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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

[   ]  REGISTRATION STATEMENT PURSUANT TO SECTION
12(b) or 12(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 December 31, 2013

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 number000-30087

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

CANADA(Jurisdiction of incorporation
or organization)

120 Adelaide Street West, Suite 800Toronto,
OntarioCanada M5H 1T1(Address of principal
executive offices)

Contact Person: Gadi LevinAddress: 120 Adelaide
Street West, Suite 800Toronto, Ontario M5H 1T1Email:
glevin@adiraenergy.comTelephone: (416) 250-1955, Facsimile: (416)
250-6330(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: None

i

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Number of outstanding shares of the Companys only class of
capital or common stock as at December 31, 2012 was 60,260,318 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 is an annual report or a transition report, indicate by
check mark if the Registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934. Yes [  
]      No [X]

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

Indicate by check mark whether Registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).Yes [   ]      No [  
]

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

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

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

International Financial Reporting
      Standards as issuedU.S.
    by the International Accounting
      Standards BoardGAAP [   ]
    [X]
    Other [   ]


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 [   ]     
Item 18 [   ]

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

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)

Indicate by checkmark whether the Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. YES [  
]      NO [   ]

ii

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TABLE OF CONTENTS

|GENERAL                                                              |                                                                  | - 1 - 
|-------------------------------------------------------------------- | ---------------------------------------------------------------- | ------
|                                                                     |                                                                  |       
|PART I                                                               |                                                                  | - 2 - 
|                                                                     |                                                                  |       
|ITEM 1 - IDENTITY OF DIRECTORS, SENIOR
      MANAGEMENT AND ADVISERS | - 2 -                                                           
|ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE                     | - 2 -                                                           
|ITEM 3 - KEY INFORMATION                                             | - 2 -                                                           
|A.                                                                   | Selected Financial Data                                          | - 2 - 
|B.                                                                   | Capitalization
      and Indebtedness                            | - 6 - 
|C.                                                                   | Reasons for the Offer and Use of
      Proceeds                  | - 6 - 
|D.                                                                   | Risk Factors                                                     | - 6 - 
|ITEM
      4                                                         | INFORMATION ON THE COMPANY                                       | - 18 -
|A.                                                                   | History and
      Development of the Company                     | - 18 -
|B.                                                                   | Business Overview                                                | - 20 -
|C.                                                                   | Organizational
      Structure                                   | - 24 -
|D.                                                                   | Property, Plant and Equipment                                    | - 25 -
|ITEM 5                                                               | OPERATING AND
      FINANCIAL REVIEW AND PROSPECTS               | - 26 -
|A.                                                                   | Operating Results                                                | - 26 -
|B.                                                                   | Liquidity and
      Capital Resources                            | - 30 -
|C.                                                                   | Research and Development, Patents
      and Licences             | - 34 -
|D.                                                                   | Trend Information                                                | - 34 -
|E.                                                                   | Off-Balance Sheet Arrangements                                   | - 34 -
|F.                                                                   | Tabular
      Disclosure of Contractual Obligations              | - 34 -
|G.                                                                   | Safe Harbor                                                      | - 34 -
|ITEM 6                                                               | DIRECTORS, SENIOR
      MANAGEMENT AND EMPLOYEES                 | - 34 -
|A.                                                                   | Directors and Senior Management                                  | - 34 -
|B.                                                                   | Compensation                                                     | - 38 -
|C.                                                                   | Board Practices                                                  | - 42 -
|D.                                                                   | Employees                                                        | - 43 -
|E.                                                                   | Share Ownership                                                  | - 44 -
|ITEM 7                                                               | MAJOR SHAREHOLDER
      AND RELATED PARTY TRANSACTIONS           | - 48 -
|A.                                                                   | Major Shareholders                                               | - 48 -
|B.                                                                   | Related Party
      Transactions                                 | - 49 -
|C.                                                                   | Interests of Experts and Counsel                                 | - 50 -
|ITEM 8                                                               | FINANCIAL
      INFORMATION                                      | - 50 -
|A.                                                                   | Consolidated Statements and Other
      Financial Information    | - 50 -
|B.                                                                   | Significant
      Changes                                        | - 50 -
|ITEM
      9                                                         | THE OFFER AND LISTING                                            | - 51 -
|A.                                                                   | Offer and Listing
      Details  Price History                  | - 51 -
|B.                                                                   | Plan of Distribution                                             | - 52 -
|C.                                                                   | Markets                                                          | - 53 -
|D.                                                                   | Selling Shareholders                                             | - 53 -
|E.                                                                   | Dilution                                                         | - 53 -
|F.                                                                   | Expenses of the Issue                                            | - 53 -
|ITEM 10                                                              | ADDITIONAL
      INFORMATION                                     | - 53 -
|A.                                                                   | Share Capital                                                    | - 53 -
|B.                                                                   | Memorandum and
      Articles of Incorporation                   | - 53 -
|C.                                                                   | Material Contracts                                               | - 54 -
|D.                                                                   | Exchange Controls                                                | - 54 -
|E.                                                                   | Taxation                                                         | - 54 -
|F.                                                                   | Dividends and
      Paying Agents                                | - 61 -
|G.                                                                   | Statement by Experts                                             | - 61 -
|H.                                                                   | Documents on
      Display                                       | - 61 -
|I.                                                                   | Subsidiary Information                                           | - 61 -
|ITEM 11                                                              | QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK | - 61 -

iii

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|A.             | Transaction Risk and Currency
      Risk Management                                | - 61 -
|-------------- | ---------------------------------------------------------------------------------- | ------
|B.             | Interest Rate Risk and Equity Price Risk                                           | - 61 -
|C.             | Exchange Rate Sensitivity                                                          | - 61 -
|D.             | Commodity Price Risk                                                               | - 62 -
|ITEM 12        | DESCRIPTION OF SECURITIES OTHER
      THAN EQUITY SECURITIES                       | - 62 -
|               |                                                                                    |       
|Part II        |                                                                                    | - 62 -
|               |                                                                                    |       
|ITEM 13        | DEFAULTS, DIVIDEND ARREARAGES
      AND DELINQUENCIES                              | - 62 -
|ITEM
      14  | MATERIAL MODIFICATIONS TO THE RIGHTS OF
      SECURITY HOLDERS AND USE OF PROCEEDS | - 62 -
|ITEM 15        | CONTROLS AND PROCEDURES                                                            | - 62 -
|ITEM
      16A | AUDIT COMMITTEE FINANCIAL EXPERTS                                                  | - 63 -
|ITEM 16B       | CODE OF ETHICS                                                                     | - 63 -
|ITEM
      16C | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                             | - 64 -
|ITEM 16D       | EXEMPTIONS FROM THE LISTING
      STANDARDS FOR AUDIT COMMITTEES                   | - 64 -
|ITEM
      16E | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND
      AFFILIATED PURCHASERS        | - 64 -
|ITEM 16F       | CHANGES TO REGISTRANTS
      CERTIFYING ACCOUNTANT                                | - 64 -
|ITEM
      16G | CORPORATE GOVERNANCE                                                               | - 65 -
|ITEM 16H       | MINE SAFETY DISCLOSURE                                                             | - 65 -
|               |                                                                                    |       
|PART III       |                                                                                    | - 65 -
|               |                                                                                    |       
|ITEM 17        | FINANCIAL STATEMENTS                                                               | - 65 -
|ITEM
      18  | FINANCIAL STATEMENTS                                                               | - 65 -
|ITEM 19        | EXHIBITS                                                                           | - 65 -

iv

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GENERAL

This Form 20-F is being 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 Barbados means Adira Energy Investments
(Barbados) Ltd., a Barbados corporation that was dissolved on December 31, 2013;

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

Adira Geo means Adira Geo Global Ltd., an Israeli
corporation;

Adira Group means Adira together with: (a) its
wholly-owned subsidiary, Adira Energy; (b) its wholly-owned indirect (through
Adira Energy) subsidiaries, Adira Israel, Adira Services, Adira Oil Technologies
Ltd., Adira Energy CBM Ltd., and Adira Energy Holdings (Barbados) Ltd., which
wholly owns Adira Barbados; and (c) Adiras 60% indirect (through Adira Energy)
subsidiary, Adira Geo;

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

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

Adira Technologies means Adira Oil Technologies Ltd.,
an Israeli corporation;

We, us, our, and the
Company mean collectively and individually, the companies that form the
Adira Group; and

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

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

Unless otherwise provided, all references in this annual report
to numbers of Adiras common shares reflect the 1-for-3 reverse stock split
which took place on August 9, 2013.

Except as noted, the information set forth in this Form 20-F is
as of December 31, 2013 and all information included in this document should
only be considered correct as of such date.

- 1 -

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

In particular, without limiting the generality of the foregoing
disclosure, the statements contained in Item 4.B.  Business Overview, Item 5
 Operating and Financial Review and Prospects and Item 11  Quantitative and
Qualitative Disclosures About Market Risk are inherently subject to a variety
of risks and uncertainties that could cause actual results, performance or
achievements to differ significantly.

PART I

ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS

Not applicable.

ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3 - KEY INFORMATION

A.          
Selected Financial Data Adira Energy

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.

Adira Energys predecessor is Adira Israel, which was
incorporated in Israel on October 26, 2008. In order to facilitate tax planning,
all of the issued and outstanding shares of Adira Israel were registered in the
name of Adira Africa Corp. (Adira Africa), a privately-owned Canadian
corporation, as a trustee for and on behalf of a corporation to be incorporated
in Ontario  namely, Adira Energy, which was subsequently incorporated on April
8, 2009  pursuant to a Declaration of Trust dated November 16, 2008 (the
Declaration of Trust). In December 2008, upon application to Ministry of Energy and Water
Resources (formerly the Ministry of National Infrastructures) of the State of
Israel (the Ministry or MNI), Adira Israel obtained Eitan
License No. 356, covering 31,060 acres (125.7 square kilometers) in the Hula
Valley in Northern Israel (the Eitan License), for no consideration
other than the payment of a nominal stamp duty in the amount of $3,544. Upon the
incorporation of Adira Energy on April 8, 2009, Adira Africa transferred the
shares of Adira Israel to Adira Energy for no consideration, as contemplated by
the Declaration of Trust.

- 2 -

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The only activity undertaken in Adira Israel from December 2008
to April 8, 2009 was the application for, and the receipt of, the Eitan License,
and, pursuant to the Declaration of Trust, Adira Energy is in substance treated
as the owner of the Adira Israel shares since the inception of Adira Israel.
Further, the carrying amount of the single asset owned by Adira Israel, the
Eitan License (there were no material liabilities), was recorded in the accounts
of Adira Israel as of April 8, 2009 in its nominal amount of the stamp duty.
Therefore, under International Financial Reporting Standards (IFRS) as
issued by the International Accounting Standards Board (the IASB), the
carrying amount of the Adira Israel shares transferred to Adira Energy on that
date was of the same nominal amount. Subsequent to April 7, 2009, all of our
activities are reflected in the consolidated financial statements of Adira.

As disclosed elsewhere in this annual report, we have now
plugged and abandoned the first well that we drilled on the Eitan License (the
Eitan #1 Well), and we have surrendered the Eitan License in accordance
with the Israeli Petroleum Law (as defined below). However, we continue to hold
interests in certain other oil and gas licenses located offshore Israel.

On August 9, 2013, we completed a reverse stock split (the
Consolidation) of our common shares on the basis of one new common
share for every three old common shares. The Consolidation was effective for
trading purposes on August 13, 2013.

We have relinquished our interest in the Samuel License No. 288, offshore (the “Samuel License”). We notified the Ministry of our surrender on October 14, 2013, pursuant to the Israeli Petroleum Law, and we received final confirmation from the Ministry approving the surrender of the Samuel License on October 15, 2013.

As disclosed elsewhere in this annual report, between July 2012 and January 2013, we entered into various agreements with MELP (as defined below) and Brownstone (as defined below) for the purpose of drilling an exploration well on the Gabriella License. The drilling, however, was not accomplished and MELP alleged that we, and we alleged that MELP, were in default of various obligations under the Gabriella JOA (as defined below) and other agreements entered into on behalf of the Gabriella License participants. Accordingly, on February 11, 2013, we, in our capacity as operator under the Gabriella JOA, suspended operations on the Gabriella License due to lack of funding and lack of reasonable expectation of funding to meet certain work program obligations. The Gabriella License participants have since executed a settlement agreement to resolve the abovementioned disputes and the related suspension of operations. The settlement agreement provides, among other things, that the Gabriella License participants will fund their proportionate share of costs incurred in connection with the attempted drilling of the first exploration well by October 8, 2013. To date, we have not paid our share of these settlement costs. As such, pursuant to the settlement agreement, at MELP’s request, we may be required to withdraw from the Gabriella JOA and assign our participating interest in the Gabriella License to the remaining Gabriella License participants.

As of the date hereof, we have missed one Ministry milestone on the Gabriella License – namely, we have not submitted a request to the Ministry for the approval of a new operator that complies with Ministry regulations; the request was required to be submitted no later than February 28, 2014.

The selected historical information presented in the table
below for the years ended December 31, 2013, 2012 and 2011 are derived from the
audited consolidated financial statements of Adira for such period, and have
been prepared in accordance with IFRS as issued by the IASB. The selected
historical financial information presented in the table below for the 267-day
period ended December 31, 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, and
have also been prepared in accordance with IFRS as issued by the IASB. The
selected financial information presented below should be read in conjunction
with the audited consolidated financial statements and the notes thereto of
Adira Group, and with the information appearing under each of Item 4 
Information on the Company and Item 5  Operating and Financial Review and
Prospects of this Form 20-F. All financial data presented in this Form 20-F are
qualified in their entirety by reference to the consolidated financial
statements and their notes.

U.S. dollars in thousands, except share and per share data

Year Ended December 31,2013
    
    
    2012
    
    
    2011
    
    
    2010
    
    
    2009($
      thousands)Balance Sheet DataCash and cash equivalents
    
    617
    
    
    2,394
    
    
    8,094
    
    
    8,686
    
    
    2,044Total Assets
    
    3,226
    
    
    15,340
    
    
    10,247
    
    
    18,610
    
    
    2,437Total Liabilities
    
    3,803
    
    
    10,330
    
    
    1,421
    
    
    7,373
    
    
    227Total Shareholders Equity (deficit)
    
    (577
    )
    
    5,010
    
    
    8,826
    
    
    11,237
    
    
    2,437


- 3 -

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Year ended December 31
    
    
    267-day periodendedDecember 312013
    
    
    2012
    
    
    2011
    
    
    2010
    
    
    2009$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Operating DataRevenues and other income
    
    17
    
    
    1,889
    
    
    1,323
    
    
    1,707
    
    
    -Expenses:Exploration expenses
    
    677
    
    
    1,026
    
    
    5,018
    
    
    1,624
    
    
    195General and administrative expenses
    
    2,813
    
    
    5,304
    
    
    5,031
    
    
    3,067
    
    
    1,639Impairment charge
    
    5,168
    
    
    7,810
    
    
    1,226
    
    
    -
    
    
    -Total expenses
    
    8,658
    
    
    14,140
    
    
    11,275
    
    
    4,691
    
    
    1,834Operating loss
    
    (8,641
    )
    
    (12,251
    )
    
    (9,952
    )
    
    (2,984
    )
    
    (1,834
    )Financing income
    
    3,027
    
    
    2,480
    
    
    43
    
    
    -
    
    
    15Financing expense
    
    (30
    )
    
    (745
    )
    
    (109
    )
    
    (5
    )
    
    -Issuance expenses
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (4,902
    )Loss before income taxes
    
    (5,644
    )
    
    (10,516
    )
    
    (10,018
    )
    
    (2,989
    )
    
    (6,721
    )Income taxes
    
    -
    
    
    (41
    )
    
    (33
    )
    
    (15
    )
    
    (1
    )Net loss and comprehensive loss
    
    (5,644
    )
    
    (10,557
    )
    
    (10,051
    )
    
    (3,004
    )
    
    (6,722
    )Basic and diluted net loss per share attributable to equity
      holders of the parent
    
    (0.09
    )
    
    (0.19
    )
    
    (0.29
    )
    
    (0.14
    )
    
    (0.41
    )Weighted average number of Ordinary shares
      used in computing basic and diluted net loss per share
    
    60,260,363
    
    
    44,313,618
    
    
    33,271,111
    
    
    21,884,566
    
    
    16,394,906


We previously prepared our financial statements in accordance
with Canadian generally accepted accounting principles (Canadian GAAP).
The consolidated financial statements included in our transition report on Form
20-F for the period of October 1, 2010, to December 31, 2010, as filed with the
SEC on February 27, 2012, were our Companys first annual financial statements
reported in accordance with IFRS. IFRS 1, First-time Adoption of International
Financial Reporting Standards, was applied to such consolidated financial
statements; the impact of the transition to reporting in accordance with IFRS on
our Company's financial statements was detailed in Note 19 to those financial
statements.

The selected balance sheet data presented in the table below
for Adira Israel as of April 7, 2009, and the related changes in equity for the
164-day period from its incorporation (October 26, 2008) to April 7, 2009, are
derived from the audited financial statements of Adira Israel for such period,
which are included in Amendment No. 1 to our annual report on Form 20-F for the
year ended September 30, 2010, as filed with the SEC on November 21, 2011. Adira
Israels financial statements do not include a statement of operations and
statement of cash flows for the 164-day period ended April 7, 2009, as there
were no revenues, expenses or cash transactions during this period. The selected
financial information presented below should be read in conjunction with the
audited financial statements and the notes thereto of Adira Israel.

- 4 -

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Under Israeli GAAP (U.S. dollars in thousands)

|                                 |  | As at April 7 | 
|-------------------------------- |  | ------------- | 
|                                 |  | 2009          | 
|                                 |  | $             | 
|Balance Sheet Data               |  |               | 
|Exploration and evaluation asset |  | 3,544         | 
|Total Assets                     |  | 3,544         | 
|Total Liabilities                |  | 3,541         | 
|Total Shareholders Equity       |  | 3             | 

|Changes in Equity                                         |  | Share Capital |  |   | Total  | 
|--------------------------------------------------------- |  | ------------- |  | - | ------ | 
|                                                          |  | Number        |  |   | Amount | 
|                                                          |  |               |  |   |        | 
|Balance at October 26, 2008 (date of
      incorporation) |  | -             |  | $ | -      | 
|                                                          |  |               |  |   |        | 
|Shares issued                                             |  | 1,000         |  |   | 3      | 
|                                                          |  |               |  |   |        | 
|Balance at April 7, 2009                                  |  | 1,000         |  | $ | 3      | 

As noted in Note 4 to the audited financial statements of Adira
Israel, which are included in Amendment No. 1 to our annual report on Form 20-F
for the year ended September 30, 2010, as filed with the SEC on November 21,
2011, there are no differences between Israeli GAAP and US GAAP in respect of
the financial position and results of operations of Adira Israel for the period
presented.

Adira has never declared or paid any cash or other
dividends.

- 5 -

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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. The risks
and uncertainties described below are not the only risks and uncertainties that
we face or that an investment in our securities entails. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair our business operations. Any of the following risks could materially
and adversely affect our business, financial condition, prospects and results of
operations. In that case, investors may lose all or a part of their investment.
The risks discussed below also include forward-looking statements and the out
actual results may differ substantially from those discussed in these
forward-looking statements. See Note Regarding Forward Looking Statements and
Operating and Financial Review and Prospects.

Risks Associated with the Company

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

We incurred a net loss of $5.6 million for the year ended December 31, 2013.  At December 31, 2013, we had an accumulated deficit of $34.6 million.  These circumstances raise doubt about our ability to continue as a going concern, as described in the Note 1 to our consolidated financial statements for the period ended December 31, 2013, 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 significant 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 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 impediment to 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 and maintain ownership of our current licenses.

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 liquidity or capital 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.

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We will require significant capital to continue our
exploration activities, 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.

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, if any, and their exploitation and development, we do not
anticipate earning significant revenues from operation in the near future. We
have incurred and will continue to incur significant expenses. As noted above,
at December 31, 2013, we had cash and equivalents on hand of $617 thousand. 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 needed. 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.

As a holding company, our ability to make payments will
eventually depend on the cash flows of our subsidiaries.

We are a holding company and conduct substantially all of our
operations through our subsidiaries incorporated outside North America. We have
no direct operations and, other than remaining cash or cash equivalents and the
shares of our subsidiaries, no significant assets. Assuming our holding company
structure remains, we will be dependent on the cash flows from our subsidiaries
to meet our obligations, including payment of principal and interest on any debt
we incur. The ability of certain of our subsidiaries to provide us with payments
may be constrained by the following factors:

- the cash flows generated by operations, investment activities and financing
  activities; and
- the level of taxation, particularly corporate profits and withholding
  taxes.

In addition, we cannot guarantee that the current fiscal regime
that allows for repatriation of funds in each of the countries where we do
business will remain in effect, nor can we guarantee that arbitrary changes in
exchange controls in each of the countries where we do business will not take
place, which may adversely impact on the ability of investors to recover their
investment.

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.

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/or officers are nationals and/or residents
of countries other than the United States, and all or a substantial portion of
such persons assets are located outside the United States.

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As a result, it may be difficult for investors to enforce
within the United States any judgments obtained against us or our officers or
directors, including judgments predicated upon the civil liability provisions of
the securities laws of the United States or any state thereof. Consequently,
investors may be effectively prevented from pursuing remedies under United
States federal securities laws against them.

We may be adversely affected by current global financial
conditions.

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

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 (NIS) and the Canadian dollar. 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 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. 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.

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

Internal controls over financial reporting are procedures
designed to provide reasonable assurance that transactions are properly
authorized, assets are safeguarded against unauthorized or improper use, and
transactions are properly recorded and reported. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
with respect to the reliability of financial reporting and financial statement
preparation.

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

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

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Our lack of diversification increases the risk of an
investment, 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 three
properties in Israel within close proximity. 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. Such
growth, if any, 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 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.

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

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

Risks Associated with Our Business

We have not discovered any oil and gas reserves, and we
cannot assure you 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 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.

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. Although certain licenses have received extensions, there can be
no assurance that we will be able to secure any additional extensions, if
necessary. The Offshore Licenses require us to meet certain minimum commitments
with respect to our activities on those licenses. We may apply to extend the
timing for the commitments associated with the Offshore Licenses, but there can
be no assurance that we will be able to secure any amendments to the commitment
dates associated with the licenses, if necessary.

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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.

We may not meet the timing commitments with respect to
the Offshore Licenses.

We have formally applied to revise only certain of the minimum
commitments with respect to the Offshore Licenses. We understand that rig
availability in the eastern-Mediterranean region is in low supply and,
accordingly, we may not be able to secure drilling rig contracts for drilling on
our licenses. As such, even if we have funds available to proceed with the work
programs on our licenses, we may not be able to source and secure a rig to begin
drilling. Moreover, in the event that our joint venture, farm-out and/or other
co-participants related to each of the Offshore Licenses are unable to meet
their obligations under their respective agreements related to the Offshore
Licenses or in the event that certain unforeseen circumstances occur, the timing
commitments under the Offshore Licenses may not be met. If in the future we are
required to apply for a formal extension from the Ministry from certain of the
timing commitments with respect to the Offshore Licenses, we can make no
guarantee that the Ministry will provide such extensions relating to the
Offshore Licenses. If the Ministry does not provide such extensions, the
Ministry could then begin a process to retract the applicable license or
licenses from us.

As of the date hereof, we have missed one Ministry milestone on
the Gabriella License  namely, we have not submitted a request to the Ministry
for the approval of a new operator that complies with Ministry regulations; the
request was required to be submitted no later than February 28, 2014.

Our failure to complete our payment obligations under the
Settlement Agreement among the Gabriella License participants may result in the
loss of our working interest in the Gabriella License.

As disclosed elsewhere in this annual report, between July 2012
and January 2013, we entered into various agreements with MELP (as defined
below) and Brownstone (as defined below) for the purpose of drilling an
exploration well on the Gabriella License. The drilling, however, was not
accomplished and MELP alleged that we, and we alleged that MELP, were in default
of various obligations under the Gabriella JOA (as defined below) and other
agreements entered into on behalf of the Gabriella License participants.
Accordingly, on February 11, 2013, we, in our capacity as operator under the
Gabriella JOA, suspended operations on the Gabriella License due to lack of
funding and lack of reasonable expectation of funding to meet certain work
program obligations. The Gabriella License participants have since executed a
settlement agreement to resolve the abovementioned disputes and the related
suspension of operations. The settlement agreement provides, among other things,
that the Gabriella License participants will fund their proportionate share of
costs incurred in connection with the attempted drilling of the first
exploration well by October 8, 2013. To date, we have not paid our share of
these settlement costs. As such, pursuant to the settlement agreement, at MELPs
request, we may be required to withdraw from the Gabriella JOA and assign our
participating interest in the Gabriella License to the remaining Gabriella
License participants.

We may be liable to pay operating expenditures respecting
our licenses exceeding our pro rata share of such expenditures.

We are a party to certain joint operation and farm-out
agreements respecting our licenses pursuant to which we have agreed to pay our
pro rata share of operating expenditures in connection with the licenses. In
accordance with the terms and conditions of such agreements, if a party fails to
pay its pro rata share of the expenditures, we may be liable to cover such
defaulting partys pro rata share of the expenditures based on our interest in
the license to ensure compliance with the terms and expenditure requirements
under the work plan. If we do not have sufficient funds to cover the defaulting
partys pro rata share of expenditures, we may not be able to maintain our
licenses in good standing, causing them to be revoked, suspended or cancelled,
which would have a material adverse effect on us.

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We might incur 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 our
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. 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 our
control and 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. On April 10, 2011,
the Petroleum Profits Taxation Law, 5771-2011 (the Petroleum Taxation
Law) was published based largely on the conclusions and recommendations of
the Sheshinski Committee, a government appointed committee in Israel which was
tasked with examining the fiscal system prevailing in Israel in respect of
petroleum and gas resources and proposing an updated fiscal policy. The
Petroleum Taxation Law imposes a progressive levy (the Levy) on profits
derived from petroleum reserve, in addition to the 12.5% royalty payable under
the old tax regime which remains unchanged. The Levy is designed to capitalize
on the economic benefits from each individual reservoir and is imposed only
after the investment in exploration, development and construction are fully
returned, plus a yield that reflects, among other things, the developers risk
and required financial expenses. As a result of the Levy, the aggregate
government take from oil and gas revenue is expected to increase from
approximately 33% to about 52% to 62%. The implementation of the Petroleum
Taxation Law may have an adverse effect on our business, financial conditions
and results as our business matures.

Furthermore, on February 16, 2014, the Ministry published new guidelines (the “Guidelines”) in respect of security guarantee payments (“Security Deposit”) for all offshore licenses that require each license consortium to deposit $2,500 per offshore license with the Ministry by March 31, 2014.  On March 27, 2014, the Ministry announced that it has extended the deadline for the Security Deposit until May 15, 2014. As of the of the date hereof, we do not have sufficient funds to make our pro-rate share of the Security Deposit. We are currently examining the consequences of the Guidelines on our operations, including the possibility of taking legal action.  However, should the consortium on each of the Offshore Licenses not meet these requirements, the Ministry will view this as a failure to meet a license milestone and will have the right to terminate the Offshore Licenses.

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.

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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 cancelled 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.

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 qualified technical 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 area 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 transportation of gas.

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

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. 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.

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You should not place undue reliance on reserve
information because reserve information represents estimates.

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.

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.

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 us 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 us and the value of our
common shares.

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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.

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

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 applicable resource laws, tax
laws, foreign investment laws, or to revise their policies in a manner that
renders our current and future projects non-economic.

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, if any, will depend 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.

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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.

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

Our ability to market oil and natural gas from ourwells, in the event we discover and exploit oil and natural gas, 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 favourable 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 ventures 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 exploits
such reserves, have a material adverse effect on revenues as well as the value
of licenses or other assets.

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.

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.

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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.

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.

Our Company is organized under the laws of
Canada.

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

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 are not successful in its subsequent exploration and development
activities or in subsequently acquiring properties containing proved reserves,
our 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, if any, 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, our 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.

We may be treated as a U.S. corporation and taxed by the
U.S. on our worldwide income.

We continued from Nevada to Canada in 2008. Such continuance is
for corporate purposes a migration of us from Nevada to Canada. Transactions
whereby a U.S. corporation migrates to a foreign jurisdiction are considered by
the U.S. Congress to be a potential abuse of the U.S. tax rules because
thereafter the foreign entity is not subject to U.S. tax on its worldwide
income. As a result, Section 7874(b) of the Internal Revenue Code of 1986, as
amended, was enacted to address this potential abuse. Section 7874(b) provides
generally that a corporation that migrates from the U.S. will nonetheless remain
subject to U.S. tax on its worldwide income unless the migrating entity has
substantial business activities in the foreign country in which it is migrating
when compared to its total business activities.

If Section 7874(b) were to apply to our migration from Nevada
to Canada, it would cause us to be subject to U.S. federal income taxation on
our worldwide income. Section 7874(b) of the Code will apply to our migration
unless we had substantial business activities in Canada when compared
to our total business activities at the time of our migration.

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Based on the fact that substantially all of our activities were
taking place in Canada and all of our assets were located in Canada at the time
of our migration, we have taken the position that we had substantial business
activity in Canada in relation to our worldwide activities at the time of the
migration and that Section 7874(b) did not apply to cause us, after the
migration, to be subject to U.S. federal income tax on our worldwide income.
There is limited guidance as to what substantial business activity is when
compared to our worldwide activities. Accordingly, the position adopted by us
may be challenged by the U.S. tax authorities with the result that we may be
subject to U.S. federal income taxes on our worldwide activities. In addition to
U.S. federal income taxes, were Section 7874(b) to apply to us, we could be
subject to penalties for failure to file U.S. federal income tax returns, late
fees and interest on past due taxes. Furthermore, if Section 7874(b) were to
apply to us, our non-U.S. shareholders may be subject to adverse U.S. federal
income tax consequences such as the assessment of U.S. federal income
withholding taxes on dividends paid by us. Each shareholder should consult its
own tax advisor regarding the foregoing rules.

Risks Associated with our Common Shares

The market price of the common shares of our corporation
may be volatile

The market price of our common shares may experience
significant volatility. Numerous factors, including many over which we have no
control, may have a significant impact on the market price of our common shares
including, among other things: regulatory developments in target markets
affecting us, our customers or our competitors; actual or anticipated
fluctuations in our quarterly operating results; changes in financial estimates
or other material comments by securities analysts relating to us, our
competitors or the industry in general; announcements by other companies in the
industry relating to their operations, strategic initiatives, financial
condition or financial performance or to the industry in general; announcements
of acquisitions or consolidations involving industry competitors or industry
suppliers; addition or departure of our executive officers; and sales or
perceived sales of additional common shares of Adira. In addition, the stock
market in recent years has experienced extreme price and trading volume
fluctuations that often have been unrelated or disproportionate to the operating
performance of individual companies. These broad market fluctuations may
adversely affect the price of the common shares of Adira regardless of our
operating performance. There can be no assurance that an active market for the
Common Shares will be established or persist and the share price may decline.

The value of securities issued by us might be affected by
matters not related to our operating performance.

The value of securities issued by us may be affected by matters
not related to our operating performance or underlying value for reasons that
include the following: general economic conditions in Canada, the US, Israel and
globally; industry conditions, including fluctuations in the price of oil and
natural gas; governmental regulation of the oil and gas industry, including
environmental regulation; fluctuation in foreign exchange or interest rates;
liabilities inherent in oil and natural gas operations; geological, technical,
drilling and processing problems; assuming we achieve production, unanticipated
operating events which can reduce production or cause production to be shut-in
or delayed; failure to obtain industry partner and other third party consents
and approvals, when required; stock market volatility and market valuations;
competition for, among other things, capital, acquisition of reserves,
undeveloped land and skilled personnel; the need to obtain required approvals
from regulatory authorities; worldwide supplies and prices of and demand for
natural gas and oil; political conditions and developments in Israel, Canada,
the US, and globally; political conditions in natural gas and oil producing
regions; revenue and operating results failing to meet expectations in any
particular period; investor perception of the oil and gas industry; limited
trading volume of our common shares; change in environmental and other
governmental regulations; announcements relating to our business or the business
of our competitors; our liquidity; and our ability to raise additional funds.

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

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An investment in our Company will likely be
diluted.

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

If we are a passive foreign investment company at any
time that a U.S. shareholder holds our common shares, such U.S. shareholder may
be subject to adverse U.S. federal income tax consequences

Acquiring, holding or disposing of our common shares may have
tax consequences under the laws of Canada and the United States that are not
disclosed in this Form 20-F. In particular, potential investors that are U.S.
taxpayers should be aware that we may be considered a passive foreign
investment company (a PFIC) under Section 1297(a) of the U.S. Internal
Revenue Code (the Code) with respect to U.S. shareholders. A non-U.S.
corporation is classified as a PFIC under the Code for each tax year in which
(i) 75% or more of its gross income is passive income (as defined for U.S.
federal income tax purposes) or (ii) on average for such tax year, 50% or more
(by value) of its assets either produces or is held for the production of
passive income. The tax rules applicable to PFICs are very complex and, in some
cases, uncertain. Each U.S. investor should consult its own tax advisor with
respect to such rules. If our Company is a PFIC for any year during a U.S.
taxpayers holding period, then such taxpayer may be required to treat any gain
recognized by such person upon a sale or disposition of our common shares as
ordinary (rather than capital) income, and any resulting U.S. federal income tax
may be increased by an interest charge. Rules similar to those applicable to
dispositions will generally apply to certain amounts treated as excess
distributions in respect of the common shares.

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

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

ITEM
4                            INFORMATION
ON THE COMPANY

We are a Canadian corporation existing under the Canada
Business Corporations Act (the CBCA) which conducts business as an
oil and gas exploration company with operations in the State of Israel. We have
been granted certain petroleum licenses from the State of Israel, as more
particularly described below in Item 4B  Business Overview.

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

A.          
History and Development of the Company

Name

Our legal and commercial name is Adira Energy Ltd.

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Principal Office

Our principal office is located at 120 Adelaide Street West,
Suite 800, Toronto, Ontario, Canada, M5H 1T1. Our telephone number is (416)
250-6500.

Incorporation and Continuation

We are a Canadian corporation existing under the CBCA.

We were incorporated on February 20, 1997 under the name Trans
New Zealand Oil Company by filing our Articles of Incorporation with the
Secretary of State of Nevada. We changed our name to AMG Oil Ltd. on July 27,
1998. On December 17, 2009, we changed our name to Adira Energy Ltd. Our
fiscal year end is December 31.

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

Our common shares 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. Our current trading symbol on the OTC
Bulletin Board (the OTCBB) is ADENF and our current trading symbol on
the TSX Venture Exchange (the TSXV) is ADL.

Acquisition of Adira Energy

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

On December 2, 2010, our common shares commenced trading on the
TSXV following approval of its listing in November 2010.

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.

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Reporting Issuer Status under Canadian Securities Laws

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

Capital Expenditures and Divestitures

During the year ended December 31, 2013, we incurred capital expenditures of approximately $3.6 million which relates primarily to costs incurred in the planning and development of the wells. During the same period, we disposed of property and equipment in the net amount of approximately $1.8 million which relates primarily to the drilling equipment from the Samuel license.

We planned capital expenditures for the next twelve months include the our drilling program in connection with the Offshore Licenses.

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

Our oil and gas operations are located in the State of Israel.
We currently hold a working interest in two offshore petroleum licenses: the
Gabriella License No. 378, and the Yitzhak License No. 380. We refer to these
licenses, together, as the Offshore Licenses. We are the operator of
the Gabriella License and the Co-Operator of the Yitzhak License. In addition,
we have options to acquire up to a 5% participating interest two licenses called
the Myra and Sara Licenses, as well as an option to acquire up to a 15%
participating interest in the a license called the Yam Hadera License. We
currently ascribe no value to the Myra and Sara Licenses and as such we do not
consider our options to be material to our operations.

As discussed elsewhere in this annual report, as of the date hereof, we have missed one Ministry milestone on the Gabriella License – namely, we have not submitted a request to the Ministry for the approval of a new operator that complies with Ministry regulations; such request was due February 28, 2014.

As disclosed in more detail in our annual report on Form 20-F
for the year ended December 31, 2011, in 2011, we have relinquished our interest
in the Eitan License, and we waived our right to farm into the Notera License,
onshore. We notified the Petroleum Commissioner of Israel (the
Commissioner) of our surrender of the Eitan License on December 15,
2011, pursuant to the Israeli Petroleum Law, and by August 2012, we had plugged
and abandoned the Eitan #1 Well. On December 5, 2012, we received final
confirmation from the Ministry approving the surrender of the Eitan License.

As discussed elsewhere in in this annual report, we have relinquished our interest in the Samuel License. We notified the Ministry of our surrender on October 14, 2013, pursuant to the Israeli Petroleum Law, and we received final confirmation from the Ministry approving the surrender of the Samuel License on October 15, 2013.

As discussed elsewhere in this annual report, on February 16, 2014, the Ministry published the Guidelines in respect of Security Deposits for all offshore licenses that require each license consortium to deposit $2,500 per offshore license with the Ministry by March 31, 2014.  On March 27, 2014, the Ministry announced that it has extended the deadline for the Security Deposit until May 15, 2014. As of  the date hereof, we do not have sufficient funds to make our pro-rate share of the Security Deposit. We are currently examining the consequences of the Guidelines on the our operations, including the possibility of taking legal action.  However, should the consortium on each of the Offshore Licenses not meet these requirements, the Ministry will view this as a failure to meet a license milestone and will have the right to terminate the Offshore Licenses.

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Offshore Licences

Below is a map showing the locations of the Offshore Licences,
the Samuel License, the Eitan License, the Myra and Sara Licenses, the Yam
Hadera License, as well as several other licenses that we do not have an
interest in.



Gabriella License

The Gabriella License covers 97,000 acres (392 square
kilometers) and is approximately 10 kilometers offshore Israel between Netanya
and Ashdod. The Gabriella License was issued to Adira Israel on July 15, 2009
for an initial three year exploration period, subject to renewal for an
additional period of four years and a second additional period of two years in
the case of a discovery. Thereafter, a 30-50 year lease maybe granted if a
discovery (as defined in the Israeli Petroleum Law 5712 & 1952 and the
regulations promulgated thereunder (Israeli Petroleum Law)) is made. On
October 16, 2013, the Ministry granted an extension of the expiration of the
Gabriella License until September 1, 2014, with a corresponding extension of
certain milestones.

This table sets out the work program that must be completed in
order to maintain the Gabriella License:

Gabriella Work Program
    Milestone Dates1. Submit to the Ministry a request for approval of a new
      operator
    February 28, 20142. Execute a contract with a drilling contractor
    April 30, 21043. Complete an Antisotricpic PSDM and coherent sub surface
      model
    July 31, 20144. Spud the first well
    August 31, 2014


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Adira Israel and the other Gabriella License participants have
missed the February 28, 2014, deadline to submit to the Ministry a request for
approval of a new operator. If the Ministry does not provide such extensions,
the Ministry could then begin a process to retract the applicable license or
licenses from us. See Risk Factors above.

In January 2010, Adira Israel entered into an agreement with
Modiin Energy Limited Partnership (MELP) and Modiin Energy Management
(1992) Ltd. (MEGP) to transfer 70% of the participating interests in
the Gabriella License to MELP (the Gabriella 2010 Agreement). In
January 2010, a subsidiary of Brownstone Energy Inc. (Brownstone)
exercised its option to purchase 15% of the participating interests in the
Gabriella License. To date, Brownstones interest in the Gabriella License has
not been registered with the Ministry; however Adira Israel holds Brownstones
15% interest in trust on behalf of Brownstone pursuant to an agreement dated
July 7, 2011.

The operations on the Gabriella License and the relationship of the Gabriella License participants are governed by a joint operating agreement or “JOA” (the “Gabriella JOA”).  Pursuant to the Gabriella JOA, Adira Israel is the operator of the Gabriella License. The Gabriella License participants used to pay Adira Israel an operating fee, however, pursuant to the Settlement Agreement (as defined below), since Adira Israel did not pay the Settlement Costs (as defined below), as of January 1, 2013, Adira Israel ceased to receive the operator fees. In connection with the extension of the Gabriella License, Adira Israel has agreed to resign as the operator of the Gabriella License. The Gabriella License participants had until February 28, 2014, to name an alternative operator for Ministry approval, but have failed to meet this deadline.

Adira Israel previously received a monthly fee of $12,500 from
MELP, pursuant to the Gabriella 2010 Agreement; however these payments ended on
February 1, 2012. Adira Israel was also entitled to receive: (a) 4.25% of the
7.5% management fees payable by MELP to MEGP; and (b) a royalty in the aggregate
amount of 4.5% (2.25% from each of MELP and MEGP) from any resources extracted
from the Gabriella License until MELP recovers the pro rata exploration
expenditures incurred by it, after which time the royalty increases to an
aggregate of 10.5% (5.25% from each of MELP and MEGP), however, as discussed
below, such entitlements have been since been relinquished.

Between July 2012 and January 2013, Adira Israel, MELP and
Brownstone entered into various agreements for the purpose of drilling an
exploration well on the Gabriella License. The drilling, however, was not
accomplished and Adira Israel and MELP similarly alleged that the other was in
default of various obligations under the Gabriella JOA and other agreements
entered into on behalf of the Gabriella License participants. Accordingly, on
February 11, 2013, Adira Israel, in its capacity as operator under the Gabriella
JOA, suspended operations on the Gabriella License due to lack of funding and
lack of reasonable expectation of funding to meet certain work program
obligations.

Effective July 8, 2013 (the “Settlement Agreement Effective Date”), Adira Israel entered into the settlement Agreement with MELP and Brownstone to resolve the abovementioned disputes and the related suspension of operations. Pursuant to the Settlement Agreement, the Gabriella License participants agreed to waive and release each other from any claims and demands that they may have against each other with respect to the Gabriella License. The Agreement further provides that the Gabriella License participants will fund their proportionate share of costs incurred in connection with the attempted drilling of the exploration well. As of June 30, 2013, Adira Israel’s net share of the costs totals approximately US$3.3 million (the “Settlement Costs”) and was payable in stages over a 60-90 day period from the Settlement Agreement Effective Date. Additionally, Adira Israel agreed to relinquish several entitlements, including, but not limited to, its management fee. In the event that Adira Israel did not pay the Settlement Costs, at MELP’s request, Adira Israel may be required to withdraw from the Gabriella JOA, assign its participating interest in the Gabriella License to the remaining Gabriella License participants and relinquish its overriding royalty interest (“ORRI”). To date, Adira Israel has not paid the Settlement Costs and has relinquished its ORRI. Although MELP has yet to make the forgoing request, Adira Israel remains at risk of being required to withdraw from the Gabriella License.

As of the date hereof, Adira Israel settled most of the amounts owed as of December 31, 2013 to its creditors. In 2014, a claim was raised by one of its creditors against Adira Israel in the approximate amount of $750,000 with respect to payments made to certain creditors in 2014 following these settlements and the Company is currently negotiating a settlement agreement regarding this claim. The Company has rejected the claim and is presently unable to estimate the final outcome of this claim and whether it will result in any liability in 2014.

Yitzhak License

The Yitzhak License covers 31,555 acres (127.7 sq. km) and is
located approximately 9 km offshore and is contiguous to the Gabriella License.
The Yitzhak License was issued in October 2009 to Adira Energy (85% working
interest) and Brownstone (15% working interest) for an initial three year
exploration period and may be renewed upon fulfillment of certain conditions for
an additional four year period plus an additional 2 year renewal option in the case of a reserve discovery. Thereafter, a 30-50
year lease may be pursued if a discovery (as defined in the Israeli Petroleum
Law) is made. On October 16, 2013, the Ministry granted an extension of the
expiration of the Yitzhak License until October 15, 2014, with a corresponding
extension of certain milestones.

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This table sets out the work program that must be completed to
maintain the Yitzhak License:

Yitzhak Work Program
    Milestone
      Dates1. Execute a contract with a drilling contractor.
    September 30, 2014


On January 9, 2012, the Adira Israel received approval from the
Commissioner to farm-out a 5% carried working interest to AGR Group ASA
(AGR) and a 20% working interest (subject to dilution explained below)
to Ellomay Oil and Gas 2011 LP, a limited partnership (Ellomay) whose
general partner is a wholly-owned subsidiary of Ellomay Capital Ltd. In
accordance with the Ellomay Farm-Out Agreement (as defined below), Ellomay has
since transferred half of its working interest (being 10%) back to Adira Israel
for no cost. Following this transfer, Adira Israel has a 70% interest in the
Yitzhak License, Brownstone has a 15% interest, AGR has a 5% interest and
Ellomay a 10% interest. The new holdings have yet to be approved by the
Commissioner.

The farm-out agreement between Adira Israel and AGR, dated
November 29, 2011 (the AGR Farm-Out Agreement), provides, among other
things, that: (a) AGRs 5% working interest is carried by the remaining holders
of the Yitzhak License through the exploration period; (b) AGR issued to Adira
Israel a 3% ORRI on AGRs share of production, until repayment of AGR's
expenditures in the work program and a 4.5% ORRI from that point forward; (c)
AGR will be designated lead operator in accordance with Israeli regulations
defining Operator, with the continued involvement of Adira Israel as
co-operator which is a construction of private contract; and (d) AGR will be
appointed as engineering services contractor on the Yitzhak License with
continued involvement of Adira Israel as part of the core professional team led
by AGR.

The farm-out agreement between Adira Israel and Ellomay, dated
November 29, 2011 (the Ellomay Farm-Out Agreement), provides, among
other things, that: (a) Ellomay will reimburse Adira Israel for its
proportionate share of the costs incurred by Adira Israel on the Yitzhak
License, plus interest at LIBOR plus 1%; and (b) Ellomay will issue to Adira
Israel a 3% ORRI on Ellomays share of production, until repayment of Ellomay's
expenditures in the work program and a 4.5% ORRI from that date forward.

Adira Israel, Brownstone, AGR and Ellomay signed a JOA on
September 11, 2012, to regulate their commercial relationship in respect of the
Yitzhak License (the Yitzhak JOA). The Yitzhak JOA incorporated the
terms of the AGR Farm-Out Agreement and the Ellomay Farm-Out Agreement.

On June 13, 2012, Adira Israel granted MELP an option to
purchase (MELP Yitzhak Option) from Adira Israel a 15% participating
interest in the Yitzhak License (the MELP Yitzhak Option Interest). The
MELP Yitzhak Option may be excersised until 14 days prior to the signing of a
rig contract for the Yitzhak License. If MELP exercises the MELP Yitzhak Option,
then it must reimburse Adira Israel for expenditures in respect of the MELP
Yitzhak Option Interest incurred up to the date of transfer of the MELP Yitzhak
Option Interest. MELP must also issue to Adira Israel an ORRI of 3% with respect
to all oil and gas (including any distillate and condensate) produced, saved and
marketed from the area covered by Yitzhak License that is attributable to the
MELP Yitzhak Option Interest, before payout, and 4.5% after payout. The transfer
of the MELP Yitzhak Option Interest is subject to the approval of the
Commissioner, as are all license transfers in Israel.

Samuel License

As a result of challenging markets and difficulty raising
significant funds to drill multi-well programs, on October 14, 2013, Adira Geo,
Adira Technologies, and the other Samuel License participants relinquished the
Samuel License back to the State of Israel. Adira indirectly (through Adira
Energy) owns 60% of Adira Geo and Geo Global Resources (India) Inc.
(GGRI) owns 40%. The Ministry approved the surrender of the Samuel
License on October 15, 2013.

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Options to Acquire Interests in Petroleum Licenses

Myra and Sara Option

Adira has an option to acquire up to a 5% participating
interest in two licenses called the Myra License and Sara License (the
M&S Option). Adira obtained the M&S Option from Adira Barbados
prior to its dissolution. We currently ascribe no value to the Myra and Sara
Licenses and as such we do not consider our options to be material to our
operations.

Yam Hadera Option

Pursuant to the Gabriella 2012 Agreement, Adira Israel has an
option (the Yam Hadera Option) to acquire up to a 15% participating
interest in the Yam Hadera License, located 30 kilometers offshore Israel,
between Hadera and Haifa and North West of Adiras Yitzhak license. The Yam
Hadera Option is exercisable until 14 days prior to the signing of a rig
contract for the Yam Hadera License.

Reserve Reporting History

In May 2011, we engaged Gustavson Associates LLC
(Gustavson) as an independent contractor, to provide geophysical,
petrophysical, geological and engineering services for resource interpretation
and evaluation on the first phase of processing (often termed Fast
Track) for the Gabriella License and the Yitzhak License. In September
2011, we received two independent reports disclosing resource estimates on the
Gabriella License and the Yitzhak License. The reports were prepared by
Gustavson in accordance with National Instrument 51-101 - Standards of
Disclosure for Oil and Gas Activities (NI 51-101), as adopted by
the Canadian Securities Administrators, and described a probabilistic
distribution of contingent resources in respect of oil on the Gabriella License,
prospective resources in respect of gas for both the Gabriella License and the
Yitzhak License, and prospective resources in respect of oil on the Yitzhak
License.

In March 2012, we received two further independent reports from
Netherland, Sewell & Associates, Inc. (Netherland, Sewell)
disclosing resource estimates on each of the Gabriella License and the Yitzhak
License. The reports were prepared by Netherland, Sewell in accordance with NI
51-101 and also described a probabilistic distribution of contingent resources
in respect of oil on the Gabriella License, prospective resources in respect of
gas for both the Gabriella License and the Yitzhak License, and prospective
resources in respect of oil on the Yitzhak License. The reports are available on
www.sedar.com.

Readers should note that Contingent Resources and
Prospective Resources are as defined by the Canadian Oil and Gas Evaluation
Handbook, and do not represent an estimate of reserves. Readers are cautioned
that in contrast to disclosure permitted by NI 51-101, under applicable SEC
rules, the disclosure of estimates of oil or gas resources other than reserves,
and any estimated values of such resources, is not permitted to be disclosed in
any document publicly filed with the SEC.

Drilling Activity

As of the date of this Form 20-F, no drilling activity is being
carried out. During the past three fiscal years, we have had no productive wells
and have had only one dry exploratory well, being the Eitan #1 Well, which was
drilled on lands in the Hula Valley in Northern Israel.

We plugged and abandoned the Eitan #1 Well during the financial
year ended December 31, 2012.

Effects of Government Regulations

See Item 3D - Risk Factors.

C.          
Organizational Structure

The following sets out the current organizational structure of
Adira and its significant subsidiaries:

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Notes:

| | (1) | Adira Energy Ltd. is a holding corporation and is the
      registered and beneficial owner of 100% of Adira Energy Holding Corp.
      Adira Energy Ltd. currently holds the Myra and Sara Option.              
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Adira Energy Holding Corp. is a holding corporation and
      is the registered and beneficial owner of Adiras foreign subsidiaries,
      including its only significant subsidiary, Adira Energy Israel
  Ltd.
| | (3) | Adira Energy Israel Ltd. is a holding corporation created
      to hold oil and gas licenses. It currently holds the Gabriella License,
      the Yitzhak License and the Yam Hadera Option.                     

D.          
Property, Plant and Equipment

(a)         
Corporate Office

Our executive offices are comprised of approximately540 square
feet at 120 Adelaide Street West, Suite 800, Toronto, Ontario, Canada, M4V 3A1
for which the lease cost is CDN$ 2,313.90 per month.

(b)         
Special Skill and Knowledge e

Our ability to complete drilling and exploration is dependent
on the availability of well-trained, experienced crews to operate our field
equipment and qualified management. 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 evaluation of our
exploration properties.

(c)         
Foreign Operations

During the fiscal years ended December 31, 2013, 2012 and 2011,
all of our oil and gas exploration activities were 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 are awarded on the basis of
competitive bids. We believe that our early entry into oil and gas exploration
in Israel will provide us with a competitive advantage in the exploration and
evaluation of our licenses. We expect to benefit from Brownstones operational
knowledge and experience, given its established oil and gas exploration and
development operations.

(e)         
Dependence on Customers and Suppliers

We are not dependent upon a concentration of customers or
suppliers for revenues, or our operations.

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(f)        
 Environmental Protection and Policies

We are subject to various state and district environmental laws
and regulations enacted in Israel, 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 the fiscal year ended 2013 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 for each of our licenses.

See also Item 3D - Risk Factors.

ITEM
5                            OPERATING
AND FINANCIAL REVIEW AND PROSPECTS

The following is a discussion and analysis of our activities,
consolidated results of operations and financial condition as of and for the
year ended December 31, 2013 It should be read in conjunction with our audited
consolidated financial statements and related notes for the year ended December
31, 2013. Our financial statements have been prepared in accordance with IFRS as
issued by the IASB.

A.          
Operating Results

Results of Operations

Consolidated results of operations for the year ended
December 31, 2013 compared to the year ended December 31, 2012.

Revenues and Other Income

Year endedDecember 31,2013
    
    
    2012U.S. dollars in thousandsConsulting
    $
    7
    
    $
    455Operator fees
    
    5
    
    
    544Income from farm-out
    
    -
    
    
    890Other Income
    
    5
    
    
    -$
    17
    
    $
    1,889


Consulting fees relates to consulting services in respect of the Offshore Licenses and the Samuel License on a “time and materials” basis. For the year ended December 31, 2013, we earned consulting fees of $7 thousand, as compared to $455 thousand for the year ended December 31, 2012.  In early 2013 we ceased the planned drilling operations on the Gabriella License, and there were minimal activities on the Yitzhak License and Samuel License as compared to 2012.

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Operator fees relate to fees we received as the operator on the Offshore Licenses and the Samuel License, at a fixed rate of the total exploration costs incurred by the respective Unincorporated Joint Ventures (“UJVs”). For the year ended December 31, 2013, we earned operator fees of $5 thousand, as compared to $554 thousand for the year ended December 31, 2012.  The decrease during the period is primarily due to the suspension of operations on the Gabriella License in February 2013, and as explained before, since Adira Israel did not pay the Settlement Costs, Adira Israel relinquished its management fee and operator fee.  There was also a significant decrease in activities on the Yitzhak License and Samuel License as compared to 2012.

Expenses

Exploration Expenses

For the year ended December 31, 2013, exploration expenses amounted to $677 thousand as compared to $1.0 million for year ended December 31, 2012. The decrease in exploration expenses in 2013 is due to the reduced operations on the Offshore Licenses and the Samuel License compared to 2012.

General and Administrative Expenses

For the year ended December 31, 2013, general and administrative expenses amounted to $2.8 million as compared to $5.3 million for year ended December 31, 2012. The decrease in general and administrative expenses resulted primarily from the decrease of our exploration activities since we suspended operations on the Gabriella License and includes a reduction in the number of people that we employed, a reduction in share based compensation, a reduction in professional fees, and a reduction in rental and other related expenses.

Impairment Charge

For the year ended December 31, 2013, the impairment charge amounted to $5.2 million as compared to $7.8 million for the year ended December 31, 2012. The impairment in 2013 relates primarily to costs that had been capitalized to exploration and evaluation assets prior to the suspension of operations on the Gabriella License, and which have subsequently been written–off, and our decision to write off expenses on the Yitzhak License due to the low probability of realization of the asset from either the successful development or sale of the Yitzhak License in the near future.

Financing Income/Expense

For the year ended December 31, 2013, financing income amounted to $3 million as compared to $2.5 million for the year ended December 31, 2012, and financing expenses of $30 thousand for the year ended December 31, 2013 as compared to $745 thousand for the year ended December 31, 2012.

Financing Income results from the warrants issued in the August Offering (as defined below) that are denominated in Canadian dollars, while our functional currency is US dollars; therefore the fair value of the warrants are classified as a financial liability which is remeasured to fair value at the end of each period.  The changes in fair value are included in financing income/expenses. For the year ended December 31, 2013, the amount is income of $3.0 million (2012 - $2.5 million).

The primary
  reason for the decrease in financing expenses is the inclusion of offering
  expenses in the amount of $726 thousand in financing expenses in 2012. This
  amount represents offering costs incurred in the prospectus financing that
  closed in August 2012 (the August Offering), relating to the portion of
  the offering that was classified as financial liability.

In addition, we are exposed to financial risk related to the fluctuation of foreign exchange rates. We operate in Israel, most of our monetary assets are held in U.S. dollars and most of our expenditures are made in U.S. dollars. However, we also have expenditures in NIS and Canadian dollars. We have not hedged our exposure to currency fluctuations.

- 27 -

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Net Loss

We reported a net loss and comprehensive loss for the year
ended December 31, 2013 of $5.6 million as compared to a net loss and
comprehensive loss of $10.6 million for year ended December 31, 2012. The
primary reason for decrease in the loss in 2012 is as a result of our decreased
operations in 2013.

Inflation

During the years ended December 31, 2013 and 2012, inflation
has not had a material impact on our operations.

Government Regulation

The Offshore Licenses have been granted to us by the State of
Israel under the Israeli Petroleum Law, and our evaluation and exploration
activities in the areas covered by the Offshore Licenses must be undertaken in
compliance with work plans approved by the Commissioner.

Consolidated results of operations for the year ended
December 31, 2012 compared to the year ended December 31, 2011.

Revenues and Other Income

Year endedDecember 31,2012
    
    
    2011U.S. dollars in thousandsConsulting
    $
    455 $
    
    
    771Operator fees
    
    544
    
    
    312Income from farm-out
    
    890
    
    
    240$
    1,889
    
    $
    1,323


Consulting fees relates to consulting services in respect of
the Offshore Licenses and the Samuel License on a time and materials basis.
For the year ended December 31, 2012, we earned consulting fees of $455
thousand, as compared to $771 thousand for the year ended December 31, 2011. In
2012, following the appointment of AGR as the joint operator on the Yitzhak
License, we ceased to charge consulting fees, and, therefore, the consulting
fees earned in 2012 related to the Gabriella License and Samuel License only. In
addition, we revised the operator fee structure on the Gabriella License in
2012, which fixed the consulting fee at $25 thousand per month, which was lower
than the average monthly fee earned in 2011.

Operator fees relate to fees we received as the operator on the Offshore Licenses and the Samuel License, at a fixed rate of the total exploration costs incurred by the respective UJVs. For the year ended December 31, 2012, we earned operator fees of $544 thousand, as compared to $312 thousand for the year ended December 31, 2011.  The increase was due to the increased exploration activity that took place in 2012.

Income from farm-out relates mainly to fees received from MELP
and MEGP, in respect of our agreement with them relating to the farm out of 70%
of our interest in the Gabriella License as well as the reimbursement of prior
costs incurred on the Yitzhak License relating to our farm out of 20% of the
Yitzhak License in January 2012.

- 28 -

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Expenses

Exploration Expenses

For the year ended December 31, 2012, exploration expenses
amounted to $1 million as compared to $5 million for year ended December 31,
2011. The decrease in exploration expenses in 2012 was due to the advancement of
our drilling plan on the Offshore Licenses and the Samuel License, and as such,
exploration costs were capitalized to Exploration and Evaluation Assets, thus
reducing the amount of costs expensed. In 2011, we incurred expenses in
connection with the execution of the 3D seismic program on the Offshore Licenses
and Samuel License.

General and Administrative Expenses

For the year ended December 31, 2012, general and administrative expenses amounted to $5.3 million as compared to $5 million for year ended December 31, 2011. The increase in operating expenses resulted primarily from increased legal and accounting expenses relating to planned capital raises that were not completed in 2012, and increased activity in Israel, including the hiring of additional staff in the second half of 2011 and during 2012. The increase in the general and administrative expenses was offset by the decrease in share based compensation ($1 million in 2011 as compared to $887 thousand in 2012). The decrease was mainly due to the fact that most of the options that were granted in prior years were either fully vested or expired.

Impairment Charge

For the year ended December 31, 2012, the impairment charge amounted to $7.8 million as compared to $1.2 million for the year ended December 31, 2011. The impairment in 2012 relates primarily to our decision to record an impairment charge of $7.8 million in respect of the Samuel license. We believed that there was a low probability of realization of the asset from either the successful development or sale of the Samuel license. The impairment in 2011 was in respect of the abandoning of the Eitan #1 Well and consumables and equipment related to the Eitan License.

Financing Income/Expense

For the year ended December 31, 2012, financing income amounted
to $2.5 million as compared to $43 thousand for the year ended December 31,
2011, and financing expenses of $745 thousand of the year ended December 31,
2012, as compared to $109 thousand in the year ended December 31, 2011. The
primary reason for the increase in financing expenses was the inclusion of
offering expenses in the amount of $726 thousand in financing expenses in
respect of the August Offering. This amount represents offering costs incurred
in the August Offering relating to the portion of the offering that was
classified as financial liability.

The warrants issued in the August Offering were denominated in
Canadian dollars, while our functional currency is US dollars; therefore the
fair value of the warrants are classified as a financial liability which is
remeasured to fair value at the end of each period. The changes in fair value
are included in financing income/expenses and for the year ended December 31,
2012, the amount is income of $2.3 million.

Net Loss

We reported a net loss and comprehensive loss for the year
ended December 31, 2012 of $10.6 million as compared to a net loss and
comprehensive loss of $10 million for year ended December 31, 2011. The primary
reason for the loss in 2012 is as a result of an impairment charge in respect of
the Samuel License.

Inflation

During the years ended December 31, 2012 and 2011, inflation
has not had a material impact on our operations.

- 29 -

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B.          
Liquidity and Capital Resources

Liquidity

Liquidity is a measure of a companys ability to meet potential
cash requirements. We have historically met its capital requirements through the
issuance of common shares.

We have an accumulated deficit of $34.6 million as of December 31, 2013, and had negative cash flows from operations of $2.0 million for the year ended December 31, 2013 ($4.0 million for the year ended December 31, 2012). Our ability to continue as a going concern depends upon the discovery of economically recoverable reserves, our ability to obtain financing to complete development, and upon future profitable operations from the properties or proceeds from their disposition. We are an exploration stage company and have not earned any revenues from its oil and gas properties to date.

In 2013, as a result of challenging markets and difficulty in raising funds to drill multi well program, we significantly reduced our activity and returned the Samuel license to the Ministry, ceased operation in Gabriella due lack of funding from the partners of the license, and there was no exploration activity in the Yitzhak License.

There can be no assurance that we will be able to continue to
raise funds in which case we may be unable to meet its obligations. We are
considering various alternatives with respect to raising additional capital to
remedy any future shortfall in capital, but to date has made no specific plans
or arrangements. 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.

Year ended December 31, 2013 compared to year ended
December 31, 2012

During the year ended December 31, 2013, our overall position
of cash and cash equivalents decreased by $1.8 million. This decrease in cash
can be attributed to the following activities:

Our net cash used in operating activities during the year ended December 31, 2013 was $2.0 million as compared to $4.0 million for the year ended December 31, 2012. This decrease is due to the fact that most of our exploration activities are capitalized to Exploration and Evaluation Assets and are therefore included in investment activities.

Cash generated from investing activities during the year ended December 31, 2013 was $234 thousand as compared to cash used in investing activities of $12.0 million during the year ended December 31, 2012. The generation of cash from investment activities in 2013 relates primarily from the sales of property and equipment and the decrease in restricted cash, offset to some extent by the capitalization of drilling costs in respect of the Offshore Licences and the Samuel License.

Cash provided by financing activities for the year ended
December 31, 2013 was Nil as compared to $10.4 million during the year ended
December 31, 2012.The cash provided in 2012 is primarily as a result of
the completion of a public offering of shares and warrants for the net proceeds
of $9.8 million.

There are no legal restrictions on transferring funds between
Canada and Israel.

Year ended December 31, 2012 compared to year ended
December 31, 2011

During the year ended December 31, 2012, our overall position
of cash and cash equivalents decreased by $5,700,000. This decrease in cash can
be attributed to the following activities:

Our net cash used in operating activities during the year ended
December 31, 2012 was $3,980,000 as compared to $6,414,000 for the year ended
December 31, 2011. This decrease is due to the fact that most of our exploration
activities were capitalized to Exploration and Evaluation Assets and were
therefore included in investment activities.

Cash used in investing activities during the year ended
December 31, 2012 was $12,003,000 as compared to cash used in investing
activities of $657,000 during the year ended December 31, 2011. The investment
in 2012 relates primarily to the capitalization of drilling costs in respect of
the Offshore Licences and the Samuel License.

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Cash provided by financing activities for the year ended
December 31, 2012 was $10,351,000 as compared to $6,617,000 during the year
ended December 31, 2011.The cash provided in 2012 was primarily a result
of the completion of a public offering of shares and warrants for the net
proceeds of $9,801,000. Cash provided in 2011 was a result of a private
placement for net proceeds of $6,152,000, and the exercise of warrants and
employee stock options during that period.

Capital Resources

At December 31, 2013, our cash and cash equivalents were $617 thousand (December 31, 2012 - $2.4 million). The majority of this balance is being held in US Dollars. Our working capital at December 31, 2013 was negative $638 thousand as compared to $1.2 million at December 31, 2012. The decrease in 2012 is a result of the cessation of operations on the Gabriella License that took place during the year.

Commitments

We have commitments to the Ministry to complete the work
programs on all of the Offshore Licenses as set out above under Item 4B 
Offshore Licences.

In order to maintain the Offshore Licenses, we will be required
to expend amounts in respect of exploration expenditures. We intend to meet all
of its drilling and related expenditures as they become due to maintain our
interests in its oil and gas properties. These oil and gas expenditure
obligations are not fixed and cannot be predetermined with certainty. Failure to
meet the obligations may result in the loss of our ownership interests in the
Offshore Licenses.

Our share of the remaining contractual commitments as of
December 31, 2013, for the Offshore Licenses is approximately Nil.

Critical Accounting Policies and Estimates

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

- Exploration and evaluation assets;
- Share-based payment transactions;
- Joint oil and gas ventures;
- Farm out arrangements in the exploration and evaluation phase;
- Impairment of financial assets; and
- Revenue recognition.

Exploration and evaluation assets

Pre-license costs

Pre-license costs are expensed in the period in which they are
incurred.

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Exploration and evaluation costs

Oil and natural gas exploration and development expenditure is
accounted for using the successful efforts method of accounting.

During the geological and geophysical exploration phase, costs
are charged against income as incurred. Costs directly associated with an
exploration well in its drilling phase, for which it has not yet been determined
whether there are proved reserves or it is not commercially viable, are
capitalized as exploration and evaluation intangible assets until the drilling
of the well is complete and the results have been evaluated. These costs include
employee remuneration, materials and fuel used, rig costs and payments made to
contractors. If no reserves are found, the exploration asset is tested for
impairment. If extractable hydrocarbons are found and, subject to further
appraisal activity (e.g., by drilling further wells), are likely to be developed
commercially, the costs continue to be carried as an intangible assets while
sufficient and continued progress is made in assessing the commerciality of the
hydrocarbons. All such costs are subject to technical, commercial and management
review as well as review for impairment at least once a year to confirm the
continued intent to develop or otherwise extract value from the discovery. When
this is no longer the case, the costs are written off. When proved reserves of
oil are determined and development sanctioned, the relevant expenditure is
transferred to oil and gas properties after impairment is assessed and any
resulting impairment loss is recognized.

Share-based payment transactions

Our employees and other service providers are entitled to
remuneration in the form of equity-settled share-based payment transactions.

The cost of equity-settled transactions with employees is
measured at the fair value of the equity instruments granted at grant date. The
fair value is determined using an appropriate pricing model. As for other
service providers, the cost of the transactions is measured at the fair value of
the goods or services received as consideration for equity instruments. In cases
where the fair value of the goods or services received as consideration of
equity instruments cannot be measured, they are measured by reference to the
fair value of the equity instruments granted.

The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance and service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award (the “vesting period”). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and our best estimate of the number of equity instruments that will ultimately vest. The expense or income recognized in profit or loss represents the movement in the cumulative expense recognized at the end of the reporting period. No expense is recognized for awards that do not ultimately vest.

If we modify the conditions on which equity-instruments were
granted, an additional expense is recognized for any modification that increases
the total fair value of the share-based payment arrangement or is otherwise
beneficial to the employee/other service provider at the modification date. If a
grant of an equity instrument is cancelled, it is accounted for as if it had
vested on the cancellation date, and any expense not yet recognized for the
grant is recognized immediately. However, if a new grant replaces the cancelled
grant and is identified as a replacement grant on the grant date, the cancelled
and new grants are accounted for as a modification of the original grant, as
described above.

Joint oil and gas ventures

We conduct petroleum and natural gas exploration activities
jointly with other partners who each have direct ownership in the assets and
each are directly obligated for the liabilities of the ventures. Consequently,
our financial statements reflect only our proportionate interest in such
activities.

We account for our share of the joint venture's assets,
liabilities it has incurred, income from the sale or use of its share of the
joint venture's output, together with its share of the expenses incurred by the
joint venture and any expenses it incurs in relation to its interest in the
joint venture.

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Farm-out arrangements in the exploration and evaluation
phase

A farm out is the transfer of part of oil and gas interest in
consideration for an agreement by the transferee (the farmee) to meet,
absolutely, certain expenditures which would otherwise have to be undertaken by
the owner (the farmor). Farm-out transactions generally occur in the
exploration or development phase and are characterized by the transferor (i.e.
farmor) giving up future economic benefits, in the form of reserves, in exchange
for a reduction in future funding obligations.

Accordingly, the farmee recognizes its expenditure under the
arrangement in respect of its interest and that retained by the farmor, as and
when the costs are incurred.

We, as the farmor, account for the farm-out arrangement as
follows:

- we do not record any expenditure made by the farmee on our behalf;
- we do not recognize a gain or loss on the farm out arrangement, but rather
  redesignates any costs capitalized in relation to the whole interest as
  relating to the partial interest retained; and
- any cash consideration received is credited against costs previously
  capitalized in relation to the whole interest with any excess accounted for by
  the farmor as a gain on disposal.

Impairment of financial assets

At the end of each reporting period, we assess whether there is
objective evidence of impairment of a financial asset or group of financial
assets carried at amortized cost.

Objective evidence of impairment of debt instruments and receivables exists as a result of one or more events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows. Evidence of impairment may include indications that the debtor is experiencing financial difficulties, including liquidity difficulty and default in interest or principal payments. The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate (the effective interest rate computed at initial recognition). If the financial asset has a variable interest rate, the discount rate is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account (see allowance for doubtful accounts above). In a subsequent period, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.

Revenue recognition

Revenues are recognized in the statement of comprehensive loss
when the revenues can be measured reliably, it is probable that the economic
benefits associated with the transaction will flow to us and the costs incurred
or to be incurred in respect of the transaction can be measured reliably.

Our revenues are mainly derived from:

1. Operator fees - We act as the
operator or joint operator on the Offshore Licenses and is entitled to operator
fees and revenues are recognized in accordance with the terms of the JOAs, as
exploration expenses are incurred in the UJVs.

2. Consulting fees  We provide
consulting services in respect of the Offshore Licenses on a time and
materials basis. Consulting fees are recognized as revenues as the services are
rendered to the respective UJVs.

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C.         
 Research and Development, Patents and Licences

Not applicable.

D.          
Trend Information

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

E.          
Off-Balance Sheet Arrangements

Except for the Myra and Sara Option and the Yam Hadera Option,
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
December 31, 2013:

Payments due by period (U.S.
      dollars in thousands)Contractual
      Obligations
    Total
    Less than 1
      year
    1-3 years
    3-5 years
    More than 5
      yearsOperating Lease Obligations
    29
    29
    0
    0
    0Total
    29
    29
    0
    0
    0


G.          
Safe Harbor

Not applicable.

ITEM
6                           
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.          
Directors and Senior Management

The size of Adira’s Board of Directors (the “Board”) is currently set at four.  All of Adira’s directors are elected annually by the shareholders and hold office until the next annual general meeting or until their successors are duly elected and qualified, unless their office is earlier vacated in accordance with the CBCA and Adira’s articles of incorporation.

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

Name(1)
    PositionDennis Bennie(2)(3)
    Director and ChairmanColin Kinley
    Director


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Name(1)
    PositionAlan Friedman(2)
    Director and Executive
      Vice-President, Corporate DevelopmentAlan Rootenberg(2)(3)
    DirectorGadi Levin
    Chief Financial Officer
      Secretary Acting Principal Executive Officer from February 24 to
      February 27, 2012


Notes:

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

During the 2013 financial year Sheldon Inwentash and Orit
Leitman, resigned from the Board. Amos Lasker, Jeffrey E. Walter, and Richard
Crist were not nominated for re-election.

Directors and Senior Management of the Subsidiaries

The following table sets out the directors and senior
management of Adiras significant subsidiaries as of the date of this Form 20-F,
provides the persons name, location of residence, position(s) held with the
entity, principal occupation during the last five years and if a director, the
date on which the person became a director. None of the directors and senior
management listed below beneficially own, control or direct, directly or
indirectly, any common shares of any subsidiary listed below.

Adira Energy Holding Corp. (Ontario)

|Name and
      Residence        | Position                                | Date First Elected/ appointed | Principal Occupation During Last 5 Years                                                                                                                                                                                                  
|------------------------------- | --------------------------------------- | ----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                |                                         |                               |                                                                                                                                                                                                                                           
|Gadi Levin Lev Hasharon, Israel | Chief Financial Officer                 | January 11, 2011              | VP and Chief
      Financial Officer for two Israeli investment houses in the fields of
      private equity, hedge funds and real estate. Prior to that, financial
      consultant to the Prime Ministers Office of the State of Israel
|                                |                                         |                               |                                                                                                                                                                                                                                           
|Alan Friedman Toronto, Canada   | President, Secretary and
      Director | April 4, 2008                 | Founder,
      President and Chief Executive Officer of Rivonia Capital Inc., South
      African lawyer                                                                                                                                  
|                                |                                         |                               |                                                                                                                                                                                                                                           
|Dennis Bennie Toronto, Canada   | Director                                | April 4, 2008                 | Founder, XDL
      Venture Capital Fund and XDL Capital Invest                                                                                                                                                                            

- 35 -

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Adira Energy Israel Ltd. (Israel)

|Name and
      Residence        | Position                                                  | Date First Elected | Principal Occupation During Last 5 Years                                                                                                                                                                                                  
|------------------------------- | --------------------------------------------------------- | ------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                |                                                           |                    |                                                                                                                                                                                                                                           
|Gadi Levin Lev Hasharon, Israel | Chief Executive Officer and
      Chief Financial Officer | January 11, 2011   | VP and Chief Financial Officer for two Israeli investment
      houses in the fields of private equity, hedge funds and real estate. Prior
      to that, financial consultant to the Prime Ministers Office of the State
      of Israel

The following is biographical information on our directors and
offers who are acting in the capacity of director or officer as of the date
hereof:

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

Mr. Colin Kinley. Mr. Kinley became a director of
Adira on August 31, 2009 and was a Senior Advisor from August 23, 2010 to
December 15, 2011. He also served as President and Chief Operating Officer of
Adira from July 22, 2010 to June 27, 2011. 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. Mr. 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 Christensen he had executive oversight of multiple service companies
and exploration and production operations, both domestically and
internationally. During the past 7 years, Mr. Kinley and his team have developed
an E&P advisory firm consulting on the development of frontier oil and gas
plays from concept development through to exploration. He is experienced and
practiced in both public and private company disciplines.

Mr. Alan Friedman. Mr. Friedman became Executive
Vice-President and a director of Adira on August 31, 2009. Prior to joining
Adira, Mr. Friedman was a founding member of Adira Holding Co. and had been its
President since its inception in April 2009. Mr. Friedman is a South African
qualified attorney and has played an integral role in the acquisition of various
mining and oil and gas assets, financings and go-public transactions for many
resource companies over the past 13 years. Mr. Friedman is also the co-founder
and Director of Eco (Atlantic) Oil & Gas Ltd., a TSXV listed oil and gas
exploration company, developing various oil assets offshore and onshore Namibia.
He was also a director and cofounder of Auryx Gold Corp., a TSX listed Namibian
gold exploration company having been sold to B2 Gold for more than $150 million.
Mr. Friedman is the President and Chief Executive Officer of Rivonia Capital
Inc. and a director of the Canada-South Africa Chamber of Business.

Mr. Alan Rootenberg. Mr. Rootenberg is a
chartered accountant with experience in the oil and gas, mineral exploration and
technology industries. He has served as a senior executive for number of
publicly traded companies. Alan has also served as President and Chief Executive
Officer of a TSXV listed technology company. Alan has a Bachelor of Commerce
degree from the University of the Witwatersrand in Johannesburg, South Africa
and holds a CPA designation.

Mr. Gadi Levin. Mr. Levin became Chief Financial
Officer of Adiras subsidiaries in July 2010, Secretary of Adira in August 2010,
and was appointed as Adiras Chief Financial Officer in January 2011. He served
as the Acting Principal Executive Officer of Adira during the interim period
from the effective date of the termination of February 24, 2012, to February 27,
2012. Mr. Levin previously served as the Vice President of Finance and Chief
Financial Officer for two Israeli investment houses in the fields of private
equity, hedge funds and real estate (July 2008 to December 2009 and January 2010
to June 2010, respectively). For the five years prior to that he worked as a
financial consultant 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.

- 36 -

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

Cease trade orders, bankruptcies, penalties or
sanctions

For the purposes of this section, order means a cease trade
order; an order similar to a cease trade order; or an order that denied the
relevant company access to any exemption under securities legislation that was
in effect for a period of more than 30 consecutive days.

To the best of our knowledge, other than as disclosed below, no
director or executive officer of Adira is, as at the date hereof, or has been,
within the 10 years before the date hereof, a director, chief executive officer
or chief financial officer of any corporation (including Adira ) that:

| | (a) | was subject to an order that was issued while the
      director or executive officer was acting in the capacity as director,
      chief executive officer or chief financial officer; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (b) | was subject to an order that was issued after the
      director or executive officer ceased to be a director, chief executive
      officer or chief financial officer and which resulted from an event that
      occurred while that person was acting in the capacity as director, chief
      executive officer or chief financial officer., other than in the case of
      Alan Rootenberg where in April 2008, he resigned as interim Chief
      Financial Officer of Talware Networx Inc., a TSXV listed company. 13
      months later, in May 2009, the common shares of Talware Networx Inc. were
      the subject of a cease trade order and the company was delisted from the
      TSXV.

To the best of our knowledge, no director or executive officer
of Adira or a shareholder holding a sufficient number of securities of Adira to
affect materially the control of Adira:

| | (a) | is, as at the date hereof, or has been within the 10
      years before the date hereof, a director or executive officer of any
      corporation (including Adira) that, while that person was acting in that
      capacity, or within a year of that person ceasing to act in that capacity,
      became bankrupt, made a proposal under any legislation relating to
      bankruptcy or insolvency or was subject to or instituted any proceedings,
      arrangement or compromise with creditors or had a receiver, receiver
      manager or trustee appointed to hold its assets; or
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | as, within the 10 years before the date hereof, become
      bankrupt, made a proposal under any legislation relating to bankruptcy or
      insolvency, or become subject to or instituted any proceedings,
      arrangement or compromise with creditors, or had a receiver, receiver
      manager or trustee appointed to hold the assets of the director, executive
      officer or shareholder.                                                                                                                                                                                      

To the best of our knowledge, no director or executive officer
of Adira, or a shareholder holding a sufficient number of Adiras securities to
affect materially the control Adira, has been subject to:

| | (a) | any penalties or sanctions imposed by a court relating to
      securities legislation or by a securities regulatory authority or has
      entered into a settlement agreement with a securities regulatory
      authority; or
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 37 -

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| | (b) | any other penalties or sanctions imposed by a court or
      regulatory body that would likely be considered important to a reasonable
      investor in making an investment decision.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Conflicts of Interest

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

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

Promoters

Alan Friedman, Ilan Diamond (formerly the Chief Executive
Officer and a director of the Company,) and Dennis Bennie took the initiative in
organizing the Company and may be considered to have been promoters of the
Company. See Item 6E - Share Ownership for details of the shareholdings
of such individuals.

B.          
Compensation

During the year ended December 31, 2013, 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 $932 thousand, of which $1,133 thousand relates to salaries to executive officers and $77 thousand relates to share based compensation to executive officer and directors.

Executive Compensation

Compensation Discussion and Analysis

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

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

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

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

- 38 -

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Summary Compensation Table

The following table provides a summary of compensation that we
paid to our senior management during the fiscal year then ended December 31,
2013 (in thousands of US Dollars):

Names and
      Principal Position
    Salary ($)
    Share- Based
      Awards ($)
    Option- Based
      Awards ($)
    **Non-Equity
      Incentive** **Plan Compensation**
      **($)**
    Pension Value
      ($)
    All Other Compensation
      ($)
    Total Compensation
      ($)Annual incentive
      plans
    Long- term
      incentive plansJeffrey E. Walter, Chief Executive
      Officer(1)
    311
    44
    -
    -
    -
    -
    -
    355Gadi Levin, Chief Financial Officer
    204
    27
    -
    -
    -
    -
    -
    231Alan Friedman, Executive Vice President, Corporate
      Development
    144
    19
    -
    -
    -
    -
    -
    163Alon Polishuk, Vice President, Contracts
      Administration and Regulations(2)
    199
    (26)
    -
    -
    -
    -
    -
    173Moshe Politi Chief Geologist(3)
    201
    (24)
    -
    -
    -
    -
    -
    177


Notes:

| | 1) | Mr. Walter ceased to be the Chief Executive Officer,
      effective September 10, 2013.                                  
| | -- | --------------------------------------------------------------------------------------------------------------------------
| | 2) | Mr. Polishuk ceased to be the Vice President, Contracts
      Administration and Regulations, effective December 30, 2013.
| | 3) | Mr. Politi ceased to be the Chief Geologist, effective
      December 30, 2013.                                           

- 39 -

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Option Based Awards

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

We 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

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

Long-Term Incentive Plan Awards

We did not make any long-term incentive plan awards during the
years ended December 31, 2013 and 2012.

Pension, Retirement or Similar Benefits

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

Employment Agreements

We have entered into employment agreements with certain of our
officers. The agreements contain, among other things, confidentiality,
non-solicitation and non-competition covenants that will apply during the term
of each officers employment and for a specific period of time after termination
of their employment.

As of the date of this Annual Report, we have employment
agreements with the following officers of Adira:

Mr. Dennis Bennie  Co-Chairman

Effective August 31, 2009, Adira entered into an agreement with
Mr. Bennie pursuant to which Mr. Bennie agreed to provide his services to us in
the capacity of Co-Chairman of the Board for a term to continue until terminated
(the Bennie Agreement). Under the Bennie Agreement, Mr. Bennie is paid
an annual salary of CDN$60,000.

The Bennie Agreement contains certain representations,
warranties and covenants, including, among other things, standard
confidentiality, non-competition and non-solicitation covenants. Pursuant to the
Bennie Agreement, each party thereto is entitled to terminate the Bennie
Agreement at any time by providing sixty days written notice. In addition,
Adira is entitled to terminate the Bennie Agreement immediately without notice
and/or payment in lieu thereof for cause (as defined in the Bennie
Agreement).

Furthermore, if the Bennie Agreement is terminated by Adira
without cause (as defined in the Bennie Agreement), by Mr. Bennie for good
reason (as defined in the Bennie Agreement) or due to a change of control in
Adira (as defined in the Bennie Agreement), Mr. Bennie is entitled to a payment
equal to twenty four months salary and 100% of the stock options granted to Mr.
Bennie will vest immediately.

- 40 -

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Notwithstanding the forgoing, effective March 1, 2013, 50% of
Mr. Bennies salary shall accrue and become payable upon the happening of
certain prescribed events, including a change of control transaction or a
substantial financing.

Mr. Alan Friedman  Executive Vice President, Corporate
Development

Effective May 1, 2011, Adira entered into a consulting
agreement, as amended and restated on December 19, 2012 and as amended further
on March 22, 2013, with Rivonia Capital Inc. (the Friedman Service
Company), a company wholly owned by Mr. Friedman, pursuant to which Mr.
Friedman agreed to provide his services to us in the capacity of Executive Vice
President of Corporate Development for a term to continue until terminated (the
Friedman Agreement). Mr. Friedman reports to Adiras CEO. Under
the Friedman Agreement, Mr. Friedman is paid a monthly salary of CDN$12,000
(excluding HST).

The Friedman Agreement contains certain representations,
warranties and covenants, including, among other things, standard
confidentiality, non-competition and non-solicitation covenants. Pursuant to the
Friedman Agreement, each party thereto is entitled to terminate the Friedman
Agreement at any time by providing sixty days written notice. In addition,
Adira is entitled to terminate the Friedman Agreement immediately without notice
and/or payment in lieu thereof for cause (as defined in the Friedman Agreement).

Furthermore, if the Friedman Agreement is terminated by Adira
without cause (as defined in the Friedman Agreement), by the Friedman Service
Company or Mr. Friedman for good reason (as defined in the Friedman Agreement )
or due to a change of control in Adira (as defined in the Friedman Agreement),
the Friedman Service Company is entitled to a payment equal to twenty four
months salary and 100% of the stock options granted to Mr. Friedman will vest
immediately.

Notwithstanding the forgoing, 50% of Mr. Friedmans salary
shall accrue and become payable on the happening of certain prescribed events,
including but not limited to a change of control transaction or a substantial
financing.

Mr. Gadi Levin  Chief Financial Officer

Effective July 21, 2010, Adira Israel entered into an employment agreement with Mr. Levin, as amended on September 13, 2012, and March 13, 2013,  pursuant to which Mr. Levin agreed to provide his services to us in the capacity of Chief Financial Officer for a term to continue until terminated (the “ Levin Agreement”). Mr. Levin reports to the Adira’s CEO. Under the Levin Agreement, Mr. Levin is paid a monthly salary of NIS 51,000 ($14,697.41, based on an exchange rate of one U.S. dollar into New Israeli Shekel of $1.00 per NIS 3.47, on April 29, 2014, as published by International Monetary Fund) and is entitled to, among other things, a vehicle allowance.

The Levin Employment Agreement contains certain
representations, warranties and covenants, including, among other things,
standard confidentiality, non-competition and non-solicitation covenants.
Pursuant to the Levin Agreement, each party thereto is entitled to terminate the
Levin Agreement at any time by providing two months written notice. In
addition, Adira is entitled to terminate the Levin Agreement immediately without
notice and/or payment in lieu thereof for cause (as defined in the Levin
Agreement).

If the Levin Employment Agreement is terminated due to a change
of control (as defined in the Levin Employment Agreement), by Adira Israel
without cause (as defined in the Levin Agreement) or by Mr. Levin for good
reason (as defined in the Levin Agreements), Mr. Levin is entitled to a payment
equal (i) twelve months salary and 50% of the unvested stock options granted to
Mr. Levin will be accelerated and be vested if the Levin Employment Agreement is
terminated between 13 and 36 months of its effective date, or (ii) twenty four
months salary and 100% of the unvested stock options granted to Mr. Levin will
be accelerated and be vested if the Levin Employment Agreement is terminated at
least 37 months of its effective date.

Effective, November 1, 2013, the scope of Mr. Levin’s employment became part-time and his salary was reduced to  NIS 17,000 ($4,899.13, based on an exchange rate of one U.S. dollar into New Israeli Shekel of $1.00 per NIS 3.47, on April 29, 2014, as published by International Monetary Fund).

- 41 -

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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 Adiras articles and
the CBCA. One of the objectives of the Board with respect to the nomination is
to maintain the composition of the Directors in a way that provides the best mix
of skills and experience to guide our long-term strategy and ongoing business
operations.

The Board conducts an annual review and assessment of the
performance of the Chairman and Chief Executive Officer and our other senior
executive officers.

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

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

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

Term of Office

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

Audit, Compensation and Disclosure Committees

Audit Committee

We have a standing Audit Committee that assists the directors
of Adira in overseeing all material aspects of reporting, control and audit
functions, except those specifically related to the responsibilities of another
standing committee of the Board. The role of the Audit Committee includes a
particular focus on the qualitative aspects of financial reporting to
shareholders and on our processes for the management of business/financial risk
and for compliance with significant applicable legal, ethical, and regulatory
requirements. The Audit Committee is responsible for, among other things, the
making recommendations to our Board with respect to the appointment and
remuneration of our independent accountant. A copy of our Audit Committee
Charter was filed as an exhibit to our Form 10-KSB filed for our 2003 fiscal
year.

As of the date hereof, our Audit Committee is comprised of
Dennis Bennie, Alan Rootenberg and Alan Friedman.

We have procedures for the review and pre-approval of any
services performed by our auditors. The procedures require that all proposed
engagements of the auditors for audit and non-audit services be submitted to the
Audit Committee for approval prior to the beginning of any such
services. The Audit Committee considers such requests, and, if acceptable to a
majority of the Audit Committee members, pre-approves such audit and non-audit
services by a resolution authorizing management to engage the auditors for such
audit and non-audit services. During such deliberations, the Audit Committee
assesses, among other factors, whether the services requested would be
considered "prohibited services" as contemplated by the regulations of the SEC,
and whether the services requested and the fees related to such services could
impair the independence of the auditors.

- 42 -

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Pursuant to section 6.1 of NI 52-110, as adopted by the
Canadian Securities Administrators (the "CSA"), Adira is exempt from the
requirements of Parts 3 and 5 of NI 52-110 for the year ended December 31, 2013,
by virtue of Adira being a "venture issuer" (as defined in NI 52-110).

Part 3 of NI 52-110 prescribes certain requirements for the
composition of audit committees of non-exempt companies that are reporting
issuers under Canadian provincial securities legislation. Part 3 of NI 52-110
requires, among other things that an audit committee be comprised of at three
directors, each of whom, is, subject to certain exceptions, independent and
financially literate in accordance with the standards set forth in NI 52-110.

Part 5 of NI 52-110 requires an annual information form that is
filed by a non-exempt reporting issuer under National Instrument 51-102 
Continuous Disclosure Obligations, as adopted the CSA, to include certain
disclosure about the issuer's audit committee, including, among other things:
the text of the audit committee's charter; the name of each audit committee
member and whether or not the member is independent and financially literate;
whether a recommendation of the audit committee to nominate or compensate an
external auditor was not adopted by the issuer's board of directors, and the
reasons for the board's decision; a description of any policies and procedures
adopted by the audit committee for the engagement of non-audit services; and
disclosure of the fees billed by the issuer's external auditor in each of the
last two fiscal years for audit, tax and other services.

Compensation Committee

Adira has a Compensation Committee comprised of Dennis Bennie,
Alan Rootenberg and Colin Kinley. Currently, any material commitments, inclusive
of remuneration, are required to be pre-approved by the Board, following
recommendation of the Compensation Committee

Disclosure Committee

Adira has a Disclosure Committee comprised of Dennis Bennie and
Alan Friedman. The purpose of the Disclosure Committee is to provide assistance
to the Chief Executive Officer and the Chief Financial Officer in fulfilling
their responsibilities regarding the identification and disclosure of material
information about us, and the accuracy, completeness and timeliness of our
financial reports.

D.          
Employees

As of December 31, 2013, we employed a total of 7 employees, out of which 3 are employed in Israel and 4 in North America. 2 employees perform management and professional functions, 4 employees provide administrative services, and 1 provides legal/regulatory service.

None of our employees are part of a collective bargaining unit.
Management believes that its relations with its employees are good.

Israeli Employment Law and Practices

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.

- 43 -

---

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.

Holder name
    No. of Shares
      held
    Percentage of holding
    Percentage of holding on
      a fully diluted basis(1)% in capital
    % in voting
    % in capital
    % in votingDennis Bennie(2)
    4,434,643
    7.41%
    7.41%
    4.90%
    7.57%Alan Friedman(3)
    1,651,366
    3.87%
    3.87%
    2.56%
    2.95%Colin Kinley(4)
    16,666
    0.01%
    0.01%
    0.01%
    0.01%Gadi Levin(5)
    -
    -
    -
    -
    -Alan Rootenberg(6)
    16,666
    0.01%
    0.01%
    0.01%
  0.01%


Notes:

| | (1) | Fully diluted basis means with the exercise of all
      warrants and options.                                                                                                                                                                                            
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Mr. Dennis Bennie is an interested party in Adira by
      virtue of his share holdings and by virtue of him serving as the chairman
      of the Board. Mr. Bennie indirectly holds all of the shares through
      companies controlled by himself and through his spouse.
| | (3) | Mr. Alan Friedman is an interested party in Adira by virtue of his share holdings and by virtue of him serving as a director and as Adira’s chief business development officer.                                                                                             
| | (4) | Mr. Colin Kinley is an interested party in Adira by
      virtue of his share holdings and by virtue of him serving as a director in
      Adira.                                                                                                                           
| | (5) | Mr. Levin is an interested party in Adira by virtue of
    him serving as a director in Adira.                                                                                                                                                                              
| | (6) | Mr. Rootenberg is an interested party in Adira by virtue
      of his share holdings and by virtue of him serving as a director in
    Adira.                                                                                                                               

- 44 -

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Options

The stock options, exercisable into common shares of Adira,
held by our officers and directors are set forth below as of the date hereof.

Name
    Position
    Allotment Date
    ExpirationDate
    ExercisePrice (USDollar) (1)
    VestingDetails
    Total
      (2)Dennis Bennie
    Co-Chairman
    Aug. 31, 2009
    Aug. 20, 2014
    0.75
    A(3)
    132,000Jan. 28, 2010
    Jan. 27, 2015
    1.83
    E(7)
    83,333Jan. 11, 2011
    Jan. 10, 2015
    2.40
    I(9)
    33,333Aug. 22, 2012
    Aug. 21, 2017
    0.60
    R(12)
    506,667Alan Friedman
    Executive Vice
      President, Corporate Development and Director
    Aug. 31, 2009
    Aug. 20, 2014
    $0.75
    A(3)
    132,000Aug. 31, 2009
    Aug. 20, 2014
    $0.75
    C
    (5)
    83,333Jan. 28, 2010
    Jan. 27, 2015
    $1.80
    E(7)
    83,333Jan. 11, 2011
    Jan. 10, 2017
    $2.40
    I
    (9)
    50,000Aug. 22, 2012
    Aug. 21, 2017
    $0.60
    R(12)
    353,333Colin Kinley
    Director
    Aug. 31, 2009
    Aug. 20, 2014
    $0.75
    B(4)
    133,333Sep. 23, 2009
    Sep. 23, 2014
    $0.75
    D(6)
    83,333Jan. 28, 2010
    Jan. 28, 2015
    $1.80
    E(7)
    83,333Jan. 18, 2011
    Jan. 17, 2017
    $2.40
    I(9)
    266,667Mar. 18, 2011
    Mar. 17, 2017
    $2.40
    J(10)
    33,333Aug. 22, 2012
    Aug. 21, 2017
    $0.60
    R(12)
    50,000Gadi Levin
    Chief Financial
      Officer
    Jul. 22, 2010
    Jul. 21, 2015
    $1.83
    H(8)
    83,333May. 3, 2011
    May. 2, 2016
    $1.80
    L(11)
    83,333Aug. 22, 2012
    Aug. 21, 2017
    $0.60
    R(12)
    303,333


- 45 -

---

|Notes
|-----

| | (1)  | The exercise prices of employee stock options in 2010
      were set in US Dollars and as of 2011, in Canadian Dollars. The tables
      show all amounts in US Dollars.                                                                                                                                    
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2)  | Each stock option may be exercised to purchase one of our
      common shares at the exercise price.                                                                                                                                                                                                        
| | (3)  | Type 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.                                                                                                                                          
| | (4)  | 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.                                                                                                 
| | (5)  | 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.                                                                                                                            
| | (6)  | 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 Adira. In the event
      they are not elected as a director, all options granted expire
      immediately.
| | (7)  | 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.                                                                                                                            
| | (8)  | Type H stock options vest 12.5% each quarter over two
      years with the initial amount vesting on the grant date.                                                                                                                                                                                        
| | (9)  | Type I stock options vest 12.5% every six months over
      four years with the initial amount vesting on the date three months after
      the grant date;                                                                                                                                                 
| | (10) | Type J stock options vest 12.5% every six months over
      four years with the initial amount vested on September 18, 2011;                                                                                                                                                                                
| | (11) | Type L stock options vest 12.5% every six months over
      four years with the initial amount vested on September 3, 2011;                                                                                                                                                                                 
| | (12) | Type R stock options vest 33.33% every twelve months over
      two years with the initial vesting on August 22,
2012.                                                                                                                                                                                      

Warrants

Warrants, exercisable into common shares of Adira, held by our officers and directors are set forth below as of the date hereof.

Name
    Position
    Allotment date
    Expirationdate
    Exerciseprice
    Total(1)Dennis Bennie
    Co-Chairman of theBoard
    August 9, 2012
    August 9, 2015
    0.60
    2,380,953Alan Friedman
    Executive Vice President,
      Corporate Development and Director
    August 9, 2012
    August 9, 2015
    0.60
    333,333


|      
|------
|Notes:

(1)    As a result of the Consolidation, each warrant will evidence the right of the holder thereof to acquire 1/3 of a common share at the exercise price.

- 46 -

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Equity Compensation Plans

The following table summarizes our compensation plans under
which equity securities are authorized for issuance as at December 31, 2013.

Plan
      Category
    Number of securities to
      be issued upon exercise of outstanding options,
      warrants and rights
    Weighted-average
      exercise price of outstanding options,
      warrants and rights
    Number of securities remaining
      available for future issuance under equity
      compensation plans(1)(excluding
      securities reflected in the second column)Equity compensation plans approved by
      securityholders
    35,745,338
    0.20
    2,755,036Equity compensation plans not approved
      by securityholders
    N/A
    N/A
    N/ATotal:
    35,745,338
    0.20
    2,755,036


Notes:

| | (1) | The number of securities remaining available for future issuance under our 10% rolling stock option plan as at the end of our most recently completed financial year is calculated on the basis of 10% of our issued and outstanding common shares as at such date (being 10% of 60,260,365  - 292,665 = 2,733370).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On August 31, 2009, the Board adopted a new 10% rolling stock
option plan (the Stock Option Plan) to replace the existing plan. The
Stock Option Plan was ratified by the shareholders of Adira on December 17,
2009, and has since been approved by the shareholders of Adira on an annual
basis.

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

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

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

- 47 -

---

ITEM
7                           
MAJOR SHAREHOLDER AND RELATED PARTY TRANSACTIONS

A.          
Major Shareholders Major Shareholders

We are a publicly-held corporation, with our shares held by
residents of the United States, Canada and other countries. To the best of our
knowledge, as at December 31, 2013, no person, corporation or other entity
beneficially owns, directly or indirectly, or controls more than 5% of our
common shares, except as follows:

Name
    Number of Common Shares
      Owned(1)(2)
    Percentage(3)Dennis Bennie
    4,467,976(4)
    7.41%BRM Group Ltd.
    3,333,333
    5.53%Goodman Investment Counsel Inc.
    5,275,904 (5)
    8.75%


Notes:

| | (1) | Under Rule 13d–3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares.  Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares).  In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided.  In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.  As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of common shares actually outstanding on the date hereof.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Each of our common shares entitles the holder thereof to one vote.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (3) | Based on 60,260,318 common shares of Adira issued and outstanding as of the date of this filing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (4) | Includes shares held by spouse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (5) | Includes shares held by Goodman Investment Counsel Inc. and associated companies that are controlled by Mr. Nathan Goodman.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Geographic Breakdown of Shareholders

As of December 31, 2013, 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
    573,988
    0.95
    57Canada
    57,811,401
    95.94
    52Other
    1,874,929
    3.11
    19Total
    60,260,318
    100
    128


- 48 -

---

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

Transfer Agent

Our securities are recorded in registered form on the books of
our transfer agent, Computershare Trust Company of Canada, located at 3rd Floor,
510 Burrard Street, Vancouver, BC V6C 3B9. However, the majority of such shares
are registered in the name of intermediaries such as brokerage houses and
clearing houses (on behalf of their respective brokerage clients). We do not
have knowledge or access to the identities of the beneficial owners of such
shares registered through intermediaries.

Control

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

Insider Reports under the British Columbia Securities Act

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 within 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

None of our director or senior officer, no associate or
affiliate of the foregoing persons, and no insider has or had any material
interest, direct or indirect, in any transactions, or in any proposed
transaction, which in either such case has materially affected or will
materially affect us or our predecessors during the years ended December 31,
2013 except as follows:

| | (a) | During the year ended December 31, 2013, we incurred $386
      thousand in consulting fees and operating expenses to private companies
      which are controlled by some of our directors or officers (year ended
      December 31, 2012 - $357thousand).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                             
| |     | These transactions are in the normal course of operations
      and are measured at the exchange amount, which is the amount of
      consideration established and agreed to by the related parties.                                                       
| |     |                                                                                                                                                                                                                                                             
| | (b) | Compensation of key management personnel:                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                             
| |     | For the purpose of related party disclosure in accordance
      with IASB 24, directors, the CEO, CFO, COO and executive vice president
      are considered key management personnel.                                                                      

| |                              |   | Year ended   |  |   |                           | 
| | ---------------------------- | - | ------------ |  | - | ------------------------- | 
| |                              |   | December 31, |  |   |                           | 
| |                              |   |              |  |   |                           | 
| |                              |   | 2013         |  |   | 2012                      | 
| |                              |   |              |  |   | U.S. dollars in thousands | 
| |                              |   |              |  |   |                           | 
| | Short-term employee benefits | $ | 1,133        |  | $ | 1,071                     | 
| | Share based compensation     |   | 16           |  |   | 613                       | 

| |  | $ | 1,149 |  | $ | 1,684 |  | $ | 1,761 | 
| |  | - | ----- |  | - | ----- |  | - | ----- | 

- 49 -

---

Benefits in respect of key management persons (including
directors) who are not employed by us:

| |                          |   | Year ended   |  |   |                           | 
| | ------------------------ | - | ------------ |  | - | ------------------------- | 
| |                          |   | December 31, |  |   |                           | 
| |                          |   |              |  |   |                           | 
| |                          |   | 2013         |  |   | 2012                      | 
| |                          |   |              |  |   | U.S. dollars in thousands | 
| |                          |   |              |  |   |                           | 
| | Share based compensation | $ | 68           |  | $ | 298                       | 

C.          
Interests of Experts and Counsel

Not applicable.

ITEM
8                            FINANCIAL
INFORMATION

A.          
Consolidated Statements and Other Financial Information

Financial Statements

The financial statements required as part of this Annual Report
on Form 20-F are filed under Item 18 of this Annual Report.

Legal Proceedings

On October 25, 2013, we filed a Statement of Claim in the
Superior Court of Justice (Ontario) naming as defendants, Pelagic Investments
Limited (PI) and its principle, Prentis B. Tomlinson Jr., in connection
with the failed private placement financing previously agreed to between Adira
and PI. We are seeking damages for breach of contract, intentional interference
with economic relations and intentional misrepresentation. As of the date
hereof, the final outcome of the litigation cannot be predicted with certainty,
and therefore, management cannot assess whether the results of this litigation
will have a material effect on us.

Dividends

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

B.          
Significant Changes

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

- 50 -

---

ITEM
9                          
 THE OFFER AND LISTING

Common Shares

Our authorized capital consists of an unlimited number of
common shares without par value, of which 101,768,453 common shares are issued
and outstanding as of December 31, 2011 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 the Board; and (iii) receive our
remaining property on liquidation, dissolution or winding up.

A.         
 Offer and Listing Details  Price History

Trading Markets

Our current trading symbol on the TSXV is ADL. We also trade
on the OTCBB with the trading symbol ADENF and on the Frankfurt Stock Exchange
with the trading symbol 0AM1.

As disclosed elsewhere in this annual report, we completed the
Consolidation of our common shares on August 9, 2013, on the basis of one new
common share for every three old common shares. The Consolidation was effective
for trading purposes on August 13, 2013; for a period of approximately two weeks
thereafter, our common shares traded on the OTCBB under the symbol ADEND.

The following table shows the progression in the high and low
closing trading prices of our common shares on the OCTBB, on a
post-Consolidation basis, for the periods listed.

|                                | High ($) | Low ($)
|------------------------------- | -------- | -------
|Annual (fiscal year)            |          |        
|2013                            | 0.36     | 0.01   
|2012                            | 1.02     | 0.27   
|2011                            | 2.70     | 0.63   
|2010                            | 2.70     | 0.75   
|2009                            | 1.62     | 0.15   
|                                |          |        
|Quarterly                       |          |        
|Fiscal 2013                     |          |        
|Fourth Quarter                  | 0.05     | 0.01   
|Third Quarter                   | 0.15     | 0.02   
|Second Quarter                  | 0.09     | 0.03   
|First Quarter                   | 0.36     | 0.03   
|                                |          |        
|                                |          |        
|Fiscal 2012                     |          |        
|Fourth Quarter                  | 0.45     | 0.27   
|Third Quarter                   | 0.48     | 0.33   
|Second Quarter                  | 0.93     | 0.51   
|First Quarter                   | 1.02     | 0.45   
|                                |          |        
|                                |          |        
|Monthly                         |          |        
|April 1, 2014 to April 29, 2014 | 0.02     | 0.01   

- 51 -

---

|              | High ($) | Low ($)
|------------- | -------- | -------
|March 2014    | 0.02     | 0.01   
|February 2014 | 0.01     | 0.01   
|January 2014  | 0.02     | 0.01   
|December 2013 | 0.02     | 0.01   
|November 2013 | 0.05     | 0.01   

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

|                     | High ($) | Low ($)
|-------------------- | -------- | -------
|Annual (fiscal year) |          |        
|2013                 | 0.35     | 0.01   
|2012                 | 1.02     | 0.27   
|2011                 | 2.70     | 0.60   
|2010(1)              | 2.70     | 1.65   
|2009(1)              | N/A      | N/A    

Notes:

|(1) | We commenced trading on the TSXV on December 2, 2010.
      Therefore, information may not be available for all periods
  listed.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|Quarterly                       |      |     
|------------------------------- | ---- | ----
|Fiscal 2013                     |      |     
|Fourth Quarter                  | 0.04 | 0.01
|Third Quarter                   | 0.09 | 0.02
|Second Quarter                  | 0.09 | 0.03
|First Quarter                   | 0.35 | 0.03
|                                |      |     
|                                |      |     
|Fiscal 2012                     |      |     
|Fourth Quarter                  | 0.42 | 0.27
|Third Quarter                   | 0.54 | 0.33
|Second Quarter                  | 0.90 | 0.54
|First Quarter                   | 1.02 | 0.48
|                                |      |     
|                                |      |     
|Monthly                         |      |     
|April 1, 2014 to April 29, 2014 | 0.02 | 0.01
|March 2014                      | 0.02 | 0.01
|February 2014                   | 0.01 | 0.01
|January 2014                    | 0.02 | 0.01
|December 2013                   | 0.02 | 0.01
|November 2013                   | 0.04 | 0.02

Escrowed Securities

As at December 31, 2013, none of our securities were subject to
escrow.

B.           Plan
of Distribution

Not applicable.

- 52 -

---

C.         
 Markets

Our common shares are traded on the TSXV under the symbol
ADL, in the United States on the OTC Bulletin Board under the symbol ADENF
and on the Frankfurt Stock Exchange under the symbol 0AM1.

D.          
Selling Shareholders

Not applicable.

E.         
 Dilution

Not applicable.

F.         
 Expenses of the Issue

Not applicable.

ITEM
10                         
ADDITIONAL INFORMATION

A.          
Share Capital

Not applicable.

B.          
Memorandum and Articles of Incorporation

We were incorporated on February 20, 1997 as Trans New Zealand
Oil Company under the laws of the State of Nevada, U.S.A. We changed our name
to AMG Oil Ltd. on July 27, 1998.

On November 27, 2008, we changed our jurisdiction of
incorporation from Nevada to the Canadian federal jurisdiction under the
Canada Business Corporation Act (the CBCA) through a process
known as a conversion under Nevada corporate law, and known as a continuation
under Canadian corporate law. A continuance or continuation is a process by
which a corporation which is not incorporated under the laws of Canada may
change its jurisdiction of incorporation to Canada. Under the CBCA, if the laws
of its home jurisdiction allow for it, a company may be continued as a
Canadian corporation by filing Articles of Continuance with the Director under
the CBCA. In order to give effect to the continuation, the Board adopted a plan
of conversion under Chapter 92A of the Nevada Revised Statutes which was
subsequently approved and adopted by our shareholders. After the completion of
the continuation, we became a Canadian corporation governed by the CBCA.

With effect from our continuation under the CBCA, our corporate
constituting documents are comprised of our Articles of Continuance
(Articles) and our By-Laws (By-Laws). Information regarding
our Articles and Bylaws is incorporated by reference from Amendment No. 3 to our
registration statement on Form S-4, which was filed with the SEC on October 10,
2010. The forms of our Articles and By-Laws were included as Appendices C and D,
respectively, to the proxy statement/prospectus included in the registration
statement, and the proxy statement/prospectus contained a summary, under the
heading Comparative Rights of Stockholders, of the more significant
differences between the Nevada Revised Statutes and the CBCA which resulted in
various changes in the rights of our shareholders as a result of our
continuance.

We changed our name to Adira Energy Ltd. pursuant to Articles
of Amendment dated December 17, 2009, and filed with the Director under the
CBCA. Such amendment to our Articles was certified by a Certificate of Amendment
dated December 17, 2009. The Certificate and Articles of Amendment were filed as
Exhibit 1.4 to our annual report on Form 20-F for the year ended September 30,
2009, filed with the SEC on January 1, 2010.

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C.         
 Material Contracts

We are party to certain joint operating agreements and farmout
agreements with respect to the Offshore Licenses, and are disclosed under Item
4.B.  Business Overview. We are of the view that the Offshore Licenses, joint
operating agreements and farmout agreements have been obtained or entered into
in the ordinary course of its business.

We are party to executive employment agreements with certain of
our officers, which are disclosed under Item 6.B  Directors, Senior Management
and Employees- Compensation.

D.         
 Exchange Controls

There are no governmental laws, decrees or regulations in
Canada relating to restrictions on the export or import of capital, or affecting
remittance of interest, dividends or other payments to non-resident holders of
our common shares.

Except as provided in the Investment Canada Act (Canada), which
has rules regarding certain acquisitions of shares by non-residents, there is no
limitation imposed by Canadian law or by our charter or other constituent
documents on the right of a non-resident to hold or vote our common shares.

E.          
Taxation

Material Canadian Federal Income Tax Consequences for United
States Residents

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

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

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

Dividends

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

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Disposition

For purposes of the following discussion, we have assumed that
our shares will remain listed on the TSXV. A U.S. Holder is not subject to tax
under the Tax Act in respect of a capital gain realized on the disposition of
our shares in the open market unless the shares are taxable Canadian property
to the holder thereof and the U.S. Holder is not entitled to relief under the
Treaty. Our shares will be taxable Canadian property to a U.S. Holder (a) if, at
any time during the 60-month period preceding the disposition: (i) the U.S.
Holder, alone or together with persons with whom the U.S. Holder did not deal at
arms length, owned 25% or more of our issued shares of any class or series, and
(ii) more than 50% of the fair market value of the shares was derived, directly
or indirectly, from one or any combination of real property situated in Canada,
timber resource properties, Canadian resource properties, or an option in
respect of, or an interest in, or for civil law a right in, any of the
foregoing, or (b) in other specific circumstances, including where shares were
acquired for other securities in a tax-deferred transaction for Canadian tax
purposes. If our shares constitute taxable Canadian property to the holder, the
holder will (unless relieved under the Treaty) be subject to Canadian income tax
on any gain. The taxpayers capital gain or loss from a disposition of the share
is the amount, if any, by which the proceeds of disposition exceed (or are
exceeded by) the aggregate of the adjusted cost base of the share and reasonable
expenses of disposition. One-half of a capital gain (taxable capital
gain) from the disposition of taxable Canadian property (other than treaty
protected properties) is included in computing the income of a U.S. Holder and
one-half of a capital loss (allowable capital loss) is deductible from
taxable capital gains from dispositions of taxable Canadian property realized in
the same year. Unused allowable capital losses from previous taxation years
generally may be carried back three taxation years or forward indefinitely and
applied to reduce net taxable capital gains realized in those years by a U.S.
Holder from the disposition of a taxable Canadian property.

A U.S. Holder whose shares constitute taxable Canadian property
should consult with the holders own tax advisors regarding any possible relief
(if any) from Canadian tax under the Treaty based on applicable circumstances at
the relevant time.

Israeli Tax Consequences

The following is a summary of the material provisions of the
current tax law applicable to companies in Israel and does not discuss all the
aspects of Israeli tax law. To the extent that the discussion is based on tax
legislation that has not been subject to judicial or administrative
interpretation, we cannot assure you that the views expressed in the discussion
will be accepted by the tax authorities in question. The discussion is not
intended, and should not be construed, as legal or professional tax advice and
is not exhaustive of all possible tax considerations.

General Corporate Tax Structure

In December 2011, the Knesset passed the Law for Adjustment of the Tax Burden (Amended Legislation) – 2011, which amends the Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010) – 2009 which prescribed, among other provisions, a gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting in 2011. Following the amendment, corporate tax rates and capital gains rates are: 2011 – 24%, 2012 – and thereafter – 25%.  On August 5, 2013, the Israeli legislature or the "Knesset" issued the Law for Changing National Priorities (Legislative Amendments for Achieving Budget Targets for 2013 and 2014), 2013 ("the Budget Law"), which consists, among other things, of fiscal changes whose main aim is to enhance the collection of taxes in those years.

These changes include, among other things, increasing the corporate tax rate from 25% to 26.5%, cancelling the reduction in the tax rates applicable to privileged enterprises (9% in development area A and 16% elsewhere) and, in certain cases, increasing the rate of dividend withholding tax within the scope of the Law for the Encouragement of Capital Investments to 20% effective from January 1, 2014. There are also other changes such as taxation of revaluation gains effective from August 1, 2013. The provisions regarding revaluation gains will become effective only after the publication of regulations defining what should be considered as "retained earnings not subject to corporate tax" and regulations that set forth provisions for avoiding double taxation of overseas assets. As of the date of approval of these financial statements, these regulations have not been issued.  Therefore, the Levy per the Petroleum Taxation Law from 2016 will be decreased to a maximum rate of 44.56% from our future oil and gas revenues, if any.

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Israeli Transfer Pricing Regulations

On November 29, 2006, Income Tax Regulations (Determination of
Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came
into force (the TP Regs). Section 85A of the Tax Ordinance and the TP
Regs generally require that all cross-border transactions carried out between
related parties will be conducted on an arms length principle basis and will be
reported and taxed accordingly.

United States Tax Consequences

United States Federal Income Tax Consequences

The following is a general summary of certain material U.S.
federal income tax considerations applicable to a U.S. Holder (as defined below)
arising from and relating to the acquisition, ownership, and disposition of our
common shares.

This summary is for general information purposes only and does
not purport to be a complete analysis or listing of all potential U.S. federal
income tax considerations that may apply to a U.S. Holder arising from and
relating to the acquisition, ownership, and disposition of our common shares. In
addition, this summary does not take into account the individual facts and
circumstances of any particular U.S. Holder that may affect the U.S. federal
income tax consequences to such U.S. Holder, including without limitation
specific tax consequences to a U.S. Holder under an applicable tax treaty.
Accordingly, this summary is not intended to be, and should not be construed as,
legal or U.S. federal income tax advice with respect to any U.S. Holder. This
summary does not address the U.S. federal alternative minimum, U.S. federal
estate and gift, U.S. state and local, and foreign tax consequences to U.S.
Holders of the acquisition, ownership, and disposition of our common shares.
Except as specifically set forth below, this summary does not discuss applicable
tax reporting requirements. Each U.S. Holder should consult its own tax advisor
regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal
estate and gift, U.S. state and local, and foreign tax consequences relating to
the acquisition, ownership, and disposition of our common shares.

No legal opinion from U.S. legal counsel or ruling from the
Internal Revenue Service (the IRS) has been requested, or will be obtained,
regarding the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of our common shares. This summary is not binding on
the IRS, and the IRS is not precluded from taking a position that is different
from, and contrary to, the positions taken in this summary. In addition, because
the authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with one or more of
the conclusions described in this summary.

Scope of this Summary

Authorities

This summary is based on the Internal Revenue Code of 1986, as
amended (the Code), Treasury Regulations (whether final, temporary, or
proposed), published rulings of the IRS, published administrative positions of
the IRS, the Convention Between Canada and the United States of America with
Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended
(the Canada-U.S. Tax Convention), and U.S. court decisions that are applicable
and, in each case, as in effect and available, as of the date of this document.
Any of the authorities on which this summary is based could be changed in a
material and adverse manner at any time, and any such change could be applied on
a retroactive or prospective basis which could affect the U.S. federal income
tax considerations described in this summary. This summary does not discuss the
potential effects, whether adverse or beneficial, of any proposed legislation
that, if enacted, could be applied on a retroactive or prospective basis.

U.S. Holders

For purposes of this summary, the term "U.S. Holder" means a
beneficial owner of our common shares that is for U.S. federal income tax
purposes:

- an individual who is a citizen or resident of the U.S.;

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- a corporation (or other entity taxable as a corporation for U.S. federal
  income tax purposes) organized under the laws of the U.S., any state thereof
  or the District of Columbia;
- an estate whose income is subject to U.S. federal income taxation
  regardless of its source; or
- a trust that (1) is subject to the primary supervision of a court within
  the U.S. and the control of one or more U.S. persons for all substantial
  decisions or (2) has a valid election in effect under applicable Treasury
  Regulations to be treated as a U.S. person.

Non-U.S. Holders

For purposes of this summary, a non-U.S. Holder is a
beneficial owner of our common shares that is not a U.S. Holder. This summary
does not address the U.S. federal income tax consequences to non-U.S. Holders
arising from and relating to the acquisition, ownership, and disposition of our
common shares. Accordingly, a non-U.S. Holder should consult its own tax advisor
regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal
estate and gift, U.S. state and local, and foreign tax consequences (including
the potential application of and operation of any income tax treaties) relating
to the acquisition, ownership, and disposition of our common shares.

U.S. Holders Subject to Special U.S. Federal Income Tax
Rules Not Addressed

This summary does not address the U.S. federal income tax
considerations applicable to U.S. Holders that are subject to special provisions
under the Code, including, but not limited to, the following: (a) U.S. Holders
that are tax-exempt organizations, qualified retirement plans, individual
retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are
financial institutions, underwriters, insurance companies, real estate
investment trusts, or regulated investment companies; (c) U.S. Holders that are
broker-dealers, dealers, or traders in securities or currencies that elect to
apply a mark-to-market accounting method; (d) U.S. Holders that have a
functional currency other than the U.S. dollar; (e) U.S. Holders that own our
common shares as part of a straddle, hedging transaction, conversion
transaction, constructive sale, or other arrangement involving more than one
position; (f) U.S. Holders that acquired our common shares in connection with
the exercise of employee stock options or otherwise as compensation for
services; (g) U.S. Holders that hold our common shares other than as a capital
asset within the meaning of Section 1221 of the Code (generally, property held
for investment purposes); or (h) U.S. Holders that own or have owned (directly,
indirectly, or by attribution) 10% or more of the total combined voting power of
the outstanding shares of we. This summary also does not address the U.S.
federal income tax considerations applicable to U.S. Holders who are: (a) U.S.
expatriates or former long-term residents of the U.S.; (b) persons that have
been, are, or will be a resident or deemed to be a resident in Canada for
purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that
are or will be deemed to use or hold our common shares in connection with
carrying on a business in Canada; (d) persons whose our common shares constitute
taxable Canadian property under the Tax Act; or (e) persons that have a
permanent establishment in Canada for the purposes of the Canada-U.S. Tax
Convention. U.S. Holders that are subject to special provisions under the Code,
including, but not limited to, U.S. Holders described immediately above, should
consult their own tax advisor regarding the U.S. federal, U.S. federal
alternative minimum, U.S. federal estate and gift, U.S. state and local, and
foreign tax consequences relating to the acquisition, ownership and disposition
of our common shares.

If an entity or arrangement that is classified as a partnership
(or other pass-through entity) for U.S. federal income tax purposes holds our
common shares, the U.S. federal income tax consequences to such entity and the
partners (or other owners) of such entity generally will depend on the
activities of the entity and the status of such partners (or owners). This
summary does not address the tax consequences to any such owner. Partners (or
other owners) of entities or arrangements that are classified as partnerships or
as pass-through entities for U.S. federal income tax purposes should consult
their own tax advisors regarding the U.S. federal income tax consequences
arising from and relating to the acquisition, ownership, and disposition of our
common shares.

Ownership and Disposition of our common shares

The following discussion is subject to the rules described
below under the heading Passive Foreign Investment Company Rules.

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Taxation of Distributions

A U.S. Holder that receives a distribution, including a
constructive distribution, with respect to our common share will be required to
include the amount of such distribution in gross income as a dividend (without
reduction for any foreign income tax withheld from such distribution) to the
extent of the current or accumulated earnings and profits of we, as computed
for U.S. federal income tax purposes. To the extent that a distribution exceeds
the current and accumulated earnings and profits of we, such distribution will
be treated first as a tax-free return of capital to the extent of a U.S.
Holder's tax basis in the our common shares and thereafter as gain from the sale
or exchange of such our common shares (see Sale or Other Taxable Disposition of
Common Shares below). However, we may not maintain the calculations of earnings
and profits in accordance with U.S. federal income tax principles, and each U.S.
Holder should therefore assume that any distribution by us with respect to the
our common shares will constitute ordinary dividend income. Dividends received
on our common shares generally will not constitute qualified dividend income
eligible for the dividends received deduction. Subject to applicable
limitations and provided that we are eligible for the benefits of the
Canada-U.S. Tax Convention, dividends paid by us to non-corporate U.S. Holders,
including individuals, generally will be eligible for the preferential tax rates
applicable to long-term capital gains for dividends, provided certain holding
period and other conditions are satisfied, including that we are not classified
as a PFIC (as defined below) in the tax year of distribution or in the preceding
tax year. The dividend rules are complex, and each U.S. Holder should consult
its own tax advisor regarding the application of such rules.

Sale or Other Taxable Disposition of Common Shares

A U.S. Holder will recognize gain or loss on the sale or other
taxable disposition of our common shares in an amount equal to the difference,
if any, between (a) the amount of cash plus the fair market value of any
property received and (b) such U.S. Holders tax basis in such our common shares
sold or otherwise disposed of. Any such gain or loss generally will be capital
gain or loss, which will be long-term capital gain or loss if, at the time of
the sale or other disposition, such our common shares are held for more than one
year.

Preferential tax rates apply to long-term capital gains of a
U.S. Holder that is an individual, estate, or trust. There are currently no
preferential tax rates for long-term capital gains of a U.S. Holder that is a
corporation. Deductions for capital losses are subject to significant
limitations under the Code.

Passive Foreign Investment Company Rules

If we were to constitute a PFIC for any year during a U.S.
Holders holding period, then certain potentially adverse rules would affect the
U.S. federal income tax consequences to a U.S. Holder resulting from the
acquisition, ownership and disposition of our common shares. We do not believe
that we were a PFIC during our tax years ended September 30, 2010 and December
31, 2010, 2011, 2012, and 2013. However, we believe we were a PFIC in prior tax
years. PFIC classification is fundamentally factual in nature, generally cannot
be determined until the close of the tax year in question, and is determined
annually. Additionally, the analysis depends, in part, on the application of
complex U.S. federal income tax rules, which are subject to differing
interpretations. Consequently, there can be no assurances regarding our PFIC
status for any tax year during which U.S. Holders hold our common shares.

In addition, in any year in which we are classified as a PFIC,
such holder may be required to file an annual report with the IRS containing
such information as Treasury Regulations and/or other IRS guidance may require.
In addition to penalties, a failure to satisfy such reporting requirements may
result in an extension of the time period during which the IRS can assess a tax.
U.S. Holders should consult their own tax advisors regarding the requirements of
filing such information returns under these rules, including the requirement to
file a revised IRS Form 8621.

We generally will be a PFIC under Section 1297 of the Code if,
for a tax year, (a) 75% or more of our gross income for such tax year is passive
income (the income test) or (b) 50% or more of the value of our assets either
produce passive income or are held for the production of passive income (the
asset test), based on the quarterly average of the fair market value of such
assets. Gross income generally includes all sales revenues less the cost of
goods sold, plus income from investments and from incidental or outside
operations or sources, and passive income generally includes, for example, dividends, interest, certain
rents and royalties, certain gains from the sale of stock and securities, and
certain gains from commodities transactions. Active business gains arising from
the sale of commodities generally are excluded from passive income if
substantially all (85% or more) of a foreign corporations commodities are stock
in trade or inventory, depreciable property used in a trade or business or
supplies regularly used or consumed in a trade or business and certain other
requirements are satisfied.

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In addition, for purposes of the PFIC income test and asset
test described above, if we own, directly or indirectly, 25% or more of the
total value of the outstanding shares of another corporation, we will be treated
as if we (a) held a proportionate share of the assets of such other corporation
and (b) received directly a proportionate share of the income of such other
corporation. In addition, for purposes of the PFIC income test and asset test
described above, passive income does not include any interest, dividends,
rents, or royalties that are received or accrued by us from a related person
(as defined in Section 954(d)(3) of the Code), to the extent such items are
properly allocable to the income of such related person that is not passive
income.

Under certain attribution rules, if we are a PFIC, U.S. Holders
will be deemed to own their proportionate share of any subsidiary of ours which
is also a PFIC (a Subsidiary PFIC), and will be subject to U.S. federal
income tax on (i) a distribution on the shares of a Subsidiary PFIC or (ii) a
disposition of shares of a Subsidiary PFIC, both as if the holder directly held
the shares of such Subsidiary PFIC.

If we are a PFIC in any tax year in which a U.S. Holder held
our common shares, such holder generally would be subject to special rules with
respect to excess distributions made by us on the our common shares and with
respect to gain from the disposition of our common shares. An excess
distribution generally is defined as the excess of distributions with respect
to the our common shares received by a U.S Holder in any tax year over 125% of
the average annual distributions such U.S. Holder has received from us during
the shorter of the three preceding tax years, or such U.S. Holders holding
period for the our common shares. Generally, a U.S. Holder would be required to
allocate any excess distribution or gain from the disposition of our common
shares ratably over its holding period for the our common shares. Such amounts
allocated to the year of the disposition or excess distribution would be taxed
as ordinary income, and amounts allocated to prior tax years would be taxed as
ordinary income at the highest tax rate in effect for each such year and an
interest charge at a rate applicable to underpayments of tax would apply.

While there are U.S. federal income tax elections that
sometimes can be made to mitigate these adverse tax consequences (including,
without limitation, the QEF Election under Section 1295 of the Code and the
Mark-to-Market Election under Section 1296 of the Code), such elections are
available in limited circumstances and must be made in a timely manner.

U.S. Holders should be aware that, for each tax year, if any,
that we are a PFIC, we can provide no assurances that we will satisfy the record
keeping requirements of a PFIC, or that we will make available to U.S. Holders
the information such U.S. Holders require to make a QEF Election with respect to
us or any Subsidiary PFIC. U.S. Holders are urged to consult their own tax
advisors regarding the potential application of the PFIC rules to the ownership
and disposition of our common shares, and the availability of certain U.S. tax
elections under the PFIC rules.

Additional Considerations

Additional Tax on Passive Income

Individuals, estates and certain trusts whose income exceeds
certain thresholds will be required to pay a 3.8% Medicare surtax on net
investment income including, among other things, dividends and net gain from
disposition of property (other than property held in certain trades or
businesses). U.S. Holders should consult with their own tax advisors regarding
the effect, if any, of this tax on their ownership and disposition of our common
shares.

Receipt of Foreign Currency

The amount of any distribution paid to a U.S. Holder in foreign
currency, or on the sale, exchange or other taxable disposition of our common
shares, generally will be equal to the U.S. dollar value of such foreign
currency based on the exchange rate applicable on the date of receipt (regardless
of whether such foreign currency is converted into U.S. dollars at that time). A
U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar
value on the date of receipt. Any U.S. Holder who converts or otherwise disposes
of the foreign currency after the date of receipt may have a foreign currency
exchange gain or loss that would be treated as ordinary income or loss, and
generally will be U.S. source income or loss for foreign tax credit purposes.
Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S.
federal income tax consequences of receiving, owning, and disposing of foreign
currency.

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Foreign Tax Credit

Subject to the PFIC rules discussed above, a U.S. Holder that
pays (whether directly or through withholding) Canadian income tax with respect
to dividends paid on our common shares generally will be entitled, at the
election of such U.S. Holder, to receive either a deduction or a credit for such
Canadian income tax. Generally, a credit will reduce a U.S. Holders U.S.
federal income tax liability on a dollar-for-dollar basis, whereas a deduction
will reduce a U.S. Holders income subject to U.S. federal income tax. This
election is made on a year-by-year basis and applies to all foreign taxes paid
(whether directly or through withholding) by a U.S. Holder during a year.

Complex limitations apply to the foreign tax credit, including
the general limitation that the credit cannot exceed the proportionate share of
a U.S. Holders U.S. federal income tax liability that such U.S. Holders
foreign source taxable income bears to such U.S. Holders worldwide taxable
income. In applying this limitation, a U.S. Holders various items of income and
deduction must be classified, under complex rules, as either foreign source or
U.S. source. Generally, dividends paid by a foreign corporation should be
treated as foreign source for this purpose, and gains recognized on the sale of
stock of a foreign corporation by a U.S. Holder should be treated as U.S. source
for this purpose, except as otherwise provided in an applicable income tax
treaty, and if an election is properly made under the Code. However, the amount
of a distribution with respect to the our common shares that is treated as a
dividend may be lower for U.S. federal income tax purposes than it is for
Canadian federal income tax purposes, resulting in a reduced foreign tax credit
allowance to a U.S. Holder. In addition, this limitation is calculated
separately with respect to specific categories of income. The foreign tax credit
rules are complex, and each U.S. Holder should consult its own U.S. tax advisor
regarding the foreign tax credit rules.

Backup Withholding and Information Reporting

Under U.S. federal income tax law and Treasury Regulations,
certain categories of U.S. Holders must file information returns with respect to
their investment in, or involvement in, a foreign corporation. For example, U.S.
return disclosure obligations (and related penalties) are imposed on individuals
who are U.S. Holders that hold certain specified foreign financial assets in
excess certain threshold amounts. The definition of specified foreign financial
assets includes not only financial accounts maintained in foreign financial
institutions, but also, unless held in accounts maintained by a financial
institution, any stock or security issued by a non-U.S. person, any financial
instrument or contract held for investment that has an issuer or counterparty
other than a U.S. person and any interest in a foreign entity. U. S. Holders may
be subject to these reporting requirements unless our common shares are held in
an account at certain financial institutions. Penalties for failure to file
certain of these information returns are substantial. U.S. Holders should
consult with their own tax advisors regarding the requirements of filing
information returns, including the requirement to file an IRS Form 8938.

Payments made within the U.S. or by a U.S. payor or U.S.
middleman, of dividends on, and proceeds arising from the sale or other taxable
disposition of, our common shares will generally be subject to information
reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder (a)
fails to furnish such U.S. Holders correct U.S. taxpayer identification number
(generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification
number, (c) is notified by the IRS that such U.S. Holder has previously failed
to properly report items subject to backup withholding tax, or (d) fails to
certify, under penalty of perjury, that such U.S. Holder has furnished its
correct U.S. taxpayer identification number and that the IRS has not notified
such U.S. Holder that it is subject to backup withholding tax. However, certain
exempt persons generally are excluded from these information reporting and
backup withholding rules. Backup withholding is not an additional tax. Any
amounts withheld under the U.S. backup withholding tax rules will be allowed as
a credit against a U.S. Holders U.S. federal income tax liability, if any, or
will be refunded, if such U.S. Holder furnishes required information to the IRS
in a timely manner. Each U.S. Holder should consult its own tax advisor
regarding the information reporting and backup withholding rules.

- 60 -

---

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, 120 Adelaide Street West, Suite 1204, Toronto, Ontario,
Canada, M5H 1T1; 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  Organizational Structure of this Annual Report
on 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

We are exposed to financial risk related to the fluctuation of foreign exchange rates. Our oil and gas operations are in Israel. Most of our monetary assets are held in US dollars and most of our expenditures are made in US dollars. However, we also have expenditures in NIS and Canadian dollars. A significant change in the currency rates between the NIS and the Canadian dollars relative to the US dollar could have an effect on our future results of operations, financial position or cash flows, depending on our currency management techniques. We have not hedged our exposure to currency fluctuations. An increase or decrease of 5% of the NIS and Canadian dollars relative to the U.S dollar would not have a significant effect on.

- 61 -

---

D.                Commodity
Price Risk

While the value of our exploration properties can always be
said to relate to the price of the commodity and the outlook for same, we do not
have any operating mines nor economic ore and therefore do not have any hedging
arrangements.

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, as amended
(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.

As required under the Exchange Act, we have carried out an
evaluation of the effectiveness of the design and operation of our companys
disclosure controls and procedures as of the end of the period covered by this
annual report on Form 20-F, being December 31, 2013. This evaluation was carried
out by our Chief Executive Officer (being our principal executive officer) and
Chief Financial Officer (being our principal financial officer). Based upon that
evaluation, our executives concluded that our disclosure controls and procedures
were effective as at December 31, 2013.

- 62 -

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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 Board, 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.                                                                                                                                       

Under the supervision and with the participation of our Chief
Financial Officer, our management assessed the effectiveness of our internal
control over financial reporting as at December 31, 2013. In making this
assessment, our 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 our internal control over financial reporting was effective as at
December 31, 2013.

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
our registered public accounting firm regarding internal control over financial
reporting, as we are a smaller reporting company.

Changes in Internal Control over Financial Reporting

During the period ended December 31, 2013, 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

As disclosed above, as of the date hereof, our Audit Committee
is comprised of Dennis Bennie, Richard Crist and Alan Friedman.

The Board has determined that Messrs. Bennie and Crist meet the
SECs definition of an audit committee financial expert, as defined in Item 16
of Form 20-F. Although we are not currently subject to any law, rule or
regulation in the United States requiring that we establish or maintain an audit
committee, the Board has determined that Messrs. Bennie and Crist meet the
definition of an independent director, as defined in Section 803 of the NYSE
MKT Company Guide.

ITEM
16B                       
CODE OF ETHICS

We have adopted a Code of Business Conduct that applies 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. The Code of Business Conduct meets the requirements for a “code of ethics” within the meaning of that term in Item 16B of Form 20-F. The text of our Code of Business Conduct is also posted on our website at www.adiraenergy.com, under the “Company” tab. In addition, a copy of our Code of Business Conduct will be provided to any person without charge, upon request.  All requests for a copy of our code of ethics should be directed in writing to the attention of Gadi Levin, c/o Adira Energy Ltd., 120 Adelaide Street West, Suite 1204, Toronto, Ontario, Canada M5H 1T1, or by email at: glevin@adiraenergy.com.

- 63 -

---

ITEM
16C                       
PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth information regarding the amount
billed to us by our principal independent auditors, Kost Forer Gabbay &
Kasierer, a member of Ernst & Young Global, for our fiscal years ended
December 31, 2013 and 2012:

Period Ended December 312013
    2012Audit Fees:
    $90,000
    $155,000Audit Related Fees:
    -
    $88,000Tax Fees:
    $80,000
    $120,000Total:
    $170,000
    $363,000


Audit Fees

This category includes 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.

Audit Related Fees

This category includes the aggregate fees billed in each of the
last two fiscal years for assurance and related services by the independent
auditors that are reasonably related to the performance of the audits or reviews
of the financial statements and are not reported above under "Audit Fees," and
generally consist of fees for other engagements under professional auditing
standards, accounting and reporting consultations,

Tax Fees

This category includes the aggregate fees billed in each of the
last two fiscal years for professional services rendered by the independent
auditors for tax compliance, tax planning and tax advice.

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

From August 23, 2010 until March 16, 2011, MSCM LLP acted as
  our independent auditors. On March 16, 2011 we appointed Kost Forer Gabbay and
  Kasierer, a member firm of Ernst & Young Global, as our new auditors. MSCM
  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 our ability to continue as a going concern. During our past
  two fiscal years there were no disagreements between us and our independent
  auditors on any matter of accounting principles or practices, financial
  statement disclosure or auditing scope or procedure.

- 64 -

---

ITEM
16G                      
CORPORATE GOVERNANCE

Not applicable.

ITEM
16H                       MINE
SAFETY DISCLOSURE

Not applicable.

PART III

ITEM
17                         
FINANCIAL STATEMENTS

Not applicable.

ITEM
18                         
FINANCIAL STATEMENTS

Financial Statements Filed as Part of this Annual Report:

- Report of Independent Registered Public Accounting Firm dated April 30,
  2013;
- Consolidated statement of financial position for the fiscal years ended
  December 31, 2012 and 2011;
- Consolidated statements of comprehensive income for the fiscal years ended
  December 31, 2012 and 2011;
- Consolidated statements of changes in shareholders equity for the fiscal
  years ended December 31, 2012 and 2011;
- Consolidated statements of cash flows for the fiscal years ended December
  31, 2012 and 2011; and
- Notes to consolidated financial statements

ITEM
19                         
EXHIBITS

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

ExhibitNumber
    Description1.1
    Articles of Conversion (1)1.2
    Articles of Continuance (1)1.3
    By-Laws (1)1.4
    Certificate and Articles of Amendment (3)1.5
    Certificate and Articles of Amendment (5)


- 65 -

---

4.1
    2009 Stock Option Plan (2)4.2
    Nominee Agreement with BRM Group Ltd (4)8.1
    List of Subsidiaries (5)12.1
    Certificate of Principal Executive Officer pursuant
      to Section 302 of the Sarbanes-Oxley Act of 2002 (5)12.2
    Certificate of Chief Financial Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002 (5)13.1
    Certificate of Principal Executive Officer pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002 (5)13.2
    Certificate of Chief Financial Officer pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002 (5)


|(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) | Incorporated by reference from our Form 20-F report filed
      with the SEC on February 3, 2011.               
|(5) | Filed as an exhibit hereto.                                                                                     

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/Gadi
      Levin    
|------ | -----------------------
|Name:  | Gadi Levin             
|Title: | Chief Financial Officer

Date: April 30, 2014

- 66 -

---

ADIRA ENERGY LTD.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2013

U.S. DOLLARS IN THOUSANDS



INDEX

|                                                              | Page  
|------------------------------------------------------------- | ------
|                                                              |       
|Report of Independent Registered Public
      Accounting Firm | 2     
|                                                              |       
|Consolidated Statements of Financial
      Position           | 3     
|                                                              |       
|Consolidated Statements of Comprehensive
      Loss           | 4     
|                                                              |       
|Consolidated Statements of Changes in
      Equity            | 5     
|                                                              |       
|Consolidated Statements of Cash
      Flows                   | 6     
|                                                              |       
|Notes to Consolidated Financial
      Statements              | 7 - 54

- - - - - - - - - - - - - - - - - -

---

| | Kost Forer Gabbay &
      Kasierer 
      3 Aminadav St. 
      Tel-Aviv 6706703, Israel | Tel: +972-3-6232525 
      Fax:
      +972-3-5622555 
      ey.com | 
| | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACOUNTING FIRM

To the Board of Directors and Shareholders of

ADIRA ENERGY LTD.

We
  have audited the accompanying consolidated balance sheets of Adira Energy Ltd.
  ("the Company") and its subsidiaries as of December 31, 2013 and 2012, and the
  related consolidated statements of comprehensive loss, changes in equity and
  cash flows for each of the three years in the period ended December 31, 2013.
  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 audits.

We
  conducted our audits in accordance with the standards of the Public Company
  Accounting Oversight Board (United States). Those standards require that we plan
  and perform the audit to obtain reasonable assurance about whether the financial
  statements are free of material misstatement. We were not engaged to perform an
  audit of the Company's internal control over financial reporting. Our audits
  included consideration of internal control over financial reporting as a basis
  for designing audit procedures that are appropriate in the circumstances, but
  not for the purpose of expressing an opinion on the effectiveness of the
  Company's internal control over financial reporting. Accordingly, we express no
  such opinion. An audit also includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements, assessing
  the accounting principles used and significant estimates made by management, and
  evaluating the overall financial statement presentation. We believe that our
  audits provide a reasonable basis for our opinion.

In
  our opinion, the consolidated financial statements referred to above present
  fairly, in all material respects, the consolidated financial position of the
  Company and its subsidiaries as of December 31, 2013 and 2012 and the
  consolidated results of their operations and their cash flows for each of the
  three years in the period ended December 31, 2013, in conformity with
  International Financial Reporting Standards as issued by the International
  Accounting Standards Board.

As described in Note 1b to the financial statements, as of December 31, 2013, the Company has an accumulated deficit of $34.6 million and a negative cash flow from operations of $2 million for the year ended December 31, 2013. The Company is an oil and gas exploration company and its existing funds and operating revenues are currently insufficient to finance its future and current operating expenses and its exploration funding commitments. These matters and other matters discussed in Note 1b, raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER    
|---------------- | --------------------------------
|April 30 , 2014  | A Member of Ernst & Young Global

- 2 -

---

|ADIRA ENERGY LTD.                                  
|---------------------------------------------------
|                                                   
|CONSOLIDATED
      STATEMENTS OF FINANCIAL POSITION
|U.S. dollars in thousands                          

|                                                     |  |        |  |   | December 31, |  
|---------------------------------------------------- |  | ------ |  | - | ------------ | -
|                                                     |  | Note   |  |   | 2013         |  
|ASSETS                                               |  |        |  |   |              |  
|                                                     |  |        |  |   |              |  
|CURRENT ASSETS:                                      |  |        |  |   |              |  
|Cash and cash equivalents                            |  | 4      |  | $ | 617          |  
|Restricted deposits                                  |  | 5      |  |   | 35           |  
|Accounts receivable                                  |  | 6      |  |   | -            |  
|Other receivables and prepaid expenses               |  | 7      |  |   | 2,513        |  
|                                                     |  |        |  |   |              |  
|Total current assets                                 |  |        |  |   | 3,165        |  
|                                                     |  |        |  |   |              |  
|NON-CURRENT ASSETS:                                  |  |        |  |   |              |  
|Property and equipment, net                          |  | 8      |  |   | 61           |  
|Long - term receivables                              |  | 9b (2) |  |   | -            |  
|Exploration and evaluation
      assets              |  | 9      |  |   | -            |  
|                                                     |  |        |  |   |              |  
|Total non-current assets                             |  |        |  |   | 61           |  
|                                                     |  |        |  |   |              |  
|Total assets                                         |  |        |  | $ | 3,226        |  
|                                                     |  |        |  |   |              |  
|LIABILITIES AND EQUITY                               |  |        |  |   |              |  
|                                                     |  |        |  |   |              |  
|CURRENT LIABILITIES:                                 |  |        |  |   |              |  
|Trade payables                                       |  | 10     |  | $ | 2,817        |  
|Other accounts payable and
      accrued liabilities |  | 11     |  |   | 986          |  
|                                                     |  |        |  |   |              |  
|Total current liabilities                            |  |        |  |   | 3,803        |  
|                                                     |  |        |  |   |              |  
|LONG-TERM LIABILITIES                                |  |        |  |   |              |  
|Share warrants                                       |  | 14b    |  |   | -            |  
|                                                     |  |        |  |   |              |  
|Total long-term liabilities                          |  |        |  |   | -            |  
|                                                     |  |        |  |   |              |  
|EQUITY (DEFICIT):                                    |  |        |  |   |              |  
|Share capital                                        |  | 14     |  |   | -            |  
|Additional paid-in capital                           |  |        |  |   | 34,023       |  
|Accumulated deficit                                  |  |        |  |   | (34,600      | )
|                                                     |  |        |  |   |              |  
|Total equity (deficit)                               |  |        |  |   | (577         | )
|                                                     |  |        |  |   |              |  
|Total liabilities and equity                         |  |        |  | $ | 3,226        |  

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

Approved on Behalf of the Board:



|April 30, 2014          |  | /s/ Dennis Bennie                  |  | /s/ Alan Friedman
|----------------------- |  | ---------------------------------- |  | -----------------
|Date of approval of the |  | Dennis Bennie                      |  | Alan Friedman    
|financial statements    |  | Chairman of the board of directors |  | Director         

- 3 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE LOSS             
|U.S. dollars in thousands, except share and per share
      data

|                                                                                                        |  |      |  |   | Year ended   |  
|------------------------------------------------------------------------------------------------------- |  | ---- |  | - | ------------ | -
|                                                                                                        |  |      |  |   | December 31, |  
|                                                                                                        |  | Note |  |   | 2013         |  
|                                                                                                        |  |      |  |   |              |  
|Revenues and other income                                                                               |  | 17   |  | $ | 17           |  
|                                                                                                        |  |      |  |   |              |  
|Expenses:                                                                                               |  |      |  |   |              |  
|Exploration expenses                                                                                    |  | 9    |  |   | 677          |  
|General and administrative
      expenses                                                               |  | 18   |  |   | 2,813        |  
|Impairment charge                                                                                       |  | 9    |  |   | 5,168        |  
|                                                                                                        |  |      |  |   |              |  
|Total expenses                                                                                          |  |      |  |   | 8,658        |  
|                                                                                                        |  |      |  |   |              |  
|Operating loss                                                                                          |  |      |  |   | (8,641       | )
|                                                                                                        |  |      |  |   |              |  
|Financing income                                                                                        |  | 19   |  |   | 3,027        |  
|Financing expense                                                                                       |  | 19   |  |   | (30          | )
|                                                                                                        |  |      |  |   |              |  
|Loss before income taxes                                                                                |  |      |  |   | (5,644       | )
|Income taxes                                                                                            |  | 13   |  |   | -            |  
|                                                                                                        |  |      |  |   |              |  
|Net loss and comprehensive loss                                                                         |  |      |  | $ | (5,644       | )
|                                                                                                        |  |      |  |   |              |  
|                                                                                                        |  |      |  |   |              |  
|Net loss and comprehensive loss attributed
      to:                                                    |  |      |  |   |              |  
|Equity holders of the parent                                                                            |  |      |  | $ | (5,644       | )
|Non-controlling interests                                                                               |  |      |  |   | -            |  
|                                                                                                        |  |      |  |   |              |  
|                                                                                                        |  |      |  | $ | (5,644       | )
|                                                                                                        |  |      |  |   |              |  
|Basic and diluted net loss per share
      attributable to equity holders of the parent                 |  |      |  |   | (0.09        | )
|                                                                                                        |  |      |  |   |              |  
|Weighted average number of ordinary shares
      used in computing basic and diluted net loss per share |  |      |  |   | 60,260,363   |  

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

- 4 -

---

|ADIRA ENERGY LTD.                                           
|------------------------------------------------------------
|CONSOLIDATED
      STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
|U.S. dollars in thousands, except share data                

**Attributable to equity
        holders**of
        the parentAdditional
      
      
      
      
      
      
      
      
      Non-Number of
      
      
      Share
      
      
      paid in
      
      
      Accumulated
      
      
      
      
      
      controlling
      
      
      Total Equitycapitalshares
      
      
      
      
      
      capital
      
      
      deficit
      
      
      Total
      
      
      interests
      
      
      (deficit)Balance as of January 1, 2011
      
      30,046,667
      
      $
      -
      
      $
      20,286
      
      $
      (9,680
      )
      $
      10,606
      
      $
      631
      
      $
      11,237Shares issued in private placement, net
        (Note 14b(ii))
      
      3,494,623
      
      
      -
      
      
      *)6,152
      
      
      -
      
      
      6,152
      
      
      -
      
      
      6,152Exercise of warrants and options
      
      381,527
      
      
      -
      
      
      314
      
      
      -
      
      
      314
      
      
      -
      
      
      314Investment in equity of subsidiary by
        non-controlling interests
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      151
      
      
      151Share-based compensation
      
      -
      
      
      -
      
      
      1,023
      
      
      -
      
      
      1,023
      
      
      -
      
      
      1,023Net loss
      
      -
      
      
      -
      
      
      -
      
      
      (9,489
      )
      
      (9,489
      )
      
      (562
      )
      
      (10,051
      )Balance as of December 31, 2011
      
      33,922,817
      
      
      -
      
      
      27,775
      
      
      (19,169
      )
      
      8,606
      
      
      220
      
      
      8,826Shares issued in private placement, net
        (Note 14b(iii))
      
      26,337,546
      
      
      -
      
      
      *)5,215
      
      
      -
      
      
      5,215
      
      
      -
      
      
      5,215Investment in equity of subsidiary by non-controlling
        interests
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      -
      
      
      550
      
      
      550Share-based compensation
      
      -
      
      
      -
      
      
      976
      
      
      -
      
      
      976
      
      
      -
      
      
      976Net loss
      
      -
      
      
      -
      
      
      -
      
      
      (8,554
      )
      
      (8,554
      )
      
      (2,003
      )
      
      (10,557
      )Adjustment of non-controlling interests **)
      
      -
      
      
      -
      
      
      -
      
      
      (1,233
      )
      
      (1,233
      )
      
      1,233
      
      
      -Balance as of December 31, 2012
      
      60,260,363
      
      
      -
      
      
      33,966
      
      
      (28,956
      )
      
      5,010
      
      
      -
      
      
      5,010Share-based compensation
      
      -
      
      
      -
      
      
      57
      
      
      -
      
      
      57
      
      
      -
      
      
      57Net loss
      
      -
      
      
      -
      
      
      -
      
      
      (5,644
      )
      
      (5,644
      )
      
      -
      
      
      (5,644
      )Balance as of December 31, 2013
      
      60,260,363
      
      $
      -
      
      $
      34,023
      
      $
      (34,600
      )
      $
      (577
      )
      $
      -
      
      $
      (577
      )


*)        Net of issuance
  expenses of $472 and $791 in the years 2011, and 2012,
  respectively.
  **)      Due to assumption of
  liabilities of a subsidiary.

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

- 5 -

---

|ADIRA ENERGY LTD.                          
|-------------------------------------------
|                                           
|CONSOLIDATED
      STATEMENTS OF CASH FLOWS
|U.S. dollars in thousands                  

|                                                                                         |   | Year ended   |  
|---------------------------------------------------------------------------------------- | - | ------------ | -
|                                                                                         |   | December 31, |  
|                                                                                         |   | 2013         |  
|Cash flows from operating activities:                                                    |   |              |  
|Net loss                                                                                 | $ | (5,644       | )
|                                                                                         |   |              |  
|Adjustments to reconcile net loss to net
      cash used in operating activities:        |   |              |  
|Adjustments to the profit or loss items:                                                 |   |              |  
|Exchange rate differences for
      cash and cash equivalents                            |   | 18           |  
|Depreciation                                                                             |   | 88           |  
|Impairment charge                                                                        |   | 5,168        |  
|Issuance expenses                                                                        |   | -            |  
|Revaluation of warrants                                                                  |   | (3,013       | )
|Share-based compensation                                                                 |   | 57           |  
|                                                                                         |   |              |  
|                                                                                         |   | 2,318        |  
|                                                                                         |   |              |  
|Changes in operating asset and liability items:                                          |   |              |  
|Decrease (increase) in accounts receivable,
      other receivables and prepaid expenses |   | 4,847        |  
|Increase (decrease) in trade payables                                                    |   | (3,024       | )
|Increase (decrease) in other accounts
      payable and accrued liabilities              |   | (490         | )
|                                                                                         |   |              |  
|                                                                                         |   | 1,333        |  
|                                                                                         |   |              |  
|Net cash used in operating activities                                                    |   | (1,993       | )
|                                                                                         |   |              |  
|Cash flows from investing
      activities:                                              |   |              |  
|Expenditures on exploration and evaluation assets                                        |   | (2,636       | )
|Purchase of property and equipment                                                       |   | -            |  
|Proceeds from sale of exploration and evaluation assets                                  |   | 1,823        |  
|Increase (decrease) in long term
      receivables                                       |   | -            |  
|Decrease (increase) in restricted cash                                                   |   | 1,047        |  
|                                                                                         |   |              |  
|Net cash provided by (used in) investing activities                                      |   | 234          |  
|                                                                                         |   |              |  
|Cash flows from financing activities:                                                    |   |              |  
|Proceeds from issuance of warrants, net of
      issuance expenses                       |   | -            |  
|Proceeds from issue of shares, net of issuance expenses                                  |   | -            |  
|Investment in equity of subsidiary by
      non-controlling interests                    |   | -            |  
|Proceeds from exercise of warrants and options to employees                              |   | -            |  
|                                                                                         |   |              |  
|Net cash provided by financing activities                                                |   | -            |  
|                                                                                         |   |              |  
|Exchange rate differences for cash and cash equivalents                                  |   | (18          | )
|                                                                                         |   |              |  
|Decrease in cash and cash equivalents                                                    |   | (1,777       | )
|Cash and cash equivalents at the beginning
      of the year                             |   | 2,394        |  
|                                                                                         |   |              |  
|Cash and cash equivalents at the end of the
      year                                   | $ | 617          |  

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

- 6 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 1:- | GENERAL
|-------- | -------

| | a. | Nature of operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Adira Energy Ltd. and its subsidiaries ("Adira" or "the
      Company"), is an oil and gas  exploration company. Adira is a
      limited company, incorporated on April 8, 2009, and domiciled in Toronto,
      Ontario, Canada. The Company's shares are currently traded on the OTC
      market in the U.S. and the TSX Venture Exchange in Canada. The
      consolidated financial statements of the Company for the year ended
      December 31, 2013 were authorized for issue in accordance with a
      resolution of the directors on April 30, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | The Company has been granted two offshore petroleum
      licenses in Israel. The Company's wholly-owned Canadian subsidiary, Adira
      Energy Holdings Corp. owns three wholly owned Israeli subsidiaries as
      follows as of December 31, 2013: (i) Adira Energy Israel Limited ("Adira
      Israel"), which holds two offshore petroleum licenses being the "Gabriella
      License No. 378" ("Gabriella") of which it owns a 15% interest (see also
      Note 9b(1)) and the "Yitzhak License No. 380" ("Yitzhak") of which it owns
      70% interest (see also Notes 9.b(2)); (ii) Adira Oil Technologies Limited
      ("AOT") was granted a 23.25% interest in one offshore petroleum license,
      the "Samuel License No. 388" ("Samuel"), which was returned to the
      Ministry of Energy and Water of the State of Israel (the "Ministry") in October 2013 (see
      also Note 9b(3)) (Gabriella, Yitzhak and Samuel - collectively the
      "Offshore Licenses") and (iii) Adira Energy Israel Services Ltd. provided
      services in respect of the entities described above. Adira Energy Holdings
      Corp. also owns 60% of the subsidiary, Adira Geo Global Limited ("AGG"),
      which owned a 30% interest in Samuel.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Adira Energy Israel Limited is the operator of Gabriella,
      a co-operator of Yitzhak and AGG was the operator of Samuel. As the
      operator, the Company has established Unincorporated Joint Ventures
      ("UJV's") to manage the exploration activities of each of the offshore
      licenses. The Company receives consulting and operator fees in accordance
      with the terms of Joint Operating Agreements signed between the Company
      and each of its consortium partners in the UJV's.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b. | Going Concern:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | As reflected in the consolidated financial statements, as of December 31, 2013, the Company has an accumulated deficit of $34,600 and in 2013; the Company had negative cash flows from operations of $1,993. The Company is an early exploration stage company and its existing funds and operating revenues are currently insufficient to finance its future and current operating expenses and exploration funding commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | In 2013, as a result of challenging markets and
    difficulty in raising funds to drill multi well program, the Company
    significantly reduced its activity and returned the Samuel license to the
    Ministry, ceased operation in Gabriella due to lack of funding from the
    partners of the Gabriella license, and there was no exploration activity in
    the Yitzhak license in 2013 (See also Note 9b).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

- 7 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 1:- | GENERAL (Cont.)
|-------- | ---------------

There can be no assurance that the
  Company will be able to continue to raise funds from the aforementioned sources
  in which case the Company may be unable to meet its obligations. These matters
  raise substantial doubt about the Company's ability to continue as a going
  concern. The consolidated financial statements do not include any adjustments
  relating to the recoverability and classification of recorded asset amounts and
  classification of liabilities that might be necessary should the Company be
  unable to continue as a going concern.

|NOTE 2:- | BASIS OF PREPARATION
|-------- | --------------------

| | a. | Basis of preparation of the financial
      statements:                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                      
| |    | These financial statements have been prepared in
      accordance with International Financial Reporting Standards ("IFRS") as
      issued by the International Accounting Standards Board. These Standards
      comprise:         
| |    |                                                                                                                                                                                                                                      
| |    | 1.                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                      
| |    | 2.                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                      
| |    | 3.                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                      
| | b. | The consolidated financial statements have been prepared
      on a historical cost basis, and are presented in U.S. dollars and all
      values are rounded to the nearest thousand ($ 000), except when otherwise
      indicated.

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES                                                                                                                                                         
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                               
|        | The following are the significant accounting policies
      applied by the Company in preparing its consolidated financial statements
      for all periods presented unless otherwise stated.

| | a. | Significant judgments, estimates and assumptions used in
      the preparation of the financial statements:                                                                                                                                                                                                                                                                                                                                           
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The preparation of the financial statements requires
      management to make judgments, estimates and assumptions that have an
      effect on the application of the accounting policies and on the reported
      amounts of assets, liabilities, revenues and expenses. These estimates and
      underlying assumptions are reviewed regularly. Changes in accounting
      estimates are reported in the period of the change in
      estimate.

- 8 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | ---------------------------------------

In the process of applying the
  significant accounting policies, the Company has made the following judgments
  which have a significant effect on the amounts recognized in the financial
  statements:

| | - | Determining the fair value of share-based
      payment transactions:
| | - | ---------------------------------------------------------------------

The fair value of share-based payment
  transactions is determined using an acceptable option-pricing model. The
  assumptions made by management and used in the model include expected
  volatility, expected life and expected dividend. Changes in assumptions could
  affect the estimates of fair values.

The key assumptions made in the
  financial statements concerning uncertainties at the end of the reporting period
  and the critical estimates computed by the Company that may result in a material
  adjustment to the carrying amounts of assets and liabilities within the next
  financial year are discussed below.

| | - | Impairment of Exploration and Evaluation
      Assets:
| | - | ------------------------------------------------------

The Company reviews its Exploration
  and Evaluation Assets for impairment at least once a year and when facts and
  circumstances suggest that the carrying amount of an exploration and evaluation
  asset may exceed its recoverable amount. This requires management to make
  judgments, estimates and assumptions with respect to the probability that the
  carrying amount of the exploration and evaluation asset will be recovered in
  full from successful development or by sale. See Note 9 for further details.

| | b. | Consolidated financial statements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | The consolidated financial statements comprise the
      financial statements of companies that are controlled by the Company
      (subsidiaries). Control is achieved when the Company is exposed, or has
      rights, to variable returns from its involvement with the investee and has
      the ability to affect those returns through its power over the investee.
      Potential voting rights are considered when assessing whether an entity
      has control. The consolidation of the financial statements commences on
      the date on which control is obtained and ends when such control
      ceases.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | The financial statements of the Company and of the
      subsidiaries are prepared as of the same dates and periods. The
      consolidated financial statements are prepared using uniform accounting
      policies by all companies in the Group. Significant intragroup balances
      and transactions and gains or losses resulting from intragroup
      transactions are eliminated in full in the consolidated financial
      statements.                                                                                                                                                                         

- 9 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3:- | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|-------- | ---------------------------------------------

Non-controlling interests in
  subsidiaries represent the equity in subsidiaries not attributable, directly or
  indirectly, to a parent. Non-controlling interests are presented in equity
  separately from the equity attributable to the equity holders of the Company.
  Profit or loss and components of other comprehensive income are attributed to
  the Company and to non-controlling interests. Losses are attributed to
  non-controlling interests even if they result in a negative balance of
  non-controlling interests in the consolidated statement of financial
  position.

The disposal of a subsidiary that does
  not result in a loss of control is recognized as a change in equity. Upon the
  disposal of a subsidiary resulting in loss of control, the Company:

| | - | derecognizes the subsidiary's assets (including goodwill)
      and liabilities.                                                                                                                                
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | derecognizes the carrying amount of non-controlling
      interests.                                                                                                                                            
| | - | derecognizes the adjustments arising from translating
      financial statements carried to equity.                                                                                                             
| | - | recognizes the fair value of the consideration received.                                                                                                                                                        
| | - | recognizes the fair value of any remaining investment.                                                                                                                                                          
| | - | reclassifies the components previously recognized in
      other comprehensive income on the same basis as would be required if the
      subsidiary had directly disposed of the related assets or liabilities.
| | - | recognizes any resulting difference (surplus or deficit)
      as gain or loss.                                                                                                                                 

| | c. | Unincorporated joint oil and gas ventures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company conducts petroleum and natural gas
      exploration activities jointly with other partners who each have direct
      ownership in the assets and each are directly obligated for the
      liabilities of the ventures. Consequently, these financial statements
      reflect only the Company's proportionate interest in such
      activities.                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company accounts for its share of the joint venture's
      assets, liabilities it has incurred, income from the sale or use of its
      share of the joint venture's output, together with its share of the
      expenses incurred by the joint venture and any expenses it incurs in
      relation to its interest in the joint venture.                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | d. | Farm-out arrangements in the exploration and evaluation
      phase:                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | A farm-out is the transfer of part of an oil and gas
      interest in consideration for an agreement by the transferee ("farmee") to
      meet, absolutely, certain expenditures which would otherwise have to be
      undertaken by the owner ("farmor"). Farm-out transactions generally occur
      in the exploration or development phase and are characterized by the
      transferor (i.e. farmor) giving up future economic benefits, in the form
      of reserves, in exchange for a reduction in future funding
      obligations.

- 10 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3:- | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|-------- | ---------------------------------------------

Accordingly, the farmee recognizes its
  expenditure under the arrangement in respect of its interest and that retained
  by the farmor, as and when the costs are incurred.

The Company (farmor) accounts for the
  farm-out arrangement as follows:

| | - | The farmor does not record any expenditure made by the
      farmee on its behalf;                                                                                                                                                      
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                         
| | - | The farmor does not recognize a gain or loss on the
      farm-out arrangement, but rather redesignates any costs previously
      capitalized in relation to the whole interest as relating to the partial
      interest retained; and
| |   |                                                                                                                                                                                                                                         
| | - | any cash consideration received is credited against costs
      previously capitalized in relation to the whole interest with any excess
      accounted for by the farmor as a gain on disposal.                                       

- 11 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

| | e. | Functional currency and foreign currency:
| | -- | -----------------------------------------
| |    |                                          
| |    | 1.                                       
| |    |                                          
| |    |                                          
| |    |                                          
| |    |                                          
| |    |                                          
| |    | 2.                                       
| |    |                                          
| |    |                                          

| | f. | Cash equivalents:                                                                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Cash equivalents are considered as highly liquid
      investments, including unrestricted short-term bank deposits with an
      original maturity of three months or less from the date of acquisition or
      with a maturity of more than three months, but which are redeemable on
      demand without penalty and which form part of the Company's cash
      management.
| |    |                                                                                                                                                                                                                                                                                                                                                                                  
| | g. | Allowance for doubtful accounts:                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The allowance for doubtful accounts is determined in
      respect of specific debts whose collection, in the opinion of the
      Company's management, is doubtful. No allowance for doubtful account
      exists as of December 31, 2013 and 2012.                                                                                                                           

- 12 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

| | h. | Financial instruments:
| | -- | ----------------------
| |    |                       
| |    | 1.                    
| |    |                       
| |    |                       
| |    |                       
| |    |                       
| |    |                       
| |    | 2.                    
| |    |                       
| |    |                       
| |    |                       
| |    | 3.                    
| |    |                       
| |    |                       
| |    |                       
| |    |                       

- 13 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3:- | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|-------- | ---------------------------------------

| |    | A liability may be designated upon initial recognition at
      fair value through profit or loss, subject to the provisions of IAS
      39.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                              
| | 4. | Derecognition of financial instruments:                                                                                                      
| |    |                                                                                                                                              
| |    | a)                                                                                                                                           
| |    |                                                                                                                                              
| |    |                                                                                                                                              
| |    |                                                                                                                                              
| |    |                                                                                                                                              

- 14 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|------- | ---------------------------------------

| | b) | Financial liabilities:                                                                                                                                                                                    
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                           
| |    | A financial liability is derecognized when it is
      extinguished, that is when the obligation is discharged or cancelled or
      expires. A financial liability is extinguished when the
      debtor:

| |  | discharges the liability by paying in cash, other
      financial assets, goods or services; or
| | - | -----------------------------------------------------------------------------------------------
| |  | is legally released from the
      liability.                                                  

| | 5. | Impairment of financial assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | The Company assesses at the end of each reporting period whether there is any objective evidence of impairment of a financial asset or group of financial assets carried at amortized cost as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | An objective evidence of impairment of debt instruments and receivables exists as a result of one or more events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows. Evidence of impairment may include indications that the debtor is experiencing financial difficulties, including liquidity difficulty and default in interest or principal payments. The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate (the effective interest rate computed at initial recognition). If the financial asset has a variable interest rate, the discount rate is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account (see allowance for doubtful accounts above). In a subsequent period, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.

- 15 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

| | 6. | Classification of rights issues:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Rights, options or warrants to acquire a fixed number of
      the Company's equity instruments for a fixed amount of any currency are
      classified as equity instruments if the Company offers the rights, options
      or warrants pro rata to all of its existing owners of the same class of
      its non-derivative equity instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 7. | Issue of a unit of securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The issue of a unit of securities involves the allocation
      of the proceeds received (before issue expenses) to the components of the
      securities issued in the unit based on the following order: financial
      derivatives and other financial instruments measured at fair value in each
      period. Then fair value is determined for financial liabilities and
      compound instruments (such as convertible debentures) that are presented
      at amortized cost. The proceeds allocated to equity instruments are the
      residual amount calculated as the difference between the total proceeds
      and the proceeds allocated as above. Issue costs are allocated to each
      component pro rata to the amounts determined for each component in the
      unit.

| | i. | Property and equipment:                                                                                                                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                             
| |    | Property and equipment are measured at cost, including
      directly attributable costs, less accumulated depreciation. Cost includes
      spare parts and auxiliary equipment that can be used only in connection
      with the machinery and equipment.
| |    |                                                                                                                                                                                                                                                             
| |    | Depreciation is calculated on a straight-line basis over
      the useful life of the assets at annual rates as
      follows:                                                                                                                              

| |                                    | % 
| | ---------------------------------- | --
| |                                    |   
| | Drilling rig and related equipment | 10
| | Office furniture and equipment     | 10
| | Computers and peripheral equipment | 33

The useful life, depreciation method
  and residual value of an asset are reviewed at least each year-end and any
  changes are accounted for prospectively as a change in accounting estimate.

Depreciation of an asset ceases at the
  earlier of the date that the asset is classified as held for sale and the date
  that the asset is derecognized. An asset is derecognized on disposal or when no
  further economic benefits are expected from its use. The gain or loss arising
  from the derecognition of the asset (determined as the difference between the
  net disposal proceeds and the carrying amount in the financial statements) is
  included in profit or loss when the asset is derecognized.

- 16 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

| | j. | Impairment of non-financial assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The Company evaluates the need to record an impairment of
      the carrying amount of non- financial assets whenever events or changes in
      circumstances indicate that the carrying amount is not recoverable. If the
      carrying amount of non-financial assets exceeds their recoverable amount,
      the assets are reduced to their recoverable amount. The recoverable amount
      is the higher of fair value less costs of sale and value in use. In
      measuring value in use, the expected future cash flows are discounted
      using a pre-tax discount rate that reflects the risks specific to the
      asset. The recoverable amount of an asset that does not generate
      independent cash flows is determined for the cash-generating unit to which
      the asset belongs. Impairment losses are recognized in profit or
      loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | k. | Exploration and evaluation assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Pre-license costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Pre-license costs are expensed in the period in which
      they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Exploration and evaluation costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Oil and natural gas exploration and development
      expenditure is accounted for using the successful efforts method of
      accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | During the geological and geophysical exploration phase,
      costs are charged against income as incurred. Costs directly associated
      with an exploration well in its drilling phase, for which it has not yet
      been determined whether there are proved reserves or it is not
      commercially viable, are capitalized as exploration and evaluation
      intangible assets until the drilling of the well is complete and the
      results have been evaluated. These costs include employee remuneration,
      materials and fuel used, rig costs and payments made to contractors. If no
      reserves are found, the exploration asset is tested for impairment. If
      extractable hydrocarbons are found and, subject to further appraisal
      activity (e.g., by drilling further wells), are likely to be developed
      commercially, the costs continue to be carried as an intangible assets
      while sufficient and continued progress is made in assessing the
      commerciality of the hydrocarbons. All such costs are subject to
      technical, commercial and management review as well as review for
      impairment at least once a year to confirm the continued intent to develop
      or otherwise extract value from the discovery. When this is no longer the
      case, the costs are written off. When proved reserves of oil are
      determined and development sanctioned, the relevant expenditure is
      transferred to oil and gas properties after impairment is assessed and any
      resulting impairment loss is recognized.

- 17 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

| | l. | Taxes on income:                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | Taxes on income in the consolidated statement of
      comprehensive loss comprise current and deferred taxes. Current or
      deferred taxes are recognized in profit or loss, except to the extent that
      the tax arises from items which are recognized directly in other
      comprehensive income or in equity. In such cases, the tax effect is also
      recognized in the relevant item.

| | 1. | Current taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The current tax liability is measured using the tax rates
      and tax laws that have been enacted or substantively enacted by the end of
      reporting period as well as adjustments required in connection with the
      tax liability in respect of previous years.                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 2. | Deferred taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Deferred taxes are computed in respect of temporary
      differences between the carrying amounts in the financial statements and
      the amounts attributed for tax purposes. Deferred taxes are recognized
      directly in other comprehensive income or in equity if the tax relates to
      those items.                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Deferred taxes are measured at the tax rates that are
      expected to apply to the period when the taxes are reversed in profit or
      loss, comprehensive income or equity, based on tax laws that have been
      enacted or substantively enacted by the end of the reporting
      period.                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Deferred tax assets are reviewed at the end of each
      reporting period and reduced to the extent that it is not probable that
      they will be utilized. Also, temporary differences (such as carry-forward
      losses) for which deferred tax assets have not been recognized are
      reassessed and deferred tax assets are recognized to the extent that their
      recoverability has become probable. Any resulting reduction or reversal is
      recognized in the line item, "taxes on
      income".

| | m. | Share-based payment transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company's employees and other service providers are
      entitled to remuneration in the form of equity-settled share-based payment
      transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The cost of equity-settled transactions with employees is
      measured at the fair value of the equity instruments granted at grant
      date. Fair value measurement of all options and warrants granted is
      determined using an appropriate pricing model. As for other service
      providers, the cost of the transactions is measured at the fair value of
      the goods or services received as consideration for equity instruments. In
      cases where the fair value of the goods or services received as
      consideration of equity instruments cannot be measured, they are measured
      by reference to the fair value of the equity instruments
      granted.

- 18 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

| |    | The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance and service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award ("the vesting period"). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. The expense or income recognized in profit or loss represents the movement in the cumulative expense recognized at the end of the reporting period. No expense is recognized for awards that do not ultimately vest.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | If the Company modifies the conditions on which
      equity-instruments were granted, an additional expense is recognized for
      any modification that increases the total fair value of the share-based
      payment arrangement or is otherwise beneficial to the employee/other
      service provider at the modification date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | If a grant of an equity instrument is cancelled, it is
      accounted for as if it had vested on the cancellation date, and any
      expense not yet recognized for the grant is recognized immediately.
      However, if a new grant replaces the cancelled grant and is identified as
      a replacement grant on the grant date, the cancelled and new grants are
      accounted for as a modification of the original grant, as described
      above.                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | n. | Employee benefit liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company has several employee benefit
      plans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | 1. | Short-term employee benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Short-term employee benefits include salaries, paid
      annual leave, paid sick leave, recreation and social security
      contributions and are recognized as expenses as the services are rendered.
      A liability in respect of a cash bonus is recognized when the Company has
      a legal or constructive obligation to make such payment as a result of
      past service rendered by an employee and a reliable estimate of the amount
      can be made.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 2. | Post-employment benefits:                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company's plan in Israel is financed by contributions
      to insurance companies and is classified as a defined contribution plan,
      pursuant to Section 14 of the Severance Pay Law.                                                                                                                                                                                                                                                                          

- 19 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

The Company pays fixed contributions
  and has no legal or constructive obligation to pay further contributions if the
  insurance company does not hold sufficient amounts to pay all employee benefits
  relating to employee service in the current and prior periods; therefore, upon
  release of the policy to the employee, no additional liability exists between
  the parties regarding the matter of severance pay and no additional payments
  shall be made by the Company to the employee. Accordingly, severance liability
  and deposits on behalf of such liability are not presented on the balance sheet,
  as the Company has no further obligation to these employees once the deposits
  have been paid.

| | o. | Revenue recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Revenues are recognized in the statement of comprehensive
      loss when the revenues can be measured reliably, it is probable that the
      economic benefits associated with the transaction will flow to the Company
      and the costs incurred or to be incurred in respect of the transaction can
      be measured reliably.                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company's revenues are derived from:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Operator fees- the Company acts as the operator
      on the Offshore Licenses and is entitled to operator fees at a fixed rate
      of 7.5% of the total exploration costs incurred by the respective UJV's or
      at a rate ranging from 1.2%-4.8% of the total exploration costs incurred
      by the respective UJV's depending on the annual expenditures in the UJV.
      Revenues from operator fees are recognized in accordance with the terms of
      the Joint Operating Agreements, as exploration costs are incurred in the
      UJV's.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Consulting fees- The Company provides consulting
      services in respect of the Offshore Licenses on a "time and materials"
      basis. Consulting fees are recognized as revenues as the services are
      rendered to the respective UJV's.                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | p. | Finance income and expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Finance income comprises interest income on cash, cash
      equivalents and restricted cash and exchange rate gains and
      losses.                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Gains and losses on exchange rate differences are
      reported on a net basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

- 20 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

| | q. | Loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Loss per share is calculated by dividing the net loss
      attributable to equity holders of the Company by the weighted number of
      Ordinary shares outstanding during the period. Basic loss per share only
      includes shares that were actually outstanding during the period.
      Potential Ordinary shares (warrants and employee options) are only
      included in the computation of diluted loss per share when their
      conversion decreases earnings per share or increases loss per share from
      continuing operations. Further, potential Ordinary shares that are
      converted during the period are included in diluted earnings per share
      only until the conversion date and from that date in basic earnings per
      share.                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | All share options and warrants outstanding for all
      periods presented have not been included in the calculation of diluted
      loss per share, as they are antidilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | r. | Decommissioning liability:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Decommissioning liability is recognized when the Company
      has a present legal or constructive obligation as a result of past events,
      and it is probable that an outflow of resources will be required to settle
      the obligation, and a reliable estimate of the amount of obligation can be
      made. A corresponding amount equivalent to the provision is also
      recognized as part of the cost of the related property and equipment. The
      amount recognized is the estimated cost of decommissioning, discounted to
      its present value. Changes in the estimated timing of decommissioning or
      decommissioning cost estimates are dealt with prospectively by recording
      an adjustment to the provision, and a corresponding adjustment to property
      and equipment. The unwinding of the discount on the decommissioning
      provision is included as a finance cost.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | s. | Presentation of statement of comprehensive
      loss:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The Company has elected to present a single statement of
      comprehensive loss which includes both the items of the statement of
      operation and the items of other comprehensive loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | t. | Reclassification:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Certain amounts have been reclassified in comparative
      data in order to conform to current year's
      presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

- 21 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING
      POLICIES (Cont.)
|------- | ---------------------------------------------

| | u. | Change in accounting policy:                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | Commencing from January 1, 2011, the Company applies
      retrospectively IFRS 10, "Consolidated Financial Statements", IFRS 11,
      "Joint Arrangements", IFRS 12, " Disclosure of Interests in Other
      Entities" and IAS 27R (Revised 2011), "Separate Financial Statements" and
      IAS 28R (Revised 2011), "Investments in Associates and Joint Ventures".
      The application of these standards did not result in a material effect on
      the consolidated financial statements.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | v. | Disclosure of new IFRSs in the period prior to their
      adoption:                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | IAS 32 - Financial Instruments: Presentation and IFRS
      7 - Financial Instruments: Disclosure:                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The IASB issued certain amendments to IAS 32 ("the
      amendments to IAS 32") regarding the offsetting of financial assets and
      liabilities. The amendments to IAS 32 clarify, among others, the meaning
      of "currently has a legally enforceable right of set-off" ("the right of
      set-off").                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The amendments to IAS 32 are to be applied
      retrospectively commencing from the financial statements for periods
      beginning on January 1, 2014, or thereafter. Earlier application is
      permitted.                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Company estimates that the amendments to IAS 32 are
      not expected to have a material impact on its financial
      statements.                                                                                                                                                                                                                                                                                                                                                             

- 22 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 3: | SIGNIFICANT ACCOUNTING POLICIES (Cont.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | IFRS 9 - Financial Instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | The IASB issued IFRS 9, "Financial Instruments", the
      first part of Phase 1 of a project to replace IAS 39, "Financial
      Instruments: Recognition and Measurement". IFRS 9 (the "Standard") focuses
      mainly on the classification and measurement of financial assets and it
      applies to all financial assets within the scope of IAS 39.                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | Amendments regarding derecognition and financial
      liabilities (Phase 2) have also been issued. According to those
      amendments, the provisions of IAS 39 will continue to apply to
      derecognition and to financial liabilities for which the fair value option
      (designated as measured at fair value through profit or loss) has not been
      elected; that is, the classification and measurement provisions of IAS 39
      will continue to apply to financial liabilities held for trading and
      financial liabilities measured at amortized cost.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | In November 2013, the IASB issued a new version of IFRS 9
      (IFRS 9 (2013)) which includes the new hedge accounting requirements and
      related amendments to IFRS 9, IFRS 7 and IAS 39.                                                                                                                                                                                                                                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | IFRS 9 (2013) does not have a mandatory effective date,
      but it is available for adoption now.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | The Company is evaluating the possible impact of IFRS 9
      but is presently unable to assess its effect, if any, on the financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | Amendments to IAS 36, "Impairment of Assets":                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | In May 2013, the IASB issued amendments to IAS 36,
      "Impairment of Assets" ("the amendments") regarding the disclosure
      requirements of fair value less costs of disposal. The amendments include
      additional disclosure requirements of the recoverable amount and fair
      value. The additional disclosures include the fair value hierarchy, the
      valuation techniques and changes therein, the discount rates and the
      principal assumptions underlying the valuations.                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | The amendments are effective for annual periods beginning
      on January 1, 2014 or thereafter. Earlier application is permitted.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | The appropriate disclosures will be included in the
      Company's financial statements upon the first-time adoption of the
      amendments.                                                                                                                                                                                                                                                                                                                                                                                                                                  

- 23 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 4:- | CASH AND CASH EQUIVALENTS
|-------- | -------------------------

| |                     |   | December 31,              | 
| | ------------------- | - | ------------------------- | 
| |                     |   | 2013                      | 
| |                     |   | U.S. dollars in thousands | 
| |                     |   |                           | 
| | In US Dollars       | $ | 436                       | 
| | In Canadian Dollars |   | 126                       | 
| | In NIS              |   | 55                        | 
| |                     |   |                           | 
| |                     | $ | 617                       | 

|NOTE 5:- | RESTRICTED CASH                                                                                                                                                                                                                                                    
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                                                                    
|         | Short-term restricted cash of $25 and $67 as of December
      31, 2013 and 2012 relates to cash held by a financial institution as a
      guarantee for the Company's Israeli office and the land lease on the Eitan
      license that was released during 2014.
|         |                                                                                                                                                                                                                                                                    
|         | Short-term restricted cash of $10 and $100 as of December
      31, 2013 and 2012 relates to deposits held by a financial institution as
      security in connection with a guarantee against the Company's credit
      facility.                                
|         |                                                                                                                                                                                                                                                                    
|         | Short-term restricted cash of $915 as of December 31,
      2012 relates to cash held by a financial institution as security in
      connection with the guarantee in favor of the customs.                                                                       
|         |                                                                                                                                                                                                                                                                    
|NOTE 6:- | ACCOUNTS RECEIVABLE                                                                                                                                                                                                                                                
|         |                                                                                                                                                                                                                                                                    
|         | Accounts receivable are non-interest bearing and are
      generally on 30-90 days terms. The Company has no past due or impaired
      trade receivables as of December 31, 2013 and 2012.                                                                        
|         |                                                                                                                                                                                                                                                                    
|NOTE 7:- | OTHER RECEIVABLES AND PREPAID EXPENSES                                                                                                                                                                                                                             

| |                        |   | December 31,              | 
| | ---------------------- | - | ------------------------- | 
| |                        |   | 2013                      | 
| |                        |   | U.S. dollars in thousands | 
| |                        |   |                           | 
| | Receivable from UJVs   | $ | 2,292                     | 
| | Government authorities |   | 108                       | 
| | Prepaid expenses       |   | 86                        | 
| | Other receivables      |   | 27                        | 
| | Consumables            |   | -                         | 
| |                        |   |                           | 
| |                        | $ | 2,513                     | 

- 24 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 8:- | PROPERTY AND EQUIPMENT,
      NET
|-------- | ---------------------------------
|         |                                  
|         | Composition and
      movement:  
|         |                                  
|         | 2013                             

| |                                       |   |                           |   |   | Office        |   |   | Computer      |  |   |       |  
| | ------------------------------------- | - | ------------------------- | - | - | ------------- | - | - | ------------- |  | - | ----- | -
| |                                       |   | Drilling rig              |   |   | furniture     |   |   | and           |  |   |       |  
| |                                       |   | and related               |   |   | and           |   |   | peripheral    |  |   |       |  
| |                                       |   | equipment                 |   |   | **equipment** |   |   | **equipment** |  |   | Total |  
| |                                       |   | U.S. dollars in thousands |  
| | Cost:                                 |   |                           |   |   |               |   |   |               |  |   |       |  
| | Balance at January 1, 2013            | $ | 426                       |   | $ | 83            |   | $ | 285           |  | $ | 794   |  
| | Disposals during the year             |   | (426                      | ) |   | (78           | ) |   | -             |  |   | (504  | )
| |                                       |   |                           |   |   |               |   |   |               |  |   |       |  
| | Balance at December 31, 2013          |   | -                         |   |   | 5             |   |   | 285           |  |   | 290   |  
| |                                       |   |                           |   |   |               |   |   |               |  |   |       |  
| | Accumulated depreciation:             |   |                           |   |   |               |   |   |               |  |   |       |  
| | Balance at January 1, 2013            |   | 348                       |   |   | 30            |   |   | 140           |  |   | 518   |  
| | Depreciation for the year **)         |   | -                         |   |   | 3             |   |   | 85            |  |   | 88    |  
| | Disposals during the year             |   | (348                      | ) |   | (29           | ) |   | -             |  |   | (377  | )
| |                                       |   |                           |   |   |               |   |   |               |  |   |       |  
| | Balance at December 31, 2013          |   | -                         |   |   | 4             |   |   | 225           |  |   | 229   |  
| |                                       |   |                           |   |   |               |   |   |               |  |   |       |  
| | Depreciated cost at December 31, 2013 |   | -                         |   |   | 1             |   |   | 60            |  |   | 61    |  

- 25 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 8:- | PROPERTY AND EQUIPMENT, NET (Cont.)
|-------- | -----------------------------------
|         |                                    
|         | 2012                               

| |                                       |   |                           |  |   | Office        |  |   | Computer      |  |   |       | 
| | ------------------------------------- | - | ------------------------- |  | - | ------------- |  | - | ------------- |  | - | ----- | 
| |                                       |   | Drilling rig              |  |   | furniture     |  |   | and           |  |   |       | 
| |                                       |   | and related               |  |   | and           |  |   | peripheral    |  |   |       | 
| |                                       |   | equipment                 |  |   | **equipment** |  |   | **equipment** |  |   | Total | 
| |                                       |   | U.S. dollars in thousands | 
| | Cost:                                 |   |                           |  |   |               |  |   |               |  |   |       | 
| | Balance at January 1, 2012            | $ | 426                       |  | $ | 83            |  | $ | 215           |  | $ | 724   | 
| | Purchases during the year             |   | -                         |  |   | -             |  |   | 70            |  |   | 70    | 
| |                                       |   |                           |  |   |               |  |   |               |  |   |       | 
| | Balance at December 31, 2012          |   | 426                       |  |   | 83            |  |   | 285           |  |   | 794   | 
| |                                       |   |                           |  |   |               |  |   |               |  |   |       | 
| | Accumulated depreciation:             |   |                           |  |   |               |  |   |               |  |   |       | 
| | Balance at January 1, 2012            |   | 191                       |  |   | 14            |  |   | 60            |  |   | 265   | 
| | Additions during the year:            |   |                           |  |   |               |  |   |               |  |   |       | 
| | Depreciation for the year **)         |   | -                         |  |   | 16            |  |   | 80            |  |   | 96    | 
| | Provision for impairment *)           |   | 157                       |  |   | -             |  |   | -             |  |   |       | 
| |                                       |   |                           |  |   |               |  |   |               |  |   |       | 
| | Balance at December 31, 2012          |   | 348                       |  |   | 30            |  |   | 140           |  |   | 518   | 
| |                                       |   |                           |  |   |               |  |   |               |  |   |       | 
| | Depreciated cost at December 31, 2012 | $ | 78                        |  | $ | 53            |  | $ | 145           |  | $ | 276   | 

| | *)  | Following the Eitan license relinquishment in 2011 (See
      Note 9a), an impairment loss of $157 was recognized in the Statement of
      Comprehensive Loss for 2012.                                                                                                                                          
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                   
| | **) | On January 2012, the Company activated a program for the
      sale of the drilling rig and related equipment and commenced marketing the
      equipment for sale. Accordingly, the equipment was accounted for as held
      for sale under IFRS 5 and therefore was not depreciated during 2012 and
      2013.

|NOTE 9: | EXPLORATION AND EVALUATION ASSETS                                                       
|------- | ----------------------------------------------------------------------------------------
|        |                                                                                         
|        | The following is a description of activities in
      respect of the Company's licenses:

| | a. | Eitan:                                                                                                                                                                                                                                                                                           
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                  
| |    | 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 which expired in
      December 2011. The Company had a 100% working interest in the
      license.
| |    |                                                                                                                                                                                                                                                                                                  
| |    | The Company commenced drilling its first well ("Eitan #
      1") in January 2011. In accordance with the Company's accounting policy,
      the Company capitalized $935 to Exploration and Evaluation Assets during
      2011.                                                                

- 26 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION
      ASSETS (Cont.)
|------- | -----------------------------------------------

Following a review and further
  analysis by the Company's geoscientists, in consultation with outside
  consultants, management concluded in November 2011 that commercial quantities of
  hydrocarbons were not present in the Eitan 1 well. In December 2011, the Company
  notified the Ministry that it is relinquishing the license and in December 2012, the
  Company received a final confirmation from the Ministry approving the surrender
  of the Eitan License.

As a result of the above, the Company
  recorded in 2011 $1,226 non-cash impairment charge arising from the write-off of
  exploration and evaluation assets, as well as inventory and equipment related to
  onshore drilling in the statement of comprehensive loss. In 2012, the Company
  decided to sell the remaining inventory and equipment and recorded a $214
  non-cash impairment charge arising from the write-off of exploration and
  evaluation assets as well as inventory and equipment related to onshore drilling
  in the statement of comprehensive loss. In 2013, the Company sold the remaining
  inventory and equipment (See also Note 7 and 8).

The exploration expenses relating to
  the Eitan license that were not capitalized are as follows:

| |                      |   | Year ended December 31,   | 
| | -------------------- | - | ------------------------- | 
| |                      |   | 2013                      | 
| |                      |   | U.S. dollars in thousands | 
| |                      |   |                           | 
| | Exploration expenses | $ | 20                        | 

| | b. | Off-shore licenses:
| | -- | -------------------
| |    |                    
| |    | (1)                
| |    |                    
| |    |                    
| |    |                    
| |    |                    

- 27 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION
      ASSETS (Cont.)
|------- | -----------------------------------------------

In January 2010, Adira Energy Israel
  Ltd., signed an agreement (the Gabriella 2010 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 Gabriella 2010 Agreement, Modiin acquired 70% of
  the rights of participation in the Gabriella License (the "Gabriella Project").
  Brownstone Ventures Inc ("Brownstone") has a 15% participating interest in the
  Gabriella License. Brownstone's working interest is registered in the Company's
  name. Transfer of the beneficial ownership is subject to the approval of the
  Ministry. Until such time, these participating interests are held in trust by
  the Company. Modiin agreed to fund its 70% share, as well as the Company's 15%
  share of the work program up to a total of $8,000 (i.e. $1,200). Modiin
  completed this funding commitment in 2011.

In addition, Modiin agreed to pay
  Adira: 1) a monthly management fee of $ 12.5 for a period of two years
  commencing February 1, 2010, 2) one half of the management fees MEGP receives
  from MELP (3.75% of 7.5% management fees) in respect to this license, for a
  period of 24 months, commencing February 1, 2010, after which the amount
  increases to 4.25% (the "Modiin Management Fees"); and 3) a royalty of 2.25%
  from both MELP and MEGP each from any resources extracted until Modiin recovers
  its costs incurred, after which the royalty increases to 5.25% (the "Modiin
  Royalty" and together with the Modiin Buy Back Option and Modiin Management
  Fees, the "Modiin Farmout Rights"). Due to the uncertainty of
  receipt of these fees and royalties in the event of the termination of the
  exploration program, these fees and royalties were only recorded as income upon
  receipt. However, pursuant to the Settlement Agreement (as defined below), as of
  January 1, 2013, Adira ceased to receive the Management Fees and the Modiin
  Royalty.

The Company has an option to purchase
  15% of the Gabriella License from Modiin (or 21.43% of MELP's 70% interest) at
  any time until the earlier of six months after a discovery or seven years from
  July 2009 ("Modiin Buy Back Option"). The exercise price for this option is the
  actual costs incurred by Modiin on the 15% interest up until the exercise
  date.

All exploration and extraction
  activity on the Gabriella License, and the relationship of the participating
  interest holders, is governed by a joint operating agreement or "JOA" (the
  "Gabriella JOA"). The Gabriella JOA parties paid the Company an operating fee
  equal to 7.5% of the cumulative, direct costs incurred to operate the Gabriella
  License until January 26, 2012. Commencing January 27, 2012, the Gabriella
  License participants paid a new operator fee of (i) an amount of - $25 per
  month, plus (ii) an additional sliding-scale percentage of exploration expenses
  incurred, ranging from 4.8% of annual exploration expenses (if less than $2,000)
  down to 1.2% of annual exploration expenses (if over $6,000) (Operator Fee).
  However, pursuant to the Settlement, as of January 1, 2013, Adira ceased to
  receive the Operating Fee.

- 28 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION
      ASSETS (Cont.)
|------- | -----------------------------------------------

Between July 2012 and January 2013,
  various agreements have been entered into on the Gabriella License for the
  purpose of drilling the first exploration well, including a drilling contract
  (the "Drilling Contract") between MELP and Noble International Ltd ("Noble
  Drilling") to secure access to a drilling unit rig (the "Rig"), a Memorandum of
  Understanding ("MOU") between Adira Israel and MELP, pursuant to which the Adira
  Israel agreed to provide its working interest share of the collateral due to
  Noble Drilling, and an agreement between Adira Israel, MELP and Brownstone
  Energy Inc (Brownstone) (the "Gabriella 2012 Agreement" and together with the
  Drilling Contract and the MOU, the "Gabriella Drilling Agreements"), wherein
  certain terms regarding the parties' use of the Rig were revised. The attempted
  drilling of the first exploration well, however, was not accomplished. Adira
  Israel and MELP had similarly alleged that the other was in default of various
  obligations under the Gabriella JOA and certain Gabriella Drilling Agreement.
  Accordingly, on February 11, 2013, Adira Israel, in its capacity as operator
  under the Gabriella JOA, suspended operations on the Gabriella License due to
  lack of funding and lack of reasonable expectation of funding to meet certain
  work program obligations.

Effective July 8, 2013 (the
  Settlement Agreement Effective Date), Adira Israel entered into a settlement
  and release agreement (the Settlement Agreement) with MELP and Brownstone to
  resolve the abovementioned disputes and the related suspension of operations on
  the Gabriella License. Pursuant to the Settlement Agreement, the Gabriella
  License participants have agreed to waive and release each other from any claims
  and demands that they may had against each other with respect to the Gabriella
  License. The Agreement further provides that the Gabriella License participants
  will fund their proportionate share of costs incurred in connection with the
  attempted drilling of the first exploration well. As of June 30, 2013, Adira
  Israels net share of the costs totaled approximately US$3.3 million (the
  Settlement Costs) and was payable in stages over a 60-90 day period from the
  Settlement Agreement Effective Date. Additionally, Adira Israel agreed to
  relinquish several entitlements, including, but not limited to, its management
  fee. Adira Israel also agreed to reduce its overriding royalty interest (ORRI)
  from 5.25% to 2.625% .

The Settlement Agreement preserves the
  option granted to MELP to purchase from Adira Israel a 15% participating
  interest in the Yitzhak License and Adira Israel's option to acquire a 15%
  participating interest in the Yam Hadera License from MELP pursuant to the
  Gabriella 2012 Agreement.

Pursuant to the Settlement Agreement,
  in the event that Adira Israel does not pay the Settlement Costs, at MELP's
  request, Adira Israel may withdraw from the Gabriella JOA, assign its
  participating interest in the Gabriella License to the remaining Gabriella
  License participants and relinquish its remaining ORRI.

- 29 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION
      ASSETS (Cont.)
|------- | -----------------------------------------------

As of the date of these financial
  statements, the Company was unable to meet its obligations under the Settlement
  Agreement and, as discussed above, may, at the request of Modiin, be required
  to relinquish its interest in the Gabriella License.

As of the date the financial
  statements were approved, such request has not been made.

On October 16, 2013, Adira Israel
  received an extension of the expiration of the Gabriella license from the
  Ministry until September 1, 2014. The extended work program for the Gabriella
  license requires the Company, and the other participants on the Gabriella
  license, to submit a request to the Ministry for the approval of a new operator
  that complies with Ministry regulations by February 28, 2014, to execute a
  drilling contract by April 30, 2014, to complete an Antisotricpic PSDM and
  coherent sub surface model by July 31, 2014, and to spud a well by August 31,
  2014. In connection with extension of the work program, Adira Israel has agreed
  to resign as the operator of the Gabriella License. As of the date the financial
  statements were approved, Adira Israel and the other Gabriella License
  participants have missed the deadline to request approval of a new operator from
  the Ministry.

In addition, pursuant to the
  Settlement Agreement, the parties agreed to sell the assets associated with the
  Gabriella licenses in order to pay the outstanding obligations in respect to
  this project.

The Company believes that based on the
  events described above, there are indicators of impairment of the Gabriella
  license and there is a low probability of realization of the asset from either
  the successful development or sale of the Gabriella license in the near future.
  For the year ended December 31, 2013, the Company recorded a $2,951 non-cash
  impairment charge arising from the write-off of exploration and evaluation
  assets in the statement of comprehensive loss.

- 30 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION
      ASSETS (Cont.)
|------- | -----------------------------------------------

The Company's proportionate share of
  the Gabriella license is as follows:

| |                                        |   | December 31,              |  
| | -------------------------------------- | - | ------------------------- | -
| |                                        |   | 2013                      |  
| |                                        |   | U.S. dollars in thousands |  
| |                                        |   |                           |  
| | Cash and cash equivalents              | $ | -                         |  
| | Other receivables and prepaid expenses |   | 2,292                     |  
| | Exploration and evaluation assets      |   | -                         |  
| | Trade payables                         |   | (2,392                    | )
| |                                        |   |                           |  
| |                                        | $ | (100                      | )

| | (*) | This amount primarily includes $1,597 relating to
      tangibles (piping tubes, etc.), $240 relating to a seabed survey and $580
      relating to project management costs (including well
      design).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                      |   |                           |  |   | Year ended   |  |   |      | 
| | -------------------- | - | ------------------------- |  | - | ------------ |  | - | ---- | 
| |                      |   |                           |  |   | December 31, |  |   |      | 
| |                      |   | 2013                      |  |   | 2012         |  |   | 2011 | 
| |                      |   | U.S. dollars in thousands | 
| |                      |   |                           |  |   |              |  |   |      | 
| | Exploration expenses | $ | 1,353                     |  | $ | 48           |  | $ | 13   | 

- 31 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION
      ASSETS (Cont.)
|------- | -----------------------------------------------

| | (2) | Yitzhak:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | The Yitzhak license was awarded to the Company in October
      2009 and covers 31,555 acres (127.7 sq.km) and is located approximately 9
      km offshore Israel between Hadera and Netanya, directly to the North of
      and contiguous to Gabriella. The license was issued for an initial three
      year period and may be renewed upon fulfillment of certain conditions for
      a further four year period with a further renewal option of two years in
      case of a reserve discovery. As of December 31, 2012, the Company had
      received a renewal of the Yitzhak license to December 2013, including
      extension of certain milestones.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | In 2011, the Company had 85% working interest in this
      license. Brownstone has a 15% participating interest in the Yitzhak
      license. In addition, until January 1, 2012, the Company was the operator
      of the Yitzhak License and was entitled to receive a 7.5% operating fee on
      all its expenditures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | In November 2011, an agreement was signed between Adira
      Israel and Ellomay Oil and Gas 2011 LP ("Ellomay"), whose general partner
      is a wholly owned subsidiary of Ellomay Capital Ltd. ("Ellomay Capital")
      for the transfer of rights in the Yitzhak license (the "Agreement")
      according to which Ellomay would receive 20% (out of 100%) participation
      rights in the Yitzhak License (the "Transferred Rights"), in consideration
      for reimbursement of the expenses paid by Adira until the date of
      execution of the Agreement in respect of the Transferred Rights plus
      interest of Libor + 1%. Therefore, following the closing in February 2012
      (See below), Ellomay paid Adira approximately $361, which was recognized
      as income in 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     | In addition, on November 29, 2011 the Company entered
      into an agreement with AGR Petroleum Services Holding AS ("AGR PSH"), a
      related party, AGR Group ASA ("AGR") whereby AGR PSH would act as chief
      operator in the Yitzhak License, and would receive 5% (out of 100%)
      participation rights in the Yitzhak License. Adira Israel will act as a
      joint operator, in accordance with the provisions of the JOA agreement
      and/or a services agreement to be signed and/or another agreement to be
      signed between the parties. All the partners (Ellomay, Brownstone and
      Adira) undertook to bear their proportionate share in AGR's expenses (5%)
      from the date of execution of the Agreement until the date of approval of
      a development plan by the Minstry ("Coverage of Expenses"). From the date
      of approval of the work plan as aforesaid, AGR shall bear its expenses
      according to its proportionate share in the participation rights (5%).
      AGR's income from the production of gas and petroleum in accordance with
      its proportionate share in its participation rights in the license shall
      be used to repay the Coverage of Expenses plus interest of Libor +
      1%.

- 32 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION
      ASSETS (Cont.)
|------- | -----------------------------------------------

On January 9, 2012, the Ministry
  approved the farm-out of an aggregate of 25% of its interest in the Yitzhak
  License to the two new partners, 5% to AGR and 20% to Ellomay, Accordingly, as
  of December 31, 2013, the Company has a 60% interest in the Yitzhak License,
  Brownstone has a 15% working interest in the license, AGR has a 5% working
  interest in the license and Ellomay has a 20% working interest in the license.
  AGR PSH is designated the lead operator in accordance with Israeli regulations
  defining Operator, with a continued involvement of Adira Israel as
  co-operator. The Company, Brownstone, AGR and Ellomay signed a joint operating
  agreement to regulate their commercial relationship in respect of the Yitzhak
  License on September 11, 2012 (the "Yitzhak JOA"). The Yitzhak JOA incorporated
  the terms of the AGR Farm-Out Agreement and the Ellomay Farm-Out Agreement. The
  Company does not expect to receive material operator fees from on account of the
  Yitzhak License.

Until reimbursement of all the
  expenses incurred by AGR and Ellomay in connection with the license, AGR and
  Ellomay shall pay Adira Israel overriding royalties at the rate of 3% of their
  full share in income deriving from petroleum and/or gas and/or other valuable
  materials actually produced and extracted from the license. After reimbursement
  of the expenses as aforesaid, AGR and Ellomay shall pay Adira Israel overriding
  royalties at the rate of 4.5% of their full share in rights in petroleum and/or
  gas and/or other valuable materials actually produced and extracted from the
  license.

According to the Ellomay Farm-Out
  Agreement and the Yitzhak JOA, Ellomay could elect not to fund the Yitzhak
  license and be subject to dilution for no consideration (i.e. the diluted
  interest would be transferred to Adira without cost), or it could transfer
  one-half of its 20% interest to a third party on negotiated terms. On October
  29, 2012, Ellomay advised the Company of its intention to decrease Ellomay's
  interest in the Yitzhak License from 20% to 10% by paying decreased operating
  costs pursuant to the terms of the Yitzhak JOA. As of December 31, 2012, the
  Company expended $640 on behalf of Ellomay in respect of the Yitzhak License for
  which the Company was entitled to be reimbursed by a third party if the 10%
  interest was transferred. This amount was recorded as a long-term receivable as
  of December 31, 2012. In 2013 Ellomay failed to transfer timely its interest to
  a third party, and therefore one-half of its 20% interest was transferred back
  to the Company without cost and therefore as of December 31, 2013 the Company
  has a 70% interest in the Yitzhak License, Brownstone has a 15% interest, AGR
  has a 5% interest and Ellomay a 10% interest in the license. The new holdings
  have not yet been approved by the Ministry.

- 33 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION ASSETS
      (Cont.)
|------- | -----------------------------------------------

On June 13, 2012, pursuant to an MOU
  with MELP (see Note 9b(1)), Adira granted MELP, an option to purchase ("MELP
  Yitzhak Option") from Adira a 15% participating interest in the Yitzhak License
  (the "MELP Yitzhak Option Interest"). MELP may exercise the MELP Yitzhak Option
  until the later of (a) December 31, 2012, and (b) the 30th day from the date
  Adira notifies MELP of the execution of an agreement with a drilling contractor
  in relation to the Yitzhak License. The Gabriella 2012 Agreement amends the
  exercise date until 14 days before signing of the rig contract for the Yitzhak
  License. If MELP exercises the MELP Yitzhak Option, then it must reimburse Adira
  for expenditures in respect of the MELP Yitzhak Option Interest incurred up to
  the date of transfer of the MELP Yitzhak Option Interest. MELP must also issue
  to Adira an ORRI of 3% with respect to all oil and gas (including any distillate
  and condensate) produced, saved and marketed from the area covered by Yitzhak
  License that is attributable to the MELP Yitzhak Option Interest, before payout,
  and 4.5% after payout. The transfer of the MELP Yitzhak Option Interest is
  subject to the approval of the Ministry.

On October 16, 2013, Adira Israel
  received an extension of the expiration of the Yitzhak license from the Ministry
  for the Yitzhak license until October 15, 2014. The extended work program for
  the Yitzhak license requires the Company, and the other participants on the
  Yitzhak license, to submit an Environmental Impact Assessment to the Central
  District Planning Committee of the State of Israel by January 1, 2014, and to
  execute a drilling contract by September 30, 2014. As of the date of the
  approval of these financial statements, the Company met the requirement of the
  work program, as described above.

The Company believes that despite the
extension received from the Ministry, there is a low probability of realization
of the asset from either the successful development or sale of the license in
the near future. For the year ended December 31, 2013, the Company recorded a
$2,862 non-cash impairment charge arising from the write-off of exploration and
evaluation assets in the statement of comprehensive loss.

- 34 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION ASSETS
      (Cont.)
|------- | -----------------------------------------------

The Company's proportionate share of
  the Yitzhak license is as follows:

| |                                        |   | December 31,              |  
| | -------------------------------------- | - | ------------------------- | -
| |                                        |   | 2013                      |  
| |                                        |   | U.S. dollars in thousands |  
| |                                        |   |                           |  
| | Cash and cash equivalents              | $ | 1                         |  
| | Prepaid expenses and other receivables |   | -                         |  
| | Exploration and evaluation assets      |   | -                         |  
| | Trade payables                         |   | (574                      | )
| |                                        |   |                           |  
| |                                        | $ | (573                      | )

| | (*) | This amount primarily includes $1,017 relating to a
      seabed survey and $795 relating to project management costs (including
      well design).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |                      |   |                           |  |  | Year ended   |  |   |      | 
| | -------------------- | - | ------------------------- |  |  | ------------ |  | - | ---- | 
| |                      |   |                           |  |  | December 31, |  |   |      | 
| |                      |   | 2013                      |  |  | 2012         |  |   | 2011 | 
| |                      |   | U.S. dollars in thousands | 
| |                      |   |                           |  |  |              |  |   |      | 
| | Exploration expenses | $ | -                         |  |  | 113          |  | $ | 433  | 

- 35 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION ASSETS
      (Cont.)
|------- | -----------------------------------------------

| | (3) | Samuel:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | The Samuel license was issued in August 2010 and covers
      88,708 acres (361 sq. km) approximately 17 km offshore Israel adjacent to
      the shoreline between Ashkelon and Palmachim. The license was issued to a
      consortium led by the Company (through the Company's subsidiaries, AOT and
      AGG). As of December 31, 2012, the Company has a working interest of
      41.25% in this license. In accordance with the Joint Operating Agreement,
      AGG is the operator of the Samuel License and is entitled to receive a
      7.5% operating fee on all its expenditures. AGG is also entitled to a 3%
      overriding royalty. The operator fee and ORRI are shared equally between
      Adira and Geo Global Resources Inc. ("GGRI").                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | On October 26, 2012, Emanuelle Energy Limited
      ("Emanuelle") exercised an option to acquire a 7.13% interest in the
      Samuel License from GGRI and became a signatory to the Samuel JOA thereby
      reducing GGRIs interest in the Samuel License to 22.88%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | As of December 31, 2012, Adira paid $3,000 of operating
      costs on behalf of GGRI and Emmanuelle, which are holding a total of 42%
      of the Samuel License. GGRI's obligation arises from GGRIs direct
      interest in the license and indirectly through GGRIs 40% in Adira
      GeoGlobal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | As of December 31, 2012, the Company based on events
      described above including the lack of available funding from the license
      partners sufficient to meet the current milestones timetable, believed
      that there were indicators of impairment of the Samuel license and that
      there was a low probability of realization of the asset from either the
      successful development or sale of the license in the near future. For the
      year ended December 31, 2012, the Company recorded a $7,596 non-cash
      impairment charge arising from the write-off of exploration and evaluation
      (including uncollected receivables from GGRI and Emmanuelle) assets in the
      statement of comprehensive loss. For the year ended December 31, 2013 the
      Company recorded  impairment income of $717, arising from collection of
      receivable balances that were not expected to be realizable as of December
      31, 2012.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     | On October 14, 2013, Adira GeoGlobal Ltd ("AGG"), a
      subsidiary of the Company, relinquished the Samuel license, offshore
      Israel, back to the State of Israel, as a result of challenging markets
      and difficulty in raising significant funds to drill multi well
      programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

- 36 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 9: | EXPLORATION AND EVALUATION ASSETS
      (Cont.)
|------- | -----------------------------------------------
|        |                                                
|        |                                                

| |                                        |   | December 31,              |  
| | -------------------------------------- | - | ------------------------- | -
| |                                        |   | 2013                      |  
| |                                        |   | U.S. dollars in thousands |  
| |                                        |   |                           |  
| | Cash and cash equivalents              | $ | 1                         |  
| | Prepaid expenses and other receivables |   | 62                        |  
| | Exploration and evaluation assets      |   | -                         |  
| | Trade payables                         |   | (25                       | )
| |                                        |   |                           |  
| |                                        | $ | 38                        |  

| | (*) | This amount includes the estimated net realizable value
      of the tangible equipment for offshore drilling (piping tubes,
      etc.)
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------

| |                      |   |                           |  |   | Year ended   |  |   |       | 
| | -------------------- | - | ------------------------- |  | - | ------------ |  | - | ----- | 
| |                      |   |                           |  |   | December 31, |  |   |       | 
| |                      |   | 2013                      |  |   | 2012         |  |   | 2011  | 
| |                      |   | U.S. dollars in thousands | 
| |                      |   |                           |  |   |              |  |   |       | 
| | Exploration expenses | $ | 0                         |  | $ | 217          |  | $ | 3,163 | 

| | (4) | Yam Hadera:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     | Pursuant to the Gabriella 2012 Agreement and the
      Settlement Agreement, the Company has an option (the "Yam Hadera Option")
      to acquire up to a 15% participating interest in the Yam Hadera petroleum
      license (the "Yam Hadera License"), located 30 kilometers offshore Israel,
      between Hadera and Haifa and North West of Adiras Yitzhak license. The
      Yam Hadera Option is exercisable until 14 days prior to the signing of a
      rig contract for the Yam Hadera License.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (5) | The Company has recognized exploration expenses for which
      it has not charged its license partners, in accordance with the terms and
      conditions set forth in the partnership agreements. These exploration
      expenses amounted to $304, $532 and $625 for the years ended December 31,
      2013, 2012 and 2011, respectively.                                                                                                                                                               

|NOTE 10:-       TRADE
      PAYABLES
|------------------------------------

Trade payables are non-interest
  bearing and are normally settled on 60-day terms.

- 37 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 11:-       OTHER
      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
|--------------------------------------------------------------------

| |                                 |   | December 31,              | 
| | ------------------------------- | - | ------------------------- | 
| |                                 |   | 2013                      | 
| |                                 |   | U.S. dollars in thousands | 
| |                                 |   |                           | 
| | Employees in respect of payroll | $ | 346                       | 
| | Accrued expenses                |   | 603                       | 
| | Other                           |   | 37                        | 
| |                                 |   |                           | 
| |                                 | $ | 986                       | 

|          | Accounts payable are non-interest
      bearing and have an average term of 30 days.                                                                                                                                                                                                                                                                                              
|--------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          |                                                                                                                                                                                                                                                                                                                                                                                   
|NOTE 12:- | FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                             
|          |                                                                                                                                                                                                                                                                                                                                                                                   
|          | The Company's activities expose it to various financial
      risks, such as market risks (foreign currency risk, consumer price index
      risk, interest risk and price risk), credit risk and liquidity risk. The
      Company's comprehensive risk management program focuses on actions to
      minimize potential adverse effects on the Company's financial performance.

| | a. | Credit risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Concentration of credit risk exists with respect to the
      Company's cash and cash equivalent balances and receivables. The Company's
      exposure is for cash held in bank accounts, including restricted deposits,
      in the amount of $652 and $3,476 as of December 31, 2013 and December 31,
      2012, respectively, and on accounts and other receivables in the sum of
      $2,513 and $5,061 on December 31, 2013 and December 31, 2012,
      respectively.                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company manages credit risk, in respect of cash and
      cash equivalents, and restricted cash, 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. The Company
      regularly monitors credit extended to customers and their general
      financial condition. The Company historically has not had significant
      past-due receivables.                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b. | 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 determine whether it will have sufficient
      funds to meet its current liabilities when due. As of December 31, 2013,
      the Company had cash and cash equivalents and restricted cash of $652, and
      accounts and other receivables of $2,513 against trade and other payables
      in the amount of $3,803.

- 38 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 12:-       FINANCIAL
      INSTRUMENTS (Cont.)
|---------------------------------------------------

| |    | As of December 31, 2012, the Company had cash and cash
      equivalents and restricted cash of $3,476 and accounts and other
      receivables of $5,061 against trade and other payables in the amount of
      $7,317.                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                              
| | c. | 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 two types of risk: interest
      rate risk and foreign currency risk.
| |    |                                                                                                                                                                                                                                                              
| |    | 1.                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                              
| |    | 2.                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                              

|NOTE 13:-       TAXES ON
      INCOME
|-------------------------------------

| | a. | Tax rates applicable to the Company:
| | -- | ------------------------------------
| |    |                                     
| |    | 1.                                  
| |    |                                     
| |    | 2.                                  
| |    |                                     
| |    |                                     
| |    |                                     
| |    |                                     

- 39 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 13:-       TAXES ON
      INCOME (Cont.)
|---------------------------------------------

These changes include, among others,
  increasing the corporate tax rate from 25% to 26.5%, cancelling the reduction in
  the tax rates applicable to privileged enterprises (9% in development area A and
  16% elsewhere) and, in certain cases, increasing the rate of dividend
  withholding tax within the scope of the Law for the Encouragement of Capital
  Investments to 20% effective from January 1, 2014. There are also other changes
  such as taxation of revaluation gains effective from August 1, 2013. The
  provisions regarding revaluation gains will become effective only after the
  publication of regulations defining what should be considered as "retained
  earnings not subject to corporate tax" and regulations that set forth provisions
  for avoiding double taxation of overseas assets. As of the date of approval of
  these financial statements, these regulations have not been issued.

- 40 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 13:-       TAXES ON
      INCOME (Cont.)
|---------------------------------------------

| | 3. | On April 12, 2010, the Minister of Finance appointed the
      Committee for Examination of the Fiscal Policy on Petroleum and Gas
      Resources in Israel (the "Sheshinski Committee"). The Committee was
      charged with examining the fiscal system prevailing in Israel with regard
      to petroleum and gas resources, and proposing an updated fiscal
      policy.                                                                                                                                  
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | On January 3, 2011, the Sheshinski Committee submitted
      its final recommendations to the Minister of Finance. On January 23, 2011
      the Government adopted the Sheshinski Committee's report and
      recommendations, and on March 30, 2011 the Knesset adopted the Petroleum
      Profits Taxation Law, 5771-2011 (the "Law"). The Law was published in the
      Official Gazette on April 10, 2011. The main recommendations of the
      Committee and provisions of the Law are as
      follows:

| | a) | Leaving the rate of royalties to the State unchanged
      (12.5%).
| | -- | -------------------------------------------------------------------
| | b) | Cancelling the depletion deduction.                                
| | c) | Imposing a petroleum and gas profits
      levy:                   

The levy will be calculated according
  to a proposed R-factor mechanism, according to the ratio between the net
  cumulative income from the project and the cumulative investments as defined in
  the Law. A minimum levy of 20% will be charged from the stage at which the
  R-factor ratio reaches 1.5, and when the ratio increases, the levy is
  progressively raised up to a maximum rate of 50%, when the ratio reaches 2.3.
  Further provisions were also set forth regarding the levy, including that the
  levy will be recognized as an expense for income tax calculation; the borders of
  the levy will not include export facilities; the levy will be calculated and
  imposed in respect of each reservoir separately (ring fencing); payment by a
  petroleum right holder which is calculated as a percentage of the petroleum
  extracted, the payment recipient will be liable for payment of a levy in
  accordance with the amount of the payment received thereby, which amount will be
  deducted from the levy amount for which the petroleum right holder is liable.

| | d) | Accelerated depreciation will be granted for the
      investments at the rate of 10%, with a possibility of electing
      depreciation up to the amount of the taxable income in that
      year.                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                
| | e) | Taxation of a petroleum partnership - the Law sets forth
      provisions regarding the manner of calculation and reporting of the
      profits of the partners in partnerships engaging in oil exploration,
      including the manner of calculation and payment of the tax arising from
      such profits.

- 41 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 13:-       TAXES ON
      INCOME (Cont.)
|---------------------------------------------

| | f) | The following transition provisions were set
      forth:
| | -- | ---------------------------------------------------------
| |    |                                                          
| |    | i)                                                       

| | - | If such venture is subject to a levy payment duty in the
      tax year in which the date of commencement occurs, the levy rate in that
      tax year shall be one half the rate of the levy which would have been
      imposed on the petroleum profits but for the provisions of this paragraph,
      and no more than 10%.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | If the levy coefficient in the tax year in which the
      commencement date occurs exceeds 1.5, rules are determined for the manner
      of calculation of the levy coefficient in each subsequent tax year.                                                                                                                  
| | - | The levy rate imposed on the petroleum profits of the
      venture in each of the tax years 2012 to 2015 will be equal to one half
      the levy rate which would have been imposed on the petroleum profits as
      aforesaid, but for the provisions of this paragraph.                                                    

| | ii) | A venture in respect of which the date of commencement of
      commercial production occurs in the period from the date of commencement
      until January 1, 2014, shall be subject, inter aliato the
      following provisions:
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | - | The minimal levy coefficient shall be 2 instead of 1.5,
      and the maximum - 2.8 instead of 2.3.     
| | - | --------------------------------------------------------------------------------------------------------
| |   |                                                                                                         
| | - | The depreciation rate for an asset acquired in the years
      2011 to 2013 shall be 15% instead of 10%.

| | g) | An Amendment to the Income Tax Regulations (Deductions
      from the Income of Petroleum Rights Holders) (Amendment), 5771-2011,
      cancelled the recognition as a current expense of development expenses in
      respect of reservoirs, commercial production from which shall commence
      after January 1, 2014, and they shall be subject to the depreciation rules
      set forth in the Law. It is stated that the depletion deduction was
      canceled in the Amendment to the Income Tax Regulations (Deductions from
      the Income of Petroleum Rights Holders) (Amendment), 5771-2011, effective
      May 1, 2011. The provisions regarding the imposition of the petroleum and
      gas profits levy are effective from April 10, 2011, and the provision
      regarding the taxation of a petroleum partnership (Section above) is
      effective from the tax year 2011. The cancellation of the gradual
      reduction in the corporate tax rate, as described in a(2) above, will
      decrease the levy per the Petroleum Taxation law from 2016 and thereafter
      to a maximum rate of 44.56% from the Company's oil and gas
      revenue.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 42 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 13:-       TAXES ON
      INCOME (Cont.)
|---------------------------------------------

| |    | At this time, the expected implications of the Law on the
      Company's business cannot be fully estimated. However, it may already be
      estimated that the implementation of the Law could significantly increase
      the tax burden and adversely affect the Company's business and activity,
      as compared with the situation before the Law took effect.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                         
| | b. | Tax assessments:                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                         
| |    | The Company's and its subsidiaries have not yet received
      final tax assessments since their incorporation.                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                         
| | c. | Carryforward losses for tax purposes and other temporary
      differences:                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                         
| |    | As of December 31, 2013, carryforward losses in Canada are approximately $4.7 milllion expiring through 2032. As of December 31, 2013, carryforward losses in Israel are approximately $27.1 million and may be carried forward indefinitely.                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                         
| |    | Net deferred tax assets relating to carryforward operating losses and other temporary differences of approximately $7,700 were not recognized because their utilization in the foreseeable future is not probable.                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                         
| | d. | Taxes on income included in the statements of
      comprehensive loss:                                                                                                                                                                                                                                                                                                 

| |                                 |   |                           |  |   | Year ended   |  |   |      | 
| | ------------------------------- | - | ------------------------- |  | - | ------------ |  | - | ---- | 
| |                                 |   |                           |  |   | December 31, |  |   |      | 
| |                                 |   | 2013                      |  |   | 2012         |  |   | 2011 | 
| |                                 |   | U.S. dollars in thousands | 
| |                                 |   |                           |  |   |              |  |   |      | 
| | Current taxes                   | $ | -                         |  | $ | 3            |  | $ | 13   | 
| | Taxes in respect of prior years |   | -                         |  |   | 38           |  |   | 20   | 
| |                                 |   |                           |  |   |              |  |   |      | 
| |                                 | $ | -                         |  | $ | 41           |  | $ | 33   | 

- 43 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 13:-       TAXES ON
      INCOME (Cont.)
|---------------------------------------------

| | e. | Theoretical tax:                                                                                                                                                                                                                                                                                
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                 
| |    | A reconciliation between the tax expense, assuming that
      all the income and expenses, gains and losses in the statement of
      comprehensive loss were taxed at the statutory tax rate and the taxes on
      income recorded in the statement of comprehensive loss is as
      follows:

| |                                                                         |   |                           |   |   | Year ended   |   |   |         |  
| | ----------------------------------------------------------------------- | - | ------------------------- | - | - | ------------ | - | - | ------- | -
| |                                                                         |   |                           |   |   | December 31, |   |   |         |  
| |                                                                         |   | **2013**                  |   |   | 2012         |   |   | 2011    |  
| |                                                                         |   | U.S. dollars in thousands |  
| |                                                                         |   |                           |   |   |              |   |   |         |  
| | Loss before income taxes                                                | $ | $	(5,644                  | ) | $ | (10,516      | ) | $ | (10,018 | )
| |                                                                         |   |                           |   |   |              |   |   |         |  
| | Statutory tax rate                                                      |   | 26.5%                     |   |   | 26.5%        |   |   | 28.25%  |  
| |                                                                         |   |                           |   |   |              |   |   |         |  
| | Tax benefit computed at the
      statutory tax rate                    | $ | (1,496)                   | ) | $ | (2,787       | ) | $ | (2,830  | )
| |                                                                         |   |                           |   |   |              |   |   |         |  
| | Increase in taxes on income
      resulting from the following factors: |   |                           |   |   |              |   |   |         |  
| | Taxes in respect of prior years                                         |   | -                         |   |   | 38           |   |   | 20      |  
| | Increase in tax due to tax
      rate differences in Israel             |   | 134                       |   |   | 149          |   |   | 240     |  
| | Non-deductible expenses (non-taxable income)                            |   | (924                      | ) |   | 179          |   |   | 224     |  
| | Non-recognition of tax
      benefit in respect of losses               |   | 2,287                     |   |   | 2,462        |   |   | 2,379   |  
| |                                                                         |   |                           |   |   |              |   |   |         |  
| | Taxes on income                                                         | $ | -                         |   | $ | 41           |   | $ | 33      |  

- 44 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 14:-       SHARE
      CAPITAL
|-----------------------------------

| | a. | Authorized:                                                          
| | -- | ---------------------------------------------------------------------
| |    |                                                                      
| |    | Unlimited number of Common shares without nominal or par
      value.
| |    |                                                                      
| | b. | Issued and outstanding Common shares:                                
| |    |                                                                      
| |    | i.                                                                   
| |    |                                                                      
| |    | ii.                                                                  
| |    |                                                                      
| |    |                                                                      
| |    |                                                                      
| |    |                                                                      

| | iii. | On August 9, 2013, the Company completed a consolidation of the Company’s Common Shares on the basis of one post-consolidation Common Share for every three pre-consolidation Common Shares (the "Consolidation").  All share and per share data for all periods presented have been adjusted to reflect the decrease in number of shares outstanding after the Consolidation. In addition, every three previously issued warrants will be convertible into one Common Share of the Company.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Stock Option Plan:                                                                                                                                                                                                                          
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                             
| |    | Under the Company's August 31, 2009 Stock Option Plan
      ("the Incentive Stock Option Plan"), options may be granted to employees,
      officers, consultants, service providers and directors of the Company or
      its subsidiaries.

- 45 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 14:-       SHARE
      CAPITAL (Cont.)
|-------------------------------------------

Stock options may be issued up to 10%
  of the Company's outstanding Common shares at a term and an exercise price to be
  determined by the Company's Board of Directors. The maximum term of the options
  is ten years from the date of grant.

As of December 31, 2013, an aggregate
  of 2,733,370 of the Company's options were still available for future grant.

The Company typically grants stock
  options with vesting periods of between two to four years, generally with the
  exercise price at the closing price of the stock on the date of the grant and an
  expiration date of five years from the date of grant.

A summary of the stock option plan and
  changes during the years ended December 31, 2013, 2012 and 2011 were as follows:

| |                            |  | Number of   |   |  | Weighted       | 
| | -------------------------- |  | ----------- | - |  | -------------- | 
| |                            |  | options     |   |  | average        | 
| |                            |  | outstanding |   |  | exercise price | 
| |                            |  |             |   |  |                | 
| | Balance, January 1, 2011   |  | 1,886,333   |   |  | 1.17           | 
| | Options granted            |  | 1,902,073   |   |  | 1.86           | 
| | Options exercised          |  | (175,937    | ) |  | 0.75           | 
| | Options forfeited          |  | (484,396    | ) |  | 1.47           | 
| |                            |  |             |   |  |                | 
| | Balance, January 1, 2012   |  | 3,128,073   |   |  | 1.56           | 
| | Options granted            |  | 3,376,667   |   |  | 0.63           | 
| | Options forfeited          |  | (617,703    | ) |  | 1.68           | 
| |                            |  |             |   |  |                | 
| | Balance, December 31, 2012 |  | 5,887,037   |   |  | 1.02           | 
| | Options forfeited          |  | (2,594,372  | ) |  | 0.98           | 
| |                            |  |             |   |  |                | 
| | Balance, December 31, 2013 |  | 3,292,665   |   |  | 1.09           | 

- 46 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 14:-       SHARE
      CAPITAL (Cont.)
|-------------------------------------------

The following tables summarize
  information about stock options outstanding and exercisable as of December 31,
  2013:

AverageNumber of
      
      Number of
      
      remainingGrant date
      
      **Exercise**
      
      options
      
      options
      
      contractualGrant date
      
      Expiry date
      
      fair value
      
      price *)
      
      **outstanding**
      
      **exercisable**
      
      lifeAugust 31, 2009
      
      August 20, 2014
      
      $    0.87
      
      $    0.75
      
      569,333
      
      569,125
      
      0.64September 23, 2009
      
      September 23, 2014
      
      $    0.66
      
      $    0.75
      
      133,333
      
      133,333
      
      0.73January 28, 2010
      
      January 27, 2015
      
      $    1.68
      
      $    1.83
      
      323,333
      
      321,979
      
      1.08July 22, 2010
      
      July 21, 2015
      
      $    0.75
      
      $    1.83
      
      83,333
      
      83,333
      
      1.56January 11, 2011
      
      January 10, 2016
      
      $    1.98
      
      $    2.40
      
      350,000
      
      235,417
      
      2.03March 18, 2011
      
      March 17, 2016
      
      $    1.77
      
      $    2.40
      
      33,333
      
      20,833
      
      2.21May 3, 2011
      
      May 2, 2016
      
      $    1.56
      
      $    1.80
      
      133,333
      
      83,333
      
      2.34September 8, 2011
      
      September 7, 2016
      
      $    1.23
      
      $    1.50
      
      83,333
      
      41,667
      
      2.58December 1, 2011
      
      November 30, 2016
      
      $    0.66
      
      $    1.50
      
      126,667
      
      62,708
      
      2.92August 22, 2012
      
      August 21, 2017
      
      $    0.21
      
      $    0.60
      
      1,456,667
      
      971,112
      
      3.643,292,665
      
      2,522,840


| | *) | The exercise price of all options granted in 2011, 2012

      is denominated in Canadian Dollars and was translated to USD in
      the table above using the exchange rate as of December 31,
      2013.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock options granted are expensed as
  share-based payments. For grants made until December 31, 2011, the Company uses
  the Black-Scholes option pricing model to value stock options granted. For
  grants made from January 1, 2012, the Company uses the Binominal option pricing
  model to value stock options granted.

The fair value of options granted is
  amortized over their vesting period and estimated at the date of grant with the
  following assumptions:

| |                     | 2013 |  | 2012     |  | 2011     
| | ------------------- | ---- |  | -------- |  | ---------
| |                     |      |  |          |  |          
| | Dividend yield      | -    |  | 0%       |  | 0%       
| | Expected volatility | -    |  | 80%-104% |  | 112%-115%
| | Risk-free interest  | -    |  | 1%-1.8%  |  | 1.3%-2.6%
| | Forfeiture rate     | -    |  | 0%-5%    |  | 0%-5%    
| | Expected life       | -    |  | 5        |  | 5        

Expected volatility is based on
  historical volatility of comparable companies, as the Company does not have
  sufficient history to determine the expected volatility of its shares. The
  expected term of options granted represents the period of time that options
  granted are expected to be outstanding. The risk free interest rate is based on
  the yield of Canadian Treasury bonds with equivalent terms. The dividend yield
  is based on the Company's historical and future expectation of dividends
  payouts. The Company has not paid cash dividends historically and has no plans to pay
  cash dividends in the foreseeable future.

- 47 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 14:-       SHARE
      CAPITAL (Cont.)
|-------------------------------------------

| | d. | Share purchase warrants:                                                                                                  
| | -- | --------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                           
| |    | The Company has share purchase warrants outstanding
      entitling the holders to acquire Common shares as
      follows:

| |                                 |  |              |   |   | Weighted       |  
| | ------------------------------- |  | ------------ | - | - | -------------- | -
| |                                 |  | Number of    |   |   | average        |  
| |                                 |  | warrants (*) |   |   | exercise price |  
| |                                 |  |              |   |   |                |  
| | Balance as of January 1, 2011   |  | 19,558,145   |   | $ | 0.52           |  
| | Warrants Grated                 |  | (616,770     | ) | $ | 0.30           |  
| | Warrants Expired                |  | (3,884,000   | ) | $ | 0.50           |  
| | Balance as of January 1, 2012   |  | 15,057375    |   | $ | (**0.54        | )
| | Warrants Grated                 |  | 82,365,640   |   | $ | (**0.20        | )
| |                                 |  |              |   |   |                |  
| | Balance as of December 31, 2012 |  | 97,423,015   |   | $ | 0.25           |  
| | Warrants Expired                |  | (15,057,375  | ) | $ | 0.54           |  
| |                                 |  |              |   |   |                |  
| | Balance as of December 31, 2013 |  | 82,365,640   |   | $ | 0.20           |  

The following tables summarize
  information applicable to warrants outstanding as of December 31, 2013:

Grant date
      
      Exercise
      
      Number ofIssue date
      
      Expiry date
      
      fair value
      
      Price **)
      
      warrantsAugust 9, 2012
      
      August 9, 2015
      
      $ 0.07
      
      $ 0.20
      
      79,012,640August 9, 2012
      
      August 9, 2014
      
      $ 0.07
      
      $ 0.14
      
      3,353,00082,365,640


| | * ) | Following the Consolidation, every three previously issued warrants will be convertible into one Common Share of the Company (see Note 14b(iii)).                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                  
| | **) | The exercise price of these warrants is denominated in
      Canadian Dollars and was translated to USD in the table above using the
      exchange rate as of December 31, 2012.

| | e. | Capital management in the Company:                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company is in the early stage of gas and petroleum
      exploration. The Company has negative cash flows from current 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.

- 48 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 14:-       SHARE
      CAPITAL (Cont.)
|-------------------------------------------

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. The Company supervises
  the actual expenditure against the budget to manage its costs and
  commitments.

The Company's capital management
  objective is to maximize investment returns for shareholders 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 administrative 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 to raise this financing due to
  uncertain economic conditions.

|NOTE 15:-       RELATED
      PARTY TRANSACTIONS
|------------------------------------------------

| | a. | For the year ended December 31, 2013, the Company
      recognized $386 for advisory fees and operating expenses to private
      companies controlled by the directors or by officers of the Company (2012
      - $357).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                           
| |    | These transactions are in the ordinary course of business
      and are measured at the amount of consideration set and agreed by the
      related parties.                                                              
| |    |                                                                                                                                                                                                                           
| | b. | Compensation to directors and key management
      personnel:                                                                                                                                                             
| |    |                                                                                                                                                                                                                           
| |    | The CEO, CFO, COO, V.P. Business Development, Head
      Geologist, V.P. Contracts and Regulation, and the directors are considered
      key management personnel.                                                       

| |                              |   |                           |  |   | Year ended   |  |   |       | 
| | ---------------------------- | - | ------------------------- |  | - | ------------ |  | - | ----- | 
| |                              |   |                           |  |   | December 31, |  |   |       | 
| |                              |   | 2013                      |  |   | 2012         |  |   | 2011  | 
| |                              |   | U.S. dollars in thousands | 
| |                              |   |                           |  |   |              |  |   |       | 
| | Short-term employee benefits | $ | 1,133                     |  | $ | 1,071        |  | $ | 911   | 
| | Share based compensation     |   | 16                        |  |   | 613          |  |   | 850   | 
| |                              |   |                           |  |   |              |  |   |       | 
| |                              | $ | 1,149                     |  | $ | 1,684        |  | $ | 1,761 | 
| |                              |   |                           |  |   |              |  |   |       | 
| | Number of people             |   | 6                         |  |   | 7            |  |   | 7     | 

- 49 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 15:-       RELATED
      PARTY TRANSACTIONS (Cont.)
|--------------------------------------------------------

Benefits in respect of key management
  persons (including directors) who are not employed by the Company:

| |                          |   |                           |  |   | Year ended   |  |   |      | 
| | ------------------------ | - | ------------------------- |  | - | ------------ |  | - | ---- | 
| |                          |   |                           |  |   | December 31, |  |   |      | 
| |                          |   | 2013                      |  |   | 2012         |  |   | 2011 | 
| |                          |   | U.S. dollars in thousands | 
| |                          |   |                           |  |   |              |  |   |      | 
| | Share based compensation | $ | 32                        |  | $ | 298          |  | $ | 206  | 
| |                          |   |                           |  |   |              |  |   |      | 
| | Number of people         |   | 3                         |  |   | 4            |  |   | 5    | 

|NOTE 16:-      
      COMMITMENTS AND CONTINGENCIES
|---------------------------------------------------

| | a. | Leases:                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Company has an agreement for the lease of the offices
      in Toronto, Canada for a period ending in 2014. In 2013, the lease agreement
      for the Company's office in Ramat Gan, Israel expired and the Company
      leases an office in Herzelia, Israel. Future minimum lease payments under
      non-cancelable operating leases are as
      follows:

| |                                             |   | Year ended                | 
| | ------------------------------------------- | - | ------------------------- | 
| |                                             |   | December 31,              | 
| |                                             |   | 2013                      | 
| |                                             |   | U.S. dollars in thousands | 
| |                                             |   |                           | 
| | Within one year                             | $ | 29                        | 
| | After one year but not more than five years |   | -                         | 
| |                                             |   |                           | 
| |                                             | $ | 29                        | 

| | b. | Licenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The Company has commitments to the Ministry to complete
      the work programs on all of the Company's licenses. Based on the current
      commitments, the consortium for the Yitzhak license are required to sign a
      drilling contract by September 30, 2014, and the consortium on the
      Gabriella licenses are required to submit a request to the Ministry for
      the approval of a new operator that complies with Ministry regulations by
      February 28, 2014 and sign a drilling contract by April 30, 2014 (See also
      Note 9b(1)). The validity of the petroleum licenses of the Company are
      conditional upon fulfillment of certain obligations on dates set in the
      conditions of the petroleum assets (See also Note 20a). In the event of non- fulfillment of
      the conditions, the petroleum rights are subject to cancellation. As of
      the date of the approval of the financial statements, the Company has
      severe doubts as it its ability, or the ability of the Yitzhak and
      Gabriella consortiums to comply with the conditions and obligations
      above.

- 50 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 16:-     
       COMMITMENTS AND CONTINGENCIES (Cont.)
|-----------------------------------------------------------

| | c. | Joint venture commitments:                                                                                                                                                                                          
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                     
| |    | The JOA's of each of the joint ventures in which the
      Company has a participating interest require that the Company commit to
      fund its proportionate share of the approved budget or work
      programs.
| |    |                                                                                                                                                                                                                     
| |    | As there is currently no activity in any of the Companys
      licenses, the Company's share of the remaining contractual commitments as
      of December 31, 2013, for the Offshore Licenses is Nil.             
| |    |                                                                                                                                                                                                                     
| | d. | Legislative limitations:                                                                                                                                                                                            

| | 1. | The Petroleum Law, 5712-1952 and regulations enacted by
      virtue thereof:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Petroleum and gas exploration and production in Israel
      are regulated mainly by the Petroleum Law and the regulations enacted by
      virtue thereof and by the Natural Gas Sector Law, 5762-2002. The Petroleum
      Law includes stringent conditions for the submission of applications for
      receipt of petroleum assets and transfer of rights in petroleum assets in
      accordance with the Petroleum Law.                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 2. | The Natural Gas Sector Law, 5762-2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | The purpose of the Natural Gas Sector Law is to create
      conditions for the development of the natural gas sector and carrying out
      of competition therein and regulating the activity in the natural gas
      sector. The law, and the regulations enacted thereunder, prescribe
      provisions regarding storage, transmission, distribution and marketing of
      natural gas in Israel, including the construction and operation of a
      transmission system, a distribution network, a Liquid Natural Gas (LNG)
      facility, and a natural gas storage facility in Israel which require the
      receipt of a license from the Minister of Energy and Water
      Resources.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 3. | At the beginning of 2011, the Ministry of Environmental
      Protection published directives for the protection of the environment
      regarding new and existing gas and petroleum drillings (for all stages,
      including trial, development, production) in order to prevent land,
      unsaturated zone and water source
      contamination.                                                                                                                                                                                                                                                                                                                                             

| | e. | On July 1, 2013, the Company signed a non-brokered
      private placement (the "Private Placement") agreement for the sale of
      61,728,395 post-Consolidation) Common Shares with Pelagic Investments
      Limited ("PI") for gross proceeds of $5,000. The Private Placement was
      expected to close on or about August 30, 2013.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                             
| |    | On September 11, 2013 the Company announced that PI had
      breached the subscription agreement (the Subscription Agreement) between
      PI and the Company by failing to submit the subscription funds to Adira.
      As a result, the Private Placement was terminated.                                                            

- 51 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 16:-     
       COMMITMENTS AND CONTINGENCIES (Cont.)
|-----------------------------------------------------------

On October 25, 2013 Adira filed a
  Statement of Claim in the Superior Court of Justice (Ontario) naming as
  defendants, PI. and its principal, Prentis B. Tomlinson Jr. The Company is
  seeking damages for breach of contract, intentional interference with economic
  relations and intentional misrepresentation.

As of the date of the approval of
  these financial statements, the final outcome of the litigation cannot be
  predicted with certainty, and therefore, management cannot assess whether or not
  the results of this litigation will have a material effect on the financial
  statements of the Company.

- 52 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 17:-       REVENUES
      AND OTHER INCOME
|-----------------------------------------------

| | a. | The Company operates in one segment, the oil and gas
      business and conducts its operations in Israel with its head office in
      Canada. Details of the Company's revenues and other income (all of which
      are derived from Israel) are as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                      |   |                           |  |   | Year ended   |  |   |       | 
| | -------------------- | - | ------------------------- |  | - | ------------ |  | - | ----- | 
| |                      |   |                           |  |   | December 31, |  |   |       | 
| |                      |   | 2013                      |  |   | 2012         |  |   | 2011  | 
| |                      |   | U.S. dollars in thousands | 
| |                      |   |                           |  |   |              |  |   |       | 
| | Consulting           | $ | 7                         |  | $ | 455          |  | $ | 771   | 
| | Operator fees        |   | 5                         |  |   | 544          |  |   | 312   | 
| | Income from farm-out |   | -                         |  |   | 890          |  |   | 240   | 
| | Other income         |   | 5                         |  |   | -            |  |   | -     | 
| |                      |   |                           |  |   |              |  |   |       | 
| |                      | $ | 17                        |  | $ | 1,889        |  | $ | 1,323 | 

| | b. | Revenues from major customers (UJVs), each one of which
      exceeds 10% of the consolidated revenues, as of the years ended December
      31, 2013, 2012 and 2011 are as follows:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |            |   |                           |  |   | Year ended  |  |   |       | 
| | ---------- | - | ------------------------- |  | - | ----------- |  | - | ----- | 
| |            |   |                           |  |   | December 31 |  |   |       | 
| |            |   | 2013                      |  |   | 2012        |  |   | 2011  | 
| |            |   | U.S. dollars in thousands | 
| |            |   |                           |  |   |             |  |   |       | 
| | Customer A | $ | -                         |  | $ | 461         |  | $ | 591   | 
| | Customer B |   | 12                        |  |   | 529         |  |   | 449   | 
| | Customer C |   | -                         |  |   | 529         |  |   | 150   | 
| | Customer D |   | -                         |  |   | 370         |  |   | -     | 
| |            |   |                           |  |   |             |  |   |       | 
| |            | $ | 12                        |  | $ | 1,889       |  | $ | 1,190 | 

- 53 -

---

|ADIRA ENERGY LTD.                                               
|----------------------------------------------------------------
|                                                                
|NOTES TO
      CONSOLIDATED FINANCIAL STATEMENTS                
|U.S. dollars in thousands, except share and per share
      data

|NOTE 18:-       GENERAL
      AND ADMINISTRATIVE EXPENSES
|---------------------------------------------------------

| |                              |   |                           |  |   | Year ended  |  |   |       | 
| | ---------------------------- | - | ------------------------- |  | - | ----------- |  | - | ----- | 
| |                              |   |                           |  |   | December 31 |  |   |       | 
| |                              |   | 2013                      |  |   | 2012        |  |   | 2011  | 
| |                              |   | U.S. dollars in thousands | 
| |                              |   |                           |  |   |             |  |   |       | 
| | Payroll and related payments | $ | 945                       |  | $ | 759         |  | $ | 543   | 
| | Share-based compensation     |   | 32                        |  |   | 887         |  |   | 1,023 | 
| | Professional fees            |   | 968                       |  |   | 2,397       |  |   | 2,068 | 
| | Rent and office expenses     |   | 280                       |  |   | 287         |  |   | 370   | 
| | Depreciation                 |   | 88                        |  |   | 96          |  |   | 80    | 
| | Travel                       |   | 18                        |  |   | 350         |  |   | 529   | 
| | Insurance                    |   | 48                        |  |   | 31          |  |   | 97    | 
| | Others                       |   | 434                       |  |   | 497         |  |   | 321   | 
| |                              |   |                           |  |   |             |  |   |       | 
| |                              | $ | 2,813                     |  | $ | 5,304       |  | $ | 5,031 | 

|NOTE 19:- | FINANCING INCOME AND EXPENSE                                                                                                     
|--------- | ---------------------------------------------------------------------------------------------------------------------------------
|          |                                                                                                                                  
|          | Financing income in 2013 includes $3,013 in respect of
      the remeasurement of warrants to their fair value. See note 14b(ii).
|          |                                                                                                                                  
|NOTE 20:- | SUBSEQUENT EVENTS                                                                                                                

| | a. | On February 16, 2014, the Ministry published new
      guidelines in respect of security guarantee payments (Security Deposit)
      for offshore licenses that require each license consortium to deposit
      $2,500 per offshore license with the Ministry by March 31, 2014. On March
      27, 2014, the Ministry announced that it has extended the deadline for the
      Security Deposit until May 15, 2014. As of the date of the approval of
      these financial statements, the Company does not have sufficient funds to
      make its pro-rate share of the Security Deposit. The Company is currently
      examining the consequences of the above mentioned guidelines on the
      Companys operations, including the possibility of taking legal action.
      However, should the consortium on each license not meet these
      requirements, the Ministry will view this as a failure to meet a license
      milestone and will have the right to terminate the license.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | b. | As of the date
    of the approval of these financial statements, Adira Israel settled most of
    the amounts owed as of December 31, 2013 to its creditors. In 2014, a claim
    was raised by one of its creditors against Adira Israel in the approximate
    amount of $750 with respect to payments made to certain creditors in 2014
    following these settlements and the Company is currently negotiating a
    settlement agreement regarding this claim. The Company has rejected the
    claim and is presently unable to estimate the final outcome of this claim
    and whether it will result in any liability in 2014.                                                                                                                                                                                                                                                                                                                                                              

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