall solely be responsible for the clean-up thereof and for all costs of any kind associated therewith. If the Tenant breaches any of these requirements and does not cure such default within 10 days after being provided by the Landlord with written notice of such default, the Landlord, without limiting any of its other rights, may take such steps as it deems necessary to cure such default at the Tenant's expense plus charge a management fee of 15% thereon which forthwith shall be paid by the Tenant to the Landlord as Additional Rent. The Tenant further agrees to fully indemnify the Landlord (including the immediate payment of the Landlord's incurred solicitor and client and other professional costs) and hold the Landlord harmless from all Claims arising out of matters related to the Tenant's actions or negligence with respect to Hazardous Substances. The Tenant's obligations with respect to Hazardous Substances shall survive the expiration of this Lease. Provided the Tennant shall not be responsible for any pre-existing non-compliance. 8.4 The Tenant agrees as well to comply with all present and future laws pertaining to the collection, sorting, separation, and recycling of waste products. 8.5 The Tenant will peaceably leave the Premises in a clean, broomswept condition on the Expiration Date or such other date if the Lease is terminated before the Expiration Date. The Premises will be left in good order except for reasonable wear and tear. The Tenant will thereupon return all keys and other security materials including but not limited to codes and passcards. 8.6 The Tenant shall NOT be required to restore the Premises or any --- additional space to Base Building condition at the expiration or termination of the Lease or at the expiration or termination of any extended term, including any damage they have caused to the Building. 12 ARTICLE 9 - INSURANCE 9.1 The Tenant shall throughout the Term of this Lease provide and keep in force at the Tenant's sole cost and expense, for the benefit of the Landlord and Tenant: (a) comprehensive general liability insurance with limits of Two Million ($2,000,000.00) Dollars for each occurrence, including bodily injury liability, property damage liability, personal injury liability, contractual liability, Tenant's legal liability and non-owned automobile liability with respect to the Premises and the Tenant's use of the Common Areas and Common Facilities. Such coverage is to include the activities and operations conducted by the Tenant and any other person performing work on behalf of the Tenant and those for whom the Tenant is in law responsible; (b) all risk property insurance in an amount equal to the full replacement cost upon property of every description and kind owned by the Tenant or for which the Tenant is legally liable and which is located within the Premises or any part thereof, including leasehold improvements, related to the Premises which is applicable in the event of, but not limited to, fire, theft, vandalism, fraud, flood, earthquake, tempest, excessive cold, wind, or any other peril that could cause loss to the building, the Premises, or the contents therein; (c) business interruption insurance coverage, including twelve (12) months of direct or indirect loss of earnings. (d) insurance, with respect to the interior and/or exterior front of the Premises including all doors therein and other glass therein, against loss or damage by fire and such additional perils as are covered under an extended coverage endorsement usually attached to fire insurance policies limiting loss on commercial real property. Without limiting the generality of the foregoing, such insurance shall cover the peril known as "malicious damage". (e) such further and other insurance as the Landlord or its mortgagees may consider advisable or appropriate from time to time. 9.2 All insurance required to be provided and kept in force by the Tenant at the Tenant's cost. The Landlord shall have the right to require amount(s) of insurance coverage increased from time to time by the Tenant at the Tenant's sole cost. The Tenant shall promptly furnish to the Landlord copies of insurance policies or other evidence satisfactory to the Landlord as to such insurance and any renewals thereof. In the event that the Tenant fails to promptly furnish to the Landlord satisfactory evidence of such insurance or of the renewal thereof prior to its expiration. The Landlord shall, in such instance, have the right to terminate this Lease. Each policy of insurance shall name the Landlord as an additional insured. The Tenant shall obtain from the insurers under such policies undertakings to notify the Landlord in writing at least thirty (30) days prior to any amendments or cancellation thereof. 9.3 The Tenant will not keep or use in the Premises any article which may be prohibited by any insurance policy in force from time to time covering the Building or the Premises. 9.4 It the Tenant's use of the Premises causes or results in increased insurance premiums or requires an increase in the amount of insurance carried from time to time by the Landlord, then the Tenant shall pay such increase in premiums as Additional Rent forthwith after invoices for such additional premiums are provided to the Tenant by the Landlord. 9.5 The Tenant agrees to comply forthwith at its sole expense with any recommendations of any insurance rating, underwriting, or inspection authority or of any insurer pertaining to or affecting the Building or the Premises. 13 9.6 The Tenant agrees that the Landlord shall not be liable to the Tenant or any other person for any injury, loss, or damage arising out of an occurrence at the Building or the Premises. Specifically, the Landlord shall not be liable to the Tenant or any other person for injury or loss or damage to property including loss or damage to merchandise, inventory, stock in trade, money, securities, negotiable instruments, resulting from fire, smoke, explosion, falling plaster, ceiling tiles, fixtures or signs, broken glass, steam, gas, fumes, vapours, odours, dust, dirt, grease, acid, oil, any Hazardous Substance, debris, noise, air or noise pollution, theft, breakage, vermin, electricity, computer, utility, communication or electronic equipment of systems malfunction, breakdown, or stoppage, electromagnetic radiation, electrical injury, water, rain, flood, flooding, freezing, tornado, windstorm, snow, sleet, hail, frost, ice, excessive heat or cold, sewage, sewer back-up, toilet overflow, leaks or discharges from any part of the building or from pipes, sprinklers, appliances, wiring, HVAC equipment, plumbing fixtures or equipment, roofs, windows, skylights, trapdoors, floors, dampness of other climatic conditions, interference with or obstruction of deliveries to or from the Building or the Premises, any defect in the building, by construction, by Force Majeures, or from any other cause whatsoever. The intent of this paragraph is that the Tenant (and any persons having business with the Tenant) is to look solely to the Tenant's insurers to satisfy any claims which may arise on account of injury or loss or damage to property, irrespective of the cause. 9.7 At all times throughout the Term, the Landlord shall carry all risks property insurance on the Building and comprehensive boiler and machinery insurance on the equipment contained therein. The insurance shall cover the gross rental value of the Building. The Landlord shall carry public liability and property damage insurance with respect to its operations in the Building as well as such other insurance as would normally be carried by a prudent Landlord having regard to the age, size, and location of the Building. The cost of such insurance shall be included in Operating Costs. Notwithstanding the contributions by the Tenant to this insurance by way of payments of Additional Rent, the Tenant is not relieved of liability for its acts, faults, negligence and/or omissions. Further, the Tenant has no insurable interest under any policy of insurance carried by the Landlord nor does the Tenant have any right to receive any proceeds of any insurance policy carried by the Landlord. The landlord will make best efforts to obtain at tenants cost a waiver of Subrogation in favor of the tenant 9.8 The Tenant shall promptly indemnify and hold harmless the Landlord from and against any and all claims in connection with injury or loss or damage to property arising out of this Lease or arising out of an occurrence in or about the Premises, occasioned wholly or in part by any fault, default, negligence, act, or omission of the Tenant or by any person that the Tenant permitted to be on or about the Premises or arising out of an occurrence in or about the Building occasioned wholly or in part by any fault, default, negligence, act, or omission of the Tenant or by any person that the Tenant permitted to be on or about the Premises of by the Tenant's directors, officer, servants, employees, contractors, agents, invitees, and licensees and all other persons over whom the Tenant may reasonably be expected to exercise control and/or in law is responsible for. If the Landlord is made party to litigation commenced by or against the Tenant, then the Tenant shall promptly indemnify and hold harmless the Landlord and shall forthwith pay, as Additional Rent, all of the Landlord's costs and expenses and damages and settlements (including but not limited to the Landlord's legal costs on a solicitor and his or her own client basis) incurred in connection with such litigation. 9.9 The Tenant also agrees to pay to the Landlord as Additional Rent on demand all costs and expenses (including but not limited to the Landlord's legal costs on a solicitor and his or her own client basis) that may be incurred by or on behalf of the Landlord in enforcing the terms, conditions, and covenants of this Lease. 9.10 All indemnities of the Tenant shall not be prejudiced by and shall survive the termination of this Lease. 14 ARTICLE 10 - MAINTENANCE AND REPAIRS BY TENANT AND LANDLORD 10.1 At all times during the Term, the Tenant, shall diligently keep, operate, and maintain the Premises in good order as would a careful and prudent Landlord, acting reasonably. The Landlord (at the Tenant's cost charged as Additional Rent) shall promptly make all needed repairs or alterations (whether minor or major) to the whole and each and every part of the Premises including, without limitation, all entrances, glass, frontages including office fronts, walls, ceilings, floors, thresholds, exterior and interior windows and window frames, doors and door frames, exterior and interior signs, partitions, locks, hardware, mouldings, fixtures, improvements including Leasehold Improvements, machinery, installations, equipment, systems, services, and facilities located on, in, under, above, or which serve the Premises including, without limitation, wiring, piping, lighting and lighting fixtures, plumbing and plumbing fixtures, operating equipment, and all parts of the electrical, plumbing, sprinkler, sewerage, and HVAC equipment and distribution systems which are not part of the Common Areas or Common Facilities. 10.2 Further, if required by any governmental authority at any time after the commencement date, the Tenant shall, at its expense, remove from the Premises, any hazardous substance which has been located, stored or incorporated in or on any part of the Premises by the Tenant. The foregoing obligation to remove any such hazardous substance so located, stored or incorporated in or on any part of the Premises by the Tenant, shall survive the expiration or earlier termination of this Lease. 10.3 The Landlord will provide standard Building signage for the Tenant at suite entrance, Lobby directory (if available) and outdoor signage (if available) at the Landlord's cost. 10.4 The Tenant shall not allow any of its operations to place an increased load on the mechanical and electrical systems within the Building. The Tenant specifically agrees not to install or permit the installation of any equipment which will exceed or overload the capacity of any utility, electrical, or mechanical facilities in the Building. 10.5 The Tenant shall not bring upon the Premises or any part thereof any machinery, equipment or thing that by reason of its weight, size, or use might, in the sole discretion of the Landlord, damage the Premises or overload the floors of the Premises, If any damage is caused, directly or indirectly, as a result of overloading, the Tenant shall forthwith repair such damage and be solely liable for all other losses arising therefrom. At the option of the Landlord, the repairs may be completed by the Landlord at the Tenant's expense plus a 15% administration fee thereof which shall forthwith be paid by the Tenant to the Landlord as Additional Rent. 10.6 The Tenant shall at all times promptly pay its labourers and contractors (including sub-contractors) and shall forthwith discharge all liens registered by its labourers or contractors (including sub-contractors). 10.7 If the Building (or part thereof) or the Common Areas or Common Facilities require repair, replacement, or alteration because of the fault, default, negligence, want of skill, carelessness, neglect, misuse, act, misconduct, or omission of the Tenant (or those for whom the Tenant is responsible for in law), the Landlord shall make such repair, replacement, or alteration at the Tenant's sole expense plus a management fee thereof which shall forthwith be paid by the Tenant to the Landlord as Additional Rent. 10.8 The Tenant shall co-operate fully, at the Tenant's sole expense, in any preventative maintenance programs for electrical, mechanical, or HVAC systems that the Landlord may institute in or for the Building. 10.9 The Tenant shall not make any Alterations to the Premises or part thereto without first obtaining the Landlord's prior written approval. Prior to commencing Alterations, the Tenant shall provide the Landlord 15 with details of the proposed Alterations prepared by qualified architects or engineers, security for claims and liens as determined by the Landlord, copies of all necessary building permits and other authorizations from all authorities, evidence of increased insurance as determined by the Landlord, an undertaking to complete all Alterations expeditiously using competent workers whose labour union affiliations are acceptable to the Landlord and others employed by the Landlord, and an undertaking to complete all work strictly in accordance with the plans and specifications that the Landlord has approved. All Alterations shall be subject to supervision or inspection by the Landlord. Any Alterations made without the Landlord's prior written approval shall be immediately removed at the Tenant's sole expense and the Premises shall be restored to their previous condition. If the Tenant fails to remove the Alterations, the Landlord shall be entitled to do so and shall do so at the Tenant's expense plus a management fee. 10.10 No Alterations shall be permitted which in the Landlord's discretion may weaken or endanger the Building or the Premises or adversely affect the safety, condition, or operation of the Building or the Premises (or diminish the value thereof) or impair the use of all or part of the Common Areas and Common Facilities. 10.11 No Alterations shall be permitted which adversely affect the Landlord's rights in terms of zoning or other land use planning statues nor will Alterations be permitted that cause the Landlord to have to provide additional parking. 10.12 Notwithstanding anything to the contrary contained in this Lease, the Landlord's only responsibility with respect to the maintenance, repair or replacement to the Building shall be with respect to major structural repairs unless such repairs are required as a result of the negligence of the Tenant, or for those for whom the Tenant is at law responsible It is expressly agreed upon and understood that roof membranes are not a structural component and any repairs and, or, replacement will be charged to the Tenant as part of Additional Rent. ARTICLE 11 - DAMAGE, DESTRUCTION, EXPROPRIATION, AND DEMOLITION 11.1 If, during the Term, the Building in which the Premises or any part thereof is situate shall be destroyed or damaged by fire, lightning, tempest, impact or aircraft, act of God of the Queen's enemies, riots, insurrection or explosion, the following provisions shall have effect: 11.2 If the Premises are at any time damaged or destroyed, within seven (7) days thereafter, the Landlord shall appoint an Architect who shall inspect such damage of destruction and decide whether, in his opinion, such damage or destruction can be physically repaired within one hundred and twenty (120) days after the commencement of such repair. The written opinion of the Architect shall be delivered to the Tenant within fourteen (14) days after the occurrence thereof. If any one or more of the following shall occur: (i) in the Architect's opinion, such damage or destruction cannot be repaired within such one hundred and twenty (120) days; or (ii) the Architect fails to deliver such written opinion to the Tenant as required above and the Landlord has not commenced and thereafter is not proceeding diligently and expeditiously to construct, rebuild or repair the Premises, the Tenant may at any time thereafter, terminate this Lease, whereupon the Tenant shall surrender to the Landlord the Premises and all of its interest therein and assign to the Landlord its interest in all of the proceeds of any policy of insurance covering the Premises, except for any portion of such insurance proceeds related to the Tenant's chattels and trade fixtures. 11.3 If, in the Architect's opinion, the Premises are damaged or destroyed and such damage or destruction cannot be repaired within such one hundred and twenty (120) days, the Landlord may at that time terminate this Lease. 16 11.4 If it appears that the Premises can with reasonable diligence be so restored within such one hundred and twenty (120) day period, or if in the opinion of the Architect, the Premises can be restored within such period, or if in the Architects opinion, the Premises cannot be restored within such a period but the Tenant and the Landlord fail to exercise their rights to terminate this Lease as hereinbefore provided, then the Landlord and the Tenant shall promptly commence and thereafter proceed diligently and expeditiously to construct, rebuild or repair the Premises so as to restore the Premises to a tenantable condition and fit for the Tenant's business purposes to the extent of the Landlord's and Tenant's original construction obligations in accordance with the plans and specifications. 11.5 If the Premises are rendered wholly untenantable, the Base Rent and all other charges payable by the Tenant under this Lease shall abate entirely. If the Premises are rendered untenantable only in part, the Base Rent and all other charges payable by the Tenant under this Lease shall abate in such reasonable proportion as the parties may agree, or if the parties cannot agree, as may be determined by arbitration in accordance with this Lease. Any such abatement of rent payments shall commence from the date of such damage or destruction and continue until the earlier of: (i) ten (10) days after the date on which the Premises have been restored and rendered tenantable and fit for the Tenant's business purposes; or (ii) the date on which the Tenant re-opens for business in the Premises. 11.6 If the Building or the Premises (or a part thereof) is expropriated, the full proceeds and/or award arising, directly or indirectly, from expropriation belong to the Landlord. The Tenant agrees to abandon or assign to the Landlord any rights which the Tenant may have or acquire by operation of law to such proceeds or award and agrees to promptly execute such documents as in the sole discretion of the Landlord are necessary to give effect to this provision. If the Building or the Premises (or a part thereof) is expropriated, the Landlord may, at its sole option, terminate this Lease and the Tenant shall have no Claim for the value of the unexpired term or for damages or for any other reason whatsoever. ARTICLE 12 - ASSIGNMENT AND SUB-LETTING 12.1 The Tenant will not assign or sublet all or part of the Premises without leave of the Landlord, which leave shall not be unreasonably withheld. In no event shall any assignment or subletting to which the Landlord may have consented, release or relieve the Tenant from its obligations fully to perform all the terms, covenants and conditions of this Lease on its part to be performed. For the purpose of this clause, it shall not be considered unreasonable for the Landlord to require evidence that the financial responsibility of the proposed assignee or subtenant will carry on business in the Premises in a manner comparable to that of the Tenant. The Tenant shall be responsible for the Landlord's solicitor and client legal fees incurred with respect to any proposed assignment or subletting. 12.2 The Tenant shall pay to the Landlord the sum of TWO HUNDRED AND FIFTY DOLLARS ($250.00) management fee for the processing of an assignment or sublet of this Lease. 12.3 In the event that the Base Rent payable under any such sub-lease or assignment is in excess of the Base Rent reserved here-under or in excess of the proportionate Base Rent reserved in the event of the sub-lease of assignment of part of the Premises, whether the excess be in the form of cash, goods or services from the sub-tenant of assignee or anyone acting on its behalf, such excess shall be payable to the Landlord by the Tenant or assignor immediately upon receipt thereof, and in the event that such excess is represented by goods or services rendered to the Tenant or assignor or its nominee, the value of those services or goods shall be determined by the Landlord and the Tenant 17 or assignor and that value shall be paid in cash to the Landlord herein immediately upon such determination. ARTICLE 13 - ACCESS AND ALTERATIONS 13.1 At all times and upon giving reasonable notice of no less than 2 days, the Landlord and its agents shall have the right to enter the Premises to examine the Premises, to carry out or enforce any provisions of this Lease, and to make such Alterations to the Premises or the Building as the Landlord considers necessary or desirable. The Tenant shall take no steps or permit or cause no steps to be taken to prevent the Landlord's reasonable access to the Premises. The Tenant's obligation to pay Base Rent and Additional Rent shall not abate or be reduced while any such entry or Alterations are being made. This shall not be considered to constitute a re-entry by the Landlord or a breach of the Tenant's entitlement to quiet enjoyment of the Premises. 13.2 The Landlord agrees the Tenant does not have to provide current key, passcard, or security code. The Tenant will provide the Landlord with the names and telephone numbers of two key holders who will attend in the event of an emergency. 13.3 At all times during the Term, the Landlord and its agents have the right to enter the Premises, on 2 days notice, to show the Premises to prospective purchasers, lessees, insurers or mortgagees. During the last 6 months of the Term, the Landlord may place "For Rent" or "For Lease" or "For Sale" signs on the front lawn of the Building or in Common Areas of the Building. 13.4 If it is necessary to excavate land adjacent to the Building, the Tenant shall grant access to the Landlord or its duly authorized representatives to enter the Premises for doing such work as the Landlord deems necessary to preserve the walls of the Building from injury or damage and to support the walls in an appropriate manner. In granting access, the Tenant agrees that it shall have no Claim against the Landlord for damages or indemnification or any diminution or abatement of Base Rent or Additional Rent. This shall not be considered to constitute a re-entry by the Landlord or a breach of the Tenant's entitlement to quiet enjoyment of the Premises. ARTICLE 14 - STATUS STATEMENTS, ATTORNEY, AND SUBORDINATION 14.1 Within 5 days after receiving a request from the Landlord, the Tenant shall execute and deliver to the Landlord (or its nominee) a status statement confirming that this Lease is unmodified, that the Commencement Date and the Expiration Date are the same dates that appear on this Lease, the amount of Base Rent and Additional Rent being paid and the last date to which Base Rent and Additional Rent have been paid, the amount of any advance rent or security deposit paid, whether or not there is an existing default on the part of the Tenant in terms of its obligations under this Lease, whether or not there are any defaults on the part of the Landlord, the Tenant and the Indemnitor's (if applicable) financial standing and corporate status, whether or not all Landlord's work has been completed and details of any non-completed work, and such others as may be required by the Landlord at the time, acting reasonably. 14.2 If the Tenant fails to execute and deliver the aforesaid status statement within 5 days, the Tenant hereby irrevocably appoints the Landlord as the Tenant's attorney with full power to execute and deliver in the name of the Tenant such status statements. 14.3 The Landlord and Tenant agree that this Lease and everything herein contained shall be subordinate to any mortgage, mortgages, charge, or charges or deeds or trust from time to time created by the Landlord in respect of the Premises by way of mortgage and the Tenant hereby covenants and agrees that it will at any time and from time to time as required by the Landlord during the term hereof and extension or renewal give all such further assurance to this proviso as may be reasonably required to evidence and effectuate this postponement of its rights and privileges hereunder to the holder or holders of any such mortgage, mortgages, charge, charges or deeds of trust shall agree in a written instrument in form and substance satisfactory to the Tenant that the holder or holders of any such mortgage, mortgages, 18 charge, charges or deeds of trust mortgage shall permit the Tenant to continue in quiet possession of the Premises in accordance with the terms and conditions of this lease as long as the Tenant is not in default hereunder beyond any applicable cure period set out in this Lease, nor shall the Tenant's obligtions be enlarged or its rights abridged hereunder by reason of such transaction. The Lanldord agrees to use its best efforts to obtain a Non-Disturbance Agreement from any such Mortgagee in favour of the Tenant at the Tenant's cost. ARTICLE 15 - DEFAULT OF TENANT 15.1 RIGHT TO RE-ENTER When: (a) The Tenant shall be in default in the payment of any Rent whether lawfully demanded or not and such default shall continue for a period of ten (10) calendar days after written notice from the Landlord; or (b) If the Tenant shall be in default of any of its covenants, obligations or agreements under this Lease and such default shall have continued for a period of ten (10) consecutive days )or such longer period as may be reasonably required and permitted ((in the Landlord's sole discretion)) in the circumstances to cure such default) after written notice by the Landlord to the Tenant specifying with reasonable particularity the nature of such default and requiring the same to be remedied, or without notice where such default creates any emergency which is likely to materially adversely affect the Premises, the Landlord. Without prejudice to any other rights which it may have with respect to such default, may, but shall not be obligated to, remedy such default. The cost of remedying such default plus a management fee thereon shall be added to the Additional Rent due the next date on which Base Rent is payable, and such amount shall thereupon become due and payable as Additional Rent under this Lease in addition to the regular payment of base rent then due, and the Landlord shall have all remedies for the recovery of such amount as are available in the case of any non-payment of base rent or Additional Rent. 15.2 RIGHT TO RELET Should the Landlord elect to re-enter, as herein provided, or should it take possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate the Lease or it may from time to time without terminating this Lease, make such alterations and repairs as may be necessary in order to relet the Leased Premises, and relet the Leased Premises or any part thereof as agent for the Tenant for such term or terms (which may be for a term extending beyond the term of this Lease) and as such rental or rentals and upon such other terms and conditions as the Landlord in its sole discretion may deem advisable; upon such reletting all rentals reserved by the Landlord from such reletting shall be applied, first, to the payment of any indebtness other than Rent due hereunder from the Tenant to the Landlord; second, to the payment of any costs and expenses of such reletting, including brokerage fees and solicitor fees and of costs of such alterations and repairs; third, to the payment of Rent due and unpaid hereunder, and the residue, if any, shall be held by the Landlord and applied in payment of future Rent as the same may become due and payable hereunder. If such rentals received from such reletting during any months be less than that to be paid during that month by the Tenant hereunder, the Tenant shall pay any such deficiency to the Landlord. Such deficiency shall be calculated and paid monthly. No such re-entry or taking possession of the Leased Premises by the Landlord shall be construed as an election on its part to terminate this Lease unless written notice of such intention be given to the Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, the Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Should the Landlord at any time terminate this Lease for any breach, in addition to any other remedies it may have, it may recover from the Tenant all damages it may incur by reason of such breach, including the cost of recovering Leased Premises, and including the worth at the time of such termination of the excess, if any, of the amount of Rent and charges equivalent to Rent reserved in this Lease for the remainder of 19 the term hereof over the then reasonable rental value of the Leased Premises for the remainder of the term, hereof all of which amounts shall be immediately due and payable from the Tenant to the Landlord. In determining the Rent which would be payable by the Tenant hereunder, subsequent to default, the annual Rent for each year of the unexpired term shall be equal to the average annual fixed Base Rent paid by the Tenant from the Lease Commencement Date to the time of default, or during the preceding three (3) full calendar years, whichever period is shorter. 15.3 LEGAL EXPENSES In case suit shall be brought for recovery of possession of the Leased Premises, for the recovery of Rent or any other amount due under the provisions of this Lease, or because of the breach of any other covenant herein contained on the part of the Tenant to be kept or performed and a breach shall be established, the Tenant shall pay to the Landlord all expenses incurred therefor, including reasonable solicitors' and counsel fees on a solicitor and his client basis. 15.4 BANKRUPTCY The Tenant covenants and agrees that if the term or any of the goods and chattels of the Tenant on the Leased Premises shall be at any time during the said term seized or taken in execution or attachment by any creditor of the Tenant or if the Tenant shall make any assignment for the benefit of creditors or any bulk sale or, becoming bankrupt or insolvent, shall take the benefit of any Act now or hereafter in force for bankrupt or insolvent debtors or if any order shall be made for the winding up of the Tenant, or if the Leased Premises shall without the written consent of the Landlord become and remain vacant for a period of fifteen (15) days, or be used by any other persons than such as are entitled to use them under the terms of this Lease, or if the Tenant shall without the written consent of the Landlord abandon or attempt to abandon the Leased Premises or sell or dispose of goods or chattels of the Tenant or to remove them or any of them from the Leased Premises so that there would not in the event of such abandonment, sale or disposal of sufficient goods on the Leased Premises subject to distress to satisfy the Rent above due or accruing due, then and in every such case the then current month's Rent and the next ensuing three (3) months Rent shall immediately become due and be paid and the Landlord may re-enter and take possession of the Leased Premises as though the Tenant or the servants of the Tenant or any other occupant of the Leased Premises were holding over after the expiration of the said term and the said term shall at the option of the Landlord, forthwith become forfeited and determined and in every one of the cases above such accelerated Rent shall be recoverable by the Landlord in the same manner as the Rent hereby reserved and as if rent were in arrears and the said option shall be deemed to have been exercised if the Landlord or its agents give notice to the Tenant as provided for herein. 15.5 THE LANDLORD MAY PERFORM COVENANTS If the Tenant shall fail to perform any of its covenants or obligations under or in respect of this Lease, the Landlord may from time to time at its discretion, perform or cause to be performed any of such covenants or obligations, or any part thereof, and for such purpose may do such things upon or in respect of the Leased Premises or any part thereof as the Landlord may consider requisite or necessary. All expenses incurred and expenditures made by or on behalf of the Landlord under this Section shall be forthwith paid by the Tenant and if the Tenant fails to pay the same, the Landlord may add the same to the Rent and recover the same by all remedies available to the Landlord for the recovery of Rent in arrears. 15.6 THE LANDLORD MAY FOLLOW CHATTELS Provided that in case of removal by the Tenant of the goods and chattels of the Tenant from the Leased Premises, the Landlord may follow the same for thirty (30) days in the same manner as is provided for in the Landlord and Tenant Act. 15.7 WAIVER OF EXEMPTION The Tenant hereby covenants and agrees with the Landlord in consideration of the premises and of the leasing and letting by the Landlord to the Tenant of the Leased Premises for the term hereby created (and it is upon that express understanding that these presents 20 are entered into) that notwithstanding anything contained in Section 30 of Chapter Two Hundred and Thirty of the Revised Statutes of Ontario, 1980, or any other Statute which may hereafter be passed to take the place of the said Act or to amend the same, none of the goods or chattels of the said Tenant at any time during the continuance of the term hereby created on the Leased Premises shall be exempt from levy by distress for Rent in arrears by the Tenant as provided for by any Section or Sections of the said Act, or any amendment or amendments thereto, and that upon any claim being made for such exemption by the Tenant or on distress being made by the Landlord this covenant and agreement may be pleaded as an estoppel against the Tenant in any action brought to test the right to the levying upon any such goods as are named as exempted in said Section or Sections or amendments thereto, the Tenant waiving as the Tenant hereby does, all and every benefit that could or might have accrued to the Tenant under and by virtue of the said Section or Sections of the said Act or any amendment or amendments thereto but for this covenant. ARTICLE 16 - MISCELLANEOUS 16.1 All money shall be paid in Canadian Dollars. 16.2 If at the expiration or other termination hereof the Tenant shall remain in possession of the Premises with or without the consent of the Landlord and without any further written agreement, the tenant shall be a Tenant from month to month at a rent equivalent to one hundred and fifty (150%) percent of the Base Rent payable in the last year of the Term of the Lease and no other tenancy shall be created by by implication of law or otherwise and the Base Rent reserved hereunder shall be paid on the first day of each month during such overholding and such month-to-month tenancy shall otherwise be subject to all other terms of this Lease. 16.3 Any notice under this agreement shall be sufficiently given by personal delivery or by registered letter, postage prepaid, or by facsimile transmission, addressed, in the case of notice to the Landlord at suite 102, 1 Valleybrook Drive, Toronto, Ontario M3B 2S7 and in the case of the notice to the Tenant addressed at: 1 VALLEYBROOK DRIVE, SUITE 100, TORONTO, ONTARIO M3B 2S7 16.4 Any notice delivered by hand shall be deemed to be received on the date of actual delivery thereof. Any notice given by registered mail shall be deemed to have been given on the fifth business day following the business day on which such notice is mailed. 16.5 Either party may at any time give notice in writing to the other of any change of address of the party giving such notice and from and after the giving of such notice the address therein specified shall be deemed to be the address of such party for the giving of notices hereunder. The word "notice" in this paragraph shall be deemed to include any request, statement, or other writing in this Lease provided or permitted to be given by the Landlord to the Tenant or by the Tenant to the Landlord. 16.6 Whenever and to the extent the Landlord or Tenant shall be unable to fulfill of shall be delayed or restricted in the fulfilment of any obligation hereunder in respect of the supply or provision of any service or utility or the doing of any work or the making of any repairs by reason of being unable to obtain the material, goods, equipment, service utility or labour required to enable it to fulfil such obligation or by reason of any statute, law of order-in-council or any regulation or order passed or made pursuant thereto or by reason of the order or direction of any administration, controller or other authority or by reason of not being able to obtain any permission or authority required hereby or by reason of any other cause beyond its control whether of the foregoing character or not, the Landlord or Tenant shall be relieved from the fulfillment of such obligation and the Landlord or Tenant shall not be entitled to compensation for any inconvenience, nuisance or discomfort thereby occasioned. If the Landlord is unable to obtain the material as hereinbefore provided but the Tenant can provide the required material without infringing on any of the governmental regulations in force, the Landlord shall avail itself of such material in order to do any work or make any repairs as hereinbefore provided. 21 16.7 The Tenant covenants and agrees with the Landlord that the Tenant will only register a NOTICE TO LEASE in the Registry Office or the Land Titles Office. 16.8 The Tenant hereby waives and renounces any and all existing and future claims, offsets and compensation against any Base Rent or Additional rent or other amounts due hereunder and agrees to pay such rental and other amounts regardless of any claim, counterclaim, offset or compensation which may be asserted by the Tenant or on its behalf. 16.9 In the event of the sale by the Landlord of the Premises or the assignment by the Landlord of this Lease or any interest of the Landlord hereunder, and to the extent that such purchaser or assignee has assumed the covenants and obligations of the Landlord hereunder, the Landlord shall without further written agreement be freed and relieved of liability upon such covenants and obligations. 16.10 If any dispute shall arise between the parties with respect to: (i) the interpretation of the Lease; (ii) the fulfillment of the obligations of any party under the Lease; (iii) any opinion, consent or approval to be given by any party under the Lease or; (iv) any matter which may be referred to arbitration in accordance with the terms of this Lease. (a) The parties agree to negotiate in good faith towards a speedy resolution of such dispute and to make use of such recognized mediation services as are available whenever possible. However, since time is recognized to be of the essence in the resolution of any such dispute, it is agreed that any party may at any time give written notice to the other party of its desire to submit such dispute to arbitration stating with reasonable particularity the subject matter of such dispute. (b) During the continuation of the period of any arbitration under the Lease no default shall be deemed to have occurred in the performance of any covenant, obligation or agreement under the Lease which is the subject matter of such arbitration. The Tenant, however, must continue to pay to the Landlord all Base Rent and Additional Rent in accordance with the Lease pending the completion of the arbitration process. 16.11 If the Tenant pays all Base Rent, Additional Rent, and all other sums to the Landlord as they become due and if the Tenant performs and observes all of the terms, covenants, and conditions of this Lease on the Tenant's part, the Tenant shall be entitled to peaceably and quietly hold the Premises for the Term. 16.12 At the same time as the Tenant executes this Lease, the Indemnitor (if there is an Indemnitor) shall sign this Lease and the Indemnity Agreement attached as Schedule "B". 16.13 This Lease upon acceptance shall constitute a binding agreement between the Landlord and Tenant, and shall be binding upon and enure to the benefit of the parties and their respective successors and assigns. ARTICLE 17 - SCHEDULES 17.1 The following schedules form part of this Lease. Schedule "A" Landlord" Work Schedule "B" Suite Layout 22 DATED at Toronto this 12th day of May 2006 SIGNED, SEALED AND DELIVERED ) ROANNE HOLDINGS LIMITED In the presence of: ) /S/"BRENDA Cromie" ) Per: /S/"JOAN HUNT" ) I have the authority to bind ) the Corporation DATED at Toronto this 12th day of May 2006 SIGNED, SEALED AND DELIVERED ) IBB INTERNATIONAL CANADA LTD. In the presence of: ) ) Per:/s/"Jeremy Bowman" ) I have the authority to bind ) the Corporation SCHEDULE "A" - LANDLORD'S WORK In accordance with the building standard the Landlord, at its expense, shall supply and install the following as soon as possible and in no event later than May 31, 2006. a) Supply and install a door to separate the reception area from the office. b) Paint existing paint grade wall in a colour of the Tenant's choice using the Landlord's samples. c) Remove existing carpet and replace with new building standard carpet from the Landlord's samples in a colour of Tenant's choice in all existing carpeted areas. d) Expand the meeting room off reception area to column line and install a door into the main office area; and e) Repair any damaged doors and window coverings and ensure that HVAC, electrical and lighting are in good working order. The Tenant will be able to occupy the Premises as soon as the Landlord's Work is substantially completed but only with the Landlord's consent which will not be unreasonably refused. The Landlord will make its best efforts to have the work done in a timely manner taking into account that time is of the essence. AMENDMENT TO LEASE AGREEMENT BETWEEN: ROANNE HOLDINGS LIMITED (hereinafter referred to as: "Lessor") AND: IBB INTERNATIONAL CANADA LTD. (hereinafter referred to as "Lessee") Whereas ROANNE HOLDINGS LIMITED and IBB INTERNATIONAL CANADA LTD have entered into a lease concerning the property known as 1 VALLEYBROOK DRIVE SUITE 101 TORONTO, ONTARIO M3B 2S7 consisting of 1,148 square feet as more particularly described in the aforementioned Lease. The Landlord and Tenant agree that Tenant will abide by all terms and conditions outlined in lease agreement for suite 100 - - 1 Valleybrook Drive, save and accept Gross Rent free October 2007 included in suite 100. The Tenant shall have the right to Terminate the Lease Once Only and only if the Tenant gives three (3) months notice by April 30/08 to terminate effective July 31, 2008 failing which rent will commence May 1/08. AREA: 1,148 sq.ft. TERM: August 1/07-June 30/11 RATE: NET/NET YEAR PER SQ.FT. PER ANNUM MONTHLY Aug 1/07-Jun 30/11 $8.50 $9,758.00 $813.16 NET RENT FREE August 1/07 - April 30/08 PROPORTIONATE SHARE: 2% ESTIMATED T.M.I: $12.00 per sq.ft. for 2007 SECURITY DEPOSIT: $1,961.17 The Tenant shall have an option to renew this Lease for a further term of FIVE (5) years if the Tenant has continuously adhered to all terms and conditions of the Lease and is not in default thereunder and if the Tenant has delivered a written request for such renewal to the Landlord not less than three (3) months before the Expiration Date. Such renewal term shall be based upon the terms and conditions of the Landlord's then current standard form of lease, save only for Base Rent which shall be renegotiated between the parties at a rate equivalent to fair market rent and provided that the Tenant shall have no further right of renewal. If the Tenant fails to exercise the option to renew this Lease within the time and in the manner as aforesaid, this option shall be null and void. The Termination Right will not apply to the Extension Term. LANDLORD'S WORK o Install 1 solid door between units 100 and 101 "outside door" width o Install sink/counter/cupboards below counter with electric outlet at counter height leaving space for under-counter fridge. o Install carpet to match existing carpet in suite 100 o Paint suite to match existing paint in suite 100 TENANT'S WORK o To supply lock for door keyed on each side Dated at Toronto, Ontario, this 19 day of June 2007 ROANNE HOLDINGS LIMITED /s/"Joan Hunt" WITNESS:/S/"S MACEACHEN" Dated at Toronto, Ontario, this 19 day of June 2007 IBB INTERNATIONAL CANADA LTD. /s/"Jeremy Bowman" WITNESS:/S/ "JESSICA LIU" EX-4.7 3 d72820_ex4-7.txt MASTER EQUIPMENT LEASE BETWEEN HSBC BANK CANADA AND IBB INTERNATIONAL (CANADA) Exhibit 4.7 MASTER HSBC BANK CANADA 3013012(11-2000) EQUIPMENT LEASING DIVISION Lease LEASE 1500 - 888 Dunsmuir Street Number 231891BC Vancouver, British Columbia V6C 3K4 -------------- Lessor HSBC BANK CANADA ---------------------------------------------------------------------- LESSEE IBB International (Canada) Ltd ---------------------------------------------------------------------- ADDRESS 1555 West 8th Avenue ---------------------------------------------------------------------- Vancouver, B.C,Canada V6J 1T5 ---------------------------------------------------------------------- 1. LEASE. Lessor leases to Lessee and Lessee leases from Lessor the collateral described in the Schedule(s) annexed hereto together with all parts, accessories and equipment, now or hereafter attached to or forming a part thereof and Lessee grants a security interest in all proceeds therefrom including all types and kinds of personal property including, without limitation, trade-ins, accounts, building materials, chattel paper, contracts, contract rights, documents of title, rental payments, insurance payments, fixtures, instruments, money, inventory, leases, securities, equipment and any other goods or intangibles received as a result of the said goods, chattels and movable property being sold, dealt with or otherwise disposed of (the foregoing collateral and proceeds being herein called the "Collateral"). Each schedule shall constitute a separate lease of the collateral described therein from Lessor to Lessee on the terms, covenants and conditions set forth herein and in each Schedule. 2. RENT. (a) The rent described in each Schedule shall be payable, at the times specified in such Schedule, to Lessor at 1500 - 888 Dunsmuir Street Vancouver, British Columbia V6C 3K4 or such other place as Lessor may, in writing, designate. Any overdue payment of rent or any other sum due hereunder shall bear interest from the due date to the date of payment at the rate of the Prime Rate plus 3.0% per annum calculated and compounded monthly. (b) Lessee shall not be entitled to any abatement, compensation, reduction of or set-off against any rental payments due, including, but not limited to, abatements, compensations, reductions, counterclaims or set-offs due or alleged to be due to Lessee from Lessor, or by reason of any past, present, or future claims of Lessee against Lessor under this lease or otherwise; nor shall this lease terminate, or the respective obligations of Lessor or Lessee be otherwise affected by reason of defect in, or damage to, or loss of possession, or loss of use of or destruction of the Collateral from whatever cause, the prohibition or the restriction of Lessee's use of the Collateral, the interference with such use by any private person or entity, or for any other cause, whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding: it being the intention of the parties hereto that the rental amounts due pursuant to each Schedule and other amounts payable by Lessee hereunder shall continue to be payable in all events in the manner and at the times provided in each Schedule unless the obligation to pay the same shall be terminated pursuant to the express provisions of this lease or any Schedule hereto. 3. TERM. Notwithstanding the date of delivery of the Collateral specified in each Schedule, the term of this lease shall, with respect to the Collateral described in each Schedule, commence at the date and continue for the term specified in such Schedule. 4. USE. Lessee shall not, without prior written consent of Lessor, change the location of the Collateral from that specified in the Schedule nor change the use of the Collateral to any use which could in any way result in a change of capital cost allowance class from that specified in the Schedule. The Collateral shall be used by the Lessee for commercial, industrial, professional or handicraft purposes only. The Lessee shall not affix the Collateral to real or immovable property nor to any goods, chattels, or movable property not otherwise leased hereunder without the prior written consent of the Lessor. 5. ORDER, DELIVERY, INSTALLATION. Order, delivery and installation of the Collateral shall be entirely at the Lessee's risk and expense and shall be arranged by the Lessor on behalf of and as agent for the Lessee in a manner and upon terms and conditions according to the Lessee's written instructions and, to the extent such instructions are not provided , according to the Lessor's sole discretion but still at the Lessee's risk and expense. The Lessee hereby indemnifies and covenants to save harmless the Lessor from and against all claims and liabilities howsoever arising out of or in connection with such order, delivery and installation including but not limited to delays in or refusal to accept delivery. 6. TITLE. The Lessor shall at all times have and retain whatever title to the Collateral is acquired by the Lessor from the seller or manufacturer of the Collateral. The Lessee shall have no right, title or interest in the Collateral other than the right of possession and use in accordance with the terms hereof and the right conferred by paragraph 15 hereof. The Lessee acknowledges that the Collateral is and shall remain personal or movable property. 7. WARRANTIES. Lessee has selected the Collateral and the seller thereof. Lessee acknowledges that the Lessor has made no representation or warranty with respect to the Collateral, its condition, design, durability, operation, suitability or fitness for the use intended by the Lessee, its freedom from liens and encumbrances, the Lessor's good title thereto, or as to any other matter or thing whatsoever and all warranties whether express or implied are, to the extent permitted by law, hereby excluded. Lessee shall unconditionally and without set-off or compensation pay the rent stipulated in each Schedule even if the Collateral does not operate as intended by the Lessee, or at all, or as represented by the manufacturer or the seller or the Collateral operates or fails to operate or performs in a manner that could give rise to a fundamental breach of contract or is unacceptable for any other reason whatsoever. Lessor shall not be liable to the Lessee for any loss, cost, damage or expense of any kind or nature caused directly or indirectly by the Collateral or the use, ownership or maintenance thereof or for any loss of business or other damages whatsoever and howsoever caused. Lessor hereby assigns to Lessee for the term hereof only all assignable rights under any warranty given to the Lessor by the seller or manufacturer of the Collateral, and at Lessee's expense, agrees to co-operate reasonably with Lessee in the enforcement of any such warranties. 8. REPAIRS. The Collateral shall be at the risk of the Lessee who shall maintain, repair, overhaul, service and keep the Collateral in a good and substantial manner and shall maintain the Collateral in a condition equivalent to its condition at the commencement of this lease, fair wear and tear only excepted and in a fully operative condition in conformity with any recommendations for maintenance or otherwise which may from time to time be made by any manufacturer or seller of the Collateral and in conformity with all applicable laws, orders, rules, regulations and directives of any government departments, boards or authorities. In the event of loss, damage or destruction to or of the Collateral, Lessee shall immediately give notice to the Lessor of such loss, damage or destruction and Lessee shall at the Lessor's option forthwith repair or replace the Collateral with similar equipment of equivalent value. All parts, mechanisms and devices added to the Collateral whether by way of repair, alteration, addition or improvement shall immediately become property of Lessor and part of the Collateral for all purposes hereof. 9. INSURANCE. Lessee shall obtain, and maintain for the entire term of this lease, at its own expense, property damage and liability insurance and insurance against loss or damage to the Collateral including without limitation, loss by fire, (including extended coverage) theft, collision and such other risks of loss as are customarily covered by insurance on the type of Collateral leased hereunder and by prudent operators of businesses similar to that in which Lessee is engaged, in such amounts, in such form and with such insurers as shall be satisfactory to Lessor. The amount of insurance covering damage to or loss of the Collateral shall not be less than the greater of the full replacement value of the Collateral or the installments of rent then remaining unpaid hereunder. Each insurance policy will name Lessee and Lessor as insureds, will name Lessor as loss payee thereof, and shall contain a clause requiring the insurer to give to Lessor at least 30 days prior written notice of any alteration in the terms of such policy or the cancellation thereof. Lessee shall furnish to Lessor a certificate of insurance or other evidence satisfactory to Lessor that such insurance coverage is in effect, provided, however that Lessor shall be under no duty either to ascertain the existence of or to examine such insurance policy or to advise Lessee in the event such insurance coverage shall not comply with the requirements hereof. Lessee further agrees to give Lessor prompt notice of any damage to or loss of the Collateral or any part thereof. Lessee will at its expense make all proofs of loss and take all other steps necessary to recover insurance benefits, unless advised in writing by Lessor that Lessor desires so to do, at Lessee's expense. Proceeds of insurance will be disbursed by Lessor against satisfactory invoices for repair or replacement of Collateral, provided this lease not then be in default. Performance by Lessee under this paragraph will not affect or release Lessee's obligations and liabilities herein elsewhere provided. 10. LESSEE'S COVENANTS. The Lessee covenants with the Lessor: (a) that the Lessor or its agents shall have the right at all reasonable times to fully inspect the Collateral and any parts thereof, or any documents relating thereto, to determine the condition of the Collateral, and to further determine whether or not the Lessee is performing according to the covenants and conditions herein contained or for any other purpose; (b) to operate, use and maintain the Collateral at all times and to maintain all records, logs and other materials in conformity with all the applicable laws, orders, rules, regulations and directives of governmental departments, boards or authorities, and in conformity with any limitations or restrictions of performance or any published instructions and specifications which may from time to time be recommended by the manufacturers or sellers of the Collateral; (c) not to use or operate the Collateral or permit it to be used or operated illegally or contrary to any applicable laws, regulations, orders, rules or directives of any power or government or agency thereof having jurisdiction, or contrary to any terms of any insurance policy in force in connection with the Collateral or in any way other than in a careful and prudent manner and to indemnify and hold the Lessor harmless from and against any and all actions, claims, demands, prosecutions, administrative proceedings and any similar assertions or threats in any way arising out of the custody, use, or operation of the Collateral during the term of this lease, and to assume liability and pay for any and all transgressions, defaults, fines, penalties or forfeitures incurred, suffered or assessed against the Lessor or the Lessee during the term of the lease together with all legal fees, costs and expenses incidental to the foregoing to the complete exoneration of the Lessor; (d) to cause the Collateral to be operated only by competent and qualified operators; (e) to keep the Collateral free and clear of all seizures, forfeitures, liens, claims, privileges, debts, taxes, charges, pledges, encumbrances or adverse claims of any nature whatsoever; (f) to pay, when due, all license fees and other fees and assessments necessary for the securing of licenses, or other similar permits for the operation of the Collateral and, further, to pay, when due, and/or indemnify the Lessor from all taxes, fees, assessments or other levies now and hereafter imposed by any provincial, federal or local government upon the Collateral, or upon the delivery, purchase, leasing, use, ownership, operation, possession, sale or return thereof, whether assessed to the Lessor or to the Lessee; provided that upon payment of such fees, assessments, taxes or levies, the Lessee will immediately deliver the receipts for such payments to the Lessor, and that if the Lessor pays (which it may, but is not obliged to do) any sum or sums which is an obligation of the Lessee under this lease, then the amount of such payments shall be forthwith payable by the Lessee to the Lessor and if not so paid shall bear interest from the date such payment is due at the Prime Rate plus 3% per annum calculated and compounded monthly; (g) to furnish at its own cost and expense all fuel, oils, lubricants and other material necessary for the operation and maintenance of the Collateral; (h) to indemnify and save the Lessor harmless from and against all costs, claims, demands, expenses, liabilities, awards, actions and causes of action for loss or damage or injury (including death) of persons or property or of any other nature and kind whatsoever arising from this lease or in any way relating to the use, operation or ownership of the Collateral during the term of this lease and whether caused by Lessee's negligence or otherwise including without limitation, the manufacture, selection, purchase, character, safety, condition, delivery, refusal by the Lessee to accept delivery, possession, operation, sale, storage or return of the Collateral; and that the Lessor shall not be responsible to the Lessee for any loss of use of the Collateral or any part thereof during the term of the lease whatever may be the cause of such loss of use; (i) to place such insignia, plates or other identification on the Collateral or any part thereof showing Lessor's title thereto as Lessor may from time to time request at Lessee's expense and if placed, the Lessee shall not remove, conceal or alter the same; (j) that the Lessee will not without the prior written consent of the Lessor, sublet or otherwise relinquish possession (except for required or scheduled maintenance or as otherwise permitted pursuant to this lease) of the Collateral or any part thereof, or assign any of its rights hereunder; (k) to execute all such further documents and do all such further acts and things as the Lessor may reasonably require for the purpose of registering this lease at any registries or offices of governmental departments, boards or authorities, domestic or foreign, so as to evidence and/or protect the interest of the Lessor in the Collateral and this lease; (l) not to claim or attempt to claim capital cost allowance in respect of the Collateral; (m) to pay any and all reasonable costs of the Lessor (including legal fees and disbursements on a solicitor and own client basis) in: (i) considering and granting any waivers and consents required to be given under this lease; and (ii) any action or consideration required by the Lessor relating to any option granted herein; and (iii) any action or consideration required in respect of any insurance claim; (iv) inspecting the Collateral, investigating title to the Collateral, negotiating and preparing all documentation in connection with this lease, registering or perfecting this lease or the Lessor's interests herein at all offices of public record and all renewals and amendments of the same, taking, recovering and keeping possession of the Collateral, and any other proceedings taken in connection with or to enforce the provisions of this lease. (n) that the Lessee will not change its name or enter into any amalgamation agreement, merger or other corporate proceedings whereby its name shall change without providing the Lessor with at least 30 days' prior written notice of any such change of name; (o) to deliver to the Lessor within 120 days after the end of each of its fiscal years the consolidated balance sheet and income statement of Lessee for such year. 11. RETURN OF COLLATERAL. Upon termination of this lease, the Lessee shall, at its own expense and in a prudent manner, immediately return the Collateral free of all liens, encumbrances and adverse claims of every nature to the Lessor at such location as the Lessor shall designate and in the same condition as at the commencement of this lease, fair wear and tear excepted. Provided that the Lessor may, by notice given to the Lessee on or prior to the termination of this lease, require the Lessee at its expense to dispose of the Collateral upon termination in such manner as the Lessor may reasonably request. 12. DEFAULT. The occurrence or happening of any one or more of the following events shall constitute an event of default: (a) the Lessee shall fail to make any rent payment or other payments required hereunder when due and such failure shall continue unremedied for a period of 20 days after written notice by Lessor; or (b) the Lessee removes the Collateral from its place of location stated on the Schedule without the Lessor's prior written consent; or (c) the Lessee parts with possession of the Collateral; or (d) the Lessee purports to sell, assign, transfer, sublet, pledge, hypothecate or otherwise suffer a lien, encumbrance or other adverse claim of any kind upon or against any interest in this lease or the Collateral without the Lessor's prior written consent; or (e) the Collateral is put to abnormal use likely to result in accelerated depreciation; or (f) the Lessee shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it hereunder and such failure shall continue unremedied for a period of 20 days after written notice thereof by Lessor; or (g) any representation or warranty made by Lessee herein or in any document or certificate furnished Lessor in connection herewith or pursuant hereto shall prove to be incorrect at any time in any material respect; or (h) the Lessee or any Indemnifier shall become insolvent or bankrupt or make an assignment for the benefit of creditors or consent to the appointment of a trustee or receiver; or a trustee or a receiver shall be appointed for Lessee or any Indemnifier or for a substantial part of any of their property without consent and shall not be dismissed within a period of 30 days; or bankruptcy, reorganization or insolvency proceedings shall be instituted by or against Lessee or any Indemnifier and if instituted shall not be dismissed within a period of 30 days; or (i) if the Collateral or any material part thereof is seized under legal process, confiscated, sequestered or attached or if a distress is levied thereon; or (j) if Lessee or any Indemnifier is a corporation and (i) the control or beneficial ownership thereof changes from that which existed at the date of execution of this lease; (ii) any special resolution is passed or other proceedings taken regarding the wind-up of the corporation; (iii) it ceases to carry on the business presently conducted by it; or (k) the Lessee or any Indemnifier shall suffer the loss or suspension of any licences, permits, or other operating authorities required for the present operation of its business or any part of it; or (l) the Lessee defaults under any other agreement to which Lessee and Lessor are parties or any Indemnifier defaults under any other agreement to which any Indemnifier and the Lessor are parties; or (m) if the Lessor in good faith believes and has commercially reasonable grounds to believe itself insecure or that the prospect of payment or performance by the Lessee hereunder is about to be impaired or that the Collateral is or is about to be placed in jeopardy. For greater certainty, it is understood and agreed that if any such default shall occur in respect of any Schedule hereunder, such default shall at the option of the Lessor be deemed to be a default under any or all other Schedules hereunder. 13. REMEDIES ON DEFAULT. Upon the occurrence of an event of default the Lessor may: (a) take possession of the Collateral and for that purpose enter any premises where the Collateral is located whether or not the Collateral is affixed to any such premises, and sell, lease or otherwise dispose of the Collateral by public or private means and upon such terms and consideration as the Lessor may in its sole discretion accept. Without limiting the generality of the foregoing, the Lessor shall have the right to dispose of the Collateral where the payment for such is deferred provided that the Lessee will not be entitled to be credited with the proceeds of any such disposition until the monies therefor are actually received. The Lessee hereby waives any damages or claim to damages arising from any retaking of possession under the terms of this lease; or (b) in the name of and as the irrevocably appointed agent and attorney for Lessee and without terminating or being deemed to have terminated this lease take possession of the Collateral and proceed to lease the Collateral to any other person, firm or corporation on such terms and conditions, for such rental and for such period of time as Lessor may deem fit and receive such rental and hold the same and apply the same against any monies expressed to be payable from time to time by Lessee hereunder; or (c) terminate this lease and by written notice to Lessee require Lessee to forthwith pay to Lessor on the date specified in such notice, as a genuine pre-estimate of liquidated damages for loss of a bargain and not as a penalty the present worth of the aggregate of all unpaid amounts due hereunder as rental or otherwise to the expiration of the term of the lease (as if the lease had not been terminated) calculated by discounting such amounts at 5% per annum compounded monthly less the net amount received by Lessor on any sale, lease or other disposition of the Collateral after deducting all costs and expenses including legal fees and disbursements on a solicitor and own client basis. No one or more of the remedies referred to herein is intended to be exclusive, but each shall be cumulative and in addition to any other remedies referred to herein or otherwise available to the Lessor at law or in equity, and in particular pursuant to the Personal Property Security Act of any Province or Territory in Canada in force or to come into force from time to time as the same may be proclaimed in force, amended or replaced by similar legislation from time to time. If upon any disposition of the Collateral under the provisions of this lease or under the provisions of any other remedies so available to the Lessor there shall be any surplus, such surplus shall be the sole and absolute property of the Lessor. 14. WAIVER/SEVERABILITY. Any provision of this lease which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining provisions hereof and any such prohibition in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Lessee, if a corporation, agrees that The Limitation of Civil Rights Act of the Province of Saskatchewan, or any provision thereof, shall have no application to this lease or any agreement or instrument renewing or extending or collateral to this lease and the Lessee acknowledges that seizure or repossession of the Collateral shall not by implication of law extinguish the Lessee's indebtedness under this lease or other collateral security. 15. OPTION TO PURCHASE. Provided the Lessee shall not be in default under any obligation on its part hereunder, the Lessor hereby grants to the Lessee an option to purchase the Lessor's interest in the Collateral herein for the purchase price and at the time set forth in the Schedule or Schedules attached hereto. The option granted herein shall be exercised by the Lessee giving the Lessor written notice of its intention to exercise the option at least 30 days prior to the time set forth in the Schedule. The time set forth in the Schedule shall be the time for the conclusion of the sale, and on that date the Lessee, having exercised such option, shall pay the purchase price to the Lessor and the Lessor shall transfer its interest in the Collateral to the Lessee whereupon this lease shall cease with respect to such Collateral. The Lessee shall pay any and all Provincial or Federal taxes, licence or registration fees or other fees, costs or charges payable in respect of the Collateral and in connection with any said sale and purchase. The bill of sale or sale agreement from the Lessor to the Lessee shall contain no warranties on the part of the Lessor either express or implied, except that the Lessor shall warrant that it has done no act or created any security interest in the Collateral which would adversely affect the title thereto. 16. INDEMNITIES SURVIVE. The indemnities provided by the Lessee to the Lessor under this lease, and in particular those under paragraphs 5 and 10 shall survive and continue in full force and effect after termination of this lease, in whole or in part, whether by effluxion of time or otherwise, or the release or discharge from this lease of any Collateral, or the sale or disposition of the Collateral or the release or discharge of the Lessee to pay any rental payments, or as to any act, matter or thing which shall have been done or have occurred or arisen prior to such termination, release or discharge. 17. ENTIRE AGREEMENT. This lease together with each schedule and any purchase authority, purchase order, delivery and/or installation receipt and indemnity given with this lease constitutes the entire agreement between the parties. 18. NON CANCELLABLE LEASE. This lease cannot be cancelled or terminated except as expressly provided herein. 19. PURCHASE MONEY SECURITY INTEREST AND PROCEEDS. This lease grants to the Lessor: (a) a Purchase Money Security Interest in the Collateral unless this lease shall constitute a sale and leaseback of the Collateral; and (b) a Security Interest in Proceeds of the Collateral which are all present and after acquired personal property,fixtures and crops, within the meaning of the Personal Property Security Act of any Province or Territory in Canada in force or to come into force from time to time as the same may be proclaimed in force, amended or replaced by similar legislation from time to time. 20. COPY OF AGREEMENT. The Lessee hereby acknowledges receiving a copy of this lease and waives all rights to receive from the Lessor a copy of any financing statement, financing statement (transition), financing change statement or verification statement filed at any time in respect of this lease. 21. FURTHER ASSURANCES. The Lessee shall forthwith and from time to time execute all documents and do all acts and things which in the opinion of the Lessor are necessary or desirable to provide continuing rights and priorities in the Collateral, to provide a security interest, a purchase money security interest, and a security interest in proceeds of the Collateral as the case may be. 22. PPSA WORDS AND EXPRESSIONS. Words and expressions used herein that have been defined in the Personal Property Security Act of any Province or Territory of Canada in force or to come into force from time to time as the same may be amended or replaced by similar legislation from time to time shall be interpreted in accordance with their respective meanings given in any such Act unless otherwise defined herein or unless the context otherwise requires. 23. INDEMNIFIER. When used in this lease, "Indemnifier" means any individual or corporation which provides any guaranty or indemnity agreement of any kind to the Lessor to secure the obligations of the Lessee to the Lessor. 24. GOVERNING INSTRUMENT. In the event of any conflict between any provision in this lease and any provision in any Schedule hereto, the provision of such Schedule shall prevail. 25. QUEBEC. Where this lease is governed by the laws of Quebec, this lease shall be construed as a contract of leasing, governed by articles 1842 to 1850 of the CIVIL CODE OF QUEBEC, and (a) for greater certainty, the word "lease" as used herein and in any Schedules or forms related shall be read as "contract of leasing" or "leasing", as the context requires; (b) the security interests granted in sections 1 and 19(b) hereof shall be in the nature of a moveable hypothec for that sum disclosed as the total in item 1 of the Schedule(s) Annexed, with interest at the rate of 24% per annum from the date hereof. 26. MISCELLANEOUS. (a) The parties agree that time is of the essence hereof and that no waiver by Lessor of any default nor any compromise or extension of payment granted by Lessor shall constitute a waiver of any other default by the Lessee or shall be a waiver of any other right of Lessor. (b) This lease may be amended but only in writing signed by the parties hereto. (c) The captions in this lease are for convenience only and shall not define or limit any of the terms hereof. (d) This lease shall be binding upon and enure to the benefit of the parties hereto, their permitted heirs, executors, administrators, successors and assigns. (e) No one or more of the remedies referred to in this lease shall be exclusive, but each shall be cumulative and additional to any other remedy or remedies referred to herein or available to the Lessor at law or in equity. (f) "Prime Rate" means the floating annual rate of interest established and recorded by HSBC Bank Canada from time to time as a reference rate for purposes of determining rates of interest it will charge on loans denominated in Canadian dollars. (g) Where there shall be more than one Lessee, they shall be jointly and severally bound to the fulfilment of their obligations hereunder. (h) If the context so requires, words importing number shall be deemed to include a greater or lesser number, words importing gender shall be deemed to include the other gender or the body corporate and words importing the body corporate shall be deemed to include either gender. (i) The Lessor and the Lessee confirm that they have expressly required that this lease and all other schedules, purchase orders, notices and documents relating thereto be drafted in English. Le Locateur et le Locataire confirment qu'ils ont expressement exige que la Convention de Bail d'Equipement Principale et tous les annexes, bons de commande, avis et documents y afferents soient rediges en anglais. Executed this 30th day of March , 2007 . --------------------------- ---------------------- ---------- By execution hereof, the signer hereby certifies that he has read this lease, and that he is duly authorized to execute this lease on behalf of Lessee. Lessee IBB International (Canada) Ltd C/S Lessor HSBC BANK CANADA --------------------------------- --------------------------------- By /s/"Jeremy Bowman" President, By /s/"Tim McMorran" Snr Act -------------------- ----------------------------- -------------------- ------------------------- Authorized Signatory Title CEO Authorized Signatory Title Mgr /s/ "Sheila Bowman" Director /s/ "Brian Skehon" Snr Act -------------------- ---------------------------- -------------------- -------------------------- Authorized Signatory Title Authorized Signatory Title Mgr
EX-12.1 4 d72820_ex12-1.txt SECTION 302 CERTIFICATION BY C.E.O AND ACTING CFO EXHIBIT 12.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND THE ACTING CHIEF FINANCIAL OFFICER PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jeremy Bowman, certify that: 1. I have reviewed this annual report on Form 20-F of Allura International Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this annual report; 4. The company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and 15d-15(e)) for the company and have: (a) Designed such disclosure controls or procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonable likely to materially affect, the company's internal control over financial reporting; and 5. The company's other certifying officers and I have disclosed, based on our most recent evaluation, to the company's auditors and the audit committee of the board of directors (or other persons performing the equivalent functions): (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the company's ability to record, process, summarize and report financial information (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal controls. DATED at Vancouver, British Columbia, Canada, as of October 12, 2007 /s/ "JEREMY BOWMAN" - -------------------- Jeremy Bowman, President, CEO and acting CFO. Page 70 of 71 EX-13.1 5 d72820_ex13-1.txt SECTION 302 CERTIFICATION BY C.E.O AND ACTING CFO EXHIBIT 13.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND ACTING CHIEF FINANCIAL OFFICER PURSUANT TO TITLE 18, UNITED STATES CODE, SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jeremy Bowman, President and Chief Executive Officer of Allura International Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to the best of my knowledge: 1. The Annual Report on Form 20-F of Allura International Inc., for the year ended March 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Allura International Inc. Vancouver, British Columbia, Canada October 12, 2007 by: /s/ "JEREMY BOWMAN" ------------------- Jeremy Bowman President, CEO and acting CFO The foregoing certification is being furnished solely pursuant to 18U.S.C. ss. 1350 and is not being filed as part of the Report or as a separate disclosure document. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. Page 71 of 71 -----END PRIVACY-ENHANCED MESSAGE-----