☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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, 2016 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).
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, 2016 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.
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. We are now a shell company as defined in Rule 12b-2 of the Exchange Act.
Letter of Intent
In anticipation of the possibility that MELP’s appeal in respect of the Yam Hadera License would be denied by the Minister of Energy and Water, and given the increasing challenging market conditions for oil and gas exploration throughout 2015, our Company’s management had been looking for additional business opportunities. 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.
SMAART is a British Columbia based corporation that owns a Nevada, USA subsidiary, SMAART Holdings Corp., which in turn owns the following active subsidiaries:
|
(i)
|
Empower Healthcare Corporation (“
EHC
”) is an Oregon based corporation that provides physician services to patients. EHC focuses on pain management services and is a pioneer in the recommendation of cannabis based products to its patients.
|
|
(ii)
|
The Hemp & Cannabis Company (“
THCC
”) is an Oregon corporation. THCC owns and leases real estate that was used to cultivate cannabis with state licenses in both Oregon and Washington.
|
|
(iii)
|
SMAART Inc. is an Oregon corporation that provides administrative services to SMAART owned companies.
|
|
(iv)
|
The Hemp & Cannabis Company (Washington) owns a property in Washington state that previously was used to cultivate cannabis on behalf of clinic patients.
|
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 other applicable Canadian stock exchange). On closing of the Transaction, it is expected that current shareholders of Adira will own 10% of the Resulting Issuer, while the current shareholders of SMAART will own the remaining 90%.
In connection with the Transaction, Adira advanced US$25,000 to SMAART to meet the SMAART’s ongoing working capital requirements pending the completion of this Transaction. Subsequent to the year end, SMAART repaid this loan.
In addition, SMAART intends to complete an unregistered financing to close concurrently with the completion of the Transaction, for net proceeds of at least $2,400,000 CDN. [There is no assurance that SMAART will be successful in completing the proposed financing, and completion of the Transaction is not conditional on any minimum amount of proceeds being realized from the financing.] If SMAART succeeds in completing the contemplated financing, it is anticipated that the net proceeds will be available as working capital for the Resulting Issuer.
The Board of Directors of the Resulting Issuer will initially consist of seven directors, five of which shall be nominated by SMAART and two of which shall be nominated by Adira.
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, 2016, 2015, 2014, 2013, and 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,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
($ thousands)
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
19
|
|
|
|
124
|
|
|
|
334
|
|
|
|
617
|
|
|
|
2,394
|
|
|
Total Assets
|
|
|
52
|
|
|
|
163
|
|
|
|
409
|
|
|
|
3,226
|
|
|
|
15,340
|
|
|
Total Liabilities
|
|
|
341
|
|
|
|
237
|
|
|
|
223
|
|
|
|
3,803
|
|
|
|
10,330
|
|
|
Total Shareholders’ Equity (deficit)
|
|
|
(289
|
)
|
|
|
(74
|
)
|
|
|
186
|
|
|
|
(577
|
)
|
|
|
5,010
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
($ thousands)
|
|
|
|
|
|
Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
1,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Expenses:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
677
|
|
|
|
1,026
|
|
|
General and administrative expenses
|
|
|
268
|
|
|
|
349
|
|
|
|
602
|
|
|
|
2,813
|
|
|
|
5,304
|
|
|
Gain on settlement of accounts payable and others payables
|
|
|
-
|
|
|
|
(25
|
)
|
|
|
(1,374
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Impairment charge
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,168
|
|
|
|
7,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
268
|
|
|
|
324
|
|
|
|
(772
|
)
|
|
|
8,658
|
|
|
|
14,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
268
|
|
|
|
324
|
|
|
|
772
|
|
|
|
(8,641
|
)
|
|
|
(12,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,027
|
|
|
|
2,480
|
|
|
Loss on foreign exchange
|
|
|
(8
|
)
|
|
|
(23
|
)
|
|
|
(37
|
)
|
|
|
(30
|
)
|
|
|
(745
|
)
|
|
Gain on revaluation of warrant liability
|
|
|
45
|
|
|
|
78
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before income taxes
|
|
|
(215
|
)
|
|
|
(269
|
)
|
|
|
735
|
|
|
|
(5,644
|
)
|
|
|
(10,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) and comprehensive profit (loss)
|
|
|
(215
|
)
|
|
|
(269
|
)
|
|
|
735
|
|
|
|
(5,644
|
)
|
|
|
(10,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net (loss) profit per share attributable to equity holders of the parent
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
0.06
|
|
|
|
(0.47
|
)
|
|
|
(1.19
|
)
|
|
Weighted average number of common shares used in computing basic and diluted net loss per share
|
|
|
17,112,022
|
|
|
|
15,439,508
|
|
|
|
12,158,302
|
|
|
|
12,052,073
|
|
|
|
2,954,241
|
|
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, 2016, we had an accumulated deficit of $34.3 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, 2016, 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.
All of our assets are currently outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or some of our directors or officers.
All of our assets are currently located outside the United States. In addition, some of our directors and/or officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States.
As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, investors may be effectively prevented from pursuing remedies under United States federal securities laws against them.
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 not effectively manage the growth necessary to execute our business plan.
As disclosed elsewhere in this annual report, we have entered into a non-binding letter of intent that contemplates our acquisition of SMAART Holdings Inc. (“
SMAART
”), a private British Columbia corporation that, through its direct and indirect subsidiaries, is involved in the medical marijuana industry primarily in the States of Oregon and Washington. If we are successful in consummating our acquisition of SMAART, we expect that we will be required to hire consultants and employees to carry out the operations of the Resulting Issuer. Such growth, if any, will place significant strain on our current personnel, systems and resources. We believe that we will also be required to improve our management, technical, information and accounting systems, controls and procedures. We may not be able to maintain the quality of our operations, control our costs, continue complying with all applicable regulations and expand our internal management, technical information and accounting systems to support our desired growth. If we fail to manage our anticipated growth effectively, our business could be adversely affected.
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
There is no assurance that a publicly-traded market for the Resulting Issuer’s common shares will be available if Adira proceeds with the acquisition of SMAART
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. However, there is no assurance that the Resulting Issuer will meet the listing standards prescribed by the CSE if Adira proceeds with the acquisition of SMAART.
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.
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ITEM 4
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INFORMATION ON THE COMPANY
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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. W
e
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 is located at
4101 Yonge Street, Suite 706
, Toronto, Ontario, Canada,
M2P 1N6
. Our telephone number is (416) 361 2216.
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”.
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, 2016, 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 are focusing on advancing our proposed transaction with SMAART.
Effects of Government Regulations
See Item 3D - “Risk Factors”.
C.
Organizational Structure
The following sets out the current organizational structure of Adira and its significant subsidiaries:
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Notes:
(1)
Adira Energy Ltd. is a holding corporation and is the registered and beneficial owner of 100% of Adira Energy Holding Corp. Adira Energy Ltd.
(2)
Adira Energy Holding Corp. is a holding corporation and is the registered and beneficial owner of Adira’s foreign subsidiary, , Adira Energy Israel Ltd. During 2015, the other foreign subsidiaries will have liquidated.
(3)
Adira Energy Israel Ltd. is currently inactive.
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D.
Property, Plant and Equipment
(a)
Corporate Office
Our executive offices located at 4101 Yonge Street, Suite 706, Toronto, Ontario, Canada, M2P 1N6.
(b)
Special Skill and Knowledge
Dennis Bennie, our Chairman and Alan Friedman, our Executive Vice President – Corporate Development, have significant experience in evaluating and executing transaction similar to the one with SMAART.
(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, 2016, 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.
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ITEM 5
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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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, 2016. It should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2016. 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, 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 2016 resulted primarily from the continued significant reduction in compensation to officers of the Company.
Gain on settlement of accounts payable and others payables
For the year ended December 31, 2016 the Company recorded a gain on settlement of $Nil as compared to $25 thousand for year ended December 31, 2015. The amount in 2015 was from settlement agreements reached with suppliers which were lower than the obligations recorded as of December 31, 2014.
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 Loss
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.
Consolidated results of operations for the year ended December 31, 2015 compared to the year ended December 31, 2014.
General and Administrative Expenses
For the year ended December 31, 2015, general and administrative expenses amounted to $349 thousand as compared to $602 thousand for year ended December 31, 2014. 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 which were lower than the obligations recorded as of December 31, 2014.
Financing Income/Expense and Gain on Foreign Exchange
For the year ended December 31, 2015, loss on foreign exchange was $23 thousand as compared to $37 thousand for the year ended December 31, 2014. The Company is exposed to financial risk related to the fluctuation of foreign exchange rates. The Company’s recently discontinued oil and gas exploration business activities were operated in Israel, most of its monetary assets are held in U.S. dollars and most of its expenditures are made in U.S. dollars. However, it also has expenditures in NIS 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, 2015 was $78 thousand, 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 reporting period. The changes in fair value are included in gain on revaluation of warrant liability. For the year ended December 31, 2014, the amount was Nil.
Net Profit
The Company reported a net loss and comprehensive loss for the year ended December 31, 2015 of $269 thousand as compared to a net profit and comprehensive profit of $735 thousand for year ended December 31, 2014. The loss in 2015 is as a result of the Company incurring general and administrative expenses with no corresponding income.
The primary reason for profit in 2014 was the Company’s ability to significantly reduce general and administration expenses, and Adira Israel obtaining significant discounts from settlement agreements reached with suppliers which were lower than the obligations recorded as of December 31, 2013.
Inflation
During the years ended December 31, 2016, 2015 and 2014, 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 $34.3 million as of December 31, 2016 ($34,134 as at December 31, 2015), and had negative cash flows from operations of $105 thousand for the year ended December 31, 2016 ($391 thousand for the year ended December 31, 2015). We no longer hold any interests in any oil and gas exploration projects. Our ability to continue as a going concern depends upon our ability to complete our acquisition of SMAART and to obtain financing to continue our operations.
There can be no assurance that we will be able to continue to raise funds in which case we may be unable to meet its obligations. We are considering various alternatives with respect to raising additional capital to remedy any future shortfall in capital, but to date has made no specific plans or arrangements.
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.
Year ended December 31, 2014 compared to year ended December 31, 2013
During the year ended December 31, 2014, our overall position of cash and cash equivalents decreased by $283 thousand.
Our net cash used in operating activities during the year ended December 31, 2014 was $380 thousand as compared to $2.0 million for the year ended December 31, 2013. This decrease is due to the significantly reduced activities during 2014 as compared to 2013.
Cash generated from investing activities during the year ended December 31, 2014 was $37 thousand as compared to cash used in investing activities of $234 thousand during the year ended December 31, 2013. The generation of cash from investment activities in 2014 relates to the release of restricted deposits and in 2013 to the sale of equipment and other assets.
Cash provided by financing activities for the year ended December 31, 2014 was $60 thousand as compared to nil during the year ended December 31, 2013.
The cash provided in 2014 is as a result of the completion of a private placement of shares.
There are no legal restrictions on transferring funds between Canada and Israel.
Capital Resources
At December 31, 2016, our
cash and cash equivalents were $19 thousand (December 31, 2015 - $124 thousand). The majority of this balance is being held in Canadian Dollars. Our working capital at December 31, 2016 was negative $222 thousand as compared to positive $38 thousand at December 31, 2015. We decreased our working capital as a result of a large increase in accounts payable. Subsequent to the year-end a significant service provider has agreed to settle its accounts payable balance in the amount $155 thousand in return for shares to be issued concurrently with the closing of the SMAART Transaction.
Commitments
We have no commitments to the Ministry of Energy and Water Resources of the State of Israel or any other government authority, and no outstanding contractual commitments, in respect of our expired oil and gas options described in this annual report.
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:
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·
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Share-based payment transactions;
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·
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Impairment of financial assets; and
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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, 2016.
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 Adira as at the date of this Form 20-F:
|
Name
(1)
|
Position
|
|
Dennis Bennie
(2)(3)
|
Director and Chairman
|
|
Alan Friedman
(2)
|
Director and Executive Vice-President, Corporate Development
|
|
Alan Rootenberg
(2)
(3)
|
Director
|
|
Gadi Levin
|
Chief Executive Officer
Chief Financial Officer
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
”).
|
Directors and Senior Management of the Subsidiaries
The following table sets out the directors and senior management of Adira’s significant subsidiaries as of the date of this Form 20-F, provides the person’s name, location of residence, position(s) held with the entity, principal occupation during the last five years and if a director, the date on which the person became a director. None of the directors and senior management listed below beneficially own, control or direct, directly or indirectly, any common shares of any subsidiary listed below.
Adira Energy Holding Corp. (Ontario)
|
Name and Residence
|
Position
|
Date First Elected/
appointed
|
Principal Occupation During Last 5 Years
|
|
|
|
|
|
|
Gadi Levin
Lev Hasharon, Israel
|
Chief Executive Officer and Chief Financial Officer
|
January 11, 2011
|
VP and Chief Financial Officer for two Israeli investment houses in the fields of private equity, hedge funds and real estate estate (July 2008 to December 2009 and January 2010 to June 2010, respectively).
|
|
|
|
|
|
|
Alan Friedman
Toronto, Canada
|
President, Secretary and Director
|
April 4, 2008
|
Founder, President and Chief Executive Officer of Rivonia Capital Inc., South African lawyer
|
|
|
|
|
|
|
Dennis Bennie
Toronto, Canada
|
Director
|
April 4, 2008
|
Founder, XDL Venture Capital Fund and XDL Capital Invest
|
|
|
|
|
|
Adira Energy Israel Ltd. (Israel)
|
Name and Residence
|
Position
|
Date First Elected
|
Principal Occupation During Last 5 Years
|
|
|
|
|
|
|
Gadi Levin
Lev Hasharon, Israel
|
Chief Executive Officer and Chief Financial Officer
|
January 11, 2011
|
VP and Chief Financial Officer for two Israeli investment houses in the fields of private equity, hedge funds and real estate estate (July 2008 to December 2009 and January 2010 to June 2010, respectively).
|
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:
Mr. Dennis Bennie
. Mr. Bennie became Chairman and a director of Adira on August 31, 2009. Prior to that, Mr. Bennie was a founding member of Adira Holding Co., now a wholly-owned subsidiary of Adira, and its Chairman since inception in April 2009. Over the past 25 years, Mr. Bennie has founded and managed several successful companies. In 1996, he founded the XDL Venture Capital Fund. One of its most noteworthy investments was a 1997 start-up, Delano Technology Corporation (NASD:DTEC). XDL Intervest, a $150 million fund was started in 1999 and is now fully invested. From 1988 to 1996, Mr. Bennie was Chairman and Chief Executive Officer of Delrina Corporation, which was listed on both the Toronto Stock Exchange and NASDAQ. Mr. Bennie serves on several boards and also regularly serves on various charitable boards.
Mr. Alan Friedman.
Mr. Friedman became Executive Vice-President and a director of Adira on August 31, 2009. Prior to joining Adira, Mr. Friedman was a founding member of Adira Holding Co. and had been its President since its inception in April 2009. Mr. Friedman is a South African qualified attorney and has played an integral role in the acquisition of various mining and oil and gas assets, financings and go-public transactions for many resource companies over the past 13 years. Mr. Friedman is also the co-founder and Director of Eco (Atlantic) Oil & Gas Ltd., a TSXV listed oil and gas exploration company, developing various oil assets offshore and onshore Namibia. He was also a director and co
‐
founder of Auryx Gold Corp., a TSX listed Namibian gold exploration company having been sold to B2 Gold for more than $150 million. Mr. Friedman is the President and Chief Executive Officer of Rivonia Capital Inc. and a director of the Canada-South Africa Chamber of Business.
Mr. Alan Rootenberg.
Mr. Rootenberg is a chartered accountant with experience in the oil and gas, mineral exploration and technology industries. He has served as a senior executive for number of publicly traded companies. Alan has also served as President and Chief Executive Officer of a TSXV listed technology company. Alan has a Bachelor of Commerce degree from the University of the Witwatersrand in Johannesburg, South Africa and holds a CPA designation.
Mr. Gadi Levin
. Mr. Levin became Adira’s Chief Executive Officer on September 1, 2015. Mr. Levin became Chief Financial Officer of Adira’s subsidiaries in July 2010, Secretary of Adira in August 2010, and was appointed as Adira’s Chief Financial Officer in January 2011. He served as the Acting Principal Executive Officer of Adira during the interim period from the effective date of the termination of February 24, 2012, to February 27, 2012. Mr. Levin previously served as the Vice President of Finance and Chief Financial Officer for two Israeli investment houses in the fields of private equity, hedge funds and real estate (July 2008 to December 2009 and January 2010 to June 2010, respectively). For the five years prior to that he worked as a financial consultant. Mr. Levin began his career at the accounting firm, Arthur Andersen, where he worked in the Cape Town, London and Tel Aviv offices for nine years. He has a Bachelor of Commerce degree in Accounting and Information Systems from the University of the Cape Town, South Africa, and a post graduate diploma in Accounting from the University of South Africa. He received his Chartered Accountant designation in South Africa and has an MBA from Bar Ilan University in Israel.
Alan Friedman's wife is the niece of Dennis Bennie. Other than that relationship, no director or any member of senior management has any family relationships with any other director or manager.
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 Adira, or a shareholder holding a sufficient number of Adira’s securities to affect materially the control Adira, 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
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 $100,000 to compensate such executive officers in the event of resignation, retirement or other termination, a change of control of Adira or a change in responsibilities following a change in control, other than as described in this Form 20-F.
Summary Compensation Table
The following table provides a summary of compensation that we paid to our senior management during the fiscal year then ended December 31, 2016 (in thousands of US Dollars):
|
Names and Principal Position
|
Salary
($)
|
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
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Alan Friedman, Executive Vice President, Corporate Development
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
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, 2016 and 2015.
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, 2016, we employed no employees.
E.
Share Ownership
Shares
The shareholdings of our officers and directors are set forth below as of the date hereof.
|
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.
|
|
(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.
|
|
(4)
|
Mr. Levin is an interested party in Adira by virtue of him serving as an officer in Adira.
|
|
(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.
|
Options
The stock options, exercisable into common shares of Adira, held by our officers and directors are set forth below as of the date hereof.
|
Name
|
Position
|
Allotment Date
|
Expiration Date
|
|
Exercise Price
(US Dollar)
(1)
|
|
|
Vesting Details
|
|
|
Total
(2)
|
|
|
Dennis Bennie
|
Chairman
|
Aug. 22, 2012
|
Aug. 21, 2017
|
|
$
|
2.176
|
|
|
R
|
(3)
|
|
|
101,333
|
|
|
Alan Rootenberg
|
Director
|
Aug. 22, 2012
|
Aug. 21, 2017
|
|
$
|
2.16
|
|
|
R
|
(3)
|
|
|
667
|
|
|
Alan Friedman
|
Executive Vice President,
Corporate Development and Director
|
Aug. 22, 2012
|
Aug. 21, 2017
|
|
$
|
0.86
|
|
|
R
|
(3)
|
|
|
70,667
|
|
|
Gadi Levin
|
Chief Executive Officer and Chief Financial Officer
|
Aug. 22, 2012
|
Aug. 21, 2017
|
|
$
|
2.16
|
|
|
R
|
(3)
|
|
|
60,667
|
|
|
Notes
(1)
The exercise prices of employee stock options in 2010 were set in US Dollars and as of 2011, in Canadian Dollars. The tables show all amounts in US Dollars.
(2)
Each stock option may be exercised to purchase one of our common shares at the exercise price.
(3)
Type R stock options vest 33.33% every twelve months over two years with the initial vesting on August 22, 2012.
|
|
Warrants
Warrants, exercisable into common shares of Adira, held by our officers and directors are set forth below as of the date hereof.
|
Name
|
Position
|
Allotment date
|
Expiration date
|
Exercise price
|
Total
|
|
Dennis Bennie
|
Co-Chairman of the Board
|
May 7, 2015
|
May 6, 2018
|
US$0.04
|
2,000,000
|
|
Alan Rootenberg
|
Director
|
May 7, 2015
|
May 6, 2018
|
US$0.04
|
300,000
|
Equity Compensation Plans
The following table summarizes our compensation plans under which equity securities are authorized for issuance as at December 31, 2016.
|
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
|
5,056,00
|
0.14
|
1,475,203
|
|
Equity compensation plans not approved by securityholders
|
N/A
|
N/A
|
N/A
|
|
Total:
|
5,056,00
|
0.14
|
1,475,202
|
|
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 – 236,000 = 1,475,202).
|
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, 2016, 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, 2016, 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
|
95.0.5
|
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, 2016 except as follows:
|
(a)
|
During the year ended December 31, 2016, we incurred $6 thousand in consulting fees and operating expenses to private companies which are controlled by some of our directors or officers (year ended December 31, 2015 - $58 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,
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
Short-term employee benefits
|
|
$
|
|
|
|
$
|
38
|
|
|
$
|
212
|
|
|
Share based compensation
|
|
|
-
|
|
|
|
1
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
39
|
|
|
$
|
234
|
|
Benefits in respect of key management persons (including directors) who are not employed by us:
|
|
Year ended
December 31,
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
Share based compensation
|
|
$
|
5
|
|
|
$
|
45
|
|
|
$
|
38
|
|
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, 2016. 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)
|
|
|
|
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 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, 2017 to April 24, 2017
|
0.01
|
0.01
|
|
March 2017
|
0.01
|
0.01
|
|
February 2017
|
0.01
|
0.01
|
|
January 2017
|
0.01
|
0.01
|
|
December 2016
|
0.01
|
0.01
|
|
November 2016
|
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)
|
|
|
|
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 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, 2017 to April 27, 2017
|
0.04
|
0.04
|
|
March 2017
|
0.04
|
0.04
|
|
February 2017
|
0.04
|
0.04
|
|
January 2017
|
0.04
|
0.04
|
|
December 2016
|
0.04
|
0.04
|
|
November 2016
|
0.04
|
0.04
|
Escrowed Securities
As at December 31, 2016 and 2015, 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 our 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 our 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 if it was an investment to acquire control of our Company and the value of the assets of our Company was CAN$5 million or more. An investment in our common shares by residents of WTO members would be reviewable only if it was an investment to acquire control of our Company and the value of the assets of our 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 $600 million; it will increase to CAN $800 million starting April 24, 2017 and CAN $1 billion starting April 24, 2019.
A non-Canadian would be deemed to acquire control of our Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of our outstanding common shares (or less than a majority but controlled our Company in fact through the ownership of one-third or more of our outstanding common shares) unless it could be established that, on the acquisition, we were not controlled in fact by the acquirer through the ownership of such common shares. Certain transactions in relation to our 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 our 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 this Act, 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 our Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control of our 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:
|
·
|
an individual who is a citizen or resident of the U.S.;
|
|
·
|
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;
|
|
·
|
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
|
|
·
|
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.
|
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.