UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
|_| 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, 2004
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_______.
Commission File Number: 0-30228
ALLURA INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant's name into English)
Canada
(Jurisdiction of incorporation or organization)
1555 West 8th Avenue, Vancouver, B.C., Canada, V6J 1T5
(Address of Principal executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Number of outstanding shares of each of the issuer's classes of capital or
common stock as of March 31, 2004: 15,240,302 Common Shares, Without Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes |X| No|_|
Indicate by check mark which financial statement item the Registrant has elected
to follow: Item 17 |X| Item 18 |_|
(APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court: Yes |_| No |_|
Page 1 of 81
Form 20F Fiscal 2004
TABLE OF CONTENTS
Page
----
PART I
Item 1. Identity of Directors, Senior Management and Advisers............. 3
Item 2. Offer Statistics and Expected Timetable........................... 3
Item 3. Key Information................................................... 3
Item 4. Information on the Company........................................ 11
Item 5. Operating and Financial Review and Prospects...................... 22
Item 6. Directors, Senior Management and Employees........................ 32
Item 7. Major Shareholders and Related Party Transactions................. 36
Item 8. Financial Information............................................. 40
Item 9. The Offer and Listing............................................. 40
Item 10. Additional Information............................................ 41
Item 11. Quantitative and Qualitative Disclosures about Market Risk........ 47
Item 12. Description of Securities other than Equity Securities............ 49
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies................... 49
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds............................................. 49
Item 15. Controls and Procedures........................................... 49
Item 16A Audit Committee Financial Expert.................................. 50
Item 16B. Code of Ethics.................................................... 50
Item 16C. Principal Accountants Fees and Services........................... 51
Item 17. Financial Statements.............................................. 51
Item 18. Financial Statements.............................................. 75
Item 19. Exhibits.......................................................... 75
Signatures........................................................ 76
Index to Exhibits Filed........................................... 77
Page 2 of 81
Form 20F Fiscal 2004
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 1933, 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 1933, and accordingly, the information called for in Item 2 is
not required.
ITEM 3. KEY INFORMATION
A. Selected Financial data.
The following 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, 2004, 2003,
2002, 2001 and 2000. 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. To date, the Company has not
paid any dividends on its common shares. The Company's policy at the present
time is to retain earnings for corporate purposes. 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. Since the Company is currently in an expansion stage, it is
unlikely that earnings will be available for payment of dividends in the near
future.
The Financial Statements of the Company have been prepared in accordance
with accounting principles generally accepted in Canada ("Canadian GAAP"). There
are no material differences between Canadian GAAP and the accounting principles
that are generally accepted in the United States ("U.S. GAAP") as applied to the
Company, including disclosure items, excepting those disclosed in the financial
statements under note 17.
The following tables set forth information in Canadian dollars.
Page 3 of 81
Form 20F Fiscal 2004
- ------------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------
Net Sales $16,677,588 $17,613,486 $15,220,387 $15,934,093 $15,716,965
- ------------------------------------------------------------------------------------------------------
Gross profit $ 4,520,794 $ 4,605,905 $ 3,573,847 $ 4,198,841 $ 4,225,703
- ------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 333,781 $ 404,584 $(1,037,146) $ (583,992) $ (222,769)
- ------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Common
Share (1) $ 0.02 $ 0.03 ($0.07) ($0.04) ($0.02)
- ------------------------------------------------------------------------------------------------------
Outstanding shares (1) 15,240,302 15,240,302 15,355,055 15,355,055 13,429,868
- ------------------------------------------------------------------------------------------------------
Total Assets $11,539,964 $12,285,925 $13,624,443 $12,644,535 $11,193,082
- ------------------------------------------------------------------------------------------------------
Working Capital $ 2,637,663 $ 2,250,619 $ 1,825,796 $ 1,763,449 $ 906,377
- ------------------------------------------------------------------------------------------------------
Long Term Liabilities -- -- -- -- --
- ------------------------------------------------------------------------------------------------------
Total Liabilities $ 8,672,432 $ 9,752,174 $11,327,737 $ 9,310,683 $ 9,001,595
- ------------------------------------------------------------------------------------------------------
Non Controlling Interest -- -- -- -- --
- ------------------------------------------------------------------------------------------------------
Shareholder's Equity $ 2,867,532 $ 2,533,751 $ 2,296,706 $ 3,333,852 $ 2,191,487
- ------------------------------------------------------------------------------------------------------
Dividends declared per share -- -- -- --
- ------------------------------------------------------------------------------------------------------
(1) The information in this table has been retroactively restated to reflect a
2 for 1 split during 2000 of the Company's shares.
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. The rate of exchange means the noon buying rate
in New York City for cable transfer in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York. The average rate
means the average of the exchange rates on the last date of each month
during a calendar year. We do not represent that the Canadian dollar or
the US dollar amounts could be converted into US dollars or Canadian
dollars, as the case may be at any particular rate, the rates set forth
below, or at all.
(a) On August 31, 2004, the noon buying rate in New York City for cable
transfers in Canadian dollars as certified for customs purposes by the
Federal Reserve Bank was $1.00 US = $1.3166 Canadian.
Page 4 of 81
Form 20F Fiscal 2004
(b) The following table sets forth the high and low exchange rates for
each month during the previous six months:
Canadian Dollar/US Dollar
Month Low High
August 2004 $1.2964 $1.3314
July 2004 $1.3082 $1.3353
June 2004 $1.3407 $1.3772
May 2004 $1.3702 $1.3970
April 2004 $1.3095 $1.3711
March 2004 $1.3100 $1.3480
(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, 2004 $1.3491
March 31, 2003 $1.5447
March 31, 2002 $1.5638
March 31, 2001 $1.5360
March 31, 2000 $1.4871
B. Capitalization and indebtedness.
This Form 20-F is being filed as an annual report under the Securities
Exchange Act of 1933, and accordingly, the information called for in this
Item 3.B is not required
C. Reasons for the offer and use of proceeds.
This Form 20-F is being filed as an annual report under the
Securities Exchange Act of 1933, and accordingly, the information called
for in Item 3.C is not required.
Page 5 of 81
Form 20F Fiscal 2004
Risk Factors.
The Company's business is subject to a number of risk factors that
are set forth below. Additional risks and uncertainties not now known to us or
that we think are immaterial may also adversely impact or impair our business.
If any of the following risks actually occur, our business, results of
operations, or financial condition would likely suffer.
Since most of the Company's products are manufactured by outside manufacturers,
the loss of one or more of these suppliers as well as any damages to materials
held by the suppliers to make the Company's products may adversely affect the
Company's business.
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 2004, Company purchased gold and silver
products from over 158 suppliers, with the five largest suppliers accounting for
approximately 29% of the Company's total purchases. In the diamond jewellery,
loose stone and coloured stone area, the company purchased products from
approximately 25 suppliers, while the five largest suppliers accounted for 60%
of the Company's total purchases. Historically, a substantial portion of the
Company's purchases have been concentrated with a relatively small number of
suppliers, accordingly, the loss of any supplier would have a material adverse
effect on its business.
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 gold or diamonds had become relatively
stable.
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 calendar
quarters, which include the Christmas shopping season, generally produce the
strongest results, and the second calendar quarter generally produces the
weakest results. 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 6 of 81
Form 20F Fiscal 2004
The Company's business may be adversely affected if it were to lose the services
of Mr. Jeremy Bowman and/or other key employees.
The Company's business is substantially dependent on the efforts and
abilities of Jeremy Bowman, its Chief Executive Officer. The loss of Mr.
Bowman's services may have a material adverse effect on the Company's business.
The Company is currently negotiating an employment agreement with Mr. Bowman;
however, it has not yet been finalized. The Company does not maintain any key
man life insurance on Mr. Bowman's life. The Company is also negotiating an
employment agreement with Mr. Thomas Weckman, President of ADL, which has not
yet been finalized. There are no assurances that agreements currently being
negotiated will be finalized.
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.
The Company faces competition from a number of different companies some of which
have greater financial and other resources than the Company.
The Company's business is highly competitive, and the distribution
channels in which the Company markets its products frequently involve different
competitive factors. Some companies in the jewelry industry may have greater
financial and other resources than the Company. See "Information on the Company-
Business Overview - Competition."
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 is 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. As a gesture of good will the Company provides a
stock balancing service, primarily to large retailers, in order to assist them
with maintaining inventory levels in an efficient way. Stock balancing
transactions involve taking back products for resorting and redistribution to
other stores within the retailers group.
The Company's operations are subject to significant influence by a stockholder.
Each of Jeremy Bowman, the Company's Chief Executive Officer, and Sheila
Bowman, a Company Director and Chairperson of the Audit Committee, owns 462,500
shares of the Company's common stock, which represents, in the aggregate, 6% of
the Company's issued and outstanding common stock. In addition, the Bowman
Family Trust, of which Mrs. Bowman and her children are beneficiaries
Page 7 of 81
Form 20F Fiscal 2004
and of which Mr. Bowman is one of the three trustees owns 5,325,000 shares of
the Company's common stock, representing approximately 35% of the Company's
issued and outstanding common stock. Mr. Bowman directly owns approximately 3%
of the Common Stock. Accordingly, because of his stock ownership and positions
with the Company, Mr. Bowman will be able to significantly influence all matters
requiring approval of the Company's shareholders, including the election of
directors and the approval of mergers or other business combinations.
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 NASDAQ
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 NASDAQ Stock Market, Inc.'s
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
Page 8 of 81
Form 20F Fiscal 2004
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 15,240,302 shares and an
additional 3,000,000 shares reserved for issuance upon the exercise of 2,357,500
options; all but 429,868 of which, are "restricted securities" as that term is
defined under the Securities Act of 1933, as amended (the "Act"), and in the
future may be sold in compliance with Rule 144 of the Act, pursuant to an a
Registration Statement filed under the Act, or other applicable exemptions from
registration thereunder. Rule 144 provides, in essence, that a person holding
restricted securities for a period of one year may sell those securities in
unsolicited brokerage transactions or in transactions with a market maker, in an
amount equal to one percent of the Company's outstanding Common Stock every
three months. Additionally, Rule 144 requires that an issuer of securities make
available adequate current public information with respect to the issuer. Such
information is deemed available if the issuer satisfies the reporting
requirements of Sections 13 or 15(d) of the Exchange Act and of Rule 15c2-11
thereunder. Rule 144 also permits, under certain circumstances, the sale of
shares by a person who is not an affiliate of the Company and who has satisfied
a two-year holding period without any quantity limitation and whether or not
there is adequate current public information available. Investors should be
aware that sales under Rule 144, or pursuant to a Registration Statement filed
under the Act, might have a depressive effect on the market price of the
Company's Common Stock in any market that may develop for such shares.
Since the Company is a Canadian corporation it may be difficult for US
shareholders to effect service of process or to enforce judgments obtained in
the US.
The Company is a Canadian corporation. All of its directors and officers
are residents of jurisdictions other than the United States and a significant
part of its assets are, or will be, located outside of the United States. As a
result, it may be difficult for shareholders resident in the United States to
effect service within the United States upon the Company, and/or such directors
or officers who are not residents of the United States, or to realize in the
United States upon judgments of courts of the United States predicated upon
civil liability of any of the Company, or such directors or officers, under the
United States federal securities laws. The Company has been advised by its
Canadian counsel that there is substantial doubt as to whether Canadian courts
would (i) enforce judgments of the United States courts of competent
jurisdiction obtained against the Company, or such directors or officers,
predicated upon the civil liabilities provisions of such securities laws, or
(ii) impose liabilities in original actions against the Company or its directors
or officers predicated solely upon such securities laws. Accordingly, United
States shareholders may be forced to bring actions against the Company and its
directors and officers under Canadian law and in Canadian courts in order to
enforce any claims that they may have against the Company or its directors or
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.
Page 9 of 81
Form 20F Fiscal 2004
The Company's profitability may be affected by 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. Unfavorable changes in the applicable exchange rates may
result in a decrease or increase in foreign exchange gain or loss.
The Company does not use derivatives to reduce its exposure to foreign
currency risk.
The Company's profitability 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 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. 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.
The Company's profitability may be affected by commodity price sensitivity.
The future revenue and profitability of the Company will be dependent, to
a significant extent, upon prevailing spot market prices for gold and diamonds.
In the past, gold and diamond prices have been volatile. Prices are subject to
wide fluctuations in response to changes in supply and demand for gold and
diamonds, market uncertainty and a variety of additional factors that are beyond
the control of the Company. The Company does not engage in any hedging
activities.
Recently Enacted And Proposed Changes In Securities Laws And Regulations Are
Likely To Increase Our Costs.
In July 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 ("SOX"). The purpose of the SOX is to, among other things, protect
investors by improving the accuracy and reliability of corporate disclosures
made pursuant to the securities laws. We expect these developments to increase
the legal and financial compliance costs, and to make some activities more
difficult. For example, we expect these developments to make it more difficult
and more expensive for public companies to obtain director and officer liability
insurance. These developments could make it more difficult for us to attract and
retain qualified members of our board of directors, particularly to serve on an
audit committee, and qualified executive officers. We are presently evaluating
and monitoring
Page 10 of 81
Form 20F Fiscal 2004
regulatory developments and cannot estimate the timing or magnitude of
additional costs we may incur as a result. Furthermore, proposed changes in the
accounting rules, including legislative and other proposals to account for
employee stock options as compensation expense, could increase the expenses that
we report under GAAP and adversely affect our operating results. While we will
endeavor to establish the requisite procedures and structure our corporate
governance in accordance with SOX and the rules and regulations issued by the
SEC thereunder, we cannot assure you that we will be successful in this regard
or that the costs we incur in doing so will not prove exorbitant.
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"). Collectively, IBB and ADL are referred to as the "Jewellery Division",
and together with Bygo, as the "Subsidiaries," and together with the Company, as
the "Allura Group."
The Company, through the Jewellery Division, is primarily in the business
of wholesaling gold, sterling silver and diamond jewelry in Canada. Its customer
base is comprised of large national chains as well as independent retailers.
During 2000, the company incorporated a wholly owned subsidiary Bygo. Bygo
currently has business-to-business and business-to-consumer Internet commerce
sites. Since its inception, Bygo has earned minimal revenues as it has primarily
devoted its efforts and resources to develop the software and hardware necessary
to execute its business plan. Bygo operates 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) 683-5979. IBB and Bygo operate out of the Vancouver facility, however ADL
has its principal office in Halifax at Unit 104, 276 Bedford Highway, Halifax,
N.S., B3M 2K6. The telephone number for ADL is (902) 457-7654 and the fax number
is (902) 443-8414.
Business History
Page 11 of 81
Form 20F Fiscal 2004
The Company was initially formed to import European jewelry into Canada.
The objective of the Company has been to be a specialized supplier of gold,
silver and diamond jewelry within the following principal sectors:
Department stores
Catalogue retailers
Mass merchants
Major discounters
Major jewelry retailers
Independent jewelry stores
B. Business Overview
Current Operations
The Company conducts its jewelry wholesaling operations through the
Jewelry Division, and conducts its e-commerce business through Bygo.
The Company's mass marketing jewelry operations are conducted through IBB,
while ADL's primary focus is the independent jewelry 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 most 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 Dreamcatchers(TM),
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 silver
jewelry to major retailers and jewelry chains.
IBB's sales are divided approximately 82% to major retail and jewelry
store chains and 18% to independent jewelry stores. IBB has created a strong and
resourceful management team and continues to invest more to develop and improve
on management information systems and computer equipment. This strategy has
built a strong management infrastructure, which is ready to handle possible
expansion throughout the North American markets.
The Activities of ADL
ADL was established in 1994 as a premier diamond house to market finished
diamond jewelry and loose diamonds. ADL currently specializes in finer diamond
jewelry.
Page 12 of 81
Form 20F Fiscal 2004
ADL sales are divided approximately 16% to major retail and jewelry store
chains and 84% to independent jewelry stores. ADL's lower priced diamond jewelry
to major retailers is marketed through IBB. In 2002, ADL incorporated the
"Canadian Diamond" into its range of products. Then in 2004 ADL introduced a new
"Diamond Collection Certificate" certifying rings within this product category
as a true Canadian made product. This certificate accompanies all products
within the "Hearts and Arrows" and "Ideal Cut Diamond" collections.
The Activities of Bygo
Bygo was established in May 2000 to operate Allura's Internet Commerce
business, which comprises of a business-to-business and business-to-consumer
e-commerce service. Bygo's e-commerce business provides a catalog based web site
for suppliers in the jewelry and giftware industry to facilitate online business
transactions.
Since its inception, Bygo has earned minimal revenues by primarily
devoting its efforts and resources to develop the software and hardware
necessary to execute its business plan. Bygo operates as an on-line e-commerce
facilitator of jewelry, paper goods and giftware distribution.
The Allura Group
The Allura Group offers its customers a large selection of jewelry styles,
consistent product quality, 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 61% of the Company's net sales in fiscal
2004, 58% in fiscal 2003 and 56% in fiscal 2002. 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 2004, sales were made to
approximately 600 customers; with over 1400 retail locations, and with no single
customer accounting for more than approximately 21% of net sales. The Company's
six largest customers accounted for approximately 61% of sales in fiscal 2004,
58% in fiscal 2003 and 56% in fiscal 2002.
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 jewelry, 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
Page 13 of 81
Form 20F Fiscal 2004
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.
Industry Background
Gold Jewelry
According to the World Gold Council, retail sales of karat jewelry in North
America for 2003 were US$16.3 billion. Dollar sales in 2003 increased by 2.54%
from the previous year (2002 US$ 15.9 billion), and by 1.99% from 2001 to 2002
(2001 US$15.6 billion). Unit volume grew by 3.92% to 214,389 million in 2003
from 206,306 million in 2002, and by 3.67% in 2002 from 199,004 million in 2001.
Gold jewelry sales have achieved a three-year growth rate of 12.27% in number of
unit terms (from 190,957 million to 214,389 million) and 6.72% in dollar terms
(from 15.3 billion to 16.3 billion) between December 2000 and December 2003.
In 2003, dollar value growth was up by 2.5% over the previous year with
Non-Store retail leading the way in sales growth (+3.9%), followed by Mass
Merchants (+3.6%), Jewelry Stores (+2.3%) and then Department Stores (+1.3%).
For the year, Jewelry stores accounted for 49.3% of all retail dollar value
sales (US$8,054,530), while Mass Merchandisers were 22.5% (US$3,688,152) and
Department Stores were 19.1% (US$3,120,431).
Diamonds
According to the Diamond Promotion Services 2003 North American (US and Canada)
retail sales of diamond jewelry (defined as jewelry containing at least one
diamond; regardless of size, and including diamond watches) was 29.8 billion.
This was a 6.2% increase over the 2002 retail sales number, and an 11.8%
increase over the 2001 number.
In volume terms, 44.1 million pieces of diamond jewelry were sold in the US in
2003, which is a 5.4% increase over 2002 and a 16.6% increase over 2001. (Note:
no volume data is available for Canada)
US sales by outlet. 75% by independent and small chain jewelry stores (under 30
stores) and by large chain Jewelers (30 plus stores). The remaining 25% is
distributed among discounters, department stores (national and regional), other
retail outlets, Internet and TV shopping.
In terms of sales, independent and small chains accounted for almost half of the
value in 2003, however they are loosing their market share to larger chains.
Larger chains experienced an 18% increase in the value of their market share in
2003 over 2002.
The largest area of growth in terms of style was seen in three-stone diamond
jewelry, with sales up 75% in 2003 over the same period in 2002. Diamond
necklaces also experienced strong growth in 2003, up 14%.
Internet Business to Business
Bygo provides a turnkey service for wholesale suppliers and retailers of
jewelry, giftware, and related product categories. Suppliers will outsource
catalogue creation, order transmission, purchasing
Page 14 of 81
Form 20F Fiscal 2004
facilitation and associated services to Bygo. This centralization of services
will enable suppliers and retailers, who may not otherwise have the capacity to
do so, to participate in the Internet marketplace and take advantage of the
potential benefits offered by e-commerce.
Business Strategy
The Company expects that its market share of the business generated by
large jewelry retailers will continue to trend upwards as manufacturers and
distributors with the size and sophistication to satisfy the specialized service
needs of these large retailers become increasingly in demand. The specialized
services required by these retailers include bar coding, individualized
packaging, "drop-shipping" to individual locations and the ability to
participate in electronic data interchange ("EDI") programs. The Company
believes these services are not available from all suppliers within the
industry. Currently, the Company has the capability and resources to provide
such services and have 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 jewelry industry.
Further, the Company believes that its business strategy will allow it to
leverage the expertise and customer base it has established in the Canadian
market to create future sales in the much larger markets of the United States.
The Company believes that the most important elements of its business
strategy are:
Focused Customer Base. While the Company has developed a broad customer
base, the Company targets its marketing efforts towards large retailers, such as
mass merchandisers, department stores, jewelry retail chains, and other major
discount stores. These customers typically require a high level of service, and
the Company seeks to build long-term relationships by making it convenient and
cost-effective for these customers to rely on the Company for essential services
such as product design, inventory control and on time delivery.
Customer Service. The Company offers prompt and reliable order fulfillment
and a wide range of specialized services, including individualized packaging of
jewelry 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 jewelry styles and range of products that include
precious and semi precious stones, gold jewelry and silver jewelry.
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Form 20F Fiscal 2004
Product Diversity, Innovation and Value Pricing. The Company seeks to
provide its customers with a full line of high quality gold jewelry products
that incorporate traditional styles and designs. While the Company regularly
updates its product lines and offers new products, it seeks to avoid designs
incorporating high fashion trends that are expected to have short life cycles.
The Company currently offers approximately 1,400 styles of chains, earrings,
bracelets and rings. The Company's products are moderately priced, with the
majority of its products retailing at prices between $30 and $800, and the
relatively more expensive product line offered by ADL are intended to appeal to
consumers who are value-conscious as well as fashion-conscious. IBB has made
inroads into the silver jewelry market by securing programs with various
customers. The Company currently offers approximately 54 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 jewelry without corresponding
increases in product costs. The Company also works closely with major customers
to develop products, which are sold exclusively by those customers.
Internet Operations. The Company currently has two Internet web domain
names registered for its jewelry operations, AlluraJewelry.com and ibbgold.com.
Both sites are currently set up for e-commerce order facilitation using the Bygo
web site. The Company has established an e-commerce solution that covers
products in the jewelry, home wares, paper goods and giftware industries, which
operates under bygo.net and bygo.com.
The Company has reserved a number of domain names for use in its Internet
operations including, but not limited to: bygo.com, bygo.net, bygo.ca, bygo.org,
buygo.com, and bygo.biz.
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 jewelry retailers and independent
jewelry 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 61% of the Company's net sales in fiscal 2004, 58% in fiscal
2003 and 56% in fiscal 2002. The company had three (2003: two) customers, sales
to each of whom exceeded 10% of the total sales. They are representative of the
customers to which the Jewellery Division's marketing efforts are directed. The
Company continues to expand its customer base.
The Company believes that providing exceptional customer services is a key
element of its marketing program. The Company's marketing efforts emphasize its
ability to fill orders in a prompt and reliable fashion. The Company maintains
an extensive inventory of finished goods, which enable it to rapidly fill
customer orders often within 24 hours of receipt. The Company believes many of
its competitors manufacture products only upon the receipt of customer orders
and generally has only a limited ability to fill orders from existing stock. 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
Page 16 of 81
Form 20F Fiscal 2004
jewelry 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 and Halifax. The Company also has a National Sales Manager for major
accounts in Toronto, a National Independent Sales Manager, and five regional
independent customer service representatives who market to retail customers. In
addition, the Company's products are promoted through the use of the Internet,
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). The amount of consignment sales in the past three fiscal years was
approximately $4.4 million per year.
The Company accepts returns of products with defects in materials or
workmanship. The Company also accepts returns of certain items, primarily from
large retailers, in order to maintain customer goodwill and as part of
promotional programs. Returns of products which are not defective, generally,
are made as part of stock balancing transactions in which the returned products
are replaced with products better suited to the customer's particular market
needs.
While the Company sold its products to approximately 600 customers in
fiscal 2004, sales of the Company's six largest customers accounted for
approximately 61% of sales in fiscal 2004 and 58% in fiscal 2003 and 56% in
fiscal 2002. A specific breakdown of the Company's total revenues by segment of
activity for each of the last three fiscal years are included in Note 15 to the
Company's consolidated financial statements set forth herein in Item 17. All of
the Company's active customers are Canadian except Zales Corporation.
Products
The Company seeks to provide its customers with a full line of high
quality 10, 14 and 18 karat gold, silver jewelry and diamond jewelry products
that incorporate traditional styles and designs. While the Company regularly
updates its product lines and offers new products, it seeks to avoid designs
incorporating high fashion trends that are expected to have short life cycles.
The Company currently offers approximately 1,400 styles of chains, earrings,
bracelets and rings. The Company's products are
Page 17 of 81
Form 20F Fiscal 2004
moderately priced, with the majority of its gold products retailing at prices
between $30 and $800 and are intended to appeal to consumers who are
value-conscious as well as fashion-conscious. Through ADL, the Company sells
items of relatively higher price points, which will extend to an average high of
$2,500.
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 840 karat gold, 350
diamond and colored stone and 54 sterling silver products that are a regular
part of its product line. These products are traditionally designed diamond and
colored stone set items, karat gold and sterling silver chains and other jewelry
products for which there has been consistent demand. The Company continually
strives to update the balance of its product line with innovative, new styles.
New styles primarily are introduced at the 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.
A principal goal of the Company's new product program is to optimize the
perceived value of the Company's products through design and manufacturing
innovations that enhance the appearance of the jewelry without incurring
corresponding increases in product costs.
Service
Bygo provides a turnkey service for suppliers of jewelry, giftware, paper
goods, house wares and related product categories. Suppliers and retailers will
outsource catalogue creation, order transmission, purchasing facilitation and
associated services to Bygo. This centralization of services will enable
suppliers and retailers, who may not otherwise have the capacity to do so, to
participate in the Internet marketplace and take advantage of the potential
benefits offered by e-commerce.
Bygo's all-inclusive e-commerce service will allow suppliers
(manufacturers, wholesalers, or distributors) to place their entire product
range online in a comprehensive, professional, integrated catalogue, and assist
them in selling their goods to their bricks-and-mortar retail customers.
Services will be provided to all members of the distribution channel:
manufacturers, suppliers, sales reps, and retailers.
Purchasing
The Company purchases finished products from suppliers located principally
in North America,
Page 18 of 81
Form 20F Fiscal 2004
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 goods, including rings, bracelets, pendants and earrings........
The world's principal sourcing of rough diamonds is through De Beers
Consolidated Mines, Limited ("De Beers"), a South African company. The
continuing availability of diamonds to the jewelry industry is dependent, to
some degree, on a continuous supply from De Beers. While several other countries
are major suppliers of diamonds, in the event of an interruption of supply from
South Africa, the jewelry industry, as a whole, could be adversely affected,
which could impact the supply of diamonds to the Company.
During fiscal 2004, the Company purchased gold and silver jewelry products
from approximately158 suppliers. The largest supplier accounted for
approximately 12% of the Company's total purchases, and the five largest
suppliers accounted for approximately 29%. In the diamond jewelry, loose stone
and coloured stone area, the company purchased products from approximately 25
suppliers. The largest supplier accounted for approximately 25% of the Company's
total purchases, with the five largest suppliers accounting for 60%.
Although a substantial portion of the Company's purchases are concentrated
within a relatively small number of suppliers, the Company does not believe the
loss of any one supplier would have a material adverse effect on its business.
Alternative sources of supply for the finished goods purchased by the Company
are available. The Company has no long-term contractual relationship with any of
its suppliers
In order to maintain consistent product quality, the Company carefully
selects its suppliers and continually monitors the quality of their performance.
The Company has strict internal control procedures of all jewelry from
inspecting all materials sent and received from outside suppliers, monitoring
the location and status of all inventory to ensuring government rules and
regulations are followed through the entire purchasing and receiving process. A
complete physical inventory of gold, silver and gemstones is taken at the
Company's distribution and administrative facilities on an annual basis.
The Company does not presently engage in hedging when purchasing gold,
silver or diamonds. The Company believes the risk of price fluctuations can be
mitigated by changes in the prices the Company charges its customers and in the
nature of its contracts negotiated with its largest customers. Increases in the
price of diamonds, silver or gold, however, could adversely affect the profit of
the company. A decrease in the price of gold, silver or diamonds could also have
an adverse affect in the valuation of the Company's inventories.
Competition
The jewelry industry in North America is highly fragmented and
characterized by a large number of small to medium-sized manufacturers,
wholesalers and distributors. The Company's business is highly competitive, and
the Company's competitors include domestic and foreign jewelry manufacturers,
Page 19 of 81
Form 20F Fiscal 2004
wholesalers and importers who may operate on a national, regional or local
scale.
The Company believes that competition is based primarily on product
availability, timeliness of shipment, customer service, product quality, design
and price. The diverse distribution channels through which the Company markets
its products frequently involve different competitive factors. The ability to
provide specialized services is a particularly important competitive factor in
sales to certain large retailers such as mass merchandisers, discount stores and
catalogue retailers. Product availability and the ability to offer consistent
product quality at competitive prices tend to be the key competitive factors to
key customers that the Company serves. Some of the Company's competitors may
specialize in sales to particular distribution channels and may have
relationships with customers in those distribution channels that make
competition by the Company more difficult. The Company believes that the trend
towards consolidation at the retail level in the jewelry industry will increase
the level of competition in the markets in which the Company competes.
The Company believes its primary competitors for IBB to include PAJ Canada
(Canada and USA), Bel-Oro (Canada and USA), Chateau D'Argent (Canada) and R & B
Manufacturing (Canada and USA), and for ADL to include Corona (Canada and USA),
Master Design (Canada and USA), A & A Jewel Star (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.
Additionally, the Company carries credit insurance, which covers most of the
independent and major customer receivables.
Trademarks
The Company maintains certain Canadian and US registered trademarks. The
level of protection available to the Company for proprietary designs varies
depending on a number of factors, including the degree of originality and the
distinctiveness of the designs. No assurance can be given that the Company's
patent, copyrights and other proprietary rights will preclude competitors from
developing substantially equivalent products.
IBB uses trademarks in the sale of some of its products to further create
an exclusive identity for its customers. The following are some of the Canadian
registered trademarks used: Dreamcatchers(TM), Little Loves Gold Jewellery(TM),
Golden Moments(TM), Earresistables(TM), Tuscany Gold Collection(TM), and Tuscany
Silver(TM).
The Company has registered the trademark name bygo.com for its
exclusive use in
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Form 20F Fiscal 2004
Canada: BYGO.COM. The Company is in the process of registering the following
trademark name for its exclusive use in the USA: BYGO.COM. 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, 2004, the Company employed twenty-six persons on a full time
basis. As at August 31, 2004, there were twenty seven persons employed on a full
time basis. As at August 31, 2004, there are twelve employees in finance and
administration six in sales and merchandising, and nine in inventory warehouse.
Four employees are employed in the Halifax office, one is employed in Toronto,
and twenty two are employed in the Vancouver office. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its relations with its employees to be good.
Governmental Regulation
The tax laws of the Federal Government of Canada and the Provinces of
British Columbia and Nova Scotia govern the Company. Specifically, it is bound
by income, custom and excise tax rules and regulations regarding customs, all of
which are regulated by the federal government of Canada. In addition, the
Company is subject to the sales tax and employment laws of the Provinces of
British Columbia, Ontario and Nova Scotia. Changes in the tax rates governed by
these authorities may have a significant impact on the cash flows of the
Company.
The Company is also required to comply with the reporting requirements
under the 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, plants and equipment.
Real Property
The Company operates from leased premises in Vancouver and Halifax. The
Company's Vancouver office is located on 1555 West 8th Avenue, Vancouver, B.C.,
V6J 1T5, Canada and the Halifax office is located on Unit 104, 276 Bedford
Highway, Halifax, N.S., B3M 2K6, Canada.
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Form 20F Fiscal 2004
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 premises are leased from a partnership of which
Jeremy Bowman, the Company's President and a stockholder who has significant
influence on operations, is a partner. The Company believes that the terms of
the lease are as favorable as those that could be obtained from an unaffiliated
third party. The Company leases the Vancouver premise for $9,400 per month plus
expenses.
On May 27th, 2002, the Company leased an office in Halifax on a five year
fixed term starting July 1st, 2002 at $1,100 per month plus applicable taxes.
The Halifax lease has a 90-day cancellation provision for the benefit of ADL
only. The premises are leased on commercially agreed terms, from Torrington Bay
Investments Limited, in which Tom Weckman, the President of ADL, has an
interest. The Company believes the terms of this lease are as favorable as could
have been obtained from unaffiliated third parties. 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.
The Company believes that its current premises are adequate for the
Company's current operating level and presently foreseeable growth.
Equipment
The Company also owns a variety of office equipment consisting of
computers, photocopiers and other office equipment.
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 2004 v. Fiscal 2003
Sales for the fiscal year ended March 31, 2004 ("Fiscal 2004") were $16,677,588
compared to $17,613,486 for the fiscal year ended March 31, 2003 ("Fiscal
2003"), a decrease of $935,898 or 5.31%. The Fiscal 2004 sales decrease was
primarily a result of:
o The discontinuation of a Major customers program
o Economic factors which has resulted in conservative purchasing by
both independent and Major customers
o Tightening of credit policies to mitigate exposure to potential
losses, primarily in the area of independent sales
Cost of sales for Fiscal 2004 was $12,156,794 with a gross margin of 27.1%
compared to $13,007,581 with a gross margin of 26.2% for Fiscal 2003. The
decrease in cost of sales of $850,787 or 6.54% was a result of decreased sales
in Fiscal 2004. Gross margin percentage for the current year has improved
Page 22 of 81
Form 20F Fiscal 2004
from the prior year. This percentage improved partly as a result of an increase
in gold price and the improvement in the level of the Canadian Dollar.
General administrative costs increased by 7.12% or $168,715 from $2,369,232 in
Fiscal 2003 to $2,537,947 in Fiscal 2004. The changes were primarily a result
of:
o Salaries and Wages: The Company hired additional accounting, sales
and administration staff to manage the workload.
o Higher accounting and legal fees associated with working towards
compliance with more stringent regulatory requirements, and
consultation in connection with a unconsummated acquisition as
mentioned in Note 18, Subsequent Events, of the Notes to the
Consolidated Financial Statements.
Bad Debts: In the prior year there was a significant recovery of previously
written off accounts receivables relating to bad debts. In the current year
there were no similar recoveries.
Selling and delivery expenses decreased by $140,013 or 12.03% to $1,023,375 in
Fiscal 2004 from $1,163,388 in the prior year, as a result of:
o A reduction in commissionable sales
o The discontinuation of a major program that previously incurred
substantial delivery costs
o Display costs were lower that in previous years as a result of there
being no significant content changes to major programs
Interest and bank charges for Fiscal 2004 increased by 8.17% to $497,534 when
compared to the Fiscal 2003 figure of $459,939.The change was primarily a result
of:
o The company paying an interest fee this year for a $1,000,000
standby letter of credit, which was used as a guarantee to our bank
indebtedness.
Earnings before tax in Fiscal 2004 was $394,667 compared to $546,320 in Fiscal
2003. This decrease was substantially due to higher administrative expenses
coupled with a reduction in sales for the year.
Tax expense is determined by entity-based results and as such, the Company's tax
consists of corporate income taxes resulting from profitable operations in IBB
and ADL. Allura's and Bygo's e-commerce start-up costs have created losses that
may be used in future periods to reduce taxable income. As disclosed in note 10
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.
Net earnings for the year of $333,781 reflect a decrease of $70,803 over
last year's figure of $404,584.
Fiscal 2003 v. Fiscal 2002
Sales for the fiscal year ended March 31, 2003 ("Fiscal 2003") were
$17,613,486 compared to $15,220,387 for the fiscal year ended March 31, 2002
("Fiscal 2002"), an increase of $2,393,099 or 15.72%. The Fiscal 2003 sales
increase was primarily a result of:
o addition of a few mid-size customers that generated large initial
buys,
o expansion of an existing major customers programs and introduction
of such programs into
Page 23 of 81
Form 20F Fiscal 2004
additional stores of the customer, and
o no large inventory balancing provided to customers as in the
previous year.
Cost of sales for Fiscal 2003 was $13,007,581 with a gross margin of 26.2%
compared to $11,646,540 with a gross margin of 23.5% for Fiscal 2002. The
increase in cost of sales of $1,361,041 or 11.68% was a result of increased
sales in Fiscal 2003. Gross margin percentage for the current year has improved
from the prior year. In Fiscal 2002, certain inventories were written down to
net realizable value due to a major customer's stock balancing, as described
below in Fiscal 2002 v. Fiscal 2001; there were no similar write downs in
inventory in Fiscal 2003 as there were no significant customer stock balancing
transactions during the year. In addition, gross margin percentage improved as a
result of increase in gold price and the realization of currency gains. The
current year's gross margin is more consistent with gross margins enjoyed in
Fiscal 2001 and Fiscal 2000 as described in sections below.
General administrative costs decreased by 4.63% or $114,910 from
$2,484,142 in Fiscal 2002 to $2,369,232 in Fiscal 2003. The changes were
primarily a result of:
o Salaries and wages: The decrease of 6.13% or $99,608 in salaries and
wages was due to the normal attrition of staff. These positions were
either not replaced immediately or restructured to address the
changing needs of the Company. The restructure allowed the Company
to change the level of personnel required, along with a
corresponding decrease in the remuneration offered. In addition, a
salaried sales manager resigned and was replaced with an independent
sales representative who earned commission rather than a salary.
o Legal and accounting fees: The company spent $80,960 in accounting
and legal fees in Fiscal 2003 compared to $134,850 in the prior
year. This $53,890 or 39.9% savings was primarily due to the
settlement and finalization of the Bygo arbitration proceedings in
May 2003. The settlement avoided additional legal costs during the
year.
o Automobile: During the year, a salaried sales manager resigned from
the Company. His position required regular traveling for which the
Company paid mileage for kilometers traveled. The sales position was
replaced with an independent sales representative for which the
Company was not required to cover traveling expenses. Automobile
costs reduced $18,468 from prior year.
o Insurance fees: The increase in insurance fees by 38.9% or $54,362
from $139,567 to $193,929 reflects the cost of insuring greater
sales volumes and the elevated insurance premiums rates which are
reflective of general market changes during the year.
o Travel Expenses: In Fiscal 2003 $34,072 was paid out in travel
expenses compared to $63,261 in Fiscal 2002. This 46.1% decrease was
due to the departure of the sales manager referred to above. In
addition, another sales manager was not replaced when she was on
maternity leave during the year; the position was covered with
existing staff. This resulted in significant reductions in traveling
costs to visit customers and attending trade
Page 24 of 81
Form 20F Fiscal 2004
shows.
Selling and delivery expenses increased 4.89% to $1,163,388 in Fiscal 2003
from $1,109,066 in the prior year, as a result of:
o Freight and Shipping: Freight and shipping costs increased by 14.02%
to $197,501 from $173,214 in the prior year primarily as a result of
the increase in shipments to fulfill increased sales orders during
the year.
o Sales Commission: Commission increased by 66.24% or $85,175 from
$128,580 in Fiscal 2002 to $213,755 in Fiscal 2003 primary as a
result of using an independent sales representative, who earned
commissions rather than salary, to replaced a sales manager who
resigned.
Interest and bank charges for Fiscal 2003 decreased by 7.45% to $459,939
when compared to the Fiscal 2002 figure of $496,989. The decrease in interest
charges is from the reduction in bank indebtedness and the benefit from
continuing low interest rates during the year; the average prime rate decreased
from 5.0% to 4.4% during the year. During Fiscal 2003 the average carrying
values of bank loans with HSBC Bank Canada ("HSBC") of $6,825,000 decreased
$104,000 from $6,929,000 in the corresponding period last year.
Earnings before tax in Fiscal 2003 made a turnaround from a loss of
$1,056,605 in Fiscal 2002 to a profit of $546,320. This 151.71% change was
substantially due to increase in operating income from sales and gross margin
increases, as described above and from the reduction in administrative costs as
described above. In addition, the settlement of the dispute related to the
e-Commerce business avoided additional costs during the year. These costs
previously incurred in Fiscal 2002, and as disclosed in the financial
statements, were not repeated in Fiscal 2003.
Tax expense is determined by entity-based results and as such, the
Company's tax consists of corporate income taxes resulting from profitable
operations in IBB and ADL. Allura's and Bygo's e-commerce start-up costs have
created losses that may be used in future periods to reduce taxable income. As
disclosed in note 10 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.
Net earnings for the year of $404,584 is an increase of $1,441,730 over
last year's net loss of $1,037,146.
Fiscal 2002 v. Fiscal 2001
Sales for the fiscal year ended March 31, 2002 ("Fiscal 2002") were
$15,220,387 compared to $15,934,093 for the fiscal year ended March 31, 2001
("Fiscal 2001"), a decrease of $713,706 or 4.5%. The Fiscal 2002 sales decrease
was primarily a result of:
Page 25 of 81
Form 20F Fiscal 2004
o Inventory balancing provided to a major customer in order to
facilitate the future expansion of their current program and
o A general slowdown in independent customers business during the
year, which reflects current economic conditions.
Cost of sales for Fiscal 2002 was $11,646,540 with a gross margin of 23.5%
compared to $11,735,252 with a gross margin of 26.4% for Fiscal 2001. The
decrease in cost of sales of $88,712 or 0.8%, was due to decreased sales in
Fiscal 2002. The decrease in gross margin is primarily a result of the write
down of inventories from a customer stock balancing to net realizable value. The
value of inventory written down was approximately $482,000.
General and administrative costs decreased by 12.1% in Fiscal 2002 from
$2,827,489 to $2,484,142 primarily as a result of:
o Bad debt: The Company's bad debt expenses were significantly reduced
from $114,513 to $32,267, a reduction of $82,246 or 71.8%. During
Fiscal 2001, a few large independent customers defaulted on their
receivables. In Fiscal 2002, the Company has mitigated the risks of
further lost by insuring its receivables. The cost of the insurance
coverage is included in insurances expenses and approximates
$70,000.
o Legal and accounting fees: The Company spent $324,342 in accounting
and legal fees in Fiscal 2001 as compared to $134,850 in Fiscal
2002. This decrease of $189,492 or 58% is mainly due to a reduction
of costs associated with the Bygo arbitration proceedings started in
the prior year.
o Management fee: In fiscal 2001 $12,600 was paid in fees. In fiscal
2002 no fee was paid.
o Consulting fees: There was a reduction in consulting fees of $31,075
or 26% from $119,315 in fiscal 2001 to $88,240 in fiscal 2002 due to
a decrease in the requirement for consultation previously associated
with the startup of Bygo.
o Office and miscellaneous: There was a reduction in general office
expenses of $76,143 or 36% from $209,766 in fiscal 2001 to $133,623
in fiscal 2002. The decrease is mainly due to a staff reduction from
nine to three in the e-commerce division at the end of the prior
year and startup costs of Bygo not repeated during the year.
o Travel expenses: These expenses reduced 36% from $99,187 in 2001 to
$63,261 in 2002 due to the down sizing of the sales and marketing
division of Bygo.
Interest and other finance charges decreased by $171,753 or 25.7% in
Fiscal 2002 from
Page 26 of 81
Form 20F Fiscal 2004
$668,742 to $496,989 predominantly due to a reduction in interest rates.
Interest rates paid averaged 5.8% vs 8.2% in fiscal 2001. During Fiscal 2002,
the Company's average carrying value of bank loans with HSBC Bank Canada
("HSBC") of approximately $6,929,000 increased by $463,000 from $6,466,000. As
at March 31, 2002, the carry value of bank loans was $7,459,704, an increase of
$852,239 or 13%.
Selling and delivery cost decreased by $122,212 from $1,231,278 to
$1,109,066 or 9.9%. The decrease in selling and delivery is primarily result of:
o Marketing and selling cost: In Fiscal 2002 there was a 19% or
$55,710 decrease in the marketing costs as compared to Fiscal 2001.
This is mainly due to reduced expenses in Bygo as a result of
delayed completion of the web site.
o Sales commission: Sales commission costs for Fiscal 2002 decreased
by $62,084 or 33% as a result of the Company changing one of its
sales representatives from a commissionable representative to a
independent sales consultant. It should be noted that this reduction
in cost is offset by an increase in consulting fees.
Operating results before tax for the Company changed from a net loss of
$598,221 in Fiscal 2001 to a net loss of $1,056,605 in Fiscal 2002. The
Company's increased loss of $458,384 in Fiscal 2002 is attributed to decrease in
sales, a write down of inventory to net realizable value, a write down of
software development costs to recoverable value and other reasons detailed
above.
Tax expense is determined by entity-based results and as such, the
Company's tax consists of corporate income taxes resulting from profitable
operations in ADL. Allura's e-commerce start-up costs have created losses that
may be used in future periods to reduce taxable income. As disclosed in note 11
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.
Net loss for the year is $1,037,146 compared to a net loss of $583,992 in
Fiscal 2001, an increase in losses of $453,154.
Corporate Reorganization
In April 1999, the Company undertook the following steps to complete a
corporate re-organization: (i) it issued 250,000 shares to Thomas and Linda
Weckman to acquire the non-controlling interest of Allura Diamonds Limited
("ADL"), effectively rendering ADL a wholly owned subsidiary of IBB, (ii) it
transferred its net assets and operations to IBB; and (iii) it changed it's name
from IBB International Bullion and Metal Brokers (Canada) Limited to Allura
International Inc.
B. Liquidity and capital resources
During fiscal year 2000 the Company completed a private offering of
214,934 common shares
Page 27 of 81
Form 20F Fiscal 2004
from which it realized net proceeds of $128,960.
On January 11, 2000, the Company affected a stock two for one split of its
6,714,934 issued and outstanding common shares. This resulted in there being an
aggregate of 13,429,868 shares issued and outstanding.
During fiscal 2001, the Company (i) completed a private offering of
1,070,298 common shares from which it realized net proceeds of $1,535,004, (ii)
completed a second private offering of 400,000 shares from which it realized net
proceeds of $588,000, (iii) issued 340,136 common shares pursuant to an
investment agreement, ("Investment Agreement") to a venture capital group,
Business Development Bank of Canada, ("BDC") on July 25, 2000, ("BDC Investment
Date") for which it realized proceeds of $500,000 less issue costs of $23,867
and (iv) issued 114,753 common shares to MacDonald Dettwiler & Associates
("MDA") in exchange for contracted services in developing Bygo's web site for
value of $167,539.
During Fiscal 2003, the shares issued to MDA were returned to and
cancelled by the Company as part of the Settlement Agreement discussed in ITEM 5
H. OPERATING AND FINANCIAL REVIEW AND PROSPECTS-Legal Proceedings.
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 common share put
options were outstanding as at September 30, 2004.
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 $7,600,000. 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 and July 19, 2004 collectively referred to as the
Company's "Banking Agreement".
The margin requirements as defined by the Banking Agreement are as
follows:
Page 28 of 81
Form 20F Fiscal 2004
o 75% - 90% of eligible accounts receivable from IBB and ADL, margin
amounts allowable in excess of 75% are required to be supported by
the Company's credit insurance with Euler Hermes, effective August
1, 2004.
o 50% of combined inventory of IBB and ADL to a maximum of $2,500,000
for the months November through June and $3,050,000 for the months
of July through October, including a $1,000,000 sub-limit for ADL,
o 50% of consignment inventory to a maximum of $1,500,000 with certain
sub limits.
o 100% of the sum of Acceptable Credit instruments including
$1,000,000 presently on hand in support of a $4,000,000 guarantee
from International Bullion & Metal Brokers (London) Ltd. and
o Two shareholders guarantees limited to $400,000 each supported by
collateral against real properties.
The Company's borrowings bear interest at a rate equal to Canadian prime
plus 1/8% on the first $1,000,000 and prime plus 1% on the balance of the
facility. Interest on any borrowings is payable monthly. The Company is required
to report to its bankers on a monthly basis.
The Company's obligations under the Overdraft Loan are secured by a
General Security Agreement creating a first security interest on all the assets
of the Company and its subsidiaries, guaranteed by International Bullion & Metal
Brokers (London) Ltd. limited to $4 million and supported by a Standby Letter of
Credit for a minimum of $1,000,000 and two Guarantees by personal guarantors for
the Borrowers, limited to $400,000 each. The personal guarantees are supported
by mortgages on personal property.
For the year ended March 31, 2004, the combined overdraft loan amounted to
$5,360,432 The Company was in full compliance with its banking covenants as at
March 31, 2004 as disclosed in Note 6 to the Financial Statements. The facility
was renewed on July 19, 2004.
The Company's account receivables net of allowances for doubtful accounts
as at March 31, 2004 were $3,509,367 the balance in accounts receivable
represented 21.04% of net sales for Fiscal 2004.
The Company's inventory as at March 31, 2004 was $7,607,366 or 45.61 % of
net sales for Fiscal 2004. Inventory is such a large percentage of 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, which the Company must ensure sufficient inventory is
available at all times to achieve maximum ship value on each order and (iii)
increase in consignment goods under consignment
Page 29 of 81
Form 20F Fiscal 2004
agreements resulting from customers store and program expansion. ADL continues
to expand and develop its product line to increase selection and availability in
the market place.
The Company's accounts payable and accrued liabilities as at March 31,
2004 were $2,290,188 for Fiscal 2004. The Company does not anticipate any
difficulties in settling these obligations.
Except for anticipated aggregate lease payments for both IBB and ADL of
approximately $174,598 over the next five years, the Company has no significant
capital commitments as of August 31st 2004. 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, except as disclosed in note 17 to the Company's consolidated
financial statements.
C. Research and development, patents and licenses, etc.
The Company does not conduct research and development and holds no patents
or licenses.
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 in a noted
disclosure of our audited consolidated financial statements for the year ended
March 31, 2004.
F. Tabular Disclosure Of Contractual Obligations
The following table summarizes all of the outstanding obligations of the
Company's continuing operations by the year that they become due. We expect to
fund these obligations from operating income and equity/debt financing:
Page 30 of 81
Form 20F Fiscal 2004
- -----------------------------------------------------------------------------------------------------------------------
Payments due by period
-------------------------------------------------------
Less
Contractual Obligations than 1 More than 5
Total year 1-3 years 3-5 years years
- -----------------------------------------------------------------------------------------------------------------------
[Long-Term Debt Obligations]
- -----------------------------------------------------------------------------------------------------------------------
[Capital (Finance) Lease Obligations]
- -----------------------------------------------------------------------------------------------------------------------
[Operating Lease Obligations] $174,598 $131,698 $42,900
- -----------------------------------------------------------------------------------------------------------------------
[Purchase Obligations]
- -----------------------------------------------------------------------------------------------------------------------
[Other Long-Term Liabilities Reflected on the Company's
Balance Sheet under the GAAP of the primary financial
statements]
- -----------------------------------------------------------------------------------------------------------------------
Total $174,598 $131,698 $42,900
- -----------------------------------------------------------------------------------------------------------------------
G. Safe Harbor
Some of the information in this prospectus contains forward-looking
statements. Forward-looking statements represent our current expectations or
forecasts of future events and are based on our management's beliefs, as well as
assumptions made by and information currently available to them. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. These statements may include the words
"anticipate," "believe," "budget," "estimate," "expect," "intend," "objective,"
"plan," "probable" "possible," "potential," "project" and other words and terms
of similar meaning in connection with any discussion of future operating or
financial performances.
Any or all of our forward-looking statements in this Form 20-F may turn
out to be wrong. They can be affected by inaccurate assumptions or by known or
unknown risks and uncertainties. Many of these factors, including the risks
outlined under "Risk Factors," will be important in determining our actual
future results, which may differ materially from those contemplated in any
forward-looking statements.
When you consider these forward-looking statements, you should keep in
mind these risk factors and other cautionary statements in this prospectus. Our
forward-looking statements speak only as of the date made.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as otherwise required by United
States securities laws, we are under no duty to update any of the forward
looking statements after the date of this Form 20-F to conform them to actual
results or to changes in our expectations. All forward-looking statements
attributable to us are expressly qualified in their entirety by the foregoing
cautionary statement.
Page 31 of 81
Form 20F Fiscal 2004
H Legal Proceedings
As at September 30th, 2004, 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.
In Fiscal 2003 the Company settled an outstanding dispute between MDA,
Bygo and Allura, which culminated in the signing of a Settlement Agreement
between all the parties dated May 1, 2002. The impact of the settlement was
primarily accrued in Fiscal 2002 as the amounts related to the settlement were
known at the financial statement date and were material. In the Fiscal 2003
Financial Statements under note # 4 (under Item 17 of this disclosure), the
return of 114,753 common shares of the Company by MDA as a component of the
final settlement has been disclosed. Theses shares have been returned to
Treasury and cancelled.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets out the full name, age, and function in the
Company of the directors, executive officers and key employees of the Company as
of September 30, 2004.
On September 28th, 2004, the Directors on the Board of Directors
were re-nominated to stand for election to the Board. All nominated Directors
were re-appointed effective September 28th, 2004. On September 30th, 2003, Dave
Wall was nominated to stand for director on the Board of the Company and he was
subsequently appointed. Mr. Wall was elected as a member of the Human Resource
Committee and the Audit Committee effective April 4th 2004.
==========================================================================================================
Position Held
Name Age Positions Since
---- --- --------- -----
- ----------------------------------------------------------------------------------------------------------
Jeremy Bowman 53 Director, President and CEO 1988
- ----------------------------------------------------------------------------------------------------------
Sheila Bowman 46 Director, Secretary, and Treasurer 1988
- ----------------------------------------------------------------------------------------------------------
Frank Kovacs 51 Director 1998
- ----------------------------------------------------------------------------------------------------------
Thomas Weckman 50 Director and President of Allura Diamonds Limited 1994
- ----------------------------------------------------------------------------------------------------------
Andrew Lugsdin 35 Director 2001
- ----------------------------------------------------------------------------------------------------------
Tina VanderHeyden 52 Director 1999
- ----------------------------------------------------------------------------------------------------------
Dave Wall 55 Director 2003
- ----------------------------------------------------------------------------------------------------------
Emily Tsen 38 Chief Financial Officer /V.P.Operations 1996
- ----------------------------------------------------------------------------------------------------------
David Winmill 48 VP Sales and Merchandising of IBB International 2001
(Canada) Ltd.
==========================================================================================================
Page 32 of 81
Form 20F Fiscal 2004
Dave Wall was appointed a Director of Allura International Inc. on
September 30th, 2003. Mr. Wall joined Norpac Controls Ltd. ("Norpac") in 1973
and became President of Norpac in June 2000. In addition, Mr. Wall serves on the
Emerson Process Management Representative Presidents' Executive Committee and
the Control Systems Division Advisory Committee. He also sits on two B.C.I.T.
advisory Boards: the UBC Chemical Engineering Industry Advisory Board and the
Association for Professional Engineers and Geo Scientists. He is a corporate
campaign Executive for United Way and in prior years served as Board President
for the North Shore Neighborhood House. Mr. Wall is a director of Norpac,
Artemis Industrial Networks Ltd. and Norpac Employee Owners Ltd.
Jeremy Bowman has been the President, CEO and Director of the Company
since 1988. He is also a 25% Owner/Director of The Black Bear Pub Limited in
Nanaimo, B.C., Canada. A restaurant, bar and liquor store.
Sheila Bowman has been the Secretary and Treasurer and a Director of the Company
since 1988. She is also a 25% Owner/Director of The Black Bear Pub Limited in
Nanaimo, B.C., Canada. A restaurant, bar and liquor store.
Frank Kovacs is the Managing Director of International Bullion & Metal
Brokers Ltd., a company incorporated in the United Kingdom for the past six
years. He has also been a Director of the Company since 1988.
Thomas Weckman has been the President of ADL since 1994 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.
Andrew Lugsdin is an investment advisor with the Business Development Bank
of Canada and was appointed a Director of the Company in September 2001,
replacing Joe Timlin who formally held the position.
Tina VanderHeyden has been the President of T. VanderHeyden Associates
Inc., a company incorporated under the laws of the Province of British Columbia,
for the past 27 years and has served on the Company's Board of Directors since
1999. She is also a director for The Canadian Film Centre.
Emily Tsen has served as the Chief Financial Officer of the Company since
1999 and previously as its Controller since 1996. In December 2003 she was
further given the title of Vice President Operations She received her chartered
accountancy designation in British Columbia in 1993.
David Winmill has been the VP Sales and Merchandising of the Company since
June 2001 and previously was the Company's General Sales Manager since 1997.
Prior to working with the Company, he was national accounts manager with
Etruscan Jewellery, a manufacturer of fine gold jewellry in Canada.
Page 33 of 81
Form 20F Fiscal 2004
Each director serves until the next annual meeting of shareholders and
until his successor shall have been duly elected and qualified or until such
earlier time as such director may resign or be removed. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
There are no arrangements or understandings between the director and any
other person regarding such director or officers election to serve in his or her
official capacity on behalf of the Company except for Andrew Lugsdin whose
representation on behalf of Business Development Bank of Canada ("BDC"), is
pursuant to a shareholders' agreement ("Shareholders' Agreement"). The
Shareholders' Agreement entitles BDC to select a nominee for the Board of
Directors as long as BDC holds at least 300,000 Common Shares in the Company.
B. Compensation
The Company paid aggregate compensation of $620,000 $616,700 and $609,600
to all directors and officers as a group during the fiscal years ended March 31,
2004, 2003, and 2002, for services in all capacities. There were no funds set
aside by the Company during the fiscal year ended March 31, 2004 to provide
pension, retirement or similar benefits for officers or directors.
On October 30, 1999, the Company approved stock options to be issued to
employees and consultants of the Company. Total options granted by the Company,
as at March 31, 2004 were 2,357,500 of which, 1,469,000 were granted to officers
and directors of the Company. Each option is convertible into a share of the
Company's common stock. Of the options currently outstanding, 2,005,000 options
have an exercise price of $0.60 and will expire in approximately 0.79 years,
92,500 options have an exercise price of $1.50 and will expire in approximately
1.32 years and 260,000 options have an exercise price of $1.58 and will expire
in approximately 2.86 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. Total payments
of $ 2,600 during Fiscal 2004 to directors for acting in such capacity are
included in the aggregate compensation disclosure discussed above.
C. Board Practices
Each director serves until the next annual meeting of shareholders and
until his successor shall have been duly elected and qualified or until such
earlier time as such director may resign or be removed. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board. The
Board of Directors holds meetings four times each year.
There are no directors' service contracts with the Company or any of its
subsidiaries that provide for benefits upon termination of employment. Although
some directors are subject to employment contracts with the Company, such
contracts are not applicable to their services in the capacity of directors.
Page 34 of 81
Form 20F Fiscal 2004
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
30th, 2004: Sheila Bowman, Tina VanderHeyden, Dave Wall and Frank Kovacs. The
Audit Committee chair is Sheila Bowman.
The Audit Committee holds meetings four times a year and its primary
mandate is to facilitate the Company's corporate governance and protect the
interest of shareholders by overseeing the financial reporting process and
monitoring the responsibilities of the Company's management team as well as its
Board of Directors.
The Compensation and Human Resource Committee is comprised of the
following members as at September 30th, 2004: Tina VanderHeyden, Frank Kovacs,
Dave Wall and Andrew Lugsdin. 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, 2003, the Company employed twenty six persons on a full time
basis. As at August 31, 2004, there were twenty seven persons employed on a full
time basis. As at August 31, 2004, there are twelve employees in finance and
administration, six in sales and merchandising, and nine in inventory warehouse.
Four employees are employed in the Halifax office, one is employed in Toronto,
and twenty two are employed in the Vancouver office. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its relations with its employees to be good.
During Fiscal 2004, the Company employed approximately fifteen temporary
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 35 of 81
Form 20F Fiscal 2004
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
As far as is known to the Company, the Company is not directly or
indirectly owned or controlled by another corporation or by any foreign
government. The following table sets forth certain information, as at September
30, 2004, 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
Name of Shareholder Beneficially or Directly Percentage of
------------------- Owned Class
----- -----
- --------------------------------------------------------------------------------------------------------
International Bullion & Metal Brokers Ltd.(1) 6,250,000 35.5%
- --------------------------------------------------------------------------------------------------------
Bowman Family Trust ("Trust")(2) 5,325,000 30.2%
- --------------------------------------------------------------------------------------------------------
Jeremy C. Bowman(3) 962,500 5.5%
- --------------------------------------------------------------------------------------------------------
Sheila P. Bowman(4) 682,500 3.9%
- --------------------------------------------------------------------------------------------------------
Frank Kovacs(5) 260,000 1.5%
- --------------------------------------------------------------------------------------------------------
Thomas Weckman(7) 550,000 3.1%
- --------------------------------------------------------------------------------------------------------
B.D.C (6) 340,136 1.9%
- --------------------------------------------------------------------------------------------------------
Tina VanderHeyden (*) (*)
- --------------------------------------------------------------------------------------------------------
Emily Tsen (*) (*)
- --------------------------------------------------------------------------------------------------------
David Winmill (*) (*)
- --------------------------------------------------------------------------------------------------------
Officers and Directors as a group (8 people) 14,592,136 82.9%
- --------------------------------------------------------------------------------------------------------
(1) International Bullion & Metal Brokers Limited ("International Bullion") is
a corporation formed under the laws of England of which Frank Kovacs is a
Director.
(2) Although not a beneficiary of the trust, Mr. Bowman, the Company's
President and CEO, is one of the three Trustees of the Trust. Sheila
Bowman, is a beneficiary of the Bowman Family Trust. The other
beneficiaries are the children of Mr. Bowman.
(3) Mr. Bowman is the Company's President, CEO and a Director. Mr. Bowman's
shares include 500,000 options with an exercise price of US$0.40 per share
that expire on January 31, 2005.
Page 36 of 81
Form 20F Fiscal 2004
(4) Sheila Bowman is a Director of the Company. Ms. Bowman's shares include
80,000 and 140,000 options with an exercise price of US$0.40 and US$1.00
per share respectively. The 80,000 options expire on January 31, 2005 and
the 140,000 options expire July 13, 2007.
(5) Frank Kovacs is a Director of International Bullion and is a Director of
the Company. Mr. Kovac's shares include 260,000 options with an exercise
price of US$0.40 per share that expire on January 31, 2005.
(6) The Business Development Bank of Canada is a venture capital shareholder
owning 340,136, or 1.9% of outstanding shares. The BDC has a designee,
Andrew Lugsdin, appointed as a Director on the Company's Board of
Directors.
(7) Tom Weckman is ADL's President and a Director. Mr. Weckman's shares
include 300,000 options with an exercise price of US$0.40 per share that
expire on January 31, 2005.
* Less than 1% of class.
The Company's major shareholders do not have different voting rights.
However, some of these shareholders are subject to a shareholders agreement as
described below.
There has been no significant change in the percentage ownership held by
any major shareholders during the past three years.
As at August 31, 2004 there was no trading market for the Common Shares in
the United States or Canada. The following table indicates the approximate
number of record holders of Common Shares, the number of record holders of
Common Shares with United States addresses and the portion and percentage of
Common Shares so held in the United States.
- --------------------------------------------------------------------------------
Total Number Number of US Number of
Registered Registered Holders Common Shares Percentage of Class
---------- ------------------ ------------- -------------------
- --------------------------------------------------------------------------------
113 45 90,400 0.60%
- --------------------------------------------------------------------------------
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.
Page 37 of 81
Form 20F Fiscal 2004
Shareholders' Agreement
The Company has entered into a shareholders' agreement ("Shareholders'
Agreement") with shareholders 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 had provided that as long as BDC hold at least
300,000 shares, the Company was to proceed with any of the following matters
only with prior written consent of BDC:
o declare or pay dividends, redeem or repurchase any shares or make
any distribution in respect of shares,
o loan any money, provide guarantees or assume liability for the debts
or obligations of any other persons or pay any shareholder, or
o any initial public offering by the Company.
The Shareholders' Agreement also provided that, subject to the
satisfaction of certain conditions, until the earlier of the first anniversary
of the date of the Shareholders' Agreement, being July 25, 2000 or
Page 38 of 81
Form 20F Fiscal 2004
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, if
the Company proposed to effect an offer and sale of its securities, the Company
was obliged to first offer BDC the opportunity to purchase, and BDC, in its sole
discretion could purchase, all or a portion of such securities from the Company
up to a maximum of $2,000,000 of the proposed aggregate offering price. BDC did
not exercise this right within the specified time frame therefore the option
expired. After the initial preemptive date and prior to the termination of the
Shareholders' Agreement by virtue of the Company completing a qualified public
offering, BDC has the right, except for certain excepted transactions, to
participate pro-rata in any securities offerings affected by the Company.
As far as is known to the Company, there are no arrangements the
operations of which may at a subsequent date result in a change of control of
the Company.
B. Related Party Transactions
The Company operates from leased premises in Vancouver and Halifax. 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 premises are leased from a partnership of which Jeremy
Bowman, the Company's President and a stockholder who has significant influence
on operations, is a partner. The Company believes that the terms of the lease
are as favorable as those that could have been obtained from an unaffiliated
third party. The Company leases the Vancouver premise for $9,400 per month plus
expenses.
On May 27th, 2002, the Company leased an office in Halifax on a five year
fixed term starting July 1st, 2002 at $1,100 per month plus applicable taxes.
The Halifax lease has a 90-day cancellation provision for the benefit of ADL
only. The premises are leased on commercially agreed terms, from Torrington Bay
Investments Limited, in which Tom Weckman, the President of ADL, has an
interest. The Company believes the terms of this lease are as favorable as could
have been obtained from unaffiliated third parties. 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.
The Company believes that its current premises are adequate for the
Company's current operating level and presently foreseeable growth.
Except as set forth above, no key management personnel of the Company or
any shareholder holding of record or beneficially, directly or indirectly, more
than 5 percent of the issued and outstanding Common Shares (including options)
of the Company, or any of their respective associates or affiliates, had any
material interest, directly or indirectly, in any transaction with the Company
except for those in the normal course of the business and as disclosed in the
Company's financial statements, or in any proposed transaction, since the
beginning of the Company's last fiscal year up to the date of the Report.
The Company believes that all payments made for services rendered were
comparable to those that would be made to an unaffiliated provider of such
services.
Page 39 of 81
Form 20F Fiscal 2004
C. Interests of experts and counsel.
This form is being filed as an Annual Report under the
Securities Exchange Act 0f 1934, accordingly the information called for by
this Item 7. C. is not required.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See Item 17 for the Company's Financial Statements.
The Company knows of no contemplated or pending legal or arbitration
proceedings including those relating to bankruptcy, governmental receivership or
similar proceeding and those involving any third party against it, nor is the
Company involved as a plaintiff in any material pending litigation.
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.
To the best of the Company's Managements' knowledge, the Company has not
since the date of its incorporation, declared or paid any dividends, nor does it
intend to declare any dividends for the foreseeable future.
B. Significant Changes
No significant changes have occurred since the date of the annual
financial statements included in the Report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details/Markets
There is no trading market for the Company's Common Stock and there can be
no assurance that a trading market will develop, or, if such a trading market
does develop that it will be sustained. To the extent that a market develops for
the Common Stock at all, of which there can be no assurance, it will likely
appear in what is customarily known as the "pink sheets" or on the NASDAQ
Bulletin Board, which may limit the marketability and liquidity of the Company's
Common Stock.
Page 40 of 81
Form 20F Fiscal 2004
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 required.
C. Selling Shareholders
This Form 20F is being filed as an Annual Report under the Securities
Exchange Act of 1934, and accordingly, the information called for by this Item
9.C. is not required
D. Dilution
This Form 20F is being filed as an Annual Report under the Securities
Exchange Act of 1934, and accordingly, the information called for by this Item
9.D. is not required.
E. Expenses of the Issue
This Form 20F is being filed as an Annual Report under the Securities
Exchange Act of 1934, and accordingly, the information called for by this Item
9.E. is not required
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
Page 41 of 81
Form 20F Fiscal 2004
Act (a "non-Canadian"), unless, after review, the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit
to Canada. An investment in the Voting Shares of the Company by a non-Canadian
(other than a "WTO Investor", as defined below) would be reviewable under the
Investment Act if it were an investment to acquire control of the Company and
the Company was not, immediately prior to the implementation of the investment,
controlled by a WTO Investor, and the value of the assets of the Company were
$5.0 million or more. An investment in Voting Shares of the Company by a WTO
Investor would be reviewable under the Investment Act if it were an investment
to acquire direct control of the Company, and the value of the assets of the
Company equaled or exceeded $179 million (threshold amount for 1998). A
non-Canadian, whether a WTO Investor or otherwise, would acquire control of the
Company for purposes of the Investment Act if he or she acquired a majority of
the Voting Shares of the Company. The acquisition of less than a majority, but
at least one-third of the Voting Shares of the Company, would be presumed to be
an acquisition of control of the Company, unless it could be established that
the Company was not controlled in fact by the acquirer through the ownership of
the Voting Shares. In general, an individual is a WTO Investor if he or she is a
"national" of a country (other than Canada) that is a member of the World Trade
Organization ("WTO Member") or has a right of permanent residence in a WTO
Member other than Canada. A corporation or other entity will be a WTO Investor
if it is a "WTO Investor-controlled entity" pursuant to detailed rules set out
in the Investment Act. The United States is a WTO Member.
Certain transactions involving Voting Shares of the Company would be
exempt from the Investment Act, including: (a) an acquisition of Voting Shares
of the Company if the acquisition were made in connection with the person's
business as a trader or dealer in securities: (b) an acquisition or control of
the Company in connection with the realization of a security interest granted
for a loan or other financial assistance and not for the purpose related to the
provisions of the Investment Act: and (c) an acquisition of control of the
Company by reason of an amalgamation, merger, consolidation or corporate
reorganization, following which the ultimate direct or indirect control in fact
of the Company, through the ownership of voting interests, remains unchanged.
C. Material Contracts.
Shareholders' Agreement
The Company has entered into a shareholders' agreement ("Shareholders'
Agreement") with shareholders holding at least 5% of the outstanding shares of
the Company on July 25, 2000. The Shareholders' Agreement requires that board
approval be obtained prior to:
o issuance or redemption of the Company's shares,
o changes to the authorized share capital,
o declaration or payment of dividends,
o distribution of shares to the public or listed for trading on a
recognized securities exchange,
Page 42 of 81
Form 20F Fiscal 2004
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 had provided that as long as BDC hold at least
300,000 shares, the Company was to proceed with any of the following matters
only with prior written consent of BDC:
o declare or pay dividends, redeem or repurchase any shares or make
any distribution in respect of shares,
o loan any money, provide guarantees or assume liability for the debts
or obligations of any other persons or pay any shareholder, or
o any initial public offering by the Company.
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 affected by the Company.
Investment Agreement
The Company entered into an Investment Agreement on July 25, 2000 with
BDC. Pursuant to such Investment Agreement, BDC acquired 340,136 units
consisting of one common share, one common share call option and one common
share put option from the Company for an aggregate purchase price of $500,000
less issue costs of $23,867, which price is subject to adjustment under certain
conditions, including the sale by the Company, during specified period of time,
of any shares at a lower price per share price.
Each common share call option expired July 25, 2001 unexercised.
The put options are exercisable after July 25, 2005 and will expire upon
the closing of certain qualified initial public offerings. The put options
entitle the holders to put the shares to the company for the lesser of their
fair value (estimated at $55,600 at March 31, 2004 (2003: $49,500)) and the
Page 43 of 81
Form 20F Fiscal 2004
original proceeds received under the unit offering ($500,000). The common share
put option was still outstanding as at August 31st 2004.
Leases
The Company entered into a lease on June 22, 1998, with a partnership of
which Jeremy Bowman, the Company's President, CEO and director, is a partner.
The lease is 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 on June 2000.
On May 27th, 2002, the Company leased an office in Halifax on a five year
fixed term starting July 1st, 2002 at $1,100 per month plus applicable taxes.
The Halifax lease has a 90-day cancellation provision for the benefit of ADL
only. The premises are leased on commercially agreed terms, from Torrington Bay
Investments Limited, in which Tom Weckman, the President of ADL, has an
interest. The Company believes the terms of this lease are as favorable as could
have been obtained from unaffiliated third parties. 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.
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 3,000,000 shares.
Agreement between Bygo, the Company and MDA
On May 9, 2000, the Company entered into an agreement with MacDonald
Dettwiler and Associates Ltd. ("MDA") for software development services to be
provided by MDA (the "MDA Agreement"). MDA and the Company entered into an
amendment to the MDA Agreement dated July 28, 2000 (the " July Amendment")
pursuant to which, among other things, Allura's interest therein was assigned to
Bygo. A further amendment was entered into on December 12, 2000 (the "December
Amendment'). The MDA Agreement as amended by the July Amendment, the December
Amendment and certain other subsequent amendments, is herein referred to as the
"Amended MDA Agreement."
Disputes arose between MDA and Allura and Bygo (collectively, with all of
the other parties to the Settlement Agreement, as defined below, the "Parties").
Proceedings were commenced in relation to the disputes between the parties,
pursuant to the arbitration provisions of the Amended MDA Agreement, and in the
Supreme Court of British Columbia and the British Columbia Court of Appeal (the
"Proceedings"). The Parties agreed to resolve their disputes, including those
raised in the Proceedings, through binding arbitration and entered into a
submission to arbitration dated May 17, 2001 (the "Arbitration"). Prior to the
completion of the Arbitration, the Parties entered into a Mutual Release and
Settlement Agreement dated May 1, 2002 (the "Settlement Agreement") to settle
all the matters in dispute between them.
Page 44 of 81
Form 20F Fiscal 2004
Pursuant to the terms of the Settlement Agreement, among other things:
1. the Parties delivered mutual releases to and from, inter alia, claims,
damages and liabilities arising out of the Amended MDA Agreement, the
Arbitration and/or the Proceedings;
2. the forgiveness of payment by the Company and Bygo of amounts owing by the
Company or Bygo or claimed by MDA under the terms of the Amended MDA Agreement;
and, payment to Bygo in settlement of amounts claimed by it;
3. the transfer by MDA to the Company of all shares in the capital of the
Company owned by MDA; and
4. the retention by Allura of all right, title and interest in and to the
subject matter of certain Canadian patent applications as well as design and
architecture of the Bygo System.
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.
Page 45 of 81
Form 20F Fiscal 2004
Under the present legislation in the United States, the Company is not
subject to United States back-up withholding rules, which would require
withholding at a rate of 20% on dividends and interest paid to certain United
States persons who have not provided the Company with a taxpayer identification
number.
Gains derived from a disposition of Common Shares by a non-resident
shareholder will be subject to tax in Canada only if not less than 25% of any
class of Common Shares was owned by the non-resident shareholder and/or persons
with whom the non-resident did not deal at arm's length at any time during the
five year period immediately preceding the disposition. In such cases, gains
derived by a U.S. shareholder from a disposition of Common Shares would likely
be exempt from tax in Canada by virtue of the Canada-U.S. tax treaty, provided
that the U.S. shareholder has not resided in Canada in the ten years immediately
preceding the disposition.
This discussion is not intended to be, nor should it be construed to be,
legal or tax advice to any holder or prospective holder of Common Shares and no
opinion or representation with respect to the United States federal income tax
consequences to any such holder or prospective holder is made. Holders and
prospective holders of Common Shares are urged therefore to consult their own
tax advisors with respect to their particular circumstances.
F. Dividends and paying agents
This Form 20F is being filed as an Annual Report under the Securities
Exchange Act of 1934, accordingly the information called for by this Item
10.F. is not required.
G. Statement by experts
This Form 20F is being filed as an Annual Report under the Securities
Exchange Act of 1934, accordingly the information called for by this Item
10.G. is not required.
H. Documents on display
The documents concerning the Company which are referred to in this Report
are either annexed hereto as exhibits (See "Item 19 Exhibits") or may be
inspected at the principal executive offices of the Company.
You may inspect and copy our registration statements, including
their exhibits and schedules, and the reports and other information we
file with the Securities and Exchange Commission in accordance with the
Exchange Act at the public reference facilities maintained by the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street,
Room 1024, N.W., Washington, D.C. 20549 You may obtain information
regarding the Washington D.C. Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-
Page 46 of 81
Form 20F Fiscal 2004
0330 or by contacting the Securities and Exchange Commission over the
Internet at its website at http://www.sec.gov.
I. Subsidiary Information
Not applicable for reports filed in the United States.
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, 2004 and 2003, the Company's accounts payable and accrued
liabilities included the following foreign currency denominated amounts:
2004 2003
---- ----
U.K $ 0 $ 8,626
U.S. 921,269 1,648,990
Italian 0 2,379
Euro 45,125 150,354
---------- ----------
$ 966,394 $1,810,349
---------- ----------
Interest Rate Sensitivity
Page 47 of 81
Form 20F Fiscal 2004
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 not
entered into any agreement or purchased any instrument to hedge against possible
interest rate risks at this time. The Company's interest earning investments are
short term. Thus, any reductions in future income or carrying values due to
future interest rate declines are believed to be immaterial.
Credit risk
Credit risk arises from the possibility that the entities to which the
Company sells products may experience financial difficulty and be unable to
fulfill their contractual obligations. This risk is mitigated by proactive
credit management policies that include regular monitoring of the debtor's
payment history and performance, credit insurance, geographic diversification,
obtaining security where appropriate, and credit insurance policy coverage.
Fair value
The Company has various financial instruments including receivables, bank
indebtedness, payables and accruals, and bonus payables.
The carrying value of all other financial instruments approximates their
fair value due to their short-term nature.
Page 48 of 81
Form 20F Fiscal 2004
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.
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
None.
ITEM 15. CONTROLS AND PROCEDURES
The Board of Directors has overall responsibility for reviewing the
Company's disclosure to ensure the Company provides full and plain disclosure to
shareholders and other stakeholders. The Board discharges its responsibilities
through its committees, specifically, with respect to financial disclosure to
the Audit Committee, which is responsible for reviewing the Company's financial
reporting procedures and internal controls to ensure full and accurate
disclosure of the Company's financial position.
Our chief executive officer and our chief financial officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934
Page 49 of 81
Form 20F Fiscal 2004
Rules 13a-14(c) and 15-d-14(c)) as of the end of the period covered by this
report (the "Evaluation Date"), have concluded that as of the Evaluation Date,
our disclosure controls and procedures were adequate and designed to ensure that
material information relating to us and our consolidated subsidiaries would be
made known to them by others within those entities.
There were no significant changes in our internal controls or to our
knowledge, in other factors during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, that could
significantly affect our disclosure controls and procedures.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Audit Committee is responsible for reviewing the Company's financial
reporting procedures, internal controls and the performance of the Company's
auditors as detailed in the Mandate of the Audit Committee. The Audit Committee
is also responsible for reviewing all disclosure with respect to financial
matters prior to filing or release and quarterly and annual financial statements
prior to their approval by the full Board.
Currently the Company does not have a financial expert on its Audit
Committee. No current Board member possesses the necessary qualifications of a
financial expert as defined by the Sarbanes Oxley Act of 2002, however the Board
is seeking a solution to fulfill this requirement.
ITEM 16B. CODE OF ETHICS
The Company has not adopted a formal "code of ethics", however, it does
maintain standards that are reasonably designed to deter wrong-doing and to
promote:
1. Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
2. Full, fair, accurate, timely, and understandable disclosure in reports and
documents that a registrant files with, or submits to, regulatory agencies
and in other public communications made by the registrant;
3. Compliance with applicable governmental laws, rules and regulations;
4. The prompt internal reporting of violations of the standards to an
appropriate person or persons identified in the standards; and
5. Accountability for adherence to the standards.
In addition, the Company practices corporate governance in accordance with
rules and
Page 50 of 81
Form 20F Fiscal 2004
regulations in Canada.
Corporate Governance relates to the activities of the Board of Directors
who are elected by and accountable to the Shareholders, and takes into account
the role of management who are appointed by the Board of Directors and who are
charged with the on-going management of the Company. The Board of Directors of
the Company encourages sound corporate governance practices designed to promote
the well being and on-going development of the Company, having always as its
ultimate objective the best long-term interests of the Company and the
enhancement of value for all Shareholders. Currently there is no formal document
stating the Company's Corporate Governance policies, however, there are in
existence, Board of Directors, Audit Committee and Compensation and Human
Resource Committee Mandates.
ITEM 16C. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
2003 2004 Aggregate Fees
Audit fees $ 68,178 52,900 121,078
Tax services $ Done in house 7,900 7,900
Other services $ 5,542 6,200 11,742
-----------------------------------------------
$ 73,720 67,000 140,720
===============================================
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 17 to the financial statements.
The auditors' report, financial statements and notes thereto, schedules
thereto as required under Item 17 are found immediately below. The Audit Report
of Grant Thornton, LLP, Chartered Accountants is included herein immediately
preceding the respective financial statements, notes, schedules, etc.
Page 51 of 81
Form 20F Fiscal 2004
Allura International Inc.
Consolidated
Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
Contents
Page 52 of 81
Form 20F Fiscal 2004
Page
----
Auditors' Report 54
Consolidated Balance Sheets 55
Consolidated Statements of Operations 56
Consolidated Statements of Cash Flows 57
Consolidated Statements of Shareholders' Equity 58
Notes to the Consolidated Financial Statements 59-73
Consolidated Schedules of Administrative and Selling and Delivery Expenses 74
Page 53 of 81
Form 20F Fiscal 2004
Auditors' Report
To the Shareholders of
Allura International Inc.
We have audited the consolidated balance sheets of Allura International Inc. as
at March 31, 2004 and 2003 and the consolidated statements of operations, cash
flows, and shareholders' equity for each of the three years in the period ended
March 31, 2004. 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 audit.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States) and auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at March 31, 2004
and 2003 and the results of its operations and its cash flows for each of three
years ended March 31, 2004 in accordance with Canadian generally accepted
accounting principles.
Vancouver, Canada /s/ "Grant Thornton LLP"
June 4, 2004 except as to Note 18 ------------------------
which is at July 9, 2004 Chartered Accountants
Page 54 of 81
Form 20F Fiscal 2004
Allura International Inc.
Consolidated Balance Sheets
(expressed in Canadian dollars)
March 31 2004 2003
- ----------------------------------------------------------------------------------------------------
Assets
Current
Cash and temporary investments $ 72,955 $ 166,151
Receivables (Note 3) 3,509,367 3,862,650
Inventories 7,607,366 7,896,550
Income taxes receivable 59,990 --
Prepaids 60,417 77,442
------------ ------------
11,310,095 12,002,793
Property and equipment (Note 5) 202,899 256,162
Goodwill (net of accumulated amortization of $27,015 (2003: $27,015) 26,970 26,970
------------ ------------
$ 11,539,964 $ 12,285,925
============ ============
- ----------------------------------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness (Note 6) $ 6,382,244 $ 6,542,350
Accounts payable and accruals (Note 7) 2,290,188 3,075,956
Income taxes payable -- 133,868
------------ ------------
8,672,432 9,752,174
------------ ------------
Shareholders' Equity
Capital stock (Note 8) 2,916,237 2,916,237
Deficit (48,705) (382,486)
------------ ------------
2,867,532 2,533,751
------------ ------------
$ 11,539,964 $ 12,285,925
============ ============
- ----------------------------------------------------------------------------------------------------
Commitments (Note 9)
See accompanying notes to the consolidated financial statements.
Page 55 of 81
Form 20F Fiscal 2004
Allura International Inc.
Consolidated Statements of Operations
(expressed in Canadian dollars)
Years Ended March 31 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------
Net sales $ 16,677,588 100% $ 17,613,486 100.0% $ 15,220,387 100.0%
Cost of goods sold 12,156,794 72.9 13,007,581 73.8 11,646,540 76.5
------------ ----- ------------ ----- ------------ -----
Gross profit 4,520,794 27.1 4,605,905 26.2 3,573,847 23.5
------------ ----- ------------ ----- ------------ -----
Expenses
Administrative (Page 21) 2,537,947 15.2 2,369,232 13.5 2,484,142 16.3
Depreciation and
Amortization 68,778 0.4 72,884 0.4 87,270 0.6
Selling and delivery
(Page 21) 1,023,375 6.1 1,163,388 6.6 1,109,066 7.3
------------ ----- ------------ ----- ------------ -----
3,630,100 21.7 3,605,504 20.5 3,680,478 24.2
------------ ----- ------------ ----- ------------ -----
Earnings (loss) before
undernoted 890,694 5.4 1,000,401 5.7 (106,631) (0.7)
------------ ----- ------------ ----- ------------ -----
Other income (expenses)
Interest and bank charges (497,534) (3.0) (459,939) (2.6) (496,989) (3.2)
Write down of equipment
held for disposal (Note 4) -- -- -- -- (180,102) (1.2)
Legal costs of software
abandoned (Note 4) -- -- -- -- (310,852) (2.0)
Other income 1,507 -- 5,858 -- 37,969 0.2
------------ ----- ------------ ----- ------------ -----
(496,027) (3.0) (454,081) (2.6) (949,974) (6.2)
------------ ----- ------------ ----- ------------ -----
Earnings (loss) before
income taxes 394,667 2.4 546,320 3.1 (1,056,605) (5.7)
Income taxes
(recovery) (Note 10) 60,886 0.4 141,736 0.8 (19,459) (0.1)
------------ ----- ------------ ----- ------------ -----
Net earnings (loss) $ 333,781 2.0 $ 404,584 2.3 $ (1,037,146) (5.6)%
============ ===== ============ ===== ============ =====
Earnings (loss) per share
(basic and diluted) $ 0.02 $ 0.03 $ (0.07)
============ ============ ============
Weighted average common
shares outstanding 15,240,302 15,249,734 15,355,055
============ ============ ============
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Page 56 of 81
Form 20F Fiscal 2004
Allura International Inc.
Consolidated Statements of Cash Flows
(expressed in Canadian dollars)
Years Ended March 31 2004 2003 2002
- ----------------------------------------------------------------------------------------------
Cash derived from (applied to)
Operating
Net earnings (loss) $ 333,781 $ 404,584 $(1,037,146)
Depreciation and amortization 68,778 72,884 87,270
Gain on disposition of equipment -- -- (25,596)
Write down of equipment held for disposal
(Note 4) -- -- 180,102
Change in non-cash operating working capital
(Note 11) (320,134) (455,111) (412,182)
--------- ----------- -----------
82,425 22,357 (1,207,552)
--------- ----------- -----------
Financing
Bank indebtedness (160,106) (917,354) 852,239
--------- ----------- -----------
Investing
Purchase of equipment (15,515) (52,645) (38,437)
Proceeds on disposition of equipment (Note 4) -- 646,820 249,334
(Decrease) Increase in payables and accruals
related to investing activities -- (310,852) 310,852
--------- ----------- -----------
(15,515) 283,323 521,749
--------- ----------- -----------
Net (decrease) increase in cash (93,196) (611,674) 166,436
Cash
Beginning of year 166,151 777,825 611,389
--------- ----------- -----------
End of year $ 72,955 $ 166,151 $ 777,825
========= =========== ===========
- ----------------------------------------------------------------------------------------------
Non-cash investing and financing activities not
included in cash flows
Shares cancelled in part settlement of dispute
(Note 4) $ -- $ 167,539 $ --
Supplementary cash flow information
Interest paid $ 462,705 $ 422,137 $ 471,412
Income taxes paid during the year $ 288,980 $ 13,796 $ 8,304
- ----------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Page 57 of 81
Form 20F Fiscal 2004
Allura International Inc.
Consolidated Statements of Shareholders' Equity
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
Shares Issued
--------------------------
Number of Ascribed
Shares Value Deficit Total
Balance, March 31, 2001 15,355,055 $ 3,083,776 $ 250,076 $ 3,333,852
Net loss, year ended March 31, 2002 -- -- (1,037,146) (1,037,146)
----------- ----------- ----------- -----------
Balance March 31, 2002 15,355,055 3,083,776 (787,070) 2,296,706
Shares cancelled (Note 4) (114,753) (167,539) -- (167,539)
Net earnings, year ended March 31, 2003 -- -- 404,584 404,584
----------- ----------- ----------- -----------
Balance March 31, 2003 15,240,302 2,916,237 (382,486) 2,533,751
Net earnings, year ended March 31, 2004 -- -- 333,781 333,781
----------- ----------- ----------- -----------
Balance March 31, 2004 15,240,302 $ 2,916,237 $ (48,705) $ 2,867,532
========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Page 58 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
1. Nature of operations
The company is primarily in the business of wholesaling gold and diamond
jewellery in Canada. Its customer base comprises large national chains and
independent retailers.
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies
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., Allura Diamonds
Limited and Bygo Inc. The accounting principles used conform in all material
respects to principles generally accepted in the United States of America except
as disclosed in Note 17.
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.
Foreign currency
The company considers the Canadian dollar its functional currency. Monetary
assets and liabilities resulting from foreign currency transactions are
translated into Canadian dollars using the year end conversion rates. Sales,
purchases, receipts and payments are translated throughout the year at exchange
rates prevailing at the date of the transaction. Exchange gains and losses are
included in earnings for the year.
Statement of cash flows
For the purpose of the statement of cash flows, the company considers cash on
hand and balances with banks and highly liquid temporary money market
instruments with original maturities of three months or less as cash or cash
equivalents. Bank borrowings are considered to be financing activities.
Inventories
Inventories are comprised of loose gemstones and finished products and are
valued at the lower of cost and net realizable value. 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. 2004 inventories include goods held on consignment by
customers under consignment agreements totalling $1,603,000 (2003: $1,377,800).
Page 59 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies (Continued)
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and
amortization.
The company depreciates its property and equipment over their useful lives. All
property and equipment other than leasehold improvements are depreciated on a
20% declining balance basis. Leasehold improvements are amortized over the term
of the lease.
Goodwill
Goodwill arises from the 1999 acquisition of the 50% of Allura Diamonds Limited
that the company did not previously own and consists of the excess of the
purchase price over the estimated fair value of the net tangible assets
acquired. Effective April 1, 2002, the company adopted, on a prospective basis,
the new recommendations of the Canadian Institute of Chartered Accountants with
respect to the valuation of goodwill. Under the new recommendations, goodwill is
no longer amortized, but is tested for impairment at least on an annual basis.
For the years ended March 31, 2004 and 2003, application of the new
recommendations resulted in net earnings that were $13,462 and $13,508 higher,
respectively, if goodwill were amortized as it was prior to April 1, 2002. This
change would not affect earnings per share.
Had the company continued to amortize goodwill as it did prior to April 1, 2002,
the company's adjusted net earnings and adjusted net earnings per share (basic
and diluted) would be as follows:
2004 2003
Net loss as presented $333,781 $404,584
Reduced amortization under new
accounting standard 13,462 13,508
-------- --------
Adjusted net loss $320,319 $391,076
-------- ========
Adjusted net loss per share
basic and diluted $ 0.0 $ 0.03
-------- ========
Page 60 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies (Continued)
Revenue recognition
The company recognizes revenue when goods have been shipped, title to the goods
are passed to the customer, invoices are rendered and collection is reasonably
assured.
Sales of inventory held on consignment by customers are recognized when the
consignment inventory is sold by these customers to third parties or purchased
by these customers.
The company's e-commerce subsidiary earns fee revenue for services provided and
also earns commission revenue based on e-commerce transactions facilitated. Fee
revenue is recorded when the services have been provided. Commission revenue is
recorded on a net basis upon completion of the underlying transaction.
Allowance for doubtful accounts
The Company establishes an allowance for doubtful accounts through review of
open accounts, and historical collection and allowances 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.
Shipping and handling costs
Shipping and handling fees charged to customers are reported as revenue and all
shipping and handling costs incurred related to products sold are reported as a
component of selling and delivery costs.
Stock based compensation
Effective April 1, 2003, the company adopted the new recommendations of the
Canadian Institute of Chartered Accountants Handbook Section 3870, "Stock-based
Compensation and other Stock-based Payments". The new recommendations have been
applied prospectively to all stock-based payments to employees and non-employees
granted on or after April 1, 2003. The change in accounting policy did not
result in any adjustments to the company's opening deficit balance.
The company follows the fair value method for recording compensation for all
rewards made to non-employees including stock appreciation rights, direct awards
of stock and awards that call for settlement in cash or other assets.
Prior to April 1, 2003, the company elected not to follow the fair value based
method of accounting for stock options granted to directors and employees. No
compensation expense was recognized when stock options were granted if the
exercise price of the stock options granted was at market value. Any
consideration paid by directors and employees on exercise of stock options or
purchase of shares was credited to share capital.
Page 61 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
2. Summary of significant accounting policies (Continued)
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 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 be realized, a valuation allowance is provided.
Earnings (loss) per share
The company uses the treasury stock method to calculate fully diluted earnings
per share. Under this method, all options with an average exercise price less
than or equal to the average share price for the year are assumed to be
exercised at the average share price during the period.
The effect of the exercise of the 2,357,500 (2003: 2,366,000, 2002: 2,228,000)
potentially dilutive options was not dilutive.
Capital stock issued for consideration other than cash
Capital stock issued for consideration other than cash is recorded at an
estimated of the fair value of the stock issued or issuable or at an estimated
of the fair value of the goods or services received (whichever is more readily
ascertainable).
- --------------------------------------------------------------------------------
3. Receivables 2004 2003
---- ----
Receivables $ 3,703,420 $ 4,065,134
Allowance for doubtful accounts (194,053) (202,484)
----------- -----------
$ 3,509,367 $ 3,862,650
=========== ===========
- --------------------------------------------------------------------------------
4. Equipment held for disposal
During 2003, the company, a subsidiary, and a supplier of e-commerce
applications and software development agreed to settle all disputes pertaining
to a project to develop certain software for the company's Bygo Internet
commerce platform.
The definitive agreement was finalized in fiscal 2003, but was accrued in fiscal
2002 and provided for the recovery of the costs of certain developed software
that had been capitalized. These capitalized costs were presented as equipment
held for disposal at March 31, 2002 and were written down by $180,102 to the net
amount received in 2003.
Page 62 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
4. Equipment held for disposal (continued)
A component of the final settlement reached with the supplier of e-commerce
application and software development resulted in 114,753 common shares issued in
2001 being returned to the company and cancelled during fiscal 2003.
Also, the company incurred legal costs totalling $310,852 related to this
abandoned software development.
- --------------------------------------------------------------------------------
5. Property and equipment 2004 2003
---- ----
Accumulated
Depreciation
and Net Net
Cost Amortization Book Value Book Value
Computer equipment and
software $389,864 $281,806 $108,058 $120,352
Furniture and equipment 181,630 138,187 43,443 53,176
Leasehold improvements 144,314 96,468 47,846 76,714
Trademark 11,840 8,288 3,552 5,920
-------- -------- -------- --------
$727,648 $524,749 $202,899 $256,162
======== ======== ======== ========
- --------------------------------------------------------------------------------
6. Bank indebtedness
Bank indebtedness is comprised of demand overdraft loan facilities totalling
$6,500,000 (2003: $6,500,000) except the loans available increase to $7,600,000
(2003: $7,600,000) from July 1st to February 28th.
These loans bear interest at prime plus 1/8% on the first $1,000,000 (2003:
$1,200,000) and prime plus 1% on the balance. The prime interest rate on these
loans at year-end was 4% (2003: 5%). The loans are collateralized by a general
security agreement creating a first floating charge over all assets, a general
assignment of book debts, an assignment of inventory under Section 427 of the
Bank Act, a guarantee from a shareholder for $4,000,000 supported by a standby
letter of credit for $1,000,000 (2003: $1,200,000), guarantees by certain other
shareholders to a maximum of $800,000, supported by an assignment of certain
shareholders' residential real estate to a maximum of $800,000.
Under the terms of the demand overdraft loan agreement facility, the company
must maintain certain Debt to Tangible Net Worth ratios as defined by the bank
at each year-end when the loan is outstanding. As at March 31, 2004, the company
is in compliance with these ratios.
Page 63 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
7. Accounts payable and accruals 2004 2003
---- ----
Accounts payable $1,260,732 $2,242,520
Accruals 1,029,456 789,051
---------- ----------
$2,290,188 $3,031,571
========== ==========
- --------------------------------------------------------------------------------
8. Capital stock
Authorized:
Unlimited number of common shares without par value
Issued:
15,240,302 (2003: 15,240,302) common shares
Stock options
The company established a stock option that allows for the issuance of up to
3,000,000 common shares as incentive stock options to current and future key
employees and consultants. The Board of Directors administers the Plan and has
the authority to determine the terms and restrictions on all options, as well as
to interpret any provision of the Plan. Discretionary options, once granted,
vest at the discretion of The Board of Directors. A summary of the status of the
company's options is presented below:
Number of Shares
---------------------------------------------- Weighted
Average
Unvested / Vested / Non- Exercise
Discretionary Discretionary Total Price
-------------
Balance, March 31, 2002 283,500 1,944,500 2,228,000 $0.69
Year ended March 31, 2003
Granted -- 140,000 140,000 $1.58
Expired -- (2,000) (2,000) $0.60
------- --------- ---------
Balance, March 31, 2003 283,500 2,082,500 2,366,000 $0.75
Year ended March 31, 2004
Cancelled (2,500) -- (2,500) $1.50
Expired -- (6,000) (6,000) $1.58
======= ========= =========
Balance, March 31, 2004 281,000 2,076,500 2,357,500 $0.74
======= ========= =========
Page 64 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
8. Capital stock (Continued)
Stock options (Continued)
The weighted average fair value of the options granted during the year was $Nil
(2003: $0.19; 2002: $0.33).
The following table summarizes information concerning options outstanding at
March 31, 2004:
Total Outstanding Exercisable
------------------------------ ---------------------------
Weighted Weighted
Average Average
Exercise Price Number of Remaining Number of Exercise
Shares Life (Years) Shares Price
------ ------------ ------ -----
$0.60 2,005,000 0.79 1,759,000 $0.60
$1.50 92,500 1.32 57,500 $1.50
$1.58 260,000 2.86 260,000 $1.58
--------- ---------
2,357,500 1.01 2,076,500 $0.74
========= =========
The following proforma financial information presents the net earnings and net
earnings per common share had the company recognized stock based compensation
expense of $26,600 in the comparative year ended March 31, 2003 using a fair
value based accounting method.
Net Earnings
As reported $404,584
Pro forma $377,984
Basic and diluted earnings per share
As reported $ 0.03
Pro forma $ 0.02
The pro forma amounts may not be representative of future disclosures since the
estimated fair value of stock options is amortized to expense over the vesting
period and additional options may be granted in future years. The Company used
the BlackScholes option pricing model to estimate the value of the options at
each grant date using the following weighted average assumptions for the year
ended March 31, 2003: dividend yield - nil; annualized volatility 0%; risk-free
interest rate - 2.8%; expected life - 5 years.
Call and put options
During 2001, the company issued 340,136 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 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 $55,600 at March 31, 2004 (2003: $49,500)) and the original
proceeds received under the unit offering ($500,000).
Page 65 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
9. Commitments
The company has entered into two operating lease agreements for office premises.
The future minimum lease payments under these lease agreements for the next five
years are:
2005 $26,084
2006 32,014
2007 13,200
2008 3,300
The operating lease agreement for one office premise is with a partnership in
which the company's president has an interest and the other with a partnership
in which the president of Allura Diamonds Limited has an interest.
- --------------------------------------------------------------------------------
10. Income taxes
(a) The provision for income taxes differs from the amount that would have been
expected by applying Canadian corporate income tax to the loss before taxes. The
principal reasons for this difference are as follows:
2004 2003 2002
---- ---- ----
Income (Loss) before income taxes $ 394,667 $ 546,320 $(1,056,605)
Statutory income tax rate 38% 40% 44%
--------- --------- -----------
Anticipated current income tax $ 149,973 $ 223,226 $ (471,246)
provision (recovery )
Tax provision effect arising from:
Small business deduction (46,000) (68,580) 281,057
Tax losses utilized (21,607) (68,000) 25,453
Non-deductible expenses and other (30,786) 24,190 (15,664)
Potential benefit of losses not recognized 9,306 30,900 160,941
--------- --------- -----------
Current income taxes (recovery) $ 60,886 $ 141,736 $ (19,459)
========= ========= ===========
(b) Future income tax assets consist of the following:
2004 2003
---- ----
Capital assets $ 44,300 $ 39,300
Non-capital loss carryforwards 382,700 395,000
Other items 11,000 14,800
Valuation adjustment (443,800) (449,100)
--------- ---------
$ Nil $ Nil
========= =========
Page 66 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
10. Income taxes (continued)
(c) The operating losses expire as follows:
2004 2003
---- ----
2008 $ 608,000 $ 668,000
2009 546,000 546,000
2010 102,000 102,000
2011 31,000 --
---------- ----------
$1,287,000 $1,316,000
========== ==========
- --------------------------------------------------------------------------------
11. Change in non-cash operating working capital 2004 2003 2002
---- ---- ----
Receivables $ 353,283 $(438,793) $ 139,628
Income taxes (193,858) 159,954 137,083
Inventories 289,184 330,956 (1,534,040)
Prepaids 17,025 (26,003) (8,816)
Accounts payable and accruals (785,768) (481,225) 853,963
--------- --------- -----------
$(320,134) $(455,111) $ (412,182)
========= ========= ===========
- --------------------------------------------------------------------------------
12. Related party transactions
Related party transactions during the year and balances at year end are
summarized as follows:
2004 2003 2002
---- ---- ----
International Bullion and Metal Brokers (London) Limited
Transactions
Inventory purchases $ 7,759 $ 25,188 $ 10,423
Interest $ 89,207 $ 11,649 $ 21,727
Balances
Accounts payable and accrued liabilities $ 27,046 $ 10,098 $ 12,691
Other
Rent paid to two related partnerships (Note 9) $126,084 $122,784 $112,884
These transactions are in the normal course of operations and are measured at
the exchange amount, which is the amount of consideration established and agreed
to by the related parties.
International Bullion and Metal Brokers (London) Limited is a company controlled
by International Bullion and Metal Brokers Ltd., a shareholder in the company.
Page 67 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
13. Financial instruments and risk management
The company is exposed to the following risks related to its financial assets
and liabilities:
Currency risk
The company is exposed to currency risk as some of its accounts payable are
denominated in currencies other than the Canadian dollar. The company earns
revenue and incurs operating expenses predominantly in Canadian dollars.
Unfavourable changes in the applicable exchange rates may result in a foreign
exchange loss.
The company's accounts payable and accrued liabilities included the following
foreign currency denominated amounts:
2004 2003
---- ----
U.S $ 921,269 $1,648,990
Euro 45,125 150,354
---------- ----------
$ 966,394 $1,799,344
========== ==========
The company does not use derivative instruments to reduce its exposure to
foreign currency risk.
Commodity Risk
Inventory consists of precious metals and gemstones. These items are susceptible
to change in valuation due to market conditions beyond the company's control.
Increase or decreases in the commodity prices of these assets can have positive
or negative effects on the company's future net earnings. The company does not
enter into derivative contracts to mitigate its exposure to commodity risk.
Interest rate risk
Bank indebtedness bears floating interest rates which exposes the company to the
risk of changing interest rates that may have a detrimental effect on its
earnings in future periods.
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, 2004, 44% (2003: 38%) of the company's accounts receivable was owed
by 3 customers. The company had two (2003: one) customers individually whose
balances exceeded 10% of the company's total accounts receivable at March 31,
2004.
Page 68 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
13. Financial instruments and risk management (Continued)
Fair value
The company has various financial instruments including receivables, bank
indebtedness and payables and accruals.
The carrying value of all financial instruments approximates their fair value
due to their short-term nature.
- --------------------------------------------------------------------------------
14. Significant customers
Four major customers account for 54% of total sales in 2004 (2003: 44%: 2002:
42%). The company had three (2003: two) customers, sales to each of whom
exceeded 10% of the total sales
- --------------------------------------------------------------------------------
15. Segment disclosure
In 2002, the company operated in two reportable business segments: the Jewellery
Division which wholesales gold and diamond jewellery products primarily in
Canada and the e-Commerce Division, an on-line e-commerce facilitator of
jewellery and giftware distribution. In 2003 and 2004, the company operated in
only one reportable business segment, the Jewellery Division. The company's
reportable segments are business units that offer different services and are
each managed separately. The accounting policies used in each of these
reportable segments are the same as those described in Note 2.
The management of the company evaluates performance of each reportable segment
based on net earnings.
Intersegment sales are recorded at the exchange value.
All operations are located in Canada.
Reconciliations with the financial statements of revenues and assets by
reportable segments are:
For the Years Ended March 31,
2004 2003 2002
---- ---- ----
Revenue from external customers
Jewellery Division $16,677,588 $17,613,486 $15,220,387
e-commerce Division -- -- --
----------- ----------- -----------
$16,677,588 $17,613,486 $15,220,387
=========== =========== ===========
Page 69 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
16. Segment disclosure (Continued) For the Years Ended March 31,
2004 2003 2002
---- ---- ----
Earnings (loss) before income taxes
Jewellery Division $394,667 $ 546,320 $ (320,181)
e-commerce Division -- -- (722,916)
Amortization of goodwill -- -- (13,508)
-------- ----------- -----------
$394,667 $ 546,320 $(1,056,605)
======== =========== ===========
Other income
Jewellery Division $ 1,507 $ 5,858 $ 12,422
e-commerce Division -- -- 25,547
-------- ----------- -----------
$ 1,507 $ 5,858 $ 37,969
======== =========== ===========
Interest and bank charges
Jewellery Division $497,534 $ 459,939 $ 496,392
e-commerce Division -- -- 597
-------- ----------- -----------
$497,534 $ 459,939 $ 496,989
======== =========== ===========
Income tax expenses (recovery)
Jewellery Division $ 60,886 $ 141,736 $ (19,459)
e-commerce Division -- -- --
-------- ----------- -----------
$ 60,886 $ 141,736 $ (19,459)
======== =========== ===========
Depreciation and amortization
Jewellery Division $ 68,778 $ 72,884 $ 54,255
e-commerce Division -- -- 19,507
Amortization of goodwill -- -- 13,508
-------- ----------- -----------
$ 68,778 $ 72,884 $ 87,270
======== =========== ===========
Additions to capital assets
Jewellery Division $ 15,515 $ 52,645 $ 36,677
e-commerce Division -- -- 1,760
-------- ----------- -----------
$ 15,515 $ 52,645 $ 38,437
======== =========== ===========
As at March 31,
2004 2003
---- ----
Capital assets
Jewellery Division $202,899 $ 256,162
e-commerce Division -- --
-------- -----------
$202,899 $ 256,162
======== ===========
Page 70 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
17. Differences between Canadian and U.S. generally accepted accounting
principles and practices
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada ("Canadian basis") which differ from
those principles and practices that the company would have followed had its
financial statements been prepared in accordance with accounting principles and
practices generally required in the U.S. ("U.S. basis") as follows:
a) Under the Canadian basis in effect for fiscal years commencing before
January 1, 2002, the issuance of certain stock options issued to outside
consultants did not require any reflection in the company's accounts.
Under the U.S. basis rules, the issuance of such options results in a
current and/or deferred expense that must be reflected in the company's
financial statements. The expense recorded is calculated based on the fair
value of the options issued to these outside consultants using the Black
Scholes option pricing model. For fiscal years commencing after January 1,
2002, the Canadian basis rules are substantially conformed to U.S. basis
rules pertaining to the recording of options issued to outside
consultants.
As described in Note 2, the company has adopted the fair value based
approach to Stock Based Compensation under the provisions of CICA 3870 and
SFAS No. 148 The method of adoption applied by the company is permissible
under both Canadian and US standards.
These differences between the U.S. and Canadian bases do not result in and
differences to the company's financial statements during the periods
presented.
b) For U.S. GAAP purposes, the put options disclosed in Note 8 have been
recorded as a liability in fiscal 2003 in accordance with EITF 00-19.
Canadian GAAP required no such reclassification.
Had the company followed the U.S. basis, the following adjustments would
be required in the company's consolidated financial statements:
Consolidated balance sheets
March 31, March 31,
2004 2003
---- ----
Long term liabilities under Canadian basis $ -- $ --
b) Put option adjustment 55,600 49,500
----------- -----------
Long term liabilities under U.S. basis $ 55,600 $ 49,500
=========== ===========
Shareholders' equity under Canadian basis $ 2,867,532 $ 2,533,751
b) Put option adjustment (55,600) (49,500)
----------- -----------
Shareholder's equity under U.S. basis $ 2,811,932 $ 2,484,251
=========== ===========
Page 71 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
17. Differences between Canadian and U.S. generally accepted accounting
principles and practices (Continued)
Consolidated statements of cash flows
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
2004 2003 2002
---- ---- ----
Cash derived from (applied to)
Operating
U.S. basis net earnings (loss) $ 333,781 $ 404,584 $(1,037,146)
Depreciation and amortization 68,778 72,884 87,270
Gain on disposal of assets -- -- (25,596)
Write-down of assets held for disposal -- -- 180,102
Change in non-cash operating working capital (320,134) (455,111) (412,182)
--------- --------- -----------
Operating under Canadian and U.S. basis $ 82,425 $ 22,357 $(1,207,552)
========= ========= ===========
Financing under Canadian and U.S. basis $(160,106) $(917,354) $ 852,239
========= ========= ===========
Investing under Canadian and U.S. basis $ (15,515) $ 283,323 $ 521,749
========= ========= ===========
Recent accounting pronouncements
Costs associated with exit or disposal activities
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS
146"). FAS 146 addresses financial accounting and reporting for costs associated
with exit or disposal activities, and is effective for exit or disposal
activities initiated after December 31, 2002. FAS 146 nullifies Emerging Issues
Task Force Issue No. 94-3 ("EITF 94-3") Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain costs Incurred in Restructuring). The principal difference between FAS
146 and EITF 94-3 relates to the recognition of a liability for a cost
associated with an exit or disposal activity. FAS 146 requires that the cost
associated with an exit or disposal activity be recognized when the liability is
incurred, whereas under EITF 94-3 the liability is recognized at the date of an
entity's commitment to an exit plan. This is substantially consistent with the
CICA EIC Abstract 135, "Accounting for Costs Associated with Exit and Disposal
Activities (including Costs Incurred in a Restructuring)." The Company believes
that adoptions of FAS 146 and EIC Abstract 135 will have no material effect on
its financial position and results of operations.
Guarantees
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), which requires certain disclosures to be
made by a guarantor in its interim and annual financial statements for periods
ending after December 15, 2002 about its obligations under guarantees. FIN 45
also requires the recognition of a liability by a guarantor at the inception of
certain guarantees entered into or modified after December 31, 2003. FIN 45
requires the guarantor to recognize a liability for a non-contingent component
of certain
Page 72 of 81
Form 20F Fiscal 2004
Allura International Inc.
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
March 31, 2004, 2003 and 2002
- --------------------------------------------------------------------------------
17. Differences between Canadian and U.S. generally accepted accounting
principles and practices (Continued)
guarantees; that is, it requires the recognition of a liability for the
obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of a guarantee at inception. This is substantially consistent with
the CICA Accounting Guideline AcG-14, Disclosure of Guarantees. The Company does
not have any guarantees under these standards.
Variable interest entities
The Financial Accounting Standards Board (FASB) has published a revision to
Interpretation 46 ("46R") to clarify some of the provisions of FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, and to
exempt certain entities from its requirements. The additional guidance is being
issued in response to input received from constituents regarding certain issues
arising in implementing Interpretation 46.
Under the new guidance, special effective date provisions apply to enterprises
that have fully or partially applied Interpretation 46 prior to issuance of this
revised Interpretation. Otherwise application of Interpretation 46R (or
Interpretation 46) is required in financial statements of public entities that
have interests in securities that are commonly referred to as special-purpose
entities for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of variable
interest entities is required in financial statements for periods ending after
March 15, 2004. Application by small business issuers to variable interest
entities other than special-purpose entities and by non-public entities to all
types of variable interest entities is required at various dates in 2004 and
2005. In some instances enterprises have the option of applying or continuing to
apply Interpretation 46 for a short period of time before applying this revised
Interpretation. The Company believes that adoption of Interpretation 46 will
have no effect on its financial statements.
- --------------------------------------------------------------------------------
18. Subsequent events
Subsequent to year-end, the company entered into an Offer to Purchase Agreement
("the Agreement") with an unrelated distributor of giftware with its head office
in Canada and also operating in the United Kingdom and the United States of
America.
Under the Agreement, and subject to the completion of all conditions precedent,
the company agreed to purchase all the shares of the unrelated company for
consideration that was dependent on post-closing operating results of the
potential acquiree.
The completion of the Agreement was subject to the company's favorable
satisfaction of the due diligence process. Due to the unsatisfactory results of
this due diligence, management decided not to proceed with the acquisition and
as a result, the Agreement lapsed with no further obligations accruing to either
party.
Page 73 of 81
Form 20F Fiscal 2004
Allura International Inc.
Consolidated Schedules of Administrative and Selling and
Delivery Expenses
(expressed in Canadian dollars)
Years Ended March 31 2004 2003 2002
- --------------------------------------------------------------------------------
Administrative
Alarm and security $ 5,408 $ 4,373 $ 4,907
Automobile 3,486 2,420 20,888
Bad debts 95,153 49,341 32,267
Capital tax (6,099) 7,724 25,406
Charitable donations 225 10,100 100
Consulting 111,935 106,436 88,240
Insurance 183,640 193,929 139,567
Legal and accounting 143,871 80,960 134,850
Office and miscellaneous 139,446 146,157 133,623
Rent 175,780 177,956 182,131
Salaries and wages 1,618,089 1,525,710 1,625,318
Telephone 29,452 30,054 33,584
Travel 37,561 34,072 63,261
----------- ---------- ----------
$ 2,537,947 $2,369,232 $2,484,142
=========== ========== ==========
Selling and delivery
Marketing $ 239,477 $ 239,864 $ 241,131
Freight and shipping 169,806 197,501 173,214
Sales commission 163,656 213,755 128,580
Selling 450,436 512,268 566,141
----------- ---------- ----------
$ 1,023,375 $1,163,388 $1,109,066
=========== ========== ==========
Page 74 of 81
Form 20F Fiscal 2004
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. (incorporated by reference from
Exhibit 4.5 to the Annual Report on Form 20-F for the fiscal year ended
March 31, 2003)
7.0 List of Subsidiaries (incorporated by reference from Exhibit 7.0 to the
Annual Report on Form 20-F for the fiscal year ended March 31, 2000).
12.1 Section 302 Certification by C.E.O.
12.2 Section 302 Certification by C.F.O.
13.1 Section 906 Certification by C.E.O.
13.2 Section 906 Certification by C.F.O.
Page 75 of 81
Form 20F Fiscal 2004
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf.
Allura International, Inc.
DATED at Vancouver, British Columbia, Canada, as of October 14th, 2004.
/s/ "Jeremy Bowman"
- ----------------------------------
Jeremy Bowman, President, CEO and Director
Page 76 of 81
Form 20F Fiscal 2004
ALLURA INTERNATIONAL INC.
Index to Exhibits Filed
1.1 Certificate of Incorporation of the Company (incorporated by reference
from Exhibit 1.1 to the Company's Registration Statement on Form 20-F,
File No. 0-30228 (the "Registration Statement"));
1.2 By-laws of the Company (incorporated by reference from Exhibit 1.2 to the
Registration Statement);
1.3 Articles of Amendment of the Company (incorporated by reference from
Exhibit 1.3 to the Registration Statement);
1.4 Certificate of Amendment of the Company (incorporated by reference from
Exhibit 1.4 to the Registration Statement);
1.5 Certificate of Change of Name (incorporated by reference from Exhibit 1.5
to the Registration Statement);
4.1 Shareholders Agreement (incorporated by reference from Exhibit 4.1 to the
Annual Report on Form 20-F for the fiscal year ended March 31, 2000);
4.2 Investment Agreement (incorporated by reference from Exhibit 4.2 to the
Annual Report on Form 20-F for the fiscal year ended March 31, 2000);
4.3 Lease for 1555 West 8th Avenue (incorporated by reference from Exhibit 4.3
to the Annual Report on Form 20-F for the fiscal year ended March 31,
2000). Lease for Unit 104, 276 Bedford Highway, Halifax, N.S., B3M 2K6,
(incorporated by reference from Exhibit 4.4 to the Annual Report on Form
20-F for the fiscal year ended March 31, 2003);
4.4 Stock Option Plan (incorporated by reference from Exhibit 4.4 to the
Annual Report on Form 20-F for the fiscal year ended March 31, 2000);
4.5 Mutual Release and Settlement Agreement dated May 1, 2002, by and among
Allura International, Bygo Inc., MacDonald Dettwiler and Associates Ltd.
and certain other parties thereto. (incorporated by reference from Exhibit
4.5 to the Annual Report on Form 20-F for the fiscal year ended March 31,
2003)
7.0 List of Subsidiaries (incorporated by reference from Exhibit 7.0 to the
Annual Report on Form 20-F for the fiscal year ended March 31, 2000).
12.1 Section 302 Certification by C.E.O.
12.2 Section 302 Certification by C.F.O.
13.1 Section 906 Certification by C.E.O.
13.2 Section 906 Certification by C.F.O.
Page 77 of 81
Form 20F Fiscal 2004