UNITED STATES |
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 0-30314 |
Bontan Corporation Inc. |
(Exact name of Registrant as specified in its charter) |
Inapplicable |
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 | |
Item 5. | Operating and Financial Review and Prospects | |
Item 6. | Directors, Senior Management and Employees | |
Item 7. | Major Shareholders and Related Party Transactions | |
Item 8. | Financial Information | |
Item 9. | The Offer and Listing | |
Item 10. | Additional Information | |
Item 11. | Quantitative and Qualitative Disclosures about Market Risk | |
Item 12. | Description of Securities Other than Equity Securities | |
Part II | ||
Item 13. | Defaults, Dividend Arrearages and Delinquencies | |
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | |
Item 15. | Controls and Procedures | |
Item 16. | Audit Committee, Code of Ethics, and Principal Accountant’s Fees and Services | |
Part III | ||
Item 17. | Financial Statements | |
Item 18. | Financial Statements | |
Item 19. | Exhibits |
- | 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. |
2008 | 2007 | 2006 | 2005 | 2004 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(Restated) | (Restated) | (Restated) | |||||||||||||||||||||||
Revenue | 321,755 | $743,786 | $1,857,647 | $418,861 | $251 | - | 7,901 | 73,300 | $ | 93,278 | $ | 1,238,940 | |||||||||||||
Loss from continuing operations | $(571,799) | $(164,043) | ($4,784,933) | ($4,876,898) | ($1,360,958) | ||||||||||||||||||||
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 | $(571,799) | $(164,043) | ($4,784,933) | ($5,056,576) | ($1,360,958) | $ | (3,927,244) | $ | (689,415) | $ | (571,799) | $ | (164,043) | $ | (4,784,933) | ||||||||||
Net loss per share (1) | ($0.02) | ($0.01) | ($0.31) | ($0.43) | ($0.26) | $ | (0.09) | $ | (0.02) | $ | (0.02) | $ | (0.01) | $ | (0.31) | ||||||||||
Working capital (Deficit) | $5,173,892 | $6,624,466 | $5,285,784 | $4,734,269 | ($311,005) | ||||||||||||||||||||
Working capital | $ | 371,130 | $ | 1,431,495 | $ | 5,173,892 | $ | 6,624,466 | $ | 5,285,784 | |||||||||||||||
Total assets | $5,239,122 | $6,672,918 | $5,450,772 | $5,075,158 | $3,085,584 | $ | 10,419,787 | $ | 1,592,947 | $ | 5,239,122 | $ | 6,672,918 | $ | 5,450,772 | ||||||||||
Capital stock | $32,901,488 | $32,413,811 | $32,175,000 | $28,280,890 | $24,287,903 | $ | 35,298,257 | $ | 32,854,075 | $ | 32,901,488 | $ | 32,413,811 | $ | 32,175,000 | ||||||||||
Warrants | $2,153,857 | $2,215,213 | $951,299 | $- | $ | 7,343,886 | $ | 2,192,927 | $ | 2,153,857 | $ | 2,215,213 | $ | 951,299 | |||||||||||
Contributed surplus | $4,077,427 | $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 | ($1,306,768) | $ | (2,696,213) | $ | (4,425,018) | $ | (1,306,768) | ||||||||||||||||||
Shareholders' equity | $5,180,098 | $6,624,466 | $5,285,784 | $4,950,837 | $2,219,348 | $ | 6,900,299 | $ | 1,440,929 | $ | 5,180,098 | $ | 6,624,466 | $ | 5,285,784 | ||||||||||
Weighted average number of shares outstanding ( 2 ) | 28,840,653 | 27,472,703 | 15,655,023 | 11,700,303 | 5,221,071 | 42,963,027 | 30,170,743 | 28,840,653 | 27,472,703 | 15,655,023 |
2008 | 2007 | 2006 | 2005 | 2004 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Loss for year | ($571,799) | ($52,384) | ($4,590,175) | ($5,238,898) | ($1,407,665) | $ | (3,927,244) | $ | (689,415) | $ | (571,799) | $ | (52,384) | $ | (4,590,175) | ||||||||||
Comprehensive Loss | ($2,838,269) | $795,658 | ($4,038,005) | ($5,273,144) | ($1,360,958) | $ | (2,198,439) | $ | (3,807,665) | $ | (2,838,269) | $ | 795,658 | $ | (4,038,005) | ||||||||||
Loss per share -Basic and diluted | ($0.02) | $0.00 | ($0.29) | ($0.45) | ($0.26) | $ | (0.09) | $ | (0.02) | $ | (0.02) | $ | 0.00 | $ | (0.29) | ||||||||||
Total assets | $5,239,122 | $7,632,619 | $6,197,700 | $4,858,590 | $3,085,584 | $ | 10,419,787 | $ | 1,592,947 | $ | 5,239,122 | $ | 7,632,619 | $ | 6,197,700 | ||||||||||
Shareholders' equity | $5,180,098 | $7,584,167 | $4,734,269 | $2,219,348 | $ | 6,900,299 | $ | 1,440,929 | $ | 5,180,098 | $ | 7,584,167 | $ | 4,734,269 |
2008 | June | May | April | March | February | January | ||||||
2010 | June | May | April | March | February | January | ||||||
High for period | $1.00 | $1.02 | $1.00 | $1.02 | $1.03 | $1.02 | $0.98 | $0.99 | $1.00 | $0.99 | $0.96 | $0.98 |
Low for period | $0.97 | $0.98 | $0.97 | $0.97 | $0.98 | $0.96 | $0.94 | $0.93 | $0.98 | $0.96 | $0.93 | $0.94 |
Year Ended March 31 | Year Ended March 31 | Year Ended March 31 | ||||||||
2008 | 2007 | 2006 | 2005 | 2004 | 2010 | 2009 | 2008 | 2007 | 2006 | |
Average for the year | 1.03 | 1.14 | 1.19 | 1.28 | 1.35 | 0.92 | 0.89 | 0.97 | 0.88 | 0.84 |
• | 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. |
· | seeking to acquire desirable producing properties or new leases for future exploration; | |
· | marketing our crude oil and natural gas production; |
· | seeking to acquire the equipment and expertise necessary to operate and develop properties; and | |
· | attracting and retaining employees with certain skills. |
· | 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. |
· | 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. |
· | 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; |
· | Liquidate 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. |
· | 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. |
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. |
· | Admit additional owners to IPC Cayman; |
· | Liquidate 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 the Project Company |
· | Amend the |
· | 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 |
License. A license grants the exclusive right for further exploration work and |
· | Production lease. Upon discovery of petroleum in commercial quantities in the |
(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. |
Year ended March 31 | 2008 | 2007 | 2006 | 2010 | 2009 | 2008 | |||||||||
in 000' CDN $ | in 000' CDN $ | in 000' CDN $ | in 000' CDN $ | in 000' CDN $ | |||||||||||
Income | 322 | 744 | 1,858 | - | 8 | 73 | |||||||||
Expenses | (894) | (908) | (6,643) | (4,284) | (697) | (645) | |||||||||
(4,284) | (689) | (572) | |||||||||||||
Non-controlling interests | 357 | - | - | ||||||||||||
Net loss for year | (572) | (164) | (4,785) | (3,927) | (689) | (572) | |||||||||
Deficit at end of year | (32,645) | (32,074) | (31,910) | (37,263) | (33,335) | (32,645) |
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$5 million. |
1. | The management continued to look for suitable business proposals and projects to participate into. We received several projects during the year of which about fifteen were reviewed and discussed in detail. Many of these related to emerging high technology projects, resource sector exploration and development projects. Unfortunately, we were unable to conclude successfully in any of these business proposals. They were either too pricey compared to the expected growth and returns or they carried considerable debts and other commitments which would affect their ability to achieve their stated targets. We also looked at possibilities of merging with existing businesses. Our efforts at getting a project or a business that can that can get us back into working mode and enhance our shareholders value still continue. |
2. | We also had to spend considerable time and efforts in continually monitoring our short term investments. These investments which represented our surplus funds earmarked for future projects suffered adversely in value due to deteriorating economic conditions during the past several months. We were however able to dispose of some of these holdings at reasonable |
3. | We revised the terms of our outstanding options and warrants by extending their maturity dates and reducing their exercise prices to ensure that these instruments continue to provide easy access to further cash flows from our existing shareholders. Refer to notes 7 and 8 of the consolidated financial statements for fiscal 2009 which form part of this report for further details. |
4. | We also attempted to initiate a private placement to raise up to US$ 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 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. |
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. |
Fiscal year ended March 31 | 2008 | 2007 | 2006 | 2010 | 2009 | 2008 |
Realised gain on disposal of short term investments | 248,455 | 650,508 | 618,707 | |||
Interest | 73,300 | 93,278 | 31,109 | - | 7,901 | 73,300 |
Gain on sale of interest in oil exploration project | - | - | 1,207,831 | |||
$ 321,755 | $ 743,786 | $ 1,857,647 |
Computation of net gain on sale of IPI interest | |||
US$ | CDN$ | ||
Carrying value of the IPI interest | 1,589,943 | 1,897,279 | |
Sale proceeds | 3,200,000 | 3,818,560 | |
Less: fee paid to Brokerage firm in cash | (32,000) | (38,186) | |
Restricted common shares issued to the Brokerage firm | (16,000) | (19,485) | |
Valuation of options granted to Mr. Robinson | (566,940) | (655,779) | |
Net proceeds on sale | 2,585,060 | 3,105,110 | |
Capital gain on sale | 995,117 | 1,207,831 | |
Year ended March 31 | 2008 | 2007 | 2006 |
Operating expenses | $ 437,465 | $ 424,055 | $ 584,377 |
Consulting fee settled for common shares | 314,248 | 367,973 | 1,984,938 |
Exchange loss | 141,841 | 111,659 | 194,758 |
Write off of interest in gas exploration project | - | 4,142 | 3,878,507 |
$ 893,554 | $ 907,829 | $ 6,642,580 |
Fiscal year ended March 31 | 2010 | 2009 | 2008 | |||||||||
Operating expenses | $ | 380,537 | $ | 288,875 | $ | 319,022 | ||||||
Consulting fee & payroll | 1,236,619 | 480,050 | 396,465 | |||||||||
Exchange (gain)loss | (120,735) | (119,789) | 141,841 | |||||||||
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 | |||||||||
$ | 4,284,058 | $ | 697,316 | $ | 645,099 |
Year ended March 31 | 2008 | 2007 | 2006 |
Travel, meals and entertainment | $ 120,008 | $ 101,075 | $ 144,461 |
Consulting | 82,217 | 50,461 | 49,286 |
Promotion | - | 7,191 | 82,007 |
$ 202,225 | $ 158,727 | $ 275,754 | |
% of operating expenses | 46% | 37% | 47% |
Fiscal year ended March 31 | 2010 | 2009 | 2008 | ||||||||||||||
Travel, meals and entertainment | $ | 86,939 | $ | 66,896 | $ | 120,008 | |||||||||||
Shareholder information | 158,509 | 144,757 | 133,502 | ||||||||||||||
Other | 135,089 | 77,222 | 65,512 | ||||||||||||||
$ | 380,537 | $ | 288,875 | $ | 319,022 |
Year ended March 31, | 2008 | 2007 | 2006 |
Shareholder information | 133,502 | 149,105 | 176,982 |
Professional fees | 34,601 | 53,084 | 71,588 |
Other | 67,137 | 63,139 | 60,053 |
$ 235,240 | $ 265,328 | $ 308,623 | |
% of operating costs | 54% | 63% | 53% |
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 |
2008 | 2007 | 2006 | |
Stock compensation | 314,248 | 367,973 | 839,786 |
Options granted and expensed | - | - | 1,145,152 |
$ 314,248 | $ 367,973 | $1,984,938 | |
Prepaid consulting services | $ 285,896 | $ 276,146 | $ 314,208 |
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 |
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 $50,000 to Kam Shah. |
6. | The administrative assistant was hired as an employee in May 2008 for the first time. The payroll reflected the salary and related expenses in connection with this position. In prior periods, administrative work used to be carried out by a contract person. |
# | Name | Period of service | # of shares to be issued | Date of issuance of stock (a) | Market price (US$) | Fee in US$ | CDN$ at | Brief description of services to be performed | Comments | 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 | $1.0181 | |||||||||||||||||
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 | 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 consultaing contract dated April 1, 2003 valid up to March 31, 2009. | 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 consultaing contract dated April 1, 2005 valid up to March 31, 2010. | 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 | 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) | · 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. | ||||||||||||||||||
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. | |||||||||||||||||
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. | |||||||||||||||||
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 $10,000 per month in cash from January to May 2008. in addition to the shares as above. | ||||||||||||||||||
d. | On March 28, 2008, the Company issued 25,000 options to each of the two members of the audit committee for their services during the fiscal 2009. These options were valid for five years and exercisable - 24 - Exchange (gain) Loss During the fiscal year 2010, we acquired a significant asset – Offshore Israel Project – as explained earlier. The purchase price was in US dollars. We also took over liability to pay for the seismic data as part of the Project which was approximately US$ 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.
Write off of During the fiscal During the fiscal 2009, the Company wrote off an investment of $63,010(US$50,000) in a There were no such write offs in the fiscal years 2008. . Loss(Gains) on disposal of short term investments During the fiscal 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 near 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 loss of $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. - 25 - 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 Bank charges, interest and fees Note 16 to the
As at March 31, 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
During the fiscal 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.
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. - 26 - 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 2010, the Company invested $53,103 (2009: $2.4 million) in short term marketable securities while sold marketable securities for net proceeds of $ 410,454 (2009: $1.8 million). The Company had short term investments at a carrying cost of approximately $ 4 million (2009: $5.5 million) as at March 31, 2010 – 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 companies) while investments in two private companies totalling to $250,780 were written off during the fiscal year 2010.. These investments were stated at their fair value of approximately $ 1.4 million (2009: $1.1 million) as at March 31, 2010 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 include 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. The - 27 - The following is a major composition of short term investments:
Management believes that
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. - 28 - 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. (C) RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES The Company has not spent any funds on research and development during the fiscal years (D) TREND INFORMATION 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, (F) CONTRACTUAL OBLIGATIONS (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:
- 29 - Kam Shah joined the Company as a Chief Financial Officer and was appointed to the Board on January 3, 1999. He worked with 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 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 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 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 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 Both the above consultants’ roles and involvement with our Company will reduce and eliminated completely in future. Mr. As we do not anticipate new Mr. Shah’s current consulting agreement has 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. Further, the contract provides for a lump sum com pensation of US$250,000 for early termination of the contract without cause. The contract also provides for entitlement to stock compensation and stock options under appropriate plans as may be decided by the board of directors from time to time. Family Relationships There are no family relationships between the directors and 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,
Notes:
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. - 32 - 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. Originally, these withdrawals were repayable without interest when market price of our common shares stayed 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 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 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. - 33 - Audit Committee charter assists the Board in fulfilling its responsibilities for our accounting and financial reporting practices by:
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 - 34 - 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 July 23, 2010, the date of this report, 983,333 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
* 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 2010. The revisions comprised increasing the expiry dates for all options to March 31, 2014. This is further explained in note 12 to the consolidated financial statements for fiscal 2010 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
- 35 -
*includes shares held by Pinetree Resource Partnership, where in Mr. At 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:
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.
- 36 - Transactions with related parties are incurred in the normal course of
(C) INTERESTS OF EXPERTS AND COUNSEL Not applicable. - 37 - 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 Key events are as follows:
- 38 - 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:
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:
The following table outlines the high and low market prices for each of the most recent six months:
(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. - 39 - 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 - 40 - 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 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 The OBCA requires the Company to call an annual shareholders' meeting not later than 15 months after holding the last preceding annual meeting and permits the Company to call a special shareholders' meeting at any time. In addition, in accordance with the OBCA, the holders of not less than 5% of the Company's shares carrying the right to vote at a meeting sought to be held may requisition our directors to call a special shareholders' meeting for the purposes stated in the requisition. The Company is required to mail a notice of meeting and management information circular to registered shareholders not less than 21 days and not more than 50 days prior to the date of any annual or special shareholders' meeting. These 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. - 41 - 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 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 The rules in the United States governing the ownership threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") imposes reporting requirements on persons who acquire beneficial ownership 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. - 42 - 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:
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. - 43 - 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:
- 44 -
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 The Investment Canada Act requires notification and, in certain cases, advance review and approval by the Government of Canada of the (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 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 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, - 46 - 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 - 47 - 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 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 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. - 48 - 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 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 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), - 49 - 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 an 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 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. - 50 - 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 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. - 51 - 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 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. - 52 - 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 subsidiaries 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 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
Market risk primarily arises from the Company’s short term investments in marketable securities which accounted for approximately The management consultants and ensuring that investments are made in companies which are financially stable with viable businesses.
The Company - 53 -
The operating results and financial position of the Company are reported in Canadian dollars. 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 foreign exchange rates are as follows: As at March 31, One US Dollar to CDN Dollar 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:
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. - 54 -
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. - 55 - ITEM 14 – MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 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. possible. 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:
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. - 56 - Management evaluated and updated the design and operation of the Company’s internal control over financial reporting as of March 31, 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, 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:
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 - 57 - ITEM 16 (E) - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS We did not, 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 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 ITEM 18 - FINANCIAL STATEMENTS Not applicable. ITEM 19 - EXHIBITS (a) Financial Statements
(b) Exhibits The following documents are filed as part of this Annual Report on Form 20-F
- 59 -
- 60 -
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 BONTAN CORPORATION INC. Per: (signed) Kam Shah Title: Chairman and CEO |