SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
| | X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 20092010
OR
| | 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 |
Date of event requiring this shell company report______________
For the transition period from ______________ to __________________
| | Commission file number: 0-30314 |
| | (Exact name of Registrant as specified in its charter) |
(Translation of Registrant’s name into English)
Province of Ontario, Canada
(Jurisdiction of incorporation or organization)
47 Avenue Road, Suite 200, Toronto, Ontario, Canada, M5R 2G3
(Address of principal executive offices)
Kam Shah, 416.929.1806,kam@bontancorp.com, Fax: 416.929.6612
47 Avenue Road, Suite 200, Toronto, Ontario, Canada M5R 2G3
(Name,telephone,e-mail and/or facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Not applicable Not applicable
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common shares without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Not applicable
(Title of Class)
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual reportreport.
Common shares without par value – 30,820,74365,229,076 as at March 31, 20092010
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ___ No X___
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes____ NoX
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report) and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by checkmark Yes X No_______No__
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer___Accelerated filer____ Non-accelerated filer X
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP_____ International Financial ReportingOtherReporting Other X
Standards as issued by the International _____
Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow
Item 17: X Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes__ No_No X__
TABLE OF CONTENTS
| | | Page No. |
| | | |
| Forward-looking statements | 1 |
| Foreign Private Issuer Status and Reporting currency | 2 |
| | | |
| Part I | | |
| | | |
| Item 1. | Identity of Directors, Senior Management and Advisors | 2 |
| Item 2. | Offer Statistics and Expected Timetable | 2 |
| Item 3. | Key Information | 2 |
| Item 4. | Information on the Company | 1012 |
| Item 5. | Operating and Financial Review and Prospects | 1320 |
| Item 6. | Directors, Senior Management and Employees | 2429 |
| Item 7. | Major Shareholders and Related Party Transactions | 2935 |
| Item 8. | Financial Information | 3038 |
| Item 9. | The Offer and Listing | 3139 |
| Item 10. | Additional Information | 3340 |
| Item 11. | Quantitative and Qualitative Disclosures about Market Risk | 4453 |
| Item 12. | Description of Securities Other than Equity Securities | 4555 |
| | | |
| Part II | | |
| | | |
| Item 13. | Defaults, Dividend Arrearages and Delinquencies | 4555 |
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | 4556 |
| Item 15. | Controls and Procedures | 4556 |
| Item 16. | Audit Committee, Code of Ethics, and Principal Accountant’s Fees and Services | 4757 |
| | | |
| | | |
| Part III | | |
| | | |
| Item 17. | Financial Statements | 4858 |
| Item 18. | Financial Statements | 4858 |
| Item 19. | Exhibits | 49-5159 |
FORWARD LOOKING STATEMENTS
This annual report includes "forward-looking statements." All statements, other than statements of historical facts, included in this annual report that address activities, events or developments, which we expect or anticipate, will or may occur in the future are forward-looking statements.
The words "believe", "intend", "expect", "anticipate", "project", "estimate", "predict" and similar expressions are also intended to identify forward-looking statements.
These forward-looking statements address, among others, such issues as:
- Future earnings and cash flow, - future plans and capital expenditures, - expansion and other development trends of the resource sector.
- Expansion and growth of our business and operations, and
- Our prospective operational and financial information.
These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties, which could cause actual results to differ materially from our expectations, including the risks set forth in "Item 3-Key Information-Risk Factors" and the following:
| - | Fluctuations in prices of our products and services, |
| - | Potential acquisitions and other business opportunities, |
| - | General economic, market and business conditions, and |
| - | Other risks and factors beyond our control. |
Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.
Unless the context indicates otherwise, the terms "Bontan Corporation Inc." the "Company”,"Bontan", “we”, “us”, “our” are used interchangeably in this Annual Report and mean Bontan Corporation Inc. and its subsidiary.
FOREIGN PRIVATE ISSUER STATUS AND REPORTING CURRENCY
Foreign Private Issuer Status:
Bontan Corporation Inc. is a Canadian corporation incorporated under the laws of the Province of Ontario. Approximately 83%72% of its common stock is held by non-United States citizens and residents and our business is administered principally outside the United States; As a result, we believe that we qualify as a "foreign private issuer" for continuing to report regarding the registration of our common stock using this Form 20-F annual report format.
Currency
The financial information presented in this Annual Report is expressed in Canadian dollars ("CDN $") and the financial data in this Annual Report is presented in accordance with accounting principles generally accepted in Canada ("Can. GAAP"). Such financial data conforms in all material respects with accounting principles generally accepted in the United States ("U.S. GAAP") except as disclosed in Note 1724 of the Notes to Consolidated Financial Statements contained herein.
All dollar amounts set forth in this report are in Canadian dollars, except where otherwise indicated.
PART I
ITEM 1 – IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not required since this is an annual report.
ITEM 2 – OFFER STATISTICS AND EXPECTED TIMETABLE
Not required since this is an annual report
ITEM 3 – KEY INFORMATION
(A) SELECTED FINANCIAL DATA
This Report includes consolidated financial statements of the Company for the years ended March 31, 2010, 2009 2008 and 2007.2008. These financial statements were prepared in accordance with accounting principles generally accepted in Canada. Reference is made to Financial Statement Notes for a discussion of the material differences between Canadian GAAP and U.S. GAAP, and their effect on the Company's financial statements.
The following is a selected financial data for the Company for each of the last five fiscal years 20052006 through 20092010 on a consolidated basis. The data is extracted from the audited financial statements of the Company for each of the said years.
SUMMARY OF FINANCIAL INFORMATION IN THE COMPANY FINANCIAL STATEMENTS (Canadian $)
Operating data – Fiscal year ended March 31
| | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | (Restated) | | | (Restated) | | | | | | | | | | | | | | | (Restated) | | | (Restated) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | | 52,937 | | | | 321,755 | | | $ | 743,786 | | | $ | 1,857,647 | | | $ | 418,861 | | | | - | | | | 7,901 | | | | 73,300 | | | $ | 93,278 | | | $ | 1,238,940 | |
| Loss from continuing operations | | $ | (689,415 | ) | | $ | (571,799 | ) | | $ | (164,043 | ) | | $ | (4,784,933 | ) | | $ | (4,876,898 | ) | |
| Loss from discontinued operations | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | (179,678 | ) | |
| Loss before non-controlling interests | | | $ | (4,284,058) | | | $ | (689,415) | | | $ | (571,799) | | | $ | (164,043) | | | $ | (4,784,933) | |
| Non-controlling interests | | | $ | 356,814 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Net Loss | | $ | (689,415 | ) | | $ | (571,799 | ) | | $ | (164,043 | ) | | $ | (4,784,933 | ) | | $ | (5,056,576 | ) | | $ | (3,927,244) | | | $ | (689,415) | | | $ | (571,799) | | | $ | (164,043) | | | $ | (4,784,933) | |
| Net loss per share (1) | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | (0.31 | ) | | $ | (0.43 | ) | | $ | (0.09) | | | $ | (0.02) | | | $ | (0.02) | | | $ | (0.01) | | | $ | (0.31) | |
| Working capital | | $ | 1,431,495 | | | $ | 5,173,892 | | | $ | 6,624,466 | | | $ | 5,285,784 | | | $ | 4,734,269 | | | $ | 371,130 | | | $ | 1,431,495 | | | $ | 5,173,892 | | | $ | 6,624,466 | | | $ | 5,285,784 | |
| Total assets | | $ | 1,592,947 | | | $ | 5,239,122 | | | $ | 6,672,918 | | | $ | 5,450,772 | | | $ | 5,075,158 | | | $ | 10,419,787 | | | $ | 1,592,947 | | | $ | 5,239,122 | | | $ | 6,672,918 | | | $ | 5,450,772 | |
| Capital stock | | $ | 32,854,075 | | | $ | 32,901,488 | | | $ | 32,413,811 | | | $ | 32,175,000 | | | $ | 28,280,890 | | | $ | 35,298,257 | | | $ | 32,854,075 | | | $ | 32,901,488 | | | $ | 32,413,811 | | | $ | 32,175,000 | |
| Warrants | | $ | 2,192,927 | | | $ | 2,153,857 | | | $ | 2,215,213 | | | $ | 951,299 | | | $ | - | | | $ | 7,343,886 | | | $ | 2,192,927 | | | $ | 2,153,857 | | | $ | 2,215,213 | | | $ | 951,299 | |
| Contributed surplus | | $ | 4,154,266 | | | $ | 4,077,427 | | | $ | 4,069,549 | | | $ | 4,069,549 | | | $ | 3,795,078 | | | $ | 4,573,748 | | | $ | 4,154,266 | | | $ | 4,077,427 | | | $ | 4,069,549 | | | $ | 4,069,549 | |
| Accumulated other comprehensive loss | | $ | (4,425,018 | ) | | $ | (1,306,768 | ) | | | | | | | | | | | | | | $ | (2,696,213) | | | $ | (4,425,018) | | | $ | (1,306,768) | | | | | | | | | |
| Shareholders' equity | | $ | 1,440,929 | | | $ | 5,180,098 | | | $ | 6,624,466 | | | $ | 5,285,784 | | | $ | 4,950,837 | | | $ | 6,900,299 | | | $ | 1,440,929 | | | $ | 5,180,098 | | | $ | 6,624,466 | | | $ | 5,285,784 | |
| Weighted average number of shares outstanding ( 2 ) | | | 30,170,743 | | | | 28,840,653 | | | | 27,472,703 | | | | 15,655,023 | | | | 11,700,303 | | | | 42,963,027 | | | | 30,170,743 | | | | 28,840,653 | | | | 27,472,703 | | | | 15,655,023 | |
1. The effect of potential share issuances pursuant to the exercise of options and warrants would be anti-dilutive and, therefore, basic and diluted losses per share are the same.
2. Weighted average number of shares for a year was calculated by dividing the total number of shares outstanding at the end of each of the months by twelve.
Selected Financial Data (U.S. GAAP) – Fiscal year ended March 31
| | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss for year | | $ | (689,415 | ) | | $ | (571,799 | ) | | $ | (52,384 | ) | | $ | (4,590,175 | ) | | $ | (5,238,898 | ) | | $ | (3,927,244) | | | $ | (689,415) | | | $ | (571,799) | | | $ | (52,384) | | | $ | (4,590,175) | |
| Comprehensive (Loss) Income | | $ | (3,807,665 | ) | | $ | (2,838,269 | ) | | $ | 795,658 | | | $ | (4,038,005 | ) | | $ | (5,273,144 | ) | |
| Comprehensive Loss | | | $ | (2,198,439) | | | $ | (3,807,665) | | | $ | (2,838,269) | | | $ | 795,658 | | | $ | (4,038,005) | |
| Loss per share -Basic and diluted | | $ | (0.02 | ) | | $ | (0.02 | ) | | $ | 0.00 | | | $ | (0.29 | ) | | $ | (0.45 | ) | | $ | (0.09) | | | $ | (0.02) | | | $ | (0.02) | | | $ | 0.00 | | | $ | (0.29) | |
| Total assets | | $ | 1,592,947 | | | $ | 5,239,122 | | | $ | 7,632,619 | | | $ | 6,197,700 | | | $ | 4,858,590 | | | $ | 10,419,787 | | | $ | 1,592,947 | | | $ | 5,239,122 | | | $ | 7,632,619 | | | $ | 6,197,700 | |
| Shareholders' equity | | $ | 1,440,929 | | | $ | 5,180,098 | | | $ | 7,584,167 | | | $ | 4,734,269 | | | $ | 4,734,269 | | | $ | 6,900,299 | | | $ | 1,440,929 | | | $ | 5,180,098 | | | $ | 7,584,167 | | | $ | 4,734,269 | |
The Company has not declared or paid any dividends in any of its last five financial years.
Exchange Rates
In this Annual Report on Form 20-F, unless otherwise specified, all monetary amounts are expressed in Canadian dollars. The exchange rates used herein were obtained from Bank of Canada; however, they cannot be guaranteed.
On June 30, 2009,July 23, 2010, the exchange rate, based on the noon buying rates, for the conversion of Canadian dollars into United States dollars (the “Noon Rate of Exchange”) was CDN $1.16=$1.04=US$1
The following table sets out the high and low exchange rates in US dollar for one Canadian dollar for each of the last six months
| 2009 | | June | | | May | | | April | | | March | | | February | | | January | | |
| 2010 | | June | May | April | March | February | January |
| | | | | | | | | | | | | | | | | | | | | | |
| High for period | | $ | 0.92 | | | $ | 0.91 | | | $ | 0.84 | | | $ | 0.82 | | | $ | 0.82 | | | $ | 0.85 | | $0.98 | $0.99 | $1.00 | $0.99 | $0.96 | $0.98 |
| Low for period | | $ | 0.86 | | | $ | 0.84 | | | $ | 0.79 | | | $ | 0.77 | | | $ | 0.79 | | | $ | 0.79 | | $0.94 | $0.93 | $0.98 | $0.96 | $0.93 | $0.94 |
The following table sets out the average exchange rates in US dollar for one Canadian dollar for the five most recent financial years calculated by using the average of the Noon Rate of Exchange on the last day of each month during the period.
Year Ended March 31 | Year Ended March 31 | | Year Ended March 31 |
| | | 2009 | | | 2008 | | | 2007 | | | 2006 | | | 2005 | | 2010 | 2009 | 2008 | 2007 | 2006 |
| Average for the year | | | 0.89 | | | | 0.97 | | | | 0.88 | | | | 0.84 | | | | 0.79 | | 0.92 | 0.89 | 0.97 | 0.88 | 0.84 |
(B) CAPITALIZATION AND INDEBTEDNESS
Not applicable
(C) REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable
(D) RISK FACTORS
The following is a brief discussion of those distinctive or special characteristics of the Company’s operations and industry that may have a material impact on, or constitute risk factors in respect of, the Company’s future financial performance.
Risks Related to our Business
We have a history of operating losses and may notnever achieve or sustain profitability in the future.
We have incurred significant operating losses during recent fiscal years. We have not yet had any revenue fromlosses. It is unlikely that we will generate significant revenues while we seek to complete our exploration and development activities in the exploration activities nor.offshore Israel project. As of March 31, 2009,2010, we had an accumulated deficit of approximately $33$37.3 million. We currentlydo not have no interest in any proved reserves or current production of oil or gas property or any natural resourcegas. Our success is substantially dependent upon on the successful exploration, drilling and development of the offshore Israel project.
We cannot assure you that we will be profitable in the future.
We expect to continue to incur losses until it is determined that properties or projects in which we may acquire interests inOur consolidated financial statements for the future can be sufficiently developed for commercialization. Even if it is determined that such properties or projects should be developed for commercialization, there is no certaintyyear ended March 31, 2010 have been prepared assuming that we will produce revenue, operate profitably or providecontinue as a return on investment in the future. We cannot assure yougoing concern, however, there can be no assurance that we will be able to achieve or sustain profitable operations in the future.
We are in the process of seeking opportunities indo so. Our ability to continue as a going concern is dependent upon our ability to access sufficient capital to complete exploration and development activities, identify commercial oil and gas reserves and any other sectors and currentlyultimately achieve profitable operations. These financial statements do not ownreflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if we were unable to realize our assets and settle our liabilities as a going concern in the normal course of operations. Such adjustments could be material.
Israel Petroleum Company, Ltd (IPC Cayman) is a newly formed development stage company with no operating history.
IPC Cayman, the company in which we acquired a 76.79% equity interest, is newly formed and has no operating history. Its operations will be subject to all of the risks inherent in exploration stage companies with no revenues or operating history. Its potential for success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with a new business, especially the oil and natural gas exploration business. No assurance can be given that any particular investment return will be achieved.
We will be substantially dependent upon our joint venture partners to develop the offshore Israel project.
We will be substantially dependent on IPC Cayman and our other joint venture partners and their respective affiliates to develop the offshore Israel project. We will not control the management or operations of the offshore Israel project.
Investments in joint ventures may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their share of financial commitments. Joint venture partners may have economic or other business interests or properties.goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our interests or objectives, and they may have competing interests in our markets that could create conflict of interest issues. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor our joint venture partners would have full control over the joint venture. Disputes between us and our joint venture partners may result in litigation or arbitra tion that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Our investment in the offshore Israel project may exceed returns from the project.
Currently,We cannot control activities on properties or drilling locations that we do not operate and are unable to control their proper operation and profitability.
We do not operate any of the properties in which we own anyan interest, and we own an indirect minority interest in any oil or gas project or any other project. We are assessing various opportunities, none of which may meet our eligibility requirements. Consequently, we may not own any interest for an indeterminate amount of time.the properties. As a result, we will usehave limited ability to exercise influence over, and control the risks associated with, the operations of these properties. The failure of an operator of our cash resourceswells to pay for expenses and costs we incuradequately perform operations, an operator’s breach of the applicable agreements or an operator’s failure to act in ways that are in our efforts to identify appropriate opportunities as well asbest interests could adversely affect us from realizing our target returns for our standard operating costs.
Our operations are subject to substantial explorationthose properties. The success and development risks.
The Company anticipates participating in oil and gas resource properties in the hopetiming of locating reserves. The Company's property interests, when acquired will most likely be in the exploration stage only. Accordingly, there is little likelihood that the Company will realize any profits in the short to medium term. Any profitability in the future from the Company's business will be dependent upon locating reserves, which itself is subject to numerous risk factors.
The business of exploring for and producing oil and gas involves a substantial risk of investment loss which, even a combination of experience, knowledge and careful evaluation may not be able to overcome. The principal resources necessary for the exploration and production of crude oil and natural gas are leasehold prospects under which crude oil and natural gas reserves may be discovered, drilling rigs and related equipment to explore for such reserves and knowledgeable personnel to conduct all phases of crude oil and natural gas operations, all of which requires a substantial investment.
Drilling oil and gas wells involves the risk that the wells will be unproductive or that, although productive, the wells do not produce oil and/or gas in economic quantities. Other hazards, such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations.
A productive well may become uneconomic in the event water or other deleterious substances are encountered, which impair or prevent the production of oil and/or gas from the well. In addition, production from any well may be unmarketable if it is impregnated with water or other deleterious substances. As with any petroleum property, there can be no assurance that oil and gas will be produced from the properties in which the Company had and may in future have interests.
In addition, the marketability of oil and gas, which may be acquired or discovered, will be affected by numerous factors beyond the control of the Company. These factors include the proximity and capacity of oil and gas pipelines and processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection.
The extent of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital. There is no assurance that our anticipated exploration and development activities in future resourceon properties operated by others therefore will ultimately yield oil or gas in commercial quantities. Drilling for oil and gas may be unprofitable. Dry holes and wells that are productive but do not produce sufficient net revenues after drilling, operating and other costs are unprofitable. We cannot assure you that we will be able to achieve profitable operations in the future.depend upon a number of factors outside of our control, including:
| • | the nature and timing of drilling and operational activities; |
| • | the timing and amount of capital expenditures; |
| • | the operator’s expertise and financial resources; |
| • | the approval of other participants in drilling wells; and |
| • | the operator’s selection of suitable technology. |
In determiningThe Mira and Sarah licenses must be drilled with two years or the purchase price forlicense could be forfeited.
Our joint venture must commence well drilling on each of the Mira and Sarah licenses within two years or the licenses could be forfeited. If our future interests,joint venture fails to drill timely wells before the license expiration, we will relylose the drilling opportunities and our investment in the expired licenses.
Prospects that our joint venture decides to drill may not yield natural gas or oil in commercially viable quantities.
The joint venture is conducting seismic surveys and other geological and geophysical analysis to identify and develop prospects in the areas covered by the Mira and Sarah licenses. A prospect is a property on both internalwhich indications of natural gas and external assessments relatingoil have been identified based on available seismic and geological information and analyses. The prospects will require substantial additional seismic data processing and interpretation. However, the use of seismic data and other technologies and the study of data in the same and nearby areas will not enable the joint venture to estimates of exploration, productionknow conclusively prior to drilling and possible reserves that may provetesting whether natural gas or oil will be present or, if present, whether natural gas or oil will be present in sufficient quantities to recover drilling or completion costs or to be materially inaccurate.economically viable. If the seismic and other data are inconclusive or unsatisfactory, the joint venture may not be able to attract industry partners to conduct exploratory drilling on its properties.
There is currently no infrastructure to market oil or gas if hydrocarbons are discovered.
The price weMira and Sarah licenses are willinglocated in an area of the eastern Mediterranean where there has not previously been production of oil and gas. Accordingly, there is not currently any infrastructure in place to pay for an interest in anmarket oil or gas if hydrocarbons are discovered. The Israeli government will have to approve the installation of infrastructure, and the construction of infrastructure will require significant capital investment.
Failure to fund capital expenditures could adversely affect our properties interests..
The oil and gas projectindustry is based on a combination of projectedcapital intensive. The joint venture’s exploration and production costsdevelopment activities will require substantial capital expenditures to meet requirements in the licenses and on the estimates of potential reserves. Actual costs and reserve could vary materially from these estimates. Consequently, the interests we acquireany future licenses that may be less unproductive than expected, or not productive at all, which could adversely affect us or cause us to lose our entire invest, or both. Initial assessments of an interest will be based on a report by engineers or firms of engineers and these initial assessments may differ significantly from our subsequent assessments.
Our interests are subject to uninsurable risks.
Our industry also experiences numerous operating risks. These operating risks includegranted covering the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards. Environmental hazards include oil spills, natural gas leaks, ruptures or discharges of toxic gases. Such events could result in substantial damage to oil and gas wells, producing facilities and other property and personal injury. Although management believes the operator of any properties in which the Company and its subsidiaries may acquire interests, will acquire and maintain appropriate insurance coverage in accordance with standard industry practice, the Company and its subsidiaries may suffer losses from uninsurable hazards or from hazards which the operator has chosen not to insure against because of high premium costs or other reasons. If any of these industry operating risks occur, the Company and its subsidiaries may face liability. The payment of any such liabilities may have a material, adverse effect on the Company's financial position. We cannot assure you that insurance held by the operator of any of our properties will be adequate to cover losses or liabilities.
Environmental and other regulatory requirements may delay production and development of our resource interests.
The current or future operationsarea of the Company, including development activities and commencement of production on its properties, require permits from various governmental authorities and such operations will be subject to laws and regulations governing prospecting, development, mining, production, exports, taxes, labour standards, occupational health, waste disposal, toxic substances, land use, environmental protection, safety and other matters. Companies engaged in the development and operation of natural resource properties and related facilities generally experience increased costs, and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.
Benjamin permit. There can beis no assurance that approvals and permits required to commence production on its properties will be obtained. Additional permits and studies, which may include environmental impact studies conducted before permits can be obtained, may be necessary prior to operation of the properties in which the Company acquires interests and there can be no assurance that the operator of these interestswe or the Companyour joint venture partners will be able to obtain equity or maintain all necessary permitsdebt financing on acceptable terms, or at all.
We do not expect that maydebt financing will be available to us or any of our joint venture partners to support exploratory operations of the type required to commence construction, development or operationestablish commercial viability of the properties. Cash flows from the offshore Israel project will be subject to a number of variables, such as the success of drilling operations, production levels from successful wells, prices of crude oil and natural gas, availability of infrastructure and markets, and costs of services and equipment. In addition, our joint venture partners could seek farmout arrangements with third parties. These farmouts could result in us giving up a substantial interest in the oil and gas extraction facilities at these properties, on terms which enable operationscomprising two licenses for offshore exploration for gas and/or oil, we have acquired. If we or IPC Cayman are not able to fund our or its share of capital expenditures, our interests in the properties might be conducted at economically justifiable costs.reduced or forfeited as a result.
FailureMarket conditions could impede access to comply with applicable laws, regulations,capital or increase the cost of capital, which could significantly impede development of the offshore Israel project.
The oil and permitting requirementsgas industry is cyclical in nature and tends to reflect general economic conditions. Recent and continuing disruptions and volatility in the global financial markets may, among other things, make it more difficult for us and our joint venture partners to obtain, or increase the cost of obtaining, capital and financing for the offshore Israel project. Access to additional capital may not be available on acceptable terms or at all. Difficulties in obtaining capital and financing or increased costs for obtaining capital and financing could significantly delay development of our property interests.
Our business is not geographically diversified.
Our property interests are located off the west coast of Israel. We currently own no other working interests, leases or properties. As a result, our current business will be concentrated in enforcement actions against the operatorsame geographic region. Our success or failure will be dependent upon the drilling and production results of any of our resource properties or us, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.
wells identified on the offshore Israel properties.
We face significant competition and many of our competitors have resources in excess of our available resources.
The oil and natural gas industry is highly competitive. We face intense competition from a large number of independent, technology-driven companies as well as both major and other independent crude oil and natural gas companies in a number of areas such as:
| · | seeking to acquire desirable producing properties or new leases for future exploration; |
| · | marketing our crude oil and natural gas production; |
Conducting business | · | seeking to acquire the equipment and expertise necessary to operate and develop properties; and |
| · | attracting and retaining employees with certain skills. |
Many of our competitors have financial, technical and other resources substantially in foreign countries subjects usexcess of those available to special risks,us. This highly competitive environment could have an adverse impact on our business.
Risks of Oil and Natural Gas Investments
Oil and natural gas investments are highly risky.
The selection of prospects for oil and natural gas drilling, the drilling, ownership and operation of oil and natural gas wells and the ownership of non-operating interests in oil and natural gas properties are highly speculative. There is a possibility you will lose all or substantially all of your investment in us. We cannot predict whether any prospect will produce oil or natural gas or commercial quantities of oil and natural gas, nor can we predict the amount of time it will take to recover any oil or natural gas we do produce. Drilling activities may be unprofitable, not only from non-productive wells but also from wells that do not produce oil or natural gas in sufficient quantities or quality to return a profit.
Oil and natural gas prices are volatile and a reduction in these prices could adversely affect our financial condition and results of operations.
The price that we may receive for oil or natural gas production from wells in which we have no control over. an interest will significantly affect our revenue, cash flow, access to capital and future growth. Historically, the markets for oil and natural gas have been volatile and are likely to continue to be volatile in the future. The markets and prices for oil and natural gas depend on numerous factors beyond our control. These factors include:
Company’s current business strategy may involve participation in overseas projects in the resource sector. Consequently, the Company will be subject to certain risks associated with foreign ownership, including currency fluctuations, inflation, political instability and political risk. Oil, gas and other resource exploration and production activities in foreign countries may be affected in varying degrees by political stability and government regulations relating to the resource industry. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, restriction of earnings, taxation laws, expropriation of property, environmental legislation, water use and workplace safety.
Our short term investments are susceptible to market fluctuations and other risks.
We have approximately $1.4 million in cash ($0.4 million) and marketable securities ($1million fair value) as of March 31, 2009. Our marketable securities are primarily securities of publicly held Canadian corporations. The value of these securities is subject to market fluctuations as well as the specific risks of each particular issuer. Although we believe we have diversified our portfolio, we may lose some of our original investment in the event that an investment does not perform as anticipated or we are unable to hold the investment until it shows such performance.
Further, approximately $0.4 million or 33% of our investments are invested in one Canadian marketable security. While the market value of this security at March 31, 2009 was less by approximately $1.4 million than its average cost of $1.8 million, it rose to $0.54 million on June 30, 2009, the date of this report, there is no guarantee that the market price would rise to equal or exceed our cost. In the event, we are unable to or do not sell these securities on time and their market price gets adversely affected for whatever reasons, we may lose significant sum of money. We are minimising this risk by having all our investments monitored on a daily basis by consultants with substantial experience and knowledge of the investment market.
We will need to raise additional funds in the future, which may not be available to us.
The Company is currently without a source of revenue from operations and upon the investment of its current cash and liquidity, resources will most likely be required to issue additional securities to finance its operations and the development of its projects. We may not be able to obtain additional financing on acceptable terms or at all. Failure to obtain additional financing on a timely basis could cause the Company to sell or forfeit its interest in its properties and reduce or terminate its operations on such properties or discontinue operations entirely.
There is a substantial risk of dilution through possible equity financings and stock options.
Any equity or debt financings, if available at all, may cause dilution to our then-existing shareholders. If additional funds are raised through the issuance of equity securities, the net tangible book value per share of our common shares would decrease and the percentage ownership of then current shareholders would be diluted.
Additionally, the Company may in the future grant to some or all of its own and its subsidiaries' directors, officers, insiders and key consultants options to purchase the Company's common shares as non-cash incentives to those people. Such options may be granted at exercise prices equal to market prices at time when the public market is depressed or below fair market value. To the extent that significant numbers of such options may be granted and exercised, the interests of the then existing shareholders of the Company may be subject to additional dilution. | · | changes in supply and demand for oil and natural gas; |
| · | actions taken by foreign oil and gas producing nations; |
| · | political conditions and events (including political instability or armed conflict) in oil or natural gas producing regions; |
| · | the level of global oil and natural gas inventories and oil refining capacity; |
| · | the price and level of imports of foreign oil and natural gas; |
| · | the price and availability of alternative fuels; |
| · | the availability of pipeline capacity and infrastructure; |
| · | the availability of oil transportation and refining capacity; |
| · | weather conditions; |
| · | speculation as to future prices of oil and natural gas and speculative trading of oil or natural gas futures contracts; |
| · | domestic and foreign governmental regulations and taxes; and |
| · | global economic conditions. |
The effect of these factors is magnified by the concentration of our interests in Israel, where some of these forces could have disproportionate impact, such as war, terrorist acts or civil disturbances, changes in regulations and taxation policies by the Israeli government, exchange rate fluctuations, laws and policies of Israel affecting foreign investment, trade and business conduct and the availability of pipeline capacity and infrastructure.
WeA significant or extended decline in oil and natural gas prices may have a material adverse effect on our and IPC Cayman’s financial condition, results of operations, liquidity, ability to finance planned capital expenditures or ability to secure funding from industry partners.
Exploration, development and production of oil and natural gas are dependent upon our key managerial consultants, the loss of which would negativelyhigh risk activities with many uncertainties that could adversely affect our business.
Our performance depends on a small numberfinancial condition and results of key managerial consultants. In particular, we believe our success is highly dependent upon the services of our Chief Executive Officer and Chief Financial Officer, Mr. Kam Shah, as well as Mr. Terence Robinson both of whom are consultants and who have been significantly involved in locating and negotiating our resource investments. Loss of either of their services could negatively affect our business.
Our officers and directors reside outside of the United States and there is a risk that civil liabilities and judgments may be unenforceable.operations.
The Companyjoint venture’s drilling and its officersoperating activities will be subject to many risks, including the risk that commercially productive wells will not be discovered. Drilling activities may be unprofitable, not only from dry holes but also from productive wells that do not generate sufficient revenues to return a profit. In addition, drilling and all but one of its directors are residents of countries other than the United States, and most of the Company's assets are located outside the United States. Asproducing operations may be curtailed, delayed or canceled as a result it may not be possible for investors to effect service of process within the United States upon such persons or enforce in the United States against such persons judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of United States federal securities laws or state securities laws.other factors, including:
Risk Factors Relating | · | environmental hazards, such as natural gas leaks, pipeline ruptures and spills; |
| · | fires; |
| · | explosions, blowouts and cratering |
| · | unexpected or unusual formations; |
| · | pressures; |
| · | facility or equipment malfunctions; |
| · | unexpected operational events; |
| · | shortages of skilled personnel; |
| · | shortages or delivery delays of drilling rigs and equipment; |
| · | compliance with environmental and other regulatory requirements; |
| · | adverse weather conditions; and |
| · | natural disasters. |
Any of these risks could adversely affect operations or result in substantial losses as a result of personal injury or loss of life; severe damage to Our Common Shares
Our share price has been volatile in the pastor destruction of property and may decline in the future.
In recent years, the securities markets in Canadaequipment; pollution; environmental contamination; repair and the United States have experienced a high levelremediation costs; loss of pricewells; and volume volatility,regulatory fines and the market prices of securities of many companies, particularly small mineral exploration companies like the Company, have experienced wide fluctuations which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. Our shares may continue to experience significant market price and volume fluctuations in the future in response to factors, which are beyond our control.
Shares eligible for future sale may depress our stock price.
At March 31, 2009, we had approximately 31 million shares of common stock outstanding. We also have approximately 13.8 million and 4.8 million shares of commons stock issuable under presently exercisable warrants and options, respectively, All such shares except one million warrants, are registered pursuant to an effective registration statement under the Act and are eligible for resale in the public market. Sales of shares of common stock pursuant to an effective registration statement or under Rule 144 or another exemption under the Actpenalties. Uninsured liabilities could have a material adverse effect on the priceour financial condition and results of our common stock and could impair our ability to raise additional capital through the sale of equity securities.
We do not intend to pay dividends.operations.
All of the Company's available fundsWe will be investedsubject to financevarious governmental regulations which may result on material liabilities and costs.
Political developments and laws and regulations will affect the growth ofoffshore Israel project. In particular, price controls, taxes and other laws relating to the Company's businessoil and therefore investors cannot expectnatural gas industry, changes in these laws and should not anticipate receiving a dividend on the Company's common shareschanges in administrative regulations have affected and in the foreseeable future.future could affect oil and natural gas production, operations and economics. We cannot predict how agencies or courts in the State of Israel
will interpret existing laws and regulations or the effect these adoptions and interpretations may have on our business or financial condition.
We and our joint venture partners are subject to laws and regulations promulgated by the State of Israel
relating to the exploration for, and the development, production and marketing of, oil and natural gas, as well as safety matters. Legal requirements can change and are subject to interpretation and we are unable to predict the ultimate cost of compliance with these requirements or their effect on the offshore Israel project. We and our joint venture partners may be required to make significant expenditures to comply with governmental laws and regulations.
We and our joint venture partners are subject to Israeli environmental laws and regulations. Because of the recent nature of the discoveries in the eastern Mediterranean and the absence of production, there has not been consideration of the impact that operations in this area may have on environmental laws and regulations, which could be changed in ways that could negatively impact the offshore Israel project. The discharge of natural gas, oil, or other pollutants into the air, soil or water may give rise to significant liabilities and may require us and our joint venture partners to incur substantial costs of remediation. In addition, we and our joint venture partners may incur costs and penalties in addressing regulatory agency procedures involving instances of possible non-compliance. The financial implications, i f any, cannot be estimated at this stage.
Potential regulations regarding climate change could alter the way the joint venture conducts business.
As awareness of climate change issues increases, governments around the world are beginning to address the matter. This may result in new environmental regulations that may unfavourably impact us and our joint venture partners. The cost of meeting these requirements may have an adverse impact on our financial condition, results of operations and cash flows.
The potential lack of availability or high cost of drilling rigs, equipment, supplies, personnel and other oil field services could adversely affect the joint venture’s ability to execute exploration and development plans on a timely basis and within budget.
From time to time, there is a shortage of drilling rigs, equipment, supplies or qualified personnel in the oil and natural gas industry. During these periods, the costs of rigs, equipment and supplies are substantially greater and their availability may be limited, particularly in international locations that typically have more limited availability of equipment and personnel, such as Israel. During periods of increasing levels of exploration and production in response to strong demand for oil and natural gas, the demand for oilfield services and the costs of these services increase. Additionally, these services may not be available on commercially reasonable terms.
Risks Related to the Manager of IPC Cayman
The loss of IPC Cayman’s manager could adversely affect our business.
International Three Crown Petroleum LLC is the sole director of IPC Cayman and H. Howard Cooper is the manager of International Three Crown Petroleum LLC. Mr. Cooper has significant experience in developing international oil and gas projects. While the joint venture plans to retain an international operator, consultants and contractors with extensive experience in managing and operating these kinds of international projects, Mr. Cooper’s unavailability for any reason could negatively impact our business and representation of our interests on the steering committee.
The manager of IPC Cayman will have most powers relating to management of the project.
Under the agreement between us and International Three Crown Petroleum LLC, we have limited authority to participate in the management of IPC Cayman. Our rights as the holder of a majority of the shares of IPC Cayman will include the right to approve:
| · | Expansion of the scope of IPC Cayman’s business beyond the acquisition, development and potential farm out or sale of the Mira and Sarah licenses and any other oil and gas exploration and development activity within the offshore or onshore areas of the State of Israel; |
| · | Sale or merger of IPC Cayman or sale or other disposition of all or substantially all of the assets of IPC Cayman (other than a sale or farm out to an industry partner in connection with a commitment to conduct exploratory or development operations on the licenses and permit); |
| · | Admit additional owners to IPC Cayman; |
| · | Enter into any contract or agreement between IPC Cayman and International Three Crown Petroleum LLC or any affiliate; |
| · | Modify any compensation arrangement between IPC Cayman and International Three Crown Petroleum LLC and any affiliate; and |
| · | Amend the organizational and internal operating documents of IPC Cayman. |
Other than those specified rights, International Three Crown Petroleum LLC as the sole director of IPC Cayman will have the right to make operational decisions with respect to matters affecting the exploration and development of the licenses, including farming out or otherwise disposing of interests to third parties who will agree to assume the obligations to conduct required exploratory and development operations at their cost.
There is no guarantee that IPC Cayman will make cash distributions to its owners, including us.
Cash distributions are not guaranteed and will depend on future drilling and operating activities and performance of the offshore Israel project. The director of IPC Cayman has the authority to authorize and to make any distributions to its stockholders at such times and in such amounts as the director deems advisable. You may receive little or no return on your investment in us.
Conflicts of interest may arise.
Conflicts of interest may arise because of the relationships between and among IPC Cayman, International Three Crown Petroleum LLC and us. The interests of International Three Crown Petroleum LLC may not coincide with the interests of us and our shareholders. In addition, International Three Crown Petroleum LLC and its majority member, H. Howard Cooper, may experience conflicts of interest in allocating their time and resources between IPC Cayman and other businesses, including other oil and gas projects. The organizational documents do not restrict International Three Crown Petroleum LLC and its affiliates from engaging in other business activities or specify any minimum amount of time that International Three Crown Petroleum LLC and its affiliates are required to devote to IPC Cayman.
Risks Related to Ownership of our Stock
There is currently a limited trading market for our common shares.
There currently is a limited public market for our common shares. Further, although our common shares are currently quoted on the OTC Bulletin Board, trading of our common shares may be extremely sporadic. As a result, an investor may find it difficult to sell, or to obtain accurate quotations of the price of, our common shares. There can be no assurance that a more active trading market for our common shares will develop. Accordingly, investors must assume they may have to bear the economic risk of an investment in our common shares for an indefinite period of time.
Risks related to penny stocks.
Our common stock isshares are subject to penny stock rules.regulations prescribed by the SEC relating to “penny stock.” These regulations impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (as defined in Rule 501 of the U.S. Securities Act of 1933). These regulations could adversely impact market demand for our shares and adversely impact our trading volume and price.
The issuance of common shares upon the exercise of our outstanding warrants and options will dilute the ownership interest of existing stockholders and increase the number of shares eligible for future resale.
The capital stockexercise of some or all of our outstanding warrants and options could significantly dilute the Company wouldownership interests of our existing shareholders. As of March 31, 2010, we had outstanding warrants to purchase an aggregate of 59,701,420 common shares and outstanding options to purchase an aggregate
of 4,825,000 common shares. To the extent the warrants and options are exercised, additional common shares will be classified as “penny stock” as defined in Reg. § 240.3a51-1 promulgated underissued and that issuance will increase the Securities Exchange Actnumber of 1934 (the “1934 Act”). In response to perceived abuseshares eligible for resale in the penny stock market generally, the 1934 Act was amended in 1990 to add new requirements in connection with penny stocks. In connection with effecting any transaction inpublic market. The sale of a penny stock, a broker or dealer must give the customer a written risk disclosure document that (a) describes the nature and levelsignificant number of risk in the market for penny stocks in both public offerings and secondary trading, (b) describes the broker’s or dealer’s duties to the customer and the rights and remedies available to such customer with respect to violations of such duties, (c) describes the dealer market, including “bid” and “ask” prices for penny stock and the significance of the spread between the bid and ask prices, (d) contains a toll-free telephone number for inquiries on disciplinary histories of brokers and dealers, and (e) define significant terms used in the disclosure documentshares by our shareholders, or the conductperception that such sales could occur, could have a depressive effect on the public market price of trading in penny stocks. In addition, the broker-dealer must provideour common shares.
We expect to raise additional funds by issuing our stock which will dilute your ownership.
We expect that we will likely issue a penny stock customer a written monthly account statement that discloses the identity andsubstantial number of shares of each pennyour capital stock held in the customer’s account, andfuture. Under these arrangements, we may agree to register the estimated market valueshares for resale soon after their issuance. The sale of such shares. The extensive disclosure and other broker-dealer compliance related to penny stocks may result in reducing the level of trading activity in the secondary market for such stocks, thus limiting the ability of the holder to sell such stock.
Your rights and responsibilities as a shareholder will be governed by Canadian law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.
We are incorporated under Ontario Canada law. The rights and responsibilities of holders of ouradditional shares are governed by our memorandum of association, our articles of association and by Canadian law. These rights and responsibilities may differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations.
Changing regulation of corporate governance and public disclosure can cause additional expenses and failure to comply may adversely affect our reputation andcould lower the value of our securities.your shares by diluting your ownership interest in us and reducing your voting power. Shareholders have no pre-emptive rights.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and new and changing provisions of Canadian securities laws, are creating uncertainty because of the lack of specificity and varying interpretations of the rules. As a result, the application ofCompliance with the rules may evolve over time as new guidance is providedestablished by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisionsthe SEC pursuant to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Any failure to comply with applicable laws may materially adversely affect our reputation and the value of our securities.
If we fail to comply with Section 404 of the Sarbanes-Oxley Act of 2002 are complex. Failure to comply in a timely manner could adversely affect investor confidence and our reputation andstock price.
Rules adopted by the value of our securities may be adversely affected.
Beginning with our annual report for the year ending March 31, 2008,SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 will require us to includeperform an internal control report of management with our annual report on Form 20-F, which is to include management’s assessment of our internal controls over financial reporting and certify the effectiveness of ourthose controls. The standards that must be met for management to assess the internal controlcontrols over financial reporting as ofnow in effect are complex, and require significant documentation, testing and possible remediation to meet the end of the fiscal year. Effective at the fiscal year 2010 that report will also be requireddetailed standards. We may encounter problems or delays in completing activities necessary to include a statement that our independent auditors have issuedmake an attestation report on management’s assessment of our internal controlcontrols over financial reporting. In order to achieve compliance with Section 404 withinIf we cannot perform the prescribed period, management had already completed its initial assessment and subsequent updates of the adequacy ofor certify that our internal controlcontrols over financial reporting validated through testing that controls were functioning as documented, remediated any control weaknesses that were identified,are effective, investor confidence and implemented a continuous reporting and improvement process for internal control over financial reporting. Any failure to obtain the attestation report on management’s assessment from our independent auditors,share value may materially adversely affect our reputation and the value of our securities.be negatively impacted.
IfYour investment return may be reduced if we lose our status as a foreign private issuer our compliance costs will increase.status.
We are a "foreign“foreign private issuer"issuer,” as such term is defined in Rule 405 under the Exchange Act. As a result, our proxy solicitations are not subject to the disclosureU.S. Securities Act of 1933, and, procedural requirements of Regulation 14A under the Exchange Act and transactions in our equity securities by our officers and directors are exempt from Section 16 of the Exchange Act. In addition,therefore, we are not required under the Exchange Act to file periodicquarterly reports on Form 10-Q or current reports on Form 8-K with the SEC. In addition, the proxy rules and financial statements as frequently or as promptly as U.S. companies whose securitiesSection 16 reporting and short-swing profit recapture rules are registered under the Exchange Act.not applicable to us. If we lose our status as a foreign private issuer by our election or otherwise, we will be subject to additional reporting obligations under the Exchange Act which could increase our cost of operations.SEC compliance costs.
We may be treated as a passive foreign investment company for U.S. tax purposes, which could subject United States investors to significant adverse tax consequences.
A foreign corporation will be treated as a passive foreign investment company, or PFIC, for U.S. federal income taxation purposes, if in any taxable year either: (a) 75% or more of its gross income consists of passive income; or (b) 50% or more of the value of the company’s assets is attributable to assets that produce, or are held for the production of, passive income. Based on our current income and assets and our anticipated future operations, we believe that we currently are not a PFIC. U.S. stockholders of a PFIC are subject to a disadvantageous U.S. income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC. Because PFIC status is a fact-intensive determinati on made on an annual basis, no assurance can be given that we are not or will not become classified as a PFIC. The PFIC rules are extremely complex. A U.S. person is encouraged to consult his or her U.S. tax advisor before making an investment in our shares.
U.S. shareholders may not be able to enforce civil liabilities against us.
We are a corporation organized under the laws of the Province of Ontario, Canada. Most of our directors and executive officers are non-residents of the United States. Because a substantial portion of their assets and currently all of our assets are located outside the United States, it may not be possible for you to effect service of process within the United States upon us or those persons. Furthermore, it may not be possible for you to enforce against us or them in the United States, judgments obtained in U.S. courts based upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States. There is doubt as to the enforceability, in original actions in Canadian courts, of liabilities based upon the U.S. federal securities laws an d as to the enforceability in Canadian courts of judgments of U.S. courts obtained in actions based upon the civil liability provisions of the U.S. federal securities laws.
ITEM 4 – INFORMATION ON THE COMPANY
(A) HISTORY AND DEVELOPMENT OF THE COMPANY
We are a Canadian corporation incorporated under the laws of the Province of Ontario. SinceOntario in 1973 under the original name of Kamlo Gold Mines Limited. We were inactive until 1985. Between 1986 and 1992, our company was involved in the development of a new technology for the marine propulsion business. During this period, our company went through three name changes.
Between 1993 and 1996, our company was involved in the distribution and manufacture of a snack food. During this period, our company went through two more name changes.
Our company remained inactive after the closure of the snack food business in November 1996 until December 1998 when we changed our name to Dealcheck.com Inc. and agreed on a new business strategy. This strategy focused on investing in new and emerging technology oriented projects and businesses. In 1999, our company raised $3.2 million, which we invested in various projects and companies over the next two years as per the new business strategy of our company. Unfortunately, the IT sector performed poorly since 2001 and new and emerging technology-based businesses suffered significant losses, financial problems and bankruptcies. These factors adversely affected our company’s investments and its profitability. Our company had to write off all its investments by the end of the fiscal 2003.
In April 2003, we have been a diversifiedour company changed its business focus to the natural resource industry and completed a private placement of approximately 8.9 million common shares, raising approximately USD $3.1 million. These funds were primarily invested in projects involving oil and gas exploration and diamond mining projects in Brazil between April 2003 and September 2005.
Diamond mining operations discontinued in December 2004. Our company that invests in exploration, development and exploitation projects worldwide through our wholly-owned subsidiaries by acquiring joint venture, indirect and direct participation interests and working interests in those projects. During the fiscal year 2006, we sold our indirect participationits interest in an oil exploration project and wrote offin Papua New Guinea in July 2005 for USD $3.2 million. Our company’s cost of this project was approximately USD $1.6 million. Further, in October 2004, our company acquired a working interest in a gas exploration project owing toin Louisiana, USA. Between March 2005 and September 2005, our company invested approximately $3.9 million as its share of exploration costs. The exploration, however, proved a dry test well. We currently do not own any interestswell and was therefore abandoned and the costs incurred were fully written off in any oil or gas project or any natural resource project. We are currently seeking business opportunities all sectors including Resource, Healthcare and High technology. We have approximately $1.4 million in cash ($0.4 million) and marketable securities ($1 million) as of March 31, 2009.December 2005.
We were originally incorporated under the Business Corporation Act (Ontario) in 1973 under the name Kamlo Gold Mines Limited and went through multiple name changes and five major changes inSince 2006, our business activities including a marine propulsion business, a snack food business, and an emerging technology investments business. Details of these changes are provided in our Registration Statement on Form 20-F dated June 12, 2000 and a summary is provided in our Annual Report on Form 20-F dated August 29, 2006. On April 21, 2003, we changed our name to "Bontan Corporation Inc." when we adopted our business strategy to focus on the natural resource sector. During the fiscal 2009, we reviewed severalcompany has been actively pursuing oil and gas exploration and development projects but were unableWe found many projects to successfully participate as some projects were foundbe too expensive while others did not meet our technical due diligence. We therefore began looking into business opportunitiesIn November 2009, we acquired (through our wholly owned subsidiary) an indirect 71.63% working interest in other sectors, especially healthtwo drilling licenses and pharmaceutical and internet and high technology. We reviewed several acquisition proposalsone exploration permit in the areasLevantine Basin, approximately 40 kilometers off the west coast of emerging high technologies, mobile applicationsIsrael. The two drilling licenses, Petroleum License 347 (“Mira”) and healthPetroleum License 348 (“Sarah”), cover approximately 198,000 acres of submerged land, and medical devices, record keeping and generic drugs. Unfortunately, these proposals were too capital intensive and involved long term commitments without any hopethe exploration permit, Petroleum Preliminary Permit 199 (“Benjamin”), covers approximately 461,000 acres of commercial success. The significant deteriorationsubmerged land adjacent to the land covered by the licenses. Our working interest was held in the market conditions affected business viabilityform of manya 75% equity interest in IPC Cayman, a Cayman Islands limited company that was formed to explore and develop the properties off the coast of Israel. Subsequently, disputes arose with respect to the transfer of rights in the two drilling licenses and the exploration permit to IPC Cayman and the Benjamin permit was lost in February 2010 due to the failure to timely submit the required seismic data to the Israel Petroleum Commissioner. In March 2010, IPC Cayman entered into an Allocation of Rights and Settlement Agreement with the Lead Investors and others under which, among other things, the Lead Investors acquired a greater than 50% working interest in the Mira and Sarah licenses for approximately USD $16.2 million. The sale proceeds were used primarily used to pay for the seismic data relating to the two drilling licenses and the permit and to settle various disputes with PetroMed Corporation, the original registered owner of a 95.5% working interest in the two drilling licenses and the permit.
Under the terms of an agreement dated April 14, 2010, International Three Crown Petroleum LLC is deemed to own a 23.21% equity interest in IPC Cayman represented by 2,321 ordinary shares of IPC Cayman and Bontan is deemed to own a 76.79% equity interest in IPC Cayman represented by 7,679 ordinary shares of IPC Cayman. Allied Ventures Incorporated is deemed not to have owned or to ever have owned any equity interest in IPC Cayman.
As a result, we now own an indirect 11% working interest in the two drilling licenses through our 76.79% equity interest in IPC Cayman. International Three Crown Petroleum LLC owns the balance of the proposed projects23.21% equity interest in IPC Cayman and we decided notis representing our interest in the offshore Israel project through its participation in the steering committee that has been formed to riskgovern activities with respect to the two drilling licenses. This interest has further reduced to 10.45% owing to sale of 5% of the interest to the Operator.
In connection with the acquisition of our limited resources but rather waitequity interest in IPC Cayman and as consideration for the economic conditionsPetroMed Corporation’s sale of its interest in the licenses and permit in November 2009, we originally paid to improvethe seller USD $850,000 in cash, 8,617,686 common shares and a 7-year warrant to purchase 22,853,058 common shares, and paid USD $500,000 to International Three Crown Petroleum LLC. In addition, we issued a 5-year warrant to purchase up to 5,000,000 common shares to International Three Crown Petroleum LLC and a 5-year warrant to purchase up to 2,000,000 common shares to Allied Ventures Ltd. These 5-year warrants have an exercise price of USD $0.35 per share and cashless exercise option. Under the Allocation of Rights and Settlement Agreement, we cancelled the 8,617,686 common shares and the w arrant to purchase 22,853,058 common shares issued to PetroMed Corporation.
To cover a portion of our acquisition costs, we also issued promissory notes in the aggregate principal amount of USD $975,000, together with 5-year warrants to purchase a total of 1,125,000 common shares at an exercise price of USD $0.35 per share. The notes bear an interest rate of 10% per year and are due and payable in November 2010. One note is secured by a pledge of our 1,125 shares of IPC Cayman.
In addition, we have paid USD $1.5 million to IPC Cayman for less capital intensiveits operational costs and commercially ready projects. We intendapproximately USD $2 million to aggressively seek opportunities in these sectors and become operational again in fiscal 2010.Western Geco International Ltd. towards the cost of the seismic data.
The Company’sOur company’s registered office is situated at 47 Avenue Road, Suite 200 Toronto, Ontario, Canada M5R 2G3. The Company isWe are a reporting issuer in the provincesprovince of Ontario. The Company’s shares have been listed on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “BNTNF” in the United States.
The following is a summary of our key past events:
a. | The Company was incorporated under the name “Kamlo Gold Mines Limited and remained an inactive shell from the date of incorporation to 1985. |
b. | Between 1986 and 1982, the Company was involved in the development of a new technology for the marine propulsion business. During this period, the Company went through three name changes. |
c. | Between 1993 and 1996, the Company was involved in the distribution and manufacture of a snack food. During this period, the Company went through two more name changes. |
d. | | The Company remained an inactive shell since the closure of snack food business in November 1996 until December 1998 when it changed its name to Dealcheck.com Inc. and agreed on a new business strategy. This strategy focused on investing in new and emerging technology oriented projects and businesses. |
e. | | In 1999, the company successfully raised $3.2 million, which were invested in various projects and companies over the next two years as per the new business strategy of the company. Unfortunately, IT sector performed poorly since 2001 and new and emerging technology-based businesses suffered significant losses, financial problems and bankruptcies. These factors adversely affected the company’s investments and its profitability. The company had to write off all its investments by the end of the fiscal 2003. |
f. | | In April 2003, the Company changed its business focus to resource industry based on the recommendations of its shareholders in the last shareholders’ meeting. At that time, the Company commenced and successfully completed a private placement of approximately 8.9 million common shares, raising approximately US$3.1 million. These funds were primarily invested in projects involving oil and gas exploration and diamond mining projects in Brazil between April 2003 and September 2005, |
g. | | Diamond mining operations discontinued in December 2004. The company sold its interest in an oil exploration project in Papua New Guinea in July 2005 for US$3.2 million. The Company’s cost of this project was approximately US$1.6 million. Further, in October 2004, the company acquired working interest in gas exploration project in Louisiana, USA. Between March 2005 and September 2005, the company invested approximately $3.9 million as its share of exploration costs. The exploration however proved a dry well and was therefore abandoned and the costs incurred were fully written off in December 2005. |
h. | | since then, the Company has been actively pursuing projects in all sectors but has so far been unable to find one which it can participate into. |
(B) BUSINESS OVERVIEW
Our long term business plan is focused on participatingWe invest in a business activity in any sector which can provide opportunities to increase the valueexploration and development of our shareholders equity. While our thrust is still aimed towards oil and gas sector,wells. We focus on partnering with established developers and operators. We have never had any oil and gas operations and do not currently own any oil and gas properties with proven reserves. We are currently focused on the offshore Israel project which currently includes the Mira and Sarah licenses. We currently are not seeking to acquire additional property interests in Israel or any other region or to pursue other business opportunities. Our goal is to advance offshore Israel project to the drilling stage aggressively, as prudent financing will allow us to determine the presence of oil or natural gas. If we have now begun reviewing business proposalsare successful in alternative energy sector, healthcare and pharmaceutical sector and Internet and high technology sector. Indoing so, we believe our views all these sectors provide business opportunities which will meet our mandate of enhancing shareholders’ equity in a long run.
Through our wholly-owned subsidiary, we will continue to seek highly visible opportunities in countries around the globe that offer exciting and attractive propositions. We will seek to minimize risk by bringing in either joint venture carriedpartners can attract the attention of the existing oil and gas companies already o perating in the region or working interest partners, dependingnew oil and gas companies to enter into a development agreement or farm out agreement.
Background and Status of Offshore Israel Project
On October 15, 2009, International Three Crown Petroleum LLC entered into an option agreement with PetroMed Corporation under which International Three Crown Petroleum LLC was granted the right to purchase all of PetroMed Corporation’s rights in the Mira and Sarah licenses and the Benjamin permit. On November 18, 2009, the right to purchase was exercised, and as part of the closing, PetroMed Corporation was paid the contractual consideration and PetroMed Corporation provided IPC Cayman,
International Three Crown Petroleum’s designee, with irrevocable deeds of assignment with respect to each of the licenses and permit.
Under Section 76(a) of the Israel Petroleum Law, the permit may be transferred only with the permission of the Petroleum Commissioner and the licenses may be transferred only with the permission of the Petroleum Commissioner and after the Petroleum Commissioner’s consultation with the Petroleum Council. Accordingly, on January 18, 2010, IPC Cayman filed applications with the Petroleum Commissioner to transfer the licenses and permit, with the application to transfer the permit also including an application to be granted a license based on the sizepermit and scaleit’s attending priority rights.
PetroMed Corporation sent an e-mail to IPC Cayman and the Petroleum Commissioner on January 17, 2010, purporting to ‘rescind’ the PetroMed transaction and has, to the best of IPC Cayman’s knowledge, further addressed the project.Petroleum Commissioner with claims that the Petroleum Commissioner deny the
Itapplications. In addition, IPC Cayman received verbal indication from the Petroleum Commissioner that the permit would lapse at the end of its term on February 5, 2010, and the Petroleum Commissioner would not approve the conversion of the permit into a license. Thereafter, PetroMed Corporation communicated its withdrawal of rescission to the Petroleum Commissioner with respect to the request to transfer the permit and convert it into a license and requested that the Petroleum Commissioner place the request for conversion of the permit before the Petroleum Council.
On January 19, 2010, PetroMed Corporation filed a complaint in the U.S. District Court for the Western District of Washington against Bontan, Howard Cooper and Three Crown Petroleum, LLC. The complaint requested, among other things, rescission of PetroMed Corporation’s assignment of its 95.5% interest in the Mira and Sarah licenses and Benjamin permit to IPC Cayman and a declaration that the contracts with the defendants are null and void.
On February 12, 2010, International Three Crown Petroleum LLC and IPC Cayman filed a complaint in the Denver, Colorado District Court against PetroMed Corporation and other defendants. International Three Crown Petroleum LLC and IPC Cayman alleged that the defendants were actively interfering with IPC Cayman’s application before the Israel Ministry of Natural Infrastructure for transfer to IPC Cayman of PetroMed Corporation’s 95.5% interest in the Mira and Sarah licenses and Benjamin permit. In the lawsuit, International Three Crown Petroleum LLC and IPC Cayman were seeking, among other matters, temporary, preliminary and permanent injunctive relief in order to avoid real, immediate and irreparable harm to International Three Crown Petroleum LLC and IPC Cayman resulting from the defendants’ alleged wrongful conduct. The lawsuit also requested damages for defendants’ alleged multiple tortuous acts and materials breaches of contracts, and a declaration of the parties’ rights and obligations under the contracts.
International Three Crown Petroleum LLC had informed us that, in light of the dispute as to ownership of the Mira and Sarah drilling licenses and the Benjamin exploration permit, the Petroleum Commissioner had declined to transfer the licenses and permit to IPC Cayman and had indicated to IPC Cayman that he would be terminating the permit and possibly the licenses.
Separately, because Western Geco International had not been paid its $12.5 million in full, it refused to turn over the seismic data and its interpretation to IPC Cayman. Failure to deliver the seismic data and its interpretation to the Petroleum Commissioner would be a default under the permit and licenses that could lead to their termination by the Petroleum Commissioner.
To settle the disputes and to ensure that the future of the offshore Israel project is not jeopardized, we and IPC Cayman accepted an offer from two Israeli investors with significant financial and local influence to join the project as major partners. The major partners (or Lead Investors) in the offshore Israel project are Emanuelle Energy Ltd. and IDB-DT Energy (2010) Ltd. Mr. Ofer Nimrodi controls Emanuelle Energy Ltd. and is a director and CEO of Tel Aviv-based Israel Land Development Company Ltd. IDB-DT Energy (2010) Ltd. Is a joint venture of IDB Development Corporation Ltd., which is affiliated with Avraham Livnat Company, and Du-Tzah Ltd., which is affiliated with Manor Holdings and Yitzak “Zachi” Sultan.
On March 25, 2010, International Three Crown Petroleum LLC, IPC Cayman, PetroMed Corporation, Emanuelle Energy Ltd., IDB-DT Energy (2010) Ltd. and others entered into an Allocation of Rights and Settlement Agreement. This agreement provides for, among other things:
| · | The dismissal of certain lawsuits and mutual release of claims among the parties; |
| · | The payment by the Lead Investors of: (i) $10.5 million to Western Geco International Ltd. for the release of 2D and 3D seismic data relating to the Mira and Sarah licenses, (ii) Aproximately $5.7 million to settle certain liabilities of PetroMed Corporation and to acquire its controlling interest. |
| · | A new allocation of working interests in the offshore Israel project as follows: 14.325% to IPC Cayman; 27.15% to IDB-DT Energy (2010) Ltd.; and 54.025% to Emanuelle Energy Ltd.; |
| · | With respect to IPC Cayman’s 14.325% working interest, an allocation of 11% to Bontan and 3.325% to International Three Crown Petroleum LLC; |
| · | For purposes of the application to effect the transfer of rights in the Mira and Sarah licenses, the Lead Investors to prove (without incurring any actual monetary obligation) the financial capability requirement under Israel Petroleum law in respect of IPC Cayman’s interest in the licenses; |
| · | The grant of overriding royalty interests, totaling 11.5%, to certain persons, including 1% to an affiliate of Mr. Cooper and 2% to Israel Land Development Company Ltd. and IDB-DT Energy (2010) Ltd.; |
| · | The cancellation of the common shares and warrants of Bontan issued to PetroMed Corporation in November 2009; and |
| · | The formation of steering committee composed of two representatives of the Lead Investors and one representative of IPC Cayman, to manage the project with respect to the Mira and Sarah licenses. |
Under the Allocation of Rights and Settlement Agreement, the Lead Investors have agreed, for purposes of the application to effect the transfer of the rights in the Mira and Sarah licenses, to prove (without incurring any actual monetary obligation) the financial capability requirement under Israel Petroleum Law in respect of IPC Cayman’s interest in the licenses. This obligation will continue until the earlier of (i) five months from the registration of the licenses in the names of the Lead Investors and IPC Cayman in accordance with their respective ownership interests or (ii) June 30, 2011. If IPC Cayman fails to establish its independent financial capability after this obligation ends, IPC Cayman must elect one of the following options (on a licensee by license basis):
| 1) | IPC Cayman may offer to sell to the Lead Investors its ownership interest in the license for which it has not established financial capability for a purchase price of $240,000 per each 1% ownership interest; |
| 2) | IPC Cayman may contract to sell, farmout or otherwise dispose of its ownership interest in the applicable license and the Lead Investors have the right of first refusal to acquire any or all of the interest; or |
| 3) | IPC Cayman will be obligated to participate in the first well drilled under the applicable license by paying 200% of its share of the drilling costs and if it fails to do so, IPC Cayman will forfeit its ownership interest in the applicable license. |
If IPC Cayman fails to complete option 1 or 2 within 60 days after the Lead Investors’ obligation ends, it will be deemed to have elected option 3 above. As between us and International Three Crown Petroleum LLC, if we fail to establish financial capability to the extent of our current beliefproportionate ownership of IPC Cayman, then International Three Crown Petroleum LLC can establish such financial capability on behalf of IPC Cayman and the ownership of IPC Cayman will be readjusted to reflect the acquisition by International Three Crown Petroleum LLC of our interest in the applicable license.
In a letter dated May 16, 2010, Petroleum Commissioner confirmed that the two licenses are fully valid and approved changes in the work plan submitted by the steering committee. The Petroleum Commissioner approved deadlines for submitting various work plans between July 15, 2010 and March 31, 2011. With respect to the financial capability requirement for approval of the transfer of rights, the Petroleum Commissioner has indicated that the joint venture partners must demonstrate liquidity equal to at least half of the cost of the first well drilling, which we estimate to be approximately USD $50 million.
On May 19, 2010, Geoglobal Resources (India) Inc. was appointed operator for the Mira and Sarah licenses, subject to the execution of a joint operating agreement. The operator is a wholly owned subsidiary of Geoglobal Resouces Inc.,(“Geoglobal”) a public company headquartered in Calgary, Alberta Geoglobal is primarily engaged since 2002 in exploration and development of oil and gas reserves – both on shore and off shore – in India. It has exploration rights through production sharing contracts in four offshore and onshore geological basins covering approximately 1.7 million net acres. The operator will acquire a 5% working interest in the Mira and Sarah licenses pro rata from the Lead Investors and IPC Cayman for USD $1.2 million. As a result of such acq uisition, our indirect working interest has decreased to 10.45%. The operator also will have an option to acquire an additional 2.5% working interest in one or both licenses pro rata from the Lead Investors and IPC Cayman. In addition, the operator will have the right of representation on the steering committee. The joint venture partners expect to enter into a joint operating agreement with the operator by July 2010.
The joint venture partners and the operator also entered into an option agreement dated as of May 19, 2010. Under this option agreement, the joint venture partners have the option to purchase up to a 12.5% ownership interest in an offshore drilling license known as the Samuel license, subject to the license being granted to the operator by the Israel Petroleum Commissioner. The Samuel license has now been
granted to the operator, together with other partners, Bontan’s subsidiary, IPC Cayman is now entitled to acquire 2.72% of the Samuel license, of which Bontan’s share would be 2.09% and the minority shareholder of IPC Cayman will be entitled to the balance 0.63%.
the operator will have the right to increase its working interest in the Mira and Sarah licenses by an additional 2.5%.
On May 20, 2010, the joint venture partners submitted an application to the Israeli Petroleum Commissioner to approve the transfer and registration of the rights in the Mira and Sarah licenses. The approval was granted on June 16, 2010.
The Benjamin permit originally held by PetroMed Corporation and acquired by IPC Cayman expired in February 2010 because the required seismic data was not timely submitted to the Petroleum Commissioner. The Israeli Ministry of Petroleum has invited new applications for licenses covering the same area as the original Benjamin permit. The Lead Investors and IPC Cayman have paid for and obtained the required 2D seismic data for this application and submitted an application for Michael license on May 20, 2010. On June 16, 2010, The Israeli Ministry of Petroleum informed the lead investors that their application for Michael license was not approved.
Assuming the execution of a high priority all overjoint operating agreement among the worldjoint venture partners and especiallythe operator, 100% of the rights and interests in North America. Higher price levels for both these natural resourcesthe Mira and Sarah licenses will be allocated as follows:
13.609% to IPC Cayman; 24.282% to IDB-DT Energy (2010) Ltd.; 48.322% to Emanuelle Energy Ltd.; 8.788% to PBT Capital Partners, LLC; and 5% to Geoglobal Resources (India) Inc. The current members of the steering committee are three – one each from IDB-DT, Emanuelle and IPC Cayman. Mr. Howard Cooper current represents IPC Cayman. Additional members may be admitted to represent the Operator and PBT Capital Partners LLC. Resolutions of the steering committee are determined by a vote of members representing at least a majority of the working interests, calculated on a license–by-license basis.
Manager of Offshore Israel Project
International Three Crown Petroleum LLC is the sole director of IPC Cayman and owns a 23.21% equity interest in IPC Cayman. The majority member and principal of International Three Crown Petroleum LLC is H. Howard Cooper.
H. Howard Cooper is currently the manager of International Three Crown Petroleum, which have occurred overserves as the past few months have encouraged new drilling activities. Our past experience with our twosole director of IPC Cayman. Mr. Cooper is also the manager Power Petroleum LLC. International Three Crown Petroleum was formed by Mr. Cooper in 2005 to identify and purchase oil and gas projects enables us to more efficiently select and evaluate potential exploration projectsleases, primarily in the oilU.S. Rocky Mountain Region. Power Petroleum, which was formed by Mr. Cooper in 2007, puts drilling prospects together in Colorado, Montana, Utah and gas sector than inNorth Dakota. From 1996 until February 2005, Mr. Cooper was the other resource sectors.chairman of the board of directors of Teton Energy Corporation, a
U.S. publicly traded company formerly known as Teton Petroleum Company. Mr. Cooper also served as president and CEO of Teton from 1996 until May 2003. During the past several months, we have received without solicitation opportunities to participatehis tenure with Teton, Teton primarily engaged in oil and gas exploration, projectsdevelopment, and production in Western Siberia, Russia. Prior to joining Teton, Mr. Cooper served as a resultdirector and president of our past involvementAmerican Tyumen, a company he founded in similar projects.1996 and which shortly thereafter merged with Teton. From 1994 to 1995, Mr. Cooper was a principal with Central Asian Petroleum, an oil and gas company with its primary operations in Kazakhstan. From 1992 to 1994 Mr. Cooper served with AIG, an insurance group in New York, evaluating oil and gas projects in Russia. From 1981 - 1991, Mr. Cooper was an independent landma n developing oil and gas opportunities in the U.S. Rocky Mountain Region.
Under a stockholders agreement, we have limited authority to participate in the management of IPC Cayman. International Three Crown Petroleum LLC as the sole director of IPC Cayman will have the right to make operational decisions with respect to matters affecting the exploration and development of the licenses and permit, including farming out or otherwise disposing of interests to third parties who will agree to assume the obligations to conduct required exploratory and development operations at their cost.
Therefore, our current business model, based on our experience with resource projects handled over the recent past and our assumptions set forth above, envisionsThe director must get prior written approval of stockholders holding a majority of shares of IPC Cayman to take any of the following key features:actions:
| · | a. | Preference willExpansion of the scope of IPC Cayman’s business beyond the acquisition, development and potential farm out or sale of the Mira and Sarah licenses and Benjamin permit and any license that may be given to projects that have proven but undeveloped reserves rather than probableissued in lieu of such permit and any other oil and gas exploration and development activity within the offshore or potential reserves; |
| b. | We will invest our resources in projects which involves multiple well exploration potentials;onshore areas of the State of Israel; |
| · | c. | Preference will be givenSale or merger of IPC Cayman or sale or other disposition of all or substantially all of the assets of IPC Cayman (other than a sale or farmout to explorations involving shallow wells (upan industry partner in connection with a commitment to 7,500 ft.) rather than deep wells (over 15,000 ft.)conduct exploratory or development operations on the licenses and permit); |
| · | d. | Preference will be givenAdmit additional owners to projects with other experienced partners who are involved in the project;IPC Cayman; |
e. We will attempt to allocate our cash or liquidity resources to more than one project.
| · | Enter into any contract or agreement between IPC Cayman and International Three Crown Petroleum LLC or any affiliate; |
| · | Modify any compensation arrangement between the Project Company and International Three Crown Petroleum LLC and any affiliate; and |
| · | Amend the organizational and internal operating documents of IPC Cayman. |
Under the stockholders agreement, IPC Cayman will pay International Three Crown Petroleum a monthly management fee of $20,000 for its services as director of IPC Cayman and is obligated to reimburse reasonable out-of-pocket expenses incurred by the director on behalf of IPC Cayman. In connection with any farm out, sale or other transfer of all or a portion of the offshore Israeli project, International Three Crown Petroleum will receive a disposition fee equal to the product of 5% of our percentage ownership interest in IPC Cayman and the total cash proceeds received by us or our shareholders in such transaction. International Three Crown Petroleum LLC will also receive a warrant to purchase a number of our common shares which is equal to the product of 5% of our percentage ownership interest in IPC Cayman and the fair market v alue of all consideration received by us in such transaction, divided by the market price of one common share as of the date of issuance of the warrant. The exercise price of the warrant will be equal to the market price. In addition, International Three Crown Petroleum LLC will receive $50,000 for every $1,000,000 increase in current assets received by IPC Cayman or Bontan from investors introduced by International Three Crown Petroleum LLC to IPC Cayman or Bontan.
The terms of the stockholders Agreement have significantly been affected by the Allocation of Rights and Settlement Agreement. We are currently negotiating with International Three Crown Petroleum LLC ITC to replace the current agreement with a new agreement to reflect all the changes.
Israel's Petroleum Law
Exploration and production of gas and oil in Israel is governed by the Petroleum Law, 1952 of the State of Israel. The administration and implementation of the Petroleum Law and the regulations promulgated there under is vested in the Minister of National Infrastructures and the Petroleum Commissioner, with the Petroleum Council generally playing an advisory role. The following discussion includes a brief summary of certain aspects of the current legal situation.
Petroleum resources are owned by the State of Israel, regardless of whether they are located on state lands or the offshore continental shelf. No person is allowed to explore for or produce petroleum without being granted a specific right under the Petroleum Law. Israeli law provides for three types of rights, two relevant to the exploration stage and the third for production:
| · | Preliminary permit. The preliminary permit allows a prospector to conduct preliminary investigations, such as field geology, airborne magnetometer surveys and seismic data acquisition, but does not allow test drilling. The holder of a preliminary permit is entitled to request a priority right on the permit area, which, if granted, prevents an award of petroleum rights on the permit area to any other party. The priority right may be granted for a period not to exceed 18 months. The maximum area for an offshore preliminary permit is 4,000,000 dunam. One dunam is equal to 1,000 square meters (approximately .24711 of an acre). There are no restrictions as to the number of permits that may be held by one prospector. However, t he petroleum regulations mandate that the prospector demonstrate that he possesses requisite experience and financial resources necessary to execute a plan of operation. |
| · | License. A license grants the exclusive right for further exploration work and requires the drilling of one or more test wells. The initial term of a license is up to three years and it may be extended for up to an additional four years. An offshore license area may not exceed 400,000 dunam (approximately 98,800 acres). No one entity may hold more than twelve licenses or hold more than a total of four million dunam in aggregate license area. |
| · | Production lease. Upon discovery of petroleum in commercial quantities in the area of a license, a licensee has a statutory "right" to receive a production lease. The initial lease term is 30 years, extendable up to a maximum period of 50 years. A lease confers upon the lessee the exclusive right to explore for and produce petroleum in the lease area and requires the lessee to produce petroleum in commercial quantities (or pursue test or development drilling). The lessee is entitled to transport and market the petroleum produced, subject, however, to the right of the government to require the lessee to supply local needs first, at market price. |
The holders of preliminary permits, licenses and leases are required to pay fees to the government of Israel to maintain the rights. The fees vary according to the nature of the right, the size and location (on-shore or off-shore) of the right, area subject of the right and, in the case of a license, the period during which the license has been maintained. The fees range from New Israeli Shekels (NIS) 66.72 (approx. USD $17.78 at the Bank of Israel representative rate published on February 15, 2010) per 1,000 dunam (approx. 247.11 acres) per year for a permit to NIS 12131.52 (approx. USD $3,233.35) per 1,000 dunam per year for a lease (except for 50,000 dunam around each producing well for which no fee is due). All fees are linked to the Israeli Consumer Price Index.
The holder of a right under the Petroleum Law, whether permit, license or lease, is required to conduct its operations in accordance with a work program set as part of the respective right, with due diligence and in accordance with the accepted practice in the petroleum industry. The holder is required to submit progress and final reports; provided, however, the information disclosed in such reports remains confidential for as long as the holder owns a right on the area concerned.
If the holder of a right under the Petroleum Law does not comply with the work program provided for by the terms of the right, the Petroleum Commissioner may issue a notice requiring that the holder cure the default within 60 days of the giving of the notice, together with a warning that failure to comply within the 60-day cure period may entail cancellation of the right. If such right is cancelled following such notice, the holder of the right may, within 30 days of the date of notice of the Petroleum Commissioner's decision, appeal such cancellation to the Minister of National Infrastructures. No right may be cancelled until the Minister has ruled on the appeal. The holder of a license or lease on which there is a producing well is required to pay a royalty to the government of 12.5% of production. The government may elect to take the r oyalty in kind, or take payment in cash for its share of production.
Application of Israeli Law Outside of the Israeli Territorial Waters
Current Israeli law provides that (a) the territorial waters of Israel are 12 miles from the shoreline and (b) the seabed and the subsea bed adjacent to the shoreline and outside of the territorial waters are included in the area of the State of Israel up to such depth as enables exploitation of natural resources. The waters above such subsea areas (high seas) are not considered as part of Israeli territory. Maritime law and international public law would apply to such areas. There are therefore certain ambiguities with respect to the application of Israeli law to activities taking place outside the territorial waters. Since the Mira and Sarah licenses and Benjamin permit are outside of the Israeli territorial waters, as set out above, there is uncertainty as to the application of Israeli law to activities in their area, with the exceptio n of the Petroleum Law, which does apply.
A proposal for a new subsea law is currently before the legislator, which would, if enacted, replace the above laws and determine Israel's sovereign rights in areas that extend beyond its territorial waters
It is anticipated that the area of the Mira and Sarah licenses and Benjamin permit would be included in an Exclusive Economic Zone (EEZ) area to be declared under the new subsea law, and if the Company has soughtarea of the EEZ is decreased, then the area of the licenses and the permit would be decreased in such manner so as to ensure that its entire area will continuefall within the area of the EEZ, without compensation to seek may seek opportunities in other sectors as explained earlier.the owner of the licenses or permit.
Meanwhile,We do not know and cannot predict whether any legislation in this area will be enacted and, if so, in what form and which of its provisions, if any, will relate to and affect our short term strategy isactivities, how and to what extent nor what impact, if any, it might have the surplus cash invested mostly in marketable securities to achieve higher returns than would be possible if these funds were to remain in a bank account. While this strategy has resulted in significant reduction in value due to sudden and unexpected downfall of the stock market in North America, we believe that most ofon our investments should recover in value within the next few months.financial statements.
Administrative approvals are required from a number of ministries and agencies in the field of oil and gas exploration and development. Over the past few years, a number of legislative bills which would affect this are have been proposed (but not yet passed), and such bills, if passed into law, could have a negative effect on our business and activities.
Environmental Matters
Oil and gas drilling operations could potentially harm the environment if there are polluting spills caused by the loss of well control. The Petroleum Law and the regulations promulgated there under provide that the conduct of petroleum exploration and drilling operations be pursued in compliance with “good oil field practices” and that measures of due care be taken to avoid seepage of oil, gas and well fluids into the ground and from one geologic formation to another. The Petroleum Law and the regulations promulgated thereunder also require that, upon the abandonment of a well, it be adequately plugged and marked. Furthermore, the Petroleum Commissioner and the Minister of National Infrastructures have authority to enforce measures to prevent damages.
Our operations may also be subject to claims for personal injury and property damage caused by the release of chemicals or petroleum substance by us or others in connection with the conduct of petroleum operations on our behalf. Such claims could be advanced under public international law claims or under national laws of tort.
We do not know and cannot predict whether any legislation in the environmental area will be enacted and, if so, in what form and which of its provisions, if any, will relate to and affect our activities, how and to what extent nor what impact, if any, it might have on our financial statements.
(C) ORGANIZATIONAL STRUCTURE
As at March 31, 2009,2010, the Company had only one subsidiary, Bontan Oil and Gas Corporation, which was incorporated on February 20, 2004 as an Ontario corporation, wholly owned by the Company.two subsidiaries:
Bontan Oil and Gas Corporation is current inactive and is actively seeking participation opportunity in oil and gas exploration and development projects..| (i) | Israel Oil and Gas Corporation. It holds our 76.79% equity interest in IPC Cayman. Israel Oil and Gas was incorporated on February 20, 2004 as an Ontario corporation and is 100% owned by us. Israel Oil & Gas Corporation changed its name effective January 18, 2010 from Bontan Oil & Gas Corporation. |
| (ii) | IPC Cayman in which our wholly owned subsidiary holds 76.79% equity interest. IPC Cayman was incorporated in Cayman Islands on November 12, 2009 and holds 13.609% working interest in the two licenses. |
(D) PROPERTY PLANTS AND EQUIPMENT
The administrative head office of the Company is located in subleased premises at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada. There is no long-term lease commitment.
The Sub-leased area is approximately 950 sq .ft.sq. ft.
As described above, we have an indirect 11% working interest in two drilling licenses in the Levantine Basin, approximately 40 kilometers off the west coast of Israel. As of the date of this prospectus, we did not have any reserves associated with our interests in the oil and gas properties.
See Operating and Financial Review and Prospects – Item 5 for further details.
ITEM 4A – UNRESOLVED STAFF COMMENTS
None.
ITEM 5 – OPERATING AND FINANCIAL REVIEW AND PROSPECTS
(A) OPERATING RESULTS
The following discussion should be read in conjunction with the Audited Financial Statements of the Company and notes thereto contained elsewhere in this report.
Results of operations
| Year ended March 31 | | 2009 | | | 2008 | | | 2007 | | | 2010 | | | 2009 | | | 2008 | |
| | | in 000' CDN $ | | | in 000' CDN $ | | | in 000' CDN $ | | | in 000' CDN $ | | | in 000' CDN $ | | | in 000' CDN $ | |
| Income | | | 53 | | | | 322 | | | | 744 | | | | - | | | | 8 | | | | 73 | |
| Expenses | | | (742 | ) | | | (894 | ) | | | (908 | ) | | | (4,284) | | | | (697) | | | | (645) | |
| | | | | (4,284) | | | | (689) | | | | (572) | |
| Non-controlling interests | | | | 357 | | | | - | | | | - | |
| Net loss for year | | | (689 | ) | | | (572 | ) | | | (164 | ) | | | (3,927) | | | | (689) | | | | (572) | |
| Deficit at end of year | | | (33,335 | ) | | | (32,645 | ) | | | (32,074 | ) | | | (37,263) | | | | (33,335) | | | | (32,645) | |
Overview
During the year ended March 31, 2010, our main activities were as follows:
| a. | Completing acquisition of indirect working interest in an Offshore Israel Project involving two licensees. |
| b. | Completing a private placement to raise gross US$ 500,000 that was announced previously in December 2008. This was completed in October 2009. |
| c. | Reviewing various short term investments in our investment portfolio and disposing off or writing off significant portion of those investments which indicated declining values with no future outlook for improvements. |
| d. | Began a new private placement in November 2009 to raise up to US$7.9 million. This private placement was completed on April 30, 2010, which raised approximately gross US$7.6 million. Up to March 31, 2010, we raised approximately gross US$5 million. |
These events are discussed further in this annual report.
The following were the key events in fiscal 2009:
| 1. | The management continued to look for suitable business proposals and projects to participate into. We received several projects during the year of which about fifteen were reviewed and discussed in detail. Many of these related to emerging high technology projects, resource sector exploration and development projects. Unfortunately, we were unable to conclude successfully in any of these business proposals. They were either too pricey compared to the expected growth and returns or they carried considerable debts and other commitments which would affect their ability to achieve their stated targets. We also looked at possibilities of merging with existing businesses. Our efforts at getting a project or a business that can that can get us back into working mode and enhance our shareholders value still continue. |
| 2. | We also had to spend considerable time and efforts in continually monitoring our short term investments. These investments which represented our surplus funds earmarked for future projects suffered adversely in value due to deteriorating economic conditions during the past several months. We were however able to dispose of some of these holdings at reasonable |
profits whenever opportunities arose. Some of our key investments, although suffered value depreciation on a temporary basis, do reflect strong possibility of full recovery in the near future. We have discussed these investments later in this report.
| 3. | We revised the terms of our outstanding options and warrants by extending their maturity dates and reducing their exercise prices to ensure that these instruments continue to provide easy access to further cash flows from our existing shareholders. Refer to notes 7 and 8 of the consolidated financial statements for fiscal 2009 which form part of this report for further details. |
| 4. | We also attempted to initiate a private placement to raise up to US$ 500,000. However, this proved difficult due to our inability to secure a business project and extremely adverse market conditions. Still we were able to get a new investors to invest US$ 50,000. We have for now kept this private placement open. |
| 5. | Two new accounting standards and an amendment to an existing accounting standard issued by the Canadian Institute of Chartered Accountants were adopted by the Company during the fiscal year 2009 on a prospective basis. These are more fully explained in note 2 to the consolidated financial statements for the fiscal year 2009 included in this report. |
The following were key events in fiscal 2008:
| | 1. | The management received and evaluated twenty two business proposals during the fiscal 2008. Eight in Oil and Gas sector, four in health and pharmaceutical sector, five in Internet and high technology sector, four in alternative energy sector and one was in banking sector. Unfortunately, none of these projects met with our acceptance criteria. they were either not supported by technically experienced partners or were too expensive to be profitable for the Company or highly speculative in nature with relatively longer potential payback period. |
| | 2. | The Company carried out a formal evaluation of design and operation of its internal controls over financial reporting based on the framework and criteria established in internal control-Integrated Framework issued by the Committee of Sponsoring Organisations of the Treadway Commission. |
| The evaluation resulted in a formal development of an internal control manual which was updated as at March 31, 2008 and will be followed to ensure adequate controls on the financial reporting by the Company and also to ensure compliance with the relevant statutory requirements in Canada and the USA. |
| | 3. | During the fiscal year 2008, the Company developed a supplementary plan to the existing 2007 Consultant Stock Compensation Plan to add one million common shares of the Company to the existing Plan. The supplemental plan was registered with the Securities and Exchange Commission on December 12, 2007. |
| | 4. | The surplus funds meanwhile were continued to be invested in marketable securities. Approximately $2 million were realised from the sales and $3.4 million were invested during the fiscal year 2008. |
| | 5. | Two new accounting standards issued by the Canadian Institute of Chartered Accountants were adopted by the Company as at April 1, 2007 on a prospective basis. These are more fully explained in note 2 to the consolidated financial statements for the fiscal year 2008 included in this report. |
| | 6. | The Company corrected an error in valuation of warrants and share capital retroactively as more fully explained in note 9(a) (ii) to the consolidated financial statements for the fiscal year 2008 included in this report. |
The following were the key events in fiscal 2007:
1. | The Company completed its private placement on April 16, 2006 and raised an additional $1.3 million between April 1, 2006 and the closing date. In this connection, the Company paid finder’s fee at 10% in cash and 10% (1,040,000) in warrants to Current Capital Corp., a related party. |
2. | The Company initiated preparation of a prospectus and registration statement in Form F-3 for submission to US Securities and Exchange Commission in respect of shares issued and issuable under warrants issued under a private placement completed in April 2006. The prospectus became effective on November 30, 2006. |
3. | The directors of the Company approved a new plan – 2007 Consultants Stock Compensation Plan covering 1.5 million common shares of the company for issuance to consultants in settlement of their fees for services to be rendered during 2007. The Plan was formally filed with a registration statement Form S-8 with US Securities and Exchange Commission and became effective on January 16, 2007. |
4. | The Company received several exploration participation proposals during the year, of which it carried out a detailed due diligence on three oil project proposals but eventually decided against participating in any of them due to unsatisfactory results of the due diligence. |
5. | The surplus funds continued to be gainfully invested in short term marketable securities. The cash and marketable securities at fair market value of at March 31, 2007 were $7.3 million compared to $5.8 million as at March 31, 2006. During the fiscal 2007, the company earned approximately 27% return on its short term investments of an average of approximately $2.6 million. |
Income
Income comprised the following:
| Fiscal year ended March 31 | | 2009 | | | 2008 | | | 2007 | | 2010 | 2009 | 2008 |
| | | | | | | | | | | | |
| Realized gain on disposal of short term investments | | | 45,036 | | | | 248,455 | | | | 650,508 | | |
| Interest | | | 7,901 | | | | 73,300 | | | | 93,278 | | - | 7,901 | 73,300 |
| Gain on sale of interest in oil exploration project | | | - | | | | - | | | | - | | |
| | | $ | 52,937 | | | $ | 321,755 | | | $ | 743,786 | | |
Gains on disposal of short term investments
As explained earlier in this report, the management chose to invest surplus funds into marketable securities on a short term basis while it seeks business opportunities. However, market conditions during later part of the fiscal 2009 deteriorated significantly and many of our investments lost values as part of the overall losses in the stock market. However, we were still able to identify some opportunities and dispose of some of our holdings at a profit. We decided not to sell securities which lost significant market values but rather use our existing cash for operating needs and wait for these securities to regain their original values before disposing them. During the fiscal year 2009, the Company sold investments of approximately $1.8 million while invested approximately $2.4 million. Net return on investments disposed ofThere was no revenue during the year was approximately 2.5%
During the fiscal year 2008, the Company sold investments of approximately $ 2 million, earning an average of 12% return.
During the fiscal year 2007, the Company disposed of investments worth approximately $5.5 million, earning an average return of 12% and
Interest Incomeended March 31, 2010.
Interest earned in fiscal 2009 and 2008 was earnedmainly on cash fundsbalances held atby the brokerage firms before they are being invested in marketable securities.
Significantly higher interest income in fiscal 2007 was mainly due to higher cash balances being held. Average cash during the fiscal 2007 was approximately $3.2 million compared to $2.1 million in fiscal 2008 and $0.6 million in fiscal 2009. Applicable interest rates also dropped during these periods from an average of 5% to 1%.firms.
Expenses
The overall analysis of the expenses is as follows:
Fiscal year ended March 31 | | 2009 | | | 2008 | | | 2007 | | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | | | | | | | |
| Operating expenses | | $ | 319,081 | | | $ | 355,248 | | | $ | 373,594 | | | $ | 380,537 | | | $ | 288,875 | | | $ | 319,022 | |
| Consulting fee & payroll | | | 480,050 | | | | 396,465 | | | | 418,434 | | | | 1,236,619 | | | | 480,050 | | | | 396,465 | |
| Exchange (gain)loss | | | (119,789 | ) | | | 141,841 | | | | 111,659 | | | | (120,735) | | | | (119,789) | | | | 141,841 | |
| Write off of short term investment | | | 63,010 | | | | - | | | | - | | |
| Write off of interest in gas exploration project | | | - | | | | - | | | | 4,142 | | |
Write off of short term investment Loss(gain) on disposal of short term investments | | | | 250,780 852,806 | | | | 63,010 | (45,036) | | | - | (248,455) |
Professional fees Bank charges, interest and fees | | | | 992,989 691,062 | | | | 27,844 2,362 | | | | 34,601 1,625 | |
| | | $ | 742,352 | | | $ | 893,554 | | | $ | 907,829 | | | $ | 4,284,058 | | | $ | 697,316 | | | $ | 645,099 | |
Operating Expenses
| Fiscal year ended March 31 | | 2009 | | | 2008 | | 2007 | | 2010 | | | 2009 | | 2008 |
| | | | | | | | | | | | | | | |
| Travel, meals and entertainment | | $ | 66,896 | | | $ | 120,008 | | | $ | 108,266 | | | | | | $ | 86,939 | | | $ | 66,896 | | | $ | 120,008 | |
| Shareholder information | Shareholder information | | | | 144,757 | | | | 133,502 | | | | 149,105 | | Shareholder information | | | | 158,509 | | | | 144,757 | | | | 133,502 | |
| Professional fees | | | | 27,844 | | | | 34,601 | | | | 53,084 | | |
| Other | Other | | | | 79,584 | | | | 67,137 | | | | 63,139 | | Other | | | | 135,089 | | | | 77,222 | | | | 65,512 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | 380,537 | | | $ | 288,875 | | | $ | 319,022 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 319,081 | | | $ | 355,248 | | | $ | 373,594 | | | | | | |
| | | | | | | | | | | | | | | | | |
Travel, meals and entertainment
These expenses are primarilywere substantially incurred by the key consultant, Mr. Terence Robinson and other consultants in traveling tovisiting Vancouver, UK and USA in connection with the USAIsrael Offshore Project and Europefund raising efforts and local club and entertainment costs in business meetings and also in maintaining his net workMr. Robinson’s net-work which has been successfully used in raising funds, in attracting qualified consultants with minimum cash outlay and in securing suitable projects for the Company.
During fiscal 2009, approximately $10,000 or 15% costs related to travels in connection with conducting due diligence on three of the proposals that were being reviewed on site in detail including pre-review meetings. The balance of the costs represented meals and entertainment.
Travel, meals and entertainment costs during fiscal 2008 and 2007 included trips to USA, Europe and Middle East by Mr. Robinson. These visits resulted in some of the business proposals that were sent to us. They also helped introduce our Company to new investors in Middle East and Europe.
Shareholder information
Shareholder information costs comprise investor and media relations fee, costs of holding annual general meeting of the shareholders and various regulatory filing fees.
Major cost consists of media relation and investor relation services provided by Current Capital Corp. under contracts dated July 1, 2004, which are being renewed automatically unless canceled in writing by a 30-day notice for a total monthly fee of US$10,000. Current Capital Corp. is a shareholder Corporation where the Chief Executive and Financial Officer of the Company provide accounting services.
Expenses for the fiscal year 2010 included approximately $ 12,000 in various filing fees in connection with registration statements and increased press releases due to Israel project.
The differences in investor and media relation fee between the three fiscal years 20092010 through 20072008 was due to significant changes in the exchange rates between Canadian and US dollars.
The managementManagement believes that such services are essential even in the current periods when the Company does not have any active business. In fact, these services are more vital to ensure our existing shareholder base and prospective investors/brokers and other interested parties are constantly kept in contact and their comments and concerns are brought to the attention of the management on a timely basis.
Professional fees
Professional fees primarily consist of audit and legal fees.
For fiscal year 2009, audit fee was $25,000 and legal fees were $2,844.
For fiscal year 2008, audit fee was $25,000 and legal fees were $9,601. The legal fee was mainly relating to registration of supplementary stock compensation plan. And other legal advice.
Fiscal 2007 professional fees consisted of audit fee of $ 25,700 for fiscal 2007 and $6,000 for fiscal 2006 not accrued in that fiscal year and legal fee of $21,384. Legal fees related to filing of the 2007 Consultant Stock Compensation Plan, Registration statement for the shares issued and issuable under the 2006 private placement and other legal matters.
Other operating costs
These costs include rent, telephone, Internet, transfer agents fees and other general and administration costs.
Effective January 1, 2008, the CompanyIncrease in fiscal year 2010 compared to earlier years was due to operations of a new subsidiary, IPC Cayman which added approximately $46,000 in costs and transfer agent fees, which went up from an average of $4,500 in earlier years to $10,800 due to increased its rental spacetreasury activities resulting from approximately 300 sq.ft. to 960 sq.ft.two private placements. Our Toronto office general costs also increased as a result the rental cost has alsoof increased from approximately $ 500 to $1,800. The other overheads have remained consistent on a year to year basis.business activities.
The increased space would enable the management to meet prospective investors, shareholders, business partners, auditors and other visitors in the office rather than outside in a restaurant and achieve further savings in related travel and entertainment expenses.Consulting fees and payroll | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | |
| Fees settled in common shares | | | 105,107 | | | | 193,139 | | | | 314,248 | |
| Fee settled by issuance of options | | | 419,482 | | | | 84,717 | | | | - | |
| Fee settled in cash | | | 667,086 | | | | 166,928 | | | | 82,217 | |
| Payroll | | | 44,944 | | | | 35,266 | | | | - | |
| | | $ | 1,236,619 | | | $ | 480,050 | | | $ | 396,465 | |
| Consulting fees and payroll | | 2009 | | | 2008 | | | 2007 | |
| | | | | | | | | | |
| Fees settled in common shares | | | 193,139 | | | | 314,248 | | | | 367,973 | |
| Fee settled by issuance of options | | | 84,717 | | | | - | | | | - | |
| Fee settled in cash | | | 166,928 | | | | 82,217 | | | | 50,461 | |
| Payroll | | | 35,266 | | | | - | | | | - | |
| | | $ | 480,050 | | | $ | 396,465 | | | $ | 418,434 | |
Stock based compensation is made up of the Company’s common shares and options to acquire the Company’s common shares being issued to various consultants and directors of the Company for services provided. The Company used this method of payment mainly to conserve its cash flow for business investments purposes. This method also allows the Company to avail the services of consultants with specialized skills and knowledge in the business activities of the Company without having to deplete its limited cash flow.
The following were the key details forming part of consulting fee and payroll costs during the fiscal year 2010:
| a. | Fee settled in common shares included credit of $ 81,957, which represented shares previously allotted to Mr. John Robinson, a consultant for his service being deferred and now expensed for the period. However, Mr. John Robinson returned all the shares – 350,000 common shares – on August 12, 2009 for cancelation and instead was paid cash fee of $82,000 as approved by our board of directors. Four non related consultants were issued 708,333 shares under our 2009 consultant stock compensation plan for a value of $217,372. |
| b. | During the fiscal 2010, the board of directors approved extension of all outstanding options to March 31, 2014 in view of the limited liquidity and market value of our shares. The fair value of these options was re-estimated to reflect the term modification, using black-Scholes option price model. This resulted in an additional cost of $ 419,482. |
| c. | Fees settled in cash consisted of fee of $250,000 paid to Mr. Kam Shah, CEO/CFO. Mr. Shah received fee at $10,000 per month between April 2009 and August 2009.Effective September 2009, his monthly fee increased to $ 15,000 as approved by the audit committee. He was also allowed a onetime bonus of $70,000 which was offset against fee advance given to him during the previous year. Fee for fiscal 2010 also included fee of $10,000 per month paid to Mr. Terence Robinson. Two independent directors were paid $5,000 each for their services as members of the audit committee. The balance of the fees were was paid to consultants hired by the Company as well as its subsidiary, IPC. |
| d. | An administrative assistant was hired as an employee in May 2008 for the first time. Payroll reflects the salary and related expenses in connection with this position. In prior periods, administrative work was carried out by a contract person |
The following were the major details forming part of the consulting fee and payroll:payroll during the fiscal year 2009:
| 1. | Consulting fee in common shares comprise three consultants who were paid for their services in common shares - Mr. Kam Shah, the executive and financial officer, Mr. Terence Robinson, the key consultant and Mr. John Robinson. No new shares were issued during the fiscal year. |
| 2. | Mr. Terence Robinson returned 275,000 shares previously issued as compensation for cancelation and instead requested cash payment. This reduced stock compensation costs by $64,395 and increased cash compensation by an agreed sum of $60,000. |
| 3. | Option value included $76,839 resulting from the changes in terms of the existing options. These changes involved reduction in the exercise value and extension of the expiry dates as more fully explained in note 7 (i) to the consolidated financial statements for the fiscal 2009. |
| 4. | The balance of the options were issued to the two independent directors as part of their fees in their capacity as audit committee members. |
| 5. | Majority of cash fee comprised $90,000 fee to Mr. Terence Robinson, including $60,000 on account of shares returned for cancellation as explained in 2. above. And $50,000 to Kam Shah. |
| 6. | The administrative assistant was hired as an employee in May 2008 for the first time. The payroll reflected the salary and related expenses in connection with this position. In prior periods, administrative work used to be carried out by a contract person. |
During fiscal year 2008, the company registered a supplementary Plan to the existing 2007 Consultant Stock Compensation Plan. An additional one million common shares were registered under this Plan with Securities and Exchange Commission. In addition, the Company had 350,000 common shares unissued from the existing Plan. The total of 1,350,000 common shares was issued to three consultants in lieu of their fees for services to be provided as follows:
| # | Name | Period of service | # of shares to be issued | Date of issuance of stock (a) | Market price (US$) | Fee in US$ | CDN$ at | Brief description of services to be performed | Comments |
| | | | | | | | $1.0181 | | |
| 1 | John Robinson (a) | Year ending June 30, 2009 | 350,000 | 28-Mar-08 | $0.23 | $80,500 | $81,957 | searching and evaluating new project proposals, assisting Kam Shah in such evaluation and assisting Terence in managing our short term investment portfolios | Consultant - per Contract extension letter dated August 15, 2005 |
| 2 | Terence Robinson(b ) | Year ending December 31, 2008 | 550,000* | 28-Mar-08 | $0.23 | $126,500 | $128,790 | business development and managing our short term investment portfolios | Currently under a consulting contract dated April 1, 2003 valid up to March 31, 2009. |
| 3 | Kam Shah ( c) | Year ending December 31, 2008 | 450,000 | 28-Mar-08 | $0.23 | $103,500 | $105,373 | act as CEO/CFO | Currently under a consulting contract dated April 1, 2005 valid up to March 31, 2010. |
| | | | 1,350,000 | | | $310,500 | $316,120 | | |
| | | | | | | | | | |
· During fiscal 2009, Mr. Robinson returned 275,000 shares for cancellation and was instead paid cash fee of $60,000 .( see comments in item 2 above) |
| | a. John has been providing consulting services for the last few years. These services mainly included review of oil and gas proposals that are received and short listing them for further review and analysis by CEO. In addition, John also does constant research on companies acquiring oil and gas interest and major oil and gas plays under consideration. The research has always proved useful in negotiating proper terms on any proposals and saved the company from over paying. During the past year and is now extending his research to proposals and projects in other sectors also. John also played an important role in managing our short term investments of around $6 million. Watching this investment portfolio will be more critical due to highly fluctuating market conditions. |
| | Owing to the above, we have extended John's contract for another year to June 30, 2009 and negotiated settlement of his fee for this period by issuance of the recommended number of shares. b. Terence provides two main services to the company. Owing to his extensive network, he is constantly in touch with some of our key shareholders and potential investors to ensure that whenever the company needs additional funding, it can be easily raised through private placement. We had two such successful placements during the past five years. The second important service is business development through his network. The company receives lucrative proposals for acquiring interest in oil and gas projects from contacts known to Terence. Once we finalize such a project, he also helps secure best pricing. For the past few months, terence was involved in deciding on the marketable securities in which the company's surplus funds got invested on a short term basis. Our funds grew by over 100% owing to his selection of the marketable securities and decisions to buy and sell at the right time. He will continue to provide these services during the year 2006 and has agreed to accept the proposed number of common shares in lieu of his fees for such services. |
| | C. Kam Shah's role and responsibilities have grown significantly due to more complex regulatory changes. Compliance with SOX 404 inter control certification and documentation, which to other companies have cost in thousands and millions of dollars, have been compiled and implemented entirely by him without any outside help. He is also heavily involved in reviewing several proposals from different sectors requiring lot more research and attention. he has agreed to accept $10,000 per month in cash from January to May 2008. in addition to the shares as above. |
| d. | On March 28, 2008, the Company issued 25,000 options to each of the two members of the audit committee for their services during the fiscal 2009. These options were valid for five years and exercisable to convert into equal number of common shares of the Company at an exercise price of US$0.35 per option. The options were valued at $ 7,878. |
| # | Name | Period of service | # of shares to be issued | Date of issuance of stock (a) | Market price (US$) | Fee in US$ | CDN$ at | Brief description of services to be performed | Comments |
| | | | | | | | $1.0181 | | |
| 1 | John Robinson (a) | Year ending June 30, 2009 | 350,000 | 28-Mar-08 | $0.23 | $80,500 | $81,957 | searching and evaluating new project proposals, assisting Kam Shah in such evaluation and assisting Terence in managing our short term investment portfolios | Consultant - per Contract extension letter dated August 15, 2005 |
| 2 | Terence Robinson(b ) | Year ending December 31, 2008 | *550,000 | 28-Mar-08 | $0.23 | $126,500 | $128,790 | business development and managing our short term investment portfolios | Currently under a consulting contract dated April 1, 2003 valid up to March 31, 2009. |
| 3 | Kam Shah ( c) | Year ending December 31, 2008 | 450,000 | 28-Mar-08 | $0.23 | $103,500 | $105,373 | act as CEO/CFO | Currently under a consulting contract dated April 1, 2005 valid up to March 31, 2010. |
| | | | 1,350,000 | | | $310,500 | $316,120 | | |
| | | | | | | | | | |
| | | | | | | | | |
| * During fiscal 2009, Mr. Robinson returned 275,000 shares for cancellation and was instead paid cash fee of $60,000 (see comments in item 2 above). a. John has been providing consulting services for the last few years. These services mainly included review of oil and gas proposals that are received and short listing them for further review and analysis by CEO. In addition, John also does constant research on companies acquiring oil and gas interest and major oil and gas plays under consideration. The research has always proved useful in negotiating proper terms on any proposals and saved the company from over paying. During the past year and is now extending his research to proposals and projects in other sectors also. John also played an important role in managing our short term investments of around $6 million. Watching this investment portfolio will be more critical due to highly fluctuating market conditions. |
| | Owing to the above, we have extended John's contract for another year to June 30, 2009 and negotiated settlement of his fee for this period by issuance of the recommended number of shares. b. Terence provides two main services to the company. Owing to his extensive network, he is constantly in touch with some of our key shareholders and potential investors to ensure that whenever the company needs additional funding, it can be easily raised through private placement. We had two such successful placements during the past five years. The second important service is business development through his network. The company receives lucrative proposals for acquiring interest in oil and gas projects from contacts known to Terence. Once we finalize such a project, he also helps secure best pricing. For the past few months, terence was involved in deciding on the marketable securities in which the company's surplus funds got invested on a short term basis. Our funds grew by over 100% owing to his selection of the marketable securities and decisions to buy and sell at the right time. He will continue to provide these services during the year 2006 and has agreed to accept the proposed number of common shares in lieu of his fees for such services. |
| | C. Kam Shah's role and responsibilities have grown significantly due to more complex regulatory changes. Compliance with SOX 404 inter control certification and documentation, which to other companies have cost in thousands and millions of dollars, have been compiled and implemented entirely by him without any outside help. He is also heavily involved in reviewing several proposals from different sectors requiring lot more research and attention. he has agreed to accept $10,000 per month in cash from January to May 2008. in addition to the shares as above. |
| | |
On March 28, 2008, the Company issued 25,000 options to each of the two members of the audit committee for their services during the fiscal 2009. These options were valid for five years and exercisable to convert into equal number of common shares of the Company at an exercise price of US$0.35 per option. The options were valued at $ 7,878.
During the fiscal 2007, the Company only registered one Plan and issued common shares to three existing consultants as explained below. No new consultants were hired due to lack of any active projects.
On January 16, 2007, the Company registered 2007 Consultant Stock Compensation Plan with the US Securities and Exchange Commission. The Company registered 1.7 million common shares under this Plan. On February 8, 2007, the company issued 1,150,000 common shares under this Plan to three existing consultants, who are all related parties, for a value of $313,486 based on the market price of the Company’s common shares on the date of their issuance.
Exchange (gain) Loss
| Exchange losses and gains related to translation losses and gains arising from converting foreign currency balances, mainly in US dollar, into Canadian dollar, which is the reporting unit of currency, on consolidation. |
The Company’s treasury transactions – issuance of shares, exercise of warrants and options are in US dollar. Similarly, approximately 5% cash and short term investments are in US dollars. |
During the fiscal year 2010, we acquired a significant asset – Offshore Israel Project – as explained earlier. The purchase price was in US dollars. We also took over liability to pay for the seismic data as part of the Project which was approximately US$ 2.2 million and also borrowed short term funds in US dollars of approximately $ 1.3 million. Further, we now have a new subsidiary, IPC Cayman, which incurs its expenses in US dollar and is funded by us. Thus, at the year, almost all our current liabilities were in US dollars. US dollar weakened against Canadian dollar during the year form US$ 1 = CDN$ 1.22 at the beginning of the year to US$1= CDN$ 1.02 at the end of the year. The bulk of the translation gain s arose from this exchange differences when we converted all liabilities in US dollar into Canadian dollar at the
yearend rate. The majority of our assets and capital transactions were done at historical costs and were not converted at the yearend rate and so there were no significant offsetting gains or losses.
During the fiscal year 2009, we had more monetary assets than liabilities in US dollars. Canadian dollar continually weakened in value against US dollar – from $1.0279 per US dollar at March 31, 2008 to $1.2602 per US dollar at March 31, 2009 – approximately 23% reduction in value. As a result, year endyearend revaluation of assets held in US dollar resulted in a significant exchange gain of $119,789. |
Canadian dollar has steadily strengthened against US dollar for the last three years – US$1 was equal to CDN$ 1.19 on an average during the fiscal year 2006, CDN$1.14 during the fiscal year 2007 and CDN$ 1.03 during the fiscal year 2008. The Company held cash and short term investments in US dollar and all its treasury transactions were also in US dollars. Most of its expenses and liabilities were in Canadian dollars. This situation resulted in the Company having to book an exchange loss for each of these fiscal years on year end translation of its US dollar balances as per its stated accounting policy. |
As at marchMarch 31, 2008, the Company had net monetary assets of approximately $1.1 million in US dollar and issued common shares for $110,201 during the year. The US dollar depreciated by around 10% compared to Canadian dollar during this period resulting in a year end translation loss of $141,841. |
As at March 31, 2007, the Company had net monetary assets of approximately $1.2 million in US dollar. and issued common shares for $1.2 million during the fiscal year. US Dollar depreciated by over 6% against Canadian dollar during the year resulting in a translation loss of $111,659. |
Write off of short term investmentinvestments
The Company’sDuring the fiscal year 2010, the Company decided to write off two of its short term investment portfolio includedinvestments in non-marketable securities. These investments were held for several years in the hope that the investee companies would eventually go public and its shares would then be disposed of. However, while these two entities continue to operate, they were found to be having serious cash flow problems and current market conditions would unlikely to allow them to raise equity through public. These investments were therefore written off in full.
During the fiscal 2009, the Company wrote off an investment of $63,010(US$50,000) in a private Canadian corporation. This Corporation was engaged initially in exploration of oil and gas in Argentina and other South American countries and later exploited hydro-electric projects in Panama. Unfortunately, none of these projects came to fruition and the Corporation was unable to attract more financing and as a result has now become inactive shell with no funds. The management review of these affairs concluded that our investment value has been permanently impaired and as a result, we decided to fully write off this investment.
There were no such write offs in the fiscal years 2008 and 2007..
.
Write offLoss(Gains) on disposal of interest in gas exploration project –fiscal year 2007short term investments
During the fiscal 2007,year 2010, management reviewed its short-term investment portfolio and identified several holdings whose market value remained depreciated for quite some time and showed no signs of any recovery in the company receivednear future. We therefore decided to dispose of these investments and focus on those whose values are likely to improve.
Fifteen holdings form the portfolio having carrying cost of approximately $1.3 million were sold for total proceeds of $410,454, resulting in a final chargeloss of $4,142 (US$ 3,638)$852,806.
Market conditions during later part of the fiscal 2009 deteriorated significantly and many of our investments lost values as part of the overall losses in the stock market. However, we were still able to identify some opportunities and dispose of some of our holdings at a profit. We decided not to sell securities which lost significant market values but rather use our existing cash for operating needs and wait for these securities to regain their original values before disposing them. During the fiscal year 2009, the Company sold investments of approximately $1.8 million while invested approximately $2.4 million. Net return on investments disposed of during the year was approximately 2.5%
During the fiscal year 2008, the Company sold investments of approximately $ 2 million, earning an average of 12% return.
Professional fees
Professional fees primarily consist of audit and legal fees.
During the fiscal 2010, our audit fee was $60,000 and legal fees were $932,989. Increase in audit fee form $25,000 in earlier year to $60,000 was mainly due to increased business activities ,complexity of transactions involving new acquisitions and two private placements and a new subsidiary which extended the scope of audit.
The fiscal year 2010 also saw significant increase in legal fees. Approximately 71% of the legal fees - $ 661,894 were incurred by our subsidiary, IPC Cayman in various lawsuits associated with acquisition of the Israeli properties. The Company was also similarly involved in various lawsuits arising from vendors and others associated with the acquired Israeli properties. All these legal costs were involved in defending our titles to these properties and as a result, they were written off and not capitalized to the cost of the related properties. There were also legal costs associated with registration statement filed with the Securities and Exchange commission and two private placements to raise equity funds.
For fiscal year 2009, audit fee was $25,000 and legal fees were $2,844.
For fiscal year 2008, audit fee was $25,000 and legal fees were $9,601. The legal fee was mainly relating to closureregistration of supplementary stock compensation plan. And other legal advice.
Bank charges, interest and fees
Note 16 to the drilled wellconsolidated financial statements for the fiscal year 2010 provide break down of bank charges, interest and fees. These costs included a fee of $590,288 paid by our subsidiary, IPC Cayman to a non-related entity in a gas exploration project in the State of Louisiana, USA where the Company acquired 49% gross working interest. No further charges are now expected in respect of this project.connection with fund raising negotiations which were not successful.
(B) Liquidity and Capital Resources
As at March 31, 2009,2010, the Company had a net working capital of approximately $1.4 million$371,000 compared to a working capital of $5.2$1.4 million as at March 31, 2008.2009.
Almost allAcquisition of the Israeli property, support of the IPC Cayman operating costs and one time but significant legal costs incurred in acquiring and defending the Israeli property acquisition severely affected the net working capital - approximately $1.4 million - at March 31, 2009 was2010. The Company will continue to seek ways to raise the future cash requirements through equity and other sources including farm-outs.
Our financials for the fiscal 2010 include a going concern note which reflects the above situation. The Company raised an additional approximately $2 .2 million in the form of cashequity financing subsequent to March 31, 2010 and settled its short term investments compared to 94% - $4.9 million at March 31, 2008.
Significant decline in the working capital was due to accounting for unrealised losses on short term investments of approximately $4.4 million on application of fair value based on market price as at March 31, 2009. This is further detailed under investment cash flow section below.
Cash on hand as at March 31, 2008 was $0.4 million compared to $1.3 million as at March 31, 2008.
Sudden deterioration in the market condition has severely affected the Company’s working capital base. Management however expects that its existing cash position will enable it to meet its operating needs for the near futureloans and to wait until the market valuesome of its available for sale investments improves.
Near the end of December 2008, the Company launched a new equity fund raising through a private placement of up to US$ 500,000 to strengthen its working capital. As of the date of this report, only one subscription has been received for US$ 50,000 under this private placement.liabilities
During the fiscal year 2010, operating activities required a net cash outflow of approximately $363,000 which was met from the available cash and cash generated from equity financing.
During the fiscal year 2009, operating activities generated a net cash outflow of $362,874, which was primarily met from the available cash on hand.
During the fiscal 2008, operating activities required net cash outflow of $482,662 which was off set by the net realised on disposal of short term investments of $248,455 and balance from the available cash on hand.
In fiscal 2007, the Company’s operating activities required net cash flow of $529,323 which was met from the net proceeds from the sale of short term investments of $650,508.
The company continues its efforts at keepingexpects its operating cash requirements to minimum. However, onceincrease as the Companyexploration work begins business activitieson the project and hopes to meet these requirements may have to be reassessed.from further equity financing and other sources.
Major investing activities during the fiscal year 2010 included (a) acquisition of oil and gas properties and (b) significant disposal of our non performing short term investments. These two activities resulted in a net cash out flow of approximately $ 4.3 million which was met from the funds raised through equity and debt financing.
Acquisition of oil and gas properties
The Company acquired 11% indirect working interest in two licenses in the Levantine Basin, approximately 40 kilometres off the west coast of Israel. Details of this acquisition have been discussed in item 4(B) Business Overview section of this report. Our interest was reduced to 10.45% as result of sale of 5% interest to the operator in May 2010.
Total of approximately $6.5 million was spent in this acquisition. Note 8 to the fiscal 2010 financials provide breakdown of these costs. The cash outlay was approximately $ 5 million.
Our indirect working interest in these licenses is held through our 76.79% equity interest in IPC Cayman, which owns a 13.609% interest in the licenses, through I.P.C. Oil and Gas (Israel) Ltd. Partnership, which is the registered holder of 13.609% interest in the above licenses in the Petroleum Registry in Israel.
Work plan involving interpretation of the 3D seismic data and drilling of a test well on each of the two licensed areas has been approved by the Israeli Ministry of National Infrastructure and relevant work is being done on time as per the approved plan.
In this connection, we are required to provide proof of financial capability to cover our share of these exploration costs which would approximately be US$12 million by November 16, 2010 and the Company will now work with IPC Cayman’s management to raise the required funds.
Short term investments
During the fiscal year 2009,2010, the Company invested $53,103 (2009: $2.4 millionmillion) in short term marketable securities while sold marketable securities for net proceeds of $ 410,454 (2009: $1.8 million. The balance of the funds for investment after using the sales proceeds came from the available cash on hand.million).
The Company had short term investments at a carrying cost of approximately $ 4 million (2009: $5.5 millionmillion) as at March 31, 20092010 – of which $3.8 million or 95% (2009: $5.2 million or 95%) was held in Canadian currency and the balance 5% was held in US currency. All (2009: Approximately 95%) of the investments were in 13 public companies ( 2009:24 public companiescompanies) while 5% was investedinvestments in two private companies. An investment of US$50,000 in a private corporation wascompanies totalling to $250,780 were written off during the fiscal year due to permanent impairment of its carrying costs.2010.. These investments were stated at their fair value of approximately $ 1.4 million (2009: $1.1 millionmillion) as at March 31, 20092010 and the difference representing unrealised loss of approximately $2.6 million (2009: loss of approximately $4.4 million was transferred to accumulated other comprehensive loss and includedinclude d under shareholders equity.
During the fiscal 2008, Company invested approximately $3.4 million in short term marketable securities while realised approximately $2 million from the disposal of such securities, which were partly used for the working capital as explained above and remaining reinvested. Net additional investments were funded from the available cash on hand.
As a result of the above, the Company had short term investments at a carrying cost of approximately $4.9 million as of March 31, 2008 –approximately 94% was held in Canadian currency and the balance $342,000 or 6% was held in US currency. Approximately 94% of investments were in 32 public companies while 6% was invested in three private companies.
The fair value of the above investments as at March 31, 2008, based primarily on the quoted prices of the shares on that date, came to $3.6 million giving rise to an unrealised loss of approximately $1.3 million. Company recognized this loss and reduced the value of its short term investment to reflect the fair value on the balance sheet as at March 31, 2008.
During the fiscal 2007, the Company invested $6.4 million in short term marketable securities and realised $5.5 million from the sale of the short term marketable securities. These proceeds were partly used to cover operating cash flow deficit and balance reinvested.
The amounts at which the Company’s publicly-traded investments could be disposed of currently may differ from fair values based on market quotes, as the value at which significant ownership positions are sold is often different than the quoted market price due to a variety of factors such as premiums paid for large blocks or discounts due to illiquidity.
The following is a major composition of short term investments:
| March 31, | | 2009 | | | | | | | | | 2008 | | | | | | | | | 2010 | | | | | | | | | 2009 | | | | | | | |
| | | in 000' | | | | | | | | | | | | | | | | | | in 000' | | | | | | | | | | | | | | | | |
| | | # of shares | | | cost | | | fair value | | | # of shares | | | cost | | | fair value | | | # of shares | | | cost | | | fair value | | | # of shares | | | cost | | | fair value | |
| Marketable Securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Brownstone Ventures Inc. | | | 1,227 | | | | 1838 | | | | 362 | | | | 1,267 | | | 1929 | | | | 1140 | | | | 1,292 | | | | 1869 | | | | 775 | | | | 1,227 | | | | 1838 | | | | 362 | |
| Roadrunner Oil & Gas Inc. | | | 1,529 | | | | 627 | | | | 145 | | | | 730 | | | | 331 | | | | 387 | | | | 1,744 | | | | 658 | | | | 244 | | | | 1,529 | | | | 627 | | | | 145 | |
| Skana Capital Corp | | | 773 | | | | 706 | | | | 186 | | | | 583 | | | | 585 | | | | 356 | | | | 773 | | | | 706 | | | | 155 | | | | 773 | | | | 706 | | | | 186 | |
| 23 (2008: 26, 2007: ) other public companies - mainly resource sector | | | 2082 | | | | 399 | | | | | | | | 1793 | | | | 1447 | | |
| 10 (2009: 23 ) other public companies - mainly resource sector | | 10 (2009: 23 ) other public companies - mainly resource sector | | | | 775 | | | | 185 | | | | | | | | 2082 | | | | 399 | |
| | | | | | | $ | 5,253 | | | $ | 1,092 | | | | | | | $ | 4,638 | | | $ | 3,330 | | | | | | | $ | 4,008 | | | $ | 1,359 | | | | | | | $ | 5,253 | | | $ | 1,092 | |
| Non-marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cookee Corp | | | 1,000 | | | | 200 | | | | - | | | | 1,000 | | | | 200 | | | | 200 | | | | - | | | | - | | | | - | | | | 1,000 | | | | 200 | | | | - | |
| One other private company ( 2008: two private companies, 2007: ) | | | | 63 | | | | - | | | | | | | | 103 | | | | 103 | | |
| other private company ( 2009: one private company ) | | other private company ( 2009: one private company ) | | | | - | | | | - | | | | | | | | 63 | | | | - | |
| | | | | | | $ | 263 | | | $ | - | | | | | | | $ | 303 | | | $ | 303 | | | | | | | $ | - | | | $ | - | | | | | | | $ | 263 | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | $ | 5,516 | | | $ | 1,092 | | | | | | | $ | 4,941 | | | $ | 3,633 | | | | | | | $ | 4,008 | | | $ | 1,359 | | | | | | | $ | 5,516 | | | $ | 1,092 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Management believes that the reduction in fair value of the above investments due to application of mark to market accounting rules is temporary and is a direct effect of the adverse current market conditions in the resource sector in general. The fundamentals of the investee corporations are strong in terms of their financial and portfolio strength and will eventually reflect in higher market prices once market condition improves for the resource sector.
During the fiscal year 2010, the Company raised approximately $6.7 million through equity and debt financing. These funds were primarily used for investing and operating cash requirements as explained above and a surplus of approximately $ 2 million was added to the cash on hand.
Equity financing
Approximately $ 5.5 million was raised through two private placements. The first one began in December 2008 and completed in October 2009 and raised net of US$ 450,000. The second one began in December 2009 and until March 31, 2010 raised approximately $ 5 million. This private placed closed on April 30, 2010 and an additional approximately $ 2 million was raised. These private placements were subject to 10% finder’s fee in cash and additional 10% fee in warrants payable to various persons including Current Capital Corp., a related party and Mr. Howard Cooper, the sole director and president of our subsidiary, IPC Cayman.
Note 11 to the fiscal2010 financials provide further details of these private placements.
Debt funding
We borrowed short term loans totalling to approximately $1.2 million as at March 31, 2010. These loans carried interest between 5% and 10% per annum. The loans were fully settled with accumulated interest subsequent to March 31, 2010 from the additional funds raised through private placement
Note 10 to the financials for fiscal 2010 provide further details of these loans.
During the fiscal 2009, the Company generated $56,000 in equity fund through a private placement, net of finder’s fee of $6,228. On December 12, 2008, the directors of the Company approved a private placement to raise equity funds of up to US$500,000. The private placement comprises issuance up to ten million units at US$0.05 each, being the prevailing market price, each unit consists of one common share and one warrant exercisable at US$0.10 within two years of its issuance. The private placement was considered necessary to improve the Company’s liquidity and holding ability so that it may be able to gain higher values for its investments once the current market conditions improve.
Equity fund raised as above reflected subscription to one million units under the above private placement by one accredited investor.
During the fiscal 2008, the Company received $110,000 net of the finder’s fee from exercise of warrants by an existing shareholder. These funds were primarily used to meet the operating cash flow deficit.
During the fiscal 2007, the Company raised an additional $1.2 million net of the finders’ fee from private placement which commenced in late fiscal 2006 and completed in April 2006.
(C) RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
The Company has not spent any funds on research and development during the fiscal years 2010, 2009 2008 and 2007.2008.
(D) TREND INFORMATION
Our business strategy is exploration of oil and gas, while we have also extended our business plan to projects in other sectors like alternative energy, health and pharmaceutical and internet and high technology so the prices and demands of products and services in these sectors have a direct impact on our prospects for success and our ability to raise capital. While the resource sector recently encountered significant price reduction, current prices of crude oil and gas are still attractive to make exploration commercially viable. High technology sector continues to grow while most other sectors suffer from overall economic downturn on a worldwide basis. Management believes that the current outlook for our sectors will likely to improve in the foreseeable future. History has shown, however, that there can be no such assurances.
There are no other trends, commitments, events or uncertainties presently known to management that are reasonably expected to have a material effect on the Company’s business, financial condition or results of operation other than uncertainty as to the speculative nature of the business (Refer to the heading entitled “Risk Factors”).
(E) OFF-BALANCE SHEET ARRANGEMENTS
At March 31, 2010, 2009 2008 and 2007,2008, the Company did not have any off balance sheet arrangements, including any relationships with unconsolidated entities or financial partnership to enhance perceived liquidity.
(F) CONTRACTUAL OBLIGATIONS
Not applicable.
Under the terms with our other Israeli partners, IPC Cayman have to provide by November 16, 2010 evidence of our financial capability to meet future financing requirements with respect to exploration and development of test wells to our Israeli partners. This is expected to be approximately US$ 12 million.
(G) SAFE HARBOUR
Not applicable.
ITEM 6 – DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
(A) DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth all current directors and executive officers of the Company, with each position and office held by them in the Company, and the period of service as such:
| Name and Position With the Company | Other principal directorships | Principal business activities outside the Company |
Kam Shah ( age 59) Director and Chairman Chief Executive Officer and Chief Financial Officer | Sole Director – Argen Energy Corp, A Canadian private corporation.Webtradex International Corp., a Nevada registered public company trading on OTCBB-NASDAQ | Provides accounting services to Current CapitalActs as a CEO/CFO of Webtradex International Corp., currently inactive, and a part time practice as chartered accountant.accountant in Canada.
|
Terence Robinson
Key Consultant
| None | President of TR Network Inc. – an independent organisation providing business and financial services.
|
| Dean Bradley (age 77) – Independent Director, Chair of the Audit Committee | Director of Quasar Aviation Corporation and Quasar-Lite, Inc. | Chief Executive Officer of Quasar Aviation Corporation and Quasar-Lite, Inc. |
| Brett D. Rees (age 58) – Independent Director, member of the Audit Committee | Director of five Canadian private corporations. | Independent broker in life and other insurance products and personal and estate financial planning. |
Kam Shah joined the Company as a Chief Financial Officer and was appointed to the Board on January 3, 1999. He worked with PricewaterhouseCoopers LLP and Ernst & Young. He is a US Certified Public Accountant and a Canadian Chartered Accountant. He has over fifteen years of international experience in corporate financial analysis, mergers & acquisitions. Mr. Shah is responsible for the financial and statutory matters of the Company and effective May 17, 2004, following resignation of the Chairman, Mr. Terence Robinson, has also assumed the responsibilities of the chairman of the Board and Chief Executive Officer of the Company.
Mr. Shah is also a consultant providing accounting and tax services to Current Capital Corp., (CCC) a private Ontario corporation, having its head office in Toronto. CCC provides investors’ and media relations services to Bontan Corporation.
Dean Bradley has served as a director since November 20, 2000. Mr. Bradley is currently the Chairman of our audit committee and a non-executive independent director based in Florida. He assists the Company from time to time in introducing new businesses and liaising with businesses in the USA in which the Company has equity interest. Mr. Bradley had been CEO of many corporations including real estate, mining, manufacturing, and import/export and financial services corporations and is currently the CEO of Quasar Aerospace Industries, Inc. and Combustion Engine Technologies, Inc.
Brett Rees has served as a director and a member of our audit committee since December 8, 2006. Mr. Rees is a Chartered life underwriter, financial consultant and financial planner and a licensed mutual funds manager. He has over twenty years of experience in various insurance products, estate planning, pension planning for individual and corporation and in group benefit assessments.
Management Team
The Company‘s current management team consists only of Mr. Kam Shah whose background details are given above.
Terence Robinson was served as our Chairman of the Board and Chief Executive Officer of the Company sincefrom October 1, 1991. He resigned from the Board on1991 to May 17, 2004 but continues with the Company as a key consultant.2004. He advises the board in the matters of shareholders relations, fund raising campaigns, introduction and evaluation of investment opportunities and overall operating strategies for the Company. He has over 25 years of experience as merchant banker and venture capitalist and has successfully secured financing for a number of start-up and small cap companies and currently runs his own consulting firm in the name of TR Network Inc.
Dean Bradley is a non-executive independent director based in Florida. He was first appointed director of the Company on November 20, 2000. He assists the Company from time to time in introducing new businesses and liaising with businesses in the USA in which the Company has equity interest. Mr. Bradley had been CEO of many corporations including real estate, mining, manufacturing, and import/export and financial services corporations and is currently involved in two ventures as explained above. Mr. Bradley is currently the chairman of the audit committee of the Company.
Brett Rees was appointed as independent director and a member of the audit committee effective December 8, 2006. Mr. Rees is a Chartered life underwriter, financial consultant and financial planner and a licensed mutual funds manager. He has over twenty years of experience in various insurance products, estate planning, pension planning for individual and corporation and in group benefit assessments. He is currently an officer/director in five Canadian private corporations including Resolution Oil & Gas Ltd., Resolution Mining Ltd and Platinum Equity Funding.
Management Team
The Company‘s current management team consists only of Mr. Kam Shah whose background details are given above.
Mr. Terence Robinson is a key consultant who basically acts in an advisory role with no specific authority to bind the Company except in case of short term investments where he is authorisedauthorized to buy and sell marketable securities on behalf of the Company and also advises as to when to buy or sell..sel l. He is however not authorisedauthorized to withdraw or deposit any cash from and into our accounts with the brokerage firms.
Mr. John Robinson is another consultant who provides advisory services to us, primarily in assisting in the research and evaluation of projects and in short term investment activities with no specific authority to bind the Company except inactivities. In case of short term investments, where he is authorisedauthorized to buy and sell marketable securities on behalf of the Company.our behalf. He is however not authorisedauthorized to withdraw or deposit any cash from and into our accounts with the brokerage firms. Mr. John Robinson is a brother of Mr. Terence Robinson and is the sole shareholder of Current Capital Corp, which provides investor and media relations services to the Companyus and is a shareholder.
Both the above consultants’ roles and involvement with our Company will reduce and eliminated completely in future. Mr. Shah will be working more closely with Mr. Howard Cooper , the sole director and president of our subsidiary, IPC Cayman on future fund raising and project management.
As we do not anticipate new projects and intend to liquidate the remaining of our short term investments, we would not need the services of the above two consultants.
Mr. Shah’s current consulting agreement is effective forhas been renewed on April 1, 2010 to another five years to March 31, 2015. From January 1, 2009 to December 31, 2009, Mr. Shah received a cash fee of $10,000 per month plus taxes. However, on February 18, 2010, the board approved revision in his fee to $15,000 per month effective September 2009. Between June 1, 2008 and December 31, 2008, Mr. Shah was allowed to draw $10,000 per month in arrears until the market price of our common shares reached $0.50 provided that such drawings were treated as fee advances to be repaid when the market price of our common shares stays at $0.50 or above for a consecutive period of three months. A total sum of $70,000 was withdrawn by Mr. Shah. The amount was finally expensed as a bonus in March 2010. CopyFurther, the contract provides for a lump sum com pensation of US$250,000 for early termination of the new agreement was included incontract without cause. The contract also provides for entitlement to stock compensation and stock options under appropriate plans as may be decided by the Exhibits attachedboard of directors from time to fiscal 2005 annual report.
Mr. Terence Robinson’s consulting agreement was signed on April 1, 2003 and was valid up to march 31, 2009. A new agreement has not yet been entered although the management has established that Mr. Robinson’s services would be required for fiscal 2010 an dbeyond.
Mr. John Robinson’s consulting agreement is renewed on an annual basis. The current agreement expired on June 30, 2009. Renewal talks have not begun yet.time.
Family Relationships
There are no family relationships between the directors and key management. A key consultant,executive officers. Mr. Terence Robinson is a brother of another consultant, Mr. John Robinson who is part of the management team as explained above.Robinson.
Other Relationships
There are no arrangements or understandings between any major shareholder, customer, supplier or others, pursuant to which any of the above-named persons were selected as directors or members of senior management.
(B) COMPENSATION
The compensation payable to directors and officers of the Company and its subsidiary is summarized below:
1. General
The Company does not compensate directors for acting solely as directors. Except as described below, the Company does not have any arrangements pursuant to which directors are remunerated by the Company or its subsidiary for their services in their capacity as directors, other than options to purchase shares of the Company which may be granted to the Company’s directors from time to time and the reimbursement of direct expenses.
The Company does not have any pension plans.
2. Statement of Executive Compensation
The following table and accompanying notes set forth all compensation paid by the Company to its directors, senior management and key consultants for the fiscal years ended March 31, 2010, 2009 2008 and 2007:2008:
.
| | ANNUAL COMPENSATION | | | | LONG-TERM COMPENSATION | | | | ANNUAL COMPENSATION | | | | LONG-TERM COMPENSATION | | | |
| | | | | | | Awards | | | Payouts | | | | | | | | | | | | | Awards | | | Payouts | | | |
| Name and principal position | Year | | Fee (3) | | Bonus | Other annual compensation | | Securities under options/SARs Granted (1) & (4) | | Shares or units subject to resale restrictions | LTIP (2) payouts | | all other compensation | | Year | | Fee (3) | | | Bonus | | Other annual compensation | | Securities under options/SARs Granted (1) & (4) | | Shares or units subject to resale restrictions | LTIP (2) payouts | | all other compensation (5) | |
| | | | ($) | | ($) | | (# | ) | ($) | | | | | | ($) | | | ($) | | ($) | | $ | | | ($) | | | |
| Kam Shah | | | | | | | | | | | | | | | | | | | | | | | |
| CEO/CFO | 2009 | | | 129,030 | | | | | | 5,574 | | | | | | 6,424 | | 2010 | | | 155,000 | | | | 70,000 | | | | | 26,639 | | | | | | 5,452 | |
| CEO/CFO | 2008 | | | 127,899 | | | | | | | | | | | | 4,744 | | 2009 | | | 129,030 | | | | | | | | | 5,574 | | | | | | 6,424 | |
| CEO/CFO | 2007 | | | 88,436 | | | | | | | | | | | | 4,744 | | 2008 | | | 127,899 | | | | | | | | | | | | | | | 4,744 | |
| Terence Robinson | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consultant | 2009 | | | 122,198 | | | | | | 44,431 | | | | | | 5,824 | | 2010 | | | 120,000 | | | | | | | | | | | | | | | 5,452 | |
| Consultant | 2008 | | | 134,423 | | | | | | | | | | | | 4,744 | | 2009 | | | 122,198 | | | | | | | | | 44,431 | | | | | | 5,824 | |
| Consultant | 2007 | | | 141,715 | | | | | | 1,100,000 | | | | | | 4,744 | | 2008 | | | 134,423 | | | | | | | | | | | | | | | 4,744 | |
| Dean Bradley | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Independent director | 2009 | | | 5,000 | | | | | | 4,656 | | | | | | | | 2010 | | | 5,000 | | | | | | | | | 2,462 | | | | | | | |
| Independent director | 2008 | | | 3,871 | | | | | | 25,000 | | | | | | | | 2009 | | | 5,000 | | | | | | | | | 4,656 | | | | | | - | |
| Independent director | 2007 | | | 5,522 | | | | | | | | | | | | | | 2008 | | | 3,871 | | | | | | | | | | | | | | | - | |
| Brett Rees | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Independent director | 2009 | | | 5000 | | | | | | 4337 | | | | | | | | 2010 | | | 5,000 | | | | | | | | | | | | | | | | |
| Independent director | 2008 | | | 0 | | | | | | 25000 | | | | | | | | 2009 | | | 5,000 | | | | | | | | | 4,337 | | | | | | | |
| Independent director | 2007 | | | 0 | | | | | | | | | | | | | | |
| John Robinson | | | | | | | | | | | | | | | | | | |
| Consultant | 2009 | | | 81911 | | | | | | 25719 | | | | | | | | |
| | 2008 | | | 81926 | | | | | | | | | | | | | | |
| | 2007 | | | 108552 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Notes:
| 1. | “SAR” means stock appreciation rights. The Company never issued any SARs |
| 2. | “LTIP” means long term incentive plan. |
| 3. | Fees were settled in cash and shares issued under Consultants Stock Compensation Plans. |
| 4. | For the fiscal 2010 and 2009, options included additional costs due to changes in the terms of the previously issued options. The additional cost was estimated using Black-Scholes option price model as more fully explained in note 7 (i)12 (ii) to the consolidated financial statements for fiscal 20092010 included herein. |
| 5. | All other compensation consists of group insurance benefit payments made on behalf. |
Long Term Incentive Plan (LTIP) Awards
The Company does not have a LTIP, pursuant to which cash or non-cash compensation intended to serve as an incentive for performance (whereby performance is measured by reference to financial performance or the price of the Company’s securities) was paid or distributed to the Named Executive Officers during the most recently completed financial year.
Defined Benefit or Actuarial Plan Disclosure
There is no pension plan or retirement benefit plan that has been instituted by the Company and none are proposed at this time.
Indebtedness of Directors, Executive Officers and Senior Officers
Kam Shah, the chief executive and financial officer was allowed to draw $10,000 per month in arrears between June 1, 2008 and December 31, 2008 – total sum of $70,000. This advance isOriginally, these withdrawals were repayable without interest when market price of theour common shares of the Company staysstayed at US0.50 or above for a consecutive period of three months. Interest cost waived worked out to be approximately $600 at 2% per annum. This is included under other compensation under the Statement ofAll Other Compensation in Executive Compensation table above. However, the board decided to expense this withdrawal as bonus to Mr. Shah in March 2010.
Directors’ and Officers’ Liability Insurance
The Company has purchased, at its expense, directors and officers liability insurance policy to provide insurance against possible liabilities incurred by them in their capacity as directors and officers of the Company.
(C) BOARD PRACTICES
Directors may be appointed at any time in accordance with the by-laws of the Company and then re-elected annually by the shareholders of the Company. Directors receive no compensation for serving as such, other than stock option and reimbursement of direct expenses. Officers are elected annually by the Board of Directors of the Company and serve at the discretion of the Board of Directors.
The Company has not set aside or accrued any amount for retirement or similar benefits to the directors.
Mandate of the Board
The Board has adopted a mandate, in which it has explicitly assumed responsibility for the stewardship of Bontan Corporation Inc. In carrying out its mandate the Board holds at least four meetings annually. The frequency of meetings, as well as the nature of the matters dealt with, will vary from year to year depending on the state of our business and the opportunities or risks, which we face from time to time. The Board held a total of 612 meetings during our financial year ended March 31, 2008.2010. To assist in the discharge of its responsibilities, the Board has designated one standing committee: an Audit Committee, as more particularly discussed below.
Audit Committee
The members of the audit committee consisted of Dean Bradley and Mr. Brett Rees, both are our independent directors.. The audit committee is charged with overseeing the Company's accounting and financial reporting policies, practices and internal controls. The committee reviews significant financial and accounting issues and the services performed by and the reports of our independent auditors and makes recommendations to our Board of Directors with respect to these and related matters.
The Company’s Audit Committee’s charter was detailed in the annual report for fiscal 2005. The Charter became effective on August 2, 2005.
Audit Committee charter assists the Board in fulfilling its responsibilities for our accounting and financial reporting practices by:
| · | reviewing the quarterly and annual consolidated financial statements and management discussion and analyses; |
| · | meeting at least annually with our external auditor; |
| · | reviewing the adequacy of the system of internal controls in consultation with the chief executive and financial officer; |
| · | reviewing any relevant accounting and financial matters including reviewing our public disclosure of information extracted or derived from our financial statements; |
| · | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; |
| · | pre-approving all non-audit services and recommending the appointment of external auditors; and |
| · | reviewing and approving our hiring policies regarding personnel of our present and former external auditor |
A copy of the Audit Committee Charter can be requested by calling (416) 929-1806.
Compensation Committee
The Company does not currently have a Compensation Committee. The directors determined that, in light of the Company’s size and resources, setting up such a committee would be too expensive and would not serve any useful purpose for the Company at this time. The Company has, however, set up an Independent Review Committee of the Board to review and approve all non-arms' length contracts. This Committee has the same composition as the Audit Committee, and is currently comprised of the two independent directors - Dean Bradley and Brett Rees. This committee approves fees and major expenses of Mr. Shah and Mr. Terence Robinson.
Corporate Governance Committee
The Company does not have a separate corporate governance committee. The CEO in conjunction with the audit committee has developed and updated corporate governance practices and policies, code of ethics and corporate disclosure policy which form part of our internal control over financial reporting manual. The goal is to provide a mechanism that can assist in our operations, including but not limited to, the monitoring of the implementation of policies, strategies and programs and the development, continuing assessment and execution of the Company’s strategic plan.
(D) EMPLOYEES
The Company presently has one employee who serves as assistant to the chief executive and financial officer. It uses the services of consultants from time to time.
(E) SHARE OWNERSHIP
The Company usually creates two Plans, Consultants Stock Compensation Plan and Stock Option Plan.
All options under 1999 Plan, 2003 plan and The Robinson Plan and 50,000 options under 2005 Plan were issued and as at June 30, 2008,July 23, the date of this report, 4,825,000 options were outstanding. 950,000 options have not yet been issued under the 2005 Plan.
All shares reserved under the 2001, 2003, 2005 and 2007 and 2007 supplemental Compensation Plans were issued before March 31, 2008. A new 2009 Consultant Stock Compensation Plan was registered with Securities and Exchange Commission on April 7, 2009 under the US Securities Act of 1933. 3,000,000 common shares of the Company were registered under this Plan. As at June 30, 2009,July 23, 2010, the date of this report, no983,333 shares have been issued under this Plan.
The objective of these Plans is to provide for and encourage ownership of common shares of the Company by its directors, officers, consultants and employees and those of any subsidiary companies so that such persons may increase their stake in the Company and benefit from increases in the value of the common shares. The Plans are designed to be competitive with the benefit programs of other companies in the natural resource industry. It is the view of management that the Plans are a significant incentive for the directors, officers, consultants and employees to continue and to increase their efforts in promoting the Company’s operations to the mutual benefit of both the Company and such individuals and also allow the Company to avail of the services of experienced persons with minimum cash outlay.
The following table sets forth the share ownership of those persons listed in subsection 6.B above and includes details of all options to purchase of the Company held by such persons at March 31, 2009:2010:
| Name | | # of Common shares held at March 31, 2009 | | | % of shares outstanding | | | # of stock options | | Exercise price - in US$ | Expiry date(s) | # of Common shares held at March 31, 2009 | % of shares outstanding | # of stock options | Exercise price - in US$ | Expiry date(s) |
| Kam Shah | | | 1,046,958 | | | | 3.40 | % | | | 100,000 | | | $ | 0.15 | | 11-May-10 | 738,310 | 1.13% | 350,000 | $0.15 | March 31, 2014 |
| | | | | | | | | | | | 125,000 | | | $ | 0.15 | | 18-Aug-10 | |
| | | | | | | | | | | | 125,000 | | | $ | 0.15 | | 18-Aug-10 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Terence Robinson | | | - | | | | | | | | 1,690,000 | | | $ | 0.15 | | 18-Aug-10 | |
| | | | | | | | | | | | 1,100,000 | | | $ | 0.15 | | 5-Dec-11 | |
| Terence Robinson* | | - | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Dean Bradley | | - | | | | | | | | 25,000 | | | $ | 0.15 | | 28-Mar-14 | - | | 45,000 | $0.15 | March 31, 2014 |
| | | | | | | | | | | | 15,000 | | | $ | 0.15 | | 11-May-10 | | | | | |
| | | | | | | | | | | | 5,000 | | | $ | 0.15 | | 18-Aug-10 | |
| | | | | | | | | | | | | | | | | | | | |
| Brett Rees | | - | | | | | | | | 25,000 | | | $ | 0.15 | | 28-Mar-14 | - | | 25,000 | $0.15 | March 31, 2014 |
| | | | | | | | | | | | | | | | | | | | |
| John Robinson * | | | 733,500 | | | | 2.38 | % | | | 1,615,000 | | | $ | 0.15 | | 28-Oct-10 | |
| | | | | | | | | | | | | | | | | | | |
| | | * Includes common shares held in the name of Current Capital Corp., which is fully owned by Mr. John Robinson | |
* Excludes 3,750,024 common shares and options to purchase 2,790,000 shares at USD $0.15 per share held by Stacey Robinson, the wife of Terence Robinson. Mr. Robinson disclaims beneficial ownership over those shares.
Terms of all options were revised during the fiscal 2009.2010. The revisions comprised increasing the expiry dates by one year and reducing the exercise price, which ranged between US$035 and US$1.00for all options to US$0.15.March 31, 2014. This is further explained in note 712 to the consolidated financial statements for fiscal 20092010 included herein. All options were 100% vested at July 23, 2010.
All shares and options held by the above persons carry same rights as the other holders of the Common shares of the Company.
ITEM 7 – MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
(A) MAJOR SHAREHOLDERS
The Company's securities are recorded on the books of its transfer agent in registered form. The majority of such shares are, however, registered in the name of intermediaries such as brokerage houses and clearing-houses on behalf of their respective clients. The Company does not have knowledge of all the beneficial owners thereof.
As at June 30, 2009,July 23, 2010, Intermediaries like CDS & Co, Toronto, Canada and Cede & Co of New York, USA held approximately 86%42% of the issued and outstanding common shares of the company on behalf of several beneficial shareholders whose individual holdings details were not available. The following are the known shareholders holding more than 5% of the common shares of the company, as at June 30, 2009.Based on Schedule 13G/A filed by the said shareholder on April12, 2010 :
| Name of Shareholder | No. of Shares | % of Issued Shares | No. of Shares | % of Issued Shares |
| | | | | |
| Pinetree Resource Partnership | 2,861,000 | 9.29 % | |
| Sheldon Inwentash* | | 7,000,000 | 8.94 % |
* includes shares held by Pinetree Resource Partnership, where in Mr. Inwentash has shared power to vote and dispose or direct the vote and disposition of the shares held by Pinetree Resource Partnership.
At June 30, 2009,July 23, 2010, the Company had 30,820,74378,314,076 shares of common stock outstanding, which, as per the details provided by the Transfer Agents, were held by 81152 record holders excluding the beneficial shareholders held through the intermediaries, 4980 of which, holding an aggregate of 5,330,82221,864,155 shares (17.30%(27.92%) of common stock, were in the United States.
The Company is a publicly owned Canadian corporation, the shares of which are owned by Canadian residents, US residents, and residents of other countries. The Company is not owned or controlled directly or indirectly by another corporation or any foreign government. There are no arrangements, known to the Company, the operation of which may at a subsequent date result in a change of control of the Company.
(B) RELATED PARTY TRANSACTIONS
Given below is background information on some of the key related parties and transactions with them:
| 1. | Current Capital Corp. (CCC). CCC is a related party in following ways – |
| a. | Director/President of CCC, Mr. John Robinson is a consultant with Bontan |
| b. | CCC provides media and investor relation services to Bontan under a consulting contract. |
| c. | Chief Executive and Financial Officer of Bontan is providing accounting services to CCC. |
| d. | CCC and John Robinson hold significant shares in Bontan. |
Bontan shares premises with CCC for which CCC charges on a quarterly basis for the rent, phone and utilities based on the actual costs and area occupied. Charges from CCC reflect actual costs and do not include any mark ups.
Another charge from CCC relates to the investor relations and media relation services provided under a contract. The charge is a fixed sum of US$10,000 per month plus taxes.
CCC is also entitled to a finder’s fee at the rate of 10% of the gross money raised for the Company through issuance of shares and warrants under private placements.
| 2. | Mr. Kam Shah is a director of the Company and also provides services as chief executive and financial officer under a five-year contract. The compensation is decided by the board on an annual basis and is usually given in the form of cash, shares and options. |
| 3. | Mr. Terence Robinson used to be providing services as chief executive officer until May 2004 and was also a director until that date. Currently, Mr. Robinson is providing services as a key consultant under a five-year contract. His services include sourcing of new business opportunities on behalf of the company using his extensive network of business contacts and short term investments buy or sell decisions and advise on behalf of the Company. His remuneration is paid mostly in shares on an annual basis. |
| 4. | Mr. Howard Cooper and Three Crown Petroleum LLC, (TCP) a Company controlled by Mr. Cooper. Mr. Cooper/TCP is the sole director and manager of our subsidiary, IPC Cayman and is also the minority shareholder, holding 23.21% equity in IPC Cayman. Mr. Cooper receives fee of US$ 20,000 per month for acting as manager of IPC Cayman and representing the Company on the Israeli Project. |
Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount.business. Related party transactions and balances have been listed below:
| (i) | Included in shareholders information expense is $133,785 (2008$132,213 (2009 – $124,231; 2007$133,785; 2008 – $136,249)$124,231) to Current Capital Corp, (CCC) for media relation’s services. CCC is a shareholder corporation and a director of the Company provides accounting services as a consultant.services. |
| (ii) | CCC charged approximately $37,800$20,993 for rent, telephone and other office expenses (2008: $27,300(2009: $37,800 and 2007: $21,900)2008: $27,300).$32,058 was charged by the entity controlled by the sole director of IPC Cayman (2009 and 2008: $ nil) |
| (iii) | Finders fees of $736,755 (2009: $6,228, (2008: $12,245, 2007: $740,043)2008: $12,245) was charged by CCC in connection with the private placement. (TheThe fee for 20072010 included a cash fee of $130,313$449,583 and 1,040,0003,520,000 warrants valued at $609,730$287,172 using the Black-Scholes option price model). |
| (iv) | Business expenses of $19,205 (2008$23,622 (2009 - $15,771; 2007$19,205; 2008 - $10,279)$15,771) were reimbursed to directors of the corporation and $82,390 (2009 - $68,009, (2008 - $118,774, 2007: $85,862)2008: $118,774) to a key consultant and a former chief executive officer of the Company. Travel and related expenses of $88,357charged by the sole director of IPC Cayman have been included Oil & gas properties and related expenditure ( 2009 and 2008: $ nil) |
| (v) | Shares issued to a director under the Consultant’s stock compensation plan – Nil (2008(2009 : Nil, 2008: 450,000 valued at $105,373, 2007: 350,000 valued at $95,409,). Shares issued to (returned by) a key consultant and a former chief executive officer of the Company under the Consultant stock compensation planplan: Nil (2009: (275,000) valued at $ (64,395) (2008:, 2008: 550,000 valued at $ 128,790, 2007: 500,000 valued at $136,298)$128,790). |
| (vi) | Options issued to directors under Stock option plans – nil (2008:(2009: nil, 2008: 50,000 valued at $7,878, 2007: nil)$7,878). |
| (vii) | Cash fee paid to directors for services of $60,000 (2008:$235,000 (2009:$33,87160,000 and 2007:2008: $ nil)33,871). Cash fee paid to a key consultant and a former chief executive officer of the Company of $90,000 (2008$120,000 (2009:$90,000 and 2007:2008: $ nil). TheseFees paid to a consultant who controls CCC $76,543 (2009: $81,911 in shares, 2008: $81,926 in shares).These fees are included under travel, promotion andin consulting expenses. |
| (viii) | Accounts payable includes $95,813 (2009: $15,482, (2008: $9,384, 2007: $3,471)2008: $9,384) due to CCC, $5,852 (2009: $1,875, (2008: $757, 2007: $1,431)2008: $757) due to a director and $82,741 (2009: $67,212, (2008: $6,577, 2007:2008: $ 7,099)6,577) due to a key consultant and a former chief executive officer of the Company.Company and due to a consultant who controls CCC $62,475 (2009: $1,024, 2008: $1,022) |
| (ix) | Interest income includes $ nil (2008: $ nil & 2007: $1,398) representing interest received fromIncluded in short term investments is an investment of $nil (2009 and 2008: $200,000) in a private corporation controlled by a brother of the Chief Executive officer.key consultant. The investment was fully written off as at March 31, 2010 (Nil at March 31, 2009$200,000 as at March 31, 2008) |
| (x) | Included in short term investments is an investment of $200,000 (2008: $200,000, 2007: $ nil) in a private corporation controlled by a brother of the key consultant. The investment was stated at market$1,869,381 carrying cost and $775,020 fair value which was considered nil as at March 31, 2009 ($200,000 as at March 31, 2008) |
(xi) | Included in short term investments is an investment of $1,837,956(2009: 1,837,956 carrying cost and $361,877 fair value, (2008: 1,929,0492008: $1,929,049 carrying cost and $1,140,120 fair value, 2007: $1,604,493 carrying cost and $2,710,760 fair value) in a public corporation controlled by a key shareholder of the Company. This investment represents common shares acquired in open market or through private placements and represents less than 1% of the issued and outstanding common shares of the said Corporation. |
(xii)(xi) | Included in other receivable is ana fee advance of $70,000 (2008$nil (2009: $ 70,000 and 2007:2008: $nil) made to Chief Executive Officer. The advance is repayable upon happening of certain events as explainedfee amount advanced in 6 (B) (2) above and carries no interest.fiscal 2009 was expensed in March 2010. |
(xiii) (xii) | Included in other receivable is an advance of $5,814$nil made to a director (2008: $2,470(2009: $5,814 and 2007:2008: $ nil), advance is against future fee and carries no interest. |
(C) INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8 – FINANCIAL INFORMATION
(A) CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Information regarding our financial statements is contained under the caption "Item 17. Financial Statements" below.
Legal Proceedings
There are no material legal proceedings in progress or to the knowledge of the Company, pending or threatened to which the Company is a party or to which any of its properties is subject.
However there are two pending disputes which are explained in Note 20 to the consolidated financials for the fiscal 2010.
Dividend Policy
Since its incorporation, the Company has not declared or paid, and has no present intention to declare or to pay in the foreseeable future, any cash dividends with respect to its Common Shares. Earnings will be retained to finance further growth and development of the business of the Company. However, if the Board of Directors declares dividends, all Common Shares will participate equally in the dividends, and, in the event of liquidation, in the net assets, of the Company.
(B) SIGNIFICANT CHANGES
There were no corporate changes and other significantSubsequent events that occurred subsequent to March 31, 2009 up tohave been evaluated through July 23, 2010 , the date of this report, June 30, 2009, except for a registration of 2009 Consultant Stock Option Plan on April 7, 2009report.
Key events are as explained in item 6(E) above.follows:
| (i) | In a letter dated May 16, 2010, Petroleum Commissioner confirmed that the two licenses, in which the Company has indirect 11% working interest, are fully valid and approved changes in the work plan submitted by the steering committee. The Petroleum Commissioner approved deadlines for submitting various work plans between July 15, 2010 and March 31, 2011. |
| (ii) | On May 19, 2010, Geoglobal Resources (India) Inc. was appointed operator for the two licenses, in which the Company has indirect 11% working interest, subject to the execution of a joint operating agreement. The operator will acquire a 5% working interest in the two licenses pro rata from the Lead Investors and IPC Cayman for USD $1.2 million. As a result of such acquisition, the Company’s indirect working interest has decreased to 10.45%. The operator also will have an option to acquire an additional 2.5% working interest in one or both licenses pro rata from the Lead Investors and IPC Cayman. |
| (iii) | The joint venture partners and the operator also entered into an option agreement dated as of May 19, 2010. Under this option agreement, the joint venture partners have the option to purchase up to a 12.5% ownership interest in an offshore drilling license known as the Samuel license granted to the operator and their partners. Bontan’s subsidiary, IPC Cayman is now entitled to acquire 2.72% of the Samuel license, of which Bontan’s share would be 2.09% and the minority shareholder of IPC Cayman will be entitled to the balance 0.63%. |
| (iv) | On May 20, 2010, the joint venture partners submitted an application to the Israeli Petroleum Commissioner to approve the transfer and registration of the rights in the Mira and Sarah licenses. The approval was granted on June 16, 2010. |
ITEM 9 - THE OFFER AND LISTING
(A) OFFER AND LISTING DETAILS
The following tables set forth the reported high and low sale prices for the common shares of the Company as quoted on OTCBB.
The following table outlines the annual high and low market prices for the five most recent fiscal years:
| Fiscal year ended March 31 | | High In US$ | | | Low In US$ | | High In US$ | Low In US$ |
| 2010 | | 0.45 | 0.06 |
| 2009 | | | 0.30 | | | | 0.03 | | 0.30 | 0.03 |
| 2008 | | | 0.47 | | | | 0.17 | | 0.47 | 0.17 |
| 2007 | | | 0.75 | | | | 0.22 | | 0.75 | 0.22 |
| 2006 | | | 1.51 | | | | 0.20 | | 1.51 | 0.20 |
| 2005 | | | 2.15 | | | | 0.33 | | |
| | | | | | | | | | |
The following table outlines the high and low market prices for each fiscal financial quarter for the two most recent fiscal periods and any subsequent period:
| Fiscal Quarter ended | | High | | | Low | |
| | | In US$ | | | In US$ | |
| | | | | | | |
| | | | | | | |
| June 30, 2009 | | | 0.12 | | | | 0.06 | |
| March 31, 2009 | | | 0.27 | | | | 0.08 | |
| December 31, 2008 | | | 0.11 | | | | 0.03 | |
| September 30, 2008 | | | 0.30 | | | | 0.07 | |
| June 30, 2008 | | | 0.27 | | | | 0.20 | |
| March 31, 2008 | | | 0.32 | | | | 0.17 | |
| December 31, 2007 | | | 0.36 | | | | 0.17 | |
| September 30, 2007 | | | 0.43 | | | | 0.21 | |
| June 30, 2007 | | | 0.47 | | | | 0.25 | |
| Fiscal Quarter ended | High | Low |
| | In US$ | In US$ |
| | | |
| | | |
| June 30, 2010 | 0.40 | 0.25 |
| March 31, 2010 | 0.45 | 0.25 |
| December 31, 2009 | 0.38 | 0.25 |
| September 30, 2009 | 0.30 | 0.07 |
| June 30, 2009 | 0.12 | 0.06 |
| March 31, 2009 | 0.27 | 0.08 |
| December 31, 2008 | 0.11 | 0.03 |
| September 30, 2008 | 0.30 | 0.07 |
| June 30, 2008 | 0.27 | 0.20 |
The following table outlines the high and low market prices for each of the most recent six months:
| Month | | High | | | Low | |
| | | In US$ | | | In US$ | |
| | | | | | | |
| June 2009 | | | 0.12 | | | | 0.09 | |
| May 2009 | | | 0.12 | | | | 0.07 | |
| April 2009 | | | 0.10 | | | | 0.06 | |
| March 2009 | | | 0.13 | | | | 0.08 | |
| February 2009 | | | 0.18 | | | | 0.09 | |
| January 2009 | | | 0.27 | | | | 0.12 | |
| Month | High | Low |
| | In US$ | In US$ |
| | | |
| June 2010 | 0.34 | 0.25 |
| May 2010 | 0.37 | 0.27 |
| April 2010 | 0.42 | 0.31 |
| March 2010 | 0.45 | 0.20 |
| February 2010 | 0.40 | 0.24 |
| January 2010 | 0.40 | 0.25 |
(B) PLAN OF DISTRIBUTION
Not applicable.
(C) MARKETS
The Company’s common shares were traded on the Over the Counter Bulletin Board (OTCBB) under the symbol “DEAL” and on Canadian Dealing Network (CDN) under the symbol “FDQI” until January 20, 1999.
Effective January 21, 1999. The Company’s shares were traded only on OTCBB. The symbol was further changed to “NMBC” on August 13, 1999 and then to “DCHK” on November 3, 1999.
On May 26, 2000, the Company shares were de-listed from OTCBB and began trading on the “Pink Sheet” pending clearance of the Registration Statement, F-20 by Securities and Exchange Commission (SEC). The Company filed F-20 originally in December 1999 and then filed several amendments in response to the comments received from SEC to its submissions. The SEC clearance was finally received on June 16, 2000 and the common shares of the Company began trading again on OTCBB effective August 2, 2000.
The company changed its name to Bontan Corporation Inc. On April 21, 2003 and its common shares began trading, and currently trade under a new symbol “BNTNF” on OTCBB.
(D) SELLING SHAREHOLDERS
Not applicable.
(E) DILUTION
Not applicable.
(F) EXPENSES OF THE ISSUE
Not applicable.
ITEM 10 – ADDITIONAL INFORMATION
(A) SHARE CAPITAL
This Form 20F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this section.
(B) MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum and Articles of the Company are incorporated by reference to the information in our registration statement on Form 20-F filed with the Securities and Exchange Commission, in Washington, D.C. on June 12, 2000 to which our Articles of Incorporation and Memorandum were filed as exhibits.
No further changes have been made to the Company’s Articles/Bylaws.
The Company’s articles of incorporation do not place any restrictions on the Company’s objects and purposes.
Certain Powers of Directors
The Business Corporations Act (Ontario) (the "OBCA") requires that every director who is a party to a material contract or transaction or a proposed material contract or transaction with a corporation, or who is a director or officer of, or has a material interest in, any person who is a party to a material contract or transaction or a proposed material contract or transaction with the corporation, shall disclose in writing to the corporation or request to have entered in the minutes of the meetings of directors the nature and extent of his or her interest, and shall refrain from voting in respect of the material contract or transaction or proposed material contractcont ract or transaction unless the contract or transaction is: (a) an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of the corporation or an affiliate; (b) one relating primarily to his or her remuneration as a director, officer, employee or agent of the corporation or an affiliate; (c) one for indemnity of or insurance for directors as contemplated under the OBCA; or (d) one with an affiliate. However, a director who is prohibited by the
OBCA from voting on a material contract or proposed material contract may be counted in determining whether a quorum is present for the purpose of the resolution, if the director disclosed his or her interest in accordance with the OBCA and the contract or transaction was reasonable and fair to the corporation at the time it was approved.
The Company's by-laws provide that the directors shall from time to time determine by resolution the remuneration to be paid to the directors, which shall be in addition to the salary paid to any officer or employee of the Company who is also a director. The directors may also by resolution award special remuneration to any director in undertaking any special services on the Company's behalf other than the normal work ordinarily required of a director of the Company. The by-laws provide that confirmation of any such resolution by the Company's shareholders is not required.
The Company's by-laws also provide that the directors may: (a) borrow money upon the credit of the Company; (b) issue, reissue, sell or pledge bonds, debentures, notes or other evidences of indebtedness or guarantee of the Company, whether secured or unsecured; (c) to the extent permitted by the OBCA, give directly or indirectly financial assistance to any person by means of a loan, a guarantee on behalf of the Company to secure performance of any present or future indebtedness, liability or other obligation of any person, or otherwise; and (d) mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal, movable or immovable, tangible or intangible, property of the Company to secure any suchs uch bonds, debentures, notes or other evidences of indebtedness or guarantee or any other present or future indebtedness, liability or other obligation of the Company.
The directors may, by resolution, amend or repeal any by-laws that regulate the business or affairs of the Company. The OBCA requires the directors to submit any such amendment or repeal to the Company's shareholders at the next meeting of shareholders, and the shareholders may confirm, reject or amend the amendment or repeal.
Meetings of Shareholders
Authorized Capital
The Company's authorized capital consists of an unlimited number of shares of one class designated as common shares. The Company may not create any class or series of shares or make any modification to the provisions attaching to the Company's common shares without the affirmative vote of two-thirds of the votes cast by the holders of the common shares. The Company's common shares do not have pre-emptive rights to purchase additional shares.
Disclosure of Share Ownership
The Securities Act (Ontario) provides that a person or company that beneficially owns, directly or indirectly, voting securities of an issuer or that exercises control or direction over voting securities of an issuer or a combination of both, carrying more than 10% of the voting rights attached to all the issuer's outstanding voting securities (an "insider") must, within 10 days of becoming an insider, file a report in the required form effective the date on which the person became an insider, disclosing any direct or indirectbeneficial ownership of, or control or directiondirec tion over, securities of the reporting issuer. The Securities Act (Ontario) also provides for the filing of a report by an insider of a reporting issuer who acquires or transfers securities of the issuer. This report must be filed within 10 days after the end of the month in which the acquisition or transfer takes place.
The Securities Act (Ontario) also provides that a person or company that acquires (whether or not by way of a take-over bid, issuer bid or offer to acquire) beneficial ownership of voting or equity securities or securities convertible into voting or equity securities of a reporting issuer that, together with previously held securities brings the total holdings of such holder to 10% or more of the outstanding securities of that class, must (a) issue and file forthwith a news release containing the prescribed information and (b) file a report within two business days containing the same information set out in the news release. The acquiring person or company must also issue a press release and file a report each timeti me it acquires an additional 2% or more of the outstanding securities of the same class and every time there is a "material change" to the contents of the news release and report previously issued and filed.
Act. This information is also required to be sent to the issuer of the securities and to each exchange where the securities are traded.
Restrictions on Share Ownership by Non-Canadians
There are no limitations under the laws of Canada or in the constitutive documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control" of the Company by a "non-Canadian". The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. "Non-Canadian" generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
(C) MATERIAL CONTRACTS
Allocation of Rights and Settlement Agreement
The Allocation of Rights and Settlement Agreement is described under Item 4(B) “Business overview –Background and Status of Offshore Israel Project.”
Agreement Regarding Ownership interests in Israel Petroleum Company, Limited
Under the terms of the agreement dated April 14, 2010, International Three Crown Petroleum LLC is deemed to have owned and currently owns a 23.21% equity interest in IPC Cayman represented by 2,321 ordinary shares of IPC Cayman and Bontan is deemed to have owned and currently owns a 76.79% equity interest in IPC Cayman represented by 7,679 ordinary shares of IPC Cayman. Allied Ventures Incorporated is deemed not to have owned or to ever have owned and not to currently own any equity interest in IPC Cayman.
Apart from the above, the other terms of the Contribution and Assignment Agreement and the Stockholders Agreement – discussed below- remain valid subject to the obligation of International Three Crown Petroleum LLC to enter into good faith negotiations with Bontan to revise the terms of these two agreements.
Contribution and Assignment Agreement
Under the terms of a Contribution and Assignment Agreement dated November 14, 2009 by and among, International Three Crown Petroleum LLC, Bontan Oil & Gas Corporation, Bontan, IPC Cayman and Allied Ventures Incorporated:
| · | International Three Crown Petroleum LLC contributed and assigned all of its right, title and interest in and to an Option Agreement for Purchase and Sale dated October 15, 2009 between International Three Crown Petroleum LLC and PetroMed Corporation, pursuant to which International Three Crown Petroleum LLC obtained, among other things, an exclusive option to purchase PetroMed’s undivided 95.5% interest in Petroleum License 347 (“Mira”) and Petroleum License 348 (“Sarah”) and Petroleum Preliminary Permit 199 (“Benjamin”). |
| · | IPC Cayman issued 7,500 ordinary shares to Bontan (representing a 75% equity interest in IPC Cayman), 2,250 ordinary shares to International Three Crown Petroleum LLC and 250 ordinary shares to Allied Ventures. |
| · | Upon the closing of the exercise of the option, which occurred on November 18, 2009, and as consideration to PetroMed for its sale of the Mira and Sarah licenses and the Benjamin permit, Bontan delivered to PetroMed USD $850,000 in cash, 8,617,686 common shares of Bontan and a 7- year warrant to purchase 22,853,058 common shares of Bontan with an exercise price of USD $4.00 per share. |
| · | Upon the closing of the exercise of the option, Bontan issued a warrant to purchase up to 5,000,000 common shares of Bontan to International Three Crown Petroleum LLC and a warrant to purchase up to 2,000,000 common shares of Bontan to Allied Ventures. These warrants have a 5-year term and an exercise price of USD $0.35 per share. |
| · | Following the closing of the exercise of the option, IPC Cayman conveyed to H. Howard Cooper a gross 1% over-riding royalty of all oil and gas produced, saved and sold from the area covered by the Mira and Sarah licenses and the Benjamin permit, free and clear of any costs incurred in connection with the exploration, production and delivery of the oil and gas. |
Under the Contribution Agreement, we have agreed to use our best efforts to raise up to USD $18 million in equity or debt financings and to contribute the net proceeds from these financings to IPC Cayman to cover the costs of seismic and other technical work and other expenses expected to be incurred related to the project, for general working capital purposes and to reimburse International Three Crown Petroleum for certain expenses in connection with the project. To raise cash to satisfy our USD $850,000 payment obligation to PetroMed, we sold a USD $850,000 promissory note secured by our pledge of 1,125 shares of IPC Cayman together with a 5-year warrant to purchase 1,000,000 common shares at an exercise price of USD $0.35 per share. The note bears an interest rate of 10% per year and is due and payable on November 12, 2010.
All the above terms have significantly been affected by the Allocation of Rights and Settlement Agreement and Agreement Regarding Ownership Interest in Israel Petroleum Company, Limited as discussed above. We are currently negotiating with ITC to replace the current agreement with a new agreement to reflect all the changes.
We have agreed to file and seek effectiveness of one or more registration statements to be filed with the U.S. Securities and Exchange Commission covering the resale of the various securities issued to PetroMed, International Three Crown Petroleum, Allied Ventures and the investors in the financings. Under the terms of the warrants issued to International Three Crown Petroleum and Allied Ventures, if we fail to file the registration statement within 60 days following the date of issuance, or if the registration statement is not declared effective within nine months following the date of issuance, then, in each case, the number of shares underling the warrants will increase by 2%. For each subsequent 30 day period during which the registration statement is not filed or declared effective, the number of shares underlyi ng the warrants will increase by 1%. The maximum adjustment to the shares is 10%.
In addition, on November 18, 2009, International Three Crown Petroleum entered into a consulting services agreement with Hagai Amir under which Mr. Amir will provide certain services as requested by International Three Crown Petroleum. International Three Crown Petroleum has agreed to pay Mr. Amir USD $20,000 per month for a 6-month period beginning in December 2009 and USD $60,000 upon approval of the transfer of the two licenses and permit by the Israeli Petroleum Commissioner. Also, weagreed to issue to Mr. Amir a 5-year warrant to purchase 500,000 common shares at an exercise price of USD $4.00 per share. These agreements would be canceled as a result of new agreements as discussed above.
Stockholders Agreement
The terms of the Stockholders Agreement have significantly been affected by the Allocation of Rights and Settlement Agreement and Agreement Regarding Ownership Interest in Israel Petroleum Company Limited, as discussed above. We are currently negotiating with International Three Crown Petroleum LLC to replace the current agreement with a new agreement to reflect all the changes.
Concurrently with the execution of the Contribution Agreement, Bontan Oil & Gas Corporation, International Three Crown Petroleum LLC, Allied Ventures and Bontan entered into a Stockholders Agreement. Under the Stockholders Agreement, International Three Crown Petroleum LLC, as the sole director of IPC Cayman, will be responsible for the management of the business and affairs of IPC Cayman. The director will be liable to IPC Cayman and its stockholders only for willful misconduct or gross negligence in the management of the business and affairs of IPC Cayman. IPC Cayman will indemnify the director and its affiliates, and any agents, officers and employees of the director and its affiliates, from any loss or liability incurred as a result of any act or omission, or error of judgment, related
to the director’s management of IPC Cayman unless the loss or liability results from the director’s willful misconduct or gross negligence.
International Three Crown Petroleum LLC may not be removed as director by the stockholders of IPC Cayman other than (i) for willful misconduct that materially and adversely affects the project or (ii) in the event that a controlling interest in International Three Crown Petroleum is transferred to a person who is not a Qualified Buyer (as defined) and the management team of International Three Crown Petroleum LLC is not substantially the same as the management team of International Three Crown Petroleum LLC before the transfer. Removal of International Three Crown Petroleum LLC as director for any such reason requires the affirmative vote of stockholders owning a majority of the ordinary shares of IPC Cayman, and appointment of a new director to replace International Three Crown Petroleum as director requires the affirmative vo te of stockholders owning at least 80% of the ordinary shares of IPC Cayman. A Qualified Buyer is defined to mean any person that has experience in the oil and gas industry substantially equivalent to, or greater than, that of International Three Crown Petroleum.
If International Three Crown Petroleum LLC transfers a majority of its ordinary shares of IPC Cayman to a Qualified Buyer, then the Qualified Buyer will have the sole authority to appoint and remove the director of IPC Cayman. However, in this case, stockholders owning a majority of the ordinary shares of IPC Cayman may remove the director only for willful misconduct that materially and adversely affects the project, and appointment of a new director will require the affirmative vote of stockholders owning at least 80% of the ordinary shares of IPC Cayman.
Under the Stockholders Agreement, stockholders owning a majority of the ordinary shares of IPC Cayman have the right to approve the following actions:
| · | Expansion of the scope of IPC Cayman’s business beyond the acquisition, development and potential farmout or sale of the Mira and Sarah licenses and the Benjamin permit and the exploitation and commercialization of those licenses and permit; |
| · | Sale or merger of IPC Cayman or sale or other disposition of all or substantially all of the IPC Cayman’s assets (other than a sale or farmout to an industry partner in connection with a commitment to conduct exploratory or development operations on the licenses and permit); |
| · | Admit additional owners to IPC Cayman; |
| · | Enter into any contract or agreement between IPC Cayman and International Three Crown Petroleum, Mr. Cooper, Allied Ventures or any affiliate of those persons; |
| · | Modify any compensation arrangement between IPC Cayman and International Three Crown Petroleum, Mr. Cooper, Allied Ventures or any affiliate of those persons; |
| · | Redeem any shares or other equity interest in IPC Cayman; and |
| · | Amend the organizational and internal operating documents of IPC Cayman. |
Under the Stockholders Agreement, IPC Cayman will pay to International Three Crown Petroleum a monthly management fee of $20,000 for its services as director of IPC Cayman and is obligated to reimburse reasonable out-of pocket expenses that the director incurs on behalf of IPC Cayman. International Three Crown Petroleum is also entitled to receive certain commissions and fees related to the financing of the project and any farmout, option, sale, assignment or other transfer of all or a portion of the project.
The Stockholders Agreement provides for information rights and restrictions on transfer of the ordinary shares, including a right of first refusal.
Except for contracts entered into in the ordinary course of its business, there were no material contracts to which we are or have been a party to for the two years preceding this annual report.
(D) EXCHANGE CONTROLS
There are currently no laws, decrees, regulations or other legislation in Canada that restricts the export or import of capital or that affects the remittance of dividends, interest or other payments to non-resident holders of our securities other than withholding tax requirements. There is no limitation imposed by Canadian law or by our Articles of Incorporation or our other organizational documents on the right of a non-resident of Canada to hold or vote our common shares, other than as provided in the North American Free Trade Agreement Implementation Act (Canada) and in the Investment Canada Act, as amended by the World Trade Organization Agreement Implementation Act.
The Investment Canada Act requires notification and, in certain cases, advance review and approval by the Government of Canada of the acquisition by a “non-Canadian” of “control of a Canadian business”, all as defined in the Investment Canada Act. Generally, the threshold for review will be higher in monetary terms, and in certain cases an exemption will apply, for an investor ultimately controlled by persons who are nationals of a WTO Member or have the right of permanent residence in relation thereto.
(E) TAXATION
Canadian Federal Income Tax Consequences
We consider that the following summary fairly describes the principal Canadian federal income tax consequences applicable to a holder of our common shares who at all material times deals at arm’s length with our company, who holds all common shares as capital property, who is resident in the United States, who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his common shares of our company in connection with carrying on a business in Canada (a “non-resident holder”). It is assumed that the common shares will at all material times be listed on a stock exchange that is prescribed for purposes of the Income Tax Act (Canada) (the “ITA”) and regulations thereunder.th ereunder. Investors should be aware that the Canadian federal income tax consequences applicable to holders of our common shares will change if, for any reason, we cease to be listed on a prescribed stock exchange. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences of them purchasing, owing and disposing of our common shares should we cease to be listed on a prescribed stock exchange.
This summary is based upon the current provisions of the ITA, the regulations there under, the Canada-United States Tax Convention as amended by the Protocols thereto (the “Treaty”) as at the date of the registration statement and the currently publicly announced administrative and assessing policies of the Canada Revenue Agency (the “CRA”). This summary does not take into account Canadian provincial income tax consequences. This description is not exhaustive of all possible Canadian federal income tax consequences and does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action. This summary does, however, take into account all specific proposals to amend the ITA and regulations there under, publicly announced by the Government of Canada to the date hereof.hereof .
This summary does not address potential tax effects relevant to our company or those tax considerations that depend upon circumstances specific to each investor. Accordingly, holders and prospective holders of our common shares should consult with their own tax advisors with respect to the income tax consequences to them of purchasing, owning and disposing of common shares in our company.
Dividends
The ITA provides that dividends and other distributions deemed to be dividends paid or deemed to be paid by a Canadian resident corporation (such as our company) to a non-resident of Canada shall be subject to a non-resident withholding tax equal to 25% of the gross amount of the dividend of deemed dividend. Provisions in the ITA relating to dividend and deemed dividend payments to and gains realized by non-residents of Canada, who are residents of the United States, are subject to the Treaty. The Treaty may reduce the withholding tax rate on dividends as discussed below.
Article X of the Treaty as amended by the US-Canada Protocol ratified on November 9, 1995 provides a 5% withholding tax on gross dividends or deemed dividends paid to a United States corporation which beneficially owns at least 10% of the voting stock of the company paying the dividend. In cases where
dividends or deemed dividends are paid to a United States resident (other than a corporation) or a United States corporation which beneficially owns less than 10% of the voting stock of a company, a withholding tax of 15% is imposed on the gross amount of the dividend or deemed dividend paid. We would be required to withhold any such tax from the dividend and remit the tax directly to CRA for the account of the investor.
The reduction in withholding tax from 25%, pursuant to the Treaty, will not be available:
(a) if the shares in respect of which the dividends are paid formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or had in Canada within the 12 months preceding the disposition, or
(b) the holder is a U.S. LLC which is not subject to tax in the U.S.
The Treaty generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization exclusively administering a pension, retirement or employee benefit fund or plan, if the organization is resident in the U.S. and is exempt from income tax under the laws of the U.S.
Capital Gains
A non-resident holder is not subject to tax under the ITA in respect of a capital gain realized upon the disposition of one of our shares unless the share represents “taxable Canadian property” to the holder thereof. Our common shares will be considered taxable Canadian property to a non-resident holder only if-.
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at arm’s length - or
(c) the non-resident holder and persons with whom he did not deal at arm’s length,
owned not less than 25% of the issued shares of any class or series of our company at any time during the five year period preceding the disposition. In the case of a non-resident holder to whom shares of our company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will generally be payable on a capital gain realized on such shares by reason of the Treaty unless:
(a) the value of such shares is derived principally from real property (including resource property) situated in Canada,
(b) the holder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be a resident of Canada,
(c) they formed part of the business property or were otherwise effectively connected with a permanent establishment or fixed base that the holder has or bad in Canada within the 12 months preceding the disposition, or
(d) the holder is a U.S. LLC which is not subject to tax in the U.S.
If subject to Canadian tax on such a disposition, the taxpayer’s capital gain (or capital loss) from a disposition is the amount by which the taxpayer’s proceeds of disposition exceed (or are exceeded by) the aggregate of the taxpayer’s adjusted cost base of the shares and reasonable expenses of disposition. For Canadian income tax purposes, the “taxable capital gain” is equal to one-half of the capital gain.
U.S. Federal Income Tax Consequences
The following is a discussion of the material United States Federal income tax consequences, under current law, applicable to a U.S. Holder (as defined below) of our common shares who holds such shares as capital assets. This discussion does not address all potentially relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local, or foreign tax consequences. (See “Canadian Federal Income Tax Consequences” above.)
The following discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
The discussion below does not address potential tax effects relevant to our company or those tax considerations that depend upon circumstances specific to each investor. In addition, this discussion does not address the tax consequences that may be relevant to particular investors subject to special treatment under certain U.S. Federal income tax laws, such as, dealers in securities, tax-exempt entities, banks, insurance companies and non-U.S. Holders. Purchasers of the common stock should therefore satisfy themselves as to the overall tax consequences of their ownership of the common stock, including the State, local and foreign tax consequences thereof (which are not reviewed herein), and should consult their own tax advisors with respect to their particular circumstances.
U.S. Holders
As used herein, a “U.S. Holder” includes a beneficial holder of common shares of our company who is a citizen or resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, any trust if a US court is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, any entity created or organized in the United States which is taxable as a corporation for U.S. tax purposes and
any other person or entity whose ownership of common shares of our company is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal incomeincom e tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of our common shares is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their shares through the exercise of employee stock options or otherwise as compensation.
Dividend Distribution on Shares of our Company
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to the common shares of our company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that we have current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be deducted or may be credited against actual tax payable, subject to certain limitations and other complex rules, against the U.S. Holder’s United States Federal taxable income. See “Foreign Tax Credit” below. To the extent that distributions exceed our current or accumulated earnings and profits, they will be treated first as a return of capital to the extent of the shareholder’s basis in the common shares of our company and thereafter as gain from the sale or exchange of the common shares of our company. Preferential tax rates for net long term capital gains may be applicable to a U.S. Holder which is an individual, estate or trust.
In general, dividends paid on our common shares will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.
Foreign Tax Credit
A U.S. Holder who pays (or who has had withheld from distributions) Canadian income tax with respect to the ownership of our common shares may be entitled, at the election of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. This election is made on a year-by-year basis and generally applies to all foreign income taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its world-wide taxable income. In determining the application of this limitation, the various items of income and deduction mustmus t be classified into foreign and domestic sources. Complex rules govern income such as “passive income”, “high withholding tax interest”, “financial services income”, “shipping income” and certain other classifications of income. A U.S. Holder who is treated as a domestic U.S. corporation owning 10% or more of our voting stock is also entitled to a deemed paid foreign tax credit in certain circumstances for the underlying foreign tax of our company related to dividends received or Subpart F income received from us. (See the discussion below of Controlled Foreign Corporations). The availability of the foreign tax credit and the application of the limitations on the
foreign tax credit are fact specific and holders and prospective holders of our common shares should consult their own tax advisors regarding their individual circumstances.
Disposition of Common Shares
If a “U.S. Holder” is holding shares as a capital asset, a gain or loss realized on a sale of our common shares will generally be a capital gain or loss, and will be long-term if the shareholder has a holding period of more than one year. However, gains realized upon sale of our common shares may, under certain circumstances, be treated as ordinary income, if we were determined to be a “collapsible corporation” within the meaning of Code Section 341 based on the facts in existence on the date of the sale (See below for definition of “collapsible corporation”). The amount of gain or loss recognized by a selling U.S. Holder will be measured by the difference between (i) the amount realized on the sale and (ii) his tax basis in our common shares. Capital losses are deductible only to the extent of capitalcapit al gains. However, in the case of taxpayers other than corporations (U.S.)$3,000 ($1,500 for married individuals filing separately) of capital losses are deductible against ordinary income annually. In the case of individuals and other non-corporate taxpayers, capital losses that are not currently deductible may be carried forward to other years. In the case of corporations, capital losses that are not currently deductible are carried back to each of the three years preceding the loss year and forward to each of the five years succeeding the loss year.
A “collapsible corporation” is a corporation that is formed or availed principally to manufacture, construct, produce, or purchase prescribed types or property that the corporation holds for less than three years and that generally would produce ordinary income on its disposition, with a view to the stockholders selling or exchanging their stock and thus realizing gain before the corporation realizes two thirds of the taxable income to be derived from prescribed property. Prescribed property includes: stock in trade and inventory; property held primarily for sale to customers in the ordinary course of business; unrealized receivables or fees, consisting of rights to payment for noncapital assets delivered or to be delivered, or services rendered or to be rendered to the extent not previously included in income, but excludingexcludin g receivables from selling property that is not prescribed; and property gain on the sale of which is subject to the capital gain/ordinary loss rule. Generally, a shareholder who owns directly or indirectly 5 percent or less of the outstanding stock of the corporation may treat gain on the sale of his shares as capital gain.
Other Considerations for U.S. Holders
In the following circumstances, the above sections of this discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Registrant. Our management is of the opinion that there is little, if not, any likelihood that we will be deemed a “Foreign Personal Holding Company”, a “Foreign Investment Company” or a “Controlled Foreign Corporation” (each as defined below) under current and anticipated conditions.
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting power or the total value of our outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% or more of our gross income for such year was derived from certain passive sources (e.g., from dividends received from its subsidiaries), we would be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares in our capital would be required to include in income for such year their allocable portion of our passive income which would have been treated as a dividend had that passive income actually been distributed.
Foreign Investment Company
If 50% or more of the combined voting power or total value of our outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and we are found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that we might be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging our common shares to be treated as ordinary income rather than capital gains.
Passive Foreign Investment Company
A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a passive foreign investment company (“PFIC”) is subject to U.S. federal income taxation of that foreign corporation under one of two alternative tax methods at the election of each such U.S. Holder.
Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by value (or, if the company is a controlled foreign corporation or makes an election, adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. For taxable years of U.S. persons beginning after December 31, 1997, and for tax years of foreign corporations ending with or within such tax years, the Taxpayer Relief Act of 1997 provides that publicly traded corporations must apply this test on a fair market value basis only. The Registrant believesdoes not believe that it is a PFIC.PFIC.
As a PFIC, each U.S. Holder must determine under which of the alternative tax methods it wishes to be taxed. Under one method, a U.S. Holder who elects in a timely manner to treat the Registrant as a Qualified Electing Fund
(“QEF”), as defined in the Code, (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which we qualify as a PFIC on his pro-rata share of our (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), whichwh ich will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the U.S. Holder’s taxable year in which (or with which) our taxable year ends, regardless of whether such amounts are actually distributed. Such an election, once made shall apply to all subsequent years unless revoked with the consent of the IRS.
A QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares (or deemed to be realized on the pledge of his common shares) as capital gain; (ii) treat his share of our net capital gain, if any, as long-term capital gain instead of ordinary income, and (iii) either avoid interest charges resulting from PFIC status altogether (see discussion of interest charge below), or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of our annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing U.S. Holder is an individual, such an interest charge would be not deductible.
The procedure a U.S. Holder must comply with in making aan timely QEF election will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which we are a PFIC. If the U.S. Holder makes a QEF election in such first year, (sometimes referred to as a “Pedigreed QEF Election”), then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files its tax return for such first year. If, however, we qualified as a PFIC in a prior year, then the U.S. Holder may make an “Unpedigreed QEF Election” by recognizing as an “excess distribution” (i) under the rules of Section 1291 (discussed below), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date (Deemed Sale Election) or (ii) if we are a controlled foreign corporation (“CFC”), the Holder’s pro rata share of the corporation’s earnings and profits (Deemed Dividend Election) (But see “Elimination of Overlap Between Subpart F Rules and PFIC Provisions”). The effect of either the deemed sale election or the deemed dividend election is to pay all prior deferred tax, to pay interest on the tax deferral and to be treated thereafter as a Pedigreed QEF as discussed in the prior paragraph. With respect to a situation in which a Pedigreed QEF election is made, if we no longer qualify as a PFIC in a subsequent year, normal Code rules and not the PFIC rules will apply.
If a U.S. Holder has not made a QEF Election at any time (a “Non-electing U.S. Holder”), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reason of a pledge) of his common shares and (ii) certain “excess distributions”, as specially defined, by our company. An “excess distribution” is any current-year distribution in respect of PFIC stock that represents a ratable portion of the total distributions in respect of the stock during the year that exceed 125 percent of the average amount of distributions in respect of the stock during the three preceding years.
A Non-electing U.S. Holder generally would be required to pro-rate all gains realized on the disposition of his common shares and all excess distributions over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to our first taxable year during such U.S. Holder’s holding period and beginning after January, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-electing U.S. Holder also would be liable for interest on the deferred tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-electing U.S. Holder that is an individual is not allowed a deduction for interest on the deferred tax liability. The portions of gains and distributions that are not characterized as “excess distributions” are subject to tax in the current year under the normal tax rules of the Internal Revenue Code.
If we are a PFIC for any taxable year during which a Non-electing U.S. Holder holds common shares, then we will continue to be treated as a PFIC with respect to such common Shares, even if it is no longer by definition a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such common shares had been sold on the last day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued proposed regulations that would treat as taxable certain transfers of PFIC stock by Non-electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death.
If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it is made after the first year during which we are a PFIC and the U.S. Holder holds our shares) (a “Unpedigreed Election”), the QEF rules apply prospectively but do not apply to years prior to the year in which the QEF first becomes effective. U.S. Holders should consult their tax advisors regarding the specific consequences of making a Non-Pedigreed QEF Election.
Certain special, generally adverse, rules will apply with respect to the common shares while we are a PFIC whether or not it is treated as a QEF. For example under Section 1297(b)(6) of the Code (as in effect prior to the Taxpayer Relief Act of 1997), a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such stock.
The foregoing discussion is based on currently effective provisions of the Code, existing and proposed regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change. Any such change could affect the validity of this discussion. In addition, the implementation of certain aspects of the PFIC rules requires the issuance of regulations which in many instances have not
been promulgated and which may have retroactive effect. There can be no assurance that any of these proposals will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion. Accordingly, and due to the complexity of the PFIC rules, U.S. Holders of the Registrant are strongly urged to consult their own tax advisors concerning the impact of these rules on their investment in our company. For a discussion of the impact of the Taxpayer Relief Act of 1997 on a U.S. Holder of a PFIC, see “Mark-to-Market Election For PFIC Stock Under the Taxpayer Relief Act of 1997” and “Elimination of Overlap Between Subpart F Rules and PFIC Provisions” below.
Mark-to-Market Election for PFIC Stock Under the Taxpayer Relief Act of 1997
The Taxpayer Relief Act of 1997 provides that a U.S. Holder of a PFIC may make a mark-to-market election with respect to the stock of the PFIC if such stock is marketable as defined below. This provision is designed to provide a current inclusion provision for persons that are Non-Electing Holders. Under the election, any excess of the fair market value of the PFIC stock at the close of the tax year over the Holder’s adjusted basis in the stock is included in the Holder’s income. The Holder may deduct any excess of the adjusted basis of the PFIC stock over its fair market value at the close of the tax year. However, deductions are limited to the net mark-to-market gains on the stock that the Holder included in income in prior tax years, or so called “unreversed“un-reversed inclusions.” For purposes of the election, PFIC stockst ock is marketable if it is regularly traded on (1) a national securities exchange that is registered with the SEC, (2) the national market system established under Section II A of the Securities Exchange Act of 1934, or (3) an exchange or market that the IRS determines has rules sufficient to ensure that the market price represents legitimate and sound fair market value.
A Holder’s adjusted basis of PFIC stock is increased by the income recognized under the mark-to-market election and decreased by the deductions allowed under the election. If a U.S. Holder owns PFIC stock indirectly through a foreign entity, the basis adjustments apply to the basis of the PFIC stock in the hands of the foreign entity for the purpose of applying the PFIC rules to the tax treatment of the U.S. owner. Similar basis adjustments are made to the basis of the property through which the U.S. persons hold the PFIC stock.
Income recognized under the mark-to-market election and gain on the sale of PFIC stock with respect to which an election is made is treated as ordinary income. Deductions allowed under the election and loss on the sale of PFIC with respect to which an election is made, to the extent that the amount of loss does not exceed the net mark-to-market gains previously included, are treated as ordinary losses. The U.S. or foreign source of any income or losses is determined as if the amount were a gain or loss from the sale of stock in the PFIC.
If PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S. person that may make the mark-to-market election. Amounts includible in the CFC’s income under the election are treated as foreign personal holding company income, and deductions are allocable to foreign personal holding company income.
The above provisions apply to tax years of U.S. persons beginning after December 31, 1997, and to tax years of foreign corporations ending with or within such tax years of U.S. persons.
The rules of Code Section 1291 applicable to nonqualified funds as discussed above generally do not apply to a U.S. Holder for tax years for which a mark-to-market election is in effect. If Code Section 1291 is applied and a mark-to-market election was in effect for any prior tax year, the U.S. Holder’s holding period for the PFIC stock is treated as beginning immediately after the last tax year of the election. However, if a taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified fund after the beginning of a taxpayer’s holding period for such stock, a co-ordination rule applies to ensure that the taxpayer does not avoid the interest charge with respect to amounts attributable to periods before the election.
Controlled Foreign Corporation Status
If more than 50% of the voting power of all classes of stock or the total value of the stock of our company is owned, directly or indirectly, by U.S. Holders, each of whom own after applying rules of attribution 10% or more of the total combined voting power of all classes of stock of our company, we would be treated as
a “controlled foreign corporation” or “CFC” under Subpart F of the Code. This classification would bring into effect many complex results including the required inclusion by such 10% U.S. Holders in income of their pro rata shares of “Subpart F income” (as defined by the Code) of our company and our earnings invested in “U.S. property” (as defined by Section 956 of the Code). In addition, under Section 1248 of the Code if we are considered a CFC at any time during the five year period ending with the sale or exchange of its stock, gain from the sale or exchange of common shares of our company by such a 10% U.S. Holder of our common stock at any time during the five year period ending with the sale or exchange is treated as ordinary dividend income to the extent of our earnings and profitsp rofits attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because we may never be a CFC, a more detailed review of these rules is beyond of the scope of this discussion.
Elimination of Overlap Between Subpart F Rules and PFIC Provisions
Under the Taxpayer Relief Act of 1997, a PFIC that is also a CFC will not be treated as a PFIC with respect to certain 10% U.S. Holders. For the exception to apply, (i) the corporation must be a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder must be subject to the current inclusion rules of Subpart F with respect to such corporation (i.e., the U.S. Holder is a “United States Shareholder,” see “Controlled Foreign Corporation,” above). The exception only applies to that portion of a U.S. Holder’s holding period beginning after December 31, 1997. For that portion of a United States Holder before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.
As a result of this new provision, if we were ever to become a CFC, U.S. Holders who are currently taxed on their pro rata shares of Subpart F income of a PFIC which is also a CFC will not be subject to the PFIC provisions with respect to the same stock if they have previously made a Pedigreed QEF Election. The PFIC provisions will however continue to apply to U.S Holders for any periods in which Subpart F does not apply (for example he is no longer a 10% Holder or we are no longer a CFC) and to U.S. Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects to recognize gain on the PFIC shares held in our company as if those shares had been sold.
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON SHARES OF OUR COMPANY.
(F) DIVIDEND AND PAYING AGENTS
Not applicable.
(G) STATEMENT BY EXPERTS
Not applicable.
(H) DOCUMENTS ON DISPLAY
The documents concerning the Company referred to in this Annual Report may be inspected at the Company's office at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada, M5R 2G3. The Company may be reached at (416) 929-1806. Documents filed with the Securities and Exchange Commission ("SEC") may also be read and copied at the SEC's public reference room at 100F Street, N. E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
The Company is subject to reporting requirements as a “reporting issuer” under applicable securities legislation in Canada and as a “foreign private issuer” under the Securities Exchange Act of 1934 (the “Exchange Act”). As a result, we must file periodic reports and other information with the Canadian securities regulatory authorities and the Securities and Exchange Commission.
A copy of this Annual Information Form/Form 20-F Annual Report and certain other documents referred to in this Annual Report and other documents filed by us may be retrieved from the system for electronic document analysis and retrieval (“SEDAR”) system maintained by the Canadian securities regulatory authorities at www.sedar.ca or from the Securities and Exchange Commission electronic data gathering, analysis and retrieval system (“EDGAR”) at www.sec.gov/edgar.
(I) SUBSIDIARY INFORMATION
The documents concerning the Company’s subsidiarysubsidiaries referred to in this Annual Report may be inspected at the Company's office at 47 Avenue Road, Suite 200, Toronto, Ontario, Canada, M5R 2G3.
ITEM 11 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed in varying degrees to a number of risks arising from financial instruments. Management’s close involvement in the operations allows for the identification of risks and variances from expectations. The Company does not participate in the use of financial instruments to mitigate these risks and has no designated hedging transactions. The Board approves and monitors the risk management processes. The Board’s main objectives for managing risks are to ensure liquidity, the fulfilment of obligations, the continuation of the Company’s search for new business participation opportunities, and limited exposure to credit and market risks while ensuring greater returns on the surplus funds on hand. There were no changes to the objectives or the process from the prior year.
The types of risk exposure and the way in which such exposures are managed are as follows:
Concentration risks exist in cash and cash equivalents because significant balances are maintained with one financial institution and a brokerage firm. The risk is mitigated because the financial institution is a prime Canadian bankinstitutions are international banks and the brokerage firm is well known Canadian brokerage firm with good market reputation and all its assets are backed up by one of thea major Canadian banks.bank. Our key asset, indirect working interest in two off shore drilling licenses is located in Israel.
Market risk primarily arises from the Company’s short term investments in marketable securities which accounted for approximately 69%15% of total assets of the Company as at March 31, 20092010 (69% at March 31, 2008)2009). Further, the Company’s holding in one Canadian marketable security accounted for approximately 57% (2009: 33% (2008: 31%) of the total short term investment in marketable securities or 9% (2009: 23% (2008: 21%) of total assets at March 31, 2009.2010.
The management tries to mitigate this risk by daily monitoring of all its investments by experienced consultants and ensuring that investments are made in companies which are financially stable with viable businesses.
Liquidity risk isThe Company monitors its liquidity position regularly to assess whether it has the riskfunds necessary to fulfill planned exploration commitments on its petroleum and natural gas properties or that viable options are available to fund such commitments from new equity issuances or alternative sources such as farm-out agreements. However, as an exploration company at an early stage of development and without significant internally generated cash flow, there are inherent liquidity risks, including the possibility that additional financing may not be available to the Company, will not beor that actual exploration expenditures may exceed those planned. The current uncertainty in global markets could have an impact on the Company’s future ability to access capital on terms that are acceptable to the Company. The Company has so far been able to raise the required financing to meet its financial obligations as they become due.on time.
The Company ensures there is sufficient capital to meet short term business requirements. In addition, management and key consultants opted for several years to accept the Company’s common shares instead of cash towards their fee to ensure greater cash flow for other operational and business needs.
One of management’s goals is to maintain an optimal level of liquidity through the active management of the assets, liabilities and cash flows.
The Company’s maintains limited cash for its operational needs while most of its surplus cash is invested in short term marketable securities which are available on short notice to fund the Company’s operating costs and other financial demands.
The operating results and financial position of the Company are reported in Canadian dollars. PartApproximately 23% of cash and short term investments are held in US dollars – approximately 3% of total monetary assets at March 31, 20092010 (23% as at March 31, 2008).2009), and approximately 87% of its liabilities as at that date ( $ nil as at March 31, 2009) were held in US dollars. The results of the Company’s operations are therefore subject to currency transaction and translation risk.
The fluctuation of the US dollar in relation to the Canadian dollar will consequently impact the loss of the Company and may also affect the value of the Company’s assets and the amount of shareholders’ equity.
Comparative closing foreign exchange rates as at March 31, 2009 are as follows:
As at March 31,
2010 2009 2008
One US Dollar to CDN Dollar 1.0156 1.2602 1.0279
The Company has not entered into any agreements or purchased any foreign currency hedging arrangements to hedge possible currency risks at this time.
The balances in US Dollar as at March 31, 2010 were as follows: ( all figures in CDN$ equivalent)
2010
Cash & short term investments $2,352,452
Other receivables 66,009
Accounts payable and accrual (2,007,764)
Short term loans (1,065,578)
Net liabilities $ (654,881)
Based on the above net exposure, a 5% depreciation of the Canadian dollar against US dollar will increase net liabilities by $32,744 while a 5% appreciation of the Canadian dollar against US dollar will reduce liability by $ 32,744.
Other risks:
Our business is also subject to certain risks, which may negatively affect it. Certain of the risks are described below in addition to elsewhere in this report:
| (a) | Exploration and Development |
The business of exploring for, developing and producing oil and gas involves a high degree of risk. Oil and gas reserves may never be found or, if discovered, may not be result in production at reasonable costs or profitability. The business of exploring, developing and producing is also capital intensive and, to the extent that cash flows from operating activities and external sources become limited or unavailable, our ability and of our operating partners to meet our respective financial obligations which are necessary to maintain our interests in the underlying properties could be impaired, resulting in the loss of those interests.
| (b) | Dependence Upon Operating Manager |
Our oil and gas activities are conducted through IPC Cayman in respect of which we are not the operator. We are dependent upon our operating manager for technical support. If our operating manager is unable to fulfill his own contractual obligations, our interests could be jeopardized, resulting in project delays, additional costs and loss of the interests.
Our oil and gas operations are subject to environmental regulations in the jurisdictions in which we operate. Environmental legislation is evolving in a manner which will likely require stricter standards and enforcement, increased costs, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect our operations. Environmental hazards may exist on the properties in which we hold interests which are presently unknown to us and which have been caused by previous or existing owners or operators of the properties or by illegal mining activities.
Our current project requires registration and approvals and permits from the Israel Ministry of Infrastructure. To the extent such approvals are required and not obtained; we may be delayed or prohibited from proceeding with planned exploration or development of properties. Amendments to
current laws, regulations and permits governing operations and activities of oil and gas companies, or more stringent implementation thereof, could have a material adverse impact on us and cause increases in capital expenditures or require abandonment or delays in development of new properties. Although the Israel government have been stable recently, there is no assurance that political and economic conditions will remain stable. Political and economic instability may impede our ability to continue our exploration activities in the manner currently contemplated.
We are exposed to risks of political instability and changes in government policies, laws and regulations in Israel. Any changes in regulations or shifts in political conditions are beyond our control and may adversely affect our business. Our operations may be affected in varying degrees by government regulations, including those with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, employment, land use, water use, environmental legislation and mine safety. There is no assurance that permits can be obtained, or that delays will not occur in obtaining all necessary permits or renewals of such permits for existing properties or additional permits required in connection with future exploration and development programs. In the event of a dispute arising out of our foreign opera tions, we may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in Canada. We may also be hindered or prevented from enforcing our rights with respect to a government entity or instrumentality because of the doctrine of sovereign immunity.
ITEM 12 – DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13 – DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14 – MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None
ITEM 15 - CONTROLS AND PROCEDURES
a) Evaluation of Disclosure controls and procedures
We have no employees. Our Chief Executive Officer who also serves as Chief Financial Officer (“CEO”) is primarily responsible in establishing and maintaining controls and procedures concerning disclosure of material information and their timely reporting in consultation and under direct supervision of the audit committee which comprises two independent directors. We therefore do not have an effective internal controls and procedures due to lack of segregation of duties. However, given the size and nature of our current operations and involvement of independent directors in the process significantly reduce the risk factors associated with the lack of segregation of duties.
The CEO has instituted a system of disclosure controls for the Company to ensure proper and complete disclosure of material information. The limited number of consultants and direct involvement of the CEO facilitates access to real time information about developments in the business for drafting disclosure documents. All documents are circulated to the board of directors and audit committee according to the disclosure time-lines.
As at March 31, 2009,2010, the management carried out a comprehensive review and up date of the internal controls existing over the financial reporting. Mitigating controls and procedures were identified wherever
possible. New procedures were implemented in a couple of cases where it was evident that controls were not robust enough to ensure appropriate disclosure in a timely manner. Some controls were implemented as a secondary detection mechanism if the initial controls failed to prevent errors from occurring.
There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date the CEO completed his evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls requiring corrective actions other than the lack of segregation of duties.
b) Management’s annual report on internal control over financial reporting
Management of Bontan Corporation Inc. (The Company) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that:
| - | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; |
| - | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Directors of the Company: and, |
| - | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements. |
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting are subject to the risks that the controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated and updated the design and operation of the Company’s internal control over financial reporting as of March 31, 2009,2010, based on the framework and criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and has concluded that such internal control over financial reporting is effective.
There is a lack of segregation of duties since Chief executive and financial officer handles accounting records and is also a sole signatory to bank and brokerage accounts. However, potential risks arising from this weakness are mitigated significantly through independent reconciliations and direct involvement in review process by the audit committee, which comprises all independent directors. Management believes that benefits of hiring additional staff to segregate these functions would not justify the costs under the current nature and level of activities at the Company.
c) Attestation report of the registered public accounting firm
Not applicable, pursuant to temporary rules of the Securities and Exchange Commission.
ITEM 16 (A) AUDIT COMMITTEE FINANCIAL EXPERTS
As at the Company’s financial year ended March 31, 2009,2010, the audit committee consisted of two independent directors, one of whom, Mr. Dean Bradley would be determined as a financial expert, as that term is defined under Section 407 of the Sarbanes-Oxley Act of 2002. Mr. Bradley’s background is described under Item 6(A) Directors and senior management.
ITEM 16 (B) CODE OF ETHICS
We have adopted a Code of Ethics, which applies to all employees, consultants, officers and directors. A copy of our current code of ethics was included in the exhibits to the annual report for the fiscal year ended March 31, 2007 (Exhibit Item 19(b) 11).
A copy of our Code of Ethics can be obtained by writing to our corporate office at 47 Avenue Road, Suite 200, Toronto, ON M5R 2G3 attention: Chief Executive Officer.
ITEM 16 (C) PRINCIPAL ACCOUNTANT’S FEES AND SERVICES
The following outlines the expenditures for accounting fees for the last two fiscal periods ended:
| | March 31 2009 | | March 31 2008 |
| | | | |
| Audit Fees | 25,000 | | 25,000 |
Audit fee $60,000 $25,000
Other services 2,000 -
Under our existing policies, the audit committee must approve all audit and non-audit related services provided by the auditors.
ITEM 16 (D) - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16 (E) - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
We did not, nor did any affiliated purchaser, purchase any of our equity securities during the fiscal year 2009.
ITEM 16 (F) – CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16 (G) – CORPORATE GOVERNANCE
Our securities are listed on the Over The Counter Bulletin Board of NASDAQ. There are no significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of that exchange except for proxy delivery requirements. The OTC Bulletin Board, administered by NASDAQ requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies be solicited pursuant to a proxy statement that conforms to the proxy rules of the U.S. Securities and Exchange Commission. As a foreign private issuer, the Company is exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
PART III
ITEM 17 - FINANCIAL STATEMENTS
See the Financial Statements and Exhibits listed in Item 19 hereof and filed as part of this Annual Report. These financial statements were prepared in accordance with Canadian GAAP and are expressed in
Canadian dollars. Such financial statements have been reconciled to U.S. GAAP (see Note 1624 therein). For a history of exchange rates in effect for Canadian dollars as against U.S. dollars, see Item 3(A) Exchange Rates of this Annual Report.
ITEM 18 - FINANCIAL STATEMENTS
Not applicable.
ITEM 19 - EXHIBITS
(a) Financial Statements
| Description of Document | Page No. |
| Cover Sheet | F-1 |
| Index | F-2 |
Independent Auditor’s Report dated June 11, 2009July 23, 2010 | F-3 |
Consolidated Balance Sheets as at March 31, 20092010 and 20082009 | F-4 |
Consolidated Statements of Operations for the Fiscal Years Ended March 31, 2010, 2009 2008 and 20072008 | F-5 |
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2010, 2009, 2008, and 20072008 | F-6 |
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended March 31, 2010, 2009, 2008, and 20072008 Consolidated Statement of Comprehensive Loss and Accumulated Other Comprehensive Loss for the Fiscal Years Ended March 31, 2010, 2009 2008 and 20072008 | F-7-8 F-9 |
| Notes to the Financial Statements | F-10-29 |
| | |
(b) Exhibits
The following documents are filed as part of this Annual Report on Form 20-F
| | 1.1 | Articles of Incorporation of the Company - Incorporated herein by reference to Exhibit 1(ix) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000. |
| | 1.2 | By-Laws of the Company - Incorporated herein by reference to Exhibit 1(xi) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000. |
| | 1.3 | Certificate of name change from Kamlo Gold Mines Limited to NRT Research Technologies Inc. - Incorporated herein by reference to Exhibit 1(iii) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000. |
| | 1.4 | Certificate of name change from NRT Research Technologies Inc. to NRT Industries Inc. - Incorporated herein by reference to Exhibit 1(iv) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000. |
| | 1.5 | Certificate of name change from NRT Industries Inc. to CUDA Consolidated Inc. - Incorporated herein by reference to Exhibit 1(v) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000. |
| | 1.6 | Certificate of name change from CUDA Consolidated Inc. to Foodquest Corp. - Incorporated herein by reference to Exhibit 1(vi) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000. |
| | 1.7 | Certificate of name change from Foodquest Corp. to Foodquest International Corp. - Incorporated herein by reference to Exhibit 1(vii) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000. |
| | 1.8 | Certificate of name change from Foodquest International Corp. to Dealcheck.com Inc. - Incorporated herein by reference to Exhibit 1(viii) to the Company’s Registration Statement on Form 20-F filed on June 12, 2000. |
| | 1.9 | Certificate of name change from Dealcheck.com Inc. to Bontan Corporation Inc. - Incorporated herein by reference to Exhibit 1(viii) to the Company’s Annual Report on Form 20-F filed on September 23, 2003. |
| | 2(a) | Specimen Common Share certificate - Incorporated herein by reference to Exhibit 1(viii) to the Company’s Annual Report on Form 20-F filed on September 23, 2003. |
| | 4(a)2.i | Investor relations contract with Current Capital Corp. dated April 1, 2003 Incorporated herein by reference to Exhibit 4 (a) 2i to the Company’s Annual Report on Form 20-F for fiscal 2005 filed on September 28, 2005. |
| | 4(a)2.ii | Media Relation Contract with Current Capital corp. dated April 1, 2003 Incorporated herein by reference to Exhibit 4 (a) 2ii to the Company’s Annual Report on Form 20-F for fiscal 2005 filed on September 28, 2005. |
| | 4(a)2.iii | A letter dated April1, 2005 extending the contracts under 4(a)2.i and ii. Incorporated herein by reference to Exhibit 4 (a) 2iii to the Company’s Annual Report on Form 20-F for fiscal 2005 filed on September 28, 2005. |
| | 4(c)1 | Consulting Agreement dated April 1, 2005 with Kam Shah Incorporated herein by reference to Exhibit 4 (c) 1 to the Company’s Annual Report on Form 20-F for fiscal 2005 filed on September 28, 2005. |
| | 4(c)2 | Consulting Agreement datedLetter of April 1, 2003 with Terence Robinson -2010 extending consulting Agreement of Mr. Kam Shah to March 31, 2015. Incorporated herein by reference to Exhibit 4 (a)(c) 2 to the Company’s Annual Reportregistration statement on Form 20-F for fiscal 2004F-1 Amendment No. 2 filed on August 30, 2004.
|
| 4(c)3 | Letter dated March 28, 2008 extending the Consulting Agreement with Mr. John Robinson to June 30, 2009 - Incorporated herein by reference to Exhibit 4 (c) 3 to the Company’s Annual Report on Form 20-F for fiscal 2008 filed on August 28, 2008.17, 2010.
|
| | 4(c) 3 | Consulting Agreement dated August 4, 2009 with Terence Robinson. Incorporated herein by reference to Exhibit 4 (c) 3 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 4(c) 4 | Consulting Agreement dated July 1, 2009 with John Robinson. Incorporated herein by reference to Exhibit 4 (c) 4 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 4(c) (iv)1 | The Robinson Option Plan, 2005 Stock Option Plan and 2005 Consultant Stock Compensation Plan - Incorporated herein by reference to Form S-8 filed on December 5, 2005. |
| | 4(c)(iv)2 | 2007 Consultant Stock Compensation Plan – Incorporated herein by reference to Form S-8 filed on January 16, 2007. |
4(c)(iv)3 2009 Consultant Stock Compensation Plan - Incorporated herein by reference to Form S-8 filed on April 7, 200960 -
| 10.3 | Allocation of Rights and Settlement Agreement dated March 25, 2010. Incorporated herein by reference to Exhibit 10.3 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 10.4 | Agreement regarding Ownership Interest in Israel Petroleum Company, Limited dated April 14, 2010. Incorporated herein by reference to Exhibit 10.4 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 10.5 | Promissory Note to Castle Rock Resources II, LLC, dated November 12, 2009. Incorporated herein by reference to Exhibit 10.5 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 10.6 | Pledge Agreement with Castle Rock Resources II, LLC. Incorporated herein by reference to Exhibit 10.6 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 10.7 | Form of Warrant to Purchase Common Stock by and between International Three Crown Petroleum LLC and the Company. Incorporated herein by reference to Exhibit 10.7 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 10.8 | Form of Warrant to Purchase Common Stock by and between Allied Ventures Incorporated and the Company. Incorporated herein by reference to Exhibit 10.8 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 10.9 | Operating and Participation Agreement dated as of May 19, 2010. Incorporated herein by reference to Exhibit 10.9 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| 10.10 | Option Agreement – Samuel License dated as of May 19, 2010. Incorporated herein by reference to Exhibit 10.10 to the Company’s registration statement on Form F-1 Amendment No. 2 filed on June 17, 2010. |
| | 11 | Code of ethics of the Company incorporated herein by reference to Annual Report in form 20-F filed on May 29, 2007 |
| | 12.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a )under the Securities Exchange Act of 1934, as amended. |
| | 13.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
The Company hereby certifies that it meets all of the requirements for filing on Form 20-F and it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
DATED at Toronto, Ontario, Canada, this 30th23rd day of June, 2009.July, 2010.
BONTAN CORPORATION INC.
Per: (signed) Kam Shah
Title: Chairman and CEO