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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

(Mark One)

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September
30, 2010

OR

[   ] 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: 000-30087

ADIRA ENERGY LTD.(Exact
name of Registrant as specified in its charter)

Not applicable(Translation of Registrants
name into English)

Canada(Jurisdiction of incorporation or
organization)

120 Adelaide Street West, Suite 1204Toronto,
Ontario, Canada, M4V 3A1(Address of principal executive
offices)

Alan Friedman120 Adelaide Street West, Suite 1204Toronto, Ontario, Canada, M4V 3A1Telephone: +1 416 250
1955Facsimile: +1 416 250 6330E-mail:
afriedman@adiraenergy.com(Name, Telephone, Email and/or Facsimile
number and Address of Company Contact Person)

Securities registered or to be registered pursuant to section
12(b) of the Act:

|Title of each Class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|None                | Not applicable                           

Securities registered or to be registered pursuant to Section
12(g) of the Act:

Common Shares
  (Title of Class)

Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:

- 1 -

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N/A
  (Title of Class)

The number of outstanding shares of each of the issuers classes
of capital or common stock as of September 30, 2010 was 62,640,001 common
shares.

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
[   ]    No [X]

If this report is an annual or a transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d)   of the *Securities Exchange Act of 1934.*Yes [   ]    No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
[X]     No [   ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Securities Exchange Act. (Check one):

Large accelerated filer [ 
 ]           Accelerated
filer [  
]           Non-accelerated
filer [X]

Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:

U.S. GAAP [   ]
    International
      Financial Reporting Standards as issued by the International
      Accounting Standards Board [   ]
    Other [X]


If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant
has elected to follow. Item 17 [X]    Item 18 [   ]

If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Securities
Exchange Act).Yes [   ]     No [X]

__________

2

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TABLE OF CONTENTS

|                                                                       |          |                                                                                    | Page No
|---------------------------------------------------------------------- | -------- | ---------------------------------------------------------------------------------- | -------
|                                                                       |          |                                                                                    |        
|**GENERAL**                                                            | - 4 -   
|                                                                       |          |                                                                                    |        
|**NOTE
      REGARDING FORWARD LOOKING STATEMENTS**                    | - 4 -   
|                                                                       |          |                                                                                    |        
|**ITEM
      1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS** | - 5 -   
|                                                                       |          |                                                                                    |        
|**ITEM
      2 OFFER STATISTICS AND EXPECTED TIMETABLE**               | - 5 -   
|                                                                       |          |                                                                                    |        
|ITEM 3KEY INFORMATION                                                  | - 5 -   
|                                                                       |          |                                                                                    |        
|                                                                       | ITEM 4   | INFORMATION ON THE COMPANY                                                         | - 18 - 
|                                                                       | ITEM 4A  | UNRESOLVED STAFF COMMENTS                                                          | - 34 - 
|                                                                       | ITEM 5   | OPERATING AND FINANCIAL
      REVIEW AND PROSPECTS                                 | - 34 - 
|                                                                       | ITEM 6   | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                         | - 34 - 
|                                                                       | ITEM 7   | MAJOR SHAREHOLDER AND RELATED
      PARTY TRANSACTIONS                             | - 55 - 
|                                                                       | ITEM 8   | FINANCIAL INFORMATION                                                              | - 59 - 
|                                                                       | ITEM 9   | THE OFFER AND LISTING                                                              | - 59 - 
|                                                                       | ITEM 10  | ADDITIONAL INFORMATION                                                             | - 61 - 
|                                                                       | ITEM 11  | QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK                   | - 70 - 
|                                                                       | ITEM 12  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES                       | - 71 - 
|                                                                       |          |                                                                                    |        
|PART II                                                                |          | - 71 -                                                                            
|                                                                       |          |                                                                                    |        
|                                                                       | ITEM 13  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                    | - 71 - 
|                                                                       | ITEM 14  | MATERIAL MODIFICATIONS TO
      THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | - 71 - 
|                                                                       | ITEM 15  | CONTROLS AND PROCEDURES                                                            | - 71 - 
|                                                                       | ITEM 16A | AUDIT COMMITTEE FINANCIAL
      EXPERTS                                            | - 72 - 
|                                                                       | ITEM 16B | CODE OF ETHICS                                                                     | - 72 - 
|                                                                       | ITEM 16C | PRINCIPAL ACCOUNTANT FEES
      AND SERVICES                                       | - 72 - 
|                                                                       | ITEM 16D | EXEMPTIONS FROM THE LISTING STANDARDS FOR
      AUDIT COMMITTEES                   | - 73 - 
|                                                                       | ITEM 16E | PURCHASE OF EQUITY SECURITIES
      BY THE ISSUER AND AFFILIATED PURCHASERS        | - 73 - 
|                                                                       | ITEM 16F | CHANGES TO REGISTRANTS CERTIFYING
      ACCOUNTANT                                | - 73 - 
|                                                                       | ITEM 16G | CORPORATE GOVERNANCE                                                               | - 73 - 
|                                                                       |          |                                                                                    |        
|PART III                                                               |          | - 73 -                                                                            
|                                                                       |          |                                                                                    |        
|                                                                       | ITEM 17  | FINANCIAL STATEMENTS                                                               | - 73 - 
|                                                                       | ITEM 18  | FINANCIAL STATEMENTS                                                               | - 74 - 
|                                                                       | ITEM 19  | EXHIBITS                                                                           | - 74 - 

__________

3

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GENERAL

This Form 20-F is filed as an annual report under the Exchange
Act.

In this Form 20-F, references to:

Adira means Adira Energy Ltd, a Canadian federal
corporation (formerly AMG Oil Ltd.)

Adira Group means Adira Energy Ltd (formerly AMG Oil
Ltd.) together with its wholly owned subsidiaries Adira Energy Holdings Corp.,
Adira Energy Israel Ltd., Adira Energy Israel Services Ltd. and Adira Oil
Technologies Ltd. and its 60% subsidiary, Adira Geo Global Ltd.

Adira Energy means Adira Energy Holdings Corp., an
Ontario corporation (formerly Adira Energy Corp.)

Adira Israel means Adira Energy Israel Ltd., an Israel
corporation

Adira Services means Adira Energy Israel Services
Ltd., an Israel corporation

We, us, our, and the
Company means Adira Group

AMG refers to AMG Oil Ltd. which was the name of the
Company prior to its change of name to Adira Energy Ltd on December 17, 2009

Adira has historically used U.S. dollar as its reporting
currency. Adira Energy has historically used Canadian dollars as its reporting
currency. All references in this document to dollars or $ are to United
States dollars and all references to CDN$ are to Canadian dollars, unless
otherwise indicated.

Except as noted, the information set forth in this Form 20-F is
as of September 30, 2010 and all information included in this document should
only be considered correct as of such date.

NOTE REGARDING FORWARD LOOKING STATEMENTS

Much of the information included in this Form 20-F includes or
is based upon estimates, projections or other forward looking statements. Such
forward looking statements include any projections or estimates made by us and
our management in connection with our business operations. These statements
relate to future events or our future financial performance. In some cases you
can identify forward-looking statements by terminology such as may, should,
expects, plans, anticipates, believes, estimates, predicts,
potential or continue or the negative of those terms or other comparable
terminology. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein. Such estimates, projections or
other forward looking statements involve various risks and uncertainties and
other factors, including the risks in the section titled Risk Factors below,
that may cause our actual results, levels of activities, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements. We caution the reader that important factors in some
cases have affected and, in the future, could materially affect actual results
and cause actual results to differ materially from the results expressed in any
such estimates, projections or other forward looking statements. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform those statements to actual results.

The statements contained in Item 4.B.  the Business
Overview, Item 5  Operating and Financial Review and Prospects and Item 11 
Quantitative and Qualitative Disclosures About Market Risk are inherently
subject to a variety of risks and uncertainties that could cause actual results,
performance or achievements to differ significantly.

- 4 -

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ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS

Not applicable

ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

ITEM 3 - KEY INFORMATION

A.             Selected
  FinancialData

Adira Energy

On August 31, 2009, Adira acquired Adira Energy by issuing
39,040,001 common shares of Adira to Adira Energys shareholders on a one for
one basis. As the shareholders of Adira Energy obtained control of Adira, the
share exchange is considered to be a reverse takeover transaction. Accordingly,
for accounting purposes Adira Energy is the acquirer.

The selected historical information presented in the table
below for the year ended September 30, 2010 is derived from the audited
consolidated financial statements of Adira for such period. The selected
historical financial information presented in the table below for the 175-day
period ended September 30, 2009,comprises the operating data of Adira Energy and
its subsidiary companies from April 8, 2009 (date of incorporation of Adira
Energy) and that of Adira (formerly AMG Oil Ltd) from September 1, 2009. The
selected historical information for each of the fiscal years ended September 30,
2008, 2007 and 2006 is derived from the audited consolidated financial
statements of Adira (formerly AMG Oil Ltd) for those periods. The audited
financial statements of Adira (formerly AMG Oil Ltd) for the fiscal years ended
September 30, 2008, 2007 and 2006 are included in its annual report on Form 20-F
for the year ended September 30, 2008. The selected financial information
presented below should be read in conjunction with the audited consolidated
financial statements and the notes thereto of Adira Group, and with the
information appearing under the headings, Information on the Company and
Operating and Financial Review and Prospects.

Under Canadian GAAP (in US$)

As
        at September 302010
      
      
      2009
      
      
      2008
      
      
      2007
      
      
      2006$
      
      
      $
      
      
      $
      
      
      $
      
      
      $Balance Sheet DataCash and Cash Equivalents
      
      357,560
      
      
      2,354,628
      
      
      1,104,364
      
      
      1,318,132
      
      
      1,348,282Working Capital
      
      800,999
      
      
      2,250,066
      
      
      1,062,473
      
      
      1,307,442
      
      
      1,332,922Total Assets
      
      1,786,898
      
      
      2,756,305
      
      
      1,104,471
      
      
      1,318,282
      
      
      1,348,282Total Liabilities
      
      568,912
      
      
      126,977
      
      
      41,998
      
      
      10,690
      
      
      15,360Total Shareholders Equity
      
      1,217,986
      
      
      2,629,328
      
      
      1,062,473
      
      
      1,307,592
      
      
      1,332,922


Year ended
      
      
      175-DaySeptember,
      
      
      Period30
      
      
      Ended**September,**30
      
      
      As
        at September 302010
      
      
      2009
      
      
      2008
      
      
      2007
      
      
      2006$
      
      
      $
      
      
      $
      
      
      $
      
      
      $Operating DataRevenues
      
      912,597
      
      
      -
      
      
      -
      
      
      -
      
      
      -


- 5 -

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Year ended
      
      
      175-DaySeptember,
      
      
      Period30
      
      
      Ended**September,**30
      
      
      As
        at September 302010
      
      
      2009
      
      
      2008
      
      
      2007
      
      
      2006$
      
      
      $
      
      
      $
      
      
      $
      
      
      $Expenses
      
      2,939,868
      
      
      (1,383,335
      )
      
      (322,720
      )
      
      (90,640
      )
      
      (68,046
      )Other Items
      
      (5,822
      )
      
      14,708
      
      
      -
      
      
      -
      
      
      -Net Loss from Continuing Operations
      
      (2,033,093
      )
      
      (1,368,627
      )
      
      (282,659
      )
      
      (25,330
      )
      
      (36,173
      )Net and Comprehensive Loss
      
      (2,033,093
      )
      
      (1,368,627
      )
      
      (282,659
      )
      
      (25,330
      )
      
      (36,173
      )Basic Loss per Share- From Continuing Operations
      
      (0.05
      )
      
      (0.05
      )
      
      (0.01
      )
      
      (0.00
      )
      
      (0.00
      )- From Discontinued Operations
      
      (0.00
      )
      
      (0.00
      )
      
      (0.00
      )
      
      (0.00
      )
      
      (0.00
      )


We have never declared or paid any cash or other dividends.

Exchange Rate

The exchange rate between the Canadian dollar and the U.S.
dollar was CDN$0.9970 per US$1.00 (or US$1.003 per CDN$1.00) as of February 2,
2011.

The average exchange rates for the financial years listed above
(based on the average exchange rate for each period using the average of the
exchange rates on the last day of each month during the period in accordance
with the exchange rates provided by the Bank of Canada, are as follows:

2010
    2009
    2008
    2007
    2006Year End
    1.029
    1.0722
    1.2180
    0.9913
    1.1654Average
    1.0331
    1.1788
    1.0660
    1.0748
    1.1341High
    1.0848
    1.3000
    1.3008
    1.1878
    1.1794Low
    0.9931
    1.0338
    0.9711
    0.9066
    1.0948


The high and low exchange rates between the Canadian dollar and
the U.S. dollar for the past six months (provided by the Bank of Canada) are as
follows:

Month
      Exchange rate CDN$ per US$1.00High
      LowJanuary 2011
      1.0131
      0.9993December 2010
      1.0216
      0.9931November 2010
      1.0286
      0.998October 2010
      1.0374
      0.9986September 2010
      1.0604
      1.0126August 2010
      1.0674
      1.0108


- 6 -

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B.             Capitalization
and Indebtedness

Not Applicable

C.             Reasons
for the Offer and Use of Proceeds

Not applicable.

D.             Risk
Factors

An investment in our Securities is highly speculative and
involves a high degree of risk. Our Company may face a variety of risks that may
affect our operations or financial results and many of those risks are driven by
factors that we cannot control or predict. Before investing in our Companys
Securities Investors should carefully consider the following risks. If any of
the following risks actually occurs, our Companys business, prospects,
financial condition and results of operations could be materially adversely
affected. In that case, investors may lose all or a part of their
investment.

Risks Associated with the Company

Our independent auditors have referred to circumstances
which might result in doubt about our ability to continue as a going concern,
which may hinder our ability to obtain future financing.

Adira incurred a net loss of $2,033,093 for the period ended
September 30, 2010. At September 30, 2010, Adira had an accumulated deficit of
$3,401,720. These circumstances raise doubt about our ability to continue as a
going concern, as described in the Note 1 to our consolidated financial
statements for the period ended September 30, 2010, which are included herein.
Although our consolidated financial statements refer to circumstances which
might raise doubt about our ability to continue as a going concern, they do not
reflect any adjustments that might result if we are unable to continue our
business.

We are an early-stage oil and gas exploration company
without revenues. Our ability to continue in business depends upon our continued
ability to obtain significant financing from external sources and the success of
our exploration efforts and any production efforts resulting therefrom, none of
which can be assured.

We are an early-stage oil and gas exploration company without
any significant revenues, and there can be no assurance of our ability to
develop and operate our projects profitably. We have historically depended
entirely upon capital infusion from the issuance of equity securities to provide
the cash needed to fund our operations, but we cannot assure you that we will be
able to continue to do so. Our ability to continue in business depends upon our
continued ability to obtain significant financing from external sources and the
success of our exploration efforts and any production efforts resulting
therefrom. Any reduction in our ability to raise equity capital in the future
would force us to reallocate funds from other planned uses and could have a
significant negative effect on our business plans and operations, including our
ability to continue our current exploration activities.

While we may in the future generate additional working
capital through the development, operation, sale or possible syndication of our
current property or any future properties, there is no assurance that our
Company will be successful in generating positive cash flow, or if successful,
that any such funds will be available for distribution to shareholders or to
fund further exploration and development programs.

We have had negative cash flows from operations, and there is
no assurance that our current resources will be sufficient to fund our
operations on an ongoing basis. Our business operations may fail if our actual
cash requirements exceed our estimates and we are not able to obtain further
financing.

We will require significant capital to complete our
seismic surveys, drill test wells, and to build the necessary infrastructure to
commence operations if our exploration activities result in the discovery of
sufficient oil and gas reserves to justify their exploitation and development.

Our Company has had negative cash flows from operations. Since
  inception, we have not earned any significant revenues from operations, and
  due to the length of time between the discovery of oil and gas reserves and
  their exploitation and development, we do not anticipate earning significant
  revenues from operation in the near future.

- 7 -

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We have incurred and will continue to incur significant expenses.
  As at September 30, 2010, we had cash and equivalents on hand of $ 357,560.
  We have sufficient funds to complete preliminary exploration on our Hula property
  in Israel, as outlined in the plan of operations described herein as well as
  to commence preliminary exploration on all of our offshore licenses. However,
  we anticipate that we will have to seek additional financing to fund the advanced
  exploration on our assets, if warranted. Further, we cannot assure you that
  our actual cash requirements will not exceed our estimates, and in any case
  we will require additional financing to bring our interests into commercial
  operation, finance working capital, meet our contractual minimum expenditures
  and pay for operating expenses and capital requirements until we achieve a positive
  cash flow. Additional capital also may be required in the event we incur any
  significant unanticipated expenses.

In light of our operating history, and under the current
capital and credit market conditions, we may not be able to obtain additional
equity or debt financing on acceptable terms if and when we need it. Even if
financing is available, it may not be available on terms that are favorable to
us or in sufficient amounts to satisfy our requirements.

If we require, but are unable to obtain, additional financing
  in the future, we may be unable to implement our business plan and our growth
  strategies, respond to changing business or economic conditions, withstand adverse
  operating results, and compete effectively. More importantly, if we are unable
  to raise further financing when required, our planned exploration activities
  may have to be scaled down or even ceased, and our ability to generate revenues
  in the future would be negatively affected.

Our lack of diversification increases the risk of an
investment in us, and our financial condition and results of operations may
deteriorate if we fail to diversify.

Our business focus is on oil and gas exploration on a limited
number of properties in Israel. As a result, we lack diversification, in terms
of both the nature and geographic scope of our business. We will likely be
impacted more acutely by factors affecting our industry or the regions in which
we operate than we would if our business were more diversified. If we cannot
diversify our operations, our financial condition and results of operations
could deteriorate.

We may not effectively manage the growth necessary to
execute our business plan.

Our business plan anticipates a significant increase in the
number of our contractors, strategic partners and equipment suppliers. This
growth will place significant strain on our current personnel, systems and
resources. We expect that we will be required to hire qualified consultants and
employees to help us manage our growth effectively. We believe that we will also
be required to improve our management, technical, information and accounting
systems, controls and procedures. We may not be able to maintain the quality of
our operations, control our costs, continue complying with all applicable
regulations and expand our internal management, technical information and
accounting systems to support our desired growth. If we fail to manage our
anticipated growth effectively, our business could be adversely affected.

All of our assets are outside the United States, with the
result that it may be difficult for investors to enforce within the United
States any judgments obtained against us or some of our directors or
officers.

All of our assets are located outside the United States. In
addition, some of our directors and officers are nationals and/or residents of
countries other than the United States, and all or a substantial portion of such
persons assets are located outside the United States. As a result, it may be
difficult for investors to enforce within the United States any judgments
obtained against us or our officers or directors, including judgments predicated
upon the civil liability provisions of the securities laws of the United States
or any state thereof. Consequently, you may be effectively prevented from
pursuing remedies under United States federal securities laws against them.

As a holding company, our ability to make payments
depends on the cash flows of our subsidiaries and our ability to raise financing

We are a holding company and conduct substantially all of our
operations through subsidiaries incorporated outside North America. We have no
direct operations and no significant assets other than the shares of our
subsidiaries.

- 8 -

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Therefore, we are dependent on the cash flows of such
subsidiaries to meet our obligations, including payment of principal and
interest on any debt we incur. The ability of our subsidiaries to provide us
with payments may be constrained by the following factors:

- the cash flows generated by operations, investment activities and
  financing activities;
- the level of taxation, particularly corporate profits and withholding
  taxes, in Israel; and
- the introduction of exchange controls and repatriation restrictions or the
  availability of hard currency to be repatriated.

If we are unable to receive sufficient cash from our
subsidiaries, we may be required to refinance any indebtedness we incur, raise
funds in a public or private equity or debt offering or sell some or all of our
assets. We can provide no assurances that an offering of our debt or equity or a
refinancing of our debt can or will be completed on satisfactory terms or that
it would be sufficient to enable us to make payment with respect to our debt.
The foregoing events could have an adverse impact on our future cash flows,
earnings, results of operations and financial condition.

We have agreed to indemnify our directors against
liabilities incurred by them as directors.

We have agreed to indemnify our directors from and against all
costs, charges and expenses reasonably incurred by them in respect of any civil,
criminal or administrative action or proceeding to which they are made a party
or with which they are threatened by reason of being or having been a director
of the Company, provided that (i) they have acted honestly and in good faith
with a view to the best interests of the Company; and (ii) in the case of a
criminal or administrative action or proceeding that is enforced by a monetary
penalty, they had reasonable grounds for believing that their conduct was
lawful. This indemnity may reduce the likelihood of derivative litigation
against our directors and may discourage or deter our shareholders from suing
our directors.

We may be adversely affected by current global financial
conditions.

Current global financial conditions have been characterized by
increased volatility and several financial institutions have either gone into
bankruptcy or have had to be rescued by governmental authorities. Access to
public financing and bank credit has been negatively impacted by both the rapid
decline in value of sub-prime mortgages and the liquidity crisis affecting the
asset-backed commercial paper market. These and other factors may affect our
ability to obtain equity or debt financing in the future on favorable terms.
Additionally, these factors, as well as other related factors, may cause
decreases in our asset values that may be other than temporary, which may result
in impairment losses. If such increased levels of volatility and market turmoil
continue, or if more extensive disruptions of the global financial markets
occur, our operations could be adversely impacted and the market value of our
Common Shares may be adversely affected.

Currency fluctuations could have an adverse effect on our
business.

Our earnings and cash flow may also be affected by fluctuations
in the exchange rate between the U.S. dollar and other currencies, such as the
New Israeli Shekel, the Canadian dollar and to a limited extent, the Euro. Our
consolidated financial statements are expressed in U.S. dollars. Our sales of
oil and gas, if any, will be denominated in U.S. dollars, while exploration
costs and operating costs are, in part, denominated in Israel Shekels, U.S.
dollars and Canadian dollars

Fluctuations in exchange rates between the U.S. dollar and
other currencies may give rise to foreign exchange currency exposures, both
favorable and unfavorable, which have materially impacted and in the future may
materially impact our future financial results. We do not utilize a hedging
program to limit the adverse effects of foreign exchange rate fluctuations.

Conditions in Israel may affect our operations.

Our subsidiaries conduct their principal operations in Israel,
  and therefore are directly affected by the political, economic, and military
  conditions affecting Israel and the Middle East. Armed conflicts between Israel
  and its neighboring countries and territories occur periodically and a protracted
  state of hostility, varying in degree and intensity over time, has in the past
  led to security and economic difficulties for Israel.

- 9 -

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These hostilities, any escalation thereof or any future armed
  conflict or violence in the region, could adversely affect our subsidiaries
  operations. In addition, we could be adversely affected by other events or factors
  affecting Israel such as the interruption or curtailment of trade between Israel
  and its present trading partners, a significant downturn in the economic or
  financial condition of Israel, a significant downgrading of Israels international
  credit rating, labor disputes and strike actions and political instability.

Certain of the Companys Exploration Areas are subject to
Contractual Agreements with Land Lessors.

Certain of the areas on which the Company conducts exploration,
such as the Kibbutz Neot Mordechai portion of the Eitan License area, are
subject to contractual agreements with landowners. These agreements are subject
to governmental approval (See Risk Factor on ability to maintain necessary
licenses) and certain terms and conditions imposed by the lessor. In the event
that a discovery of oil and gas is made, the owner has the ability to negotiate
terms further which could increase costs to the Company and could prevent viable
extraction.

Our financial reporting may be subject to weaknesses in
internal controls.

Internal controls over financial reporting are procedures
designed to provide reasonable assurance that transactions are properly
authorized, assets are safeguarded against unauthorized or improper use, and
transactions are properly recorded and reported. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
with respect to the reliability of financial reporting and financial statement
preparation. As an early-stage company, our internal controls may be less formal
and easier to bypass than those of more established corporations.

We cannot be certain that current expected expenditures
and completion/testing programs will be realized.

We believe that the costs used to prepare internal budgets are
reasonable, however, there are assumptions, uncertainties, and risk that may
cause our allocated funds on a per well basis to change as a result of having to
alter certain activities from those originally proposed or programmed to reduce
and mitigate uncertainties and risks. These assumptions, uncertainties, and
risks are inherent in the completion and testing of wells and can include but
are not limited to: pipe failure, casing collapse, unusual or unexpected
formation pressure, environmental hazards, and other operating or production
risk intrinsic in oil and or gas activities. Any of the above may cause a delay
in the Companys completion program and its ability to determine reserve
potential.

Risks Associated with Our Business

We have not discovered any oil and gas reserves, and we
cannot assure you that that we or our venture ever will.

We are in the business of exploring for oil and natural gas,
and the development and exploitation of any significant reserves that are found.
Oil and gas exploration involves a high degree of risk that the exploration will
not yield positive results. These risks are more acute in the early stages of
exploration. We have not discovered any reserves, and we cannot guarantee you
that we ever will. Even if we succeed in discovering oil or gas reserves, these
reserves may not be in commercially viable quantities or locations. Until we
discover such reserves, we will not be able to generate any significant revenues
from their exploitation and development. If we are unable to generate revenues
from the development and exploitation of oil and gas reserves, we will be forced
to change our business or cease operations.

We might incur additional debt in order to fund our
exploration and development activities, which would continue to reduce our
financial flexibility and could have a material adverse effect on our business,
financial condition or results of operation.

It is possible that we might incur debt in order to fund its
  exploration and development activities, which would continue to reduce our financial
  flexibility and could have a material adverse effect on our business, operations
  and results of operations and financial condition. General economic conditions,
  oil and gas prices and financial, business and other factors affect our operations
  and future performance. Many of these factors are beyond our control. No assurances
  can be made that we will be able to generate sufficient cash flow to pay the
  interest on its debt or that future working capital, borrowings or equity financing
  will be available to pay or refinance such debt. Factors that will affect its
  ability to raise cash through an offering of Common Shares or other types of
  equity securities, or a refinancing of debt include financial market conditions,
  the value of its assets and performance at the time we need capital.

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No assurances can be made that we will have sufficient funds
  to make such payments. If we do not have sufficient funds and are otherwise
  unable to negotiate renewals of our borrowings or arrange new financing, we
  might be required to sell significant assets. Any such sale could have a material
  adverse effect on our business, financial condition and results of operations.

Our assets and operations are subject to government
regulation in Israel.

Our interests and operations in Israel may be affected in
varying degrees by government regulations relating to the oil and gas industry.
Any changes in regulations or shifts in political conditions are beyond the
control of the Company may adversely affect our business. Our operations may be
affected in varying degrees by new government regulations and changes to
existing regulations, including those with respect to restrictions on
exploration and production, price controls, export controls, income taxes,
employment, land use, water use, environmental legislation and safety
regulations. The recent recommendations of the Sheshinski Committee, a
government appointed committee in Israel were published on how to tax oil and
gas exploitation in Israel. They include increasing the aggregate government
take from future oil and gas revenues from approximately 30% today to between
50%-63% including royalties which will remain unchanged at 12.5% . If these
recommendations are ultimately adopted by the Israeli Knesset, it could have a
material adverse effect on our business, financial condition and results of
operations.

Our future success depends upon our ability to find,
develop and acquire additional oil and natural gas reserves that are
economically recoverable.

In the event that we are able to find and develop oil and
natural gas reserves which are economically recoverable, the rate of production
from those reservoirs will decline as reserves are depleted. As a result, we
must locate and develop or acquire new oil and natural gas reserves to replace
those being depleted by production. We must do this even during periods of low
oil and natural gas prices when it is difficult to raise the capital necessary
to finance activities. Without successful exploration or acquisition activities,
our reserves and revenues will decline. We may not be able to find and develop
or acquire additional reserves at an acceptable cost or have necessary financing
for these activities.

Oil and natural gas drilling is a high-risk activity.

Our future success will depend on the success of our
exploration and drilling programs. In addition to the numerous operating risks
described in more detail below, these activities involve the risk that no
commercially productive oil or natural gas reservoirs will be discovered. In
addition, we are uncertain as to the future cost or timing of drilling,
completing and producing wells. Furthermore, our drilling operations may be
curtailed, delayed or canceled as a result of a variety of factors, including,
but not limited to, the following:

- unexpected drilling conditions;
- pressure or irregularities in formations;
- equipment failures or accidents;
- adverse weather conditions;
- inability to comply with governmental requirements; and
- shortages or delays in the availability of drilling rigs and the delivery
  of equipment.

If we experience any of these problems, our ability to conduct
operations could be adversely affected.

We might not be able to determine reserve potential,
identify liabilities associated with the properties or obtain protection from
sellers against them, which could cause us to incur losses.

Although we believe we have reviewed and evaluated our properties
  in Israel in a manner consistent with industry practices, such review and evaluation
  might not necessarily reveal all existing or potential problems. This is also
  true for any future acquisitions made by us. Inspections may not always be performed
  on every well, and environmental problems, such as groundwater contamination,
  are not necessarily observable even when an inspection is undertaken.

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Even when problems are identified, a seller may be unwilling
  or unable to provide effective contractual protection against all or part of
  those problems, and we often assume environmental and other risks and liabilities
  in connection with the acquired properties.

You should not place undue reliance on reserve
information because reserve information represents estimates, and our seismic
surveying is still in the preliminary stages.

There are numerous uncertainties inherent in estimating
quantities of proved reserves and cash flows from such reserves, including
factors beyond our control and the control of engineers. Reserve engineering is
a subjective process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact manner. The accuracy of an estimate of
quantities of reserves, or of cash flows attributable to these reserves, is a
function of many factors, including, but not limited to, the following:

- available data;
- assumptions regarding future oil and natural gas prices;
- estimates of future production rates;
- expenditures for future development and exploitation activities; and
- engineering and geological interpretation and judgment.

Reserves and future cash flows may also be subject to material
downward or upward revisions based upon production history, development and
exploitation activities and oil and natural gas prices. Actual future
production, revenue, taxes, development expenditures, operating expenses,
quantities of recoverable reserves and value of cash flows from those reserves
may vary significantly from the estimates. In addition, reserve engineers may
make different estimates of reserves and cash flows based on the same available
data.

The nature of oil and gas exploration makes the estimates
of costs uncertain, and our operations may be adversely affected if we
underestimate such costs.

It is difficult to project the costs of implementing an
exploratory drilling program. Complicating factors include the inherent
uncertainties of drilling in unknown formations, the costs associated with
encountering various drilling conditions, such as over-pressured zones and tools
lost in the hole, and changes in drilling plans and locations as a result of
prior exploratory wells or additional seismic data and interpretations thereof.
If we underestimate the costs of such programs, we may be required to seek
additional funding, shift resources from other operations or abandon such
programs.

Factors beyond our control affect our ability to market
oil and gas.

Our ability to market oil and natural gas from our wells
depends upon numerous factors beyond our control. These factors include, but are
not limited to, the following:

- the level of domestic production and imports of oil and gas;
- the volatility of both oil and natural gas pricing;
- the proximity of natural gas production to natural gas facilities,
  pipelines and other means of transportation;
- the availability of pipeline capacity or other means of transportation;
- the demand for oil and natural gas by utilities and other end users;
- the availability of alternate fuel sources;
- the effect of inclement weather; and
- government regulation of oil and natural gas marketing.

If these factors were to change dramatically, our ability to
market oil and natural gas or obtain favorable prices for our oil and natural
gas could be adversely affected.

Prices and markets for oil are unpredictable and tend to
fluctuate significantly, which could reduce profitability, growth and the value
of our business if we or our venture ever begin exploitation of reserves.

Our future financial condition, results of operations and the
  carrying value of our oil and natural gas properties depend primarily upon the
  prices we receive for our oil and natural gas production, if any. Oil and natural
  gas prices historically have been volatile and likely will continue to be volatile
  in the future, especially given current world economic conditions. Significant
  changes in long-term price outlooks for crude oil could by the time that we
  start exploiting oil and gas reserves, if we ever discover and exploit such
  reserves, could have a material adverse effect on revenues as well as the value
  of licenses or other assets.

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Our future cash flow from operations, if any, will be highly
  dependent on the prices that we receive for oil and natural gas. This price
  volatility also affects the amount of our cash flow available for capital expenditures
  and our ability to borrow money or raise additional capital. The prices for
  oil and natural gas are subject to a variety of additional factors that are
  beyond our control. These factors include:

- the level of consumer demand for oil and natural gas;
- the domestic and foreign supply of oil and natural gas;
- the ability of the members of the Organization of Petroleum Exporting
  Countries to agree to and maintain oil price and production controls;
- the price of foreign oil and natural gas;
- the price and availability of alternative fuel sources;
- governmental regulations;
- weather conditions;
- market uncertainty;
- political conditions in oil and natural gas producing regions, including
  Israel and the Middle East;
- war, or the threat of war, in oil producing regions; and
- worldwide economic conditions.

These factors and the volatility of the energy markets
generally make it extremely difficult to predict future oil and natural gas
price movements with any certainty. Also, oil and natural gas prices do not
necessarily move in tandem. Declines in oil and natural gas prices would not
only reduce revenue, but could reduce the amount of oil and natural gas that we
can produce economically and, as a result, could have a material adverse effect
upon our financial condition, cash flows, results of operations, oil and natural
gas reserves, the carrying values of our oil and natural gas properties and the
amounts we can borrow under any bank credit facilities we may obtain in the
future.

Even if we discover and then develop oil and gas
reserves, we may have difficulty distributing our production.

If our exploration activities result in the discovery of oil
and gas reserves, and if we are able to successfully develop and exploit such
reserves, we will have to make arrangements for storage and distribution of oil
and gas. We would have to rely on local infrastructure and the availability of
transportation for storage and shipment of oil and gas products, but any readily
available infrastructure and storage and transportation facilities may be
insufficient or not available at commercially acceptable terms. The
marketability of our production depends in part upon the availability,
proximity, and capacity of oil and natural gas pipelines, crude oil trucking,
natural gas gathering systems and processing facilities. This could be
particularly problematic to the extent that operations are conducted in remote
areas that are difficult to access, such as areas that are distant from shipping
or pipeline facilities. Furthermore, weather conditions or natural disasters,
actions by companies doing business in one or more of the areas in which we or
our venture will operate, or labor disputes may impair the distribution of oil
and gas. In addition, Israel has little or no storage capacity and the currently
available distribution infrastructure is limited. These factors may affect the
ability to explore and develop properties and to store and transport oil and gas
and may increase our expenses to a degree that has a material adverse effect on
operations.

Our inability to obtain necessary facilities could hamper
our operations.

Oil and gas exploration activities depend on the availability
of equipment, transportation, power and technical support in the particular
areas where these activities will be conducted, and our access to these
facilities may be limited. Demand for such limited equipment and other
facilities or access restrictions may affect the availability of such equipment
to us and may delay exploration and development activities. The quality and
reliability of necessary facilities may also be unpredictable and we may be
required to make efforts to standardize our facilities, which may entail
unanticipated costs and delays. Shortages or the unavailability of necessary
equipment or other facilities will impair our activities, either by delaying our
activities, increasing our costs or otherwise.

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Our success depends on our ability to attract and retain
qualified personnel

Recruiting and retaining qualified personnel is critical to our
success. The number of persons skilled in the acquisition, exploration and
development of oil and gas properties is limited and competition for such
persons is intense. As our business activity grows, it will require additional
key financial, administrative and mining personnel as well as additional
operations staff. Although we believe that we will be successful in attracting,
training and retaining qualified personnel, there can be no assurance of such
success. If we are not successful in attracting and training qualified
personnel, the efficiency of our operations could be affected, which could have
an adverse impact on our future cash flows, earnings, results of operations and
financial condition. Our development now and in the future will also depend on
the efforts of key management figures. The loss of any of these key people could
have a material adverse effect on our business. We do not currently maintain
key-man life insurance on any of our key employees.

We face strong competition from other energy companies
that may negatively affect our ability to carry on operations.

We operate in the highly competitive areas of oil and natural
gas exploration, development and production. Factors which affect our ability to
successfully compete in the marketplace include, but are not limited to, the
following:

- the availability of funds and information relating to a property;
- the standards established by us for the minimum projected return on
  investment;
- the availability of alternate fuel sources; and
- the intermediate transportation of gas.

Our competitors include major integrated oil companies,
substantial independent energy companies, affiliates of major interstate and
intrastate pipelines, and national and local natural gas gatherers. Many of
these competitors possess greater financial and other resources than we do.

Operating hazards may adversely affect our ability to
conduct business.

Our future operations, if any, will be subject to risks
inherent in the oil and natural gas industry, including, but not limited to, the
following:

- blowouts;
- cratering;
- explosions;
- uncontrollable flows of oil, natural gas or well fluids;
- fires;
- pollution; and
- other environmental risks.

These risks could result in substantial losses to us from
injury and loss of life, damage to and destruction of property and equipment,
pollution and other environmental damage and suspension of operations.
Governmental regulations may impose liability for pollution damage or result in
the interruption or termination of operations.

Losses and liabilities arising from uninsured or
under-insured hazards could have a material adverse effect on our business.

If we develop and exploit oil and gas reserves, those
operations will be subject to the customary hazards of recovering, transporting
and processing hydrocarbons, such as fires, explosions, gaseous leaks, migration
of harmful substances, blowouts and oil spills. An accident or error arising
from these hazards might result in the loss of equipment or life, as well as
injury, property damage or other liability. We cannot assure you that we will
obtain insurance on reasonable terms or that any insurance we may obtain will be
sufficient to cover any such accident or error. Our operations could be
interrupted by natural disasters or other events beyond our control. Losses and
liabilities arising from uninsured or under-insured events could have a material
adverse effect on our business, financial condition and results of operations.

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Compliance with environmental and other government
regulations could be costly and could negatively impact production.

All phases of the oil and gas business present environmental
risks and hazards and are subject to environmental regulation pursuant to a
variety of laws and regulations. Our operations are subject to laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. The recent trend toward stricter
standards in environmental legislation and regulation is likely to continue. The
enactment of stricter legislation or the adoption of stricter regulation could
have a significant impact on our operating costs, as well as on the oil and
natural gas industry in general.

Our existing property, and any future properties that we
may acquire, may be subject to pre-existing environmental liabilities.

Pre-existing environmental liabilities may exist on the
property in which we currently hold an interest or on properties that may be
subsequently acquired by us which are unknown to the Company and which have been
caused by previous or existing owners or operators of the properties. In such
event, we may be required to remediate these properties and the costs of
remediation could be substantial. Further, in such circumstances, we may not be
able to claim indemnification or contribution from other parties. In the event
we were required to undertake and fund significant remediation work, such event
could have a material adverse effect upon the Company and the value of our
common shares.

Our business will suffer if we cannot obtain or maintain
necessary licenses.

Our operations require licenses, permits and in some cases
renewals of licenses and permits from various governmental authorities.
Specifically, the licenses awarded to us by the Government of Israel have terms
of three years and must be renewed in order to extend the license beyond this
initial term. Among other factors, our ability to obtain, sustain or renew such
licenses and permits on acceptable terms is subject to change in regulations and
policies and to the discretion of the applicable governments. Our inability to
obtain, maintain or acquire extensions for these licenses or permits could
hamper our ability to produce revenues from operations. Other oil and gas
companies may seek to acquire property leases and licenses that we will need to
operate our business. This competition has become increasingly intense as the
price of oil on the commodities markets has risen in recent years. This
competition may prevent us from obtaining licenses we deem necessary for our
business, or it may substantially increase the cost of obtaining these licenses.

Penalties we may incur could impair our business.

Failure to comply with government regulations could subject us
to civil and criminal penalties, could require us or our venture to forfeit
property rights or licenses, and may affect the value of our assets. We may also
be required to take corrective actions, such as installing additional equipment,
which could require substantial capital expenditures. We could also be required
to indemnify our employees in connection with any expenses or liabilities that
they may incur individually in connection with regulatory action against them.
As a result, our future business prospects could deteriorate due to regulatory
constraints, and our profitability could be impaired by our obligation to
provide such indemnification to our employees.

Strategic relationships upon which we may rely are
subject to change, which may diminish our ability to conduct our operations.

Our ability to successfully acquire additional licenses, to
discover reserves, to participate in drilling opportunities and to identify and
enter into commercial arrangements depends on developing and maintaining close
working relationships with industry participants and government officials and on
our ability to select and evaluate suitable properties and to consummate
transactions in a highly competitive environment. We may not be able to
establish these strategic relationships, or if established, we may not be able
to maintain them. In addition, the dynamics of our relationships with strategic
partners may require us to incur expenses or undertake activities we would not
otherwise be inclined to undertake in order to fulfill our obligations to these
partners or maintain our relationships. If our strategic relationships are not
established or maintained, our business prospects may be limited, which could
diminish our ability to conduct our operations.

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Political instability or fundamental changes in the
leadership or in the structure of the governments in the jurisdictions in which
the Company operates could have a material negative impact on the
Company.

Our interests may be affected by political and economic
upheavals. Although we currently operate in jurisdictions that welcome foreign
investment and are generally stable, there is no assurance that the current
economic and political situation in these jurisdictions will not change
drastically in coming years. Local, regional and world events could cause the
jurisdictions in which we operate to change the mining laws, tax laws, foreign
investment laws, or to revise their policies in a manner that renders our
current and future projects non-economic.

We may enter into hedging agreements but may not be able
  to hedge against all such risks.

If we are able to discover commercially exploitable quantities
of oil or gas and is able to enter into commercial production, from time to time
we may enter into agreements to receive fixed or a range of prices on its oil
and natural gas production to offset the risk of revenue losses if commodity
prices decline; however, if commodity prices increase beyond the levels set in
such agreements, we will not benefit from such increases. Similarly, from time
to time we may enter into agreements to fix the exchange rate of certain
currencies to US dollars in order to offset the risk of revenue losses if the
other currencies increase in value compared to the US dollar; however, if other
currencies decline in value compared to the US dollar, we will not benefit from
the fluctuating exchange rate. In addition to the potential of experiencing an
opportunity cost, other potential costs or losses associated with hedging
include the risk that the other party to a hedge transaction does not perform
its obligations under a hedge agreement, the hedge is imperfect or our hedging
policies and procedures are not followed.

The Company is incorporated in Canada.

The Company is a Canadian corporation governed under the
Canada Business Corporations Act and as such, its corporate structure,
the rights and obligations of shareholders and its corporate bodies may be
different from those of the home countries of international investors.
Furthermore, non-Canadian residents may find it more difficult and costly to
exercise shareholder rights. International investors may also find it costly and
difficult to effect service of process and enforce their civil liabilities
against the Company or some of its directors, controlling persons and
officers.

To the extent that we establish natural gas and oil
reserves, we will be required to replace, maintain or expand these natural gas
and oil reserves in order to prevent reserves and production from declining,
which could adversely affect cash flows and income.

In general, production from natural gas and oil properties
declines over time as reserves are depleted, with the rate of decline depending
on reservoir characteristics. If we establish reserves, of which there is no
assurance, and is not successful in its subsequent exploration and development
activities or in subsequently acquiring properties containing proved reserves,
its proved reserves will decline as reserves are produced. Our future natural
gas and oil production is highly dependent upon its ability to economically
find, develop or acquire reserves in commercial quantities.

To the extent cash flow from operations is reduced, either by a
decrease in prevailing production volume prices for natural gas and oil or an
increase in finding and development costs, and external sources of capital
become limited or unavailable, our ability to make the necessary capital
investment to maintain or expand its asset base of natural gas and oil reserves
would be impaired. Even with sufficient available capital, its future
exploration and development activities may not result in additional proved
reserves, and we might not be able to drill productive wells at acceptable
costs.

Risks Associated with our Common Shares

We may be classified in the future as a passive foreign
investment company, or PFIC, for United States tax purposes, which will have
adverse tax consequences for all United States holders of our shares.

We do not believe that we are a PFIC in 2010. However, wemay, in the future, be classified for United States income tax purposes
  as a passive foreign investment company. This means that any dividends we pay
  you will be taxed as ordinary income and not at preferential qualifying dividend
  tax rates, and upon any sale of our Common Shares, any capital gain will be
  taxed as ordinary income and not at preferential capital gains rates.

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This will continue to be true even after we commence active operations.
  See discussion in Item 10E United States Tax Consequences.
  The exercise of all or any number of outstanding warrants or stock options,
  the issuance of any annual bonus shares, the award of any additional options,
  bonus shares or other stock-based awards or any issuance of shares to raise
  funds or acquire a business may dilute your Common Shares.

We may in the future grant to some or all of our directors,
officers, insiders, and key employees options to purchase our Common Shares,
bonus shares and other stock based awards as non-cash incentives to those
persons. We may grant these options and other stock based awards at exercise
prices equal to or less than market prices, and we may grant them when the
market for our securities is depressed. The issuance of any equity securities
could, and the issuance of any additional shares will, cause our existing
shareholders to experience dilution of their ownership interests.

Any additional issuance of shares or decision to enter into
joint ventures with other parties to raise financing or acquire other businesses
through the sale of equity securities, may dilute our investors interests in
the Company, and investors may suffer dilution in their net book value per share
depending on the price at which such securities are sold. Such issuance may
cause a reduction in the proportionate ownership and voting power of all other
shareholders. The dilution may result in a decline in the price of our Common
Shares or a change in the control of the Company.

We do not expect to pay dividends for the foreseeable
future.

We do not intend to declare dividends for the foreseeable
future, as we anticipate that we will reinvest any future earnings in the
development and growth of our business. Therefore, investors will not receive
any funds unless they sell their Common Shares, and shareholders may be unable
to sell their shares on favorable terms or at all. We cannot assure you of a
positive return on investment or that you will not lose the entire amount of
your investment in our Common Shares. Prospective investors seeking or needing
dividend income or liquidity should not purchase our Common Shares.

An investment in our Company will likely be diluted.

We may issue a substantial number of our common shares without
investor approval to raise additional financing and we may consolidate the
current outstanding common shares. Any such issuance or consolidation of our
securities in the future could reduce an investors ownership percentage and
voting rights in the Company and further dilute the value of your investment.

The value of securities issued by us might be affected by
matters not related to own operating performance for reasons that include the
following:

- general economic conditions in Canada, the US, Israel and globally;
- industry conditions, including fluctuations in the price of oil and
  natural gas;
- governmental regulation of the oil and gas industry, including
  environmental regulation;
- fluctuation in foreign exchange or interest rates;
- liabilities inherent in oil and natural gas operations;
- geological, technical, drilling and processing problems;
- unanticipated operating events which can reduce production or cause
  production to be shut-in or delayed;
- failure to obtain industry partner and other third party consents and
  approvals, when required;
- stock market volatility and market valuations;
- competition for, among other things, capital, acquisition of reserves,
  undeveloped land and skilled personnel;
- the need to obtain required approvals from regulatory authorities;
- worldwide supplies and prices of and demand for natural gas and oil;
- political conditions and developments in Israel, Canada, the US, and
  globally;
- political conditions in natural gas and oil producing regions;
- revenue and operating results failing to meet expectations in any
  particular period;

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- investor perception of the oil and gas industry;
- limited trading volume of the Common Shares;
- change in environmental and other governmental regulations;
- announcements relating to the Companys business or the business of its
  competitors;
- the Companys liquidity; and
- the Companys ability to raise additional funds.

In the past, companies that have experienced volatility in
their value have been the subject of securities class action litigation. The
Company might become involved in securities class action litigation in the
future. Such litigation often results in substantial costs and diversion of
managements attention and resources and could have a material adverse effect on
the Companys business, financial condition and results of operation.

ITEM
4              
INFORMATION ON THE COMPANY

We are a Canadian corporation governed under the Canada
Business Corporations Act (the CBCA) which conducts business as an
oil and gas exploration company with operations in the State of Israel. We have
been granted the following petroleum licenses from the State of Israel:

- Eitan License No. 356, or Eitan License- covering 31,060 acres (125.7
  sq.km.) in the Hula Valley located in Northern Israel. The license was issued
  in December, 2008 for an initial three year period and may be renewed upon
  fulfillment of certain conditions for a further four year period;
- Gabriella License No. 378 or Gabriella License - covering 97,000 acres
  (392 sq. km.) approx. 10km offshore Israel between Netanya and Ashdod. The
  license was issued in July, 2009 for an initial three year period and may be
  renewed upon fulfillment of certain conditions for a further four year period;
- Yitzhak License No.380 or Yitzhak License- covering 31,555 acres (127.7
  sq.km) approx. 17km offshore Israel between Hadera and Netanya, directly to
  the North of and contiguous to Gabriella. The license was issued in October,
  2009 for an initial three year period and may be renewed upon fulfillment of
  certain conditions for a further four year period; and
- Samuel License No. 388, or Samuel License  covering 88,708 acres (359 sq.
  km) approx.17 km offshore Israel adjacent to the shoreline between the City of
  Ashkelon in the South and the City of Rishon Letziyon in the North. The
  license was issued on August 1, 2010 to a consortium led by us (through our
  subsidiaries, Adira Oil Technologies Ltd. (100% owned) and Adira Geo Global
  Ltd (60% owned  the remaining 40% is held by GeoGlobal Resources (Barbados)
  Inc., an unrelated party).

Our Gabriella License, Yitzhak and Samuel Licenses are
collectively referred to as our Offshore Licenses.

All of the licenses are subject to 12.5% royalty payable to the
government of Israel.

In addition, we have a right to farm in to 70% of the Notera
License which is approximately 19,000 acres and contiguous and directly to the
south of the Eitan License and as well as an option to acquire a 5%
participating interest in each of the Myra and Sara Licenses, both offshore
Israel licenses.

For more information, see Item 4 B below Onshore Licences and
Offshore Licences.

Our business plan is to carry out exploration activities on our
Eitan License in order to assess the existence of commercially exploitable
quantities of natural gas. In addition, we also plan to conduct evaluation work
on each of the Offshore Licenses to establish whether exploration is justified.
We presently do not produce any oil or gas and do not earn any significant
revenues.

A.             History
  and Development of the Company

Name

Our legal and commercial name is Adira Energy Ltd.

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Principal Office

Our principal office is located at 120 Adelaide Street West,
Suite 1204S, Toronto, Ontario, Canada, M4V 3A1. Our telephone number is (416)
250-6500.

Incorporation and Continuation

We are a Canadian corporation governed under the Canada
Business Corporations Act (the CBCA).

We were incorporated on February 20, 1997 under the name Trans
New Zealand Oil Company by filing our Articles of Incorporation with the
Secretary of State of Nevada. We changed our name to AMG Oil Ltd. on July 27,
1998. On December 17, 2009, we changed our name to Adira Energy Ltd. Our
fiscal year end is September 30.

On November 25, 2008, the Companys shareholders approved the
change of our jurisdiction of incorporation from the State of Nevada to the
Canadian federal jurisdiction under the CBCA by way of continuation. The Company
completed the filing of its Articles of Conversion with the Nevada Secretary of
State on November 25, 2008, and the Companys Articles of Continuance were
accepted for filing by Industry Canada effective November 27, 2008. The effect
of these filings was to transfer the jurisdiction of incorporation of the
Company from the State of Nevada to the Canadian federal jurisdiction under the
CBCA. Copies of the Articles of Conversion, Articles of Continuance, Certificate
of Continuance and By-Laws, are incorporated by reference to this Form 20-F as
exhibits.

The Companys common shares remain registered under Section
12(g) of the Exchange Act after completion of the continuation as a result of
the operation of Rule 12g-3 of the Exchange Act. The Companys current trading
symbol on the OTCBB is ADENF. The Companys current trading symbol on the TSXV
is ADL.

Acquisition of Adira Energy

We completed the acquisition of Adira Energy, a company
incorporated in the Province of Ontario, on August 31, 2009. As a result of the
completion of this acquisition, we are now the owner of all the issued and
outstanding shares of Adira Energy and we have ceased to be a shell company,
as defined in Rule 12b-2 of the Exchange Act. The acquisition was completed
pursuant to a securities exchange agreement dated August 4, 2009 among Adira,
Adira Energy and Dennis Bennie, Ilan Diamond and Alan Friedman, as principal
shareholders, and concurrent securities exchange agreements among Adira and each
of the minority shareholders of Adira Energy. We issued an aggregate of
39,040,001 common shares to the shareholders of Adira Energy as consideration
for the acquisition of Adira Energy.

Immediately prior the acquisition, Adira Energy completed a
private placement (Adira Energy Private Placement) of 7,600,000 units
(Units) at a price of $0.25 per Unit. Sandfire Securities Inc. acted as
lead agent to Adira Energy in connection with the Adira Energy Private
Placement. Each Unit was comprised of one common share of Adira Energy and
one-half of one share purchase warrant. The common shares and share purchase
warrants issued by Adira Energy were exchanged concurrently with the closing of
the Acquisition. Each resulting share purchase warrant entitles the holder to
purchase one additional common share of the Company at the exercise price of
$0.50 per share for a two year period following closing, expiring on August 31,
2011. In connection with the Adira Energy Private Placement, 500,770
compensation warrants were issued to agents who will entitle the holders thereof
to purchase an equal amount of common shares of the Company at the exercise
price of $0.25 per common share for a two year period following closing expiring
on August 31, 2011.

Concurrent with the completion of the Acquisition, Michael
Hart, Michael Murphy and John Campbell, resigned from the board of Adira and
Dennis Bennie (Chair), Glen Perry, Alan Friedman and Ilan Diamond (CEO) were
appointed as the new directors of Adira.

In September 2009, Adira completed a private placement of an
additional 400,000 Units on a non-brokered basis (the September Private
Placement) at a price of $0.25 per Unit. Each Unit comprised of one common
share of Adira Energy and one-half of one share purchase warrant. After
deducting commissions payable in connection with the September Private
Placement, we raised an aggregate of $100,000 in the September Private
Placement.

- 19 -

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On September 23, 2009, we completed a private placement of an
additional 400,000 Units on a non-brokered basis at a price of $0.25 per Unit
for aggregate gross proceeds of $100,000. Each Unit comprised of one common
share of Adira Energy and one-half of one share purchase warrant

On November 22, 2010 we completed a financing for gross
proceeds of $11,000,000 (Adira Financing). Pursuant to the Adira
Financing, we issued 27,500,000 subscription receipts which upon fulfillment of
certain conditions were automatically exercised into 27,500,000 Common Shares
and 13,750,000 warrants. Each whole warrant will be exercisable for a term of
three years from the date of issuance at an exercise price of $0.55. In
addition, we issued warrants to certain parties, in conjunction with the Adira
Financing. Each such warrant is exercisable into one Common Share for up to
three years from the date of closing of the Adira Financing at an exercise price
of $0.40. BRM Group Ltd., a private investment company, or BRM, invested
$4,000,000 as part of the Adira Financing. 1,101,750 of the above warrants were
issued to DS Apex Mergers & Acquisitions Ltd., which is 60% owned by BRM in
consideration for placement services provided to us in connection with the Adira
Financing  see Item 10C "Material Contracts"

On December 2, 2010, our common shares commenced trading on the
TSX Venture Exchange (the TSXV) following approval of its listing in
November 2010.

Prior Operations of Adira

We were previously engaged in the acquisition and, formerly,
exploration of resource properties.

We were inactive for approximately four years prior to our
acquisition of Adira Energy in 2009 and were considered a shell company within
the meaning assigned to that term in Rule 12b-2 of the Exchange Act because we
had no operations and our assets consisted solely of cash. Prior to this
four-year period, we had conducted oil and gas exploration activities in New
Zealand but withdrew from the permit and assigned our interest to other
participants in the permit during the 2003 fiscal year.

We do not receive any revenue from our discontinued oil and gas
operations in New Zealand and had no significant assets, tangible or intangible
except for cash on hand. We have no history of earnings and there is no
assurance that our business will be profitable. We expect to continue incurring
operating losses and accumulating deficits in future periods.

Reporting Issuer Status under Canadian Securities Laws

On February 1, 2006, the British Columbia Securities Commission
granted our application to be designated as a reporting issuer under the
Securities Act (British Columbia). Accordingly, we and our insiders
became subject to the continuous disclosure requirements under the securities
laws of the Province of British Columbia, Canada. The Company received final
approval for listing on the TSXV on December 1, 2010 and on December 2, 2010,
our common shares commenced trading on the TSXV.

Capital Expenditures and Divestitures

During the last three fiscal years ended September 30, 2010, we
incurred capital expenditures in the amount of $848,945.These anticipated
expenditures related mainly to our drilling exploration program in connection
with our Hula Valley property in Israel.

We do not expect any significant purchases of plant and
equipment or the hiring of employees within the next twelve months, unless
acquired in connection with the acquisition of a business opportunity which may
be identified.

Takeover Offers

We are not aware of any indication of any public takeover
offers by third parties in respect of our common shares during our last and
current financial years.

B.             Business
  Overview

- 20 -

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Below is a map showing the location of our Onshore and Offshore
Licences.



Onshore Licences

Eitan License

Through our subsidiaries, we were granted the Eitan License
from the State of Israel on December 15, 2008. The original term of the Eitan
License is three years; however, the term is may be extended for an additional
four years under Israeli Petroleum Law, 5712  1952, or the Petroleum Law. The
area of the permit is approximately 125.7 square kilometers. We have a 100%
working interest in the Eitan License and all wells.

The Eitan License area is situated in the Hula Valley in the
upper Galilee in Israel and is land owned by the State of Israel. The Hula
Valley is located in Northern Israel near the head of the Jordan River Valley.
The valley is bordered on the west by the Naftali Mountains, to the east by the
Golan Heights, to the north by the Metulla High, and to the south by the Korazim
High. The Hula Valley is some 25 km long and 6 km wide providing an area of 150
km2 (37,065 acres) at an elevation of approximately 60 meters to 70
meters above sea level. The subject permit area is 125.7 km2.

The Hula Valley area in which the Eitan License is located has
  experienced some minor shallow gas exploration but with no commercial discovery
  of any gas field. There are 142 line kilometers of seismic data available for
  review.

According to the Petroleum Law, where state land is reasonably
required by the holder of a petroleum right for a petroleum purpose, such holder
may make a demand from the Israel Lands Authority that the land or any right
therein be leased to such holder on the conditions prescribed by the Petroleum
Law and the regulations under the Petroleum Law.

The Eitan License area forms part of the lands on which Kibbutz
  Neot Mordechai is situated (as a long term lease agreement between the Kibbutz
  Neot Mordechai and the Israel Lands Authority). This is the area on which the
  Company anticipates focusing its work program for the next 18 months. We have
  secured access to the land through an agreement with Kibbutz Neot Mordechai
  dated April 12, 2010, or the Kibbutz Agreement.

- 21 -

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The agreement provides us with access to certain mapped areas
  for 12 months from the date the Israel Lands Administration, or ILA, approves
  the Kibbutz Agreement, with an option to extend for an additional 12 months
  on 3 months notice and, if gas is found on the subject land, both parties
  agree to negotiate in good faith to reach terms of agreement with respect to
  the land, provided that we cannot be prevented by using the land to produce
  gas on a commercial basis subject to the terms of the Kibbutz Agreement. Pursuant
  to the Kibbutz Agreement, we agreed: (i) to use the land in such a way to allow
  continuing agricultural use for the extent possible and to reduce disturbance,
  to close and seal 3 of the existing seven drill holes, fence off the land, take
  responsibility for damages, pay for water usage and restore the land to its
  former condition and (ii) to pay a fee for use to be determined by an agreed
  upon land appraiser and compensate the lessor for its project neighbourhood
  development in the event that gas is found. Following receipt of the ILA approval
  in September 2010, a contract was entered into between us and ILA on October
  7, 2010 and we made the required statutory payment and posted a restoration
  bond and have now fulfilled all requirements regarding this approval. All other
  approvals required under the Kibbutz Agreement have been obtained.

Eitan License Rights

Subject to the provisions of Israeli Petroleum Law, 5712-1952,
the Eitan License confers upon the Company the right:

- to explore for petroleum in the licensed area;
- the right to do exploration work outside the licensed area bearing on the
  petroleum prospects of the licensed area, to such extent and subject to such
  conditions as the Israeli Petroleum and Mining Commissioner, or, the
  Commissioner, may prescribe;
- the exclusive right to conduct tests or development drilling in the
  licensed area and to produce petroleum there from; and
- the right to obtain a lease after having made a discovery in the licensed
  area.

Under the Petroleum Law, the Company, as the holder of a
petroleum right, is entitled, subject to any other relevant law, to drill and
search for water in the area of its petroleum right and to use the water
discovered by it either by drilling for water or in any of its other operations
and/or to use any other water situated in the area of its petroleum right to the
extent required for its operations, provided that it does not thereby prejudice
any persons right in such water or having the benefit thereof.

Eitan License Requirements

The Eitan License is subject to the following requirements:

| | The Company shall commence petroleum exploration within
      four months from the day on which the Eitan License is granted and shall
      continue the same with due diligence as long as the Eitan License is in
      force.                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The Company shall commence test drilling on the date
      prescribed therefore in the conditions of the license and not later than
      two years following the grant of the license and shall continue such
      drilling with due diligence until he makes a discovery. The interval
      between the completion of the drilling of one well and the commencement of
      the drilling of another well shall not exceed four months.                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The Company shall submit to the Commissioner reports on
      the petroleum exploration carried out. The Company may require that the
      information supplied in the report shall be kept secret to the extent that
      it relates to prospects of discovering petroleum. Furthermore, the Company
      shall at the time of drilling, carry out tests and measurements and take
      samples and retain samples and forward them to the Commissioner as the
      Commissioner may demand, having regard to the other tests and measurements
      carried out by the Company and to the damages which may be caused by
      complying with the demand.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Within one month after the expiration of every three
      months period from the grant of the Eitan License onwards, the Company is
      required to deliver to the Commissioner a report, in duplicate, on the
      exploration work done by him under the License during the three months,
      setting out:                                                                                                                                                                                                                                                                                                                                              

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | the nature, extent, location and results of the
      exploration work;                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | particulars of the expenditure incurred in respect of the
      exploration work;                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | results and evaluations of the geological, geophysical,
      engineering and technical work done and the basic data on which those
      results and evaluations are based; and
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | data, considerations and causes determining the location
      of petroleum drillings.                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | the Company has submitted the first two quarterly
      reports.                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
| | As the holder of a petroleum right, the Company shall,
      not later than fourteen days before commencing the drilling of any test,
      development or water well or further drilling and work at an old drill
      hole, notify the Commissioner in writing of his intention to do so and in
      the case of a new well shall notify the location of the proposed well by
      means of a spot map certified by a qualified surveyor, the well drilling
      plan (including the estimated stratigraphic sections and the water-bearing
      horizons) and the date on which drilling will begin.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
| | After drilling has commenced, the Company, as the holder
      of the petroleum right, shall within ten days after the end of each month
      report to the Commissioner in writing, the depth of the well at the end of
      the month and the geological horizon to which, according to the holders
      determination then, the well has penetrated.                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
| | Within fifteen days after the completion of a petroleum
      well, whether as a producing well or a dry hole, and within fifteen days
      after the completion of any further work at an old drill hole, the
      Company, as the holder of the petroleum right, shall submit to the
      Commissioner a completion report showing:                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | the depth and the casing and cementing record of the
      well;                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | copies of all drillers daily reports, drilling time,
      sample, electro and other logs kept;                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | the results of all well tests, including wellhead and
      bottom hole pressures obtained;                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | all core analyses made and all interpretations thereof
      made by or for the holder;                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | the completion record of the well if it was completed as
      a producing well; and                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | the plugging and abandonment record of the well if it has
      been abandoned, such record being signed and certified by the person
      responsible for the plugging.        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                 
|  | The report shall be accompanied by samples taken of
      strata penetrated and analyses of such samples and samples of all fluids
      entering the well with the depths and geological horizons at which they
      were found and analyses of all such fluids.                                                                                                                                                                                                                                                                                                                                          

Recommended Exploration Program

The target of our exploration activities is the Esther field
  which is located within the area covered by the Eitan License, or the Esther
  Field. On the Esther Field, shallow gas and coal-bed methane, or CBM, from the
  prior drilling of a total of 45 wells(see below) has been identified.
  We have determined, based on the recommendations of an independent technical
  report, to pursue a re-entry program to work-over and test the shallow gas in
  two to three of the previously drilled shallow gas wells. If the testing of
  the shallow gas is successful, we plan to then design a development program
  based on the local market demands for the gas. For the CBM, it is recommended
  to test the selected shallow coal seams from 445 to 489 meters in the Esther
  #2 well with a stimulation program (hydraulic fracture treatment using foam
  or water). If the testing of the CBM is successful, a development program can
  be designed in conjunction with the seismic data acquisition program in order
  to determine the areal extent of the CBM in the area. We plan to undertake the
  plan of operations provided below in order to carry out these recommendations.

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Plan of Operations for the Eitan License

The plan of operations and associated cost estimate of the work
program on the Eitan License is as follows:

Activity
      Cost
      StatusAcquire 10 to 20 km of 2-D seismic survey,
      processing and interpretation
    $ 150,000
    Not yet commencedCBM: Re-entry, stimulate and test Esther
      #1 well with TD of 1,293 meters (500 meter section-coal seam)
    $ 225,000
    CompletedCBM: Re-entry, stimulate and test Esther
      #2 well with TD of 525 meters (500 meter section-coal seam)
    $ 220,000
    CompletedCBM: Drill and core, complete and test
      deep CBM well to 1050 meters. Core both 500 meter coals and 1000 meter
      coals with wireline core system. Perforate and complete by hydraulic
      fracturing 500 meter coal section
    $ 660,000
    In processConventional Well: Re-entry, complete and
      test Esther #3A well with TD of 952 meters (this well was recorded as a
      gas well) Test the D Sand (140m +/-)
    $ 150,000
    In processConventional Well: Drill, complete and
      test shallow sand well to 200 meters
    $ 200,000
    CompletedTotal Estimate
    $1,605,000


The current cost estimate includes mobilization and
de-mobilization of a drilling/completion rig to the field in the Hula Valley.

In addition to the cost estimate of the work program on the
Eitan License, as provided in the Eitan Technical Report, we expect to expend an
additional $400,000 for evaluation and further development of the Eitan License.
The work will include additional lab work, contracting additional consultants to
evaluate test results, additional field work and ongoing dewatering of the
wells.

Our plan of operations, including the projected timeframe and
budget, are subject to change. Our board of directors may determine, based on
the results of exploration activities or other identified opportunities, to
change its plan of operations. In addition, the risks identified hereinafter
(see Risk Factors) may result in delays and costs overruns, each of
which could adversely impact on our ability to complete our plan of operations
within the projected timeframes and within the budget.

We have commenced operations and have moved our drill rig and
  associated equipment onto site and commenced operations on its first of three
  workovers. These workovers will be completed in early January, 2011 and will
  then commence drilling and wireline coring operations on three new gas wells.
  This program is estimated to take three to four months to complete and will
  include desorption and adsorption analysis of key coal and shale intersect in
  the wells. Once this assessment is complete the study will provide an understanding
  of the gas contents, structure and economic feasibility of an unconventional
  resource play in the region.

- 24 -

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Seismic Data

We have reprocessed 142.9 km of seismic data. The seismic
surveys were acquired over the potential hydrocarbon traps in the central and
southern part of the Hula Valley Basin. The areas include the central valley in
the Neot Mordechai area where the Esther wells were drilled and the southern
Agamon Natural Preserve area where the Notera, Gonen, and Suzie wells were
drilled.

Exploration History

The presence of gas was first reported in 1950 during
exploration of the valley for peat to be used for fuel. Early exploration
focused on the lignite stringers. Twenty shallow boreholes were drilled ranging
in depths from 72 meters (236 feet) to 175 meters (574 feet). The early
exploration also defined three zones or levels: Shallow (surface to 200 meters
(656 feet)), Medium (200 meters to 600 meters (656 to 1,968 feet)), and Deep
(600 meters to 2,800 meters (1,968 feet to 9,186 feet)). These different levels
were explored in four projects as follows:

|1. | Notera Project between 1980 and 1982 - Notera-1 well, was
      drilled in 1980, and reached a depth of 505 meters (1,658 feet). Dry gas
      was discovered between 476 - 482 meters (1,562  1,581 feet) and the well
      was completed for production. The well was connected to Kibbutz Gonen in
      October, 1981 and 7 MMcf of gas were sold. Total production including
      testing and flaring was estimated to be 14.7 MMcf. The well died on
      September 7, 1982 probably due to the influx of water from what appeared
      to be a strong water drive confirmed by a constant bottom hole pressure of
      674 psig throughout the life of the well. The Notera-2 well, also drilled
      in 1980, penetrated to a depth of 749 meters (2,457 feet). It discovered
      gas and the well tested in the interval 120 - 175 meters (394 574 feet).
      After a long period of testing, it was considered non- commercial due to
      the large quantities of formation water produced. In 1981, Notera-3 well
      was drilled to a total depth of 2,786 meters (9,140 feet) but no gas was
      found. In 1982, Notera-6 well was drilled to a total depth of 560 meters
      (1,837 feet) but also found no commercial gas.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | Gonen Project in 1983  10 shallow wells were drilled
      based on the well data of Notera 6 because of the multi-stringers of sand
      between 450 and 550 meters (1,476 and 1,820 feet). None of these wells
      tested any commercial production rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3. | Susie Project from 1985  1986  Three shallow wells of
      less than 150 meters were drilled in this area. Additional two wells were
      drilled but no success in finding commercial gas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4. | ABJAC Operations between 1990 and 2002. Two structural
      traps were identified resulting in the drilling of the prospect in the
      Lily 1 well with a total depth of 1,260 meters (4,133 feet) but no
      commercial gas discovery. The Esther 1 and 2 wells were drilled to a total
      depth of 1,293 meters (4,244 feet) and 525 meters (1,722 feet)
      respectively. Both Esther 1 and 2 wells encountered numerous coal seams.
      Cores were taken to determine reservoir evaluation. Subsequent to the two
      Esther wells, nine more wells were drilled but no commercial gas discovery
      but encountered coal seams at various depths.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Exploration Summary

Most of the wells drilled in this area encountered gas. These
wells varied in depth from 146 meters (479 feet) in Esther-4 well to the deepest
at 2,786 meters (9,140 feet) in Notera-3 well. During the Notera project, all
drilled wells were electrically logged with also conducted composite logs. A
total of 42 gas exploration wells have been drilled in the Hula Valley. In
addition, 20 unlisted lignite test boreholes were drilled to an average depth of
150 meters (~500 feet) and Naphtha drilled three structural boreholes. There
were no absolute open flow tests or any extended tests to indicate or support a
commercial discovery. However, coal seams have been identified in some of the
wells to provide some data for potential coal-bed methane potentials.

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Geology Description and Resource Estimate

The Hula Valley is a small segment of what is tectonically
called the Great Rift Valley. This long complex geological feature extends from
Mozambique through central Africa, the Red Sea, Israel, Lebanon, into northern
Syria and terminates in the East Anatolian Fault in Turkey. Comprised of rifts,
transform faults and in some places, accompanied by volcanism, this tectonic
element is called the Jordan Valley System (JVS) within Israel. It is comprised
of south to north; the Arava Valley, Dead Sea Rift, Jordan Valley, Sea of
Galilee (Kinneret), Hula Valley and the Metulla High. At present, tectonic
activity in the Jordan Valley System resulted in about 105 km of left-lateral
motion along the Dead Sea Fault.

Esther Field Gas Prospect

We received a technical report which has identified the Esther
Field as a gas prospect. A total of 15 wells (1, 2, 3, 3A, 4, 4A, 5, 6, 6A, 7,
8, 8A, 11, 12 and 13) were drilled in the field with no commercial gas discovery
in all depths due to completion and production problems. The gas potentials in
the Esther Field can be divided into three segments according to depths. The
shallow depth is around 200 meters (650 feet) between the surface and the top of
the Yarda Basalt. The middle depth is the coal beds between 400 and 1,000 meters
(1,300 and 3,280 feet). The deep depth is the limestone and fracture basalts
from 1,000 to 4,000 meters (3,280 and 13,000 feet). The most prospective is the
gas from the coal beds between the 400 and 1,000 meters and will be discussed in
the section later. CBM wells get more expensive, generally, with depth and the
gas contents generally also increase with depth, thus the economics tend to get
tighter as CBM wells get deeper. The economics of the Estimated Ultimate
Recovery (EUR) of a well become problematic with low EUR and production numbers
from deeper wells and often deeper CBM fields cannot be economically developed
without significant production and reserves.

The electric logs of Esther 1well have identified coal seams.
To better understand CBM, tests were performed on coal samples from the
continuously cored Esther 2, drilled as a twin to the Esther 1 that found coal
in the Neot Mordechai area. The results were as follows:

Interval 339 - 354 meters (1,112  1,161 feet) had lignite or
lignitic coals. Five distinct coal beds, separated by clayey marls and
carbonaceous and fossiliferous silty clays, were recognized. Minor amounts of
gas were observed bubbling from the coal when the core was removed from the core
barrel. There is 8  17 meters of coal in this section.

Interval 390 - 407 meters (1,280  1,335 feet) was lignite.
Seven distinct coal beds are within this unit. These coal beds, similar to the
Unit A above are interbedded with clay and carbonaceous, fossiliferous marls.
The coals have a high dirty ash with only one thin (0.05 m) clean coal seam. The
coals are dull black and exhibit a minor amount of faulting. There was a
noticeable increase in gas evolving from the coal upon removal from the core
barrel when compared to Unit A. This section has 6  8 meters of coal.

Interval 445 - 490 meters (1,460 - 1,608 feet) showed an
increase in rank and quality over the units above. This unit has eleven
different coal seams, all sub-bituminous. A dramatic increase of evolving gas
over the above units was observed when the core was removed from the core
barrel. This section has by far the most coal with 16  26 meters.

Desorption tests revealed the cores had gas contents of over
200 standard cuft/ton in the sub-bituminous section from 445-489 meters while
the shallower, less mature coals had somewhat less gas contents. The coals from
850-1,000 meters have not been cored and tested yet.

For the CBM, we plan to test the 500 meter coal section in both
the Esther 1 and 2 with a stimulation program. Also, drill a CBM well to the
1000 meter coal section. A production test will be completed on the 500 meter
coals and all the coals will cored. Analytical testing will include gas content,
coal descriptions, desorption isotherms and relative permeability. Field testing
will include reservoir pressure and permeability, water saturation, desorption
and gas production. If the testing of the CBM is successful, a development
program can be designed in conjunction with the seismic data acquisition program
in order to determine the areal extent of the CBM in the area.

- 26 -

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To determine whether there is any potential of the shallow gas
and as part of the committed work program, the technical report recommended the
re-entry of the two to three shallow wells in the Esther Field to test for
commercial gas. The re-entry would require cleaning up the formation,
stimulation if required and flow test the well for an extended period of time.
The Company plans to undertake this exploration work as part of its plan of
operations, as described above under Plan of Operations for the Eitan
License.

Equipment

We have completed the purchase and taken possession of a drill
rig and associated equipment in order to commence drilling operations on the
Eitan License. We have further placed orders for various specialised coring
equipment and taken delivery. In addition, we have designed, and are seeking
tenders for a specialised onsite lab that will enable us to do onsite desorption
testing.

Additional Information on the Eitan License

Current well status is as follows:

Well Name
      Depth (m)
      Spud Date
      StatusEsther 1
    1,293
    10/15/91
    TS; partial production testEsther 2
    525
    10/01/92
    TS; partial production test,
      cored for coal, 600psig SITPEsther 3
    205
    02/15/93
    PA; Blowout at 205mEsther 3A
    925
    04/18/93
    GW-TS; production unknownEsther 4
    146
    04/24/94
    GW-TS; Completed through drill
      pipe, tested 450 McfpdEsther 4A
    152
    01/16/02
    TS; Pulled too hard and sanded up
      on initial testEsther 5
    223
    06/19/95
    TSEsther 6
    236
    07/20/94
    PAEsther 6A
    174
    05/15/95
    GW-TSEsther 7
    223
    12/18/94
    DH PAEsther 8
    319
    04/02/96
    DH PAEsther 8A
    164
    12/28/97
    TSEsther 11
    263
    09/17/96
    TSEsther 12
    300
    11/04/97
    GW-TSEsther 13
    183
    12/31/95
    GW-TS


TS-temporarily suspended PA-plug and abandoned GW-gas
well (producing or has produced) GW-TS-gas well then temporarily
suspended
  DH-TS-downhole temporarily suspended

Figure 1 (below) is a map showing the location of the wells and
seismic lines.

- 27 -

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- 28 -

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- 29 -

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Notera License

During April 2010, we announced that we signed a letter of
intent with Coalbed Gas Hachula Ltd, an Israel-based Coalbed Methane Development
company or, CGH, pursuant to which we have a right to farm in to 70% of the
Notera License which is approximately 19,000 acres and contiguous and directly
to the south of the Eitan License, or CGH LOI. Prior drilling and evaluation of
Notera indicates a similar geologic profile and hydrocarbon development
potential as exists in the Eitan License. Pursuant to the CGH LOI, we may, at
our option, obtain an interest in the Notera License, by paying CGH $200,000 and
drilling and testing one cored well, at an approximate cost of $600,000, within
eight months following the date that the last condition precedent stipulated in
the CGH LOI has been waived or fulfilled in order to earn a net 70% working
interest and a 70% revenue interest. The amounts payable to us are after
payments of a 12.5% government royalty as well as a 2.5% royalty payable to CGH
on our share. Pursuant to the CGH LOI, CGH will earn a 30% participating
interest in any future gas development on this South block provided it
contributes 30% of the costs in such further development. Additionally, the CGH
LOI provides that we will be the operator of the project. The terms of the CGH
LOI are subject to Israel governmental regulation and are conditional on the
Israel Petroleum Commissioners approval to transfer 70% of the Notera working
interest to us without the government stipulating any work commitments on the
Notera License, beyond what has been agreed to between the Company and CGH. The
CGH LOI agreement and working interest is completely independent of our Eitan
block to the North and does not affect the ownership of the Eitan License, and
may be terminated by us at any time without penalty. To date, we have not
expended any funds on the Notera License. To date the CGH LOI has not received
governmental approval. We do not presently expect to exercise our option to earn
our 70% working interest until we have obtained further information from our
program on the Eitan License

Offshore Licences

Gabriella License

The Gabriella License was granted to us during July 2009. The
initial term of the license is three years, extendable for an additional four
years to a maximum of seven years, thereafter a lease (30-50 years) can be
sought if a discovery is made. The Gabriella License is located 10 km offshore
between the City of Netanya in the North and the City of Ashdod in the South.
The Gabriella License area is 392 square kilometers. We have a minimum working
interest of 15% in the Gabriella License.

Our subsidiary, Adira Israel entered into an agreement on
January 26, 2010 with the Modiin Energy Limited Partnership, or MELP, its
general partner, Modiin Energy Management (1992) Limited, or MEGP and
Brownstone Ventures, Inc, or Brownstone (the Modiin Agreement)pursuant
to which MELP agreed to provide funding for the Gabriella License work plan
(currently MELPs 70% and Adira Israels 15%), presently budgeted to cost
approximately $8 million, such work program to include reinterpretation of
existing 2D seismic and preparation of report on block potential, 3D seismic
survey and the drilling of one well to a total depth of approximately 5000m.

Under the Modiin Agreement, commencing on February 1, 2010,
MEGP pay us as operator, a monthly fee in respect of advisory services in the
amount of $12,500, as well as 3.75% (half) of the 7.5% operator fee which MEGP
is entitled to receive from MELP for 24 months commencing from February 1, 2010,
increasing to 4.25% thereafter. Additionally, MEGP and MELP, have agreed to pay
us a combined royalty of 4.5% (2.25% each) on the total wellhead revenue of the
rights in oil and / or gas up until such time as costs are recovered and 10.5%
(5.25% each thereafter). In addition to the above fees, MEGP and MELP have
agreed that Adira Israel is entitled to receive an operating fee, from the
partners in the Gabriella License, of 7.5% of the gross expenditures on the
Gabriella License. This operating fee is in addition to the other fees payable
and is due pro-rata from each holder of an interest in the Gabriella License. We
have an option to purchase 15% of the Gabriella License (or 21.43% of MELPs 70%
interest) anytime until six months after discovery as discovery is defined in
the Israeli Petroleum Law or 7 years. The operation of the Gabriella License,
will be governed by a joint operating agreement (JOA) to be entered into by
Modiin, us and Brownstone. The JOA is currently under negotiation. On August
10, 2010 Adira Israel received $2,000,000 from MEGP on behalf of MELP,
representing 85% of the total capital call in respect of the work plan of
$2,352,941 being $1,647,059 on MELPs behalf and 352,941 on behalf of Adira
Israel. The agreement with MELP provides that our share of the initial $8m is
fully covered by MELP. As such, we have no financial risk associated with the
Gabriella License. We act as operator for this license and have the ability to
bill for our time and expertise to the other participating interest partners.

- 30 -

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Yitzhak License

The Yitzhak License was granted during October 2009. The
initial term of the license is three years extendable for an additional four
years to a maximum of seven years, and thereafter a lease (30-50 years) can be
sought if a discovery is made. The Yitzhak License is located 10 km offshore
between the City of Hadera in the North and the City of Netanya in the South.
The Yitzhak License area is 127 square kilometers.

Brownstone has farmed in to 15% of the Yitzhak License. We
continue to maintain this license until we can find a partner to undertake the
costs of exploration in a manner similar to the manner in which MELP does on the
Gabriella License. We presently have an 85% working interest in the Yitzhak
License.

If warranted, following the initial three year license period,
a prospect will be evaluated, prepared and drilled on each of these licenses.
Determination of whether exploration continues at each stage of activity will be
based on discussions between the relevant partners on each of these Licenses
namely: MELP (in respect of the Gabriella License only), Brownstone and us.

Plan of Operations for the Gabriella and Yitzhak
Licenses

We were required to conduct certain work on the Gabriella and
Yitzhak Licenses up to the end of October 2010 which we completed in January
2011. This work entailed the collection and study of existing geological and
geophysical information available, including the purchasing, reprocessing and
reinterpretation of old seismic lines acquired. Additionally, the Gabriella and
Yitzhak Licenses required the submitting of summary reports to the Ministry of
National Infrastructures in the State of Israel, or MNI, regarding the
hydrocarbon potential of each of these licenses by the one year anniversary of
the grant date of each respective license. The report in respect of the
Gabriella License was submitted on July 15, 2010 and the report in respect of
the Yitzhak License on October 15, 2010.

We have contracted Western Geco, a Schlumberger company, to
complete a state of the art geophysical survey on our Gabriella and Yitzhak
licenses directly offshore of central Israel on a 630 square kilometer 3D
Survey. We are focused specifically on oil targets in this region. The current
dual axis survey, a method never used before in Israeli waters is designed to
define the exact target and structure. Two independent 3D surveys will overlay
each other at opposing axes. We completed the Gabriella and Yitzhak programs in
early January and we plan to commence our 300 square kilometer3D survey on the
Samuel license (discussed below) within the first half of 2011.

The following work program must be completed in order to
maintain the Gabriella License:

|1. | Integrate all the data and submit a final proposal for
      drilling by July 15, 2011.
|-- | ---------------------------------------------------------------------------------------
|   |                                                                                        
|2. | Sign a drilling agreement by July 15, 2011.                                            
|   |                                                                                        
|3. | Commence drilling by January 1,
2012.                                                  

The following work program must be completed in order to
maintain the Yitzhak License:

|1. | Sign a drilling agreement by the 15th of October,
      2011.
|-- | -------------------------------------------------------------
|   |                                                              
|2. | Commence drilling by the 15th of April,
  2012.              

Exploration History

The Yitzhak (formally called Delta) structure is a carbonate
build-up on a structurally elevated block. This structure was tested by
Belpetco, in their Delta-1 well (total depth of 4423 meters) in 1970, in the
Upper Jurassic Delta Formation. Recent seismic reprocessing, seismic
interpretation and log analysis demonstrate a highly potential closure at the
Zohar limestone level encompassing ~ 20 km2.

Most of the exploration efforts conducted until today
concentrated on large structural features with little attention given to direct
hydrocarbon indicators (DHI) and amplitude with offset related imaging
(AVO/AVAZ) to identify and quantify reservoir zones. Based on
recent advances in reprocessing and interpretation, it became apparent that the
Gabriella and Yitzhak structures show an abundance of minor faulting/fracturing
which most likely play an important role in fluid dynamics and transmissibility
of the primary target reservoir (Zohar).

- 31 -

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Samuel License

On June 15, 2010, we announced that the Israel Petroleum
Commissioners office had notified us that, subject to appeals, it had awarded a
consortium led by us, the Samuel License. Through our subsidiaries, we were
granted the Samuel License on August 1, 2010. The initial term of the Samuel
License is for three years. This initial term may be extended for an additional
four years. The license area is approximately 359 square kilometers. We hold a
combined minimum interest of 38.25% in the Samuel License held through our
subsidiaries Adira Oil Technologies Ltd. (100% owned) and Adira Geo Global Ltd
(60% owned). The other consortium members are comprised of GeoGlobal Resources
(India) Inc., Brownstone and Pinetree Capital Ltd. A gross overriding royalty in
an amount equal to 3% shall be granted to and registered in the name of Adira
Geo Global Ltd. Adira Geo Global Ltd. has been designated as joint operators of
the Samuel License. Adira Geo Global Ltd. shall be paid an aggregate operating
fee equal to 7.5% of the cumulative direct costs incurred in connection with
operating the Samuel License.

The Samuel License is located offshore Israel adjacent to the
shoreline between the City of Ashkelon in the South and the City of Rishon
Letziyon in the North.

The following work program must be completed in order to
maintain the Samuel License:

|1. | Start the 3D seismic survey on the license by February 1,
      2011. On February 1, 2011, we received a letter from the MNI, which now
      only requires us to sign a contract to execute a 3D survey by March 1,
      2011. In addition, all the remaining deadlines will be adjusted once the
      contract has been signed.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                    
|2. | Finish processing the new seismic survey and submit a
      preliminary report to the MNI by May 1, 2011.                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                    
|3. | Finish interpreting the new seismic survey and submit a
      summary report to the MNI by July 1, 2011.                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                    
|4. | Preparation of geological prospect for the first target
      by September 1, 2011.                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                    
|5. | Sign a contract with a drilling contractor by December 1,
      2011.                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                    
|6. | Commence drilling by February 1,
2011.                                                                                                                                                                                                                                                                                             

Myra & Sara Licenses

On August 25, 2010, we signed a co-operation agreement with
GeoGlobal Resources Inc. (GGR), pursuant to which GGR agreed to assign
to us its option to acquire an additional 5% participating interest in each of
the Sara License and the Myra License. GGR is presently registered as a holder
of a 5% participating interest in each of the Sara License and Myra License.

The Myra and Sara and Licenses are each subject to joint
operating agreement among the holders of the participating interests in the
respective licenses, which joint operating agreements govern the operations with
respect to the exploration work on the licenses and the change of any interest
holders in these licenses. Upon receipt and review of geoscience and 3D seismic
survey conducted on these licenses, we may, at our discretion, purchase the 5%
participating interest in the licenses from GGR. As a condition to the
acquisition of such 5% interest, we will also be required to become a signatory
to the joint operating agreements and approval of the Israeli Petroleum
Commissioner must also be obtained. Assuming approvals are received, and we
decide to acquire the 5% interest, we will have to pay $1,200,000 in one lump
sum payment to certain parties of the joint operating agreements. The joint
operating agreements require the approval of existing signatories to the joint
operating agreement in accordance with the terms of the joint operating
agreements. The option is dependent upon a number of circumstances and there is
no assurance that we will be able to exercise the option.

The Myra and Sara Licenses are located offshore Israel
approximately 60 km west of the City of Hadera. These license areas total 800
square kilometers.

- 32 -

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Drilling Activity

As of the date of this Annual Report, we have drilled one
exploratory well, located on the Eitan license, to a depth of two hundred
meters. Prior to our acquisition of Adira Energy, no drilling activity was
carried out.

C.            
  Organizational Structure

We operate:

in Canada through our wholly owned subsidiary Adira Energy, an
Ontario corporation incorporated on April 8, 2009; and

in Israel, through Adira Energys subsidiaries, namely:

Adira Israel, an Israel corporation, (100% owned); and

Adira Services, an Israel corporation, (100% owned).

Adira Oil Technologies Ltd. (100% owned)

Adira Geo Global Ltd (60% owned  the remaining 40% is owned by
GeoGlobal Resources (Barbados) Inc., an unrelated party.

D.             Property,
Plant and Equipment

(a)             Corporate
Offices

Our executive offices are comprised of approximately 784 square
  feet at120 Adelaide Street West, Suite 120, Toronto, Ontario, Canada, M4V 3A1
  for which the lease cost is CDN$4,423 per month and 424 sq. meters at Aba Hillel
  Silver 12, Ramat Gan, Israel, for which the lease cost is US$12,917 per month.

(b)             Special
  Skill and Knowledge

Our ability to complete drilling and exploration is dependent
on the availability of well-trained, experienced crews to operate its field
equipment and qualified management. We have a full time drilling team on its
payroll, and also engages, on a full time basis, individuals with engineering
skills and who are knowledgeable of the type of target to be drilled for on its
Eitan License. Furthermore, we believe that our strategic arrangement with
certain oil and gas exploration companies provides us with access to the special
skills and knowledge required to assist us in the completions, testing and
evaluation of our resource on the Eitan License.

(c)            
  Foreign Operations

As a percentage of our capitalized acquisition, exploration and
development costs incurred in fiscal 2010, we anticipate that we will direct
approximately 100% of our fiscal 2011resources on operations in the State of
Israel

(d)             Competitive
  Conditions

The oil and gas industry in the State of Israel is, and will
continue to be, competitive. Most contracts will be awarded on the basis of
competitive bids. We believe that its early foray into oil and gas exploration
in Israel will provide it with a competitive advantage in the drilling, testing
and evaluation of our resource. Our joint venture with Brownstone will allow us
to participate in new projects while limiting our financial exposure. We will
further gain access to Brownstones knowledge and established operational
resources, enabling us to speed up the development of existing projects.

- 33 -

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(e)             Dependence
  on Customers and Suppliers

We are not dependent upon any single or few customers or
suppliers for our operations.

(f)             Environmental
  Protection and Policies

We are subject to various state and district environmental laws
and regulations enacted in Israel where it operates, which primarily govern the
manufacture, processing, importation, transportation, handlings and disposal of
certain materials used in operations, as well as limits on emissions into the
air and discharges into surface and sub-surface waters. We adhere to all such
laws and regulations. We may be required to increase operating expenses or
capital expenditures in order to comply with any new restrictions or
regulations.

We do not expect that environmental protection requirements
will have a significant financial or operational effect on our capital
expenditures, earnings or competitive position. Environmental requirements have
not had a significant effect on such matters in fiscal 2010 nor are they
currently anticipated in the future.

To date, all of our operations have been in compliance in all
material respects with applicable corporate standards and environmental
regulations and there were no material notices of violations, fines or
convictions relating to environmental matters at any of our operations.

We believe that we are in substantial compliance with all
material current government controls and regulations at each of its licenses.

See also Item 3D Risk Factors.

ITEM
4A            UNRESOLVED
STAFF COMMENTS

Not applicable.

ITEM
5              
OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following is a discussion and analysis of the activities,
consolidated results of operations and financial condition of the Company for
the year ended September 30, 2010, which have been prepared on the basis of
information available up until January 28, 2011. Managements Discussion and
Analysis should be read in conjunction with the Companys audited consolidated
financial statements and related notes for the year ended September 30, 2010.
The Companys financial statements have been prepared in accordance with
Canadian generally accepted accounting principles. All monetary amounts are
reported in United States dollars unless otherwise noted.

A.Operating
  Results

Summary

We are an oil and gas exploration company and from the State of
Israel. Through our wholly owned subsidiary, Adira Energy and its wholly owned
subsidiary Adira Israel, we have been granted four petroleum licenses consisting
of one onshore petroleum license, the Eitan License and three Offshore licenses
being the Gabriella License the Yitzhak License and the Samuel License which we
own through our other wholly owned subsidiary, Adira Oil Technologies Limited
and our partially owned 60% subsidiary, Adira Geo Global Ltd. Our business plan
is to carry out exploration activities on the Eitan License in order to assess
existence of commercially exploitable quantities of natural gas as well as
evaluation work on each of the Offshore Licenses to establish whether
exploration is justified.

We presently do not produce any oil or gas and do not earn any
significant revenues.

These consolidated financial statements include the accounts of
Adira Energy, and its five subsidiaries.

- 34 -

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Our interest in the Gabriella, Yitzhak and Samuel licenses are
conducted jointly with others. Our financial statements reflect our
proportionate interest in these activities. We proportionately consolidate 85%
of Yitzhak and 38.25% of Samuel. As we are financially carried by MELP for our
portion of the total budget of expenditure up to $8 million in the Gabriella UJV
we will not proportionately consolidate our 15% working interest until we start
to finance our portion of the Gabriellas expenses.

All intercompany account balances and transactions have been
eliminated on consolidation.

Results of Operations

Consolidated results of operations for the year ended
September 30, 2010 and the 175- day period ended September 30, 2009.

Revenues

For the year ended September 30, 2010, we earned income of
$912,597 as compared to $ nil for the 175- day period ended September 30, 2009.
The increase in revenues is a result of the Company having commenced its
activities as the operator on its Offshore Licenses, management fees earned from
MELP and MEGP and the provision of consulting services to other oil and gas
companies in Israel. The breakdown of revenues for the year ended September 30,
2010 is as follows:

|                                 |   | Year ended         |  |  | % of Total | 
|-------------------------------- | - | ------------------ |  |  | ---------- | 
|Revenue Categories               |   | September 30, 2010 |  |  | Revenues   | 
|                                 |   |                    |  |  |            | 
|Revenues
      from our licenses | $ | 668,586            |  |  | 73.3       | 
|                                 |   |                    |  |  |            | 
|Management and consulting Fees   |   | 186,745            |  |  | 20.4       | 
|                                 |   |                    |  |  |            | 
|Operating
      fees             |   | 57,326             |  |  | 6.3        | 
|                                 |   |                    |  |  |            | 
|Total Revenue                    | $ | 912,597            |  |  | 100%       | 

Revenues from our licenses relates to amounts billed to the
three offshore projects in respect of exploration and other expenses incurred by
us, on behalf of each of the offshore projects.

Management and consulting fees relates to management fees
received from Modiin in respect of our agreement with them and various
consulting projects that we undertook for other companies in Israel.

Operator fees relate to fees we received as the operator on our
three Offshore Licenses.

Expenses

The major categories of expenses during the year ended
September 30, 2010 and during the 175-day period ended September 30, 2009 are
detailed as follows:

- 35 -

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|                                   |   | Year ended    |  |  |            |  |   | 175-Day period |   |  |            | 
|---------------------------------- | - | ------------- |  |  | ---------- |  | - | -------------- | - |  | ---------- | 
|                                   |   | September 30, |  |  |            |  |   | ended          |   |  |            | 
|                                   |   | 2010          |  |  | % of Total |  |   | September 30,  |   |  | % of Total | 
|Expenses                           |   |               |  |  | Expenses   |  |   | 2009           |   |  | Expenses   | 
|Share-based compensation           | $ | 621,751       |  |  | 21%        |  | $ | 418,907        |   |  | 30%        | 
|Exploration Expenses               |   | 962,727       |  |  | 33%        |  |   | 102,664        |   |  | 7%         | 
|Operating
      Expenses           |   | 1,346,648     |  |  | 46%        |  |   | 861,764        |   |  | 64%        | 
|Foreign exchange loss
      (gain) |   | 7,520         |  |  | 0%         |  |   | (14,708        | ) |  | -1%        | 
|Amortization                       |   | 1,222         |  |  | 0%         |  |   |                |   |  |            | 
|Total expenses                     | $ | 2,939,868     |  |  | 100%       |  | $ | 1,383,335      |   |  | 100%       | 

Share-based compensation

Stock based compensation during the year ended September 30,
2010 and during the 175-day period ended September 30, 2009 was attributable to
stock options granted to our directors, officers, employees and consultants
during these periods.

We have a stock option plan whereby options may be granted to
eligible directors, officers and employees, provided that the number of shares
issued under the plan does not exceed 10% of issued and outstanding common
shares of the Company. Stock options may be issued at a term and exercise price
to be determined by the Companys Board of Directors provided that the exercise
price is no less than the market price at the date of the grant.

The Company has seven categories of stock options that have
different vesting periods:

| | (i)    | Type A stock options vest over 2 years, with 12.5%
      vesting each quarter with the initial amount vesting on the date three
      months after the grant date.                                                                                                                                                
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                   
| | (ii)   | Type B stock options vest 8.5% at the end of each quarter
      for the first two years and 8% at the end of each quarter thereafter. The
      initial amount will vest three months after the grant date.                                                                                                       
| |        |                                                                                                                                                                                                                                                                                                                   
| | (iii)  | Type C stock options vest over 4 years, with 6.25%
      vesting at the end of each quarter with the initial amount vesting on the
      date three months after the grant date.                                                                                                                                  
| |        |                                                                                                                                                                                                                                                                                                                   
| | (iv)   | Type D stock options vest at 12.5% each quarter and the
      initial amount vests on the business day immediately on which each of the
      optionees is elected or appointed as a director of the Company. In the
      event they are not elected as a director, all options granted expire
      immediately.
| |        |                                                                                                                                                                                                                                                                                                                   
| | (v)    | Type E stock options vest over 2 years, with 12.5%
      vesting at the end of each quarter with the initial amount vesting on the
      date three months after the grant date.                                                                                                                                  
| |        |                                                                                                                                                                                                                                                                                                                   
| | (vi)   | Type F stock options vest over 4 years, with 6.25%
      vesting at the end of each quarter with the initial amount vesting on the
      date three months after the grant date.                                                                                                                                  
| |        |                                                                                                                                                                                                                                                                                                                   
| | (vii)  | Type G stock options vest 8.5% at the end of each quarter
      over two years and 8.0% at the end of each quarter thereafter with the
      initial amount vesting on the date three months after the grant
    date.                                                                                            
| |        |                                                                                                                                                                                                                                                                                                                   
| | (viii) | Type H stock options vest 12.5% each quarter over two
      years with the initial amount vesting on the date three months after the
      grant date.                                                                                                                                                            

A summary of the stock option plan and changes during the year
ended September 30, 2010 and the 175-day period ended September 30, 2009 is as
follows:

- 36 -

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| |                             |  | Number of   |   |   | Weighted       | 
| | --------------------------- |  | ----------- | - | - | -------------- | 
| |                             |  | Options     |   |   | Average        | 
| |                             |  | Outstanding |   |   | Exercise Price | 
| |                             |  |             |   |   |                | 
| | Balance, April 8, 2009      |  | -           |   | $ | -              | 
| | Options granted             |  | 3,984,000   |   |   | 0.25           | 
| | Balance September 30, 2009  |  | 3,984,000   |   |   | 0.25           | 
| | Options granted             |  | 2,745,500   |   |   | 0.60           | 
| | Options cancelled           |  | (1,070,000  | ) |   | 0.43           | 
| | Balance, September 30, 2010 |  | 5,659,000   |   | $ | 0.39           | 

Exploration Expenses

For the year ended September 30, 2010, exploration expenses
amounted to $962,727 as compared to $102,664 for the 175-day period ended
September 30, 2009. The increase in exploration expenses is a result of us
having completed part of the work program on the Eitan license compared with
minimal exploration activities in the 2009 period. In addition, we also
commenced evaluation work on our Offshore Licenses in 2010 (no such exploration
activities were conducted in 2009).

Operating Expenses

For the year ended September 30, 2010, operating expenses
amounted to $1,346,648 as compared to $861,764 for the 175-day period ended
September 30, 2009. The increase in operating expenses results primarily from
increased activity in Israel, including the hiring of staff in operations in
finance and administration. Additionally, the current period relates to a full
year as compares with the 175 days in the prior period.

Foreign exchange loss (gain)

For the year ended September 30, 2010, foreign exchange loss
amounted to $7,520 as compared to a foreign exchange gain of $14,708 for the
175-day period ended September 30, 2009. Both the gain in 2010 and the loss in
2009 result of fluctuations in the "NIS" and Canadian dollar rates against the
US dollar.

Amortization

For the year ended September 30, 2010, amortization amounted to
$1,222 as compared to $ nil for the 175- day period ended September 30, 2009.
Amortization for the year ended September 30, 2010 relates to amortization of
computer equipment. Our drilling rig was not in use during 2010 and accordingly
has not been amortized.

Tax

For the year ended September 30, 2010 we incurred Israeli taxes
  on income on one of our Israeli subsidiaries, Adira Services in an amount of
  $6,220 as compared to $ nil for the 175-day period ended September 30, 2009.

Net Loss

We reported a net loss and comprehensive loss during the year
ended September 30, 2010 of $2,033,093 as compared to a net loss and
comprehensive loss of $1,368,627 for the 175-day period ended September 30,
2009. The reason for the increase in the loss is as a result of an increase in
exploration and operating activities, offset by revenues generated from
management, operator and consulting fees.

Inflation

During the year ended September 30, 2010 and the 175-days
period ended September 30, 2009, inflation has not had a material impact on our
operations.

- 37 -

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Foreign Currency Fluctuations

During the year ended September 30, 2010 and the 175-days
period ended September 30, 2009, we incurred a loss of $7,521 and a gain of
$14,708, respectively.

Government Regulation

There is no governmental regulation that the Company is aware
of or that would affect us.

B.            
  Liquidity and Capital Resources

Liquidity

Liquidity is a measure of a companys ability to meet potential
cash requirements. We have historically met our capital requirements through the
issuance of common stock as well as proceeds from the exercise of warrants and
options to purchase common equity.

Our ability to continue as a going concern is dependent upon
obtaining the necessary financing to complete further exploration and
development activities and generate profitable operations from our oil and
natural gas interests in the future. Our current operations are dependent upon
the adequacy of our current assets to meet our current expenditure requirements
and the accuracy of managements estimates of those requirements. Should those
estimates be materially incorrect, our ability to continue as a going concern
will be impaired. Our consolidated financial statements for the year ended
September 30, 2010 have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of liabilities and
commitments in the normal course of business. We have incurred a history of
operating losses and negative cash flows from operations. These matters may
raise doubt about our ability to continue as a going concern.

At September 30, 2010, our cash and cash equivalents were
$357,560 (September 30, 2009 - $2,354,628). The majority of this balance is
being held in US funds. We have working capital of $800999 which is available
for our future operations. On November 30, 2010, we completed a private
placement of $11 million.

The Company is an early-stage exploration company and currently
does not generate significant cash flows from operations. The Companys primary
source of funds comes from the issuance of share capital. The Company does not
use other sources of financing that require fixed payments of interest and
principal and is not subject to any externally imposed capital requirements.

The Company defines its capital as share capital. To
effectively manage the Companys capital requirements, the Company has a
planning and budgeting process in place to ensure that adequate funds are
available to meet its strategic goals. The Company monitors actual expenses to
budget to manage its costs and commitments.

The Companys capital management objective is to maximize
investment returns to its equity-linked stakeholders within the context of
relevant opportunities and risks associated with the Companys operating
segment. Achieving this objective requires management to consider the underlying
nature of exploration activities, availability of capital, the cost of various
capital alternatives and other factors. Establishing and adjusting capital
requirements is a continuous management process.

Although the Company has been successful at raising funds in
the past through the issuance of share capital, it is uncertain whether it will
continue this financing due to uncertain economic conditions. The Company has
sufficient funds to meet its exploration program, administrative overhead and
working capital needs for the coming year.

We expect to incur expenditures to further our exploration
programs. Our existing cash balance and any cash flow from operating activities
is sufficient to satisfy our activities for the next 12 months. However, in
order to finance exploration activities beyond 12 months, we will require
additional sources of finance.

We are considering various alternatives with respect to raising
  additional capital to remedy any future shortfall in capital but to date have
  made no specific plans or arrangements. We deem it necessary to raise capital
  through equity markets, debt markets or other financing arrangements, including
  participation arrangements that may be available for continued exploration expenditures.
  Because of the early stage of our operations and our absence of any material
  oil and natural gas reserves, there can be no assurance this capital will be
  available and if it is not, we may be forced to substantially curtail or cease
  exploration, appraisal and development expenditures.

- 38 -

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Year ended September 30, 2010 and the 175-day period ended
  September 30, 2009.

During the year ended September 30, 2010, our overall position
in cash and cash equivalents decreased by $1,997,068. This decrease in cash can
be attributed to the following activities:

Our net cash used in operating activities during the year ended
September 30, 2010 was $1,958,121 as compared to $359,229 for the 175-day period
ended September 30, 2009. This increase is attributable to and consistent with
the increase in our exploration and operating activities for the year ended
September 30, 2010, compared to the prior period.

Cash used in investing activities during the year ended
September 30, 2010 was $38,947 as compared to $379,262 during the 175-day period
ended September 30, 2009.The investment in 2010 relates primarily to the
purchase of additional drilling related equipment for the Eitan license,
computer equipment in Israel and license fees. The investment in 2009 relates to
the deposit paid on the drilling rig on the Eitan license.

Cash provided by financing activities for the year ended
September 30, 2010 was $nil as compared to $2,195,771 during the 175-day period
ended September 30, 2009. During the year ended September 31, 2010, no shares
were issued as compared to the following activities for the 175-day period ended
September 30, 2009:

- In April 2009, the Company issued 12,000,000 common shares upon
  incorporation to directors of the Company for services performed prior to
  incorporation. A non-cash expense equal to the estimated fair value of the
  shares issued (CDN $0.05 per share) totalling $485,929, was charged to
  share-based compensation expense in the consolidated statement of operation.
- In April 2009, Adira issued 10,500,000 common shares at CDN $0.05 per share
  for gross proceeds of $424,759.
- During the 175-day period ended September 30, 2009, Adira issued 7,600,000
  units at $0.25 per unit for gross proceeds of $1,900,000. AMG issued 400,000
  of the units at $0.25 per unit for gross proceeds of $100,000 subsequent to
  the completion of the RTO. Each unit consisted of one common share of
  Adira/AMG and one-half of one common share purchase warrant. Each warrant
  entitles the holder to purchase one common share of Adira/AMG at a price of
  $0.50 per common share for a period of two years. In connection with the
  private placement, Adira issued 240,001 common shares as a finders fee at a
  deemed cost of $0.25 per share for a total deemed cost of $60,000 and 500,770
  warrants to agents as finders fees valued at $100,154. The warrants are
  exercisable at $0.25 per common share and expire August 31, 2011. The fair
  value of these agents warrants was $100,154 were calculated using the Black-
  Scholes option pricing model. An additional $228,988 of share issuance costs
  were incurred.

Capital Resources

At September 30, 2010, our cash and cash equivalents were
$357,560 (September 30, 2009 - $2,354,628), the majority of this balance is
being held in US funds. Our working capital at September 30, 2010 was $801,000
as compared to $2,250,066 as at September 30, 2009. On November 30, 2010, we
completed a private placement of $11,000,000.

Commitments

In order to maintain current rights to tenure of exploration
tenements, the Company will be required to expend amounts in respect of tenement
rent to the relevant governing authorities and to meet certain annual
exploration expenditure commitments. It is likely that variations to the terms
of the current and future tenement holding, the granting of new tenements and
changes at renewal or expiry, will change the expenditure commitments for the
Company from time to time.

- 39 -

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The Company intends to meet all of its drilling and related
expenditures as they become due to maintain the Companys interests in its oil
& gas properties. These oil & gas expenditure obligations are not fixed
and cannot be pre-determined with certainty. Failure to meet the obligations may
result in the loss of the Companys ownership interests.

Critical Accounting Issues

Certain accounting principles require us to make certain
estimates, judgments and assumptions. We believe that the estimates, judgments
and assumptions upon which we rely are reasonable based upon information
available to us at that time. These estimates, judgments and assumptions can
affect the reported amounts of assets and liabilities as of the date of the
financial statements, as well as the reported amounts of revenues and expenses
during the periods presented. To the extent there are material differences
between these estimates, judgments or assumptions and actual results, our
financial statements will be affected. The significant accounting policies that
we believe are the most critical to aid in fully understanding and evaluating
our reported financial results include the following:

- Foreign Currency Translation
- Accounting for Oil and Gas Properties
- Accounting for Income Taxes
- Accounting for Stock based compensation
- Adoption of International Financial Reporting Standards

Foreign Currency Translation

The Companys functional and reporting currency is the United
States (US) dollar. Our foreign operations are considered financially and
operationally integrated. All transactions in currencies other than the US
dollar are translated as follows:

- Monetary assets and liabilities are translated at the rate of exchange in
  effect as of the balance sheet date;
- Non-monetary assets and liabilities, at the exchange rates prevailing on
  the date of the acquisition of the asset or assumption of the liabilities; and
- Revenues and Expenses, at the rate in effect on the date of the
  transaction.

Gains or losses resulting from the translation are included in
the determination of net income or loss for the period.

Accounting for Oil and Gas Properties

We follow the successful efforts method of accounting for its
exploration activities. Under the successful efforts method, acquisition costs
of proved and unproved properties are capitalized. Costs of unproved properties
are transferred to proved properties when proved reserves are confirmed.
Exploration costs, including geological and geophysical costs, are expensed as
incurred. Exploratory drilling costs are initially capitalized. If it is
determined that a specific well does not contain proved reserves, the related
capitalized exploratory drilling costs are charged to expense. To date, all
exploration costs have been charged to operations.

Development costs, which include the costs of wellhead
equipment, development drilling costs and handling facilities, applicable
geological and geophysical costs, and the costs of acquiring or constructing
support facilities and equipment, are capitalized. Costs incurred to operate and
maintain wells and equipment and to lift oil and gas to the surface will be
expensed as operating costs. If and when the Company achieves production,
acquisition costs of proved properties will be depleted using the
unit-of-production method based on proved reserves. Capitalized exploratory
drilling costs and development costs will be depleted on the basis of proved
developed reserves by area. Support facilities and equipment will be depreciated
on a straight-line basis over their useful lives.

Property costs by area are reviewed for impairment at least annually
  to consider whether there are conditions that may indicate impairment. The carrying
  value of each property is compared to its net recoverable amount as estimated
  by quantifiable evidence of the market value of similar land or geological resources.
  If the carrying value is found to exceed the estimated net recoverable amount,
  a write down will be recorded.

- 40 -

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Income Taxes

We follow the asset and liability method of accounting for
income taxes. Under this method of tax allocation, future income tax assets and
liabilities are determined based on differences between the financial statement
carrying values and their respective income tax basis (temporary differences).
Future income tax assets and liabilities are measured using the tax rates
expected to be in effect when the temporary differences are likely to reverse.
The effect on future income tax assets and liabilities of a change in tax rates
is included in operations in the period in which the change is enacted or
substantially enacted. The amount of future income tax assets recognized is
limited to the amount of the benefit that is more likely than not to be
realized.

Share-Based Compensation

We account for share-based compensation using a fair value
based method with respect to all stock-based payments measured and recognized,
to directors, employees and non-employees. For payments of services through the
issuance of shares, the fair value is the market price of the shares issued by
us or the value of the services received, depending on which is the more
reliable measure.

For directors and employees, the fair value of the options is
measured at the date of grant. For non-employees, the fair value of the options
or warrants are measured on the earlier of the date at which the counterparty
performance is completed or the date the performance commitment is reached or
the date at which the equity instruments are granted if they are fully vested
and non-forfeitable. The fair value of the options or warrants are accrued and
charged either to operations, oil and gas interests, or share issue costs with
the offset credit to contributed surplus. For directors and employees the
options are recognized over the vesting period, and for non-employees the
options are recognized over the related service period. If and when the stock
options are ultimately exercised, the applicable amounts of contributed surplus
are transferred to share capital.

Adoption of International Financial Reporting
Standards

January 1, 2011 has been confirmed by the Canadian Accounting
  Standards Board as the date that International Financial Reporting Standards
  (IFRS) will replace Canadian GAAP as the financial reporting
  framework for publicly accountable enterprises. The Company will report under
  IFRS for interim and annual periods beginning October 1, 2011. Comparative information
  for 2010 will be restated to comply with IFRS reporting requirements.

The Company has initiated an assessment of those components of
  its operations that are likely to be impacted as a result of the adoption of
  IFRS to replace Canadian GAAP. The Companys approach to implementation
  of IFRS reporting is to identify those components of its financial statements
  that are likely to be impacted by the adoption of IFRS reporting, assess the
  extent of such impact, determine a process to implement the change to IFRS reporting
  and determine the restatement of comparative figures required as a result of
  the implementation of certain IFRS reporting standards.

While the adoption of IFRS will not change the actual cash
flows of the Company, it will result in changes to its reported financial
position and results of operations, which could materially impact the Companys
reported financial position and results of operations.

The Company identified a three phase plan to adopt IFRS by 2011
as follows:

Phase 1 -Scoping and Planning

This phase involves identifying differences between IFRS and
existing Canadian GAAP, and determining their applicability and impact on the
Companys reporting requirements. This phase was completed in the second quarter
of 2010.

Phase 2  Evaluation and Design

This phase includes the detailed review and selection of
accounting policy options, required to comply with IFRS standards. Also
included, is the assessment of the conversion to IFRS on business activities,
controls over financial reporting, and disclosure requirements.

IFRS 1  First Time Adoption of IFRS and Opening Balance
Sheet Quantifications

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IFRS 1 requires an entity to comply with each IFRS effective at
the reporting date for its first IFRS financial statements. In particular, the
IFRS requires an entity to do the following in the opening IFRS balance sheet
that it prepares as a starting point for its accounting under IFRSs:

(a) recognize all assets and liabilities whose recognition is
required by IFRSs;

(b) not recognize items as assets or liabilities if IFRSs do
not permit such recognition;

(c) reclassify items that it recognized under previous GAAP as
one type of asset, liability or component of equity, but are a different type of
asset, liability or component of equity under IFRSs; and

(d) apply IFRSs in measuring all recognized assets and
liabilities.

IFRS 1 offers entities adopting IFRS for the first time with a
number of exemptions (optional and in some areas mandatory). The Company is
currently evaluating exemptions available to determine the most appropriate to
its circumstances. The most appropriate IFRS 1 exemptions applicable to the
Company that have been identified to date are:

Property, Plant and Equipment

The IFRS 1 election related to property, plant and equipment
allows the Company to report property, plant and equipment in its balance sheet
on the transition date at a deemed cost instead of actual cost. The exemption
can be applied on an asset-by-asset basis.

IAS 36 Impairment of Assets

The objective of this Standard is to prescribe the procedures
that an entity applies to ensure that its assets are carried at no more than
their recoverable amount.

The Company is currently assessing the impact of this standard
on its reporting requirements.

IFRS 2 Share Based Payments

This standard provides guidance for the recognition and
measurement of share-based payments. Management must determine the fair value of
a share-based payment at the grant date and the period over which this fair
value should be recognized.

The Company is evaluating the impact of this standard.

IFRS 6 Exploration for and Evaluation of Mineral Resources

The objective of this standard is to specify the financial
reporting for the exploration for and evaluation of mineral resources. Under
IFRS 6, the Company may continue to use its current accounting policies for
reporting on and evaluating its mineral resources. This includes continuing to
use recognition and measurement practices that are part of those accounting
policies.

The Company is currently reviewing its impairment testing
requirements under IFRS 6 and the requirement to report the allocation of
exploration assets to cash-generating units or groups of cash-generating units
for the purpose of assessing such assets for impairment.

IAS 16 Property, Plant and Equipment

This standard establishes the requirements for the recognition,
measurement, depreciation and impairment of Property, Plant and Equipment
(Excluding exploration and evaluation assets).

The Company is currently assessing the impact of this standard
on its reporting requirements.

IAS 37 Provisions, Contingent Liabilities and Contingent
Assets

This requires that appropriate recognition criteria and
measurement bases are applied to provisions, contingent liabilities and
contingent assets and that sufficient information is disclosed in the notes to
enable users to understand their nature, timing and amount.

The Company is currently assessing the impact of this standard
on its reporting requirements.

IAS 12 Income Taxes

The objective of this standard is to prescribe the accounting
  treatment for income taxes. For the purposes of this standard, income taxes
  include all domestic and foreign taxes which are based on taxable profits. Income
  taxes also include taxes, such as withholding taxes, which are payable by a
  subsidiary, associate or joint venture on distributions to the reporting entity.

- 42 -

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As the Company is still in the exploration phase, this standard
  will not have any immediate impact on the Companys reporting requirements

Phase 3  Implementation and Review

The phase involves the actual implementation of IFRS standards
which will involve the finalization of IFRS conversion impacts, approval and
implementation of accounting policies and disclosures, implementation and
testing of new processes, systems and controls, and the provision of detailed
training where required.

The Company is currently assessing the consequence of the
conversion to IFRS on its reporting obligations.

C.             Research
and Development, Patents and Licences

Not applicable.

D.            
Trend Information

We are not aware of any trends that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors. For
information on risks associated to the Company refer to Item 3.D  Risk
Factors.

E.             Off-Balance
  Sheet Arrangements

We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.

F.             Tabular
Disclosure of Contractual Obligations

The following sets forth our contractual obligations as of the
date hereof:

Payments due by periodLess than 1
      
      
      More than 5Contractual Obligations
      Total
      year
      1-3 years
      3-5 years
      yearsLong-Term Debt Obligations
      -
      -
      -
      -
      -Capital (Finance) Lease Obligations
      -
      -
      -
      -
      -Operating Lease Obligations
      497,619
      146,929
      337,128
      13,562
      0Purchase Obligations
      -
      -
      -
      -
      -Other Long-Term Liabilities Reflected on
        the Companys Balance Sheet under the GAAP of the primary financial
        statements
      -
      -
      -
      -
      -Total
      497,619
      146,929
      337,128
      13,562
      0


G.             Safe
Harbor

The safe harbor provided in s. 27A of the Securities Act and s.
21E of the Exchange Act shall apply to forward-looking information provided
pursuant to Item 5.E and F where applicable.

- 43 -

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ITEM
6             
 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.             Directors
and Senior Management

Directors are elected by shareholders and hold office until our
next annual general meeting or until their successors are duly elected and
qualified, unless their office is earlier vacated in accordance with the CBCA
and our articles of incorporation. Pursuant to a nominee agreement with BRM, for
as long as BRM exercises control over 10% or more of our issued and outstanding
common shares, we will nominate, at each annual shareholders meeting of the
Company, two nominees of BRM to our board of directors, and one nominee in the
event that BRM exercises control over common shares in an amount less than 10%
but equal to or greater than 7% of our issued and outstanding common shares. A
copy of this nominee agreement is attached hereto as Exhibit 4.11. Further this
to arrangement, Eli Barkat and Yael Reznick-Cramer were appointed as directors
to our board of directors as of January 11, 2011. The shareholders will have an
opportunity to vote on their appointment at the next annual general meeting.

The following table sets forth information relating to our
directors and senior management as at the date of this Form 20-F:

|Name (1)               | Residence                  | Position                                                                           
|---------------------- | -------------------------- | -----------------------------------------------------------------------------------
|Dennis Bennie (2)(3)   | Toronto, ON, Canada        | Director
      (Chairman)                                                          
|                       |                            |                                                                                    
|Ilan Diamond (2)       | Raanana, Israel           | Chief Executive
      Officer and Director                                         
|                       |                            |                                                                                    
|Alan Friedman          | Toronto, ON, Canada        | Executive
      Vice-President, and Director                                       
|                       |                            |                                                                                    
|Alan Rootenberg        | Thornhill, ON Canada       | Chief Financial
      Officer through January 11, 2011                             
|                       |                            |                                                                                    
|Daniel Bloch (2)(3)    | Toronto, ON, Canada        | Director,
      Secretary through August 23, 2010                                  
|                       |                            |                                                                                    
|Denny Johnson          | Denham Springs, LA, USA    | Vice-President,
      Exploration and Development                                  
|                       |                            |                                                                                    
|Eli Barkat (3)         | Tel-Aviv, Israel           | Director                                                                           
|                       |                            |                                                                                    
|Yael Reznik-Cramer (3) | Lapid, Israel              | Director                                                                           
|                       |                            |                                                                                    
|Colin Kinley           | Overland Park, Kansas, USA | President, Chief
      Operating Officer and Director                              
|                       |                            |                                                                                    
|Glen Perry             | Tel Aviv, Israel           | Vice-President
      Operations and Director                                       
|                       |                            |                                                                                    
|Gadi Levin             | Lev Hasharon, Israel       | Chief Financial
      Officer from January 11, 2011, Secretary from August 23, 2010

|(1) | Neither age nor date of birth of directors or senior
      managers is required to be reported in the Companys home country (Canada)
      nor otherwise publicly disclosed.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Member of Audit Committee.                                                                                                                                                   
|(3) | Independent for purposes of National Instrument
      52-110                                                                                                               

The following is biographical information on each of the
persons listed above:

- 44 -

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Mr. Dennis Bennie, Director (Chairman). Mr.
Bennie became Chairman and a director of the Company on August 31, 2009. Prior
thereto, Mr. Bennie was a founding member of Adira Holding Co., now a
wholly-owned subsidiary of the Company and its Chairman since inception in April
2009. Over the past 25 years, Mr. Bennie's has founded and managed several
successful companies. In 1997, he founded the XDL Venture Capital Fund. One of
its most noteworthy investments was a 1997 start-up, Delano Technology
Corporation (NASD:DTEC). XDL Intervest, a $150 million fund was started in 1999
and is now fully invested. Mr. Bennie currently invests in private equity
opportunities as the XDL Capital Group. From 1988 to 1996, Mr. Bennie was
Chairman and CEO of Delrina Corporation, which was listed on both the Toronto
Stock Exchange and NASDAQ. Mr. Bennie serves on several boards and also
regularly serves on various charitable boards

Mr. Ilan Diamond, Chief Executive Officer and
Director. Mr. Diamond became CEO and a director of the Company on August
31, 2009. Prior to becoming CEO and Director at the Company, Mr. Diamond was a
director at Stratus Capital LLP. Stratus Capital focused on trading of physical
commodities (primarily copper and cobalt), mainly from Africa to the East. Mr
Diamond also managed the Dina Group, a diversified consumer goods group. Mr
Diamond has worked extensively with the specialist Private Equity group, Buffet
Investments across a broad range of industries that included IT/Technology,
Telecommunication & Media. Mr. Diamond is also the former Chief Operating
Officer of Avalanche SA, a large investment group with interests in resources,
financial services, technology, media and consulting, and private equity. Mr
Diamond has a Bachelor of Business Science (Hons) majoring in Finance, Accounts
and Economics from the University of Cape Town, South Africa. He has also
completed a Post Graduate Diploma in mathematical modelling of derivatives from
the University of Cape Town, South Africa.

Mr. Alan Friedman, Executive Vice-President and Director.Mr. Friedman became Executive Vice-President and a director of the
Company on August 31, 2009. Prior to joining the Company, Mr Friedman was a
founding member of Adira Holding Co. and has been its President since its
inception in April 2009.Mr. Friedman is a South African attorney and a Director
of the Canada-South Africa Chamber of Business. He is the founder, President and
CEO of Rivonia Capital Inc., a firm that identifies opportunities in emerging
markets, and enhances value through combining quality assets, management and
financial and marketing support for early stage companies in the resource
sector. He was formerly the Executive Vice-President for a Canadian finance
firm, through which he facilitated significant capital raising for a number of
public companies.

Mr. Alan Rootenberg, Chief Financial Officer (through
January 11, 2011).Mr. Rootenberg is a chartered accountant with
experience in the mineral exploration and technology industries. He has served
as a senior executive in a number of publicly traded companies including serving
as Chief Financial Officer and consultant to OTCBB and TSXV listed mineral
exploration companies. Mr. Rootenberg was President and Chief Executive Officer
of a publicly traded (TSXV) technology company from 1999 to 2007. Prior to that,
he was a founding partner in a company that pioneered the development of
multimedia and new media applications for the advertising industry. He has a
Bachelor of Commerce degree from the University of the Witwatersrand in
Johannesburg, South Africa and received his Chartered Accountant designation in
both South Africa and in Ontario, Canada.

Mr. Daniel Bloch, Director.Mr. Bloch became a
director of the Company in July 2010. Prior to that, he served as corporate
secretary of the Company from August 31, 2009 through to August 23, 2010. Mr.
Bloch is a partner at Aird & Berlis LLP in Toronto, and member of the firms
Corporate Finance Group and the Natural Resources Team. Mr. Blochs practice
focuses on all areas of corporate finance, mergers and acquisitions and
securities law. Mr. Bloch regularly represents and provides general corporate
and securities law advice to publicly and privately held corporations in a wide
variety of industries. He has developed a particular expertise in advising
issuers and underwriters in connection with public and private financings. Mr.
Bloch has a Bachelor of Administrative Studies as well as an LLB.

Mr. Denny Johnson , Vice-President, Exploration and Development
  and Officer.Mr. Johnson became a director of the Company on August
  31, 2009. Mr. Johnson has been the President of Highlands Consulting group since
  2008. Prior to that, he was a drilling engineer for Range Resources, a natural
  gas producer and oversaw multiple drilling programs including CBM, limestone,
  tight gas sands and shale. Mr. Johnson worked, for four years, as a petroleum
  field engineer for the oil field service company, Schlumberger. Currently, Mr.
  Johnson holds membership at the Society of Petroleum Engineers and Petroleum
  Technology Transfer Council.

- 45 -

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Eli Barkatbecame a Director of the Company on
January 11, 2011. Mr. Barkat is the CEO, chairman and co-founder of BRM Group.
In 1988, Mr, Barkat co-founded BRM Group (formerly BRM Technologies), an
anti-virus software start-up sold to Symantec. Under Mr. Barkat's leadership,
the BRM Group has been involved, either directly or via venture capital funds
under its control, in some of the prominent exits including Checkpoint (NASDAQ:
CHKP); Backweb (NASDAQ: BWEB); Passave (sold to PMC-Sierra); Oplus Technologies
(sold to Intel); Whale Communications (sold to Microsoft) and Fraud Sciences
(sold to eBay). Mr. Barkat is the Chairman of DS-APEX and he currently sits on
the board of Mediamind, GigaSpaces, SupportSpace and Pando Networks Together
with his wife, Alona, he founded the BRM Institute of Technology and Society at
Tel Aviv University, and serves on the Tel Aviv Universitys Board of Governors.
Mr Barkat holds a B.Sc in Computer Science and Mathematics from the Hebrew
University of Jerusalem.

Yael Reznik-Cramerbecame a Director of the
Company on January 11, 2011.She is responsible for the BRM
Groups new business opportunities and BRM Capital's financial operations,
financial reporting, taxation, information systems and administration. Prior to
joining BRM, Ms. Reznik Cramer was Chief financial Officer of STAR Ventures in
Israel for over nine years, Before joining STAR, Ms. Reznik Cramer was
Controller at Lannet Data Communications Ltd. (NASDAQ: LANTF) and an Audit Team
Manager at Bavli Milner, one of Israel's leading accounting firms. Ms. Reznik
Cramer currently sits on the boards of directors of Backweb Ltd. Schema Ltd. Ms.
Reznik Cramer is a Certified Public Accountant in Israel and holds a B.A degree
in Accounting and Economics from the Hebrew University in Jerusalem and an MBA
from Tel-Aviv University.

Mr. Colin Kinley, President and Chief Operating Officer
and Director. Mr. Kinley became a director of the Company on August 31, 2009 and
President and Chief Operating Officer since August 23, 2010. Prior to that, he
was Senior Vice President, Operations since August 31, 200. Mr. Kinley is Chief
Executive Officer of Kinley Exploration LLC, a specialized exploration company
providing integrated program exploration and development management for both new
and established oil and gas plays. Kinley has over 30 years of international
experience in the exploration of frontier resource plays, 26 years as a senior
executive for Layne Christensen and its predecessor companies. During his tenure
at Layne he had executive oversight of multiple service companies and
exploration and production operations, both domestically and internationally.
Most recently Kinley was President of a Toronto based Botswana unconventional
gas project, exploring and drilling numerous wells from a base he established in
the Kalahari Desert. Kinley is experienced and practiced in both public and
private company disciplines.

Mr. Glen Perry, Vice President of Operations,
became a Director on July 22, 2010. Mr. Perry previously served as a director of
the company from August 31, 2009 until he resigned for personal reasons during
January 2010. Mr. Perry has a Masters degree in Petroleum Engineering from the
University of Texas. Previously he served as a Director, COO and President of
Zion Oil & Gas Inc., a US oil and gas company licensed in Israel and listed
on the NASDAQ. In years prior to that he was a consultant to: Delek Drilling
Ltd., National Petroleum Limited (Manager), Prairie Producing Company (Officer
and Director), Exxon Company USA (now ExxonMobil Corporation) and Energy
Reserves Group (now BHP).

Mr. Gadi Levin, Chief Financial Officer (from January 11,
2011) and Secretary, became CFO of the Companys Israeli subsidiaries in
July, 2010, Secretary of the Company in August 2010 and was appointed as the
Companys CFO in January 2011. Mr. Levin previously served as the Vice President
of Finance and Chief Financial Officer for two Israeli investment houses in the
fields of private equity, hedge funds and real estate (July, 2008 to December,
2009 and January, 2010 to June 2010, respectively). For the five years prior to
that he worked as a financial consultant to the Prime Ministers Office of the
State of Israel. Mr. Levin began his career at the accounting firm, Arthur
Andersen, where he worked in the Cape Town, London and Tel Aviv offices for nine
years. He has a Bachelor of Commerce degree in Accounting and Information
Systems from the University of the Cape Town, South Africa, and a post graduate
diploma in Accounting from the University of South Africa. He received his
Chartered Accountant designation in South Africa and has an MBA from Bar Ilan
University in Israel.

Alan Friedman's wife is the niece of Dennis Bennie. Other than
that relationship, no director or any member of senior management has any family
relationships with any other director or manager.

Except for the nominee agreement with BRM, there is no
arrangement with any major shareholder, customer, supplier or other party
pursuant to which any person was selected as a director or member of senior
management.

- 46 -

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Cease trade orders, bankruptcies, penalties or
sanctions

Penalties and Sanctions

No Director or executive officer of the Company or, to our
knowledge, a shareholder holding a sufficient number of our securities to
materially affect the control of the Company, has been subject to any penalties
or sanctions imposed by a court or securities regulatory authority relating to
securities legislation, has entered into a settlement agreement with a
securities regulatory authority, or been subject to any other penalties or
sanctions imposed by a court or regulatory body, including a self regulatory
body, that would likely be considered important to a reasonable security holder
making an investment decision about the Company; other than in the case of Colin
Kinley where an out of court settlement agreement was entered into and all
charges were denied and dropped. Claims were made by Layne Christensen Company
and Layne Energy against Manx Drilling; Saber Energy Corp; Saber Energy Inc; Tau
Capital of Toronto; Warren Newfield; Colin Kinley and Andrew MacEwen for,
amongst other things, claiming a breach of fiduciary duty. The case was brought
before the District Court of Johnson County, Kansas and as part of a settlement
a stipulation and order for dismissal was signed by all parties and the court on
September 15, 2009. The Court ordered the case Dismissed with Prejudice.

Conflicts of Interest

Certain officers and directors of the Company are directors or
officers of other oil and gas exploration companies. Consequently, potential
conflicts of interest may arise in the event that these companies compete in
respect of the sale or option of oil and gas properties in which the Company is
or may be interested.

The directors and officers of the Company are aware of the
existence of laws governing accountability of directors and officers for
corporate opportunity and requiring disclosures by directors of conflicts of
interest and the Company will rely upon such laws in respect of any directors
and officers conflicts of interest or in respect of any breaches of duty by any
of its directors or officers. All such conflicts will be disclosed by such
directors or officers in accordance with the CBCA and they will govern
themselves in respect thereof to the best of their ability in accordance with
the obligations imposed upon them by law.

Promoters

Alan Friedman, Ilan Diamond and Dennis Bennie took the
initiative in organizing the Company and may be considered to have been
promoters of the Company. See Directors and Executive Officers for
details of the shareholders of such individuals.

B.             Compensation

During
the year ended September 30, 2010, we paid aggregate remuneration to our
directors and officers as a group who served in the capacity of director or
executive officer during such year of approximately $643,000. The following
table sets forth the approximate aggregate compensation paid by us during the
fiscal year ended on September 30, 2010 to all of our directors and officers.

Cash and Cash-EquivalentForms of Compensation(in  U.S. $)Salaries, Fees, Directors'Fees, Commissions andBonuses2010All Directors as a group, consisting
           of six persons
    $
      -All Officers as a group, consisting
           of eight persons
    $
      643,000


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Compensation Discussion and Analysis

In assessing the compensation of its executive officers, we do
not have in place any formal objectives, criteria or analysis; instead, it
relies mainly on Board discussion. Currently, any material commitments,
inclusive of remuneration, are required to be pre-approved by the Board.

Our executive compensation program has three principal
components: base salary, incentive bonus plan and stock options. Base salaries
for all our employees are established for each position through comparative
salary surveys of similar type and size companies. Both individual and corporate
performances are also taken into account. Incentive bonuses, in the form of cash
payments, are designed to add a variable component of compensation based on
corporate and individual performances for executive officers and employees. No
bonuses were paid to executive officers or employees during the most recently
completed financial year.

We have no other forms of compensation, although payments may
be made from time to time to individuals or companies they control for the
provision of consulting services. Such consulting services are paid for by the
Company at competitive industry rates for work of a similar nature by reputable
arms length services providers.

We have no compensatory plan, contract or arrangement where an
  executive officer is entitled to receive more than $100,000 to compensate such
  executive officers in the event of resignation, retirement or other termination,
  a change of control of the Company or a change in responsibilities following
  a change in control, other than as described in this Form 20-F.

Option Based Awards

Stock options are granted to provide an incentive to the
directors, officers, employees and consultants of the Company to achieve the
longer-term objectives of the Company; to give suitable recognition to the
ability and industry of such persons who contribute materially to the success of
the Company; and to attract and retain persons of experience and ability, by
providing them with the opportunity to acquire an increased proprietary interest
in the Company. The Company awards stock options to its executive officers based
upon the recommendation of the Board, which recommendation is based upon the
Compensation Committees review of a proposal from the President and CEO.
Previous grants of incentive stock options are taken into account when
considering new grants. .

The Company has a stock option plan for the granting of
incentive stock options to the officers, employees, consultants and directors.
See Item 6E Share Ownership  Equity Compensation Plans for more
information.

Director Compensation

The Company has no arrangements, standard or otherwise,
pursuant to which Directors are compensated by the Company for their services in
their capacity as Directors, or for committee participation, involvement in
special assignments or for services as consultant or expert during the most
recently completed financial year or subsequently, up to and including the date
of this Form 20-F, except for the consulting fees described as Section 7.A
Related Party Transactions.

Long-Term Incentive Plan Awards

The Company did not make any long-term incentive plan awards
during the period ended September 30, 2010 and the year ended September 30,
2009.

Pension, Retirement or Similar Benefits

We do have amounts set aside to provide for pension, retirement
or similar benefits.

- 48 -

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C.             Board
  Practices

Our Directors have served in their respective capacities since
their election or appointment and will serve until our next annual general
meeting or until a successor is duly elected and qualified, unless their office
is earlier vacated in accordance with the CBCA and our articles of
incorporation. Our officers serve at the discretion of the board.

The Board is responsible for, among other things, identifying
suitable candidates to be recommended for election to the Board by shareholders
or appointment by the Directors, subject to the limits in the Companys articles
and the CBCA. One of the objectives of the Board with respect to the nomination
is to maintain the composition of the Directors in a way that provides the best
mix of skills and experience to guide our long-term strategy and ongoing
business operations.

The Board is to conduct an annual review and assessment of the
performance of the Chairman and Chief Executive Officer and the other senior
executive officers of the Company.

The Board also reviews and monitors our executive development
programs and the long-range plans and personnel policies for recruiting,
developing and motivating our executives. The Board has reviewed and approved
the qualifications of each of the Board nominees standing for election.

The Board is responsible for conducting an annual review of the
performance of the Company and the Chief Executive Officer as measured against
objectives established in the prior year by the Board and the CEO and approved
by the Board. The evaluation is to be used by the Board in its deliberations
concerning the CEOs annual compensation. The evaluation of performance against
objectives forms part of the determination of the entire compensation of senior
employees. The Board is also responsible for reviewing the compensation of the
Directors on an annual basis, taking into account such matters as time
commitment, responsibility and compensation provided by comparable
organizations. The compensation committee will make an annual review of such
matters and make a recommendation to the Board.

The Board is responsible for making an annual assessment of the
overall performance of the Directors as a group and to reporting its findings to
the full Board. The assessment examines the effectiveness of the Directors as a
whole and specifically reviews areas that the Directors and/or Management
believe could be improved to ensure the continued effectiveness of the Directors
in the execution of their responsibilities

Term of Office

All directors have a term of office expiring at our next annual
general meeting, unless a directors office is earlier vacated in accordance
with our Articles or the provisions of the CBCA. All officers serve at the
discretion of the Board.

Audit and Compensation Committees

We have an audit committee and audit committee charter. A copy
of our audit committee charter was filed as an exhibit to our Form 10-KSB filed
for the Companys 2003 fiscal year. The function of the audit committee is to
monitor the veracity of the financial and regulatory reports produced by the
Company, and the controls that are in place to ensure the opportunities for
fraud or material error in our financial statements are minimized. The current
audit committee is comprised of Dennis Bennie, Ilan Diamond and Daniel Bloch.

The Board has determined that all members of the Audit
Committee meet the SECs definition of an audit committee financial expert, as
defined in Item 401(e)(2) of Regulation S-B. The Board has also determined that
Mr. Bennie and Mr. Bloch meet the definition of an independent director, as
defined in Rule 121A of the American Stock Exchange Company Guide.

We have a compensation committee comprised of Dennis Bennie,
Colin Kinley and Daniel Bloch. Currently, any material commitments, inclusive of
remuneration, are required to be pre-approved by the Board, following
recommendation of the compensation committee.

- 49 -

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We have a disclosure committee and a disclosure committee
charter. Our disclosure committee is comprised of all of our officers and
directors. The purpose of the committee is to provide assistance to the Chief
Executive Officer and the Chief Financial Officer in fulfilling their
responsibilities regarding the identification and disclosure of material
information about us, and the accuracy, completeness and timeliness of our
financial reports.

D.             Employees

As of September 30, 2010, we and our subsidiaries together
employed a total of nine full-time employees, all of which are employed in
Israel as well as engaged the services of seven consultants who performed
management and professional functions. None of the Companys employees are part
of a collective bargaining unit. Management believes that its relations with its
employees and consultants are good.

Israeli Employment Law and Practices

The
Companys employees are located in Israel. Certain provisions of Israeli
employment laws and of extension orders based upon provisions of the collective
bargaining agreements between the Histadrut (i.e., the General Federation of
Labor in Israel) and the Coordination Bureau of Economic Organizations
(including the Industrialists Associations) are applicable to employees in
Israel by order of the Israeli Ministry of Labor. These provisions concern
principally the length of the work day, minimum daily wages for professional
workers, insurance for work-related accidents, procedures for dismissing
employees, determination of severance pay and other conditions of
employment.

Israeli
law generally requires severance pay, which may be funded by Managers Insurance
described below in this section upon the retirement or death of an employee or
termination of employment without cause (as defined in the law). The payments
thereto amount to approximately 8.33% of wages. Furthermore, Israeli employees
and employers are required to pay predetermined sums to the National Insurance
Institute, which is similar to the United States Social Security Administration.
Such amounts also include payments for national health insurance. The payments
to the National Insurance Institute are equal to approximately 16.3% of the
wages, of which the employee contributes approximately 66% and the employer
contributes approximately 34%. In addition, Israeli law requires employers to
make mandatory pension payments on behalf of their employees.

A
general practice followed, although not legally required, is the contribution of
additional funds on behalf of employees to a fund known as Managers Insurance.
This fund provides a combination of savings plan, insurance and severance pay
benefits to the employee, giving the employee a lump sum payment upon retirement
and securing the severance pay, if legally entitled, upon termination of
employment. The employer decides which employees are entitled to participate in
the plan, and each employee who agrees to participate, contributes an amount
equal to 5% of his or her salary, and the employer contributes between 13.3% and
15.8% of the employees salary which also includes the mandatory pension
payments required by applicable law.

E.             Share
  Ownership

Shares

The shareholdings of our officers and directors are set forth
below as of the date hereof.

Name and Position
    Number of Common Shares
    Percentage of Outstanding
      Common Shares Owned(1)Dennis Bennie Director (Chairman)
    6,261,068 (2)
    6.95%Ilan Diamond Chief Executive Officer and
      Director
    4,709,883(3)
    5.23%


- 50 -

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Name and Position
    Number of Common Shares
    Percentage of Outstanding
      Common Shares Owned(1)Alan Friedman Executive Vice-President and
      Director
    5,988,267 (4)
    6.64%Alan Rootenberg Chief Financial Officer through
      to January 11, 2011
    50,000
    0.06%Daniel Bloch,Director, Secretary through to
      August 23, 2010
    Nil
    NilDenny Johnson Senior Vice-President, Exploration
      and Development
    4,000
    0.0%Colin Kinley Senior VP, Operations
    50,000
    0.06%Gadi Levin Secretary from August 23, 2010 and
      CFO from January 11, 2011
    Nil
    NilYael Reznik Cramer Director
    Nil
    NilEli Barkat(5) Director
    10,000,000
    11.09%Total:
    27,063,218
    30.02%


|1. | Based on 90,140,001 common shares issued and outstanding
      as of January 31, 2011  
|-- | ---------------------------------------------------------------------------------------
|2. | Includes 100,000 shares held by spouse.                                                
|3. | Includes 140,000 shares held by spouse.                                                
|4. | Includes 1,034,667 shares held by spouse.                                              
|5. | Shares held by BRM, beneficially owned by Eli Barkat, Nir
      Barkat and Yuval Rakav.

Options

Details of the stock options held by our officers and directors
are set forth below as of the date hereof:

Name and Position
      Grant Date
      Expiry Date
      Exercise 
        Price
      Vesting Type
      TotalDennis Bennie Director (Chairman)
    August 31, 2009(1)January 27,
      2010(2)January 11, 2011
    August 20, 2014 January 26, 2015
      January 11, 2016
    $0.25 $0.60 CDN$0.80
    A E H
    396,000 250,000 100,000


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Name and Position
      Grant Date
      Expiry Date
      Exercise 
        Price
      Vesting Type
      TotalDaniel Bloch Director
    August 31, 2009 January 27, 2010
      January 11, 2011
    August 20, 2014 January 26, 2015
      January 11, 2016
    $0.25 $0.60 CDN$0.80
    A E H
    75,000 50,000 200,000Brook Cole
    August 31, 2009 January 27, 2010
    August 20, 2014 January 26, 2015
    $0.25 $0.60
    C F
    60,000 25,000Ilan Diamond Chief Executive Officer and Director
    August 31, 2009 August 31, 2009 January
      27, 2010 January 11, 2011
    August 20, 2014 August 20, 2014 January
      26, 2015 January 11, 2016
    $0.25 $0.25 $0.60
      CDN$0.80
    A C E H
    396,000 385,000 250,000
      200,000Alan Friedman Executive Vice- President and
      Director
    August 31, 2009 August 31, 2009 January
      27, 2010 January 11, 2011
    August 20, 2014 August 20, 2014 January
      26, 2015 January 11, 2016
    $0.25 $0.25 $0.60
      CDN$0.80
    A C E H
    396,000 250,000 250,000
      150,000Denny Johnson Senior Vice- President, Exploration and
      Development
    August 31, 2009
    August 20, 2014
    $0.25
    C
    150,000(3)Colin Kinley President, Chief Operating Officer and
      Director
    August 31, 2009 September 23,
      2009(3)January 27, 2010 January 11, 2011
    August 20, 2014 September 23, 2014
      January 26, 2015 January 11, 2016
    $0.25 $0.25 $0.60
      CDN$0.80
    B D(4)E H
    400,000 250,000 250,000
      800,000Alan Rootenberg,  Chief Financial Officer (through
      January 11, 2011)
    September 23, 2009 January 27, 2010
    September 23, 2014 January 26, 2015
    $0.25 $0.60
    A E
    150,000 75,000Glen Perry Vice President Operations and Director
    July 22, 2010
    July 22, 2015
    $0.60
    E
    600,000Gadi Levin, Secretary and Chief Financial Officer (from
      January 11, 2011)
    July 22, 2010
    July 22, 2015
    $0.60
    E
    250,000Yael Reznik Cramer, Director
    January 11, 2010
    January 11, 2016
    CDN$0.80
    H
    100,000Eli Barkat, Director
    January 11, 2010
    January 11, 2016
    CDN$0.80
    H
    100,000Total:
    
    
    
    
    6,558,000


________________Notes:

*(1)******The
closing price of the Common Shares on the OTCBB on August 31, 2009, the date the
Adira Options were exchanged for previously granted stock options, was $0.22.**(2)******The
closing price of the Common Shares on the OTCBB on January 27, 2010 was $0.58
(3)******The
closing price of the Common Shares on the OTCBB on September 23, 2009 was $0.23.
(4)******The
closing price of the Common Shares on the OTCBB on December 15, 2009 was
$0.42.*

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Vesting Type Key:

*(A)******Options vest over 2 years, with 12.5% vesting at the end of each quarter.**(B)******Options vest 8.5% at the end of each quarter over two years and 8.0% at the end
of each quarter thereafter.
(C)******Options
vest over 4 years, with 6.25% vesting at the end of each quarter.
(D)******Options
vest 12.5% at the end of each quarter with the initial amount vesting on
December 17,
2009.**(E)******Options
vest over 2 years, with 12.5% vesting at the end of each quarter. Initial amount
vests on grant date.**(F)******Options
vest over 4 years, with 6.25% vesting at the end of each quarter. Initial amount
vests on grant date.**(G)******Options
vest 8.5% at the end of each quarter over two years and 8.0% at the end of each
quarter thereafter. Initial amount vests on grant date.**(H)******Options
vest 12.5% every 6 months with the initial amount vesting on July 11, 2010.*

Warrants

Details of the share purchase warrants held by our officers and
directors are set forth below as of the date hereof.

Name and Position
    Grant Date
    Expiry Date
    Exercise Price
    TotalDennis Bennie Director (Chairman)
    August 31, 2009 November 22, 2010
    August 31, 2011 November 22, 2013
    US$0.50 US$0.55
    118,200 50,000(1)Ilan Diamond Chief Executive
      Officer and Director
    November 22, 2010
    November 22, 2013
    US$0.55
    70,000(1)Alan Friedman Executive Vice-
      President and Director
    August 31, 2009 November 22, 2010
    August 31, 2011 November 22, 2013
    US$0.50 US$0.55
    9,000 75,000(1)Alan Rootenberg Chief Financial
      Officer through January 11, 2011
    November 22, 2010
    November 22, 2013
    $US0.55
    25,000Daniel Bloch Director, Secretary
      through August 23, 2010
    N/A
    N/A
    Nil
    NilColin Kinley President and COO
    November 22, 2010
    November 22, 2013
    US$0.55
    25,000Denny Johnson Senior
      Vice-President, Exploration and Development
    August 31, 2009
    August 31, 2011
    US$0.50
    2,000Gadi Levin Secretary from August
      23, 2010 and CFO from January 11, 2011
    N/A
    N/A
    Nil
    Nil


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Name and Position
    Grant Date
    Expiry Date
    Exercise Price
    TotalYael Reznik Cramer Director
    N/A
    N/A
    Nil
    NilEli Barkat(2)
      Director
    December 3, 2010 November 22, 2010
    December 3, 2013 November 22, 2013
    US$0.40 US$0.55
    1,101,750 5,000,000Total:
    
    
    
    6,475,950


|1. | Held by spouse                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | Consists of 5,000,000 warrants held by BRM and 1,101,750
      warrants held by DS Apex Mergers & Acquisitions Ltd., which is 60%
      owned by BRM. BRM is beneficially owned by Eli Barkat, Nir Barkat and
      Yuval Rakav. The warrants issued to DS Apex Mergers & Acquisitions Ltd
      were in consideration for placement services provided to us in connection
      with the Adira Financing  see Item 10C "Material Contracts"
  .

Each warrant may be exercised to purchase one of our common
shares at the exercise price.

Equity Compensation Plans

The following table summarizes our compensation plans under
which equity securities are authorized for issuance as at September 30, 2010.

Plan Category
    Number of securities to
      be issued upon exercise of outstanding options,
      warrants and rights
    Weighted-average
      exercise price of outstanding options,
      warrants and rights
    Number of securities remaining
      available for future issuance under equity
      compensation plans (excluding securities reflected
      in the second column)Equity compensation plans approved by security holders
    5,659,000
    $0.39
    605,000Equity compensation plans not approved by security
      holders
    Nil
    $0.25
    N/ATotal:
    5,659,000
    $0.39
    605,000


|(1) | The number of securities remaining available for future
      issuance under our 10% rolling stock option plan as at the end of our most
      recently completed financial year is calculated on the basis of 10% of the
      Companys issued and outstanding shares as at such date (being 10% of
      62,640,001 =6,264,000).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On August 31, 2009, our board of directors adopted a new 10%
rolling stock option plan (the New Stock Option Plan) to replace the
existing plan The New Stock Option plan was ratified by the shareholders of the
Company of December 17, 2009.

The purpose of the New Stock Option Plan continues to be to allow
  the Company to grant options to directors, officers, employees and consultants,
  as additional compensation, and as an opportunity to participate in the success
  of the Company. The granting of such options is intended to align the interests
  of such persons with that of the shareholders. Options will be exercisable over
  periods of up to ten years as determined by the Board of Directors of the Company
  and are required to have an exercise price no less than the fair market value
  of the Companys common shares, as determined in accordance with the New
  Stock Option Plan. Pursuant to the New Stock Option Plan, the Board of Directors
  may from time to time authorize the issue of options to directors, officers,
  employees and consultants of the Company and its subsidiaries or employees of
  companies providing management or consulting services to the Company or its
  subsidiaries.

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The maximum number of common shares which may be issued pursuant
  to options previously granted and those granted under the New Stock Option Plan
  will be a maximum of 10% of the issued and outstanding common shares at the
  time of the grant. In addition, the number of shares which may be reserved for
  issuance to any one individual may not exceed 5% of the issued shares on a yearly
  basis or 2% if the optionee is engaged in investor relations activities or is
  a consultant. The New Stock Option Plan contains no vesting requirements, but
  permits the Board of Directors to specify a vesting schedule in its discretion.

As of January, 2011, 7,309,000options had been granted under
the 2009 Stock Option Plan as follows:

On August 31, 2009, 3,334,000 options were granted to the
former holders of Adira Energy stock options, in exchange for previously
outstanding Adira Energy options. The exercise price per common share of these
options is $0.25. These options will expire on August 20, 2014 and are subject
to various vesting terms.

On September 23, 2009, 650,000 options were granted to certain
directors and officers of the Company. The exercise price per common share of
these options is $0.25. These options will expire on September 23, 2014 and are
subject to various vesting terms.

On January 27, 2010, 1,270,000 options were granted to certain
directors and officers of the Company. The exercise price per common share of
these options is $0.60. These options will expire on January 26, 2015 and are
subject to various vesting terms.

In March 2010, 270,000 options with an exercise price of $0.25
were cancelled and in June 2010, 250,000 Options with an exercise price of $0.25
and 550,000 options with an exercise price of $0.60 were cancelled.

On July 22, 2010, 925,000 options were granted to certain
directors and officers of the Company. The exercise price per common share of
these options is $0.60. These options will expire on July 22, 2015 and are
subject to various vesting terms.

On January 11, 2011, 1,650,000 options were granted to certain
directors and officers of the Company. The exercise price per common share of
these options is $0.79. These options will expire on January 11, 2016 and are
subject to various vesting terms.

On January 11, 2011, the Board of Directors adopted an annex to
the New Stock Option Plan applicable to optionees who are residents of the State
of Israel at the date of grant or those who are deemed to be residents of the
state of Israel for the payment of tax at the date of grant. The provisions
specified therein form an integral part of the New Stock Option Plan and is to
be read as a continuation of the New Stock Option Plan and only modifies options
granted to Israeli optionees so that they comply with the requirements set by
the Israeli law in general, and in particular with the provisions of Section 102
of the Israeli Income Tax Ordinance, as may be amended or replaced from time to
time. In connection with options granted to Israeli optionees under the New
Stock Option Plan, the Board of Directors selected the capital gains tax track
pursuant to the Israeli tax legislation which came into effect on January 1,
2003.

ITEM
7              
MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS

A.             Major
Shareholders

Major Shareholders

We are a publicly-held corporation, with our shares held by
residents of the United States, Canada and other countries. To the best of our
knowledge, no person, corporation or other entity beneficially owns, directly or
indirectly, or controls more than 5% of our common shares, except as follows:

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Name and Municipality of Residence
    Number of Common Shares
      Owned(1)
    Percentage(2)Dennis Bennie Toronto, Canada
    6,261,068(3)
    6.95%Ilan Diamond Raanana, Israel
    4,709,883(4)
    5.23%Alan Friedman Toronto, Canada
    5, 988,267(5)
    6.64%BRM ,Israel(5)
    10,000,000
    11.09%Lapidoth Israel Oil Prospectors Corp. Ltd.,Israel (6)
    6,250,000
    6.9%


|(1) | Based on beneficial share ownership data as of the date
        hereof. For these purposes, beneficial ownership means the
        sole or shared power to vote or direct the voting or to dispose or direct
        the disposition of any security. Unless otherwise indicated, each shareholder
        listed has sole voting or dispositive power with respect to such common
        shares.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Based on 90,140,001 of our common shares issued and
        outstanding as of January 31, 2011.                                                                                                                                                                                                                                                                                                     
|(3) | Includes 100,000 shares held by spouse.                                                                                                                                                                                                                                                                                                                                                             
|(4) | Includes 140,000 shares held by spouse.                                                                                                                                                                                                                                                                                                                                                             
|(5) | Includes 884,667 held by spouse                                                                                                                                                                                                                                                                                                                                                                     
|(6) | BRM is a private investment company beneficially owned
        by Mr. Eli Barkat, Mr. Nir Barkat and Mr. Yuval Rakav.                                                                                                                                                                                                                                                                               
|(7) | Lapidoth Israel Oil Prospectors Corp. Ltd is beneficially
        owned by Mr. Yaakov Luxembourg.                                                                                                                                                                                                                                                                                                   

Each of our common shares entitles the holder thereof to one
vote.

Significant Changes in Ownership.

For significant changes of ownership of the holdings of the
major shareholders, please see Item 4A "Acquisition of Adira Energy" and "Adira
Financing".

Geographic Breakdown of Shareholders

As of December 31, 2010, our shareholder register indicates
that our common shares are held as follows:

Location
    Number of Shares
    Percentage of Total Shares
    Number of Registered
      Shareholders of RecordUnited States
    1,695,776
    1.9%
    57Canada
    56,104,009
    62.2%
    101Other
    32,340,216
    35.9%
    32Total
    90,140,001
    100%
    190


Shares registered in intermediaries were assumed to be held by
residents of the same country in which the clearing house was located.

Transfer Agent

Our securities are recorded in registered form on the books of
  our transfer agent, Computershare Trust Company of Canada, located at 3rd
  Floor, 510 Burrard Street, Vancouver, BCV6C 3B9. However, the majority of such
  shares are registered in the name of intermediaries such as brokerage houses
  and clearing houses (on behalf of their respective brokerage clients). We do
  not have knowledge or access to the identities of the beneficial owners of such
  shares registered through intermediaries.

- 56 -

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Control

To the best of our knowledge, we are not directly or indirectly
owned or controlled by any other corporation, by any foreign government or by
any other natural or legal person, severally or jointly.

Insider Reports under Canadian Securities Law

Under the Canadian Securities laws, insiders (generally
officers, directors and holders of 10% or more of our shares) are required to
file insider reports of changes in their ownership in the first 5 days following
a trade in our securities. Copies of such reports are available publically at
www.sedi.ca.

B.             Related
  Party Transactions

No director or senior officer of the Company, and no associate
or affiliate of the foregoing persons, and no insider has or has had any
material interest, direct or indirect, in any transactions, or in any proposed
transaction, which in either such case has materially affected or will
materially affect us or our predecessors since the beginning of our last
completed fiscal year except as follows:

During the year ended September 30,
2010, and for the 175 day period ended September 30, 2009 we incurred the
following expenses with related parties:

- $204,452 in consulting fees to individuals that are directors and officers
  of the Company or to private companies which are controlled by a director and
  officers of the Company (September 30, 2009 - $148,152);
- $279,149 in technical consulting fees to a company in which a director is
  the President and Chief Operating Officer, (September 30, 2009 - $75,000); and
- $112,166 in technical consulting fees to a corporation controlled by an
  officer, (September 30, 2009 - $20,000).

During
the year ended September 30, 2008, AMG incurred the following expenses with
related parties:

During
the 2008 fiscal year, the Company incurred $54,568 of mainly G&A costs
through DLJ, a wholly owned subsidiary of Trans-Orient. The amount represents
costs incurred by DLJ on behalf of the Company for administrative and accounting
services. At September 30, 2008, the Company owed DLJ $2,604.

During
the 2008 fiscal year, a director was paid $12,955 (2007: $9,421 and 2006:
$5,553) indirectly through DLJ for time spent on the Company.

The
above transactions are in the normal course of operations and are measured at
the exchange amount, which is the amount of consideration established and agreed
to by the related parties.

Dennis Bennie, Ilan Diamond and Alan Friedman purchased an
aggregate of 9,736,167 common shares of Adira Energy (3,493,270, 2,670,589 and
3,572,308 common shares, respectively) at a price of CDN$0.05 per share, such
amount being the approximate amount of personal expenses incurred primarily by
the Dennis Bennie, Ilan Diamond, Alan Friedman in conducting the business prior
to incorporation. An aggregate of 1,250,000 common shares of Adira Energy
(625,000, 625,000 and 0 common shares, respectively) were subsequently directly
and beneficially purchased at a price of $0.05 per share. The shares of Adira
Energy were subsequently split resulting in these three individuals holding,
beneficially and directly, 10,986,167 shares (4,118,270, 3,572,308 and 3,295,589
respectively). Post split, an aggregate of 236,400 common shares of Adira Energy
(236,400, 0 and 0 common shares, respectively) were subsequently purchased at a
price of $0.25 per share. These shares were subsequently exchanged for an
equivalent number of shares of the Company on completion of the acquisition of
Adira Energy pursuant to the Securities Exchange Agreement dated August 4, 2009
among the Company, Adira Energy, Dennis Bennie, Ilan Diamond and Alan Friedman.

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C.             Interests
of Experts and Counsel

The names of the experts are as follows:

| | (a) | Aird &Berlis LLP, counsel to the Company;                              
| | --- | -----------------------------------------------------------------------
| |     |                                                                        
| | (b) | Petrotech Engineering Ltd., author of the Eitan Technical
      Report;
| |     |                                                                        
| | (c) | MSCM LLP, Chartered Accountants; and                                   
| |     |                                                                        
| | (d) | Smythe Ratcliffe LLP, Chartered
  Accountants.                         

Except as otherwise disclosed herein, none of Aird & Berlis
LLP, Petrotech Engineering Ltd., Smythe Ratcliffe or MSCM LLP, or any director,
officer, employee or partner thereof, as applicable, received or has received a
direct or indirect interest in the property of the Company or of any associate
or affiliate of the Company. As of the date hereof, the directors, officers,
employees and partners, as applicable, of each of the aforementioned companies
and partnerships beneficially own, directly or indirectly in the aggregate less
than one percent of the securities of the Company. No director, officer,
employee or partner, as applicable, of the aforementioned companies or
partnerships is currently expected to be elected, appointed or employed as a
director, officer or employee of the Company or of any associate of affiliate of
the Company.

- 58 -

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ITEM
8              
FINANCIAL INFORMATION

A.             Consolidated
Statements and Other Financial Information

Financial Statements

The financial statements required as part of this Form 20-F are
filed under Item 17 of this Form 20-F.

Legal Proceedings

We are not a party to any legal or arbitration proceedings nor,
to our knowledge, are any such proceedings contemplated.

Dividends

We have not paid any dividends on our common shares since
incorporation. Our management anticipates that we will retain all future
earnings and other cash resources for the future operation and development of
our business. We do not intend to declare or pay any cash dividends in the
foreseeable future. Payment of any future dividends will be at our board of
directors discretion, subject to applicable law, after taking into account many
factors including our operating results, financial condition and current and
anticipated cash needs.

B.             Significant
  Changes

We have not experienced any significant changes since the date
of the financial statements included with this Form 20-F except as disclosed in
this Form 20-F.

ITEM
9THE OFFER AND LISTING

Common Shares

Our authorized capital consists of an unlimited number of
common shares without par value, of which 62,640,001 common shares and are
issued and outstanding as of September 30, 2010 and 90,140,001 as of December
31, 2010. All shares are initially issued in registered form. Except for the
escrowed shares (see below) there are no restrictions on the transferability of
our common shares imposed by our constituting documents.

The common shares entitle their holders to: (i) vote at all
meetings of our shareholders except meetings at which only holders of specified
classes of shares are entitled to vote, having one vote per common share, (ii)
receive dividends at the discretion of our board of directors; and (iii) receive
our remaining property on liquidation, dissolution or winding up.

A.             Offer
  and Listing Details- Price History

Trading Markets

Our common shares are traded on the OTC Bulletin Board in the
United States under the symbol ADENF. The following table shows the
progression in the high and low closing trading prices of our common shares on
the OTC Bulletin Board for the periods listed.

|                     | High ($) | Low ($) | 
|-------------------- | -------- | ------- | 
|Annual (fiscal year) |          |         | 
|                     |          |         | 
|2010                 | 0.90     | 0.22    | 
|2009                 | 0.38     | 0.03    | 
|2008                 | 0.50     | 0.11    | 

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|               | High ($) | Low ($) | 
|-------------- | -------- | ------- | 
|2007           | 0.90     | 0.32    | 
|2006           | 1.41     | 0.125   | 
|               |          |         | 
|Quarterly      |          |         | 
|               |          |         | 
|Fiscal 2010    |          |         | 
|Fourth Quarter | 0.15     | 0.25    | 
|Third Quarter  | 0.6      | 0.28    | 
|Second Quarter | 0.74     | 0.39    | 
|First Quarter  | 0.54     | 0.22    | 
|               |          |         | 
|Fiscal 2009    |          |         | 
|Fourth Quarter | 0.38     | 0.21    | 
|Third Quarter  | 0.38     | 0.06    | 
|Second Quarter | 0.10     | 0.05    | 
|First Quarter  | 0.12     | 0.03    | 
|Fiscal 2008    |          |         | 
|Fourth Quarter | 0.33     | 0.11    | 
|Third Quarter  | 0.50     | 0.21    | 
|Second Quarter | 0.39     | 0.21    | 
|First Quarter  | 0.50     | 0.27    | 

Monthly

January 2011
    0.83
    0.63December 2010
    0.90
    0.45November 2010
    0.55
    0.35October 2010
    0.48
    0.33September 2010
    0.50
    0.34August 2010
    0.50
    0.29


The following table shows the progression in the high and low
closing trading prices of our common shares on the TSXV for the periods listed.

|              | High (CAD) | Low (CAD)
|------------- | ---------- | ---------
|              |            |          
|December 2010 | 0.55       | 0.90     
|              |            |          
|January 2011  | 0.80       | 0.60     

Escrowed Securities

Pursuant to our listing on the TSXV in December 2010, a number
of our common shares are subject to escrow pursuant to the policies of the TSXV,
namely:

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Designation of Class
    Number of Securities held in
      escrow or that are subject to a contractual restriction
      on transfer
    % of ClassCommon Shares
    2,848,000
    3.16%


B.            
  Plan of Distribution

Not applicable.

C.             Markets

Our common shares are traded on the TSXV under the symbol ADL
and in the United States on the OTC Bulletin Boardunder the symbol ADENFand on
the Frankfurt Stock Exchange under the symbol AORLB8.

D.             Selling
  Shareholders

Not applicable.

E.             Dilution

Not applicable.

F.             Expenses
  of the Issue

Not applicable.

ITEM 10             ADDITIONAL
  INFORMATION

A.            
  Share Capital

Not applicable

B.            
  Memorandum and Articles of Incorporation

We were incorporated on February 20, 1997 as Trans New Zealand
Oil Company under the laws of the State of Nevada, USA. We changed our name to
AMG Oil Ltd. on July 27, 1998. On November 27, 2008, we changed our
jurisdiction of incorporation from Nevada to the Canadian federal jurisdiction
under the Canada Business Corporation Act.Our corporate constituting
documents are comprised of our Articles of Association (Articles) and
our By-Laws (By-Laws). Information regarding out Articles and By-laws
is incorporated by reference from our Form 20-F filed previously on September 4,
2009.

C.             Material
  Contracts

The material contracts to which we are a party which were
entered into during the last two years are as follows:

- Securities Exchange Agreement dated August 4, 2009 among the Company, Adira
    Energy, Alan Friedman, Dennis Bennie and Ilan Diamond.
- Securities Exchange Agreement dated effective August 4, 2009 among the Company
    and the minority shareholders of Adira Energy

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- Agency Agreement between Adira Energy and Sandfire Securities Inc. dated
  August 31, 2009 pursuant to which Adira Energy issued 7,600,000 Units in the
  Private Placement as described in Item 4.A of this Form 20-F.
- Subscription Agreement entered into between Adira Energy and the
  subscribers for the 7,600,000 Unit Private Placement described in Item 4.A of
  this Form 20-F.
- Form of Subscription Agreement entered into between the Company Oil Ltd and
  the subscribers for the 400,000 Unit Private Placement described in Item 4.A
  of this Form 20-F
- Form of Subscription Agreement entered into between the Company and the
  subscribers for the 27,500,000 subscription receipts described in Item 4.A of
  this Form 20-F. A copy of this agreement is attached hereto as Exhibit 4.7.
- Agreement with the Modiin Energy Limited Partnership, its general partner,
  Modiin Energy Management (1992) Limited and Brownstone Ventures, Inc.
  described in Item 4.B of this Form 20-F and a summary of which is attached as
  Exhibit 4.8.
- Letter of Intent with Brownstone dated September 20, 2009, as amended,
  pursuant which Brownstone was granted the right, to earn a 15% participating
  interest in any existing or future oil and gas blocks acquired by the Company
  in offshore State of Israel for a three year period commencing July 15, 2009
  upon assuming an obligation to contribute 15% of all costs associated with
  such projects. A copy of the Brownstone LOI is attached hereto as Exhibit 4.9.
- Agency Agreement between Adira Energy and DS Apex and Mergers Ltd. dated
  November 22, 2010 in connection with the part of the Adira Financing placed by
  DS Apex Mergers & Acquisitions Ltd. in certain jurisdictions, excluding
  Canada and the United States of America. ,as described in Item 4.A of this
  Form 20-F.  A copy of this Agency agreement is attached hereto as Exhibit
  4.10.
- Nominee agreement with BRM relating to the appointment of directors on
  behalf of BRM. A copy of the Nominee agreement is attached hereto as Exhibit
  4.11.

D.             Exchange
  Controls

There is no law or governmental decree or regulation in Canada
that restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares
of the Company, other than withholding tax requirements. See Taxation.

There is no limitation imposed by Canadian law or by the
charter or other constituent documents of the Company on the right of a
non-resident to hold or vote common shares of the Company, other than as
provided in the Investment Canada Act (Canada) (the Investment
Act).

The following discussion summarizes the principal features of
the Investment Act for a non-resident who proposes to acquire common shares of
the Company. It is general only, it is not a substitute for independent legal
advice from an investors own advisor, and it does not anticipate statutory or
regulatory amendments.

The Investment Act is a federal statute of broad application
regulating the establishment and acquisition of Canadian businesses by
non-Canadians, including individuals, governments or agencies thereof,
corporations, partnerships, trusts or joint ventures (each an entity).
Investments by non-Canadians to acquire control over existing Canadian
businesses or to establish new ones are either reviewable or notifiable under
the Investment Act. If an investment by a non-Canadian to acquire control over
an existing Canadian business is reviewable under the Investment Act, the
Investment Act prohibits implementation of the investment unless after review
the Director of Investments, who is appointed by the Minister of Industry, is
satisfied that the investment is likely to be of net benefit to Canada.

A non-Canadian would acquire control of the Company for the
purposes of the Investment Act through the acquisition of common shares if the
non-Canadian acquired a majority of the common shares of the Company.

- 62 -

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Further, the acquisition of less than a majority but one third
or more of the common shares of the Company would be presumed to be an
acquisition of control of the Company unless it could be established that, on
the acquisition, the Company was not controlled in fact by the acquirer through
the ownership of common shares.

For a direct acquisition that would result in an acquisition of
control of the Company, subject to the exception for WTO-investors that are
controlled by persons who are resident in World Trade Organization
(WTO) member nations, a proposed investment would be reviewable where
the value of the acquired assets is CAD $5 million or more, or if an order for
review was made by the federal cabinet on the grounds that the investment
related to Canadas cultural heritage or national identity, regardless of the
value of the assets of the Company.

For a proposed indirect acquisition that would result in an
acquisition of control of the Company through the acquisition of a non-Canadian
parent entity, the investment would be reviewable where (a) the value of the
Canadian assets acquired in the transaction is CAD $50 million or more, or (b)
the value of the Canadian assets is greater than 50% of the value of all of the
assets acquired in the transaction and the value of the Canadian assets is CAD
$5 million or more.

In the case of a direct acquisition by or from a WTO
investor, the threshold is significantly higher, and is adjusted for inflation
each year. The 2008 threshold was CAD$295 million. Other than the exception
noted below, an indirect acquisition involving a WTO investor is not reviewable
under the Investment Act.

The higher WTO threshold for direct investments and the
exemption for indirect investments do not apply where the relevant Canadian
business is carrying on the following businesses that have been deemed to be
sensitive: (i) the production of oil and gas and the ownership of an interest in
a producing oil and gas property in Canada; (ii) the provision of any financial
service; (iii) the provision of any transportation service; or (iv) a
cultural business.

Certain transactions relating to common shares of the Company
are exempt from the Investment Act, including

| | (a) | acquisition of common shares of the Company by a person
      in the ordinary course of that persons business as a trader or dealer in
      securities,                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                      
| | (b) | acquisition of control of the Company in connection with
      the realization of security granted for a loan or other financial
      assistance and not for a purpose related to the provisions on the
      Investment Act, and                                                   
| |     |                                                                                                                                                                                                                                                                                      
| | (c) | acquisition of control of the Company by reason of an
      amalgamation, merger, consolidation or corporate reorganization following
      which the ultimate direct or indirect control in fact of the Company,
      through the ownership of common shares, remained
  unchanged.

E.             Taxation

Material Canadian Federal Income Tax Consequences for United
States Residents

The following summarizes the material Canadian federal income
tax consequences generally applicable to the holding and disposition of our
shares by a holder (in this summary, a U.S. Holder) who, (a) for the
purposes of the Income Tax Act (Canada) (the Tax Act) and at all
relevant times, is not resident in Canada, deals at arms length with us, holds
our shares as capital property and does not use or hold our shares in the course
of carrying on, or otherwise in connection with, a business in Canada, and (b)
for the purposes of the Canada-United States Income Tax Convention, 1980 (the
Treaty) and at all relevant times, is a resident solely of the United
States, has never been a resident of Canada, and has not held or used (and does
not hold or use) our shares in connection with a permanent establishment or
fixed base in Canada. This summary does not apply to traders or dealers in
securities, limited liability companies, tax-exempt entities, insurers,
financial institutions (including those to which the mark-to-market provisions
of the Tax Act apply), or any other holder in special circumstances.

This summary is based on the current provisions of the Tax Act
  including all regulations thereunder, the Treaty, all proposed amendments to
  the Tax Act, the regulations and the Treaty publicly announced by the Government
  of Canada to the date hereof, and our understanding of the current administrative
  practice of the Canada Revenue Agency. It has been assumed that all currently
  proposed amendments will be enacted as proposed and that there will be no other
  relevant change in any governing law or administrative practice, although no
  assurances can be given in these respects.

- 63 -

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The summary does not take into account Canadian provincial, U.S.
  federal (which follows further below), state or other foreign income tax law
  or practice. The tax consequences to any particular U.S. Holder will vary
  according to the status of that holder as an individual, trust, corporation,
  partnership or other entity, the jurisdictions in which that holder is subject
  to taxation, and generally according to that holders particular circumstances.
  Accordingly, this summary is not, and is not to be construed as, Canadian tax
  advice to any particular U.S. Holder. All U.S. Holders are advised to consult
  with their own tax advisors regarding their particular circumstances. The discussion
  below is qualified accordingly.

Dividends

Dividends paid or deemed to be paid to a U.S. Holder by us will
be subject to Canadian withholding tax. The Tax Act requires a 25% withholding
unless reduced under a tax treaty. Under the Treaty, provided that a holder can
demonstrate that it is a qualifying U.S. Holder, the rate of withholding tax on
dividends paid to a U.S. Holder is generally limited to 15% of the gross amount
of the dividend (or 5% if the U.S. Holder is a corporation and beneficially owns
at least 10% of our voting shares). We will be required to withhold the
applicable withholding tax from any dividend and remit it to the Canadian
government for the U.S. Holders account.

Disposition

For purposes of the following discussion, we have assumed that
our shares will remain listed on the TSX. A U.S. Holder is not subject to tax
under the Tax Act in respect of a capital gain realized on the disposition of
our shares in the open market unless the shares are taxable Canadian property
to the holder thereof and the U.S. Holder is not entitled to relief under the
Treaty. Our shares will be taxable Canadian property to a U.S. Holder (a) if, at
any time during the 60 months preceding the disposition, the U.S. Holder or
persons with whom the U.S. Holder did not deal at arms length alone or together
owned 25% or more of our issued shares of any class or series, or (b) in other
specific circumstances, including where shares were acquired for other
securities in a tax-deferred transaction. If our shares constitute taxable
Canadian property to the holder, the holder will (unless relieved under the
Treaty) be subject to Canadian income tax on any gain. The taxpayers capital
gain or loss from a disposition of the share is the amount, if any, by which the
proceeds of disposition exceed (or are exceeded by) the aggregate of the
adjusted cost base and reasonable expenses of disposition. One-half of the
capital gain is included in income and one-half of the capital loss is
deductible from capital gains realized in the same year. Unused capital losses
may be carried back three taxation years or forward indefinitely and applied to
reduce capital gains realized in those years.

A U.S. Holder whose shares do constitute taxable Canadian
property should consult with the holders own tax advisors regarding any
possible relief (if any) from Canadian tax under the Treaty based on applicable
circumstances at the relevant time. Such Treaty relief should not be anticipated
under current circumstances.

United States Tax Consequences

United States Federal Income Tax Consequences

The following is a discussion of all material United States
federal income tax consequences, under current law, generally applicable to a
U.S. Holder (as hereinafter defined) of our common shares. 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 Taxation - Canadian Federal
Income Tax Consequences above). Accordingly, we urge holders and prospective
holders of our common shares to consult their own tax advisors about the
specific federal, state, local and foreign tax consequences to them of
purchasing, owning and disposing of our common shares, based upon their
individual circumstances.

The following discussion is based upon the sections of 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 and which are subject to
differing interpretations. This discussion does not consider the potential
effects, both adverse and beneficial, of any proposed legislation which, if
enacted, could be applied, possibly on a retroactive basis, at any time.

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U.S. Holders

As used herein, a U.S. Holder means a holder of our common
shares who is a citizen or individual 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, an entity created or
organized in or under the laws of the United States or of any political
subdivision thereof which has elected to be treated as a corporation for United
States federal income tax purposes (under Treasury Regulation Section 301.7701
-3), an estate whose income is taxable in the United States irrespective of
source or a trust subject to the primary supervision of a court within the
United States and control of a United States fiduciary as described in Section
7701(a)(30) of the Code. This summary does not address the tax consequences to,
and U.S. Holder does not include, persons subject to specific provisions of
federal income tax law, such as tax-exempt organizations, qualified retirement
plans, individual retirement accounts and other tax-deferred accounts, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, non-resident alien individuals, persons or
entities that have a functional currency other than the U.S. dollar,
shareholders subject to the alternative minimum tax, shareholders who hold
common shares as part of a straddle, hedging or conversion transaction, and
shareholders who acquired their common shares through the exercise of employee
stock options or otherwise as compensation for services. This summary is limited
to U.S. Holders who own our common shares as capital assets and who own
(directly and indirectly, pursuant to applicable rules of constructive
ownership) no more than 5% of the value of our total outstanding stock. This
summary does not address the consequences to a person or entity holding an
interest in a shareholder or the consequences to a person of the ownership,
exercise or disposition of any options, warrants or other rights to acquire
common shares. In addition, this summary does not address special rules
applicable to United States persons (as defined in Section 7701(a)(30) of the
Code) holding common shares through a foreign partnership or to foreign persons
holding common shares through a domestic partnership.

Distribution on Our Common Shares

In general, U.S. Holders receiving dividend distributions
(including constructive dividends) with respect to our common shares are
required to include in gross income for United States federal income tax
purposes the gross amount of such distributions, equal to the U.S. dollar value
of such distributions on the date of receipt (based on the exchange rate on such
date), 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 credited, subject to certain limitations,
against the U.S. Holders federal income tax liability or, alternatively, may be
deducted in computing the U.S. Holders federal taxable income by those who
itemize deductions. (See more detailed discussion at 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 up to
the U.S. Holders adjusted basis in the common shares and thereafter as gain
from the sale or exchange of property. Preferential tax rates for long-term
capital gains are applicable to a U.S. Holder which is an individual, estate or
trust. There are currently no preferential tax rates for long-term capital gains
for a U.S. Holder which is a corporation.

In the case of foreign currency received as a dividend that is
not converted by the recipient into U.S. dollars on the date of receipt, a U.S.
Holder will have a tax basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Generally any gain or loss recognized upon a
subsequent sale or other disposition of the foreign currency, including the
exchange for U.S. dollars, will be ordinary income or loss. However, an
individual whose realized gain does not exceed $200 will not recognize that
gain, provided that there are no expenses associated with the transaction that
meet the requirements for deductibility as a trade or business expense (other
than travel expenses in connection with a business trip) or as an expense for
the production of income.

Dividends paid on our common shares generally will not be
eligible for the dividends received deduction provided to corporations receiving
dividends from certain United States corporations. A U.S. Holder which is a
corporation and which owns shares representing at least 10% of our voting power
and value may, under certain circumstances, be entitled to a 70% (or 80% if the
U.S. Holder owns shares representing at least 20% of our voting power and value)
deduction of the United States source portion of dividends received from us
(unless we qualify as a passive foreign investment company, as defined below).
We do not anticipate that we will earn any United States income, however, and
therefore we do not anticipate that any U.S. Holder will be eligible for the
dividends received deduction.

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Under current Treasury Regulations, dividends paid on our
common shares, if any, generally will not be subject to information reporting
and generally will not be subject to U.S. backup withholding tax. However,
dividends and the proceeds from a sale of our common shares paid in the U.S.
through a U.S. or U.S. related paying agent (including a broker) will be subject
to U.S. information reporting requirements and may also be subject to the 28%
U.S. backup withholding tax, unless the paying agent is furnished with a duly
completed and signed Form W-9. Any amounts withheld under the U.S. backup
withholding tax rules will be allowed as a refund or a credit against the U.S.
Holders U.S. federal income tax liability, provided the required information is
furnished to the IRS.

Foreign Tax Credit

None of the Companys employees are part of a collective
bargaining unit. Management believes that its relations with its employees and
consultants are good.

A U.S. Holder who pays (or has withheld from distributions)
Canadian income tax with respect to the ownership of our common shares may be
entitled, at the option of the U.S. Holder, to either receive a deduction or a
tax credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a credit because a credit reduces United States federal
income taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayers income subject to tax. This election is made on a year-by-year basis
and generally applies to all foreign 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
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be classified into
foreign and domestic sources. Complex rules govern this classification process.
In addition, this limitation is calculated separately with respect to passive
income" and "general income," and dividends distributed by us will generally
constitute passive income for these purposes. The availability of the foreign
tax credit and the application of the limitations on the credit are fact
specific, and U.S. Holders of our common shares should consult their own tax
advisors regarding their individual circumstances.

Disposition of Our Common Shares

In general, U.S. Holders will recognize gain or loss upon the
sale of our common shares equal to the difference, if any, between (i) the
amount of cash plus the fair market value of any property received, and (ii) the
shareholders tax basis in our common shares. Preferential tax rates apply to
long-term capital gains of U.S. Holders which are individuals, estates or
trusts. In general, gain or loss on the sale of our common shares will be
long-term capital gain or loss if the common shares are a capital asset in the
hands of the U.S. Holder and are held for more than one year. Deductions for net
capital losses are subject to significant limitations. For U.S. Holders that are
not corporations, any unused portion of such net capital loss may be carried
over to be used in later tax years until such net capital loss is thereby
exhausted. For U.S. Holders that are corporations (other than corporations
subject to Subchapter S of the Code), an unused net capital loss may be carried
back three years and carried forward five years from the loss year to be offset
against capital gains until such net capital loss is thereby exhausted.

Other Considerations

Set forth below are certain material exceptions to the
above-described general rules describing the United States federal income tax
consequences resulting from the holding and disposition of common shares:

Foreign Investment Company

If 50% or more of the combined voting power or total value of
our outstanding shares is held, directly or indirectly, 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 may 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 common shares to be treated as
ordinary income rather than capital gain. We do not believe that we currently
qualify as a foreign investment company.

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However, there can be no assurance that we will not be
considered a foreign investment company for the current or any future taxable
year.

Passive Foreign Investment Company

United States income tax law contains rules governing passive
foreign investment companies (PFIC) which can have significant tax
effects on U.S. Holders of foreign corporations. These rules do not apply to
non-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that
is not formed in the United States if, 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 fair market
value (or, if the corporation is not publicly traded and either is a controlled
foreign corporation or makes an election, by adjusted tax basis), of its assets
that produce or are held for the production of passive income is 50% or more.
We do not believe that we were a PFIC for our taxable year ending September 30,
2010, however, we appear to have been a PFIC for our taxable year ending
September 30, 2009, and at least certain prior fiscal years. In addition, we may
also qualify as a PFIC in future fiscal years. Each of our U.S. Holders is urged
to consult a tax advisor with respect to how the PFIC rules affect such U.S.
Holders tax situation.

Each of our U.S. Holders who holds stock in a foreign
corporation during any year in which such corporation qualifies as a PFIC is
subject to United States federal income taxation under one of three alternative
tax regimes at the election of such U.S. Holder. The following is a discussion
of such alternative tax regimes applied to such U.S. Holders of our stock. In
addition, special rules apply if a foreign corporation qualifies as both a PFIC
and a controlled foreign corporation (as defined below) and a U.S. Holder
owns, actually or constructively, 10% or more of the total combined voting power
of all classes of stock entitled to vote of such foreign corporation (See more
detailed discussion at Controlled Foreign Corporation below).

A U.S. Holder who elects to treat us as a qualified electing
fund (QEF) will be subject, under Section 1293 of the Code, to current
federal income tax for any taxable year to which the election applies 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, and (ii) ordinary earnings (the
excess of earnings and profits over net capital gain), which will be taxed as
ordinary income, in each case, for the shareholders taxable year in which (or
with which) our taxable year ends, regardless of whether such amounts are
actually distributed. A U.S. Holders tax basis in the common shares will be
increased by any such amount that is included in income but not distributed.

The procedure a U.S. Holder must comply with in making an
effective QEF election, and the consequences of such 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, i.e., a timely 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 his tax return for such first year. If, however, we qualified as a PFIC in
a prior year during the U.S. Holders holding period, then, in order to avoid
the Section 1291 rules discussed below, in addition to filing documents, the
U.S. Holder must elect to recognize under the rules of Section 1291 of the Code
(discussed herein) (i) any gain that he would otherwise recognize if the U.S.
Holder sold his stock on the qualification date or (ii) if we are a controlled
foreign corporation, the U.S. Holders pro rata share of our post-1986 earnings
and profits as of the qualification date. The qualification date is the first
day of our first tax year in which we qualified as a QEF with respect to such
U.S. Holder. For purposes of this discussion, a U.S. Holder who makes (i) a
timely QEF election or (ii) an untimely QEF election and either of the
above-described gain-recognition elections under Section 1291 is referred to
herein as an Electing U.S. Holder. A U.S. Holder who holds common shares at
any time during a year in which we are a PFIC and who is not an Electing U.S.
Holder (including a U.S. Holder who makes an untimely QEF election and makes
neither of the above-described gain-recognition elections) is referred to herein
as a Non-Electing U.S. Holder. An Electing U.S. Holder (i) generally treats
any gain realized on the disposition of his common shares as capital gain and
(ii) may either avoid interest charges resulting from PFIC status altogether 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 U.S. Holder is not a
corporation, any interest charge imposed under the PFIC regime would be treated
as personal interest that is not deductible.

In order for a U.S. Holder to make (or maintain) a valid QEF
  election, we must provide certain information regarding our net capital gains
  and ordinary earnings and permit our books and records to be examined to verify
  such information. We intend to make the necessary information available to U.S.
  Holders to permit them to make (and maintain) QEF elections with respect to
  us. We urge each U.S. Holder to consult a tax advisor regarding the availability
  of, and procedure for making, the QEF election.

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A QEF election, once made with respect to us, applies to the
  tax year for which it was made and to all subsequent tax years, unless the election
  is invalidated or terminated, or the IRS consents to revocation of the election.
  If a QEF election is made by a U.S. Holder and we cease to qualify as a PFIC
  in a subsequent tax year, the QEF election will remain in effect, although not
  applicable, during those tax years in which we do not qualify as a PFIC. Therefore,
  if we again qualify as a PFIC in a subsequent tax year, the QEF election will
  be effective and the U.S. Holder will be subject to the rules described above
  for Electing U.S. Holders in such tax year and any subsequent tax years in which
  we qualify as a PFIC. In addition, the QEF election remains in effect, although
  not applicable, with respect to an Electing U.S. Holder even after such U.S.
  Holder disposes of all of his or its direct and indirect interest in our shares.
  Therefore, if such U.S. Holder reacquires an interest in us, that U.S. Holder
  will be subject to the rules described above for Electing U.S. Holders for each
  tax year in which we qualify as a PFIC.

In the case of a Non-Electing U.S. Holder, special taxation
rules under Section 1291 of the Code will apply to (i) gains realized on the
disposition (or deemed to be realized by reasons of a pledge) of his common
shares and (ii) certain excess distributions, as defined in Section 1291(b),
by us.

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 on his common shares over the entire holding period for the common
shares. All gains or excess distributions allocated to prior years of the U.S.
Holder (excluding any portion of the holders period prior to the first day of
the first year (i) which began after December 31, 1986, and (ii) for which we
were 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 foregoing 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 not a corporation must treat this interest
charge as personal interest which, as discussed above, is wholly
non-deductible. The balance, if any, of the gain or the excess distribution will
be treated as ordinary income in the year of the disposition or distribution,
and no interest charge will be incurred with respect to such balance. In certain
circumstances, the sum of the tax and the PFIC interest charge may exceed the
amount of the excess distribution received, or the amount of proceeds of
disposition realized, by the U.S. Holder.

If we are a PFIC for any taxable year during which a
Non-Electing U.S. Holder holds our common shares, then we will continue to be
treated as a PFIC with respect to such common shares, even if we are no longer
definitionally 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 we were a PFIC.

Effective for tax years of U.S. Holders beginning after December
  31, 1997, U.S. Holders who hold (actually or constructively) marketable stock
  of a foreign corporation that qualifies as a PFIC may elect to mark such stock
  to the market annually (a mark-to-market election). If such
  an election is made, such U.S. Holder will generally not be subject to the special
  taxation rules of Section 1291 discussed above. However, if the mark-to-market
  election is made by a Non-Electing U.S. Holder after the beginning of the holding
  period for the PFIC stock, then the Section 1291 rules will apply to certain
  dispositions of, distributions on and other amounts taxable with respect to
  our common shares. A U.S. Holder who makes the mark-to-market election will
  include in income for each taxable year for which the election is in effect
  an amount equal to the excess, if any, of the fair market value of our common
  shares as of the close of such tax year over such U.S. Holders adjusted
  basis in such common shares. In addition, the U.S. Holder is allowed a deduction
  for the lesser of (i) the excess, if any, of such U.S. Holders adjusted
  tax basis in the common shares over the fair market value of such shares as
  of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market
  gains for our common shares included by such U.S. Holder for prior tax years,
  including any amount which would have been treated as a mark-to-market gain
  for any prior tax year but for the Section 1291 rules discussed above with respect
  to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares
  that were allowed as deductions for prior tax years. A U.S. Holders adjusted
  tax basis in our common shares will be adjusted to reflect the amount included
  in or deducted from income as a result of a mark-to-market election. A mark-to-market
  election applies to the taxable year in which the election is made and to each
  subsequent taxable year, unless our common shares cease to be marketable, as
  specifically defined, or the IRS consents to revocation of the election. Because
  the IRS has not established procedures for making a mark-to-market election,
  U.S. Holders should consult their tax advisor regarding the manner of making
  such an election. No view is expressed regarding whether our common shares are
  marketable for these purposes or whether the election will be available.

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Under Section 1291(f) of the Code, the IRS has issued Proposed
  Treasury Regulations that, subject to certain exceptions, 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. Generally, in such cases the basis of our common shares
  in the hands of the transferee and the basis of any property received in the
  exchange for those common shares would be increased by the amount of gain recognized.
  Under the Proposed Treasury Regulations, an Electing U.S. Holder would not be
  taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant
  to corporate reorganizations, and transfers at death. The transferees
  basis in this case will depend on the manner of the transfer. In the case of
  a transfer by an Electing U.S. Holder upon death, for example, the transferees
  basis is generally equal to the fair market value of the Electing U.S. Holders
  common shares as of the date of death under Section 1014 of the Code. The specific
  tax effect to the U.S. Holder and the transferee may vary based on the manner
  in which the common shares are transferred. Each U.S. Holder of our shares is
  urged to consult a tax advisor with respect to how the PFIC rules affect his
  or its tax situation.

Whether or not a U.S. Holder makes a timely QEF election with
respect to our common shares, certain adverse rules may apply in the event that
we are a PFIC and any foreign corporation in which we directly or indirectly
hold shares is a PFIC (a lower-tier PFIC). Pursuant to certain Proposed
Treasury Regulations, a U.S. Holder would be treated as owning his or its
proportionate amount of any lower-tier PFIC shares, and generally would be
subject to the PFIC rules with respect to such indirectly-held PFIC shares
unless such U.S. Holder makes a timely QEF election with respect thereto. We do
not currently have any subsidiaries. If we obtain any subsidiaries, we intend to
make the necessary information available to U.S. Holders to permit them to make
(and maintain) QEF elections with respect to each subsidiary of ours that is a
PFIC.

Under the Proposed Treasury Regulations, a U.S. Holder who does
not make a timely QEF election with respect to a lower-tier PFIC generally would
be subject to tax (and the PFIC interest charge) on (i) any excess distribution
deemed to have been received with respect to his or its lower-tier PFIC shares
and (ii) any gain deemed to arise from a so-called indirect disposition of
such shares. For this purpose, an indirect disposition of lower-tier PFIC shares
would generally include (i) a disposition by us (or an intermediate entity) of
lower-tier PFIC shares, and (ii) any other transaction resulting in a diminution
of the U.S. Holders proportionate ownership of the lower-tier PFIC, including
an issuance of additional common shares by us (or an intermediate entity).
Accordingly, each prospective U.S. Holder should be aware that he or it could be
subject to tax even if such U.S. Holder receives no distributions from us and
does not dispose of its common shares. We strongly urge each prospective U.S.
Holder to consult a tax advisor with respect to the adverse rules applicable,
under the Proposed Treasury Regulations, to U.S. Holders of lower-tier PFIC
shares.

Certain special, generally adverse, rules will apply with
respect to our common shares while we are a PFIC unless the U.S. Holder makes a
timely QEF election. For example under Section 1298(b)(6) of the Code, 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 shares.

Controlled Foreign Corporation

If more than 50% of the total combined voting power of all our
  of shares entitled to vote or the total value of our shares is owned, 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)), each of which
  own, actually or constructively, 10% or more of the total combined voting power
  of all of our classes of shares entitled to vote (each, a United States
  Shareholder), we could be treated as a controlled foreign corporation
  (CFC) under Subpart F of the Code. This classification would
  affect many complex results, one of which is the inclusion of certain income
  of a CFC which is subject to current U.S. tax. The United States generally taxes
  United States Shareholders of a CFC currently on their pro rata shares of the
  Subpart F income of the CFC. Such United States Shareholders are generally treated
  as having received a current distribution out of the CFCs Subpart F income
  and are also subject to current U.S. tax on their pro rata shares of increases
  in the CFCs earnings invested in U.S. property. The foreign tax credit
  described above may reduce the U.S. tax on these amounts. In addition, under
  Section 1248 of the Code, gain from the sale or exchange of shares by a U.S.
  Holder of our common shares which is or was a United States Shareholder at any
  time during the five-year period ending on the date of the sale or exchange
  is treated as ordinary income to the extent of earnings and profits attributable
  to the shares sold or exchanged. If a foreign corporation is both a PFIC and
  a CFC, the foreign corporation generally will not be treated as a PFIC with
  respect to United States Shareholders of the CFC. This rule generally will be
  effective for taxable years of United States Shareholders beginning after 1997
  and for taxable years of foreign corporations ending with or within such taxable
  years of United States Shareholders. Special rules apply to United States Shareholders
  who are subject to the special taxation rules under Section 1291 discussed above
  with respect to a PFIC. Because of the complexity of Subpart F, a more detailed
  review of these rules is outside of the scope of this discussion. We do not
  believe that we currently qualify as a CFC. However, there can be no assurance
  that we will not be considered a CFC for the current or any future taxable year.

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F.            
  Dividends and Paying Agents

Not applicable.

G.             Statement
by Experts

Not applicable.

H.             Documents
on Display

Exhibits attached to this Form 20-F are also available for
viewing at our offices, Suite 901, 30 St. Clair Avenue West, Toronto, Ontario,
Canada, M4V 3A1; or you may request them by calling our office at (416)
250-6500. Copies of our financial statements and other continuous disclosure
documents required under securities rules are available for viewing on the
internet at www.sedar.com.

I.             Subsidiary
Information

See Item 4.C of this Form 20-F.

ITEM
11            
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are not subject to any material market risks.

a)             Transaction
Risk and Currency Risk Management

Our operations do not employ complex financial instruments or
derivatives, and given that we keep our excess funds in high-grade short-term
instruments, we do not have significant or unusual financial market risks. In
the event we experience substantial growth in the future, our business and
results of operations may be materially affected by changes in interest rates on
new debt financings, the granting of credit options to our customers, and
certain other credit risks associated with our operations.

b)             Interest
  Rate Risk and Equity Price Risk

We are equity financed and do not have any debt which could be
subject to significant interest rate change risks. We have raised equity funding
through the sale of securities denominated in Canadian dollars, and will likely
raise additional equity funding denominated in Canadian dollars in the future.

c)             Exchange
  Rate Sensitivity

A significant portion of our administrative operations are in
Canada. We typically hold most of our funds in U.S. dollars and Adira Energy
reports the results of its operations in Canadian dollars. We incur most of our
exploration expenditures in U.S. dollars.

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d)             Commodity
Price Risk

While the value of our exploration properties can always be
said to relate to the price of the commodity and the outlook for same, we do not
have any operating mines or economic ore and therefore do not have any hedging
arrangements.

ITEM
12             DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM
13             DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM
14             MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM
15             CONTROLS
AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(Exchange Act) to mean controls and other procedures of an issuer that
are designed to ensure that information required to be disclosed by the issuer
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SECs rules and forms and includes, without limitation, controls and procedures
designed to ensure that such information is accumulated and communicated to the
issuers management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.

Under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, our management conducted an
evaluation of the effectiveness of our Companys disclosure controls and
procedures as of September 30, 2010. Our Chief Executive Officer and Chief
Financial Officer, after completing this evaluation, concluded that, as of such
date, our disclosure controls and procedures were effective in ensuring that
information required to be disclosed by the Company was recorded, processed,
summarized and reported within the time periods specified in the Exchange Act
Rules and forms.

Managements Annual Report on Internal Control Over
Financial Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. The Exchange Act in Rule
13a-15(f ) and 15d-15(f ) defines this as a process designed by, or under the
supervision of, the companys principal executive and principal financial
officers and effected by the companys board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:

|- | pertain to the maintenance of records that, in reasonable
      detail, accurately and fairly reflect the transactions and dispositions of
      the assets of the company;                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with generally accepted accounting principles, and that
      receipts and expenditures of the company are being made only in accordance
      with authorizations of management and directors of the company; and
|- | provide reasonable assurance
        regarding prevention or timely detection of unauthorized acquisition,
        use or disposition of the companys assets that may have a material
        effect on the financial statements.                                                                                                                                 

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Under the supervision and with the participation of our chief
executive officer and chief financial officer, our management assessed the
effectiveness of the Companys internal control over financial reporting as at
September 30, 2010. In making this assessment, the Companys management used the
criteria, established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
upon this assessment, our management concluded that the Companys internal
control over financial reporting was effective as at September 30, 2010.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness of internal control over financial reporting
to future periods are subject to risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

This Annual Report does not include an attestation report of
the Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to a final rule of the SEC
that permits the Company to provide only managements report in the Annual
Report.

Changes in Internal Control over Financial Reporting

During the period ended September 30, 2010, there were no
changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.

ITEM
16A         AUDIT COMMITTEE
FINANCIAL EXPERTS

The board of directors of the Company has determined that Mr.
Bennie meets the SECs definition of an audit committee financial expert, as
defined in Item 16 of Form 20F. The Board has also determined that Mr. Bennie
meets the definition of an independent director, as defined in Rule 121A of
the American Stock Exchange Company Guide.

ITEM
16B         CODE OF ETHICS

We do not have a written code of ethics. We have drafted a code
of ethics that we anticipate will be applicable to all of our employees and
officers, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. We hope to finalize this draft code of conduct and implement
it in the near future.

ITEM
16C         PRINCIPAL ACCOUNTANT
FEES AND SERVICES

The following table sets forth information regarding the amount
billed to us by our independent auditors, Smythe Ratcliffe LLP, for each as
follows: (i) Smythe Ratcliffe LLP, for our fiscal period ended September 30,
2009 (ii) MSCM LLP for our fiscal year ended September 30, 2009.

Period ended September 302010
      2009Audit Fees:
      $60,000
      $33,000Audit Related Fees:
      $0
      $0Tax Fees:
      $0
      $0All Other Fees:
      $0
      $2,500Total:
      $78,000
      $46,500


- 72 -

---

Audit Fees

Audit Fees are the aggregate fees billed by our independent
auditor for the audit of our consolidated annual financial statements, reviews
of interim financial statements and attestation services that are provided in
connection with statutory and regulatory filings or engagements.

Other Fees

Other fees relate to the review of our quarterly financial
statements by our auditors.

Policy on Pre-Approval by Audit Committee of Services
Performed by Independent Auditors

The policy of our Audit Committee is to pre-approve all audit
and permissible non-audit services to be performed by our independent auditors
during the fiscal year.

ITEM
16D         EXEMPTIONS FROM THE
LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM
16E         PURCHASE OF EQUITY
SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None

ITEM
16F         CHANGES TO REGISTRANTS
CERTIFYING ACCOUNTANT

On August 23, 2010, we dismissed Smythe Ratcliffe LLP. As our
independent auditors and appointed MSCM LLP as our independent auditors. The
change in auditors was approved by our Audit Committee and Board of Directors.
Smythe Ratcliffe LLP's reports on our financial statements for our past two
fiscal years did not contain an adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles, except to indicate doubt as to the Company's ability to continue as
a going concern. During our past two fiscal years and until the dismissal of
Smythe Ratcliffe LLP, there were no disagreements between our company and Smythe
Ratcliffe LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.

ITEM
16G         CORPORATE GOVERNANCE

Not applicable.

PART III

ITEM
17             FINANCIAL
STATEMENTS

The following attached financial statements are incorporated
herein:

|1. | Consolidated Financial Statements of the Company for the
      period ended September 30, 2010, comprised of the
  following:
|-- | -----------------------------------------------------------------------------------------------------------------------------

|(A) | Consolidated
        balance sheet as at September 30, 2010                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                           
|(B) | Consolidated
        statement of operations, comprehensive loss and deficit for the year ended
        September 30, 2010
|    |                                                                                                                           
|(C) | Consolidated
        statement of cash flows for the year ended September 30, 2010                                        
|    |                                                                                                                           
|(D) | Notes
        to consolidated financial statements                                                                        

- 73 -

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Consolidated Financial Statements
  For the Year Ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)



|Index                                                                       | Page  
|--------------------------------------------------------------------------- | ------
|                                                                            |       
|Managements Responsibility
      for Financial Reporting                   | 1     
|                                                                            |       
|Independent Auditors
      Report to the Shareholders                      | 2     
|                                                                            |       
|Consolidated Financial
      Statements                                     |       
|                                                                            |       
|Consolidated Balance
      Sheets                                           | 3     
|                                                                            |       
|Consolidated Statements
      of Operations, Comprehensive Loss and Deficit | 4     
|                                                                            |       
|Consolidated Statements
      of Cash Flows                                 | 5     
|                                                                            |       
|Notes to Consolidated Financial Statements                                  | 6 - 25

---

MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying consolidated financial statements of Adira Energy
  Ltd. (An Exploration Stage Enterprise) have been prepared by management in accordance
  with Canadian generally accepted accounting principles and reflect managements
  best estimates and judgment based on information currently available. The financial
  information contained elsewhere in this information circular has been reviewed
  to ensure consistency with the consolidated financial statements.

Management maintains systems of internal control designed to
  provide reasonable assurance that the Companys assets are safeguarded.
  All transactions are authorized and duly recorded and financial records are
  properly maintained to facilitate financial statements in a timely manner. The
  Board of Directors is responsible for ensuring that management fulfills its
  responsibilities for financial reporting and is ultimately responsible for reviewing
  and approving the financial statements. The Board carries out this responsibility
  principally through its Audit Committee.

The Audit Committee of the Board of Directors has reviewed the
  consolidated financial statements with management and the external auditors.
  The consolidated financial statements for the years ended September 30, 2010
  and 2009 have been audited by MSCM LLP on behalf of the shareholders. They have
  audited the consolidated financial statements in accordance with Canadian generally
  accepted auditing standards to enable them to express to the shareholders their
  opinion on the consolidated financial statements for the years ended September
  30, 2010 and 2009.

|Ilan Diamond          | Gadi Levin           
|----------------------- | -----------------------
|Chief Executive Officer | Chief Financial Officer
|                        |                        
|                        |                        
|Toronto, Ontario        |                        
|January 28, 2011        |                        

1

---

Auditors' Report

To the Shareholders of 
  Adira Energy Ltd. (Formerly AMG OIL LTD.)
  (An Exploration Stage Enterprise)

We have audited the consolidated balance sheet of Adira Energy
  Ltd. (formerly AMG OIL LTD.) (An Exploration Stage Enterprise) as at September
  30, 2010 and the consolidated statements of operations and comprehensive loss
  and deficit, and cash flows for the year then ended. These financial statements
  are the responsibility of the Company's management. Our responsibility is to
  express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally
  accepted auditing standards. Those standards require that we plan and perform
  an audit to obtain reasonable assurance whether the financial statements are
  free of material misstatement. An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements.
  An audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial statement
  presentation.

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of the Company as at
  September 30, 2010 and the results of its operations and its cash flows for
  the year then ended in accordance with Canadian generally accepted accounting
  principles.

The consolidated financial statements as at September 30, 2009
  and for the 175-day period ended September 30, 2009 were audited by other auditors
  who expressed an opinion without reservation on those statements in their report
  dated November 13, 2009.

Signed:

Chartered AccountantsLicensed Public Accountants

Toronto, Ontario 
  January 28, 2011

2

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Consolidated Balance Sheets
  As of September 30, 2010 and 2009 
  (Expressed in United States Dollars)

|                                                        |   | September  |   |   | September  |  
|------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                        |   | 30, 2010   |   |   | 30, 2009   |  
|Assets                                                  |  
|Current Assets                                          |   |            |   |   |            |  
|Cash and cash equivalents                               | $ | 357,560    |   | $ | 2,354,628  |  
|Accounts receivable                                     |   | 553,225    |   |   | 9,437      |  
|Prepaid expenses and consumables                        |   | 459,126    |   |   | 12,978     |  
|Total Current Assets                                    |   | 1,369,911  |   |   | 2,377,043  |  
|                                                        |   |            |   |   |            |  
|                                                        |   |            |   |   |            |  
|Equipment deposit (note
      6)                        |   | -          |   |   | 372,600    |  
|Property, plant and equipment (note 6)                  |   | 397,631    |   |   | -          |  
|Oil and gas licenses (note
      7)                     |   | 19,356     |   |   | 6,662      |  
|                                                        |   |            |   |   |            |  
|Total Assets                                            | $ | 1,786,898  |   | $ | 2,756,305  |  
|                                                        |   |            |   |   |            |  
|Liabilities and Shareholders
      Equity              |  
|Current Liabilities                                     |   |            |   |   |            |  
|Accounts payable and accrued
      liabilities (note 7) | $ | 568,912    |   | $ | 126,977    |  
|Total Current and Long-Term Liabilities                 |   | 568,912    |   |   | 126,977    |  
|                                                        |   |            |   |   |            |  
|                                                        |   |            |   |   |            |  
|                                                        |   |            |   |   |            |  
|Shareholders Equity                                    |   |            |   |   |            |  
|Share Capital (note 9)                                  |   | 3,478,894  |   |   | 3,478,894  |  
|Contributed Surplus (note 9(e))                         |   | 1,140,812  |   |   | 519,061    |  
|Deficit                                                 |   | (3,401,720 | ) |   | (1,368,627 | )
|Total Shareholders Equity                              |   | 1,217,986  |   |   | 2,629,328  |  
|Total Liabilities and Shareholders
      Equity        | $ | 1,786,898  |   | $ | 2,756,305  |  
|                                                        |   |            |   |   |            |  
|Going concern (note 1)                                  |   |            |   |   |            |  
|Commitments and contingencies (note 11)                 |   |            |   |   |            |  
|Subsequent events (note 13)                             |   |            |   |   |            |  

Approved on Behalf of the Board

Alan Friedman
      (signed)
      DirectorIlan Diamond
      (signed)
      Director


The accompanying notes are an integral part of these consolidated
  financial statements.

3

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Consolidated Statements of Operations, Comprehensive Loss and
  Deficit
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|                                                                                     |   |               |   |   | **175-day**  |  
|------------------------------------------------------------------------------------ | - | ------------- | - | - | ------------ | -
|                                                                                     |   | Year ended    |   |   | period ended |  
|                                                                                     |   | September 30, |   |   | September    |  
|                                                                                     |   | 2010          |   |   | 30, 2009     |  
|Revenue                                                                              |   |               |   |   |              |  
|Consulting fees and management
      fees                                            | $ | 912,597       |   | $ | -            |  
|Expenses                                                                             |   |               |   |   |              |  
|Share-based compensation (note
      9(c))                                           |   | 621,751       |   |   | 418,907      |  
|Exploration expenses
      (note 7)                                                  |   | 962,727       |   |   | 102,664      |  
|Operating expenses (note 8)                                                          |   | 1,346,648     |   |   | 861,764      |  
|Foreign exchange
      loss (gain)                                                   |   | 7,520         |   |   | (14,708      | )
|Amortization                                                                         |   | 1,222         |   |   | -            |  
|Total expenses                                                                       |   | 2,939,868     |   |   | 1,368,627    |  
|Loss before other items                                                              |   | (2,027,271    | ) |   | (1,368,627   | )
|Interest income                                                                      |   | 398           |   |   | -            |  
|Income taxes                                                                         |   | (6,220        | ) |   | -            |  
|Net loss and comprehensive loss for the
      period                                 |   | (2,033,093    | ) |   | (1,368,627   | )
|Deficit, beginning of period                                                         |   | (1,368,627    | ) |   | -            |  
|Deficit, end of period                                                               | $ | (3,401,720    | ) | $ | (1,368,627   | )
|                                                                                     |   |               |   |   |              |  
|Basic and diluted loss per share                                                     | $ | (0.05         | ) | $ | (0.05        | )
|                                                                                     |   |               |   |   |              |  
|Weighted average number of common shares outstanding,
      
      basic and diluted |   | 62,640,001    |   |   | 26,415,343   |  

The accompanying notes are an integral part of these consolidated
  financial statements

4

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Consolidated Statements of Cash Flows
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|                                                                                           |   |            |   |   | **175-day**         |  
|------------------------------------------------------------------------------------------ | - | ---------- | - | - | ------------------- | -
|                                                                                           |   | Year ended |   |   | **period****ended** |  
|                                                                                           |   | September  |   |   | September           |  
|                                                                                           |   | 30, 2010   |   |   | 30, 2009            |  
|Operating Activities                                                                       |   |            |   |   |                     |  
|Net loss for the period                                                                    | $ | (2,033,093 | ) | $ | (1,368,627          | )
|Non-cash items                                                                             |   |            |   |   |                     |  
|Shares issued for consulting fees                                                          |   | -          |   |   | 485,929             |  
|Share-based compensation                                                                   |   | 621,751    |   |   | 418,907             |  
|Amortization                                                                               |   | 1,222      |   |   |                     |  
|                                                                                           |   | (1,410,120 | ) |   | (463,791            | )
|Changes in non-cash working capital                                                        |   |            |   |   |                     |  
|Accounts receivable                                                                        |   | (543,788   | ) |   | (9,437              | )
|Prepaid expenses and consumables                                                           |   | (446,148   | ) |   | (12,978             | )
|Accounts payable and accrued liabilities                                                   |   | 441,935    |   |   | 126,977             |  
|Cash used for operating activities                                                         |   | (1,958,121 | ) |   | (359,229            | )
|                                                                                           |   |            |   |   |                     |  
|Investing Activities                                                                       |   |            |   |   |                     |  
|Equipment deposit                                                                          |   | -          |   |   | (372,600            | )
|Property, plant and equipment, net                                                         |   | (26,253    | ) |   | -                   |  
|Oil and gas licenses                                                                       |   | (12,694    | ) |   | (6,662              | )
|Cash used for investing activities                                                         |   | (38,947    | ) |   | (379,262            | )
|                                                                                           |   |            |   |   |                     |  
|Financing Activities                                                                       |   |            |   |   |                     |  
|Net proceeds from the issuance
      of common shares                                      |   | -          |   |   | 2,195,771           |  
|                                                                                           |   |            |   |   |                     |  
|Cash acquired through the acquisition of
      AMG Oil Ltd.                                |   | -          |   |   | 897,348             |  
|                                                                                           |   |            |   |   |                     |  
|(Decrease) increase in cash and cash equivalents                                           |   | (1,997,068 | ) |   | 2,354,628           |  
|Cash and cash equivalents, beginning of period                                             |   | 2,354,628  |   |   | -                   |  
|Cash and cash equivalents, end of period                                                   | $ | 357,560    |   | $ | 2,354,628           |  
|                                                                                           |   |            |   |   |                     |  
|Supplemental cash flow information                                                         |   |            |   |   |                     |  
|Interest paid                                                                              | $ | -          |   | $ | -                   |  
|Income taxes paid                                                                          | $ | -          |   | $ | -                   |  
|Shares issued as finders fees related to
      the reverse takeover 
         transaction | $ | -          |   | $ | 60,000              |  
|Warrants issued to agents as compensation
      for services provided                      | $ | -          |   | $ | 100,154             |  

The accompanying notes are an integral part of these consolidated
  financial statements

5

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|1. | Nature of Operations, Basis of Presentation and Going
        Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Adira Energy Ltd. was incorporated on February 20, 1997
        under the name Trans New Zealand Oil Company in the State of Nevada, United
        States of America. It changed its name to AMG Oil Ltd. (AMG
        or the Company) on July 27, 1998. On November 25, 2008, the
        Company's shareholders approved the change of its jurisdiction of incorporation
        from the State of Nevada to the Canadian federal jurisdiction. On August
        31, 2009, AMG completed a share exchange with Adira Energy Corp. (Adira),
        an oil and gas exploration and development company incorporated under
        the Ontario Business Corporations Act, on April 8, 2009 which resulted
        in a reverse takeover by Adira of AMG (note 2). On December 24, 2009 the
        corporate name of the Company has been changed to become Adira Energy
        Ltd.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | These consolidated financial statements have been prepared
        on a going concern basis, which assumes the realization of assets and
        liquidation of liabilities in the normal course of business. As of September
        30, 2010, the Company has incurred losses of $3,401,720 since inception.
        The ability of the Company to continue as a going concern depends upon
        the discovery of economically recoverable reserves, the ability of the
        Company to obtain financing to complete development, and upon future profitable
        operations from the properties or proceeds from their disposition. The
        Company is an exploration early-stage enterprise and has not earned significant
        revenues to date.                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | Share Exchange Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | On April 29, 2009, AMG entered into a letter of intent
        to purchase all of the issued and outstanding shares of Adira in exchange
        for shares of AMG. As part of the arrangement, Adira conducted a share
        split to increase Adiras number of issued and outstanding common
        shares from 22,500,000 to 31,200,000. The share exchange ratio was one
        common share of AMG for each issued and outstanding common share of Adira.
        The proposed transaction was further subject to Adira completing a private
        placement of a minimum of $2,000,000 by issuance of 8,000,000 units.                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Pursuant to the share exchange agreement dated August
        31, 2009, AMG acquired all of the issued and outstanding common shares
        of Adira by issuing 39,040,001 common shares of the Company to Adiras
        shareholders on a one for one basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | As a result, the original shareholders of AMG own 37%
        of the shares of the resulting Company and the former shareholders of
        Adira own 63% of the resulting Company as follows (note 9(b)):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Issued and outstanding number of shares after share exchange
      
      PercentageAMG
      23,200,000
      37%Adira
      39,040,001
      63%Total outstanding shares
      62,240,001
      100%


As the shareholders of Adira obtained
  control of the resulting Company, the share exchange was considered to be a
  reverse takeover (RTO) transaction. Accordingly, for accounting
  purposes Adira is the acquirer. The assets and liabilities of Adira are included
  at carrying value and the assets and liabilities of AMG are included at fair
  value.

Share capital represents the authorized
  and issued number of shares of AMG (the legal parent) and the share capital
  amount, contributed surplus and deficit of Adira (the legal subsidiary), the
  ongoing operating company (note 9).

6

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|3. | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Management has prepared the accompanying consolidated
        financial statements in United States dollars and in accordance with Canadian
        generally accepted accounting principles (GAAP). Canadian
        GAAP differs in certain respects from accounting principles generally
        accepted in the United States, as described in note 14. The significant
        accounting policies used in the presentation of the consolidated financial
        statements are as follows:                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements include the
        accounts of Adira Energy Ltd., the accounts of its wholly-owned Canadian
        subsidiary, Adira Energy Holding Ltd. and the accounts of its wholly and
        partially-owned Israeli subsidiaries, Adira Energy Israel Ltd. (100%)
        ("Adira Israel"), Adira Energy Israel Services Ltd. (100%), Adira Oil
        Technologies Ltd. (100%) and Adira Geo Global Ltd. (60%), (together the
        Company). The other 40% of Adira Geo Global Ltd is held by Geoglobal
        Resourses (Barbados) Inc., an unrelated party. Adira Oil Technologies
        Ltd. and Adira Geo Global Ltd. were incorporated under the laws of Israel
        in May 2010.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Joint Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Substantially all of the Company's exploration and development
        activities are conducted jointly with others and, accordingly, the consolidated
        financial statements reflect only the Company's proportionate interest
        in such activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Companys functional and reporting currency
        is the United States (US) dollar. The Company's foreign operations
        are considered financially and operationally integrated. All transactions
        in currencies other than the US dollar are translated as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | o | Monetary assets and liabilities
        are translated at the rate of exchange in effect as of the balance sheet
        date;                                         
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                        
| | o | Non-monetary assets and liabilities,
        at the exchange rates prevailing on the date of the acquisition of the
        asset or assumption of the liabilities; and
| |   |                                                                                                                                                                        
| | o | Revenues and expenses, at the
        rate in effect on the date of the transaction.                                                                                   

Gains or losses resulting from the translation
  are included in the determination of net income or loss for the period.

Measurements Uncertainty

The preparation of financial statements
  in conformity with Canadian GAAP requires management to make estimates and assumptions
  that affect the reported amounts of assets and liabilities and disclosure of
  contingencies at the date of the consolidated financial statements and the reported
  amounts of revenues and expenses during the reporting period. Significant areas
  requiring the use of management estimates relate to accrued liabilities, useful
  lives of property, plant and equipment, the determination of variables used
  in the calculation of share-based compensation, warrants issued to agents, and
  determination of the valuation allowance for future income tax assets. While
  management believes the estimates are reasonable, actual results could differ
  from those estimates and could impact future results of operations and cash
  flows.

Cash and Cash Equivalents

Cash and cash equivalents include cash
  balances held with reputable financial institutions and highly liquid investments
  with an initial maturity of three months or less. The Company places its temporary
  cash and cash equivalents with high credit quality financial institutions.

7

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|3. | Significant Accounting Policies(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Earnings (loss) per Common Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Basic earnings (loss) per common share are calculated
        using the weighted average number of common shares outstanding during
        the period. The Company uses the treasury stock method to compute the
        dilutive effect of options, warrants and similar instruments. Under this
        method the dilutive effect on earnings (loss) per share is calculated
        presuming the exercise of outstanding options, warrants and similar instruments.
        It assumes that the proceeds of such exercise would be used to repurchase
        common shares at the average market price during the period. However,
        the calculation of diluted earnings (loss) per share excludes the effects
        of various conversions and exercise of options and warrants that would
        be anti-dilutive.                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | All financial instruments are classified as one of the
        following: held-to-maturity, loans and receivables, held-for-trading,
        available-for-sale or other financial liabilities. Financial assets and
        liabilities held-for- trading are measured at fair value with gains and
        losses recognized in net income (loss). Financial assets held-to-maturity,
        loans and receivables, and other financial liabilities are measured at
        amortized cost using the effective interest method. Available-for-sale
        instruments are measured at fair value with unrealized gains and losses
        recognized in other comprehensive income (loss) and reported in shareholders
        equity. Any financial instrument may be designated as held-for-trading
        upon initial recognition.                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Transaction costs that are directly attributable to
        the acquisition or issue of financial instruments that are classified
        as other than held-for-trading, which are expensed as incurred, are included
        in the initial carrying value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Comprehensive income or loss is defined as the change
        in equity from transactions and other events from sources other than the
        Companys shareholders. Other comprehensive income or loss refers
        to items recognized in comprehensive income or loss that are excluded
        from operations calculated in accordance with GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company has no items of other comprehensive income
        in the period presented. Therefore, net loss as presented in the Companys
        consolidated statement of operations equals comprehensive loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Share-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company accounts for share-based compensation using
        a fair value based method with respect to all stock-based payments measured
        and recognized, to directors, employees and non-employees. For payments
        of services through the issuance of shares, the fair value is the market
        price of the shares issued by the Company or the value of the services
        received, depending on which is the more reliable measure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | For directors and employees, the fair value of the options
        is measured at the date of grant. For non- employees, the fair value of
        the options or warrants are measured on the earlier of the date at which
        the counterparty performance is completed or the date the performance
        commitment is reached or the date at which the equity instruments are
        granted if they are fully vested and non-forfeitable. The fair value of
        the options or warrants are accrued and charged either to operations,
        oil and gas interests, or share issue costs with the offset credit to
        contributed surplus. For directors and employees the options are recognized
        over the vesting period, and for non-employees the options are recognized
        over the related service period. If and when the stock options are ultimately
        exercised, the applicable amounts of contributed surplus are transferred
        to share capital.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Management, operator and consulting fees, are recognized
        as revenues on a monthly basis when the services are rendered and collectability
        is reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

8

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|3. | Significant Accounting Policies(continued)                                                                                                                                                                                                                                                                                                                                    
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                               
|   | Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                               
|   | Property, plant and equipment include a drilling rig
        and related equipment and computer hardware, software and accessories,
        and are recorded at cost less accumulated amortization. Amortization is
        calculated using the methods set out below, at annual rates from the date
        of acquisition based on their estimated useful lives as follows:

Asset Class
      Annual Rate
      MethodDrilling rig
      10%
      Straight-lineComputer equipment
      33%
      Straight-line


Impairment of Long-Lived Assets

Long-lived assets to be held and used
  by the Company, other than petroleum and natural gas properties, are reviewed
  for possible impairment whenever planned principal operations or changes in
  circumstances indicate that the carrying amount of the assets may not be recoverable.
  An impairment is considered to exist if total estimated future cash flows on
  an undiscounted basis are less than the carrying amount of the asset. An impairment
  loss is measured and recorded based on the estimated fair value of the assets.
  Assumptions underlying future cash flow estimates are subject to risks and uncertainties.
  Any differences between significant assumptions used and actual market conditions
  and/or the Companys performance could have a material effect on the Companys
  financial position and results of operations.

Income Taxes

The Company follows the asset and liability
  method of accounting for income taxes. Under this method of tax allocation,
  future income tax assets and liabilities are determined based on differences
  between the financial statement carrying values and their respective income
  tax basis (temporary differences). Future income tax assets and liabilities
  are measured using the tax rates expected to be in effect when the temporary
  differences are likely to reverse. The effect on future income tax assets and
  liabilities of a change in tax rates is included in operations in the period
  in which the change is enacted or substantially enacted. The amount of future
  income tax assets recognized is limited to the amount of the benefit that is
  more likely than not to be realized.

Asset Retirement Obligations (ARO)

The Company recognizes an estimate of
  the liability associated with an ARO in the consolidated financial statements
  at the time the liability is incurred. The estimated fair value of the ARO is
  recorded as a long-term liability, with a corresponding increase in the carrying
  amount of the related asset. The capitalized amount will be depleted on a straight-line
  basis over the estimated life of the asset. The liability amount is increased
  each reporting period due to the passage of time and the amount of accretion
  is charged to earnings in the period. The ARO can also increase or decrease
  due to changes in the estimates of timing of cash flows or changes in the original
  estimated undiscounted cost. Actual costs incurred upon settlement of the ARO
  are charged against the ARO to the extent of the liability recorded. As of September
  30, 2010, the Company has determined that it has no material AROs to record
  in the consolidated financial statements.

9

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|3. | Significant Accounting Policies(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Oil and Gas Properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company follows the successful efforts method of
        accounting for its exploration activities. Under the successful efforts
        method, acquisition costs of proved and unproved properties are capitalized.
        Costs of unproved properties are transferred to proved properties when
        proved reserves are confirmed. Exploration costs, including geological
        and geophysical costs, are expensed as incurred. Exploratory drilling
        costs are initially capitalized. If it is determined that a specific well
        does not contain proved reserves, the related capitalized exploratory
        drilling costs are charged to expense. To date all exploration costs have
        been charged to operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Development costs, which include the costs of wellhead
        equipment, development drilling costs and handling facilities, applicable
        geological and geophysical costs, and the costs of acquiring or constructing
        support facilities and equipment, are capitalized. Costs incurred to operate
        and maintain wells and equipment and to lift oil and gas to the surface
        will be expensed as operating costs. If and when the Company achieves
        production, acquisition costs of proved properties will be depleted using
        the unit-of-production method based on proved reserves. Capitalized exploratory
        drilling costs and development costs will be depleted on the basis of
        proved developed reserves by area. Support facilities and equipment will
        be depreciated on a straight-line basis over their useful lives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Property costs by area are reviewed for impairment at
        least annually to consider whether there are conditions that may indicate
        impairment. The carrying value of each property is compared to its net
        recoverable amount as estimated by quantifiable evidence of the market
        value of similar land or geological resources. If the carrying value is
        found to exceed the estimated net recoverable amount, a write down will
        be recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Proceeds received on the issuance of units, consisting
        of common shares and warrants, are allocated first to common shares based
        on the market trading price of the common shares at the time the units
        are priced or issued, and any excess is allocated to warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In January 2009, the CICA issued the new handbook Section
        1582, "Business Combinations," effective for fiscal years beginning on
        or after January 1, 2011. Earlier adoption of Section 1582 is permitted.
        This pronouncement further aligns Canadian GAAP with IFRS and changes
        the accounting for business combinations in a number of areas. It establishes
        principles and requirements governing how an acquiring company recognizes
        and measures, in its financial statements, identifiable assets acquired,
        liabilities assumed, any non-controlling interest in the acquiree, and
        goodwill acquired. The section also establishes disclosure requirements
        that will enable users of the acquiring company's financial statements
        to evaluate the nature and financial effects of its business combinations.
        Although the Company is considering the impact of adopting this pronouncement
        on its consolidated financial statements in connection with its conversion
        to IFRS, the impact will be limited to any future acquisitions beginning
        in fiscal 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In January 2009, the CICA issued the new Handbook Section
        1601, "Consolidated Financial Statements," and Section 1602, "Non-Controlling
        Interests," effective for fiscal years beginning on or after January 1,
        2011. Earlier adoption of these recommendations is permitted. These pronouncements
        further align Canadian GAAP with US GAAP and IFRS. Sections 1601 and 1602
        change the accounting and reporting of ownership interests in subsidiaries
        held by parties other than the parent. Non-controlling interests are to
        be presented in the consolidated statements of financial position within
        equity but separate from the parents equity. The amount of consolidated
        net income attributable to the parent and to the non-controlling interest
        is to be clearly identified and presented on the face of the consolidated
        statement of income. In addition, these pronouncements establish standards
        for a change in a parents ownership interest in a subsidiary and
        the valuation of retained non-controlling equity investments when a subsidiary
        is deconsolidated. They also establish reporting requirements for providing
        sufficient disclosures that clearly identify and distinguish between the
        interests of the parent and the interests of the non-controlling owners.
        The Company is currently considering the impact of adopting these pronouncements
        on its consolidated financial statements in fiscal 2011 in connection
        with its conversion to IFRS.

10

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|3. | Significant Accounting Policies(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Recent accounting pronouncements(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Canadian Accounting Standards Board has confirmed
        that publicly accountable, profit oriented enterprises will be required
        to adopt IFRS for fiscal years beginning on or after January 1, 2011.
        The Company will be required to begin reporting under IFRS for its first
        quarter ending December 31, 2011 with restatement of comparative information
        presented. The conversion to IFRS will impact the Companys accounting
        policies, information technology systems, taxes, contractual commitments
        involving GAAP based clauses, long-term employee compensation plans and
        performance metrics. Accordingly the Company is in the process of putting
        measures into place to provide training to key finance personnel, to review
        contracts and agreements and to increase the level of awareness and knowledge
        amongst management, the Board of Directors and the Audit Committee. Additional
        resources will be engaged to ensure the timely conversion to IFRS. As
        of September 30, 2010, the Company has completed an IFRS diagnostic, is
        in the process of finalizing the elections under IFRS 1 First Time
        Adoption to IFRS, is in the process of determining accounting policies
        choices and procedures, IT and data systems, internal control over financial
        reporting, and training of its employees impacted in the IFRS conversion.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4. | Financial Instruments and Risk Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Companys financial instruments have been designated
        as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Cash and cash equivalents
      - Held-for-trading;Accounts receivable
      - Loans and receivables;Accounts payable and accrued liabilities
      - Other financial liabilities.


The carrying values of cash and cash
  equivalents, accounts receivable and accounts payable and accrued liabilities
  approximate their fair values due to the short-term maturity of these consolidated
  financial instruments.

Fair value

The Companys financial instruments
  consist of cash and cash equivalents, accounts receivable and accounts payable
  and accrued liabilities. The fair values of these financial instruments approximate
  their carrying value due to their short-term to maturity. The Company categorizes
  its financial instruments carried at fair value into one of three different
  levels depending on the observability of the inputs employed in the measurement.

| | Level 1: | includes assets and liabilities
        measured at fair value based on unadjusted quoted prices for identical
        assets or liabilities in active markets that are accessible at the measurement
        date. An active market for an asset or liability is considered to be market
        where transactions occur with sufficient frequency and volume to provide
        pricing information on an ongoing basis. As of September 30, 2010, the
        Company valued its cash and cash equivalents using Level 1 inputs.
| | -------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Level 2: | includes assets and liabilities
        measured at fair value using directly observable inputs other than quoted
        prices included in Level 1. Level 2 valuations are based on inputs including
        quoted forward prices, time value, volatility factors and broker quotes
        that can be observed or corroborated in the market for the entire duration
        of the derivative instrument. As of September 30, 2010, the Company did
        not have any assets or liabilities which it valued using Level 2. 
| |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Level 3: | includes all assets and liabilities
        measured at fair value based on inputs which are less observable, unavailable
        or where the observable data does not support a significant portion of
        the instruments fair value. As of September 30, 2010, the Company
        did not have any assets or liabilities which it valued using Level 3.                                                                                                                                                                   

The following table includes all the
  fair value measurements recognized in the balance sheet as of September 30,
  2010.

11

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|4. | Financial Instruments and Risk Management (continued)
      Fair value(continued)
|-- | ---------------------------------------------------------------------------------

Level 1
      
      
      Level 2
      
      
      Level 3
      
      
      TotalCash and cash equivalents
      $
      357,560
      
      $
      -
      
      $
      -
      
      $
      357,560Total
      $
      357,560
      
      $
      -
      
      $
      -
      
      $
      357,560


Credit risk

The Company manages credit risk, in respect
  of cash and cash equivalents, by holding them at major Canadian and Israeli
  financial institutions in accordance with the Companys investment policy.
  The Company places its temporary cash and cash equivalents with high credit
  quality financial institutions. As times such investments may be in excess of
  the Federal Deposit Insurance Corporation insurance limit. Concentration of
  credit risk exists with respect to the Companys cash and cash equivalents
  and accounts receivable. The Companys exposure is for cash held in bank
  accounts in the amount of $357,560 and on accounts receivable $553,225. None
  of the Companys accounts receivable are overdue as at September 30, 2010.

Liquidity risk

Liquidity risk is the risk that the Company
  will encounter difficulty in obtaining funds to meet current obligations and
  future commitments. The Company's approach to managing liquidity risk is to
  forecast cash requirements to provide reasonable assurance that it will have
  sufficient funds to meet its liabilities when due. The Company maintains sufficient
  working capital in order to meet short-term business requirements. As of September
  30, 2010, the Company had cash and cash equivalents of $357,560, and account
  receivable of $553,225 against current accounts payable and accrued liabilities
  in the amount of $568,912.

Market risk

Market risk is the risk that the fair
  value or future cash flows of a financial instrument will fluctuate because
  of changes in market prices. Market risk is comprised of three types of risk:
  interest rate risk, foreign currency risk and other price risk.

| | (i)   | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       | The Company is not exposed to significant interest rate
        risk due to the short-term maturity of its cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (ii)  | Foreign currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       | The Company is exposed to financial risk related to
        the fluctuation of foreign exchange rates. The Company operates in Israel.
        Most of the Companys monetary assets are held in US dollars and
        most of the Companys expenditures are made in US dollars. However,
        the Company also has expenditures in New Israeli Shekels ("NIS") and Canadian
        dollars. A significant change in the currency rates between the NIS and
        the Canadian dollars relative to the US dollar could have a material effect
        on the Companys future results of operations, financial position
        or cash flows depending on the Companys currency management techniques.
        The Company has not hedged its exposure to currency fluctuations. An increase
        or decrease of 10% on the Canadian dollar or the Israeli Shekels relative
        to the US dollar would not have a significant effect on the Company. This
        year the Company has recorded an exchange rate loss of $7,520 (September
        30, 2009 - a gain of $14,708).
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (iii) | Other price risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       | Other price risk is the risk that the fair or future
        cash flows of a financial instrument will fluctuate because of changes
        in market prices, other than those arising from interest rate risk or
        foreign exchange risk. The Company is not exposed to significant other
        price risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

12

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|5. | Capital Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company is an early-stage exploration company and
        currently does not generate significant cash flows from operations. The
        Companys primary source of funds comes from the issuance of share
        capital. The Company does not use other sources of financing that require
        fixed payments of interest and principal and is not subject to any externally
        imposed capital requirements.                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company defines its capital as share capital. To
        effectively manage the Companys capital requirements, the Company
        has a planning and budgeting process in place to ensure that adequate
        funds are available to meet its strategic goals. The Company monitors
        actual expenses to budget to manage its costs and commitments.                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Companys capital management objective is to
        maximize investment returns to its equity-linked stakeholders within the
        context of relevant opportunities and risks associated with the Companys
        operating segment. Achieving this objective requires management to consider
        the underlying nature of exploration activities, availability of capital,
        the cost of various capital alternatives and other factors. Establishing
        and adjusting capital requirements is a continuous management process.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Although the Company has been successful at raising
        funds in the past through the issuance of share capital, it is uncertain
        whether it will continue this financing due to uncertain economic conditions.
        The Company has sufficient funds to meet its exploration program, administrative
        overhead and working capital needs for the coming year.                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|6. | Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | As of September 30, 2010:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                             |   |         |  |   | Accumulated  |  |   | Net book | 
| | --------------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| |                             |   | Cost    |  |   | amortization |  |   | value    | 
| |                             |   |         |  |   |              |  |   |          | 
| | Drilling equipment (*)      | $ | 388,635 |  | $ | -            |  | $ | 388,635  | 
| | Computer equipment          |   | 10,218  |  |   | 1,222        |  |   | 8,996    | 
| | Balance, September 30, 2010 | $ | 398,853 |  | $ | 1,222        |  | $ | $397,631 | 

|   | As of September 30, 2009, the Company paid a deposit
        for the drilling equipment in the amount of $372,600.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (*) The drilling rig has not been depreciated as it
        was not in use during the year ended September 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|7. | Oil and Gas Licenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company has been granted the following petroleum
        licenses from the state of Israel:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (a) Eitan and Notera                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Companys onshore license (the Eitan
        License) comprises an area of approximately 31,060 acres in the
        Hula Valley in Northern Israel. The Eitan License was awarded in December
        2008 for a term of three years, expiring in December 2011, and may be
        renewed upon fulfillment of certain conditions for a further four year
        period. The Eitan License was awarded prior to the incorporation of the
        Company. The license was awarded to a company controlled by certain Directors
        of the Company and subsequent to the incorporation of Adira Israel, was
        transferred to the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company has a 100% working interest in the license.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | The Company has provided the Israel Lands Authorities
        with a guarantee in the amount of $13,772 to cover future restoration
        costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

13

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|7. | Oil and Gas Licenses(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | During April 2010 a letter of intent has been
        signed with Coalbed Gas Hachula Ltd., an Israel-based Coal bed Methane
        Development company or CGH, pursuant to which the Company has a right
        to farm in to 70% of the Notera License which is approximately 19,000
        acres and contiguous and directly to the south of the Eitan License.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Companys offshore Gabriella license
        (the Gabriella License) comprises an area of approximately
        97,000 acres. The Gabriella License was awarded to the Company in July
        2009 for a term of three years, expiring July 2012 and may be renewed
        upon fulfillment of certain conditions for a further four years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In January, 2010 Adira Israel signed an agreement
        with Modiin Energy Limited Partnership (MELP) and Modiin Energy
        General Partners (MEGP) (collectively Modiin)
        to facilitate the full initial funding of the Gabriella License. Under
        the terms of the agreement, MELP can farm in up to 70% (of 100%) of certain
        rights of participation in the Gabriella License (the Gabriella
        Project). MEGP has agreed to fund its 70% share as well as the Companys
        15% share of the work program up to a total of $8 million. As part of
        the agreement, the general partner of MELP had the right to purchase by
        way of a private placement, 600,000 Subscription Receipts at a price of
        $0.50 per Subscription Receipt, which would be exchanged automatically
        without any further consideration for 600,000 common shares in the capital
        of the Company (Common Shares) on the date upon which the
        Common Shares were listed for trading on a recognized stock exchange in
        Canada. The funds received, which were held in escrow subject to certain
        conditions and certain approvals being obtained. These conditions were
        not met and the funds were returned to Modiin.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company has an option to purchase 15%
        of the Gabriella License (or 21.43% of MELPs 70% interest) anytime
        until six months after a discovery or within seven years. The exercise
        price for this option is the actual cost incurred on that 15% through
        to the exercise date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | On June 17, 2010 the Gabriella Project received
        $2,000,000 from MELP, representing 85% of the total initial capital call
        of $2,352,941 (the initial capital call) in respect of the
        work program, being $1,647,059 on MELPs behalf and $352,941 on behalf
        of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In January 2010, Brownstone Ventures Inc.
        (Brownstone) exercised its option to farm into 15% of the
        Gabriella License and in August 2010, the Gabriella Project received $352,941
        from Brownstone, representing its 15% share of the initial capital call.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company currently has a 15% carried interest
        in the Gabriella Project; is the operator of the Gabriella License and
        is entitled to receive a 7.5% operating fee on all expenditure on the
        Gabriella Project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Companys offshore Yitzhak license
        (the "Yitzhak License") comprises an area of approximately 31,555 acres.
        The Yitzhak License is effective until October 2012 and may be renewed
        upon fulfillment of certain conditions for a further four year period.
        The Yitzhak License is directly to the north of and contiguous to the
        Company's Gabriella License.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In January 2010, Brownstone exercised its
        option to farm into 15% of the Yitzhak License.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | For the year ended September 30, 2010, the
        Companys share of the Yitzhak License net liabilities and expenses
        are both $27,207, and are included in accounts payable and accrued liabilities
        in the consolidated balance sheet, and exploration expenses in the consolidated
        statements of operations, comprehensive loss and deficit, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company is the operator of this license
        and is entitled to receive a 7.5% operating fee on all expenditure on
        this license.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

14

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|7. | Oil and Gas Licenses(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On June 15, 2010, the Company received notification
        that the Israeli Petroleum Commissioner's office had awarded the Samuel
        License, an offshore license to explore for oil and gas, to a consortium
        led by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Samuel License covers 88,708 acres (359
        sq. km) approx. 17 km offshore Israel adjacent to the shoreline between
        the City of Ashkelon in the South and the City of Rishon Letziyon
        in the North.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company holds a combined minimum interest
        of 38.25% in the Samuel License held through its subsidiaries Adira Oil
        Technologies Ltd. and Adira Geo Global Ltd. A gross overriding royalty
        in an amount equal to 3% shall be granted to and registered in the name
        of Adira Geo Global Ltd. Adira Geo Global Ltd. and Geo Global Resources
        (India) Inc. have been designated as joint operators of the Samuel License.
        Adira Geo Global Ltd. shall be paid an aggregate operating fee equal to
        7.5% of the cumulative direct costs incurred in connection with operating
        the Samuel License.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | For the year ended September 30, 2010, the
        Companys share of the Samuel Licenses net liabilities and
        expenses are both $22,436, and are included in accounts payable and accrued
        liabilities in the consolidated balance sheet, and in exploration expenses
        in the consolidated statements of operations, comprehensive loss and deficit,
        respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | In August 2010, the Company announced that
        it has signed a definitive co-operation agreement with Geo Global Resources
        Inc., and its wholly-owned subsidiary, Geo Global Resources (India) Inc.
        (collectively GGR) confirming the terms whereby GGR has agreed
        to assign an option it has to acquire up to a 5% participating interest
        in each of two deepwater licenses offshore Israel known as Petroleum Licenses
        347 "Myra" and 348 "Sara", to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Sara and Myra Licenses are each subject
        to joint operating agreement among the holders of the participating interests
        in the respective licenses, which joint operating agreements govern the
        operations with respect to the exploration work on the licenses and the
        change of any interest holders in these licenses. Upon receipt and review
        of geoscience and 3D seismic survey conducted on these licenses, the Company
        may, at its discretion, purchase the 5% participating interest in the
        licenses from GGR. As a condition to the acquisition of such 5% interest,
        the Company will also be required to become a signatory to the joint operating
        agreements and approval of the Israeli Petroleum Commissioner must also
        be obtained. Upon the exercise of the 5% and receipt of approval the Company
        will be required to pay $1,200,000 in one lump sum payment to certain
        parties of the joint operating agreements, which signature requires the
        approval of existing signatories to the joint operating agreement in accordance
        with the terms of the joint operating agreements. Additionally, the Company
        will be expected to pay its pro rata share of expenditures which may be
        incurred after exercise of the option, pursuant to the joint operating
        agreements. The option is dependent upon a number of circumstances beyond
        the control of the Company and there is no assurance that the Company
        will be able to exercise the option.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Sara and Myra Licenses are located offshore
        Israel approximately 60 km west of the City of Hadera. These license areas
        total 800 square kilometres.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

15

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|8. | Related Party Transactions                                                                                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                              
|   | During the year ended September 30, 2010,
        the Company incurred the following expenses with related parties:                                                                                          
|   |                                                                                                                                                                                                              
|   | •                                                                                                                                                                                                            
|   |                                                                                                                                                                                                              
|   | •                                                                                                                                                                                                            
|   |                                                                                                                                                                                                              
|   | •                                                                                                                                                                                                            
|   |                                                                                                                                                                                                              
|   | The above transactions are in the normal course
        of operations and are measured at the exchange amount, which is the amount
        of consideration established and agreed to by the related parties.
|   |                                                                                                                                                                                                              
|9. | Share Capital                                                                                                                                                                                                
|   |                                                                                                                                                                                                              
|   | (a)      Authorized                                                                                                                                                                                          
|   |                                                                                                                                                                                                              
|   | Unlimited number of common shares without
        nominal or per value.                                                                                                                                      
|   |                                                                                                                                                                                                              
|   | (b)      Issued and
        outstanding common shares:                                                                                                                                                       

| |                                                               |  | Number of  |  |   |           | 
| | ------------------------------------------------------------- |  | ---------- |  | - | --------- | 
| |                                                               |  | Shares     |  |   | Amount    | 
| |                                                               |  |            |  |   |           | 
| | Balance as of September 30, 2010 and September
      30, 2009 |  | 62,640,001 |  | $ | 3,478,894 | 

(c)      Stock
  Option Plan

The Company has a stock option plan whereby
  options may be granted to eligible directors, officers and employees, provided
  that the number of shares issued under the plan does not exceed 10% of issued
  and outstanding common shares of the Company. Stock options may be issued at
  a term and exercise price to be determined by the Companys Board of Directors
  provided that the exercise price is no less than the market price at the date
  of the grant.

The Company has seven categories of stock
  options that have different vesting periods:

| | (i)   | Type A stock options vest over 2 years, with 12.5% vesting
        each quarter with the initial amount vesting on the date three months
        after the grant date.                                                                                                                                                    
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                           
| | (ii)  | Type B stock options vest 8.5% at the end of each quarter
        for the first two years and 8% at the end of each quarter thereafter.
        The initial amount will vest three months after the grant date.                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                           
| | (iii) | Type C stock options vest over 4 years, with 6.25% vesting
        at the end of each quarter with the initial amount vesting on the date
        three months after the grant date.                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                           
| | (iv)  | Type D stock options vest at 12.5% each quarter and
        the initial amount vests on the business day immediately on which each
        of the optionees is elected or appointed as a director of the Company.
        In the event they are not elected as a director, all options granted expire
        immediately.
| |       |                                                                                                                                                                                                                                                                                                                           
| | (v)   | Type E stock options vest over 2 years, with 12.5% vesting
        at the end of each quarter with the initial amount vesting on the date
        three months after the grant date.                                                                                                                                      

16

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|9. | Share Capital(Continued)
|-- | ------------------------

| | (c) | Stock Option Plan (continued)
| | --- | -----------------------------

| | (vi)   | Type F stock options vest over 4 years, with 6.25% vesting
        at the end of each quarter with the initial amount vesting on the date
        three months after the grant date.                                  
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                       
| | (vii)  | Type G stock options vest 8.5% at the end of each quarter
        over two years and 8.0% at the end of each quarter thereafter with the
        initial amount vesting on the date three months after the grant date.
| |        |                                                                                                                                                                                                                       
| | (viii) | Type H stock options vest 12.5% each quarter over two
        years with the initial amount vesting on the date three months after the
        grant date.                                                            

A summary of the stock option plan and
  changes during the year ended September 30, 2010 was as follows:

Number of
      
      
      WeightedOptions
      
      
      AverageOutstanding
      
      
      Exercise PriceBalance, April 8, 2009
      
      -
      
      $
      -Options granted
      
      3,984,000
      
      
      0.25Balance, September 30, 2009
      
      3,984,000
      
      
      0.25Options granted
      
      2,745,000
      
      
      0.60Options cancelled
      
      (1,070,000
      )
      
      0.43Balance, September 30, 2010
      
      5,659,000
      
      $
      0.39


The following table summarizes information
  about stock options outstanding and exercisable as of September 30, 2010:

| |        |                    |                  |          |             |             | Average    
| | ------ | ------------------ | ---------------- | -------- | ----------- | ----------- | -----------
| | Stock  |                    |                  |          | Number of   | Number of   | Remaining  
| | Option |                    | Grant Date       | Exercise | Options     | Options     | Contractual
| | Type   | Expiry
      Date  | Fair
      Value | Price    | Outstanding | Exercisable | Life       
| | Type A | August 20, 2014    | $ 0.30           | $ 0.25   | 1,263,000   | 631,500     | 3.89       
| | Type B | August 20, 2014    | $ 0.30           | $ 0.25   | 746,000     | 253,640     | 3.89       
| | Type C | August 20, 2014    | $ 0.30           | $ 0.25   | 1,055,000   | 263,750     | 3.89       
| | Type A | September 23, 2014 | $ 0.23           | $ 0.25   | 150,000     | 75,000      | 3.98       
| | Type D | September 23, 2014 | $ 0.23           | $ 0.25   | 250,000     | 125,000     | 3.98       
| | Type E | January 27, 2015   | $ 0.55           | $ 0.60   | 1,125,000   | 281,250     | 4.33       
| | Type F | January 27, 2015   | $ 0.55           | $ 0.60   | 45,000      | 5,625       | 4.33       
| | Type G | January 27, 2015   | $ 0.55           | $ 0.60   | 100,000     | 17,000      | 4.33       
| | Type H | July 22, 2015      | $ 0.23           | $ 0.60   | 925,000     | 115,625     | 4.81       
| |        |                    |                  |          | 5,659,000   | 1,768,390   |            

Stock options granted are expensed as
  share-based payments. The Company uses the Black-Scholes option pricing model
  to value stock options granted. The model requires management to make assumptions,
  which are subjective and may not be representative of actual results. Changes
  in assumptions can materially affect estimates of fair values. The following
  assumptions were used for the options granted during the year ended September
  30, 2010:

| | Risk-free interest rate                                       | 2.29% -2.38%
| | ------------------------------------------------------------- | ------------
| | Expected life                                                 | 5 years     
| | Expected stock price volatility                               | 100%-175%   
| | Expected dividend yield                                       | 0.00%       
| | Fair Value per stock option granted on August
      31, 2009  | $ 0.30      
| | Fair Value per stock option granted on September 23, 2009     | $ 0.23      
| | Fair Value per stock option granted on January
      27, 2010 | $ 0.55      
| | Fair Value per stock option granted on July 22, 2010          | $ 0.23      

17

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|9. | Share Capital(continued)
|-- | ------------------------
|   |                         
|   | (d)                     
|   |                         
|   |                         

| |                                                          |  | Number of |  |  | Weighted Average | 
| | -------------------------------------------------------- |  | --------- |  |  | ---------------- | 
| |                                                          |  | Warrants  |  |  | Exercise Price   | 
| |                                                          |  |           |  |  |                  | 
| | Balance, September 30, 2010 and September
      30, 2009 |  | 4,500,770 |  |  | $ 0.47           | 

The following tables summarized information
  about warrants and broker warrants outstanding at September 30, 2010:

Grant Date
      Exercise
      Number ofIssue Date
      Expiry
        Date
      Fair
        Value
      Price
      WarrantsAugust 4, 2009
      August 4, 2011
      $0.25
      $ 0.50
      4,000,000August 4, 2009
      August 4, 2011
      $0.25
      $ 0.25
      500,7704,500,770


| | (e) | Contributed surplus
| | --- | -------------------

| | Balance, April 8, 2009      | $ | -         | 
| | --------------------------- | - | --------- | 
| | Stock options               |   | 418,907   | 
| | Agents warrants issued     |   | 100,154   | 
| | Balance, September 30, 2009 |   | 519,061   | 
| | Stock options               |   | 621,751   | 
| |                             |   |           | 
| | Balance, September 30, 2010 | $ | 1,140,812 | 

The Stock options granted totaling $621,751
  have been expensed as share-based compensation in the Statement of Operations,
  Comprehensive Loss and Deficit (September 30, 2009 - $418,907).

18

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|10. | Income Taxes                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                    
|    | A reconciliation of income tax provision computed at
        the statutory rate to the reported income tax provision is as follows:

| |                                               |   | 2010     |   |   | 2009     |  
| | --------------------------------------------- | - | -------- | - | - | -------- | -
| |                                               |   |          |   |   |          |  
| | Income tax benefit computed at statutory rate | $ | (634,300 | ) | $ | (451,600 | )
| | Share issue costs                             |   | (24,900  | ) |   | (12,700  | )
| | Share-based compensation                      |   | 198,960  |   |   | 138,300  |  
| | Change in timing difference                   |   | -        |   |   | (56,100  | )
| | Effects of change in tax rates                |   | 170,240  |   |   | 46,400   |  
| | Change in valuation allowance                 |   | 290,000  |   |   | 335,700  |  
| |                                               |   |          |   |   |          |  
| |                                               | $ | -        |   | $ | -        |  

Future income tax assets and liabilities
  are recognized for temporary differences between the carrying amounts of the
  balance sheet items and their corresponding tax values as well as for the benefit
  of losses available to be carried forward to future years for tax purposes that
  are likely to be realized.

The significant components of future
  income tax assets are as follows:

| |                                          |   | 2010       |   |   | 2009      |  
| | ---------------------------------------- | - | ---------- | - | - | --------- | -
| |                                          |   |            |   |   |           |  
| | Future tax assets                        |   |            |   |   |           |  
| | Share issue costs                        | $ | 165,000    |   | $ | 165,000   |  
| | Non-capital losses carried
      forward |   | 3,803,200  |   |   | 2,392,000 |  
| | Total future income tax assets           |   | 3,968,200  |   |   | 2,557,000 |  
| | Tax rate                                 |   | 26%        |   |   | 29%       |  
| |                                          |   | 1,031,700  |   |   | 741,500   |  
| | Valuation allowance                      |   | (1,031,700 | ) |   | (741,500  | )
| |                                          |   |            |   |   |           |  
| | Net future income tax assets             | $ | -          |   | $ | -         |  

The valuation allowance reflects the
  Company's estimate that the tax assets more likely than not will not be realized
  in the foreseeable future.

As of September 30, 2010, the Company
  has approximately $3,803,200 of non-capital losses that may be applied to reduce
  future income for Canadian income tax purposes. The potential future tax benefit
  of these losses has not been recorded in these consolidated financial statements.

19

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|10. | Income Taxes(continued) The losses expire as
        follows:
|--- | -------------------------------------------------------------

September30, 2010Expiry Date2017
      $
      21,8002018
      
      178,0002019
      
      89,0002020
      
      246,3002021
      
      124,3002022
      
      90,7002023
      
      62,6002024
      
      64,0002025
      
      18,8002026
      
      36,3002027
      
      25,3002028
      
      282,7002029
      
      1,152,1002030
      
      1,411,300$
      3,803,200


|11. | Commitment and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Environmental Expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The operations of the Company have been, and may in
        the future be, affected from time to time in varying degree by changes
        in environmental regulations, including those for site restoration costs.
        Both the likelihood of new regulations and their overall effect upon the
        Company vary greatly from country to country and are not predictable.                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Environmental expenditures that relate to ongoing environmental
        and reclamation programs are charged against operations as incurred or
        capitalized and amortized depending on their expected future economic
        benefit. Estimated future removal and site restoration costs are recognized
        when the ultimate liability is reasonably determinable, and are charged
        against operations over the estimated remaining life of the related business
        operations.

20

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|12. | Segmented Information                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                             
|    | The Company operates in one segment, the oil and gas
        business, conducts its operations in Israel with its head office in Canada.
        The geographical segmentation of the Companys income and net assets
        is as follows:
|    |                                                                                                                                                                                                                                             
|    | 2010                                                                                                                                                                                                                                        

| |                                     |   | Canada |  |   | Israel    |  |   | Total     | 
| | ----------------------------------- | - | ------ |  | - | --------- |  | - | --------- | 
| |                                     |   |        |  |   |           |  |   |           | 
| | Consulting fees and management fees | $ | -      |  | $ | 912,597   |  | $ | 912,597   | 
| |                                     |   |        |  |   |           |  |   |           | 
| | Cash and cash equivalents           | $ | 30,359 |  | $ | 327,201   |  | $ | 357,560   | 
| | Oil and gas licenses                |   | -      |  |   | 19,356    |  |   | 19,356    | 
| | Receivables                         |   | 9,754  |  |   | 543,471   |  |   | 553,225   | 
| | Prepaid expenses and consumables    |   | 25,718 |  |   | 433,408   |  |   | 459,126   | 
| | Equipment                           |   | -      |  |   | 397,631   |  |   | 397,631   | 
| | Total                               | $ | 65,831 |  | $ | 1,721,067 |  | $ | 1,786,898 | 

2009

| |                                     |   | Canada    |  |   | Israel  |  |   | Total     | 
| | ----------------------------------- | - | --------- |  | - | ------- |  | - | --------- | 
| | Consulting fees and management fees | $ | -         |  | $ | -       |  | $ | -         | 
| |                                     |   |           |  |   |         |  |   |           | 
| | Cash and cash equivalents           | $ | 2,354,628 |  | $ | -       |  | $ | 2,354,628 | 
| | Equipment deposit                   |   | -         |  |   | 372,600 |  |   | 372,600   | 
| | Oil and gas licenses                |   | -         |  |   | 6,662   |  |   | 6,662     | 
| | Other assets                        |   | 22,415    |  |   | -       |  |   | 22,415    | 
| | Total                               | $ | 2,377,043 |  | $ | 379,262 |  | $ | 2,756,305 | 

|13. | Subsequent Events
|--- | -----------------
|    |                  
|    | (a)              
|    |                  
|    |                  
|    |                  
|    |                  
|    |                  
|    |                  
|    |                  
|    |                  
|    |                  
|    | (b)              
|    |                  
|    |                  

21

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|13. | Subsequent Events(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (f)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (g)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|14. | Differences Between Canadian GAAP and US
        GAAP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Recent accounting pronouncements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | In June 2009, the Financial Accounting Standards
        Board (FASB) issued Accounting Standards Codification (ASC)
        105, Generally Accepted Accounting Principles. ASC 105 establishes
        the FASB Codification as the source of authoritative accounting principles
        recognized by the FASB to be applied by non-governmental entities in the
        preparation of financial statements in conformity with US GAAP for Securities
        and Exchange Commission (SEC) registrants. All guidance contained
        in the Codification carries an equal level of authority. The Codification
        supersedes all existing non-SEC accounting and reporting standards. The
        FASB will now issue new standards in the form of Accounting Standards
        Updates (ASU). The FASB will not consider ASUs as authoritative
        in their own right. ASUs will serve only to update the Codification, provide
        background information about the guidance and provide the basis for conclusions
        on the changes in the Codification. The Company has updated references
        to US GAAP.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | In April 2009, the Company adopted guidance
        issued by the FASB and included in (a) ASC 805, Business Combinations,
        and (b) ASC 810, Non-Controlling Interests in Consolidated Financial
        Statements. The application of these ASCs is intended to improve,
        simplify and converge internationally the accounting for business combinations
        and the reporting of non-controlling interests in the Companys consolidated
        financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

22

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|14. | Differences Between Canadian GAAP and US
        GAAP(continued)
      Recent accounting pronouncements (continued):
|--- | --------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                     
|    | (b)                                                                                                                 

In January 2010, FASB issued ASU 2010-06,
  Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures
  about Fair Value Measurements. This ASU requires some new disclosures
  and clarifies some existing disclosure requirements about fair value measurement
  as set forth in Accounting Standards Codification (ASC) 820. ASU
  2010-06 amends ASC 820 to now require: (1) a reporting entity should disclose
  separately the amounts of significant transfers in and out of Level 1 and Level
  2 fair value measurements and describe the reasons for the transfers; and (2)
  in the reconciliation for fair value measurements using significant unobservable
  inputs, a reporting entity should present separately information about purchases,
  sales, issuances, and settlements. In addition, ASU 2010-06 clarifies the requirements
  of existing disclosures. ASU 2010-06 is effective for interim and annual reporting
  periods beginning after December 15, 2009, except for the disclosures about
  purchases, sales, issuances, and settlements in the roll forward of activity
  in Level 3 fair value measurements. Those disclosures are effective for fiscal
  years beginning after December 15, 2010, and for interim periods within those
  fiscal years. Early application is permitted. The Company will comply with the
  additional disclosures required by this guidance upon its adoption in fiscal
  2011.

Also in January 2010, the FASB issued
  ASU 2010-03, Extractive Activities - Oil and Gas - Oil and Gas Reserve
  Estimation and Disclosures. This ASU amends the Extractive Industries
  - Oil and Gas Topic of the Codification to align the oil and gas reserve
  estimation and disclosure requirements in this Topic with the SECs Release
  No. 33-8995, Modernization of Oil and Gas Reporting Requirements (Final
  Rule), discussed below. The amendments are effective for annual reporting
  periods ending on or after December 31, 2009, and the adoption of these provisions
  on September 30, 2010 did not have a material impact on the consolidated financial
  statements.

In January 2010, the FASB issued the
  FASB ASU 2010-01 Equity Topic 505  Accounting for Distributions
  to Shareholders with Components of Stock and Cash, which clarify
  that the stock portion of a distribution to shareholders that allows them to
  elect to receive cash or stock with a potential limitation on the total amount
  of cash that all shareholders can elect to receive in the aggregate is considered
  a share issuance that is reflected in EPS prospectively and is not a stock dividend
  for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share (EPS)).
  Those distributions should be accounted for and included in EPS calculations
  in accordance with paragraphs 480-10-25- 14 and 260-10-45-45 through 45-47 of
  the FASB Accounting Standards codification. The amendments in this Update also
  provide a technical correction to the Accounting Standards Codification. The
  correction moves guidance that was previously included in the Overview and Background
  Section to the definition of a stock dividend in the Master Glossary. That guidance
  indicates that a stock dividend takes nothing from the property of the corporation
  and adds nothing to the interests of the stockholders. It also indicates that
  the proportional interest of each shareholder remains the same, and is a key
  factor to consider in determining whether a distribution is a stock dividend.

23

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|14. | Differences Between Canadian GAAP and US GAAP(continued)                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In January 2010, the FASB issued the FASB ASU 2010-02
        Consolidation Topic 810  Accounting and Reporting for
        Decreases in Ownership of a Subsidiary  a Scope Clarification,
        which provides amendments to Subtopic 810-10 and related guidance within
        U.S. GAAP to clarify that the scope of the decrease in ownership provisions
        of the Subtopic and related guidance applies to the following:

| | 1. | A subsidiary or group of assets that is a business or
        nonprofit activity;                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | A subsidiary that is a business or nonprofit activity
        that is transferred to an equity method investee or joint venture; and                                                                  
| | 3. | An exchange of a group of assets that constitutes a
        business or nonprofit activity for a non-controlling interest in an entity
        (including an equity method investee or joint venture).

The amendments in this Update also clarify
  that the decrease in ownership guidance in Subtopic 810-10 does not apply to
  the following transactions even if they involve businesses:

| | 1. | Sales of in substance real estate. Entities should apply
        the sale of real estate guidance in Subtopics 360-20 (Property, Plant,
        and Equipment) and 976-605 (Retail/Land) to such transactions; and                               
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Conveyances of oil and gas mineral rights. Entities
        should apply the mineral property conveyance and related transactions
        guidance in Subtopic 932-360 (Oil and Gas-Property, Plant, and Equipment)
        to such transactions.

If a decrease in ownership occurs in
  a subsidiary that is not a business or nonprofit activity, an entity first needs
  to consider whether the substance of the transaction causing the decrease in
  ownership is addressed in other U.S. GAAP, such as transfers of financial assets,
  revenue recognition, exchanges of nonmonetary assets, sales of in substance
  real estate, or conveyances of oil and gas mineral rights, and apply that guidance
  as applicable. If no other guidance exists, an entity should apply the guidance
  in Subtopic 810-10.

In February 2010, the FASB issued ASU
  2010-09, Subsequent Events (Topic 855), amending guidance on subsequent
  events to alleviate potential conflicts between FASB guidance and SEC requirements.
  Under this amended guidance, SEC filers are no longer required to disclose the
  date through which subsequent events have been evaluated in originally issued
  and revised financial statements. This guidance was effective immediately and
  was adopted by the Company for the year ended September 30, 2010. The adoption
  of this guidance did not have a material impact on the consolidated financial
  statements.

24

---

ADIRA ENERGY LTD.(Formerly AMG OIL LTD.)(An Exploration Stage Enterprise)Notes to the Consolidated Financial Statements
  For the year ended September 30, 2010 and for the 175-day period ended September
  30, 2009 
  (Expressed in United States Dollars)

|14. | Differences Between Canadian GAAP and US GAAP(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In May 2010, the FASB issued ASU 2010-19, Foreign
        Currency (Topic 830): Foreign Currency Issues: Multiple Foreign
        Currency Exchange Rates. The amendments in this Update are effective as
        of the announcement date of March 18, 2010. The Company does not expect
        the provisions of ASU 2010-19 to have a material effect on the Company's
        financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | There are no material differences between Canadian and
        US GAAP; however, potential differences that could occur are summarized
        as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Exploration expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Under Canadian GAAP, exploration costs of oil and gas
        properties and exploration expenditures may be capitalized. Under US GAAP,
        exploration costs are expensed as incurred. When proven and probable reserves
        are determined for a property and a feasibility study is prepared, then
        subsequent exploration and development costs of the property would be
        capitalized. The capitalized costs of such properties are measured periodically
        for recoverability of carrying values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Development stage company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Pursuant to US GAAP, the Company would be subject to
        the disclosure requirements applicable to a development stage enterprise
        as the Company is devoting its efforts to establishing commercially viable
        mineral properties. However, the identification of the Company as such
        for accounting purposes does not impact the measurement principles applied
        to these consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Under US GAAP the provisions prescribe a recognition
        threshold and measurement attribute for the financial statement recognition
        and measurement of a tax position taken or expected to be taken in a tax
        return. The interpretation requires that the Company recognize the impact
        of a tax position in the financial statements if that position is more
        likely than not of being sustained on audit, based on the technical merits
        of the position. The requirement also provides guidance on de-recognition,
        classification, interest and penalties, accounting in interim periods
        and disclosure. In accordance with the provisions, any cumulative effect
        resulting from the change in accounting principle is to be recorded as
        an adjustment to the opening balance of deficit. The accounting policy
        did not result in a material impact on the Company's consolidated financial
        position or results of operations.

25

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ITEM 18           
   FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to
Item 17.

ITEM
19             EXHIBITS

The following exhibits are included in this Form 20-F:

|Exhibit |                                                                                                                                                                                         
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                                             
|        |                                                                                                                                                                                         
|1.1     | Articles of Conversion
        (1)                                                                                                                                                      
|        |                                                                                                                                                                                         
|1.2     | Articles of Continuance
        (1)                                                                                                                                                     
|        |                                                                                                                                                                                         
|1.3     | By-Laws (1)                                                                                                                                                                             
|        |                                                                                                                                                                                         
|1.4     | Certificate and
        Articles of Amendment (3)                                                                                                                                       
|        |                                                                                                                                                                                         
|4.1     | Securities Exchange
        Agreement among the Company, Adira Energy, Alan Friedman, Dennis Bennie
        and Ilan Diamond.(2)                                                        
|        |                                                                                                                                                                                         
|4.2     | Form of Securities
        Exchange Agreement among the Company, Adira Energy and the Minority Shareholders
        of Adira Energy.(2)                                                 
|        |                                                                                                                                                                                         
|4.3     | 2009 Stock Option
        Plan (2)                                                                                                                                                      
|        |                                                                                                                                                                                         
|4.4     | Agency Agreement
        between Adira Energy and Sandfire Securities Inc. (2)                                                                                                          
|        |                                                                                                                                                                                         
|4.5     | Form of Subscription
        Agreement for Adira Energy August 2009 Private Placement (2)                                                                                               
|        |                                                                                                                                                                                         
|4.6     | Form of Subscription
        Agreement for September 2009 Private Placement (3)                                                                                                         
|        |                                                                                                                                                                                         
|4.7     | Form
        of Subscription Agreement for Adira Financing (4)                                                                                                                          
|        |                                                                                                                                                                                         
|4.8     | Summary
        of Agreement with the Modiin Energy Limited Partnership, its general
        partner, Modiin Energy Management (1992) Limited and Brownstone
        Ventures, Inc.(4)
|        |                                                                                                                                                                                         
|4.9     | Letter
        of Intent with Brownstone Ventures, Inc dated September 10, 2010 (4)                                                                                                     
|        |                                                                                                                                                                                         
|4.10    | Agency
        Agreement between Adira Energy and DS Apex Mergers & Acquisitions
        Ltd dated November 22, 2010 (4)                                                                
|        |                                                                                                                                                                                         
|4.11    | Nominee
        Agreement with BRM Group Ltd (4)                                                                                                                                        
|        |                                                                                                                                                                                         
|8.1     | List of Subsidiaries (4)                                                                                                                                                                
|        |                                                                                                                                                                                         
|12.1    | Certificate
        of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002 (4)                                                                    
|        |                                                                                                                                                                                         
|12.2    | Certificate
        of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002 (4)                                                                    

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|13.1 | Certificate
        of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002 (4)   
|---- | -----------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                        
|13.2 | Certificate
        of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002 (4)   
|     |                                                                                                                        
|15.1 | Letter
        from Smythe Ratcliffe LLP regarding disclosure in Item 16F of this Annual
        Report on Form 20F (4)

(1)Incorporated by reference from our current report on Form
8-K filed with the SEC on December 2, 2008. (2)Incorporated by reference
from our Form 20-F shell company report filed with the SEC on September 4, 2009.
(3)Incorporated by reference from our Form 20-F report filed with the SEC on
January 22, 2010. (4)Filed as an exhibit hereto.

- 75 -

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SIGNATURES

The Registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this Form 20-F on its behalf.

ADIRA ENERGY LTD.

|Per:   | /s/ Ilan
      Diamond 
|------ | -----------------------
|Name:  | Ilan Diamond           
|Title: | Chief Executive Officer

Date:          
February 2, 2011

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