Securities registered or to be registered
pursuant to Section 12(b) of the Act:
Securities registered or to be registered
pursuant to Section 12(g) of the Act:
Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:
None
The number of outstanding shares of the
Company’s only class of capital or common stock as at December 31, 2017 was
17,112,022 common shares
.
Indicate by check mark if the Registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this is an annual report or a transition
report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Indicate by check mark whether 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 Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Indicate by check mark whether Registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting
the Registrant has used to prepare the financial statements included in this filing:
If “other” has been checked
in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:
If this is an annual report, indicate by
check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by checkmark whether the Registrant
has filed all documents and reports required to be filed by Sections 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.
Adira and Adira Energy have historically
used U.S. dollar as their reporting currency. All references in this document to “dollars” or “$” are to
United States dollars and all references to “CDN$” are to Canadian dollars, unless otherwise indicated.
Unless otherwise provided, all references
in this annual report to numbers of Adira’s common shares reflect the 1-for-3 reverse stock split which took place on August
9, 2013.
Except as noted, the information set forth
in this Form 20-F is as of December 31, 2017 and all information included in this document should only be considered correct as
of such date.
Much of the information included in this
Form 20-F includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking
statements include any projections or estimates made by us and our management in connection with our business operations. These
statements relate to future events or our future financial performance. Generally, any statements contained herein that are not
statements of historical facts may be forward–looking statements. In some cases you can identify forward-looking statements
by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”,
“believes”, “estimates”, “predicts”, “potential” or “continue or the negative
of those terms or other comparable terminology. While these forward-looking statements, and any assumptions upon which they are
based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost
always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested
herein. Such estimates, projections or other forward looking statements involve various risks and uncertainties and other factors,
including the risks in the section titled “Risk Factors”, below, that may cause our actual results, levels of activities,
performance or achievements to be materially different from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. We caution the reader that important factors in some cases have affected
and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed
in any such estimates, projections or other forward looking statements. 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 required by applicable law, including the securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform those statements to actual results.
In particular, without limiting the generality
of the foregoing disclosure, the statements contained in Item 4.B. – “Business Overview”, Item 5 – “Operating
and Financial Review and Prospects” and Item 11 – “Quantitative and Qualitative Disclosures About Market Risk”
are inherently subject to a variety of risks and uncertainties that could cause actual results, performance or achievements to
differ significantly.
PART
I
ITEM 1 - IDENTITY OF DIRECTORS,
SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2 - OFFER STATISTICS AND
EXPECTED TIMETABLE
Not applicable.
ITEM 3 - KEY INFORMATION
A. Selected Financial
Data
Adira Energy
Until recently, Adira was carrying on business
as an oil and gas exploration company with a focus on early-stage exploration in the State of Israel. The focus of the Company
has changed as detailed below. The Company’s current trading symbol on the TSX Venture Exchange (the “
Exchange
”)
is “ADL”. The Company also trades on the OTC Bulletin Board with the trading symbol “ADENF” and on the
Frankfurt Stock Exchange with the trading symbol “OAM1”.
Our Company had an option (the “
Yam
Hadera Option
”) to acquire up to a 15% participating interest in the Yam Hadera license (the “
Yam Hadera License
”)
from Modiin Energy LP (“
MELP
”). The Yam Haera license is located 30 kilometers offshore Israel, between Hadera
and Haifa. The Yam Hadera Option was exercisable until 14 days prior to the signing of a rig contract for the Yam Hadera License.
On September 22, 2014, the Petroleum Commissioner advised MELP that the Yam Hadera License had expired, without further extension
being granted, due to the milestones in their work program not being achieved. On October 22, 2014, MELP sent a letter of appeal
to the decision with the Minister of Energy and Water; however, in December 2015, MELP was notified that their appeal was denied
and that the license has expired.
In light of the expiry of the Yam Hadera
License, we have determined that we should terminate our oil and gas exploration business as of December 31, 2015. Prior to the
completion of the Transaction (as defined below), we were a shell company as defined in Rule 12b-2 of the Exchange Act.
Reverse Take over
On November 5, 2015, the Company and SMAART
Holdings Inc. (“
SMAART
”) and the shareholders of SMAART entered into a letter of intent (the “
LOI
”)
pursuant to which SMAART and Adira will complete a transaction (the “
Transaction
”), pursuant to which the resulting
corporation (the “
Resulting Issuer
”) will seek listing on a Canadian stock exchange.
Management has recently become aware that,
as a matter of policy and subject to very limited exceptions, the TSX Venture Exchange (the “
TSXV
”) will not
accept for listing any company that engages in a cannabis-related business in any jurisdiction where such business is prohibited
under applicable federal law, including the United States. Currently, the Canadian Securities Exchange (the “
CSE
”)
does not have a similar policy, and may provide an alternative to the TSXV as a stock market for the Resulting Issuer’s common
shares, provided that the Resulting Issuer would meet the listing standards prescribed by the CSE.
The Target's business operates under the
name Empower Clinics ("
Empower
") in the United States and is a growing national network of physician-staffed medical
cannabis clinics with a primary focus on enabling patients to improve and protect their health. In addition to the clinic business,
Empower also garners royalties from the sale of proprietary medical cannabis products manufactured, dispensed, and delivered by
third party channel partners. Through the rapid addition of both physical clinic locations, coupled with third party manufacturer
distribution relationships, Empower seeks to create a leading nationwide brand of trusted products and services for the medical
cannabis industry, enabling patients to more effectively and affordably address areas such as chronic pain, Epilepsy, PTSD, and
more. Empower also intends to seek merger and acquisition opportunities where possible to accelerate its business expansion plans
and drive value.
On April 27, 2018, the Company completed
its previously disclosed transaction with SMAART Holdings Inc. (“SMAART”) to acquire assets which constituted a reverse
take-over of the Company (the “Transaction”). Pursuant to the Transaction, a subsidiary of the Company amalgamated
with SMAART to form the wholly owned subsidiary, Empower Clinics Inc. In return, all of the issued and outstanding securities of
SMAART were exchanged for equivalent securities, including Common Shares, of Empower. In connection with the Transaction, the Company
also changed its name to “Empower Clinics Inc.” and underwent a 6.726254 to one share consolidation. In addition, a
private placement was completed whereby 8,443,473 Common Shares were issued at a price of CDN$0.31 per share for aggregate gross
proceeds of CDN$2,617,476, approximately $2,037,000. As a result, Empower will have 70,966,958 Common Shares issued and outstanding.
The net proceeds will be available as working
capital for the Company.
On August 9, 2013, we completed a reverse
stock split (the “
Consolidation
”) of our common shares on the basis of one new common share for every three
old common shares. The Consolidation was effective for trading purposes on August 13, 2013.
Effective September 29, 2014, we completed
a second reverse stock split (the “
Second Consolidation
”) of our common shares on the basis of one new common
share for every five old common shares.
The selected historical information presented
in the table below for the years ended December 31, 2017, 2016, 2015, 2014 and 2013and 2012 are derived from the audited consolidated
financial statements of Adira for such period, and have been prepared in accordance with International Financial Reporting Standards
(“
IFRS
”) as issued by the International Accounting Standards Board (“
IASB
”). The selected
financial information presented below should be read in conjunction with the audited consolidated financial statements and the
notes thereto of Adira Group, and with the information appearing under each of Item 4 – “Information on the Company”
and Item 5 – “Operating and Financial Review and Prospects” of this Form 20-F. All financial data presented in
this Form 20-F are qualified in their entirety by reference to the consolidated financial statements and their notes.
U.S. dollars in thousands, except share and per share data
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
14
|
|
|
|
19
|
|
|
|
124
|
|
|
|
334
|
|
|
|
617
|
|
|
Total Assets
|
|
|
14
|
|
|
|
52
|
|
|
|
163
|
|
|
|
409
|
|
|
|
3,226
|
|
|
Total Liabilities
|
|
|
378
|
|
|
|
341
|
|
|
|
237
|
|
|
|
223
|
|
|
|
3,803
|
|
|
Total Shareholders’ Equity (deficit)
|
|
|
(364
|
)
|
|
|
(289
|
)
|
|
|
(74
|
)
|
|
|
186
|
|
|
|
(577
|
)
|
|
|
|
|
|
Year ended December 31
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
($ thousands)
|
|
|
|
|
|
|
|
|
|
Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
677
|
|
|
General and administrative expenses
|
|
|
113
|
|
|
|
268
|
|
|
|
349
|
|
|
|
602
|
|
|
|
2,813
|
|
|
Gain on settlement of accounts payable and others payables
|
|
|
-
|
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
(1,374
|
)
|
|
|
-
|
|
|
Impairment charge
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
113
|
|
|
|
268
|
|
|
|
324
|
|
|
|
(772
|
)
|
|
|
8,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
113
|
|
|
|
268
|
|
|
|
324
|
|
|
|
772
|
|
|
|
(8,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,027
|
|
|
Loss on foreign exchange
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
(23
|
)
|
|
|
(37
|
)
|
|
|
(30
|
)
|
|
Gain on revaluation of warrant liability
|
|
|
38
|
|
|
|
45
|
|
|
|
78
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before income taxes
|
|
|
(75
|
)
|
|
|
(215
|
)
|
|
|
(269
|
)
|
|
|
735
|
|
|
|
(5,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) and comprehensive profit (loss)
|
|
|
(75
|
)
|
|
|
(215
|
)
|
|
|
(269
|
)
|
|
|
735
|
|
|
|
(5,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net (loss) profit per share attributable to equity holders of the parent
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
0.06
|
|
|
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in computing basic and diluted net loss per share
|
|
|
17,112,022
|
|
|
|
17,112,022
|
|
|
|
15,439,508
|
|
|
|
12,158,302
|
|
|
|
12,052,073
|
|
Adira has never declared or paid any cash
or other dividends.
B. Capitalization
and Indebtedness
Not applicable.
C. Reasons for
the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
An investment in our securities is highly
speculative and involves a high degree of risk. Our Company may face a variety of risks that may affect our operations or financial
results and many of those risks are driven by factors that we cannot control or predict. Before investing in our company’s
securities, investors should carefully consider the following risks. The risks and uncertainties described below are not the only
risks and uncertainties that we face or that an investment in our securities entails. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business operations. Any of the following risks could materially
and adversely affect our business, financial condition, prospects and results of operations. In that case, investors may lose all
or a part of their investment. The risks discussed below also include forward-looking statements and the out actual results may
differ substantially from those discussed in these forward-looking statements. See ‘‘Note Regarding Forward Looking
Statements” and “Operating and Financial Review and Prospects”.
Risks Associated with the Company
Our independent
auditors have referred to circumstances which might result in doubt about our ability to continue as a going concern, which may
hinder our ability to obtain future financing.
At December 31, 2017,
we had an accumulated deficit of $34.4 million. These circumstances raise doubt about our ability to continue as a going concern,
as described in the Note 1 to our consolidated financial statements for the year ended December 31, 2017, which are included herein.
Although our consolidated financial statements refer to circumstances which might raise doubt about our ability to continue as
a going concern, they do not reflect any adjustments that might result if we are unable to continue our business.
As a holding company,
our ability to make payments will eventually depend on the cash flows of our subsidiaries.
We have historically
been a holding company and we plan to conduct substantially all of our operations through subsidiaries. We have no direct operations
and, other than remaining cash or cash equivalents and the shares of our subsidiaries, no significant assets. Assuming our holding
company structure remains, we will be dependent on the cash flows from our subsidiaries to meet our obligations, including payment
of principal and interest on any debt we incur. The ability of certain of our subsidiaries to provide us with payments may be constrained
by the following factors:
|
|
·
|
the cash flows, if any, generated by operations, investment activities and financing activities;
and
|
|
|
·
|
the level of taxation, particularly corporate profits and withholding taxes.
|
In addition, we cannot
guarantee that the current fiscal regime that allows for repatriation of funds in each of the countries where we do business will
remain in effect, nor can we guarantee that arbitrary changes in exchange controls in each of the countries where we do business
will not take place, which may adversely impact on the ability of investors to recover their investment.
We may be adversely
affected by current global financial conditions.
Current global financial
conditions have been characterized by increased volatility and several financial institutions have either gone into bankruptcy
or have had to be rescued by governmental authorities. Access to public financing and bank credit has been negatively impacted
by both the rapid decline in value of sub-prime mortgages and the liquidity crisis affecting the asset-backed commercial paper
market. These and other factors may affect our ability to obtain equity or debt financing in the future on favorable terms. Additionally,
these factors, as well as other related factors, may cause decreases in our asset values that may be other than temporary, which
may result in impairment losses. If such increased levels of volatility and market turmoil continue, or if more extensive disruptions
of the global financial markets occur, our operations could be adversely impacted and the market value of our common shares may
be adversely affected.
Our financial reporting
may be subject to weaknesses in internal controls.
Internal controls over
financial reporting are procedures designed to provide reasonable assurance that transactions are properly authorized, assets are
safeguarded against unauthorized or improper use, and transactions are properly recorded and reported. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance with respect to the reliability of financial
reporting and financial statement preparation.
We cannot be certain
that current expected expenditures and completion/testing programs will be realized.
We believe that the costs used to prepare
internal budgets are reasonable; however, there are assumptions, uncertainties, and risk that may cause our allocated funds on
a per well basis to change as a result of having to alter certain activities from those originally proposed or programmed to reduce
and mitigate uncertainties and risks. These assumptions, uncertainties, and risks are inherent in the completion and testing of
wells and can include but are not limited to: pipe failure, casing collapse, unusual or unexpected formation pressure, environmental
hazards, and other operating or production risk intrinsic in oil and/or gas activities. Any of the above may cause a delay in our
completion program and its ability to determine reserve potential.
We may no effectively
manager the cannabis business of SMAART currently carried on in the United States..
there are uncertainties surrounding the
Resulting Issuer carrying on the existing medical cannabis business of SMAART currently carried on in the United States. Currently,
there are 29 states of the United States, including the District of Columbia, that have laws or regulations that recognize, in
one form or another, legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many
other states are considering similar legislation. Conversely, under the Controlled Substance Act (the “CSA”), the policies
and regulations of the Federal government and its agencies are that cannabis has no medical benefit and a range of activities including
cultivation and the personal use of cannabis is prohibited. Unless and until Congress amends the CSA with respect to medical marijuana,
as to the timing or scope of any such potential amendments there can be no assurance, there is a risk that federal authorities
may enforce current federal law, and we may be deemed to be producing, cultivating or dispensing marijuana in violation of federal
law or we may be deemed to be facilitating the selling or distribution of drug paraphernalia in violation of federal law with respect
to our current or proposed business operations. Active enforcement of the current federal regulatory position on cannabis may thus
indirectly and adversely affect the Resulting Issuer’s future cash flows, earnings, results of operations and financial condition.
The risk of strict enforcement of the CSA
in light of Congressional activity, judicial holdings and stated federal policy remains uncertain.
We have agreed to indemnify our directors
against liabilities incurred by them as directors.
We have agreed to indemnify our directors
from and against all costs, charges and expenses reasonably incurred by them in respect of any civil, criminal or administrative
action or proceeding to which they are made a party or with which they are threatened by reason of being or having been a director
of Adira, provided that (a) they have acted honestly and in good faith with a view to the best interests of Adira; and (b) in the
case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, they had reasonable grounds for
believing that their conduct was lawful. This indemnity may reduce the likelihood of derivative litigation against our directors
and may discourage or deter our shareholders from suing the directors.
Risks Associated with Our Business
The consummation
of our proposed acquisition of SMAART is subject to a number of contingencies and cannot be assured.
Our proposed acquisition of SMAART is contemplated
by a non-binding letter of intent, and the transaction is subject to a number of conditions typical in a transaction of this nature,
including without limitation, the approval by at least 66 2/3% of the votes cast by Adira shareholders at a special meeting of
Adira shareholders to approve the transaction and the approval of the TSXV (and/or any other Canadian stock exchange on which the
Resulting Issuer may seek listing). There is no assurance that our acquisition of SMAART will proceed. We have no other business
prospects at this time, and if we are not successful in completing our proposed acquisition of SMAART, our Company may be left
with inadequate resources to seek out and evaluate other opportunities.
Assuming we are successful in consummating
our acquisition of SMAART, our future success will be dependent on additional states legalizing medical marijuana.
Assuming we are successful in consummating
our acquisition of SMAART, our future success will depend on the continued development of the medical marijuana market, and on
our ability to penetrate that market. According to the Marijuana Policy Project, a pro-legalization group, medical marijuana is
legal in 29 states and Washington, D.C., Puerto Rico and Guam. However, continued development of the medical marijuana market is
dependent upon continued legislative authorization of marijuana at the state level for medical purposes and, in certain states,
including Oregon, based on the specifics of the legislation passed in that state, on local governments authorizing a sufficient
number of dispensaries. Any number of factors could slow or halt the progress. Further, progress, while encouraging, is not assured
and the process normally encounters set-backs before achieving success. While there may be ample public support for legislative
proposal, key support must be created in the legislative committee or a bill may never advance to a vote. Numerous factors impact
the legislative process. Any one of these factors could slow or halt the progress and adoption of marijuana for medical purposes,
which would limit the market for our products and negatively impact our business and revenues.
The alternative medicine industry faces
strong opposition.
It is believed by many that well-funded,
significant businesses may have a strong economic opposition to the medical marijuana industry as currently formed. We believe
that the pharmaceutical industry clearly does not want to cede control of any compound that could become a strong selling drug.
For example, medical marijuana will likely adversely impact the existing market for Marinol, the current “marijuana pill”
sold by mainstream pharmaceutical companies. Further, the medical marijuana industry could face a material threat from the pharmaceutical
industry should marijuana displace other drugs or simply encroach upon the pharmaceutical industry’s market share for compounds
such as marijuana and its component parts. The pharmaceutical industry is well funded with a strong and experienced lobby that
eclipses the funding of the medical marijuana movement. Any inroads the pharmaceutical industry makes in halting or rolling back
the medical marijuana movement could have a detrimental impact on the market for our products and thus on our business, operations
and financial condition.
Marijuana remains illegal under U.S.
federal law.
Marijuana remains illegal under U.S. federal
law. It is a Schedule-I controlled substance. Even in those jurisdictions in which the use of medical marijuana has been legalized
at the state level, its prescription is a violation of federal law. The United States Supreme Court has ruled in
United States
v. Oakland Cannabis Buyers’ Coop.
and
Gonzales v. Raich
that it is the federal government that has the right to
regulate and criminalize cannabis, even for medical purposes. Therefore, federal law criminalizing the use of marijuana trumps
state laws that legalize its use for medicinal purposes.
According to the Marijuana Policy Project,
a pro-legalization group, medical marijuana is legal in 29 states and Washington, D.C., Puerto Rico and Guam. In addition, eight
states and the District of Columbia have legalized recreational cannabis use. In 2013, the U.S. Department of Justice issued a
memorandum (commonly referred to as the “
Cole Memorandum
”) to the U.S. Attorneys offices (federal prosecutors)
directing that federal prosecution of individuals and businesses that rigorously comply with state regulatory provisions in states
that have strictly-regulated legalized medical or recreational cannabis programs be given low priority. This federal policy was
reinforced by the passage of a federal omnibus spending bill in 2014 (the “
2014 Spending Bill
”) that included
the so-called Rohrabacher–Farr amendment which prohibits the use of federal funds to interfere in the implementation of state
laws legalizing cannabis and state medical marijuana laws. The Department of Justice, which encompasses the Drug Enforcement Agency,
was subject to the 2014 Spending Bill.
The Rohrabacher–Farr amendment remained
in the federal omnibus spending bill for the 2016 fiscal year that was signed into law by President Obama on December 18, 2015.
In September 2016, the amendment was included in a short-term spending bill passed by Congress and signed into law, which allowed
it to remain in effect through December 9, 2016 when it was again renewed pursuant to a further short-term spending bill until
April 28, 2017.
The 2014 Spending Bill has been cited as
evidence of the development of bi-partisan support in the U.S. Congress for legalizing the use of cannabis. However, it remains
unclear whether the federal government will eventually repeal the federal prohibition on cannabis, and there is no assurance that
the Rohrabacher–Farr amendment will be extended past April 28, 2017. Political and regulatory risks also exist due to the
recent election of Donald Trump to the U.S. Presidency, and the appointment of Sen. Jeff Sessions to the post of Attorney General
with effect from February 9, 2017. Mr. Trump’s positions regarding marijuana are remain unclear. However, Sen. Sessions has
been a consistent opponent of marijuana legalization efforts throughout his political career, and has publicly commented that the
Justice Department will commit to enforcing federal laws on marijuana in an “appropriate way”. It remains unclear what
stance the Department of Justice under the new administration might take toward legalization efforts in U.S. states, but federal
enforcement of the Controlled Substances Act and other applicable laws is possible.
We may have difficulty accessing the
service of U.S. banks.
As discussed above, the use of marijuana
is illegal under federal law. Therefore, if we are successful in consummating our acquisition of SMAART, there is a compelling
argument that U.S. banks would not be able to accept for deposit funds from the drug trade and therefore would not be able to do
business with our Company. On February 14, 2014 the U.S. Department of the Treasury Financial Crimes Enforcement Network (“
FinCEN
”)
released guidance to banks “clarifying Bank Secrecy Act expectations for financial institutions seeking to provide services
to marijuana-related businesses.” Under these guidelines, financial institutions must submit a “suspicious activity
report” (“
SAR
”) as required by federal money laundering laws. These marijuana related SARs are divided
into three categories: marijuana limited, marijuana priority, and marijuana terminated, based on the financial institution’s
belief that the marijuana business follows state law, is operating out of compliance with state law, or where the banking relationship
has been terminated. In the United States, a bill has been tabled in Congress to grant banks and other financial institutions immunity
from federal criminal prosecution for servicing marijuana-related businesses if the underlying marijuana business follows state
law. This bill has not been passed and there can be no assurance with that it will be passed in its current form or at all.
In addition, U.S. Rep. Jared Polis (D-CO)
has recently re-introduced proposed legislation in Congress that contemplates, among other things, the removal of marijuana from
the Controlled Substance Act schedules and regulate it like alcohol.
While these are positive developments in
this regard, there can be no assurance this legislation will be successful, that even with the FinCEN guidance that banks will
decide to do business with medical marijuana retailers, or that in the absence of actual legislation state and federal banking
regulators will not strictly enforce current prohibitions on banks handling funds generated from an activity that is illegal under
federal law. If, in the future, we are unable to open accounts and otherwise use the service of U.S. banks, our ability to carry
on business in the United States may become untenable.
Our Company is organized under the laws
of Canada
.
Our Company is a Canadian corporation governed
by the
Canada Business Corporations Act
and as such, its corporate structure, the rights and obligations of shareholders
and its corporate bodies may be different from those of the home countries of international investors. Furthermore, non-Canadian
residents may find it more difficult and costly to exercise shareholder rights. International investors may also find it costly
and difficult to effect service of process and enforce their civil liabilities against us or some of our directors, controlling
persons and officers.
We may be treated as a U.S. corporation
and taxed by the U.S. on our worldwide income.
We continued from Nevada to Canada in 2008.
Such continuance is for corporate purposes a migration of us from Nevada to Canada. Transactions whereby a U.S. corporation migrates
to a foreign jurisdiction are considered by the U.S. Congress to be a potential abuse of the U.S. tax rules because thereafter
the foreign entity is not subject to U.S. tax on its worldwide income. As a result, Section 7874(b) of the Internal Revenue Code
of 1986, as amended, was enacted to address this potential abuse. Section 7874(b) provides generally that a corporation that migrates
from the U.S. will nonetheless remain subject to U.S. tax on its worldwide income unless the migrating entity has substantial business
activities in the foreign country in which it is migrating when compared to its total business activities.
If Section 7874(b) were to apply to our
migration from Nevada to Canada, it would cause us to be subject to U.S. federal income taxation on our worldwide income. Section
7874(b) of the Code will apply to our migration unless we had substantial business activities in Canada when compared to our total
business activities at the time of our migration.
Based on the fact that substantially all
of our activities were taking place in Canada and all of our assets were located in Canada at the time of our migration, we have
taken the position that we had substantial business activity in Canada in relation to our worldwide activities at the time of the
migration and that Section 7874(b) did not apply to cause us, after the migration, to be subject to U.S. federal income tax on
our worldwide income. There is limited guidance as to what “substantial business activity” is “when compared
to our worldwide activities.” Accordingly, the position adopted by us may be challenged by the U.S. tax authorities with
the result that we may be subject to U.S. federal income taxes on our worldwide activities. In addition to U.S. federal income
taxes, were Section 7874(b) to apply to us, we could be subject to penalties for failure to file U.S. federal income tax returns,
late fees and interest on past due taxes. Furthermore, if Section 7874(b) were to apply to us, our non-U.S. shareholders may be
subject to adverse U.S. federal income tax consequences such as the assessment of U.S. federal income withholding taxes on dividends
paid by us. Each shareholder should consult its own tax advisor regarding the foregoing rules.
Risks Associated with our Common Shares
The market price of the common shares
of our corporation may be volatile
The market price of our common shares may
experience significant volatility. Numerous factors, including many over which we have no control, may have a significant impact
on the market price of our common shares including, among other things: regulatory developments in target markets affecting us,
our customers or our competitors; actual or anticipated fluctuations in our quarterly operating results; changes in financial estimates
or other material comments by securities analysts relating to us, our competitors or the industry in general; announcements by
other companies in the industry relating to their operations, strategic initiatives, financial condition or financial performance
or to the industry in general; announcements of acquisitions or consolidations involving industry competitors or industry suppliers;
addition or departure of our executive officers; and sales or perceived sales of additional common shares of Adira. In addition,
the stock market in recent years has experienced extreme price and trading volume fluctuations that often have been unrelated or
disproportionate to the operating performance of individual companies. These broad market fluctuations may adversely affect the
price of the common shares of Adira regardless of our operating performance. There can be no assurance that an active market for
the Common Shares will be established or persist and the share price may decline.
We are now considered a shell company;
as such our stock cannot be sold pursuant to Rule 144 at this time.
We are now a shell company as defined in
Rule 405 under the Securities Act. As such, pursuant to Rule 144(i) under the Securities Act, our shares will not be able to be
sold pursuant to Rule 144 until we cease to be considered a shell company and twelve months have elapsed from the date we have
filed adequate information (Form 10 information) with the SEC disclosing that we are not longer a shell company.
The value of securities issued by
us might be affected by matters not related to our operating performance.
The value of securities issued by us may
be affected by matters not related to our operating performance or underlying value for reasons that include the following: general
economic conditions in Canada, the US, Israel and globally; industry conditions, including fluctuations in the price of oil and
natural gas; governmental regulation of the oil and gas industry, including environmental regulation; fluctuation in foreign exchange
or interest rates; liabilities inherent in oil and natural gas operations; geological, technical, drilling and processing problems;
assuming we achieve production, unanticipated operating events which can reduce production or cause production to be shut-in or
delayed; failure to obtain industry partner and other third party consents and approvals, when required; stock market volatility
and market valuations; competition for, among other things, capital, acquisition of reserves, undeveloped land and skilled personnel;
the need to obtain required approvals from regulatory authorities; worldwide supplies and prices of and demand for natural gas
and oil; political conditions and developments in Israel, Canada, the US, and globally; political conditions in natural gas and
oil producing regions; revenue and operating results failing to meet expectations in any particular period; investor perception
of the oil and gas industry; limited trading volume of our common shares; change in environmental and other governmental regulations;
announcements relating to our business or the business of our competitors; our liquidity; and our ability to raise additional funds.
In the past, companies that have experienced
volatility in their value have been the subject of securities class action litigation. We might become involved in securities class
action litigation in the future. Such litigation often results in substantial costs and diversion of management’s attention
and resources and could have a material adverse effect on our business, financial condition and results of operation.
An investment in our Company will
likely be diluted.
We may issue a substantial number of our
common shares without investor approval to raise additional financing and we may consolidate the current outstanding common shares.
Any such issuance or consolidation of our securities in the future could reduce an investor’s ownership percentage and voting
rights in us and further dilute the value of your investment.
If we are a “passive foreign
investment company” at any time that a U.S. shareholder holds our common shares, such U.S. shareholder may be subject to
adverse U.S. federal income tax consequences
Acquiring, holding or disposing of our
common shares may have tax consequences under the laws of Canada and the United States that are not disclosed in this Form 20-F.
In particular, potential investors that are U.S. taxpayers should be aware that we may be considered a “passive foreign investment
company” (a “
PFIC
”) under Section 1297(a) of the U.S. Internal Revenue Code (the “
Code
”)
with respect to U.S. shareholders. A non-U.S. corporation is classified as a PFIC under the Code for each tax year in which (i)
75% or more of its gross income is passive income (as defined for U.S. federal income tax purposes) or (ii) on average for such
tax year, 50% or more (by value) of its assets either produces or is held for the production of passive income. The tax rules applicable
to PFICs are very complex and, in some cases, uncertain. Each U.S. investor should consult its own tax advisor with respect to
such rules. If our Company is a PFIC for any year during a U.S. taxpayer’s holding period, then such taxpayer may be required
to treat any gain recognized by such person upon a sale or disposition of our common shares as ordinary (rather than capital) income,
and any resulting U.S. federal income tax may be increased by an interest charge. Rules similar to those applicable to dispositions
will generally apply to certain amounts treated as “excess distributions” in respect of the common shares.
We do not expect to pay dividends for the foreseeable
future.
We do not intend to declare dividends for
the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business.
Therefore, investors will not receive any funds unless they sell their Common Shares, and shareholders may be unable to sell their
shares on favorable terms or at all. We cannot assure you of a positive return on investment or that you will not lose the entire
amount of your investment in our Common Shares. Prospective investors seeking or needing dividend income or liquidity should not
purchase our Common Shares.
|
|
ITEM 4
|
INFORMATION ON THE COMPANY
|
We are a Canadian corporation existing
under the
Canada Business Corporations Act
(the “
CBCA
”) which conducts business as an oil and gas exploration
company with operations in the State of Israel. We have been granted certain petroleum licenses from the State of Israel, as more
particularly described below in Item 4B – “Business Overview”.
We presently do not have any oil and gas
reserves, do not produce any oil or gas and do not earn any significant revenues.
A. History and
Development of the Company
Name
Our legal and commercial name is Adira
Energy Ltd.
Principal Office
Our principal
office prior to the completion of the Transaction was located at
4101 Yonge Street, Suite 706
,
Toronto, Ontario, Canada,
M2P 1N6
. We are no located at 400-570 Granville Street, Vancouver
BC V6C 3P1.
Incorporation and Continuation
We are a Canadian corporation existing
under the CBCA.
We were incorporated on February 20, 1997
under the name “Trans New Zealand Oil Company” by filing our Articles of Incorporation with the Secretary of State
of Nevada. We changed our name to “AMG Oil Ltd.” on July 27, 1998. On December 17, 2009, we changed our name to “Adira
Energy Ltd.” Our fiscal year end is December 31.
On November 25, 2008, our shareholders
approved the change of our jurisdiction of incorporation from the State of Nevada to the Canadian federal jurisdiction under the
CBCA by way of continuation. We completed the filing of our Articles of Conversion with the Nevada Secretary of State on November
25, 2008, and our Articles of Continuance were accepted for filing by Industry Canada effective November 27, 2008. The effect of
these filings was to transfer our jurisdiction of incorporation from the State of Nevada to the Canadian federal jurisdiction under
the CBCA. Copies of the Articles of Conversion, Articles of Continuance, Certificate of Continuance and By-Laws, are incorporated
by reference into this Form 20-F as exhibits.
Our common shares are registered under
Section 12(g) of the Exchange Act. Our current trading symbol on the OTC Bulletin Board (the “
OTCBB
”) is “ADENF”
and our current trading symbol on the TSX Venture Exchange (the “
TSXV
”) is “ADL”. Our current trading
symbol on the Canadian Securities Exchange is “EPW”.
Acquisition of Adira Energy
We completed the acquisition of Adira Energy,
a company incorporated in the Province of Ontario, on August 31, 2009. As a result, we are now the owner of all the issued and
outstanding shares of Adira Energy and we ceased to be a “shell company”, as defined in Rule 12b-2 of the Exchange
Act. The acquisition was completed pursuant to a securities exchange agreement dated August 4, 2009 among Adira, Adira Energy and
Dennis Bennie, Ilan Diamond and Alan Friedman, as principal shareholders, and concurrent securities exchange agreements among Adira
and each of the minority shareholders of Adira Energy. We issued an aggregate of 39,040,001 pre-Consolidation common shares to
the shareholders of Adira Energy as consideration for the acquisition of Adira Energy.
On December 2, 2010, our common shares
commenced trading on the TSXV following approval of its listing in November 2010.
Reporting Issuer Status under Canadian Securities Laws
On February 1, 2006, the British Columbia
Securities Commission granted our application to be designated as a reporting issuer under the
Securities Act
(British Columbia).
Accordingly, we and our insiders became subject to the continuous disclosure requirements under the securities laws of the Province
of British Columbia, Canada. We received final approval for listing on the TSXV on December 1, 2010, and on December 2, 2010, our
common shares commenced trading on the TSXV. We are also a reporting issuer under the securities legislation of the provinces of
Alberta and Ontario.
Capital Expenditures and Divestitures
During the year ended December 31, 2017,
we did not incur any capital expenditures.
Takeover Offers
We are not aware of any indication of any
public takeover offers by third parties in respect of our common shares during our last and current financial years.
B. Business Overview
We were formerly an oil and gas exploration
company focused on early-stage exploration in the State of Israel. During 2015 Oil and Gas Offshore Israel licenses in which we
held options, all expired, and we determined that we should terminate our oil and gas exploration business as of December 31, 2015.
As a result, we became a shell company. As discussed above, we Completed the Transaction with Smart on April 27, 2018.
On June 12, 2015 SMAART Holdings Inc.,
through its wholly owned subsidiary Empower Healthcare Corp, purchased all of the assets of Presto Quality Care Corporation (“Presto”),
an Oregon company that had owned and operated the business currently carried on by SMAART. The consideration for the purchase was
the assumption by SMAART of a note payable by Presto to Bayview Equities Ltd. in the amount of $550,000 plus accrued interest of
$35,893. The Portland clinic was opened in 2003 to service the then fledgling medical cannabis market. The Grants Pass clinic was
opened in 2009 as was the Riverside California clinic which was recently closed. The Bend, Oregon clinic was opened by Ricky Gilliland,
the current manager, in 2011 while the Spokane, Washington clinic was opened in January, 2010. In addition, the travelling clinics
stared operating in various locations from 2003 onwards and were designed to service the small markets that could not sustain a
full-time clinic. All the clinics were start-ups and run by local advocates for the medicinal benefits of Cannabis. Local offices
were sourced and clinics were held for between one to three, days a week, eventually being held for six days a week in Portland.
The initial marketing was mainly word of mouth. The clinics were staffed by doctors or registered nurses.
The Empower team of six doctors and one
nurse have over 115 years of collective medical experience with 40 years of combined medical cannabis experience. In addition,
they written over 12 books and published over 300 articles on medical cannabis. Empower’s doctors are recruited through a
variety of methods including referral, recruiting and outreach. Currently doctors are paid on competitive hourly contracts which
provide maximum flexibility for both the clinics and doctors personal schedule. Hourly rates may be different base on state, required
doctor training and education and relevant experience levels. The respective qualifications of these doctors are as follows:
Dr. Jack McCue. A graduate of Harvard
University and Case Western Reserve University Schools of Medicine, Dr. McCue did his residency training at Johns Hopkins and
Harvard in internal medicine and geriatrics. He has traveled the world and worked with patients and other medical professionals
in a science-based blending of traditional medical treatment and appropriate use of cannabis. As a distinguished and award-winning
physician, Dr. McCue has written 14 books and over 300 articles, in addition to speaking internationally at conferences on many
topics including the informed use of medical cannabis. Dr. Shaun Hedmann. Dr. Hedmann completed his medical training at Johns
Hopkins in Baltimore MD, Baylor in Houston TX and Brown University in Providence RI and before accepting a position with Kaiser
Permanente where he practiced Cardiology for 25 years. He has been involved with patients and their need for medical cannabis
for nearly 6 years and appreciates the depth and breath of debilitating conditions that impact their lives.
Dr. David Dodge. Dr. Dodge is a retired
pathologist and nuclear medicine doctor in Portland, Oregon. He received his medical degree from Washington University School of
Medicine in St. Louis and served as staff pathologist at Providence Medical Center for more than 20 years. He has helped Oregon
cannabis patients at Empower Clinics since 2003.
Dr. Leorra Britvan. Dr. Britvan is a board
certified internal medicine physician. She studied medicine at University of Southern California Medical School and trained at
Harbor- UCLA for internal medicine. Most of her professional career includes working as an Hospitalist in both California and Oregon
for the past twenty years--caring for patients from admission in the emergency room to stay in hospital. She has been evaluating
patients for medical cannabis treatment since 2015.
Dr. David Lemmon. Dr. Lemmon is a Naturopathic
Physician with expertise in natural, nutritional, and plant-based medicine. He received his Doctorate from the National College
of Natural Medicine in Portland, Oregon. He has been studying the benefits and uses of medicinal plants including Cannabis for
over 15 years.
Dr. Heather Krantz. Dr. Krantz is an obstetrician-gynecologist
in Bend, Oregon. She received her medical degree from University of Kansas School of Medicine and has been in practice for more
than 20 years.
Effects of Government Regulations
See Item 3D - “Risk Factors”.
C. Organizational
Structure
The following table sets out the current
organizational structure of the Company and its significant subsidiaries, all wholly owned through SMAART Holdings Corp.:
|
Name of Subsidiary
|
Jurisdiction of Incorporation
|
|
Empower Healthcare Corporation
|
Oregon, USA
|
|
SMAART Inc.
|
Oregon, USA
|
|
The Hemp & Cannabis Company
|
Washington, USA
|
|
THCF Access Points, Inc.
|
Oregon, USA
|
|
The Hemp & Cannabis Company
|
Oregon, USA
|
|
CanMed Solutions Inc.
|
Oregon, USA
|
D. Property, Plant
and Equipment
(a) Corporate
Office
Our executive offices located at 400-570
Granville Street, Vancouver BC V6C 3P1.
(b) Special Skill
and Knowledge
Craig Snyder, our Chairman and CEO has
significant experience in managing the SMAART business.
(c) Foreign Operations
During the fiscal years ended December
31, 2015, and 2014, all of our oil and gas exploration activities were in the State of Israel. We terminated our oil and gas exploration
business as of December 31, 2015.
During the year ended December 31, 2017,
we have focused on advancing our proposed transaction with SMAART.
(d) Competitive
Conditions
We are currently a shell company, and do
not have exposure to any competitive conditions.
(e) Dependence
on Customers and Suppliers
We have no active business operations.
As such, we are not dependent upon a concentration of customers or suppliers.
(f) Environmental
Protection and Policies
We currently do not have exposure to any
environmental protection requirements and policies. In particular, we are now aware of any exposure to environmental protection
requirements in relation to our discontinued oil and gas exploration activities.
|
|
ITEM 5
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
The following is a discussion and analysis
of our activities, consolidated results of operations and financial condition as of and for the year ended December 31, 2017. It
should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December
31, 2017. Our financial statements have been prepared in accordance with IFRS as issued by the IASB.
A. Operating
Results
Results of Operations
Consolidated results of operations
for the year ended December 31, 2017 compared to the year ended December 31, 2016.
General and Administrative Expenses
For the year ended December 31, 2017, general
and administrative expenses amounted to $113 thousand as compared to $268 thousand for year ended December 31, 2016. The decrease
in general and administrative expenses in 2017 resulted primarily from the continued significant reduction in compensation to officers
of the Company and cessation of all activities, expect for the completion of the Transaction.
Financing Income/Expense and Gain on
Foreign Exchange
For the year ended December 31, 2017, gain
on foreign exchange was Nil as compared to a gain of $8 thousand for the year ended December 31, 2016. The Company is exposed to
financial risk related to the fluctuation of foreign exchange rates. Most of its monetary assets are held in Canadian, however,
the Company inures expenditures in NIS, US Dollars and Canadian dollars. The Company has not hedged its exposure to currency fluctuations.
The gain on revaluation of warrant liability
for the year ended December 31, 2017 was $38 as compares to $45 thousand for the year ended December 31, 2016 and results from
the warrants issued in May 2015 that are denominated in Canadian dollars, while our functional currency is US dollars; therefore,
the fair value of the warrants are classified as a financial liability which is re-measured to fair value at the end of each period.
The changes in fair value are included in gain on revaluation of warrant liability.
Net Loss
The Company reported a net loss and comprehensive
loss for the year ended December 31, 2017 of $75 thousand as compared to $215 thousand for year ended December 31, 2016. The losses
in 2017 and 2016 is as a result of the Company incurring general and administrative expenses with no corresponding income.
Consolidated results of operations
for the year ended December 31, 2016 compared to the year ended December 31, 2015.
General and Administrative Expenses
For the year ended December 31, 2016, general
and administrative expenses amounted to $268 thousand as compared to $349 thousand for year ended December 31, 2015. The decrease
in general and administrative expenses in 2015 resulted primarily from significant reduction in compensation to officers of the
Company and a decrease in rent.
Gain on settlement of accounts payable
and others payables
For the year ended December 31, 2015 the
Company recorded a gain on settlement of $25 thousand, arising from settlement agreements reached with suppliers.
Financing Income/Expense and Gain on
Foreign Exchange
For the year ended December 31, 2016, gain
on foreign exchange was $8 thousand as compared to a loss of $23 thousand for the year ended December 31, 2015. Our Company is
exposed to financial risk related to the fluctuation of foreign exchange rates. Most of our monetary assets are held in Canadian
dollars; however, the Company inures expenditures in NIS, US Dollars and Canadian dollars. The Company has not hedged its exposure
to currency fluctuations.
The gain on revaluation of warrant liability
for the year ended December 31, 2016 was $45 thousand as compared to $78 thousand for the year ended December 31, 2015, and results
from the warrants issued in May 2015 being denominated in Canadian dollars while our functional currency is US dollars. The fair
value of the warrants are classified as a financial liability which is re-measured to fair value at the end of each period. The
changes in fair value are included in gain on revaluation of warrant liability.
Net Profit
The Company reported a net loss and comprehensive
loss for the year ended December 31, 2016 of $215 thousand as compared to $269 thousand for year ended December 31, 2015. The losses
in 2016 and 2015 is as a result of the Company incurring general and administrative expenses with no corresponding income.
Inflation
During the years ended December 31, 2017,
2016 and 2015, inflation has not had a material impact on our operations.
Foreign Exchange Risk
We are exposed to financial risk related
to the fluctuation of foreign exchange rates. We operate in Israel, most of our monetary assets are held in U.S. dollars and most
of our expenditures are made in U.S. dollars. However, we also have expenditures in NIS and Canadian dollars. We have not hedged
our exposure to currency fluctuations.
B. Liquidity and
Capital Resources
Liquidity
Liquidity is a measure of a company’s
ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of common shares.
We have an accumulated deficit of $34.4
million as of December 31, 2017 ($34,3 as at December 31, 2016), and had negative cash flows from operations of $34 thousand for
the year ended December 31, 2017 ($105 thousand for the year ended December 31, 2016). We no longer hold any interests in any oil
and gas exploration projects.
Year ended December 31, 201
7
compared to year ended December 31, 201
6
During the year ended December 31, 2017,
the Company’s overall position of cash and cash equivalents decreased by $5 thousand.
The Company’s net cash used in operating
activities during the year ended December 31, 2017 was $34 thousand as compared to $105 thousand for the year ended December 31,
2016. This decrease is primarily as a result of an increase in accounts payable.
Cash used in investing activities during
the year ended December 31, 2017 was $29 thousand as compared $Nil during the year ended December 31, 2016. The cash provided in
201 7relates primarily to a repayment of a loan given to SMAART and the provision of a loan from SMAART to the Company.
Cash provided by financing activities for
the year ended December 31, 2017 was Nil as compared to $Nil during the year ended December 31, 2016.
Year ended December 31, 2016 compared
to year ended December 31, 2015
During the year ended December 31, 2016,
the Company’s overall position of cash and cash equivalents decreased by $105 thousand.
The Company’s net cash used in operating
activities during the year ended December 31, 2016 was $105 thousand as compared to $391 thousand for the year ended December 31,
2015. This decrease is primarily as a result of an increase in accounts payable.
Cash used in investing activities during
the year ended December 31, 2016 was $Nil as compared $15 thousand during the year ended December 31, 2015. The use of cash in
2015 relates primarily to the granting of a loan receivable in the amount of $25 thousand to SMAART in contemplation of the Transaction,
offset by the decrease of restricted cash during the year. SMAART repaid this loan subsequent to the year ended December 31, 2016.
Cash provided by financing activities for
the year ended December 31, 2016 was $Nil as compared to $196 thousand during the year ended December 31, 2015. The cash provided
in 2015 is as a result of the completion of a private placements of shares.
Year ended December 31, 2015 compared
to year ended December 31, 2014
During the year ended December 31, 2015,
the Company’s overall position of cash and cash equivalents decreased by $210 thousand.
The Company’s net cash used in operating
activities during the year ended December 31, 2015 was $441 thousand as compared to $380 thousand for the year ended December 31,
2014. This increase is primarily as a result of a decrease in accounts payable.
Cash used in investing activities during
the year ended December 31, 2015 was $15 thousand as compared to cash generated from investing activities of $37 thousand during
the year ended December 31, 2014. The use of cash in 2015 relates primarily to the granting of a loan in the amount of $25 thousand
to SMAART in contemplation of the Transaction, offset by the decrease of restricted cash during the same period.
Cash provided by financing activities for
the year ended December 31, 2015 was $196 thousand as compared to $60 thousand during the year ended December 31, 2014. The cash
provided in 2015 and 2014 is as a result of the completion of two separate private placements of shares.
There are no legal restrictions on transferring
funds between Canada and Israel.
Capital Resources
At
December 31, 2017, the Company’s cash and cash equivalents were $14 thousand (December 31, 2016 - $19 thousand). The majority
of this balance is being held in Canadian Dollars. Our working capital at December 31, 2017 was negative $329 thousand as compared
to negative $272 thousand at December 31, 2016. The Company decreased its working capital as a result of increase in accrued liabilities
and decrease of current receivables. During 2017 a significant service provider has agreed to accept settle their accounts payable
balance in the amount $155 in return for shares to be issued as part of the SMAART transaction. On April 27, 2018, The Company
completed the Transaction and raised $2 million.
Critical
Accounting Policies and Estimates
Our
results
of operation and financial condition are based on our consolidated financial
statements, which are presented in accordance with IFRS. Certain accounting principles require us to make certain estimates, judgments
and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information
available to us at that time. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts
of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments
or assumptions and actual results, our financial
statements
will be affected. The
significant accounting policies and estimates that we believe are the most critical to aid in fully understanding and evaluating
our reported financial results include the following:
|
|
·
|
Share-based payment transactions;
|
|
|
·
|
Impairment of financial assets; and
|
Share-based payment transactions
Our employees and other service providers
are entitled to remuneration in the form of equity-settled share-based payment transactions.
The cost of equity-settled transactions
with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using
an appropriate pricing model. As for other service providers, the cost of the transactions is measured at the fair value of the
goods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received
as consideration of equity instruments cannot be measured, they are measured by reference to the fair value of the equity instruments
granted.
The cost of equity-settled transactions
is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance and
service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award (the
“
vesting period
”). The cumulative expense recognized for equity-settled transactions at the end of each reporting
period until the vesting date reflects the extent to which the vesting period has expired and our best estimate of the number of
equity instruments that will ultimately vest. The expense or income recognized in profit or loss represents the movement in the
cumulative expense recognized at the end of the reporting period. No expense is recognized for awards that do not ultimately vest.
If we modify the conditions on which equity-instruments
were granted, an additional expense is recognized for any modification that increases the total fair value of the share-based payment
arrangement or is otherwise beneficial to the employee/other service provider at the modification date. If a grant of an equity
instrument is cancelled, it is accounted for as if it had vested on the cancellation date, and any expense not yet recognized for
the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement grant
on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described above.
Impairment of financial assets
At the end of each reporting period, we
assess whether there is objective evidence of impairment of a financial asset or group of financial assets carried at amortized
cost.
Objective evidence of impairment of debt
instruments and receivables exists as a result of one or more events that has occurred after the initial recognition of the asset
and that loss event has an impact on the estimated future cash flows. Evidence of impairment may include indications that the debtor
is experiencing financial difficulties, including liquidity difficulty and default in interest or principal payments. The amount
of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value
of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's
original effective interest rate (the effective interest rate computed at initial recognition). If the financial asset has a variable
interest rate, the discount rate is the current effective interest rate. The carrying amount of the asset is reduced through the
use of an allowance account (see allowance for doubtful accounts above). In a subsequent period, the amount of the impairment loss
is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized.
The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.
Warrant liability
As the warrants have an exercise and presentation
price denominated in Canadian dollars which differs from the Company’s functional currency they do not qualify for classification
as equity. These warrants have been classified as warrant liability and are recorded initially at the fair value and revalued at
each reporting date, using the Black-Scholes valuation method. Changes in fair value for each period are included in comprehensive
profit and loss for the period.
C. Research and
Development, Patents and Licences
Not applicable.
D. Trend Information
We are not aware of any trends that have
or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
E. Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
F. Tabular Disclosure
of Contractual Obligations
We have no contractual obligations as of
December 31, 2017.
G. Safe Harbor
Not applicable.
|
|
ITEM 6
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A. Directors and
Senior Management
The size of Adira’s Board of Directors
(the “
Board
”) is currently set at four. All of Adira’s directors are elected annually by the shareholders
and hold office until the next annual general meeting or until their successors are duly elected and qualified, unless their office
is earlier vacated in accordance with the CBCA and Adira’s articles of incorporation.
The following table sets forth information
relating to the directors and senior management of the Company as at the date of this Form 20-F:
|
Name
(1)
|
Position
|
|
Craig Snyder
(2)
|
Director, Chairman and CEO
|
|
Lorne Gertner
(2)
|
Director
|
|
Alan Rootenberg
(2)(3)
|
CFO
|
|
Dan Ballister
|
Director
|
|
Emily Davis
|
Corporate Secretary
|
Notes:
|
(1)
|
|
Neither age nor date of birth of directors or senior managers is required to be reported
in our home country (Canada) nor otherwise publicly disclosed.
|
|
(2)
|
|
Member of Audit Committee.
|
|
(3)
|
|
“Independent” for purposes of National Instrument 52-110– Audit
Committees (“
NI 52-110
”).
|
The following is biographical information
on our directors and offers who are acting in the capacity of director or officer as of the date hereof:
Craig Snyder- President, CEO and Director
Craig is a senior leader with over 20 years of success in driving
growth and development of high tech and emerging technology organizations. He has significant experience leading disruptive strategies
in new markets and building corporate reputation on a national scale. He has held senior leadership positions at two Fortune 100
companies (Pepsi Cola & Citibank) combined with executive leadership experience in two Nasdaq startup to IPO success stories
(Go2Net & Marchex). He has deep experience in M&A and P&L Management with experience in over 20 acquisitions and most
recently had direct responsibility for two successful company sales as CEO (SnapNames & Moniker). He is a graduate of the United
States Naval Academy and a former Naval Officer.
Alan Rootenberg- CFO
Alan is a Certified Public Accountant with extensive Canadian
public markets experience. He has over 30 years of capital markets experience serving as CEO, President and CFO of TSX, TSXV and
OTCBB listed companies in the technology and extraction industries. He is a graduate of Witwatersrand University in Johannesburg,
South Africa.
Emily Davis- Corporate Secretary
Ms. Davis has more than 20 years of experience providing a variety
of administrative and corporate services to publicly listed companies in the financial, technology and natural resource sectors.
Prior to joining current employers Venture One Corp. and TY Management Corp., she worked in administration with Silver Standard.
She has also worked with several merchant banks, managing portfolios of private and public companies, focused on mining, energy
and technology. Ms. Davis will devote her time as needed to the Resulting Issuer.
Lorne Gertner
-
Director
In addition to being a founding partner and CEO of Hill &
Gertner, Lorne is the CEO of Hill & Gertner Retail Partners, an affiliate of Hill & Gertner. Since co-founding Hill &
Gertner, he has been involved in over $1 billion worth of transactions in the retail sector, most notably, with Eaton’s Dylex
and Hip Interactive. From 1981 to 1996, Lorne was president and owner of Mister Leonard Inc., one of Canada’s largest women’s
apparel manufacturers. He has a Bachelor of Architecture from the University of Toronto and practiced architecture in the early
1980’s. Lorne is a member of World President’s Organization and a founder of the Gertner Charitable Foundation.
Dan Ballister
-
Director
Dan Ballister is the co-founder and CEO of Smoke Hall Foods
L3C, a veteran-owned CPG startup focused on manufacturing ultra-high quality American-made products, creating employment opportunities
for veterans, and donating a meaningful percentage of the company’s profits to organizations that directly support military
and veteran families. The company launched in 2015 with the introduction of The General’s Hot Sauce. Concurrently, Dan is
the founder of Over The Wall Ventures, a digital media consulting firm that advises buy and sell side media clients on strategic
planning, M&A, and programmatic infrastructure. Previously, Dan was the co-founder and President of online media buying marketplace
TRAFFIQ Inc. (sold to Talus Holdings), and held executive positions over a 20-year period at the National Basketball Association,
Go2Net/InfoSpace.com, Cendant, Hallmark Cards, and Reckitt Benckiser. He served five years as a Surface Warfare Officer in the
U.S. Navy, and is a graduate of the United States Naval Academy in Annapolis, MD.
Paul Uhlir- Director
Paul serves as Chief Executive Officer of Add3 Media, one of
the largest digital marketing agencies in Seattle. Paul leverages over 20 years of successful business development, sales and marketing
experience in the online interactive space. Prior to Add 3 Paul founded Don't Blink Media, Inc., in 2005 and served as its President
and Vice President of Business Development. Paul has vast experience originating, building and managing Fortune 500 relationships
and is responsible for establishing and promoting strategic partnerships with direct clients and large publisher’s websites.
His experiences, both as a seller and a business development manager have helped Paul develop expertise in the analytics of online
media buying. Prior to Don't Blink Agency, he has worked for Marchex, uDate.com, Infospace and Go2Net in both senior business development
and sales roles. He holds an undergraduate degree in history from the University of Washington, Seattle.
Cease trade orders, bankruptcies, penalties
or sanctions
For the purposes of this section, “order”
means a cease trade order; an order similar to a cease trade order; or an order that denied the relevant company access to any
exemption under securities legislation that was in effect for a period of more than 30 consecutive days.
To the best of our knowledge, other than
as disclosed below, no director or executive officer of Adira is, as at the date hereof, or has been, within the 10 years before
the date hereof, a director, chief executive officer or chief financial officer of any corporation (including Adira) that:
|
|
(a)
|
was subject to an order that was issued while the director or executive officer was acting in the
capacity as director, chief executive officer or chief financial officer; or
|
|
|
(b)
|
was subject to an order that was issued after the director or executive officer ceased to be a
director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was
acting in the capacity as director, chief executive officer or chief financial officer., other than in the case of Alan Rootenberg
where in April 2008, he resigned as interim Chief Financial Officer of Talware Networx Inc., a TSXV listed company. Thirteen months
later, in May 2009, the common shares of Talware Networx Inc. were the subject of a cease trade order and the company was delisted
from the TSXV.
|
To the best of our knowledge, no director
or executive officer of Adira or a shareholder holding a sufficient number of securities of Adira to affect materially the control
of Adira:
|
|
(a)
|
is, as at the date hereof, or has been within the 10 years before the date hereof, a director or
executive officer of any corporation (including Adira) that, while that person was acting in that capacity, or within a year of
that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency
or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or
trustee appointed to hold its assets; or
|
|
|
(b)
|
as, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors,
or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.
|
To the best of our knowledge, no director
or executive officer of the Company, or a shareholder holding a sufficient number of the Cyompan’s securities to affect materially
the control the Compnay, has been subject to:
|
|
(a)
|
any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory
authority or has entered into a settlement agreement with a securities regulatory authority; or
|
|
|
(b)
|
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered
important to a reasonable investor in making an investment decision.
|
Conflicts of Interest
Some of our officers and directors are
directors or officers of other oil and gas exploration companies. Consequently, potential conflicts of interest may arise in the
event that these companies compete in respect of the sale or option of oil and gas properties in which we are or may be interested.
Our directors and officers are aware of
the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by
directors of conflicts of interest and we will rely upon such laws in respect of any directors and officers’ conflicts of
interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such
directors or officers in accordance with the CBCA and they will govern themselves in respect thereof to the best of their ability
in accordance with the obligations imposed upon them by law.
Promoters
Alan Friedman, Ilan Diamond (formerly the
Chief Executive Officer and a director of the Company,) and Dennis Bennie took the initiative in organizing the Company and may
be considered to have been promoters of the Company. See Item 6E -
Share Ownership
for details of the shareholdings of such
individuals.
B. Compensation
During the year ended December 31, 2017,
we paid aggregate remuneration to our directors and officers as a group who served in the capacity of director or executive officer
during such year nil (2016 - $5 thousand, 2015 - $84 thousand of which $39 thousand relates to salaries and share based compensation
to executive officers and $45 thousand relates to consulting fees and share based compensation to directors).
Executive Compensation
Compensation Discussion and Analysis
In assessing the compensation of our Company’s
executive officers, we do not have in place any formal objectives, criteria or analysis; instead, we rely mainly on Board discussion.
Currently, any material commitments, inclusive of remuneration, are required to be pre-approved by the Board.
Our executive compensation program has
three principal components: base salary, incentive bonus plan and stock options. Base salaries for all our employees are established
for each position through comparative salary surveys of similar type and size companies. Both individual and corporate performances
are also taken into account. Incentive bonuses, in the form of cash payments, are designed to add a variable component of compensation
based on corporate and individual performances for executive officers and employees. No bonuses were paid to executive officers
or employees during the most recently completed financial year.
We have no other forms of compensation,
although payments may be made from time to time to individuals or companies they control for the provision of consulting services.
Such consulting services are paid for at competitive industry rates for work of a similar nature by reputable arm’s length
services providers.
We have no compensatory plan, contract
or arrangement where an executive officer is entitled to receive more than $100,000 to compensate such executive officers in the
event of resignation, retirement or other termination, a change of control of Adira or a change in responsibilities following a
change in control, other than as described in this Form 20-F.
Summary Compensation Table
The following table provides a summary
of compensation that we paid to our senior management during the fiscal year then ended December 31, 2017 (in thousands of US Dollars):
|
Names and Principal Position
|
Salary
($)
|
Share-Based Awards
($)
|
Option-Based Awards
($)
|
Non-Equity Incentive Plan Compensation
($)
|
Pension Value
($)
|
All Other Compensation
($)
|
Total Compensation
($)
|
|
Annual incentive plans
|
Long-term incentive plans
|
|
Gadi Levin, Chief Executive Officer and Chief Financial Officer
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Alan Friedman, Executive Vice President, Corporate Development
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1) Resigned
on April 27, 2018
Option Based Awards
Stock options are granted to provide an
incentive to our directors, officers, employees and consultants to achieve our longer-term objectives; to give suitable recognition
to the ability and industry of such persons who contribute materially to our success; and to attract and retain persons of experience
and ability, by providing them with the opportunity to acquire an increased proprietary interest in Adira. We award stock options
to our executive officers based upon the recommendation of the Board, which recommendation is based upon the Compensation Committee’s
review of a proposal from the President and CEO. Previous grants of incentive stock options are taken into account when considering
new grants.
We have a stock option plan for the granting
of incentive stock options to the officers, employees, consultants and directors. See Item 6E - “Share Ownership –
Equity Compensation Plans” for more information.
Director Compensation
We have no arrangements, standard or otherwise,
pursuant to which Directors are compensated by for their services in their capacity as Directors, or for committee participation,
involvement in special assignments or for services as consultant or expert during the most recently completed financial year or
subsequently, up to and including the date of this Form 20-F, except for the consulting fees described in Item 7.B – “Related
Party Transactions” of this Form 20-F.
Long-Term Incentive Plan Awards
We did not make any long-term incentive
plan awards during the years ended December 31, 2017 and 2016.
Pension, Retirement or Similar Benefits
We have amounts set aside to provide for
pension, retirement or similar benefits.
Employment Agreements
As of the date of this Annual Report, we
have no employment agreements with any of the officers of Adira.
C. Board Practices
Our Directors have served in their respective
capacities since their election or appointment and will serve until our next annual general meeting or until a successor is duly
elected and qualified, unless their office is earlier vacated in accordance with the CBCA and our articles of incorporation. Our
officers serve at the discretion of the Board.
The Board is responsible for, among other
things, identifying suitable candidates to be recommended for election to the Board by shareholders or appointment by the Directors,
subject to the limits in Adira’s articles and the CBCA. One of the objectives of the Board with respect to the nomination
is to maintain the composition of the Directors in a way that provides the best mix of skills and experience to guide our long-term
strategy and ongoing business operations.
The Board conducts an annual review and
assessment of the performance of the Chairman and Chief Executive Officer and our other senior executive officers.
The Board also reviews and monitors our
executive development programs and the long-range plans and personnel policies for recruiting, developing and motivating our executives.
The Board has reviewed and approved the qualifications of each of the Board nominees standing for election.
The Board’s review of the performance
of our company and the Chief Executive Officer as measured against objectives established in the prior year by the Board and the
CEO. The evaluation is to be used by the Board in its deliberations concerning the CEO’s annual compensation. The evaluation
of performance against objectives forms part of the determination of the entire compensation of senior employees. The Board is
also responsible for reviewing the compensation of the Directors on an annual basis, taking into account such matters as time commitment,
responsibility and compensation provided by comparable organizations. The compensation committee will make an annual review of
such matters and make a recommendation to the Board.
The Board is responsible for making an
annual assessment of the overall performance of the Directors as a group and to reporting its findings to the full Board. The assessment
examines the effectiveness of the Directors as a whole and specifically reviews areas that the Directors and/or management believe
could be improved to ensure the continued effectiveness of the Directors in the execution of their responsibilities
Term of Office
All directors have a term of office expiring
at our next annual general meeting, unless a director’s office is earlier vacated in accordance with our Articles or the
provisions of the CBCA. All officers serve at the discretion of the Board.
Audit, Compensation and Disclosure Committees
Audit Committee
We have a standing Audit Committee that
assists the directors of Adira in overseeing all material aspects of reporting, control and audit functions, except those specifically
related to the responsibilities of another standing committee of the Board. The role of the Audit Committee includes a particular
focus on the qualitative aspects of financial reporting to shareholders and on our processes for the management of business/financial
risk and for compliance with significant applicable legal, ethical, and regulatory requirements. The Audit Committee is responsible
for, among other things, the making recommendations to our Board with respect to the appointment and remuneration of our independent
accountant. A copy of our Audit Committee Charter was filed as an exhibit to our Form 10-KSB filed for our 2003 fiscal year.
As of the date hereof,
our Audit Committee is comprised of Dennis Bennie, Alan Rootenberg and Alan Friedman.
We have procedures for
the review and pre-approval of any services performed by our auditors. The procedures require that all proposed engagements of
the auditors for audit and non-audit services be submitted to the Audit Committee for approval prior to the beginning of any such
services. The Audit Committee considers such requests, and, if acceptable to a majority of the Audit Committee members, pre-approves
such audit and non-audit services by a resolution authorizing management to engage the auditors for such audit and non-audit services.
During such deliberations, the Audit Committee assesses, among other factors, whether the services requested would be considered
“prohibited services” as contemplated by the regulations of the SEC, and whether the services requested and the fees
related to such services could impair the independence of the auditors.
Pursuant to section 6.1
of NI 52-110, as adopted by the Canadian Securities Administrators (the “
CSA
”), Adira is exempt from the requirements
of Parts 3 and 5 of NI 52-110 for the year ended December 31, 2013, by virtue of Adira being a “venture issuer” (as
defined in NI 52-110).
Part 3 of NI 52-110 prescribes
certain requirements for the composition of audit committees of non-exempt companies that are reporting issuers under Canadian
provincial securities legislation. Part 3 of NI 52-110 requires, among other things that an audit committee be comprised of at
three directors, each of whom, is, subject to certain exceptions, independent and financially literate in accordance with the standards
set forth in NI 52-110.
Part 5 of NI 52-110 requires
an annual information form that is filed by a non-exempt reporting issuer under National Instrument 51-102 –
Continuous
Disclosure Obligations
, as adopted the CSA, to include certain disclosure about the issuer's audit committee, including, among
other things: the text of the audit committee's charter; the name of each audit committee member and whether or not the member
is independent and financially literate; whether a recommendation of the audit committee to nominate or compensate an external
auditor was not adopted by the issuer's board of directors, and the reasons for the board's decision; a description of any policies
and procedures adopted by the audit committee for the engagement of non-audit services; and disclosure of the fees billed by the
issuer's external auditor in each of the last two fiscal years for audit, tax and other services.
Compensation Committee
Adira has a Compensation
Committee comprised of Dennis Bennie, Alan Rootenberg and Alan Friedman. Currently, any material commitments, inclusive of remuneration,
are required to be pre-approved by the Board, following recommendation of the Compensation Committee
Disclosure Committee
Adira has a Disclosure
Committee comprised of Dennis Bennie and Alan Friedman. The purpose of the Disclosure Committee is to provide assistance to the
Chief Executive Officer and the Chief Financial Officer in fulfilling their responsibilities regarding the identification and disclosure
of material information about us, and the accuracy, completeness and timeliness of our financial reports.
D. Employees
As of December 31, 2017,
we employed no employees.
E. Share Ownership
Shares
The shareholdings of our officers and directors
are set forth below as of December 31, 2017.
|
Holder name
|
No. of Shares held
|
Percentage of holding
|
Percentage of holding on a fully diluted basis
(1)
|
|
% in capital
|
% in voting
|
% in capital
|
% in voting
|
|
Dennis Bennie
(2)
|
2,886,929
|
16.87%
|
16.87%
|
20.50%
|
20.50%
|
|
Alan Friedman
(3)
|
330,273
|
1.93%
|
1.93%
|
1.85%
|
1.85%
|
|
Gadi Levin
(4)
|
-
|
|
0.00%
|
0.35%
|
0.35%
|
|
Alan Rootenberg
(5)
|
303,333
|
1.77%
|
1.77%
|
2.72%
|
2.72%
|
Notes:
|
(1)
|
|
“Fully diluted basis” means with the exercise of all warrants and options.
|
|
(2)
|
|
Mr. Dennis Bennie is an interested party in Adira by virtue of his share holdings
and by virtue of him serving as the chairman of the Board. Mr. Bennie indirectly holds all of the shares through companies controlled
by himself and through his spouse. He resigned on April 27, 2018
|
|
(3)
|
|
Mr. Alan Friedman is an interested party in Adira by virtue of his share holdings
and by virtue of him serving as a director and as Adira’s chief business development officer. He resigned on April 27, 2018
|
|
(4)
|
|
Mr. Levin is an interested party in Adira by virtue of him serving as an officer in
Adira. He resigned on April 27, 2018
|
|
(5)
|
|
Mr. Rootenberg is an interested party in Adira by virtue of his share holdings and
by virtue of him serving as a director in Adira. He resigned as a director and was appointed the CFO on April 27, 2018
|
Options
There are no stock options, exercisable
into common shares of Adira, held by our officers and directors as of December 31, 2017
Warrants
Warrants, exercisable into common shares
of Adira, held by our officers and directors are set forth below as of December 31, 2017.
|
Name
|
Position
|
Allotment date
|
Expiration date
|
Exercise price
|
Total
|
|
Dennis Bennie
(1)
|
Co-Chairman of the Board
|
May 7, 2015
|
May 6, 2018
|
US$0.04
|
2,000,000
|
|
Alan Rootenberg
(1)
|
Director
|
May 7, 2015
|
May 6, 2018
|
US$0.04
|
300,000
|
(1) Resigned April 27, 2018
Equity Compensation Plans
The following table summarizes our compensation
plans under which equity securities are authorized for issuance as at December 31, 2017.
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
Weighted-average exercise price of outstanding options, warrants and rights
|
Number of securities remaining available for future issuance under equity compensation plans
(1)
(excluding securities reflected in the second column)
|
|
Equity compensation plans approved by securityholders
|
Nil
|
N/A
|
1,711,202
|
|
Equity compensation plans not approved by securityholders
|
N/A
|
N/A
|
N/A
|
|
Total:
|
Nil
|
0.14
|
1,711,202
|
Notes:
|
(1)
|
|
The number of securities remaining available for future issuance under our 10% rolling
stock option plan as at the end of our most recently completed financial year is calculated on the basis of 10% of our issued
and outstanding common shares as at such date (being 10% of 17,112,022 = 1,711,202).
|
On August 31, 2009, the Board adopted a
new 10% rolling stock option plan (the “
Stock Option Plan
”) to replace the existing plan. The Stock Option Plan
was ratified by the shareholders of Adira on December 17, 2009, and has since been approved by the shareholders of Adira on an
annual basis.
The purpose of the Stock Option Plan continues
to be to allow us grant options to our directors, officers, employees and consultants, as additional compensation, and as an opportunity
to participate in our success. The granting of such options is intended to align the interests of such persons with that of the
shareholders. Options will be exercisable over periods of up to ten years as determined by the Board and are required to have an
exercise price no less than the fair market value of Adira’s common shares, at the time of grant. Pursuant to the Stock Option
Plan, the Board may, from time to time, authorize the issue of stock options to our directors, officers, employees and consultants
or employees of companies providing management or consulting services to us.
The maximum number of common shares which
may be issued pursuant to options previously granted and those granted under the Stock Option Plan will be a maximum of 10% of
the issued and outstanding common shares at the time of the grant. In addition, the number of shares which may be reserved for
issuance to any one individual may not exceed 5% of the issued shares on a yearly basis or 2% if the optionee is engaged in investor
relations activities or is a consultant. The Stock Option Plan contains no vesting requirements, but permits the Board to specify
a vesting schedule in its discretion.
On January 11, 2011,
the Board adopted an annex to the Stock Option Plan applicable to optionees who are residents of the State of Israel at the date
of grant or those who are deemed to be residents of the state of Israel for the payment of tax at the date of grant. The provisions
specified therein form an integral part of the Stock Option Plan and is to be read as a continuation of the Stock Option Plan and
only modifies options granted to Israeli optionees so that they comply with the requirements set by the Israeli law in general,
and in particular with the provisions of Section 102 of the Israeli Income Tax Ordinance, as may be amended or replaced from time
to time. In connection with options granted to Israeli optionees under the Stock Option Plan, the Board selected the capital gains
tax track pursuant to the Israeli tax legislation which came into effect on January 1, 2003.
|
|
ITEM 7
|
Major Shareholder and Related Party Transactions
|
A. Major Shareholders
Major Shareholders
We are a publicly-held corporation, with
our shares held by residents of the United States, Canada and other countries. To the best of our knowledge, as at December 31,
2017, no person, corporation or other entity beneficially owns, directly or indirectly, or controls more than 5% of our common
shares, except as follows:
Name
|
Number of Common Shares Owned
(1)(2)
|
Percentage
(3)
|
|
Dennis Bennie
|
2,886,929
(4)
|
16.87%
|
|
Goodman Investment Counsel Inc.
|
1,055,180
(5)
|
6.17%
|
Notes:
|
(1)
|
|
Under Rule 13d–3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting
power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power
to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person
(if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within
60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of
shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason
of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily
reflect the person’s actual ownership or voting power with respect to the number of common shares actually outstanding on
the date hereof.
|
|
(2)
|
|
Each of our common shares entitles the holder thereof to one vote.
|
|
(3)
|
|
Based on 17,112,022 common shares of Adira issued and outstanding as of the date of
this filing.
|
|
(4)
|
|
Includes shares held by spouse.
|
|
(5)
|
|
Includes shares held by Goodman Investment Counsel Inc. and associated companies that
are controlled by Mr. Nathan Goodman.
|
Geographic
Breakdown of Shareholders
As of December 31, 2017,
our shareholder register indicates that our common shares are held as follows:
|
Location
|
Number of Shares
|
Percentage of Total Shares
|
Number of Registered Shareholders of Record
|
|
United States
|
107,622
|
0.63
|
57
|
|
Canada
|
16,265,784
|
95.05
|
40
|
|
Other
|
738,616
|
4.32
|
21
|
|
Total
|
17,112,022
|
100
|
118
|
Shares registered in intermediaries were
assumed to be held by residents of the same country in which the clearing house was located.
Transfer Agent
Our securities are recorded in registered
form on the books of our transfer agent, Computershare Trust Company of Canada, located at 3rd Floor, 510 Burrard Street, Vancouver,
BC V6C 3B9. However, the majority of such shares are registered in the name of intermediaries such as brokerage houses and clearing
houses (on behalf of their respective brokerage clients). We do not have knowledge or access to the identities of the beneficial
owners of such shares registered through intermediaries.
Control
To the best of our knowledge, we are not
directly or indirectly owned or controlled by any other corporation, by any foreign government or by any other natural or legal
person, severally or jointly.
Insider Reports under the British Columbia
Securities Act
Since the Company is a reporting issuer
under the Securities Acts of British Columbia, Alberta and Ontario, certain “insiders” of the Company (including its
directors, certain executive officers, and persons who directly or indirectly beneficially own, control or direct more than 10%
of its common shares) are generally required to file insider reports of changes in their ownership of Adira’s common shares
five days following the trade under National Instrument 55-104 – Insider Reporting Requirements and Exemptions, as adopted
by the Canadian Securities Administrators. All insider reports must be filed electronically five days following the date of the
trade at www.sedi.ca. The public is able to access these reports at www.sedi.ca.
B. Related Party
Transactions
None of our directors or senior officers,
no associate or affiliate of the foregoing persons, and no insider has or had any material interest, direct or indirect, in any
transactions, or in any proposed transaction, which in either such case has materially affected or will materially affect us or
our predecessors during the year ended December 31, 2017 except as follows:
|
|
(a)
|
During the year ended December 31, 2017, we incurred $Nil in consulting fees and operating expenses
to private companies which are controlled by some of our directors or officers (year ended December 31, 2016 - $6 thousand).
|
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.
|
|
(b)
|
Compensation of key management personnel:
|
For the purpose of related party
disclosure in accordance with IASB 24, directors, the CEO, CFO, COO and executive vice president are considered key management
personnel.
|
|
|
Year ended
December 31,
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
Short-term employee benefits
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
38
|
|
|
Share based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
39
|
|
Benefits in respect of key management
persons (including directors) who are not employed by us:
|
|
|
Year
ended
December 31,
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
45
|
|
C. Interests of
Experts and Counsel
Not applicable.
|
|
ITEM 8
|
FINANCIAL INFORMATION
|
A. Consolidated
Statements and Other Financial Information
Financial Statements
The financial statements required as part
of this Annual Report on Form 20-F are filed under Item 18 of this Annual Report.
Legal Proceedings
Adira is not involved in any legal, arbitration
or governmental proceedings and, to Adira's knowledge, no material legal, arbitration or governmental proceedings involving Adira
are pending or contemplated against Adira.
Dividends
We have not paid any dividends on our common
shares since incorporation. Our management anticipates that we will retain all future earnings and other cash resources for the
future operation and development of our business. We do not intend to declare or pay any cash dividends in the foreseeable future.
Payment of any future dividends will be at the Board’s discretion, subject to applicable law, after taking into account many
factors including our operating results, financial condition and current and anticipated cash needs.
B. Significant
Changes
We have not experienced any significant
changes since the date of the financial statements included with this Form 20-F except as disclosed in this Form 20-F.
|
|
ITEM 9
|
THE OFFER AND LISTING
|
Common Shares
Our authorized capital consists of an unlimited
number of common shares without par value, of which 17,112,022 common shares were issued and outstanding as of December 31, 2017.
All shares are initially issued in registered form. There are no restrictions on the transferability of our common shares imposed
by our constituting documents.
The common shares entitle their holders
to: (i) vote at all meetings of our shareholders except meetings at which only holders of specified classes of shares are entitled
to vote, having one vote per common share, (ii) receive dividends at the discretion of the Board; and (iii) receive our remaining
property on liquidation, dissolution or winding up.
A. Offer and Listing
Details – Price History
Trading Markets
Our current trading symbol on the TSXV
is “ADL”. We also trade on the OTCBB with the trading symbol “ADENF” and on the Frankfurt Stock Exchange
with the trading symbol “0AM1”.
As disclosed elsewhere in this annual report,
we completed the Consolidation of our common shares on August 9, 2013, on the basis of one new common share for every three old
common shares. The Consolidation was effective for trading purposes on August 13, 2013; for a period of approximately two weeks
thereafter, our common shares traded on the OTCBB under the symbol “ADEND”.
The following table shows the progression
in the high and low closing trading prices of our common shares on the OCTBB, on a post-Consolidation basis, for the periods listed.
|
|
|
High ($)
|
|
Low ($)
|
|
Annual (fiscal year)
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
0.01
|
|
|
|
0.01
|
|
|
2016
|
|
|
0.01
|
|
|
|
0.01
|
|
|
2015
|
|
|
0.085
|
|
|
|
0.03
|
|
|
2014
|
|
|
0.20
|
|
|
|
0.01
|
|
|
2013
|
|
|
1.78
|
|
|
|
0.06
|
|
|
2012
|
|
|
5.10
|
|
|
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
0.01
|
|
|
|
0.01
|
|
|
Third Quarter
|
|
|
0.01
|
|
|
|
0.01
|
|
|
Second Quarter
|
|
|
0.01
|
|
|
|
0.01
|
|
|
First Quarter
|
|
|
0.01
|
|
|
|
0.01
|
|
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
0.01
|
|
|
|
0.01
|
|
|
Third Quarter
|
|
|
0.01
|
|
|
|
0.01
|
|
|
Second Quarter
|
|
|
0.01
|
|
|
|
0.01
|
|
|
First Quarter
|
|
|
0.01
|
|
|
|
0.01
|
|
|
Fiscal 2015
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
0.03
|
|
|
|
0.02
|
|
|
Third Quarter
|
|
|
0.04
|
|
|
|
0.02
|
|
|
Second Quarter
|
|
|
0.06
|
|
|
|
0.03
|
|
|
First Quarter
|
|
|
0.06
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
|
|
|
|
|
|
|
|
|
|
April 1, 2018 to April 24, 2018
|
|
|
0.01
|
|
|
|
0.01
|
|
|
March 2018
|
|
|
0.01
|
|
|
|
0.01
|
|
|
February 2018
|
|
|
0.01
|
|
|
|
0.01
|
|
|
January 2018
|
|
|
0.01
|
|
|
|
0.01
|
|
|
December 2017
|
|
|
0.01
|
|
|
|
0.01
|
|
|
November 2017
|
|
|
0.01
|
|
|
|
0.01
|
|
The following table shows the progression
in the high and low closing trading prices of our common shares on the TSXV, on post-Consolidation bases, for the periods listed.
|
|
|
High ($)
|
|
Low ($)
|
|
Annual (fiscal year)
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
0.04
|
|
|
|
0.04
|
|
|
2016
|
|
|
0.04
|
|
|
|
0.04
|
|
|
2015
|
|
|
0.04
|
|
|
|
0.04
|
|
|
2014
|
|
|
0.20
|
|
|
|
0.03
|
|
|
2013
|
|
|
1.73
|
|
|
|
0.05
|
|
|
2012
|
|
|
5.10
|
|
|
|
1.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
0.04
|
|
|
|
0.04
|
|
|
Third Quarter
|
|
|
0.04
|
|
|
|
0.04
|
|
|
Second Quarter
|
|
|
0.04
|
|
|
|
0.04
|
|
|
First Quarter
|
|
|
0.04
|
|
|
|
0.04
|
|
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
0.04
|
|
|
|
0.04
|
|
|
Third Quarter
|
|
|
0.04
|
|
|
|
0.04
|
|
|
Second Quarter
|
|
|
0.04
|
|
|
|
0.04
|
|
|
First Quarter
|
|
|
0.04
|
|
|
|
0.04
|
|
|
Fiscal 2015
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
|
0.05
|
|
|
|
0.04
|
|
|
Third Quarter
|
|
|
0.06
|
|
|
|
0.03
|
|
|
Second Quarter
|
|
|
0.08
|
|
|
|
0.04
|
|
|
First Quarter
|
|
|
0.09
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
|
|
|
|
|
|
|
|
|
|
April 1, 2018 to April 27, 2018
|
|
|
0.04
|
|
|
|
0.04
|
|
|
March 2018
|
|
|
0.04
|
|
|
|
0.04
|
|
|
February 2018
|
|
|
0.04
|
|
|
|
0.04
|
|
|
January 2018
|
|
|
0.04
|
|
|
|
0.04
|
|
|
December 2017
|
|
|
0.04
|
|
|
|
0.04
|
|
|
November 2017
|
|
|
0.04
|
|
|
|
0.04
|
|
Escrowed Securities
As at December 31, 2017 and
2016, none of our securities were subject to escrow.
B. Plan of Distribution
Not applicable.
C. Markets
Our common shares are traded on the TSXV
under the symbol “ADL”, in the United States on the OTC Bulletin Board under the symbol “ADENF” and on
the Frankfurt Stock Exchange under the symbol “0AM1”.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of
the Issue
Not applicable.
|
|
item 10
|
additional information
|
A. Share Capital
Not applicable.
B. Memorandum
and Articles of Incorporation
We were incorporated on February 20, 1997
as “Trans New Zealand Oil Company” under the laws of the State of Nevada, U.S.A. We changed our name to “AMG
Oil Ltd.” on July 27, 1998.
On November 27, 2008, we changed our jurisdiction
of incorporation from Nevada to the Canadian federal jurisdiction under the
Canada Business Corporation Act
(the “
CBCA
”)
through a process known as a conversion under Nevada corporate law, and known as a continuation under Canadian corporate law. A
continuance or continuation is a process by which a corporation which is not incorporated under the laws of Canada may change its
jurisdiction of incorporation to Canada. Under the CBCA, if the laws of its home jurisdiction allow for it, a company may be “continued”
as a Canadian corporation by filing Articles of Continuance with the Director under the CBCA. In order to give effect to the continuation,
the Board adopted a plan of conversion under Chapter 92A of the Nevada Revised Statutes which was subsequently approved and adopted
by our shareholders. After the completion of the continuation, we became a Canadian corporation governed by the CBCA.
With effect from our continuation under
the CBCA, our corporate constituting documents are comprised of our Articles of Continuance (“
Articles
”) and
our By-Laws (“
By-Laws
”). Information regarding our Articles and By-laws is incorporated by reference from Amendment
No. 3 to our registration statement on Form S-4, which was filed with the SEC on October 10, 2010. The forms of our Articles and
By-Laws were included as Appendices C and D, respectively, to the proxy statement/prospectus included in the registration statement,
and the proxy statement/prospectus contained a summary, under the heading “Comparative Rights of Stockholders,” of
the more significant differences between the Nevada Revised Statutes and the CBCA which resulted in various changes in the rights
of our shareholders as a result of our continuance.
We changed our name to “Adira Energy
Ltd.” pursuant to Articles of Amendment dated December 17, 2009, and filed with the Director under the CBCA. Such amendment
to our Articles was certified by a Certificate of Amendment dated December 17, 2009. The Certificate and Articles of Amendment
were filed as Exhibit 1.4 to our annual report on Form 20-F for the year ended September 30, 2009, filed with the SEC on January
1, 2010.
C. Material Contracts
We currently are not party to any material
contracts.
D. Exchange Controls
There are no governmental laws, decrees
or regulations in Canada relating to restrictions on the export or import of capital, or affecting remittance of interest, dividends
or other payments to non-resident holders of our common shares. However, the Investment Canada Act (Canada) will prohibit
implementation, or if necessary, require divestiture of an investment deemed “reviewable” under the Investment Canada
Act by an investor that is not a “Canadian” as defined in the Investment Canada Act, unless after review the Minister
responsible for the Investment Canada Act is satisfied that the “reviewable” investment is likely to be of net benefit
to Canada.
The following discussion summarizes the
principal features of the Investment Canada Act for a non-Canadian who proposes to acquire common shares of the Company. The discussion
is general only; it is not a substitute for independent legal advice from an investor's own adviser; and, except where expressly
noted, it does not anticipate statutory or regulatory amendments.
The Investment Canada Act is a federal
statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals,
governments or agencies thereof, corporations, partnerships, trusts or joint ventures, Investments by non-Canadians to acquire
control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Canada
Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment
Canada Act, the Investment Canada Act generally prohibits implementation of the investment unless, after review, the Minister of
Industry is satisfied that the investment is likely to be of net benefit to Canada.
An investment in the Company’s common
shares by a non-Canadian, who is not a resident of a World Trade Organization (“WTO”) member, would be reviewable under
the Investment Canada Act (Canada) if it was an investment to acquire control of the Company and the value of the assets of the
Company was CAN $5 million or more. An investment in common shares of the Company by a resident of a WTO member would be reviewable
only if it was an investment to acquire control of the Company and the enterprise value of the assets of the Company was equal
to or greater than a specified amount, which is published by the Minister after its determination for any particular year. This
amount is currently CAN $1 billion (unless the WTO member is party to one of a list of certain free trade agreements, in which
case the amount is currently CAN $1.5 billion); beginning January 1, 2019, both thresholds will be adjusted annually by a GDP (Gross
Domestic Product) based index.
A non-Canadian would be deemed to acquire
control of the Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of the outstanding
common shares (or less than a majority but controlled the Company in fact through the ownership of one-third or more of the outstanding
common shares) unless it could be established that, on the acquisition, the Company is not controlled in fact by the acquirer through
the ownership of such common shares. Certain transactions in relation to the Company’s common shares would be exempt from
review under the Investment Canada Act, including, among others, the following:
(a) the
acquisition of voting shares or other voting interests by any person in the ordinary course of that person’s business as
a trader or dealer in securities;
(b) the
acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance
and not for any purpose related to the provisions of the Investment Canada Act (Canada), if the acquisition is subject to approval
under the Bank Act (Canada), the Cooperative Credit Associations Act (Canada), the Insurance Companies Act (Canada) or the Trust
and Loan Companies Act (Canada); and
(c) the acquisition
of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the
ultimate direct or indirect control of the Company, through the ownership of voting interests, remains unchanged.
E. Taxation
Material Canadian Federal Income Tax
Consequences for United States Residents
The following summarizes the material Canadian
federal income tax considerations generally applicable to the holding and disposition of our shares by a holder (in this summary,
a “
U.S. Holder
”) who, (a) for the purposes of the
Income Tax Act
(Canada) (the “
Tax Act
”)
and at all relevant times, (i) is not resident in Canada, (ii) deals at arm’s length with, and is not affiliated with, us,
(iii) holds our shares as capital property and does not use or hold, and is not deemed to use or hold, our shares in the course
of carrying on, or otherwise in connection with, a business in Canada, and (b) for the purposes of the Canada-United States Income
Tax Convention (1980) (the “
Treaty
”) and at all relevant times, is a resident solely of the United States, has
never been a resident of Canada, is a “qualifying person” who is fully entitled to the benefit of the Treaty and has
not held or used (and does not hold or use) our shares in connection with a permanent establishment or fixed base in Canada. This
summary does not apply to traders or dealers in securities, limited liability companies, tax-exempt entities, insurers, authorized
foreign bank, financial institutions (including those to which the mark-to-market provisions of the Tax Act apply), special financial
institutions, or any other holder to which special circumstances may apply.
This summary is based on the current provisions
of the Tax Act, all regulations thereunder, the Treaty, all proposed amendments to the Tax Act, the regulations and the Treaty
publicly announced by the Government of Canada prior to the date hereof, and our understanding of the current published administrative
practices of the Canada Revenue Agency. It has been assumed that all currently proposed amendments will be enacted as proposed
and that there will be no other relevant change in any governing law or administrative practice, although no assurances can be
given in this respect.
The summary does not take into account
Canadian provincial, U.S. federal (which follows further below), state or other foreign income tax law or practice.
The tax
consequences to any particular U.S. Holder will vary according to the status of that holder as an individual, trust, corporation,
partnership or other entity, the jurisdictions in which that holder is subject to taxation, and generally according to that holder’s
particular circumstances. Accordingly, this summary is not, and is not to be construed as, Canadian tax advice to any particular
U.S. Holder. All U.S. Holders are advised to consult with their own tax advisors regarding their particular circumstances. The
discussion below is qualified accordingly.
Dividends
Dividends
paid or credited or deemed to be paid or credited to a U.S. Holder by us will be subject to Canadian withholding tax. The Tax Act
requires a 25% withholding unless reduced under an applicable tax treaty. Under the Treaty, provided that a holder can demonstrate
that it is a qualifying U.S. Holder, the rate of withholding tax on dividends paid to a U.S. Holder is generally limited to 15%
of the gross amount of the dividend (or 5% if the U.S. Holder is a qualified company and beneficially owns at least 10% of our
voting shares). We will be required to withhold the applicable withholding tax from any dividend and remit it to the Canadian government
for the U.S. Holder’s account.
Disposition
For purposes of the following discussion,
we have assumed that our shares will remain listed on the TSXV. A U.S. Holder is not subject to tax under the Tax Act in respect
of a capital gain realized on the disposition of our shares in the open market unless the shares are “taxable Canadian property”
to the holder thereof and the U.S. Holder is not entitled to relief under the Treaty. Our shares will be taxable Canadian property
to a U.S. Holder (a) if, at any time during the 60-month period preceding the disposition: (i) the U.S. Holder, alone or together
with persons with whom the U.S. Holder did not deal at arm’s length, owned 25% or more of our issued shares of any class
or series, and (ii) more than 50% of the fair market value of the shares was derived, directly or indirectly, from one or
any combination of real property situated in Canada, timber resource properties, Canadian resource properties, or an option in
respect of, or an interest in, or for civil law a right in, any of the foregoing, or (b) in other specific circumstances, including
where shares were acquired for other securities in a tax-deferred transaction for Canadian tax purposes. If our shares constitute
taxable Canadian property to the holder, the holder will (unless relieved under the Treaty) be subject to Canadian income tax on
any gain. The taxpayer’s capital gain or loss from a disposition of the share is the amount, if any, by which the proceeds
of disposition exceed (or are exceeded by) the aggregate of the adjusted cost base of the share and reasonable expenses of disposition.
One-half of a capital gain (“
taxable capital gain
”) from the disposition of taxable Canadian property (other
than treaty protected properties) is included in computing the income of a U.S. Holder and one-half of a capital loss (“
allowable
capital loss
”) is deductible from taxable capital gains from dispositions of taxable Canadian property realized in the
same year. Unused allowable capital losses from previous taxation years generally may be carried back three taxation years or forward
indefinitely and applied to reduce net taxable capital gains realized in those years by a U.S. Holder from the disposition of a
taxable Canadian property.
A U.S. Holder whose shares constitute taxable
Canadian property should consult with the holder’s own tax advisors regarding any possible relief (if any) from Canadian
tax under the Treaty based on applicable circumstances at the relevant time.
United States Tax Consequences
United States Federal Income Tax
Consequences
The following is a general
summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from
and relating to the acquisition, ownership, and disposition of our common shares.
This summary is for general
information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations
that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of our common shares.
In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that
may affect the U.S. federal income tax consequences to such U.S. Holder, including without limitation specific tax consequences
to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as,
legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative
minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership,
and disposition of our common shares. Except as specifically set forth below, this summary does not discuss applicable tax reporting
requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum,
U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership, and disposition
of our common shares.
No legal opinion from U.S. legal counsel
or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S.
federal income tax consequences of the acquisition, ownership, and disposition of our common shares. This summary is not binding
on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in
this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS
and the U.S. courts could disagree with one or more of the conclusions described in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue
Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings
of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with
Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”),
and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any
of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change
could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described
in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation
that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term
“U.S. Holder” means a beneficial owner of our common shares that is for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the U.S.;
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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized
under the laws of the U.S., any state thereof or the District of Columbia;
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an estate whose income is subject to U.S. federal income taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of a court within the U.S. and the control
of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person.
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Non-U.S. Holders
For purposes of this summary, a “non-U.S.
Holder” is a beneficial owner of our common shares that is not a U.S. Holder. This summary does not address the U.S. federal
income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of our common
shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative
minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including the potential application
of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of our common shares.
U.S. Holders Subject to Special U.S.
Federal Income Tax Rules Not Addressed
This summary does not address the U.S.
federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including,
but not limited to, the following: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement
accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies,
real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders
in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional
currency” other than the U.S. dollar; (e) U.S. Holders that own our common shares as part of a straddle, hedging transaction,
conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired
our common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S.
Holders that hold our common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property
held for investment purposes); or (h) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more
of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal
income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b)
persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons
that use or hold, will use or hold, or that are or will be deemed to use or hold our common shares in connection with carrying
on a business in Canada; (d) persons whose our common shares constitute “taxable Canadian property” under the Tax Act;
or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that
are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should
consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of our common shares.
If an entity or arrangement that is classified
as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds our common shares, the
U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on
the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to
any such owner. Partners (or other owners) of entities or arrangements that are classified as partnerships or as “pass-through”
entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences
arising from and relating to the acquisition, ownership, and disposition of our common shares.
Ownership and Disposition of our common
shares
The following discussion is subject to
the rules described below under the heading “Passive Foreign Investment Company Rules.”
Taxation of Distributions
A U.S. Holder that receives a distribution,
including a constructive distribution, with respect to our common share will be required to include the amount of such distribution
in gross income as a dividend (without reduction for any foreign income tax withheld from such distribution) to the extent of the
current or accumulated “earnings and profits” of we, as computed for U.S. federal income tax purposes. To the extent
that a distribution exceeds the current and accumulated “earnings and profits” of we, such distribution will be treated
first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in our common shares and thereafter as gain from
the sale or exchange of such our common shares (see “Sale or Other Taxable Disposition of Common Shares” below). However,
we may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S.
Holder should therefore assume that any distribution by us with respect to our common shares will constitute ordinary dividend
income. Dividends received on our common shares generally will not constitute qualified dividend income eligible for the “dividends
received deduction”. Subject to applicable limitations and provided that we are eligible for the benefits of the Canada-U.S.
Tax Convention, dividends paid by us to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential
tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied,
including that we are not classified as a PFIC (as defined below) in the tax year of distribution or in the preceding tax year.
The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of
Common Shares
A U.S. Holder will recognize gain or loss
on the sale or other taxable disposition of our common shares in an amount equal to the difference, if any, between (a) the amount
of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in such our common shares
sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain
or loss if, at the time of the sale or other disposition, such our common shares are held for more than one year.
Preferential tax rates apply to long-term
capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term
capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under
the Code.
Passive Foreign Investment Company Rules
If we were to constitute a PFIC for any
year during a U.S. Holder’s holding period, then certain potentially adverse rules would affect the U.S. federal income tax
consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of our common shares. We do not believe
that we were a PFIC during our tax years ended September 30, 2010 and December 31, 2010, 2011, 2012, and 2013; we have made no
determination as to whether we were a PFIC during our tax year ended December 31, 2014. However, we believe we were a PFIC in prior
tax years. PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year
in question, and is determined annually. Additionally, the analysis depends, in part, on the application of complex U.S. federal
income tax rules, which are subject to differing interpretations. Consequently, there can be no assurances regarding our PFIC status
for any tax year during which U.S. Holders hold our common shares.
In addition, in any year in which we are
classified as a PFIC, such holder may be required to file an annual report with the IRS containing such information as Treasury
Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may
result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors
regarding the requirements of filing such information returns under these rules, including the requirement to file a revised IRS
Form 8621.
We generally will be a PFIC under Section
1297 of the Code if, for a tax year, (a) 75% or more of our gross income for such tax year is passive income (the “income
test”) or (b) 50% or more of the value of our assets either produce passive income or are held for the production of passive
income (the “asset test”), based on the quarterly average of the fair market value of such assets. “Gross income”
generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside
operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and
royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business
gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a foreign
corporation’s commodities are stock in trade or inventory, depreciable property used in a trade or business or supplies regularly
used or consumed in a trade or business and certain other requirements are satisfied.
In addition, for purposes of the PFIC income
test and asset test described above, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares
of another corporation, we will be treated as if we (a) held a proportionate share of the assets of such other corporation and
(b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income
test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties
that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent
such items are properly allocable to the income of such related person that is not passive income.
Under certain attribution rules, if we
are a PFIC, U.S. Holders will be deemed to own their proportionate share of any subsidiary of ours which is also a PFIC (a ‘‘Subsidiary
PFIC’’), and will be subject to U.S. federal income tax on (i) a distribution on the shares of a Subsidiary PFIC or
(ii) a disposition of shares of a Subsidiary PFIC, both as if the holder directly held the shares of such Subsidiary PFIC.
If we are a PFIC in any tax year in which
a U.S. Holder held our common shares, such holder generally would be subject to special rules with respect to “excess distributions”
made by us on our common shares and with respect to gain from the disposition of our common shares. An “excess distribution”
generally is defined as the excess of distributions with respect to our common shares received by a U.S Holder in any tax year
over 125% of the average annual distributions such U.S. Holder has received from us during the shorter of the three preceding tax
years, or such U.S. Holder’s holding period for our common shares. Generally, a U.S. Holder would be required to allocate
any excess distribution or gain from the disposition of our common shares ratably over its holding period for our common shares.
Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated
to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge
at a rate applicable to underpayments of tax would apply.
While there are U.S. federal income tax
elections that sometimes can be made to mitigate these adverse tax consequences (including, without limitation, the “QEF
Election” under Section 1295 of the Code and the “Mark-to-Market Election” under Section 1296 of the Code), such
elections are available in limited circumstances and must be made in a timely manner.
U.S. Holders should be aware that, for
each tax year, if any, that we are a PFIC, we can provide no assurances that we will satisfy the record keeping requirements of
a PFIC, or that we will make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect
to us or any Subsidiary PFIC. U.S. Holders are urged to consult their own tax advisors regarding the potential application of the
PFIC rules to the ownership and disposition of our common shares, and the availability of certain U.S. tax elections under the
PFIC rules.
Additional Considerations
Additional Tax on Passive Income
Individuals, estates and certain trusts
whose income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax on “net investment income” including,
among other things, dividends and net gain from disposition of property (other than property held in certain trades or businesses).
U.S. Holders should consult with their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition
of our common shares.
Receipt of Foreign Currency
The amount of any distribution paid to
a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of our common shares, generally will be
equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless
of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency
equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency
after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and
generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax
advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credit
Subject to the PFIC rules discussed above,
a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on our common
shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian
income tax. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis,
whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year
basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign
tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S.
federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s
worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified,
under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign
corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation
by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty,
and if an election is properly made under the Code. However, the amount of a distribution with respect to our common shares that
is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income
tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated
separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should
consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury
Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement
in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who
are U.S. Holders that hold certain specified foreign financial assets in excess certain threshold amounts. The definition of specified
foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held
in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument
or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity.
U. S. Holders may be subject to these reporting requirements unless our common shares are held in an account at certain financial
institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with
their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form
8938.
Payments made within the U.S. or by a U.S.
payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, our common shares
will generally be subject to information reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a) fails to
furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect
U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report
items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished
its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup
withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding
rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed
as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes
required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information
reporting and backup withholding rules.
F. Dividends and
Paying Agents
Not applicable.
G. Statement by
Experts
Not applicable.
H. Documents on
Display
Exhibits attached to this Form 20-F are
also available for viewing at our offices, 4101 Yonge Street, Suite 706, Toronto, Ontario, Canada M2P 1N6; or you may request them
by calling our office at
(416) 361-2216
. Copies of our financial statements and other continuous disclosure documents required
under securities rules are available for viewing on the internet at www.sedar.com.
I. Subsidiary
Information
See Item 4.C – “Organizational
Structure” of this Annual Report on Form 20-F.
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ITEM 11
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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We are not subject to any material market
risks.
A. Transaction
Risk and Currency Risk Management
Our operations do not employ complex financial
instruments or derivatives, and given that we keep our excess funds in high-grade short-term instruments, we do not have significant
or unusual financial market risks. In the event we experience substantial growth in the future, our business and results of operations
may be materially affected by changes in interest rates on new debt financings, the granting of credit options to our customers,
and certain other credit risks associated with our operations.
B. Interest Rate
Risk and Equity Price Risk
We are equity financed and do not have
any debt which could be subject to significant interest rate change risks. We have raised equity funding through the sale of securities
denominated in Canadian dollars, and will likely raise additional equity funding denominated in Canadian dollars in the future.
C. Exchange Rate
Sensitivity
We are exposed to financial risk related
to the fluctuation of foreign exchange rates. Our oil and gas operations are in Israel. Most of our monetary assets are held in
US dollars and most of our expenditures are made in US dollars. However, we also have expenditures in NIS and Canadian dollars.
A significant change in the currency rates between the NIS and the Canadian dollars relative to the US dollar could have an effect
on our future results of operations, financial position or cash flows, depending on our currency management techniques. We have
not hedged our exposure to currency fluctuations. An increase or decrease of 5% of the NIS and Canadian dollars relative to the
U.S dollar would not have a significant effect on.
D. Commodity Price
Risk
While the value of our exploration properties
can always be said to relate to the price of the commodity and the outlook for same, we do not have any operating mines nor economic
ore and therefore do not have any hedging arrangements.
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ITEM 12
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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Not applicable.
