-----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, RMOrepo41GlS2Sz/nU2/pEFYnmwkn/VLWyLMaT0uemcFALGquwtmUgyqO5M7Eg3P j4YzktHhjVTbBc1wcS4fhw== 0001169232-08-003485.txt : 20080929 0001169232-08-003485.hdr.sgml : 20080929 20080929164124 ACCESSION NUMBER: 0001169232-08-003485 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080929 DATE AS OF CHANGE: 20080929 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: 081094845 BUSINESS ADDRESS: STREET 1: 1555 WEST 8TH AVE CITY: VANCOUVER STATE: A1 ZIP: V6J 1T5 BUSINESS PHONE: 6046835700EXT1 MAIL ADDRESS: STREET 1: 1555 W 8TH AVE CITY: VANCOUVER STATE: A1 ZIP: V6J 1T5 FORMER COMPANY: FORMER CONFORMED NAME: IBB INTERNATIONAL BULLION & METAL BROKERS CANADA LTD DATE OF NAME CHANGE: 19990901 20-F 1 d74993_20f.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, 2008 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 Telephone number: (604) 683-5700 Facsimile number (604) 683-5900 Contact Person: Sheila Bowman, Corporate Secretary sbowman@ibbgold.com or Tel 604-683-5700 ext 337 (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, 2008: 5,080,150 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 [ ] No [X] 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 [ ] Page 1 of 77 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 basis of accounting the registrant has used to prepare the financial statements included in this filing: US GAAP [ ] International Financial Reporting Other [X] Standards as issued by the International Accounting Standards Board [ ] If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 [X] Item 18 [ ] 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 [X] No[ ] Page 2 of 77 TABLE OF CONTENTS
Page ---- PART I Item 1. Identity of Directors, Senior Management and Advisers.............................. 4 Item 2. Offer Statistics and Expected Timetable............................................ 4 Item 3. Key Information.................................................................... 4 Item 4. Information on the Company......................................................... 11 Item 4A Unresolved Staff Comments.......................................................... 20 Item 5. Operating and Financial Review and Prospects....................................... 20 Item 6. Directors, Senior Management and Employees......................................... 29 Item 7. Major Shareholders and Related Party Transactions................................. 33 Item 8. Financial Information.............................................................. 36 Item 9. The Offer and Listing.............................................................. 36 Item 10. Additional Information............................................................. 37 Item 11. Quantitative and Qualitative Disclosures about Market Risk......................... 41 Item 12. Description of Securities other than Equity Securities............................. 42 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies.................................... 42 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds....... 42 Item 15. Controls and Procedures............................................................ 43 Item 16A. Audit Committee Financial Expert................................................... 44 Item 16B. Code of Ethics..................................................................... 44 Item 16C. Principal Accountants Fees and Services............................................ 45 Item 16D. Exemption from the Listing Standards for Audit Committees.......................... 45 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers............. 45 Item 17. Financial Statements............................................................... 45 Item 18. Financial Statements............................................................... 73 Item 19. Exhibits........................................................................... 73 Signatures......................................................................... 74 Index to Exhibits Filed............................................................ 75
Page 3 of 77 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, 2008, 2007, 2006, 2005, and 2004. 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. 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 16. The following tables set forth information in Canadian dollars unless otherwise noted. Page 4 of 77
- ------------------------------------------------------------------------------------------------------------------- 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------- Net Sales $20,908,902 $22,638,034 $17,719,672 $18,252,286 $16,114,338 - ------------------------------------------------------------------------------------------------------------------- Gross Profit $ 6,241,152 $ 5,598,399 $ 4,067,365 $ 5,098,045 $ 3,957,544 - ------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 469,392 $ 200,272 $ (389,759) $ 322,708 $ 327,681 - ------------------------------------------------------------------------------------------------------------------- Earnings (Loss) Per Common Share (a) $ 0.09 $ 0.04 ($ 0.08) $ 0.06 $ 0.06 - ------------------------------------------------------------------------------------------------------------------- Outstanding Shares (a)(b)(c) 5,080,150 5,080,150 5,080,150 5,080,150 5,080,150 - ------------------------------------------------------------------------------------------------------------------- Total Assets $17,498,048 $18,886,989 $16,276,552 $16,824,370 $11,539,964 - ------------------------------------------------------------------------------------------------------------------- Working Capital $ 3,226,588 $ 2,708,789 $ 2,513,418 $ 2,936,292 $ 2,582,063 - ------------------------------------------------------------------------------------------------------------------- Long Term Liabilities 154,249 $ 227,699 -- -- -- - ------------------------------------------------------------------------------------------------------------------- Total Liabilities $14,077,951 $15,973,737 $13,563,572 $13,689,730 $ 8,728,032 - ------------------------------------------------------------------------------------------------------------------- Non Controlling Interest -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------- Shareholder's Equity $ 3,420,097 $ 2,913,252 $ 2,712,980 $ 3,134,640 $ 2,811,932 - ------------------------------------------------------------------------------------------------------------------- Dividends declared per share $ 0.03 USD $ 0.03 USD -- - -------------------------------------------------------------------------------------------------------------------
(a) Earnings per share are on a 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) At the Annual General Meeting of the Company ("AGM"), which took place on September 26, 2007, Shareholders on record voted to round all fractional shares held by individual Shareholders up to one whole share. As a result, the Outstanding Shares of the Company were rounded up to a total of 5,080,150. Dividends In 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. On November 30, 2007 the Company declared and paid a dividend of USD$0.03 to shareholders on record as at November 15, 2007 Subsequent to the year end on July 29, 2008, the Company declared a dividend of USD$0.05 to shareholders on record as at July 31, 2008. This dividend was payable on September 3, 2008 On each occasion when dividends were declared and paid, the Company's four largest shareholders waived their rights to receive the 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, there is no guarantee that it will pay a dividend in the near future. Page 5 of 77 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 are based on rates published on the Bank of Canada's Website. The Company 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 15, 2008 the month end closing rate per Bank of Canada was $1.00 US = $1.0679 CDN (b) The following table sets forth the intra-day high and low exchange rates for each month during the previous six months per the Bank of Canada. It sets out the exchange rate for one US Dollar expressed in terms of Canadian dollars for the period indicated. Rates of exchange are obtained from the Bank of Canada and believed by the Registrant to approximate closely the noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank in New York. Canadian Dollar/US Dollar Month Low (1) High(1) August 2008 1.0716 1.0237 July 2008 1.0274 0.9975 June 2008 1.0320 0.9948 May 2008 1.0245 0.9824 April 2008 1.0328 0.9998 March 2008 1.0295 0.9765 Note (1) high /Low Expressed in Canadian $ terms (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, 2008 $1.0247** March 31, 2007 $1.1524 March 31, 2006 $1.1574 March 31, 2005 $1.2161 March 31, 2004 $1.3284 **(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 Page 6 of 77 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 the Company considers immaterial may also adversely impact or impair the Company's business. If any of the following risks actually occur, the Company's 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 2008, the Company purchased gold and silver products from over 80 suppliers, with the five largest suppliers accounting for approximately 38% 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 70 suppliers, while the five largest suppliers accounted for 74% of the Company's total 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 1% 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. On a combined product basis i.e. gold, silver, diamond jewellery, loose stones and coloured stones, the Company's five largest suppliers account for 41% 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 first 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. Page 7 of 77 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 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's business is substantially dependent on the efforts and abilities of Jeremy Bowman and Cameron Gillies, respectively, its Chief Executive Officer and its President of the trading Companies. The loss of the services of either or both of Messrs. Bowman and Gillies may have a material adverse effect on the Company's business. Although the Company has employment agreements with each of Messrs. Mr. Bowman and Gilles, the agreements, subject to applicable non-compete and disclosure provisions thereof which survive termination for specified periods, may be terminated on written notice by either the Employee or the Company for any reason not constituting a fundamental breach of the terms and/or conditions of the employment agreement and without notice in the event of a fundamental breach of the terms and/or conditions of the Agreement by the other party. The Company does not maintain any key man life insurance on Mr. Bowman or Mr. Gillies. 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 jewellery industry may have greater financial and other resources than the Company. See "Information on the Company- Business Overview - Competition." 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. 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 September 15, 2008, 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 Page 8 of 77 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 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 143,330 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. In general, under Rule 144, subject to the satisfaction of certain other conditions, a person deemed to be one of the Company's affiliates, who has beneficially owned restricted shares of our common stock for at least one year is permitted to sell in a brokerage transaction, within any three-month period, a number of shares that Page 9 of 77 does not exceed the greater of 1% of the total number of outstanding shares of the same class, or, if our common stock is quoted on a stock exchange, the average weekly trading volume during the four calendar weeks preceding the sale, if greater. Rule 144 also permits a person who presently is not and who has not been an affiliate of the Company for at least three months immediately preceding the sale and who has beneficially owned the shares of common stock for at least six months to sell such shares without regard to any of the volume limitations described above. The possibility that substantial amounts of the Company's common stock may be sold under Rule 144 into the public market may adversely affect prevailing market prices for the common stock and could impair our ability to raise capital in the future through the sale of equity securities. 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 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. Page 10 of 77 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. 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 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, 2008, the Company was in compliance with the terms and covenants on this overdraft loan facility. However, there can be no assurance that it will continue to meet all the terms and covenants in the future. Risk of the Navision software project not completing The Company is in the process of working with contracted software consultants/designers to write certain software modules as an add-on to the current 0.5 version of Navision acquired by the Company in 2007. These modules relate to the company's proprietary pricing, quotation and product receiving processes. Once completed these modules will form part of the new software package intended to be implemented in place of the current Access and Encore programs being used by IBB International on an everyday basis for business solutions. Additionally the new version will be used to update and replace the Navision 0.4 version currently being used by Allura Diamonds. Given that these modules are being custom written by outside consultants there is a risk that they may either not be completed on a timely basis or at all. Further there is a risk that the cost of completion will exceed that budgeted by the Board. 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 Page 11 of 77 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; while 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. During fiscal 2007, the Company opened a new office in Toronto to undertake sales and marketing 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) 442 - 5500 and the fax number is (416) 442 - 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 jewellery within the following principal sectors: Department stores Catalogue retailers Mass merchants Major discounters Major jewellery retailers Independent jewellery stores During fiscal 2007, the Company acquired new business solution software to integrate its operations and management systems. The first phase of implementation was completed in fiscal 2007. The final phase of implementation of this software is expected to be completed by fiscal 2009. The Company expects the implementation of this software to result in cost and operating efficiencies. B. Business Overview Current Operations The Company conducts its jewellery 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. IBB's sales are divided approximately 89% to major retail and jewellery store chains and 11% to independent jewellery 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. Page 12 of 77 The Activities of ADL ADL was established in 1994 as a premier diamond house to market finished diamond jewellery and loose diamonds. ADL currently specializes in finer diamond jewellery. ADL sales are divided approximately 53% to major retail and jewellery store chains and 47% to independent jewellery stores. In 2002, ADL incorporated the "Canadian Diamond" into its range of products. In 2004 ADL introduced 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 marketed a line of gemstone products to the independent jewellery stores trademarked as Dreamcatchers(TM). During fiscal 2008, the Dreamcatchers(TM) line was transferred to IBB for sale and distribution through its Vancouver office. Subsequent to the year-end, ADL launched a new collection of diamond jewellery featuring the Exquisite 81 by Allura. This special cut diamond has 24 more facets than a traditional round brilliant cut diamond, which maximizes the fire and brilliance of each stone. At present the Exquisite 81 by Allura is available exclusively through independent jewellery retailers who are members of the Canadian Jewellery Group Co-operative. 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 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 2008, 69% in fiscal 2007 and 61% in fiscal 2006. 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 2008, sales were made to approximately 440 customers, with over 1700 retail locations, and with no single customer accounting for more than approximately 25% of net sales. 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 Toronto, Canada. 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 jewellery 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 Page 13 of 77 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, jewellery 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 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 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 3,236 styles of chains, earrings, bracelets and rings. The Company's products are moderately priced, with the majority of its products retailing at prices between $25 and $600. 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 jewellery and plans to try and expand sales in this area. The Company currently offers approximately 140 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 2008, 69% in fiscal 2007 and 61% in fiscal 2006. The company has two customers in 2008 (2007: Two; 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. Page 14 of 77 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 undertake sales and marketing functions of the Company. The primary focus of the Toronto office is on the Company's largest customers (such customers are 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's President for the trading companies, namely IBB and ADL, is stationed in Toronto, together with six 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. As a gesture of goodwill, the Company also provides a stock balancing service from time to time, 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. While the Company sold its products to approximately 440 customers in fiscal 2008, as mentioned previously, sales of the Company's six largest customers accounted for approximately 69% of sales in fiscal 2008. 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 3,236 styles of chains, earrings, bracelets and rings. In addition the Company carries approximately 385 loose diamonds and coloured stones of varying qualities and weights. The Company's Page 15 of 77 products are moderately priced, with the majority of its gold products retailing at prices between $25 and $600 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 $990. 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 1,745 karat gold, 1,351 diamond and colored stone and 140 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 jewellery 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 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 the Company is 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 reduced prices. Historically, the equivalent dollar amounts have not been material. The Company estimates that during fiscal 2008, total melt accounted for approximately $775,000 and were sold at the written down book value. As at March 31, 2008 the Company had a total provision for inventory obsolescence of $201,000 ($329,000:2007, $401,000: 2006). 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 jewellery without incurring corresponding increases in product costs. Page 16 of 77 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 jewellery, 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 jewellery 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 jewellery industry, as a whole, could be adversely affected, which could impact the supply of diamonds to the Company. During fiscal 2008, the Company purchased gold and silver products from over 80 suppliers, with the five largest suppliers accounting for approximately 38% 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 70 suppliers, while the five largest suppliers accounted for 74% of the Company's total 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 1% 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. On a combined basis i.e. in the gold, silver, diamond jewellery, loose stone and coloured stone areas, the Company's five largest suppliers account for 41% 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 jewellery 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 jewellery 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 Page 17 of 77 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), 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 independents and an acceptable portion of major customer receivables as determined and approved by the Board with the exception of one major customer whom the Board has agreed that the Company will self insure. 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, 2008, the Company employed forty three persons on a full time basis. As at August 29, 2008, there were forty two persons employed on a full time basis. The full time employees comprise of ten employees in finance and administration, seventeen in sales and merchandising, and fifteen in inventory warehouse. Four full time employees are employed in the Halifax office, seven are employed in the Toronto office, and thirty one are employed in the Vancouver office. As at August 29, 2008 the Company employed eleven 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. Page 18 of 77 Governmental Regulation The tax laws of the Federal Government of Canada and the Provinces of British Columbia, Ontario and Nova Scotia are applicable to 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 at 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 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 $9,917 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, total monthly rent for the Toronto premises increased by $813 to $6,097, 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. In fiscal 2007, the Company upgraded its computer infrastructure with newer technology and acquired new software, Microsoft Dynamics (Navision) for ADL. The Company is in the process of upgrading its computer system to Navision for IBB. When fully phased in, the Company expects these improvements to increase the effectiveness and efficiencies of its operations. The capital cost of the software purchased for ADL has been reflected as an obligation under capital lease under Note 9 of the Company's financial statements. Page 19 of 77 ITEM 4A. UNRESOLVED STAFF COMMENTS The Company is a non accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934. There are no written comments which have been provided by the staff of the Securities and Exchange Commission regarding the Corporation's periodic reports under that Act during the fiscal year ended March 31, 2008 and there are no unresolved comments as of the date of the filing of this Annual Report with the Commission. 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 2008 v. Fiscal 2007 Sales for the fiscal year ended March 31, 2008 ("Fiscal 2008") were $20,908,902 compared to $22,638,034 for the fiscal year ended March 31, 2007 ("Fiscal 2007"), a decrease of $1,729,132 or 7.6%. The decrease is mainly due to the following factors: o The volatility in the gold market in general has adversely affected our sales, especially to our independent customers. o In prior year, the Company obtained new diamond programs with two major customers and significant sales were generated from the initial roll-out of these programs. o The Company has seen a higher level of sales returns, especially from some of our Majors customers. The Company expects to see moderate growth in overall sales volumes in fiscal 2009, with an increase of 5% projected as compared to fiscal 2008. Cost of sales for Fiscal 2008 was $14,667,750 with a gross margin of 29.8% compared to $17,039,635 with a gross margin of 24.7% for Fiscal 2007. A number of factors contributed to the higher profit margin: o Foreign exchange gain from inventory purchases due to the weakening of the USD during the year ($153k); o Recovery of vendor rebates overcharged by certain Majors in prior years ($188k) 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 $265,616 compared to $310,721 in the prior year. General administrative costs increased by $381,194 or 12% from $3,157,284 in Fiscal 2007 to $3,538,478 in Fiscal 2008. The increase in administrative expenses over prior year is primarily a result of: o Significant higher salaries and wages ($202k), as a result of the hiring of some senior executives; and the overall salary increment to staff. Included in salaries and wages is also the stock-based compensation expense amounting to $65k, relating to options issued during the year o Increase in consulting expenses ($111k), which mainly consist of recruitment fees paid on the hiring of a few new staff; SOX consulting fees; and higher directors' fees incurred in 2008 Page 20 of 77 o Bad debt expenses were $43k, compared to a credit balance of $109k in prior year. There were significant bad debt recoveries/write-backs in fiscal 2007. o Lower legal and accounting expenses, and travel and telephone costs partially offset the large increase Overall, as a percentage of sales, administrative expenses increased to 16.9% in 2008 from 13.9% in 2007. Selling and delivery expenses increased slightly by $20,679 or 1.9% to $1,122,210 in Fiscal 2008 from $1,101,531 in fiscal 2007. Due to the lower sales level, freight and shipping, sales commission and display costs decreased, by approximately $45k, $35k and $118k, respectively. On the other hand, fines and penalties charged by Majors, marketing and promotion expenses, gold overbilling rebates, and salaries and wages all increased, by approximately $37k, $40k, $83k and $79k, respectively. Overall, as a percentage of sales, selling and delivery expenses increased to 5.4% from 4.9% in 2007. Interest and bank charges for Fiscal 2008 increased $53,609 or 5.6% to $1,018,242 when compared to the Fiscal 2007 amount of $964,633. The Company continued to rely on its increased banking facilities throughout fiscal 2008. The average balance in its bank line increased during fiscal 2008 by $729,000. Although inventory levels were mostly lower than prior year throughout the current fiscal, many suppliers have shortened their payment terms. In addition, the Company also encountered several payment issues during the current year with a few of our major customers, which had increased our reliance on the bank overdraft. The average interest rate paid by the Company for its banking facilities increased from 6.98% in Fiscal 2007 to 7.02% in Fiscal 2008. The Company had a net income before recovery of income taxes of $441,154 for the current year, as compared to a net income before provision for tax of $294,741 for fiscal 2007. The increase in net income is a result of higher gross profit for the current year. Tax expense or recovery is determined by entity-based results. Tax recovery for the current year is comprised of two portions. In 2007, 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. During the current year, the Company filed an objection notice on the reassessment and claimed for a refund of the full amount assessed. The CRA accepted the appeal and reversed the full amount assessed, including interest and penalties. The tax recovery is partially offset by a tax expense of $48,231, which is the estimated provision for income taxes for Allura International Inc. for the current year. As disclosed in Note 8 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. 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 the Company 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. Page 21 of 77 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 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 excise 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, the Company 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 $280,272 or 34% to $1,101,531 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 more on advertising in 2007, 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. o Opening of the sales office in Toronto - additional salaries and wages of $130,811. Overall, as a percentage of sales, selling and delivery expenses increased to 4.9% 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. Page 22 of 77 The Company had a net income before provision for income taxes of $294,741. This represents a 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 Page 23 of 77 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 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 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. Page 24 of 77 B. Liquidity and capital Resources 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 $72,600 at March 31, 2008 (2007: $57,600, 2006: $52,600)) and the original proceeds received under the unit offering ($500,000). The common share put options were outstanding as at September 15, 2008. The Company has presented its obligation under this put as a current liability as disclosed in Note 10. 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 (2007: $11,000,000). The Company also has available an annual $1,100,000 (2007: $1,100,000) bulge (a temporary increase in the credit facilities limit) from July 1 to December 31 each year (the "Annual Seasonal Bulge"). In fiscal 2007, the Company also had an additional $1,400,000 one time bulge in effect March 31, 2006 to March 31, 2007 (the "OneTime Bulge"). During fiscal 2008, the demand overdraft loan facilities totaling $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. The Annual Seasonal Bulge was then further extended to February 28, 2008 and increased to $1,750,000, both on a one-time basis. 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, May 28, 2007, October 30, 2007 and December 18, 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 $4,400,000 (2007: $4,000,000) for the period of January 1 - June 30 Annually, including a $1,800,000 (2007: $1,500,000) sub-limit for Allura Diamonds Limited and increased to $4,950,000 (2007: $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 December 31, 2007); plus o 50% of consignment inventory limited to a maximum of $1,700,000 (2007: $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 Page 25 of 77 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 (2007: $1,000,000) and prime plus 1% on the balance. The prime interest rate on these loans at year-end was 5.25% (Fiscal 2007: 6.0%) and 4.75% as at August 29, 2008. 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 (2007: $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 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. Upon expiry, this letter of credit was allowed to lapse. Under the terms of the demand overdraft loan facilities, the Company must maintain a Debt to Tangible Net Worth ratio not exceeding 3.0 to 1 (2007: 2.5 to 1) and Ratio of Current Assets to Current Liabilities not less than 1.3 to 1 (2007: 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 it did not constitute a waiver nor did it prejudice any of the bank's other rights and remedies under the facilities. As at March 31, 2008, the Company was in compliance with these covenant ratio requirements. 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. For the year ended March 31, 2008, the combined overdraft loan amounted to $10,408,813. Accounts Receivable The Company's account receivables net of allowances for doubtful accounts as at March 31, 2008 were $3,193,640. The balance in accounts receivable represented 15.3% of net sales for Fiscal 2008. Inventory The Company's inventory as at March 31, 2008 was $13,510,621 or 64.6% of net sales for Fiscal 2008 compared to $13,532,378 or 59.8% of net sales for Fiscal 2007. 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, 2007 and 2008, 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 Page 26 of 77 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, 2007 and 2008. ADL continues to expand and develop its product line to increase selection and availability in the market place. The Company made efforts during the current year to reduce its level of inventory by sending old stock to gold melt, and reducing the consignment inventory through programs buy-out (i.e., by discontinuing certain consignment programs and invoicing for the on-hand units of the related inventory) and clearing of discontinued items. As a result, inventory level was significantly lower than prior year throughout most of the year. However, it increased significantly close to the year-end due to large purchases made in March 2008. In addition, a larger provision for goods returns was also made for the current year as compared to prior year. 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. Accounts Payable and Accrued Liabilities The Company's accounts payable and accrued liabilities as at March 31, 2008 were $3,349,012 compared to $3,931,860 for Fiscal 2007. 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 2007, 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. Stock Options On October 29, 2007, the Company authorized the issuance of 545,000 Stock Options at an exercise price of USD $0.53 (with a Canadian Equivalent Exercise price as at that date of $0.51). The vesting date for these Options was November 30, 2007, while the expiry date is November 30, 2012. For the year ended March 31, 2008, the total compensation expense related to the fair value of the stock options issued was $64,860 (2007: $Nil). This amount has been credited to contributed surplus. The fair value of these stock options was determined using the Black-Scholes option pricing model with the following weighted average assumptions: no dividends are to be paid; expected volatility of 36%; risk-free rate of 4.1% and expected life of 2 years. Capital Commitments Except for anticipated aggregate lease payments for both IBB and ADL of approximately $472,000 over the next four years, the Company has no other significant capital commitments as of August 29, 2008. The second and final phase of the Navision implementation project has a budgeted spending of approximately $180,000, with the majority of the spending to occur during fiscal 2009. However, the Company has not entered into any formal contract in this regard. 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 16 to the Company's consolidated financial statements. Page 27 of 77 C. Research and Development, Patents and Licenses, etc. The Company does not conduct research and development and holds no patents or licenses. 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 11 of the Company's audited consolidated financial statements for the year ended March 31, 2008. 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, 2008 by the year that they become due. The Company expects to fund these obligations from operating income and equity/debt financing:
Payments due by period ------------------------------------------------------------------ Less than 1 1-3 More than 5 Contractual Obligations Total year years 3-5 years years - --------------------------------------------------------------------------------------------------------------------- Short-Term Debt Obligations $10,408,813 $10,408,813 -- -- -- - --------------------------------------------------------------------------------------------------------------------- Long-Term Debt Obligations -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------- Capital (Finance) Lease Obligations $ 249,652 $ 85,571 $164,081 -- - --------------------------------------------------------------------------------------------------------------------- Operating Lease Obligations $ 471,584 $ 198,823 $260,353 $ 12,408 -- - --------------------------------------------------------------------------------------------------------------------- Purchase Obligations -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------- Other Long-Term Liabilities Reflected on the Company's Balance Sheet under the GAAP of the primary financial statements -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------- Total $11,130,049 $10,693,207 $424,434 $ 12,408 -- - ---------------------------------------------------------------------------------------------------------------------
G. Safe Harbor Some of the information in this report contains forward-looking statements. Forward-looking statements represent the Company's current expectations or forecasts of future events and are based on 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. Page 28 of 77 Any or all of the Company's 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 factors, including the risks outlined under "Risk Factors," will be important in determining the Company's 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. The Company's forward-looking statements speak only as of the date made. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. All forward-looking statements attributable to the Company are expressly qualified in their entirety by the foregoing cautionary statement. H. Legal Proceedings As at September 15, 2008, 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 of the directors, executive officers and key employees of the Company as of September 15, 2008. On September 30th, 2008, the Directors on the Board of Directors will be re-nominated to stand for election to the Board. Additionally Randolph Price will stand for nomination to the Board as an additional member.
Position Held Name Age Positions Since - --------------------------------------------------------------------------------------------- Jeremy Bowman 57 Director, CEO of Allura International Inc. 1988 - --------------------------------------------------------------------------------------------- Sheila Bowman 50 Director, Secretary, and Treasurer of Allura International Inc., and Corporate Secretary 1988 - --------------------------------------------------------------------------------------------- Frank Kovacs 55 Director 1998 - --------------------------------------------------------------------------------------------- Thomas Weckman 54 Director and V.P. of Allura Diamonds Limited 1994 - --------------------------------------------------------------------------------------------- Tina VanderHeyden 56 Director 1999 - --------------------------------------------------------------------------------------------- Dave Wall 57 Director 2003 - --------------------------------------------------------------------------------------------- Cameron Gillies 58 President of the Trading companies (1) 2006 - --------------------------------------------------------------------------------------------- Lan Shangguan 38 CFO(2) 2007 - --------------------------------------------------------------------------------------------- Randolph Price 61 (3) - ---------------------------------------------------------------------------------------------
Page 29 of 77 Notes: (1) Appointed President of Trading companies, namely IBB International (Canada) Ltd and Allura Diamonds Limited, effective April 1 2008 (2) Appointed CFO effective May 8 2008 (3) Nominee for Director in the upcoming AGM of the company on Sept 30 2008. Jeremy Bowman has been the 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. He was appointed acting CFO on June 30, 2007, however the appointment was rescinded on April 21, 2008, pending the appointment of Lan Shangguan as CFO. Sheila Bowman has been the Secretary and Treasurer and a Director of the Company since 1988. She was further appointed Corporate Secretary in December 2007. She is the current Audit Chair In addition she is 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. Randolph C Price Mr. Price is a Principal of RC Price and Associates and is a tax consultant with PricewaterhouseCoopers LLP. He also serves as the Commissioner with the First Nations Tax Commission and is a member of its audit committee. Prior to his retirement, Mr. Price was the Vice President of Corporate Tax with Duke Energy Corporation. He also served as the Chairman/President of the Taxation Committee of the Canadian Energy Pipeline Association, the Taxation Committee of the Canadian Gas Association and the Tax Executives Institute, Vancouver Chapter. Mr. Price received his professional designation as a Chartered Accountant in Manitoba in 1972. 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 is President of T. VanderHeyden Associates Inc, and has served on the Company's Board of Directors since 1999. She is also a Director for The Canadian Film Centre in Toronto and serves on several Boards including S2C Global Systems Inc. Dave Wall has been a Director since September 30, 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. Cameron Gillies joined the Company in October 2006 as Senior Vice President. Effective April 1, 2008 Cameron Gillies was appointed President of the trading companies; namely IBB International (Canada) Ltd and Allura Diamonds Limited. Together with his duties as President, he is currently responsible for sales and marketing for the Company, and management of the Halifax and Toronto offices. Lan Shangguan joined the Company as VP Finance in March, 2007. She was appointed CFO effective May 8, 2008. 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 CEO. She received her Australian CPA designation in 1996 and her Chartered Accountant designation in British Columbia in 2002. Page 30 of 77 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. Directors are nominated annually at the AGM by the Board of Directors to 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 (Equivalent to 100,000 in accordance with consolidation) Common Shares in the Company. As at September 15, 2008, 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 and Cameron Gillies, respectively, its Chief Executive Officer and President of the Trading Companies. The loss of the services of either or both of Messrs. Bowman and Gillies may have a material adverse effect on the Company's business. Although the Company has employment agreements with each of Messrs. Mr. Bowman and Gilles, the agreements, subject to applicable non-compete and disclosure provisions thereof which survive termination for specified periods, may be terminated on written notice by either the Employee or the Company for any reason not constituting a fundamental breach of the terms and/or conditions of the employment agreement and without notice in the event of a fundamental breach of the terms and/or conditions of the Agreement by the other party. B. Compensation outstanding The Company paid aggregate compensation of $688,160, $514,000 and $492,000, to all directors and officers as a group during the fiscal years ended March 31, 2008, 2007, and 2006, for services in all capacities. There were no funds set aside by the Company during the fiscal year ended March 31, 2008 to provide pension, retirement or similar benefits for officers or directors. In October, 1999, the Company approved the terms of the 2000 Employee Stock Option Plan. On October 29, 2007, the Board granted a total of 545,000 Options with a vesting date of November 30, 2007 and an expiration date of November 30, 2012. Out of the total 545,000 options granted, 395,000 were granted to directors and officers as a group. As at March 31, 2008, none of the options have been exercised. Each option is convertible into one share of the Company's common stock. The options have an exercise price of CDN$0.51. As at March 31, 2008, the options had a weighted average fair value of $0.12 and a weighted average remaining life of 4.67 years. 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. During fiscal 2008, a total payment of $17,790 was made to directors for acting in such capacity, which amount has been included in the aggregate compensation disclosed 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. Directors are re-nominated and elected annually by shareholders at the Annual General Meeting of the Company. Officers are elected annually or as often as may be required, 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. Page 31 of 77 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 15, 2008: Sheila Bowman, Frank Kovacs, Tina VanderHeyden and Dave Wall. The Audit Committee chair is currently Sheila Bowman. However, should the nomination and election of Randolph Price as a Director be successful during the AGM of the company on Sept 30 2008, the intention is that as an independent member of the committee, he will be appointed Audit Chair with immediate effect. 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 15, 2008: 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, 2008, the Company employed forty-three persons on a full time basis. As at August 29, 2008, there were forty two persons employed on a full time basis. The full time employees comprise of ten employees in finance and administration, seventeen in sales and merchandising, and fifteen in inventory warehouse. Four full time employees are employed in the Halifax office, seven are employed in the Toronto office, and thirty one are employed in the Vancouver office. As at August 29, 2008 the Company employed eleven 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 VP of Finance to provide oversight and undertake management duties for the Finance and Accounting department. Effective May 8, 2008, this executive employee was appointed to the position of CFO. 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. Effective April1, 2008 this executive employee was appointed President of the Trading Companies. As at October 4, 2006, the Company employed a Corporate Accountant to undertake responsibilities in the finance and accounting department. This employee has since been appointed to the position of Finance Manager. During Fiscal 2008, on average the Company employed 12 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. Page 32 of 77 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS o 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 15, 2008, 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 Beneficially or Directly Percentage of Name of Shareholder Owned Class - --------------------------------------------------------------------------------------------- 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% - --------------------------------------------------------------------------------------------- Executive Officers and Directors as a group (6) 4,363,381 85.89% - ---------------------------------------------------------------------------------------------
(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 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 CEO and a Director. (4) Sheila Bowman is the Corporate Secretary as well as Secretary and Treasurer, a Director of the Company and the Chair of the Audit Committee. (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 Capital Inc. 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. 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. However, on October 29, 2007, the Company authorized the issuance of a total of 545,000 Stock Options at an exercise price of USD $0.53 (with a Canadian Equivalent Exercise price as at that date of $0.51) as detailed in Note 10 of the Audited Financial Statements for the Year ended March 31, 2008, presented under Item 17 of this form. The vesting date for these Options was November 30, 2007, while the expiry date is November 30, 2012. Out of the 545,000 options issued, 395,000 were issued to directors and officers as follows: Page 33 of 77
Number of Total Shares Percentage of Number of Shares Options held and Class (Includes Name of Shareholder Beneficially or Beneficially or Options Shares and Directly Owned Directly Owned Granted Options) - ------------------------------------------------------------------------------------------------------- International Bullion & Metal 2,083,334 0 2,083,334 37.04% Brokers Ltd.(1) - ------------------------------------------------------------------------------------------------------- Bowman Family Trust ("Trust")(2) 1,775,000 0 1,775,000 31.55% - ------------------------------------------------------------------------------------------------------- Jeremy C. Bowman(3) 154,167 175,000 329,167 5.85% - ------------------------------------------------------------------------------------------------------- Sheila P. Bowman(4) 154,167 45,000 199,167 3.54% - ------------------------------------------------------------------------------------------------------- Thomas Weckman(6) 83,334 70,000 153,334 2.73% - ------------------------------------------------------------------------------------------------------- B.D.C Capital Inc(5) 113,379 0 113,379 2.02% - ------------------------------------------------------------------------------------------------------- Lan Shangguan (7) 0 30,000 30,000 (**) - ------------------------------------------------------------------------------------------------------- Cameron Gillies (8) 0 30,000 30,000 (**) - ------------------------------------------------------------------------------------------------------- Dave Wall 0 15,000 15,000 (**) - ------------------------------------------------------------------------------------------------------- Tina VanderHeyden 0 15,000 15,000 (**) - ------------------------------------------------------------------------------------------------------- Frank Kovacs 0 15,000 15,000 (**) - ------------------------------------------------------------------------------------------------------- Executive Officers and Directors 4,363,381 395,000 4,758,381 84.59% as a group (11) - -------------------------------------------------------------------------------------------------------
(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 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 CEO and a Director. (4) Sheila Bowman is the Corporate Secretary as well as the Secretary and Treasurer, a Director of the Company and the Chair of the Audit Committee. (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) Lan Shangguan joined the Company as V.P Finance in March of 2007. She was appointed CFO effective May 8, 2008. (8) Cameron Gillies joined the Company in October 2006 as Senior Vice President. Effective April 1, 2008 Cameron Gillies was appointed President of the trading companies; namely IBB International (Canada) Ltd and Allura Diamonds Limited. (9) (**) Less than 1% of class As at September 15, 2008, 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 Page 34 of 77 percentage of Common Shares so held in the United States. Total Number Number of US Number of US Percentage of Class Registered Registered Holders Common Shares - -------------------------------------------------------------------------------- 115 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 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, 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 (after consolidation equivalent to 100,000 shares), the Company is 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. Page 35 of 77 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. o 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 Note 13 to the Company's audited financial statements, or in any proposed transaction, since the beginning of the Company's last fiscal year up to the date of the Report. o 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. 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 paid its first dividend on September 8, 2005 to all shareholders on record as at September 6, 2005. The dividend was for USD$.01 per share (Equivalent to USD$.03 after consolidation). On November 30, 2007, the Company paid a second dividend of USD$0.03 to shareholders on record as at November 15, 2007. Subsequent to year end on July 29, 2008, the Company declared a dividend of USD$0.05 to shareholders on record as at July 31, 2008. This dividend was payable on September 3, 2008. On each occasion that dividends were declared and paid the Company's four largest shareholders waived the right to receive the 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 Page 36 of 77 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. Markets. 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. 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.D. is not applicable to this report. E. 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.E. is not applicable to this report. F. 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.F. 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 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 Page 37 of 77 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 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, 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 is 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. Page 38 of 77 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 $72,600 as at March 31st 2008, 2007: $57,600, 2006: $52,600, 2005: $64,000,) and the original proceeds received under the unit offering ($500,000). The common share put option was still outstanding as at September 15, 2008. Capital Lease Towards the end of fiscal 2007, 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 which approximates its estimated useful life. The Capital Lease Obligation for the term to 2011 is $227,668 (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 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 27, 2002, the Company leased an office in Halifax on a five year fixed term starting July 1, 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 went up by $813 per month to $6,097 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. Page 39 of 77 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 backup 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. 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. Page 40 of 77 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 the Company files with the Securities and Exchange Commission in accordance with the Securities Exchange Act of 1934 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. At March 31, 2008 and 2007, the Company's accounts payable and accrued liabilities included the following foreign currency denominated amounts: 2008 2007 ----------- ----------- U.S. $ 1,840,630 $ 2,512,552 Euro 210,774 185,757 GBP 493 9,499 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 $115,000 in interest cost in fiscal year 2008. 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. Page 41 of 77 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. PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. 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 2009. For the year ended March 31, 2008, the combined overdraft loan amounted to $10,408,813. The demand overdraft loan agreement facility was renewed on April 4, 2007 May 28, 2007, October 30, 2007 and December 18, 2007. 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. As at March 31, 2008, the Company was in compliance with the terms and covenants on this overdraft loan facility. However, there can be no assurance that it will be in the future. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. None. Page 42 of 77 ITEM 15. CONTROLS AND PROCEDURES All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurances with respect to financial statement preparation and presentation. In addition, any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions in the future. Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company has evaluated, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the effectiveness of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of March 31, 2008. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of March 31, 2008. Management's Report on Internal Control over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal controls over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the CEO and CFO, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. As of the end of the period covered by this report, the Company's management, including the principal executive officer and principal financial officer, completed our evaluation of the effectiveness of our internal control over financial reporting, which the Company had been conducting based on the criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treasury Commission ("COSO"). Management completed its assessment of internal control over financial reporting ("ICFR"), and has identified no material weaknesses that existed in the design or operation of our internal control over financial reporting. The Public Company Accounting Oversight Board has defined a material weakness as a "deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis". During the audit of the 2007 financial statements, the Company's management and auditors identified several material weaknesses in internal controls over financial reporting. Over the course of the current year, management took measures to either eliminate these deficiencies or implemented compensating controls to reduce their degree of severity. Below is a summary of the steps taken: Recording Journal Entries - It was noted that the recording of journal entries was not restricted to appropriate people and journal entries were not always reviewed prior to posting. During the year, hired an additional accounting staff member which allowed better segregation of duties in this regard. The Company also reassigned the system access rights so as to remove senior finance personnel from being able to post journal entries. Page 43 of 77 Inventory Costing - It was noted in the prior year that there was no documented/consistent process to monitor inventory costs variances and further that there was no regular review to ensure rates for certain standard costs components remain appropriate. During the current year, the Company implemented procedures to review and approve cost variances. The process of reviewing and revising standard costs component rates remains an annual exercise due to its labour intensive nature. However, the Company has initiated regular management reporting on key performance indicators, which acts as a compensating control in this area. Bank Reconciliations - In the prior year, bank reconciliations were not performed on a timely basis. Furthermore, due to staff constraints, this function was not reviewed by an independent person. This issue has been fully rectified during the year. The Company hired an additional accounting staff member, which allowed proper segregation of duties in this area. All bank accounts are reconciled on a monthly basis. Accounts Receivable - It was noted in the prior year that customers' accounts had not been regularly reviewed and thus issues had not been followed up and resolved in a timely manner. Procedures have been implemented to ensure customer accounts are reviewed and issues are followed up on a regular basis. IT Observations - It was noted that an excessive number of users have been granted with "System Admin" equivalent privilege. The Company carried out a complete review of the user groups set up during the year and made modifications to ensure proper segregation of duties, including removing a number of "System Admin" users. In addition, an in-house IT technician has been hired which allowed us to remove certain accounting personnel from IT functions. In summary, management was effective in eliminating all the above material weaknesses identified in the prior year. Management is aware that there remain a number of deficiencies in the internal controls system of lesser severity and will continue to seek measures to improve our overall internal controls. This annual report does not include an attestation report of our independent registered chartered accountants regarding the effectiveness of internal control over financial reporting. The effectiveness of internal control over financial reporting was not subject to attestation by the Company's independent chartered accountants pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. 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 Charter 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 Sheila Bowman is Chair of the Audit Committee. However, it is intended that Randolph C. Price will be asked to assume the position, should his appointment to the Board at the upcoming AGM on Sept 30, 2008 be successful. Mr. Price possesses the qualifications necessary for a financial expert under the definitions of the Sarbanes Oxley Act of 2002. ITEM 16B. CODE OF ETHICS The Company is currently adopting a formal "Code of Ethics" however it has not yet been Board Approved The Company does however 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; Page 44 of 77 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. Formal documents stating the Company's Corporate Governance policies are in place, as are Charters for the Board of Directors, the Audit Committee and the Compensation and Human Resource Committee ITEM 16C. PRINCIPAL ACCOUNTANTS FEES AND SERVICES 2008 2007 Aggregate Fees - -------------------------------------------------------------------------------- Audit fees $ 123,500 $ 131,500 $ 255,000 - -------------------------------------------------------------------------------- Audit related fees $ 8,000 $ 10,350 $ 18,350 - -------------------------------------------------------------------------------- Tax fees $ 13,200 $ 22,050 $ 35,250 - -------------------------------------------------------------------------------- Other fees $ 2,200 $ 0 $ 2,200 - -------------------------------------------------------------------------------- Total Fees $ 146,900 $ 163,900 $ 310,800 - -------------------------------------------------------------------------------- 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 16 to the audited 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 45 of 77 Allura International Inc. Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 Page 46 of 77 Contents Page ----- Report of Independent Registered Chartered Accounting Firm 48 Consolidated Balance Sheets 49 Consolidated Statements of Operations 50 Consolidated Statements of Cash Flows 51 Consolidated Statements of Shareholders' Equity 52 Notes to the Consolidated Financial Statements 53-72 Page 47 of 77 [GRANT THORNTON LOGO] Report of Independent Registered Chartered Accounting Firm Grant Thornton LLP Suite 1600, Grant Thornton Place 333 Seymour Street Vancouver, BC V6B 0A4 T (604) 687-2711 F (604) 685-6569 www.GrantThornton.ca To the shareholders of Allura International Inc. We have audited the accompanying consolidated balance sheets of Allura International Inc. as of March 31, 2008, and 2007 and the related consolidated statements of operations, cash flows, and shareholders' equity for each of the years ended March 31, 2008, 2007 and 2006. 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, 2008 and 2007 and the results of its operations and its cash flows for each of the three years ended March 31, 2008, 2007 and 2006 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 16 to the consolidated financial statements. Vancouver, Canada /s/ Grant Thornton LLP July 30, 2008 Chartered Accountants Audit o Tax o Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd Page 48 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Consolidated Balance Sheets (expressed in Canadian dollars) March 31
2008 2007 - --------------------------------------------------------------------------------------------- Assets Current Cash $ 303,752 $ 191,386 Receivables, net (Note 3) 3,193,640 4,479,708 Inventories (Note 4) 13,510,621 13,532,378 Prepaids 142,277 251,355 ------------- ------------- Total current assets 17,150,290 18,454,827 Property and equipment, net (Note 5) 320,788 405,192 Goodwill 26,970 26,970 ------------- ------------- Total assets $ 17,498,048 $ 18,886,989 ============= ============= - -------------------------------------------------------------------------------------------- Liabilities Current Bank indebtedness (Note 6) $ 10,408,813 $ 11,579,643 Accounts payable and accrued liabilities (Note 7) 3,349,012 3,931,860 Income taxes payable 19,858 100,822 Obligation under capital lease - current portion (Note 9) 73,419 76,113 Obligation under put option (Note 10) 72,600 57,600 ------------- ------------- Total current liabilities 13,923,702 15,746,038 Obligation under capital lease - Non-current (Note 9) 154,249 227,699 ------------- ------------- Total liabilities 14,077,951 15,973,737 ------------- ------------- Shareholders' Equity Capital stock (Note 10) 2,545,765 2,545,765 Contributed surplus (Note 10) 64,860 -- Retained earnings 809,472 367,487 ------------- ------------- Total shareholders' equity 3,420,097 2,913,252 ------------- ------------- Total liabilities and shareholders' equity $ 17,498,048 $ 18,886,989 ============= ============= - --------------------------------------------------------------------------------------------
Commitments (Note 11) Subsequent event (Note 17) See accompanying notes to the consolidated financial statements. Page 49 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Consolidated Statements of Operations (expressed in Canadian dollars) March 31
2008 2007 2006 - ----------------------------------------------------------------------------------------------------------------- Net sales $ 20,908,902 100% $ 22,638,034 100% $ 17,719,672 100% Cost of goods sold (Note 2(c)) 14,667,750 70.2% 17,039,635 75.3% 13,652,307 77.0% ------------------------ ------------------------ ------------------------- Gross profit 6,241,152 29.8% 5,598,399 24.7% 4,067,365 23.0% ------------------------ ------------------------ ------------------------- Expenses Administrative (Note 18) 3,538,478 16.9% 3,157,284 13.9% 2,950,967 16.7% Depreciation and Amortization 107,782 0.5% 76,827 0.3% 46,680 0.3% Selling and delivery (Note 18) 1,122,210 5.4% 1,101,531 4.9% 821,259 4.6% ------------------------ ------------------------ ------------------------- 4,768,470 22.8% 4,335,642 19.1% 3,818,906 21.6% ------------------------ ------------------------ ------------------------- Earnings before other income (expenses) 1,472,682 7.0% 1,262,757 5.6% 248,459 1.4% ------------------------ ------------------------ ------------------------- Other income (expenses) Interest, bank charges, and guarantee fee (Note 13(b)) (1,018,242) (4.9%) (964,633) (4.3%) (752,518) (4.2%) Other income 1,714 0.0% 1,617 0.0% 38 0.0% Change in put option obligation (Note 10) (15,000) (0.1%) (5,000) 0.0% 11,400 0.1% ------------------------ ------------------------ ------------------------- (1,031,528) (5.0%) (968,016) (4.3%) (741,080) (4.1%) ------------------------ ------------------------ ------------------------- Earnings (loss) before income taxes 441,154 2.0% 294,741 1.3% (492,621) (2.7%) (Recovery) provision for Income taxes (Note 8) (28,238) -0.1% 94,469 0.4% (102,862) (0.6%) ------------------------ ------------------------ ------------------------- Net earnings (loss) $ 469,392 2.1% $ 200,272 0.9% $ (389,759) (2.1%) ======================== ======================== ========================= Earnings (loss) per share (basic and diluted) $ 0.09 $ 0.04 $ (0.08) ============= ============= ============== Weighted average common shares outstanding (basic and diluted) (Note 10) 5,080,150 5,080,150 5,080,150 ============= ============= ============== - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. Page 50 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Consolidated Statements of Cash Flows (expressed in Canadian dollars) March 31
2008 2007 2006 - ---------------------------------------------------------------------------------------------- Cash and cash equivalents derived from (applied to) Operating Net earnings (loss) $ 469,392 $ 200,272 $ (389,759) Depreciation and amortization 107,782 76,827 46,680 Stock-based compensation 64,860 -- -- Change in put option obligation 15,000 5,000 (11,400) Change in non-cash operating working capital (Note 12) 753,091 (2,386,197) 29,149 ------------ ------------ ---------- 1,410,125 (2,104,098) (325,330) ------------ ------------ ---------- Financing Bank indebtedness (1,170,830) 2,266,289 401,946 Capital lease obligation (76,144) -- -- Dividend paid (27,407) -- (31,901) ------------ ------------ ---------- (1,274,381) 2,266,289 370,045 ------------ ------------ ---------- Investing Purchase of equipment (23,378) (309,427) (47,895) Proceeds on disposal of equipment -- 303,812 -- ------------ ------------ ---------- (23,378) (5,615) (47,895) ------------ ------------ ---------- Net increase (decrease) in cash 112,366 156,576 (3,180) Cash Beginning of year 191,386 34,810 37,990 ------------ ------------ ---------- End of year $ 303,752 $ 191,386 $ 34,810 ============ ============ ========== - ---------------------------------------------------------------------------------------------- Non-cash financing and investing activities Equipment purchased under capital lease $ -- $ 303,812 $ -- Supplementary cash flow information Interest paid $ 964,204 $ 934,544 $ 723,959 Income taxed paid during the year $ 36,920 $ -- $ 60,000 - ----------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. Page 51 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Consolidated Statements of Shareholders' Equity (expressed in Canadian dollars) Years Ended March 31, 2008, 2007 and 2006 - --------------------------------------------------------------------------------
Accumulated Shares Issued Other Total --------------------- Comprehensive Retained Total Number of Contributed Total Retained Income Earnings Shareholders' Shares Amount Surplus Capital Earnings ("AOCI") and AOCI Equity ---------------------------------------------- ----------------------------------- ------------- Balance, March 31, 2005 5,080,150 $2,545,765 $ -- $2,545,765 $ 588,875 $ -- $ 588,875 $ 3,134,640 Dividend paid (Note 10) -- -- -- -- (31,901) -- (31,901) (31,901) Net loss and comprehensive loss -- -- -- -- (389,759) -- (389,759) (389,759) ---------------------------------------------- ----------------------------------- ------------- Balance, March 31, 2006 5,080,150 2,545,765 -- 2,545,765 167,215 -- 167,215 2,712,980 Net income and comprehensive income -- -- -- -- 200,272 -- 200,272 200,272 ---------------------------------------------- ----------------------------------- ------------- Balance, March 31, 2007 5,080,150 2,545,765 -- 2,545,765 367,487 -- 367,487 2,913,252 Dividend paid (Note 10) -- -- -- -- (27,407) -- (27,407) (27,407) Stock-based compensation (Note 10) -- -- 64,860 64,860 -- -- -- 64,860 Net income and comprehensive income -- -- -- -- 469,392 -- 469,392 469,392 ---------------------------------------------- ----------------------------------- ------------- Balance, March 31, 2008 5,080,150 $2,545,765 $ 64,860 $2,610,625 $ 809,472 $ -- $ 809,472 $ 3,420,097 ============================================== =================================== =============
See accompanying notes to the consolidated financial statements. Page 52 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 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 16. (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 and such differences could be material. Significant estimates used in the preparation of these financial statements include but are not limited to allowances for doubtful accounts receivable, inventory obsolescence, sales returns, amortization, income taxes, stock-based compensation, put option obligation and contingencies. (c) Foreign currency The functional currency of the Company is the Canadian dollar. 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 $153,403 (2007: $75,983, 2006: $108,199). (d) Cash and cash equivalents For the purpose of the statement of cash flows, the Company considers cash on hand, 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. Page 53 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 2. Summary of significant accounting policies (Continued) (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 further costs to completion and disposal. 2008 inventories include goods held on consignment by the customers under consignment agreements totalling $ 2,209,244 (2007: $2,525,146, 2006: $2,596,676). The Company's provision for inventory obsolescence has been included in cost of goods sold. Changes in the current balance are as follows: 2008 2007 2006 ---------- ---------- --------- Opening Balance $ 329,000 $ 401,000 $ 213,000 Add 48,000 155,000 222,000 Deduct (176,000) (227,000) (34,000) ---------- ---------- --------- Closing Balance $ 201,000 $ 329,000 $ 401,000 ========== ========== ========= (f) Property and equipment Property and equipment are recorded at cost less accumulated 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 amortized on a 20% declining balance basis. Leasehold improvements are amortized on a straight-line basis over the shorter of the life of leasehold improvement or term of the lease. Equipment under capital lease is amortized on a straight-line basis over the term of the lease. (g) 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. In accordance with the recommendations of the Canadian Institute of Chartered Accountants, goodwill is not amortized, but is tested for impairment at least on an annual basis. Page 54 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 2. Summary of significant accounting policies (continued) (h) Revenue recognition The Company recognizes revenue when the following conditions have been fulfilled: o Goods have been shipped; o Title to the goods has passed to the customer; and o 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. (i) 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. (j) 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. (k) Stock-based compensation The Company has a stock option plan as disclosed in Note 10. 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 55 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 2. Summary of significant accounting policies (continued) (l) 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. (m) Advertising cost The Company expenses all advertising costs as incurred. For the year ended March 31, 2008, total advertising costs were $151,901 (2007: $123,476, 2006: $61,304). (n) 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 year. The effect of the exercise of the 545,000 (2007: 140,000, 2006: 260,000) potentially dilutive options was not included in the diluted earnings per share amount since the effect was not materially dilutive. (o) Put option The Company accounts for put options issued in connection with certain common shares (Note 10) 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. (p) Change in accounting policies Effective April 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530: Comprehensive Income, CICA Handbook Section 3251, Equity, CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement, CICA Handbook Section 3861, Financial Instruments - Disclosure and Presentation and CICA Handbook Section 3865, Hedges. These new Handbook Sections, which apply to fiscal years beginning on or after October 1, 2006, provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities, derivatives, and hedge accounting. Page 56 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 2. Summary of significant accounting policies (continued) (p) Change in accounting policies (continued) Handbook Section 1530, Comprehensive Income, establishes standards for reporting and displaying Comprehensive Income, Comprehensive Income is defined as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income but that are excluded from net income calculated in accordance with Canadian generally accepted accounting principles. Handbook Section 3251, Equity, establishes standards for the presentation of equity in the reporting period. Handbook Section 3855, Financial Instruments - Recognition and Measurement, establishes standards for recognizing and measuring financial instruments, namely financial assets, financial liabilities and derivatives. It requires that financial instruments be classified into one of the following five categories: held for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. Subsequent measurement and recognition of changes in the fair value of financial instruments depends on their initial classifications. The Company has implemented the following classifications: o Cash and cash equivalents are classified as held for trading and are measured at fair value. o Accounts receivable are classified as loans and receivables and are measured at amortized costs. o Accounts payable, accrued liabilities and bank indebtedness are classified as other financial liabilities and are recorded at amortized costs. o Obligation under put option is classified as held-for-trading derivatives and measured at fair value. Handbook Section 3861, Financial Instruments - Disclosures and Presentation, establishes standards for presentation of financial instruments, namely financial assets, financial liabilities and derivatives. Handbook Section 3865, Hedges, specifies how to apply hedge accounting and the needed disclosures when it is applied. The adoption of the foregoing new standards had no impact on the Company's financial position or results of operations. Page 57 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 2. Summary of significant accounting policies (continued) (q) Recent accounting pronouncements Canadian GAAP Recent accounting pronouncements affecting the Company's future financial reporting under Canadian GAAP are summarized below: 1) Handbook Section 1400, General Standards of Financial Presentation, was amended to include the requirements for assessing and disclosing an entity's ability to continue as a going concern. The amendment is based upon International Accounting Standard IAS1, Presentation of Financial Statements. This section is applicable to interim and annual financial reporting statements relating to fiscal years beginning on or after January 1, 2008 with earlier adoption encouraged. The Company will adopt this section in fiscal 2009. Management does not expect any impact on the financial statement disclosures when this new policy is adopted. 2) Handbook Section 1535, Capital Disclosures, requires disclosures about capital and is harmonized with recently amended International Accounting Standard IAS1. The standard is applicable to all entities, regardless of whether or not that they have financial instruments. Entities are required to disclose information about their objectives, policies and processes for managing capital as well as their compliance with any externally imposed capital requirements, where they may exist. This section is applicable to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007 with earlier adoption encouraged. The Company will adopt this section in fiscal 2009. The Company is currently investigating the impact that this section will have on the Company's disclosures. The impact is currently not known. 3) Handbook Section 3031, Inventories, replaces Handbook Section 3030, Inventories and provides Canadian equivalent to International Accounting Standard IAS2, Inventories. This section provides guidance on the determination of cost and requires the allocation of overheads and other costs to inventory, allocation of fixed production overhead based on normal capacity levels, with unallocated overhead expensed as incurred. The section requires the consistent use (by type of inventory with similar nature and use) of either first-in, first-out (FIFO) or weighted average cost formula to measure the cost of other inventories. The use of the last-in, first-out (LIFO) formula to measure the cost of inventories is no longer acceptable. Under this section, when the circumstances that previously caused inventories to be written down below cost no longer exist or where there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the write-down is reversed, but the reversal is limited to the amount of the original write-down. This section also includes expanded disclosure requirements. Page 58 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 2. Summary of significant accounting policies (Continued) (q) Recent accounting pronouncements (Continued) This section is applicable to interim and annual financial reporting statements relating to fiscal years beginning on or after January 1, 2008. When applying the section for the first time, an entity can either apply this section to the opening inventory for the period and adjusts opening retained earnings by the difference in the measurement of opening inventory (prior periods are not restated) or apply the section retrospectively and restates prior periods in accordance with Handbook Section 1506, Accounting Changes. The Company will adopt this section in fiscal 2009. The Company is currently investigating the impact that this section will have on the Company's financial position and results of operations. The impact is currently not known. 4) Handbook Section 3064, Goodwill and Intangible Assets, replaces Handbook Sections 3062, Goodwill and Other Intangible Assets and 3450, Research and Development costs. This section establishes standards for the recognition, measurement, presentation, and disclosure of goodwill and intangible assets. Certain items are specifically excluded from the scope of the Section including the initial recognition, measurement and disclosure of goodwill and intangible assets acquired in a business combination, the establishment of a new cost basis for intangible assets as part of a comprehensive revaluation, intangible assets held by an entity for sale in the ordinary course of business, non-current intangible assets classified as held for sale or included in a disposal group that is classified as held for sale, etc. This section is applied to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. Earlier adoption is encouraged. The Company will adopt this Section in fiscal 2010. The Company is currently investigating the impact that this section will have on the Company's financial position and results of operations. The impact is currently not known. 5) Handbook Section 3862, Financial Instruments - Disclosures Section 3862 replaces the disclosure requirements of previous Section 3861 Financial Instruments - Disclosure and Presentation and converges with International Financial Reporting Standard IFRS7, Financial Instruments - Disclosures. This Section applies to interim and annual financial reporting statements relating to fiscal years beginning on or after October 1, 2007. The Company will adopt this Section in fiscal 2009. The Company is currently investigating the impact that this section will have on the Company's disclosures. The impact is currently not known. 6) Handbook Section 3863, Financial Instruments - Presentation Section 3863 is consistent with previous Section 3861, which was based on International Financial Reporting Standard IFRS7. This section applies to interim and annual financial reporting statements relating to fiscal years beginning on or after October 1, 2007. The Company will adopt this section in fiscal 2009. The Company is currently investigating the impact that this section will have on the Company's financial position and results of operations. The impact is currently not known. Page 59 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 3. Receivables
2008 2007 ------------ ------------ Receivables $ 3,433,752 $ 4,685,820 Allowance for doubtful accounts (240,112) (206,112) ------------ ------------ $ 3,193,640 $ 4,479,708 ============ ============
4. Inventories
2008 2007 ------------ ------------ Loose gemstones $ 713,380 $ 717,431 Castings 89,937 126,487 Finished products 12,707,304 12,688,460 ------------ ------------ $ 13,510,621 $ 13,532,378 ============ ============
5. Property and equipment
2008 ------------ Accumulated Net Cost Amortization Book Value ----------- ------------ ------------ Computer equipment and software $ 416,943 $ 355,777 $ 61,166 Equipment under capital lease (Note 9) 303,812 113,930 189,882 Furniture and equipment 237,845 172,897 64,948 Leasehold improvements 150,128 145,336 4,792 Trademark 11,840 11,840 -- ----------- ------------ ------------ $ 1,120,568 $ 799,780 $ 320,788 =========== ============ ============ 2007 ------------ Accumulated Net Cost Amortization Book Value ----------- ------------ ------------ Computer equipment and software $ 412,693 $ 339,054 $ 73,639 Equipment under capital lease (Note 9) 303,812 37,976 265,836 Furniture and equipment 222,087 160,263 61,824 Leasehold improvements 146,758 142,865 3,893 Trademark 11,840 11,840 -- ----------- ------------ ------------ $ 1,097,190 $ 691,998 $ 405,192 =========== ============ ============ - -------------------------------------------------------------------------------------
Page 60 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 6. Bank indebtedness Bank indebtedness is comprised of demand overdraft loan facilities totalling $11,000,000 (2007: $11,000,000) (subject to certain margining restrictions). The Company also has available an annual $1,100,000 (2007: $1,100,000) bulge from July 1 to December 31 each year (the "Annual Seasonal Bulge"). In fiscal 2007, the Company also had an additional $1,400,000 one time bulge in effect March 31, 2006 to March 31, 2007 (the "OneTime Bulge"). During fiscal 2008, 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. The Annual Seasonal Bulge was then further extended to February 28, 2008 and increased to $1,750,000, both on a one-time basis. The facility details are summarized in the table below: Demand Annual Overdraft Seasonal OneTime Total Loan Facility Bulge Bulge Facilities ------------- ------------ ------------ ------------ Available facility March 31, 2006 $ 6,500,000 $ -- $ 3,000,000 $ 9,500,000 Decrease, 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) ------------- ------------ ------------ ------------ Available facility March 31, 2007 11,000,000 -- 1,400,000 12,400,000 Expiry, May 1, 2007 -- -- (1,400,000) (1,400,000) Increase, May 1, 2007 -- 1,100,000 -- 1,100,000 Increase, May 1, 2007 -- 650,000 650,000 Expiry, December 31, 2008 -- (1,100,000) -- (1,100,000) Extention, January 1, 2008 -- 1,100,000 -- 1,100,000 Expiry, February 28, 2008 -- (1,100,000) (650,000) (1,750,000) ------------- ------------ ------------ ------------ Available facility March 31, 2008 $ 11,000,000 $ -- $ -- $ 11,000,000 ============= ============ ============ ============ Page 61 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 6. Bank indebtedness (continued) These loans bear interest at prime plus 1/8% on the first $1,000,000 (2007: $1,000,000) and prime plus 1% on the balance. The prime interest rate on these loans at year-end was 5.25% (2007: 6.0%). 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 (2007: $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. 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 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. Upon expiry, this letter of credit was allowed to lapse. Under the terms of the demand overdraft loan facilities, the Company must maintain a Debt to Tangible Net Worth ratio not exceeding 3.0 to 1 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, 2008, the Company is in compliance with these covenant ratio requirements. - -------------------------------------------------------------------------------- 7. Accounts payable and accrued liabilities 2008 2007 ----------- ----------- Accounts payable $ 2,197,310 $ 2,697,212 Accrued liabilities 1,151,702 1,234,648 ----------- ----------- $ 3,349,012 $ 3,931,860 =========== =========== - -------------------------------------------------------------------------------- Page 62 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 8. Income taxes (a) The provision for income taxes differs from the amount that would be obtained by applying the Canadian corporate income tax substantively enacted statutory rate of tax to the earnings (loss) before taxes. The principal reasons for this difference are as follows:
2008 2007 2006 ---------- ---------- ---------- Earnings (loss) before income taxes $ 441,154 $ 294,741 $ (492,621) Statutory income tax rate 32% 34% 34% Anticipated income tax (recovery) provision 138,964 100,212 (167,491) Tax provision effect arising from: Small business deduction (5,109) (16,399) 48,954 Tax losses utilized (111,058) (109,181) (37,252) Tax recovery from loss carried back -- -- 67,682 Additional tax (recovered) reassessed for prior years (76,469) 76,469 -- Non-deductible expenses and other 37,834 21,468 (9,755) Change in valuation allowance (12,400) 21,900 (5,000) ---------- ---------- ---------- $ (28,238) $ 94,469 $ (102,862) ========== ========== ==========
In fiscal 2007, 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. In fiscal 2008, the Company filed an objection notice on the reassessment and claimed for a refund of the full amount assessed. The CRA accepted the appeal and the Company has recovered the full amount assessed. (b) Future income tax assets consist of the following: 2008 2007 ---------- ----------- Property and equipment $ 35,800 $ 47,500 Non-capital loss carry forward 211,500 367,200 Other items 7,900 8,600 Valuation allowance (255,200) (423,300) ---------- ----------- $ -- $ -- ========== =========== Page 63 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 8. Income taxes (continued) (c) The operating losses expire as follows: 2008 2007 --------- ----------- 2008 $ -- $ 258,000 2009 412,000 412,000 2010 103,000 103,000 2014 31,000 31,000 2015 7,000 32,000 2026 119,000 244,000 --------- ----------- $ 672,000 $ 1,080,000 ========= =========== - -------------------------------------------------------------------------------- 9. Obligation under capital lease In fiscal 2007, 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 future minimum lease payments required under this capital lease consist of: 2009 $ 85,571 2010 85,571 2011 78,510 ----------- 249,652 Less: Amount representing interest (21,984) ----------- Capital lease obligation 227,668 Less: Current portion (73,419) ----------- Balance of obligation - Non-current $ (154,249) =========== - -------------------------------------------------------------------------------- 10. Capital stock Authorized: Unlimited number of common shares without par value 2008 2007 ---- ---- Issued: 5,080,150 (2007: 5,080,150) common shares $ 2,545,765 $ 2,545,765 =========== =========== Page 64 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 10. Capital stock (Continued) 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. During the current year, the Company rounded up all fractional shares as a result of this 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 and the rounding up of fractional shares. During the current year, the Company declared and paid a dividend of US$0.03 per share totalling $27,407 (2007: $Nil; 2006: $31,901). Four major shareholders waived their right to receive the dividend declared (2007: N/A; 2006: four). 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. A summary of the status of the Company's options is presented below: Weighted Average Number Exercise of Shares Price -------------------------- Balance, March 31, 2006 260,000 $ 1.58 Expired (120,000) $ 1.58 ---------- Balance, March 31, 2007 140,000 $ 1.58 Granted 545,000 $ 0.51 Expired (140,000) $ 1.58 --------- Balance, March 31, 2008 545,000 $ 0.51 ========= The weighted average fair value of the options granted during the year was $0.12 (2007: $NIL; 2006: $NIL). The following table summarizes information concerning options outstanding at March 31, 2008: Total Oustanding and Exercisable -------------------------- Weighted Average Number of Remaining Exercise Price Shares Life (Years) -------------- --------- ------------- $0.51 545,000 $ 4.67 ========= ============ Page 65 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 10. Capital stock (Continued) For the year ended March 31, 2008, the total compensation expense related to the fair value of stock options was $64,860 (2007: $Nil). This amount has been credited to contributed surplus. The fair value of these stock options was determined using the Black-Scholes option pricing model with the following weighted average assumptions: no dividends are to be paid; expected volatility of 36%; risk-free rate of 4.1% and expected life of 2 years. 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 became 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 $72,600 at March 31, 2008 (2007: $57,600; 2006: $52,600)) and the original proceeds received under the unit offering ($500,000). The Company has presented its obligation under this put as a current liability. - -------------------------------------------------------------------------------- 11. 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 four years are: 2009 198,823 2010 173,234 2011 87,119 2012 12,408 The operating lease agreement for one office premise was with a partnership in which the president of Allura Diamonds Limited had an interest prior to fiscal 2008. - -------------------------------------------------------------------------------- 12. Change in non-cash operating working capital
2008 2007 2006 ----------- ------------ ---------- Receivables $ 1,286,068 $ (768,773) $ (297,111) Income taxes (80,964) 222,694 (161,576) Inventories 21,757 (1,445,027) 956,588 Prepaids 109,078 (129,333) 8,247 Accounts payable and accrued liabilities (582,848) (265,758) (476,999) ----------- ------------ ---------- $ 753,091 $ (2,386,197) $ 29,149 =========== ============ ==========
Page 66 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 13. Related party transactions Related party transactions during the year and balances at year end are summarized as follows:
2008 2007 2006 -------- --------- --------- (a) International Bullion and Metal Brokers (London) Limited Transactions Interest and guarantee fee expenses $ 97,761 $ 116,147 $ 115,869 Balances Accounts payable and accrued liabilities $ 31,833 $ 14,292 $ 66,914 b) Other Rent paid to nil (2007: one; 2006: two) related partnerships (Note 11) $ -- $ 9,900 $ 100,413 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. - -------------------------------------------------------------------------------- 14. 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: 2008 2007 ----------- ----------- Canadian dollar $ 1,297,106 $ 1,224,052 U.S. dollar 1,840,639 2,512,552 Euro 210,774 185,757 GBP 493 9,499 ----------- ----------- $ 3,349,012 $ 3,931,860 =========== =========== The Company does not use derivative instruments to reduce its exposure to foreign currency risk. Page 67 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 14. Financial instruments and risk management (continued) 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 and cash flows in future periods. 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, 2008, 41% (2007: 53%) of the Company's accounts receivable was owed by 2 customers (2007: 2) as per the table below. 2008 Percent 2007 Percent --------------------- --------------------- Company A $ 1,019,377 22% $ 1,661,388 33% Company B 883,813 19% 979,927 20% --------------------- --------------------- $ 1,903,190 41% $ 2,641,315 53% ===================== ===================== Fair value The Company's financial instruments, including cash, receivables, bank indebtedness, accounts payable, and accrued liabilities are carried at amounts which approximate their fair value due to their short-term nature. Obligation under put option is stated at its estimated fair value. Lease obligations have been recorded at their fair value at inception and are being amortized using the effective interest rate implicit in the lease. - -------------------------------------------------------------------------------- Page 68 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 15. Significant customers Three major customers account for 52% of sales in 2008 (2007: 50%, 2006: 32%) as follows: 2008 2007 2006 ---- ---- ---- Company A 25% 22% 7% Company B 18% 19% 22% Company C 9% 9% 3% ---- ---- ---- 52% 50% 32% ==== ==== ==== - -------------------------------------------------------------------------------- 16. Differences between Canadian and U.S. generally accepted accounting principles and practices 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. Accounting for uncertainty in income taxes In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The impact of the Company's reassessment of its tax positions in accordance with FIN 48 did not have a material effect on the results of operations, financial condition or liquidity. The Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement No. 109" ("FIN 48") effective April 1, 2007. The adoption of FIN 48 on April 1, 2007 did not result in a cumulative effect adjustment to accumulated deficit. At April 1, 2007, the Company had $nil of unrecognized tax benefits which, if recognized, would favorably affect the effective income tax rate in future periods. Consistent with its historical financial reporting, the Company has elected to classify interest expense related to income tax liabilities, when applicable, as part of the interest expense in its Consolidated Statements of Operations rather than income tax expense. The Company will continue to classify income tax penalties as part of selling, general and administrative expense in its Consolidated Statements of Operations. To date, the Company has not incurred material interest expenses or penalties relating to assessed taxation years. Page 69 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 16. Differences between Canadian and U.S. generally accepted accounting principles and practices (continued) Accounting for uncertainty in income taxes (continued) The last year examined by the CRA is 2006. The Company's primary provincial tax jurisdictions are British Columbia, Nova Scotia and Ontario and there is no international jurisdiction. The following table summarizes the open tax years for each major jurisdiction: Jurisdiction Open Tax Years ---------------- -------------- Federal 2007 - 2008 British Columbia 2007 - 2008 Nova Scotia 2007 - 2008 Ontario 2007 - 2008 Recent accounting pronouncements Recent accounting pronouncements affecting the Company's future financial reporting under U.S. GAAP are summarized below. a) FASB Statement No. 157, Fair Value Measurements -SFAS 157 In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB staff issued a staff position that delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities except for those recognized or disclosed annually. The FASB also issued FAS-157-1, "application of FASB Statement No. 157 to FASB Statement No. 13 and other Accounting Pronouncements that address Fair Value Measurements for Purposes of Lease Classifications or Measurements under SFAS Statement No. 13". The Company is required to adopt the provision of SFAS 157, as applicable, beginning in fiscal year 2009, and is currently in the process of evaluating the expected effect of SFAS 157 on its results of operations and financial position. b) FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities -- Including an Amendment of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities Page 70 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 16. Differences between Canadian and U.S. generally accepted accounting principles and practices (continued) Recent accounting pronouncements (continued) In February 2007, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities -- Including an Amendment of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 159"). SFAS No. 159 permits an entity to choose to measure many financial instruments and certain items at fair value. The objective of this standard is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reporting earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. Entities will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007, which for us would be our fiscal year beginning April 1, 2008. The Company is currently evaluating the impact that the adoption of SFAS No. 159 will have on its consolidated financial statements. c) FASB Statement No. 141(R) Business Combinations - SFAS No. 141(R), In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS 141(R)"). SFAS141(R) replaces SFAS No. 141, "Business Combinations", but retains the requirement that the purchase method of accounting for acquisitions be used for all business combinations. SFAS 141(R) expands on the disclosures previously required by SFAS 141, better defines the acquirer and the acquisition date in a business combination, and establishes principles for recognizing and measuring the assets acquired (including goodwill), the liabilities assumed and any non-controlling interests in the acquired business. SFAS 141(R) also requires an acquirer to record an adjustment to income tax expense for changes in valuation allowances or uncertain tax positions related to acquired businesses. SFAS 141(R) is effective for all business combinations with an acquisition date in the first annual period following December 15, 2008; early adoption is not permitted. The Company will adopt this statement as of April 1, 2009. The impact of SFAS 141(R) will have on the Company's consolidated financial statements will depend on the nature and size of acquisitions it completes after it adopts SFAS 141(R). d) FASB Statement No. 160 Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51 SFAS No. 160 In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51" (SFAS 160). SFAS 160 requires that non-controlling (or minority) interests in subsidiaries be reported in the equity section of the company's balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and equity. SFAS 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the controlling company's income statement. SFAS 160 also establishes guidelines for accounting for changes in ownership percentages and for deconsolidation. SFAS 160 is effective for financial statements for fiscal years beginning on or after December 1, 2008 and interim periods within those years. The adoption of SFAS 160 is not expected to have a material impact on the Company's financial position, results of operations or cash flows. - -------------------------------------------------------------------------------- Page 71 of 77 - -------------------------------------------------------------------------------- Allura International Inc. Notes to the Consolidated Financial Statements (expressed in Canadian dollars) March 31, 2008, 2007 and 2006 - -------------------------------------------------------------------------------- 17. Subsequent event On July 29, 2008, the Board of Directors of the Company declared a dividend of US$0.05 per share to be paid to shareholders on record as of July 31, 2008. Four major shareholders have waived their right to receive the dividend declared. Total dividend payable is estimated to be approximately $46,587. - -------------------------------------------------------------------------------- 18. Administrative and selling and delivery expenses 2008 2007 2006 ------------ ------------ ------------ Administrative Alarm and security $ 8,667 $ 8,517 $ 7,043 Automobile 12,052 9,897 4,649 Bad debts 42,852 (108,546) 127,180 Consulting 182,380 70,896 190,197 Insurance 258,087 294,717 258,105 Legal and accounting 220,973 256,728 157,618 Office and miscellaneous 192,313 170,742 139,586 Rent (Note 13(b)) 236,140 233,067 177,395 Salaries and wages 2,296,187 2,094,047 1,804,959 Telephone 40,864 51,044 39,890 Travel, meals and entertainment 47,963 76,175 44,345 ------------ ------------ ------------ $ 3,538,478 $ 3,157,284 $ 2,950,967 ------------ ------------ ------------ Selling and delivery Advertising 151,901 123,476 61,304 Freight and shipping 265,616 310,721 315,966 Sales commission 327,427 362,813 244,025 Salaries and wages 210,406 130,811 -- Selling 166,860 173,710 199,964 ------------ ------------ ------------ $ 1,122,210 $ 1,101,531 $ 821,259 ============ ============ ============ - -------------------------------------------------------------------------------- 19. Comparative amounts Certain comparative amounts have been reclassified to conform to the presentation adopted in the current year. - -------------------------------------------------------------------------------- Page 72 of 77 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. and MacDonald Dettwiler and Associates, Ltd., and certain other parties thereto; 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 Certifications by C.E.O and CFO. 13.1 Section 906 Certifications by C.E.O and CFO. Page 73 of 77 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 September 25 2008 /s/ "Jeremy Bowman" - ------------------------- Jeremy Bowman, CEO Page 74 of 77 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; 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 Certifications by C.E.O and CFO 13.1 Section 906 Certifications by C.E.O and CFO Page 75 of 77 EX-12.1 2 d74993_12-1.txt CERTIFICATION EXHIBIT 12.1 Certification of Chief Executive 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)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and 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 report is being prepared; (b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; (c) 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 (d) 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting. DATED at Vancouver, British Columbia, Canada, as of September 25 2008 /s/ "Jeremy Bowman" - ------------------- Jeremy Bowman, CEO EXHIBIT 12.1 Certification of Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 I, Lan Shangguan, certify that: 6. I have reviewed this annual report on Form 20-F of Allura International Inc.; 7. 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; 8. 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; 9. 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)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and 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 report is being prepared; (b) Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; (c) 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 (d) 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 10. 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting. DATED at Vancouver, British Columbia, Canada, as of September 25 2008 /s/ "Lan Shangguan" - ------------------- Lan Shangguan, CFO Page 76 of 77 EX-13.1 3 d74993_13-1.txt CERTIFICATION EXHIBIT 13.1 Certification of Chief Executive 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, 2008 (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 September 25 2008 by: /s/ "Jeremy Bowman" ------------------- Jeremy Bowman CEO The foregoing certification is being furnished solely pursuant to 18U.S.C. Section 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. Certification of Chief Executive Officer pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 I, Lan Shangguan, Chief Financial 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, 2008 (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 September 25 2008 by: /s/ "Lan Shangguan" ------------------- Lan Shangguan CFO The foregoing certification is being furnished solely pursuant to 18U.S.C. Section 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 77 of 77 -----END PRIVACY-ENHANCED MESSAGE-----