UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017

Commission file number 001-04192

(Exact name of Registrant as specified in its charter)

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

There were 12,534,801 Common Shares of US$0.001 par value each issued and outstanding as of December 31, 2017.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ YES   ☒ NO

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ☐ YES   ☒ NO

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of  “large accelerated filer, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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

U.S. GAAP ☐      International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other  ☐

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

​	​	​	2017				​
OPERATING EBITDA (In C$ ‘000s)	​	​	​	​	​	​	​
Net loss (1)	​	​	​	$	(47,065 )	​	​
Reversal of impairment losses on resource properties	​	​	​	​	(8,945 )	​	​
Income tax expense	​	​	​	​	8,658	​	​
Finance costs	​	​	​	​	8,415	​	​
Amortization, depreciation and depletion	​	​	​	​	6,732	​	​
Operating EBITDA (loss)	​	​	​	$	(32,205 )	​	​
Credit losses	​	​	​	$	23,923	​	​
Losses from dispositions of subsidiaries	​	​	​	​	10,219	​	​
Share based compensation	​	​	​	​	2,876	​	​
​	​	​	​	$	37,018	​	​
​

​

FINANCIAL POSITION (In C$ ‘000s, except ratios, per share amounts or as otherwise indicated)	​	​	December 31, 2017				​
Cash and cash equivalents	​	​	​	$	74,870	​	​
Short-term securities	​	​	​	​	5,127	​	​
Trade receivables	​	​	​	​	34,259	​	​
Tax receivables	​	​	​	​	747	​	​
Other receivables	​	​	​	​	21,690	​	​
Inventories	​	​	​	​	9,826	​	​
Total current assets	​	​	​	​	149,281	​	​
Total current liabilities	​	​	​	​	92,769	​	​
Working capital	​	​	​	​	56,512	​	​
Current ratio (1)	​	​	​	​	1.61	​	​
Acid-test ratio (2)	​	​	​	​	1.48	​	​
Total assets.	​	​	​	​	396,947	​	​
Short-term bank borrowings	​	​	​	​	2,074	​	​
Long-term debt including current portion	​	​	​	​	43,733	​	​
Debt-to-equity (3)	​	​	​	​	0.16	​	​
Total liabilities	​	​	​	​	116,998	​	​
Shareholders’ equity	​	​	​	​	277,780	​	​
Net book value per share	​	​	​	​	22.16	​	​
Net book value per share (US$) (4)	​	​	​	​	17.66	​	​

As at December 31, 2017: (In ‘000s, except per share amounts)

​

​

Shareholders’ Equity

​

​

Equity per Share

​

​

Equity per Share

​

​

​

​

C$

​

​

C$

​

​

US$ (2)

​

Adjusted working capital (1)

​

​

​

​

35,137

​

​

​

​

​

2.80

​

​

​

​

​

2.23

​

​

Trade receivables – former insolvent customer

​

​

​

​

21,375

​

​

​

​

​

1.71

​

​

​

​

​

1.36

​

​

Property, plant and equipment

​

​

​

​

83,954

​

​

​

​

​

6.70

​

​

​

​

​

5.34

​

​

Resource properties, net (3)

​

​

​

​

78,852

​

​

​

​

​

6.29

​

​

​

​

​

5.01

​

​

Real estate and investment properties

​

​

​

​

51,463

​

​

​

​

​

4.10

​

​

​

​

​

3.27

​

​

Other long-term assets

​

​

​

​

19,698

​

​

​

​

​

1.57

​

​

​

​

​

1.25

​

​

Other long-term liabilities (4)

​

​

​

​

(12,699 )

​

​

​

​

​

(1.01 )

​

​

​

​

​

(0.80 )

​

​

Total

​

​

​

​

277,780

​

​

​

​

​

22.16

​

​

​

​

​

17.66

​

​

​

​

 

Form 20-F

TABLE OF CONTENTS

(i)

(ii)

INTRODUCTORY MATTERS

On July 14, 2017, MFC Bancorp Ltd., a corporation under the laws of British Columbia, referred to as “Old MFC”, and MFC Bancorp Ltd., a corporation under the laws of the Cayman Islands, referred to as “New MFC”, completed a plan of arrangement, referred to as the “Arrangement”, under the Business Corporations Act (British Columbia) that resulted in the holders of common shares of Old MFC, referred to as the “Old MFC Shares”, becoming holders of common shares of US$0.001 par value each of New MFC, referred to as the “Common Shares”, and New MFC acquiring all of the Old MFC Shares. Unless otherwise indicated, references herein to numbers of our Common Shares or per Common Share amounts, including for prior periods, have been restated, where necessary, to reflect the Share Consolidation/Split (as defined herein) under the Arrangement. Please see “ Item 4: Information on the Company – B. Business Overview ” for further information.

Prior to July 14, 2017, unless the context otherwise indicates, references herein to “we”, “us”, “our”, the “Company” or “MFC Bancorp” are to Old MFC and its subsidiaries and, on and subsequent to July 14, 2017, unless the context otherwise indicates, such references are to New MFC and its consolidated subsidiaries.

All references in this document to “$” and “dollars” are to Canadian dollars, all references to “US$” are to United States dollars and all references to “Euro” or “€” are to the European Union Euro, unless otherwise indicated.

1

The following table sets forth the exchange rates for the translation of United States dollars and Euros to Canadian dollars in effect at the end of each of the five most recent financial years, the average exchange rates during these periods and the range of high and low exchange rates for these periods. The exchange rates are based on the noon rate of exchange for dates through April 28, 2017, and based on the average daily rate of exchange for dates after April 28, 2017, as reported by the Bank of Canada.

The following table sets forth the range of high and low exchange rates for the translation of United States dollars and Euros to Canadian dollars for each of the previous six months. The exchange rates are based on the average daily rate of exchange, as reported by the Bank of Canada.

On April 6, 2018, the average daily rate of exchange for the translation of United States dollars and Euros to Canadian dollars were US$1.00 = $1.2764 and €1.00 = $1.5662, respectively.

2

NON-IFRS FINANCIAL MEASURES

This document includes “non-IFRS financial measures”, that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Specifically, we make use of the non-IFRS measures “Operating EBITDA” and “Operating EBITDA from continuing operations”.

Operating EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization and impairment and Operating EBITDA from continuing operations is defined as earnings from continuing operations before interest, taxes, depreciation, depletion, amortization and impairment. Our management uses Operating EBITDA as a measure of our operating results and considers it to be a meaningful supplement to net income as a performance measurement, primarily because we incur significant depreciation and depletion and the exclusion of impairment losses in Operating EBITDA eliminates the non-cash impact.

Operating EBITDA is used by investors and analysts for the purpose of valuing an issuer. The intent of Operating EBITDA is to provide additional useful information to investors and the measure does not have any standardized meaning under IFRS. Accordingly, this measure should not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other companies may calculate Operating EBITDA differently. For a reconciliation of net income from continuing operations to Operating EBITDA, please see “ Item 5: Operating and Financial Review and Prospects – Results of Operations ”.

3

Notes:

(1)

Attributable to our shareholders.

​

(2)

Includes a net non-cash reversal of  $8.9 million in connection with prior impairments of our remaining hydrocarbon properties, credit losses (net of recoveries) of  $23.9 million and losses of  $10.2 million on the disposition of subsidiaries.

​

(3)

Includes a net non-cash reversal of  $8.6 million in connection with prior impairments on our remaining hydrocarbon properties, credit losses (net of recoveries) of  $17.0 million and a gain of  $2.6 million on the disposition of subsidiaries.

​

(4)

Includes total non-cash impairment losses of  $235.9 million, before an income tax recovery of  $46.5 million, on our mining interest and remaining hydrocarbon properties interest that were reclassified as continuing operations and losses of  $51.4 million related to a customer that filed for insolvency in February 2016 and $9.9 million on long-term off-take agreements entered into by a subsidiary acquired in 2014, which were terminated in 2016.

​

(5)

Includes a non-cash impairment loss on our hydrocarbon properties of  $2.8 million.

​

(6)

Includes total non-cash impairment losses of  $176.3 million, before a deferred income tax expense of  $50.9 million, recognized on our hydrocarbon properties and iron ore interests.

​

(7)

Includes total non-cash impairment losses of  $30.4 million, before a deferred income tax recovery of  $8.4 million, on our hydrocarbon properties.

​

(8)

Includes a non-cash impairment loss on our properties of  $6.5 million, before an income tax recovery of  $1.7 million.

​

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

An investment in our Common Shares involves a number of risks. You should carefully consider the following risks and uncertainties in addition to other information in this annual report on Form 20-F in evaluating our company and our business before making any investment decisions. Our business, operating and financial condition could be harmed due to any of the following risks, which include risks that are primarily or partially related to our discontinued operations.

4

Risk Factors Relating to Our Business – Risks Relating to Continuing Operations

Our financial results may fluctuate substantially from period to period.

We expect our business to experience significant periodic variations in its revenues and results of operations in the future. These variations may be attributed in part to the fact that our merchant banking revenues are often earned upon the successful completion of a transaction, the timing of which is uncertain and beyond our control. In many cases, we may receive little or no payment for engagements that do not result in the successful completion of a transaction. Additionally, we seek to acquire undervalued assets where we can use our experience and management to realize upon the value. Often, we will hold or build upon these assets over time and we cannot predict the timing of when these assets’ values may be realized. As a result, we are unlikely to achieve steady and predictable earnings, which could in turn adversely affect our financial condition and results of operations.

A weakening of the global economy, including capital and credit markets, could adversely affect our business and financial results and have a material adverse effect on our liquidity and capital resources.

Our business, by its nature, does not produce predictable earnings and it may be materially affected by conditions in the global financial markets and economic conditions generally. As demand for our products and merchant banking services has historically been determined by general global macro-economic activities, demand and prices for our products and services have historically decreased substantially during economic slowdowns. A significant economic downturn may affect our sales and profitability. Further, our suppliers and customers may also be adversely affected by an economic downturn. Depending on their severity and duration, the effects and consequences of a global economic downturn could have a material adverse effect on our liquidity and capital resources, including our ability to raise capital, if needed, and otherwise negatively impact our business and financial results.

A weakening of global economic conditions would likely aggravate the adverse effects of difficult economic and market conditions on us and on others in the merchant banking industry. In particular, we may face, among others, the following risks related to any future economic downturn: increased regulation of our banking operations; compliance with such regulation may increase the costs of our banking operations, may affect the pricing of our products and services and limit our ability to pursue business opportunities; reduced demand for our products and services; inability of our customers to comply fully or in a timely manner with their existing obligations; and the degree of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates, which, in turn, impact the reliability of the process and the sufficiency of our credit loss allowances.

Further, any disruption or volatility in the global financial markets could have a material adverse effect on us, including our ability to access capital and liquidity on financial terms acceptable to us, if at all. Market deterioration and weakness can result in a material decline in the number and size of the transactions that we execute for our own account or for our clients and to a corresponding decline in our revenues. Any market weakness can further result in losses to the extent that we hold assets in such market. If all or some of the foregoing risks were to materialize, this could have a material adverse effect on us.

Our earnings and, therefore, our profitability may be affected by price volatility in our various products.

The majority of our revenue from our merchant banking business is currently derived from the sale of products, which include metals, hydrocarbons and other materials. As a result, our earnings are directly related to the prices of these underlying products. There are many factors influencing the price of these products, including: expectations for inflation; global and regional demand and production; political and economic conditions; and production costs in major producing regions. These factors are beyond our control and are impossible for us to predict. Changes in the prices of our products may adversely affect our operating results.

The merchant banking business is highly competitive.

All aspects of the merchant banking business are highly competitive and we expect them to remain so.

5

Our competitors include merchant and investment banks, brokerage firms, commercial banks, private equity firms, hedge funds, financial advisory firms and natural resource and mineral royalty companies. Many of our competitors have substantially greater capital and resources, including access to supply, than we do. We believe that the principal factors affecting competition in our business include transaction execution, our products and services, client relationships, reputation, innovations, credit worthiness and price.

The scale of our competitors has increased in recent years as a result of substantial consolidation. These firms have the ability to offer a wider range of products than we do, which may enhance their competitive position.

If we are unable to compete effectively with our competitors, our business and results of operations will be adversely affected.

During the year ended December 31, 2017, none of our customers accounted for more than 10% of our revenues. However, the loss of key customers, due to competitive conditions or otherwise, may adversely affect our results of operations.

If the fair values of our long-lived assets fall below our carrying values, we would be required to record non-cash impairment losses that could have a material impact on our results of operations.

We review the carrying value of long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Should the markets for our products deteriorate, should we decide to invest capital differently or should other cash flow assumptions change, it is possible that we will be required to record non-cash impairment losses in the future that could have a material adverse effect on our results of operations.

We may face a lack of suitable acquisition, merger or other proprietary investment candidates, which may limit our growth.

In order to grow our business, we may seek to acquire, merge with or invest in new companies or opportunities. Our failure to make acquisitions or investments may limit our growth. In pursuing acquisition and investment opportunities, we face competition from other companies having similar growth and investment strategies, many of which may have substantially greater resources than us. Competition for these acquisitions or investment targets could result in increased acquisition or investment prices, higher risks and a diminished pool of businesses, services or products available for acquisition or investment.

Strategic investments or acquisitions and joint ventures, or our entry into new business areas, may result in additional risks and uncertainties in our business.

We intend to continue to grow our business both through internal expansion and through strategic investments, acquisitions or joint ventures. When we make strategic investments or acquisitions or enter into joint ventures, we expect to face numerous risks and uncertainties in combining or integrating the relevant businesses and systems, including the need to combine accounting and data processing systems and management controls and to integrate relationships with customers and business partners.

The costs of integrating acquired businesses (including restructuring charges associated with the acquisitions, as well as other related costs, such as accounting, legal and advisory fees) could significantly impact our operating results.

Although we perform due diligence on the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual condition of these businesses. We may not be able to ascertain the value or understand the potential liabilities of the acquired businesses and their operations until we assume operating control of these businesses.

Furthermore, any acquisitions of businesses or facilities could entail a number of risks, including, among others: problems with the effective integration of operations; inability to maintain key pre-acquisition business relationships; increased operating costs; exposure to substantial unanticipated liabilities; difficulties in realizing projected efficiencies, synergies and cost savings; the risks of entering markets in which we have limited or no prior experience; and the possibility that we may be unable to recruit additional managers with the necessary skills to supplement the management of the acquired businesses.

6

In addition, geographic and other expansions, acquisitions or joint ventures may require significant managerial attention, which may be diverted from our other operations. If we are unsuccessful in overcoming these risks, our business, financial condition or results of operations could be materially and adversely affected.

Our merchant banking activities are subject to counterparty risks associated with the performance of obligations by our counterparties.

Our business is subject to commercial risks, which include counterparty risk, such as failure of performance by our counterparties. We seek to reduce the risk of non-performance by requiring credit support from creditworthy financial institutions where appropriate. We also attempt to reduce the risk of non-payment by customers or other counterparties by imposing limits on open accounts extended to creditworthy customers and imposing credit support requirements for other customers. Nevertheless, we are exposed to the risk that parties owing us or our clients and other financial intermediaries may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure or other reasons. These counterparty obligations may arise, for example, from placing deposits, the extension of credit or guarantees in trading and investment activities and participation in payment, securities and supply chain transactions on our behalf and as an agent on behalf of our clients. If any such customers or counterparties default on their obligations, our business, results of operations, financial condition and cash flow could be adversely affected.

Larger and more frequent capital commitments in our merchant banking business increase the potential for significant losses.

We may enter into large transactions in which we commit our own capital as part of our merchant banking business. The number and size of these large transactions may materially affect our results of operations in a given period. To the extent that we own assets (i.e., have long positions), a downturn in the value of those assets or in the markets in which those assets are traded or situated could result in losses. Conversely, to the extent that we have sold assets we do not own (i.e., have short positions) in any of those markets, an upturn in those markets could expose us to potentially large losses as we attempt to cover our short positions by acquiring assets in a rising market.

We are subject to transaction risks that may have a material adverse effect on our business, results of operations, financial condition and cash flow.

We manage transaction risks through allocating and monitoring our capital investments in circumstances where the risk to our capital is minimal, carefully screening clients and transactions and engaging qualified personnel to manage transactions. Nevertheless, transaction risks can arise from our proprietary investing activities. These risks include market and credit risks associated with our merchant banking operations. We intend to make investments in highly unstructured situations and in companies undergoing severe financial distress and such investments often involve severe time constraints. These investments may expose us to significant transaction risks. An unsuccessful investment may result in the total loss of such investment and may have a material adverse effect on our business, results of operations, financial condition and cash flow.

Our risk management strategies may leave us exposed to unidentified or unanticipated risks that could impact our risk management strategies in the future and could negatively affect our results of operations and financial condition.

We use a variety of instruments and strategies to manage exposure to various types of risks. For example, we may use derivative foreign exchange contracts to manage our exposure and our clients’ exposure to foreign currency exchange rate risks. If any of the variety of instruments and strategies we utilize to manage our exposure to various types of risk are not effective, we may incur losses. Many of our strategies are based on historical trading patterns and correlations. However, these strategies may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. Unexpected market developments may affect our risk management strategies and unanticipated developments could impact our risk management strategies in the future.

Derivative transactions may expose us to unexpected risk and potential losses.

We, from time to time, enter into derivative transactions that require us to deliver to the counterparty an underlying security, loan or other obligation in order to receive payment. Such derivative transactions may expose us to unexpected market, credit and operational risks that could cause us to suffer unexpected

7

losses. Severe declines in asset values, unanticipated credit events or unforeseen circumstances may create losses from risks not appropriately taken into account in the structuring and/or pricing of a derivative transaction. In a number of cases, we may not hold the underlying security, loan or other obligation and may have difficulty obtaining, or be unable to obtain, the underlying security, loan or other obligation through the physical settlement of other transactions. As a result, we are subject to the risk that we may not be able to obtain the security, loan or other obligation within the required contractual time frame for delivery. This could cause us to forfeit the payments due to us under these contracts or result in settlement delays with the attendant credit and operational risk as well as increased costs to us.

The operations of our bank subsidiary are subject to regulation, which could adversely affect our business and operations.

The operations of MFC Merchant Bank Limited, referred to as the “Bank”, are subject to a number of directives and regulations, which materially affect our businesses. The statutes, regulations and policies to which we are subject may be changed at any time. In addition, the interpretation and the application by regulators of the laws and regulations to which we are subject may also change from time to time. Extensive legislation affecting the financial services industry has recently been adopted in Europe that directly or indirectly affects our business, including in Malta and other jurisdictions, and regulations are in the process of being implemented. The manner in which those laws and related regulations are applied to the operations of credit institutions is still evolving. Any legislative or regulatory actions and any required changes to our business operations resulting from such legislation and regulations could result in significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging or provide certain products and services, affect the value of assets that we hold, require us to increase our prices and therefore reduce demand for our financial products, impose additional compliance and other costs on us or otherwise adversely affect our businesses. Accordingly, there can be no assurance that future changes in regulations or in their interpretation or application will not adversely affect us. Please see “ Item 4: Information on the Company – Regulation ” for further information.

Further, the operations of our Bank may involve transactions with counterparties in the financial services industry, including commercial banks, investment banks and other institutional clients. Defaults by, and even rumors or questions about the solvency of certain financial institutions and the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by other institutions. We may enter into transactions that could expose us to significant credit risk in the event of default by one of our significant counterparties. A default by a significant financial counterparty, or liquidity problems in the financial services industry generally, could have a material adverse effect on us.

Any failure to remain in compliance with sanctions, anti-money laundering laws or other applicable regulations in the jurisdictions in which we operate could harm our reputation and/or cause us to become subject to fines, sanctions or legal enforcement, which could have an adverse effect on our business, financial condition and results of operations.

Our merchant banking business has adopted policies and procedures respecting compliance with sanctions and anti-money laundering laws and we have adopted various policies and procedures to ensure compliance with specific laws applicable to it, including internal controls and “know-your-customer” procedures aimed at preventing money laundering and terrorism financing; however, participation of multiple parties in any given transaction can make the process of due diligence difficult. Further, because trade finance can be more document-based than other banking activities, it is susceptible to documentary fraud, which can be linked to money laundering, terrorism financing, illicit activities and/or the circumvention of sanctions or other restrictions (such as export prohibitions, licensing requirements or other trade controls). While we are alert to high-risk transactions, we are also aware that efforts, such as forgery, double invoicing, partial shipments of goods and use of fictitious goods, may be used to evade applicable laws and regulations. If our policies and procedures are ineffective in preventing third parties from using our finance operations as a conduit for money laundering or terrorism financing without our knowledge, our reputation could suffer and/or we could become subject to fines, sanctions or legal action (including being added to any “blacklists” that would prohibit certain parties from engaging in transactions with us, including our banking subsidiary), which could have an adverse effect on our business, financial condition and results of operations. In addition, amendments to sanctions, anti-money laundering laws or other applicable laws or regulations in countries in which we operate could impose additional compliance burdens on our operations.

8

Fluctuations in interest rates and foreign currency exchange rates may affect our results of operations and financial condition.

Fluctuations in interest rates may affect the fair value of our financial instruments sensitive to interest rates. An increase or decrease in market interest rates may result in changes to the fair value of our fixed interest rate financial instrument liabilities, thereby resulting in a reduction in the fair value of our equity. Similarly, fluctuations in foreign currency exchange rates may affect the fair value of our financial instruments sensitive to foreign currency exchange rates.

Some of our operations are subject to environmental laws and regulations that may increase the costs of doing business and may restrict such operations.

Some of our operations present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of government laws and regulations. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Compliance with such laws and regulations can require significant expenditures, and a breach may result in the imposition of fines and penalties, which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. Any breach of environmental legislation by the operator of properties underlying our interests or by us, as an owner or operator of a property, could have a material impact on the viability of the relevant property and impair the revenue derived from the owned property or applicable royalty or other interest, which could have a material adverse effect on our results of operations and financial condition. Further, environmental hazards may exist on the properties on which we hold, or have previously held, interests, which are unknown to us at present and have been caused by previous or existing owners or operators of the properties.

Failure to comply with applicable laws, regulations or permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in resource operations or in the exploration or development of resource properties may also be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

We may not be fully insured against certain environmental risks, either because such insurance is not available or because of high premium costs. In particular, insurance against risks from environmental pollution occurring over time, as opposed to sudden and catastrophic damages, is not available on economically reasonable terms. Accordingly, our properties may be subject to liability due to hazards that cannot be insured against or that have not been insured against due to prohibitive premium costs or for other reasons.

There can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favorable and, as a result, we may have to raise additional capital through the issuance of additional equity, which will result in dilution to our shareholders.

There can be no assurance that we will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in delay or indefinite postponement of further business activities. We may require new capital to grow our business and there are no assurances that capital will be available when needed, if at all. It is likely such additional capital will be raised through the issuance of additional equity, which would result in dilution to our shareholders.

Limitations on our access to capital could impair our liquidity and our ability to conduct our business.

Liquidity, or ready access to funds, is essential to companies engaged in our business. Failures of financial firms have often been attributable in large part to insufficient liquidity. Liquidity is of particular importance to our merchant banking business and perceived liquidity issues may affect our clients’ and counterparties’ willingness to engage in transactions with us. Our liquidity could be impaired due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects our clients, counterparties, our lenders or us. Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time.

9

Our existing and future financing arrangements that contain operating and financial restrictions may restrict our business and financing activities.

The terms and conditions of our debt agreements and future financial obligations may impose, among other things, operating and financial restrictions on us. For example, they may, among other things, prohibit or otherwise limit our ability to: enter into other financing arrangements; incur additional indebtedness; create or permit liens on our assets; make investments; change the general nature of our business; utilize the proceeds of dispositions; and make capital expenditures. If we are unable to comply with the terms and conditions in our current or future financing agreements, a default could occur under the terms of those agreements. Our ability to comply with these terms and conditions, including meeting financial ratios and tests, is dependent on our future performance and may be affected by events beyond our control. If a default occurs under current or future financing agreements and we do not obtain a corresponding waiver or amendment to the underlying agreement, lenders could terminate their commitments to lend or accelerate our obligations thereunder and declare all amounts borrowed due and payable. If any of these events occur, we may be unable to find alternative financing on acceptable terms or at all.

We may substantially increase our debt in the future.

It may be necessary for us to obtain financing with banks or financial institutions to provide funds for working capital, capital purchases, potential acquisitions and business development. Interest costs associated with any debt financing may adversely affect our profitability. Further, the terms on which amounts may be borrowed – including standard financial covenants regarding the maintenance of financial ratios, the prohibition against engaging in major corporate transactions or reorganizations and the payment of dividends – may impose additional constraints on our business operations and our financial strength.

As a result of our global operations, we are exposed to political, economic, legal, operational and other risks that could adversely affect our business, results of operations, financial condition and cash flow.

In conducting our business in major markets around the world, we are subject to political, economic, legal, operational and other risks that are inherent in operating in other countries. These risks range from difficulties in settling transactions in emerging markets to possible nationalization, expropriation, price controls and other restrictive governmental actions, and terrorism. We also face the risk that exchange controls or similar restrictions imposed by foreign governmental authorities may restrict our ability to convert local currency received or held by us in their countries into Swiss francs, Canadian dollars, Euros or other hard currencies or to take those other currencies out of those countries. If any of these risks become a reality, our business, results of operations, financial condition and cash flow could be negatively impacted.

We are exposed to litigation risks in our business that are often difficult to assess or quantify and we could incur significant legal expenses every year in defending against litigation.

We are exposed to legal risks in our business and the volume and amount of damages claimed in litigation against financial intermediaries are increasing. These risks include potential liability for advice we provide to participants in corporate transactions and disputes over the terms and conditions of complex trading arrangements. We also face the possibility that counterparties in complex or risky trading transactions will claim that we improperly failed to inform them of the risks involved or that they were not authorized or permitted to enter into such transactions with us and, accordingly, that their obligations to us are not enforceable. During a prolonged market downturn, we expect these types of claims to increase. We are also exposed to legal risks in our trade finance and proprietary investing activities.

We seek to invest in undervalued businesses or assets often as a result of financial, legal, regulatory or other distress affecting them. Investing in distressed businesses and assets can involve us in complex legal issues relating to priorities, claims and other rights of stakeholders. These risks are often difficult to assess or quantify and their existence and magnitude often remains unknown for substantial periods of time. We may incur significant legal and other expenses in defending against litigation involved with any of these risks and may be required to pay substantial damages for settlements and/or adverse judgments. Substantial legal liability or significant regulatory action against us could have a material adverse effect on our financial condition and results of operations.

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We rely significantly on the skills and experience of our executives and the loss of any of these individuals may harm our business.

Our future success depends to a significant degree on the skills, experience and efforts of our executives and the loss of their services may compromise our ability to effectively conduct our business. We do not maintain “key person” insurance in relation to any of our employees.

We may experience difficulty attracting and retaining qualified management and technical personnel to efficiently operate our business and the failure to operate our business effectively could have a material adverse effect on our profitability, financial condition and results of operations.

We are dependent upon the continued availability and commitment of our management, whose contributions to immediate and future operations are of significant importance. The loss of any such management could negatively affect our business operations. From time to time, we will also need to identify and retain additional skilled management and specialized technical personnel to efficiently operate our business. The number of persons skilled in the acquisition, exploration and development of royalties and interests in natural resource properties is limited, and competition for such persons is intense. Recruiting and retaining qualified personnel is critical to our success and there can be no assurance of our ability to attract and retain such personnel. If we are not successful in attracting and retaining qualified personnel, our ability to execute our business model and growth strategy could be affected, which could have a material adverse impact on our profitability, results of operations and financial condition.

We conduct business in countries with a history of corruption and transactions with foreign governments and doing so increases the risks associated with our international activities.

As we operate internationally, we are subject to the United States’ Foreign Corrupt Practices Act and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by the United States and other business entities that have securities registered in the United States for the purpose of obtaining or retaining business. We have operations and agreements with third parties in countries known to experience corruption. Further international expansion may involve more exposure to such practices. Our activities in these countries create the risk of unauthorized payments or offers of payments by our employees or consultants that could be in violation of various laws including the Foreign Corrupt Practices Act , even though these parties are not always subject to our control. It is our policy to implement safeguards to discourage these practices by our employees and consultants. However, our existing safeguards and any future improvements may prove to be less than effective and our employees or consultants may engage in conduct for which we might be held responsible. Violations of the Foreign Corrupt Practices Act may result in criminal or civil sanctions and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.

The operation of the iron ore mine underlying our royalty interest was closed in 2014. Its operation is generally determined by a third-party operator and we currently have no decision-making power as to how the property is operated. In addition, we have no or very limited access to technical or geological data respecting the mine, including as to mineralization or reserves. The operator’s failure to perform or other operating decisions could have a material adverse effect on our revenue, results of operations and financial condition.

The operation of the iron ore mine underlying our royalty interest was closed in 2014. A new operator acquired the former operator’s interests in the second quarter of 2017. The operator generally has the power to determine the manner in which the property is operated. The interests of the operator and our interests may not always be aligned. Our inability to control the operations of the mine can adversely affect our profitability, results of operations and financial condition. In addition, we have no or very limited access to technical or geological data respecting the mine, including as to mineralization and reserves.

To the extent grantors of royalties and other interests do not abide by their contractual obligations, we may be forced to take legal action to enforce our contractual rights. Should any decision with respect to such action be determined adversely to us, such decision may have a material adverse effect on our profitability, results of operations and financial condition.

Our hydrocarbon and related operations are subject to inherent risks and hazards.

There are many operating risks and hazards inherent in our resource operations, including environmental hazards, industrial accidents, changes in the regulatory environment, impact of non-compliance with laws and regulations, potential damage to equipment or personal injury and fires, explosions, blowouts, spills or other accidents. Additionally, we could experience interruptions to, or the termination of, production,

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processing or transportation activities due to bad weather, natural disasters, delays in obtaining governmental approvals or consents, insufficient storage or transportation capacity or other geological or mechanical conditions. Any of these events that result in an interruption or suspension of operations would adversely affect our discontinued operations.

In addition, certain of our undeveloped reserves are, or may in the future be, subject to third-party operating agreements, including farm-out and participation agreements. As a result, development activities conducted by such third-parties may not be entirely within our control.

Future environmental and reclamation obligations respecting our resource properties and interests may be material.

We have not established a separate reclamation fund for the purpose of funding estimated future environmental and reclamation obligations or liabilities. Any site reclamation or abandonment costs incurred in the ordinary course in a specific period will be funded out of cash flow from operations. To the extent our hydrocarbon properties are not disposed of, we expect to incur site restoration costs over a prolonged period as wells reach the end of their economic life and may also be subject to reclamation and other environmental liabilities for past resource activities. There are significant uncertainties related to decommissioning obligations and the impact on the financial statements could be material. The eventual timing of and costs for these asset retirement and other environmental obligations or potential liabilities could differ from current estimates.

Tax audits or disputes, or changes in the tax laws applicable to us, could materially increase our tax payments.

We exercise significant judgment in calculating our provision for income taxes and other tax liabilities. Although we believe our tax estimates are reasonable, many factors may affect their accuracy. Applicable tax authorities may disagree with our tax treatment of certain material items potentially causing an increase in tax liabilities. Due to the size, complexity and nature of our operations, various tax matters and litigation are outstanding from time to time, including relating to our former affiliates. Currently, based upon information available to us, we do not believe any such matters would have a material adverse effect on our financial condition or results of operations. However, due to the inherent uncertainty, we cannot provide certainty as to their outcome. If our current assessments are materially incorrect or if we are unable to resolve any of these matters favorably, there may be a material adverse impact on our financial performance, cash flows or results of operations.

Furthermore, changes to existing laws may also increase our effective tax rate. A substantial increase in our tax burden could have an adverse effect on our financial results. Please see “ Item 8: Financial Information – A. Consolidated Statements and Other Financial Information ” for further information.

Employee misconduct could harm us and is difficult to detect and deter.

It is not always possible to detect and deter employee misconduct. The precautions we take to detect and prevent employee misconduct may not be effective in all cases and we could suffer significant reputational and economic harm for any misconduct by our employees. The potential harm to our reputation and to our business caused by such misconduct is impossible to quantify.

Failures or security breaches of our information technology systems could disrupt our operations and negatively impact our business.

We use information technologies, including information systems and related infrastructure as well as cloud applications and services, to store, transmit, process and record sensitive information, including employee information and financial and operating data, communicate with our employees and business partners and for many other activities related to our business. Our business partners, including operating partners, suppliers, customers and financial institutions, are also dependent on digital technology. Some of these business partners may be provided limited access to our sensitive information or our information systems and related infrastructure in the ordinary course of business.

Despite security design and controls, our information technology systems, and those of our third-party partners and providers, may be vulnerable to a variety of interruptions, including during the process of upgrading or replacing software, databases or components thereof, natural disasters, terrorist attacks, telecommunications failures, computer viruses, cyber-attacks, the activities of hackers, unauthorized access attempts and other security issues or may be breached due to employee error, malfeasance or other disruptions. Any such interruption or breach could result in operational disruptions or the

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misappropriation of sensitive data that could subject us to civil and criminal penalties, litigation or have a negative impact on our reputation. There can be no assurance that such disruptions or misappropriations and the resulting repercussions will not negatively impact our cash flows and materially affect our results of operations or financial condition.

General Risks Faced by Us

Investors’ interests may be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.

Our constating documents authorize the issuance of our Common Shares and preference shares, issuable in series. In the event that we are required to issue any additional shares or enter into private placements to raise financing through the sale of equity securities, investors’ interests in us will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional shares, such issuances will also cause a reduction in the proportionate ownership of all other shareholders. Further, any such issuance may result in a change of control of our company. Please see “ Item 10: Additional Information – B. Memorandum and Articles of Association ” for further information.

Certain factors may inhibit, delay or prevent a takeover of our company, which may adversely affect the price of our Common Shares.

Certain provisions of our charter documents may discourage, delay or prevent third parties from effecting a change of control or changes in our management in a tender offer or otherwise engaging in a merger or similar type of transaction with us. If a change of control or change of management is delayed or prevented, the market price of our Common Shares could decline.

Investors may face difficulties in protecting their interests, and their ability to protect their rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law of the Cayman Islands (2016 Revision), referred to as the “Cayman Act” and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

The Cayman Islands courts are also unlikely to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature.

There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

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Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company with substantially all of our assets located outside of the United States. In addition, a majority of our directors and officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise.

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Share Exchange . Each Old MFC Share outstanding after the completion of the Share Consolidation/Split was exchanged for one of our Common Shares and US$0.0001 in cash.

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Our Common Shares commenced trading on the New York Stock Exchange on July 14, 2017 under the symbol “MFCB”.

Reallocation of Resources to More Profitable Operations

In 2017, we continued to advance our plan, which commenced in 2016, to exit product lines and geographies with unsatisfactory margins in order to reallocate capital to higher return operations, including our merchant banking business. To this end, in 2017, we, among other things:

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rationalized our inventories, reducing them by 69% from $32.0 million at December 31, 2016 to $9.8 million at December 31, 2017;

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reduced our trade receivables by more than $100 million, to $34.2 million from $136.0 million at December 31, 2016;

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deleveraged through reducing our short-term bank borrowings by 98% from $95.4 million at December 31, 2016 to $2.1 million at December 31, 2017;

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reduced our total debt by 63% from $116.8 million at December 31, 2016 to $43.7 million at December 31, 2017;

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completed the sale and deconsolidation of non-core subsidiaries; and

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allocated resources for the expansion of our merchant banking business.

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As part of our plan, in the fourth quarter of 2017, we completed a restructuring, which included the disposition of certain subsidiaries, as a result of which we recognized a loss of  $10.2 million and primarily as a result of which overall in the fourth quarter of 2017, we reduced our trade receivables, short term borrowings and debt by approximately $94 million, $67 million and $31 million, respectively.

In 2017, the sale of a non-core subsidiary in Latin America resulted in the deconsolidation of assets of $45.7 million and liabilities of  $29.9 million, which were previously classified as assets held for sale.

Business Segments

Our business is divided into two operating segments: (i) Merchant Banking, which includes our marketing activities, captive supply assets, structured solutions, financial services and proprietary investing activities; and (ii) All Other, which encompasses our corporate and other investments and business interests, primarily being our business activities in medical equipment, instruments, supplies and services.

Merchant Banking

We are an international merchant bank that provides financial services and facilitates structured trade for corporations and institutions. We specialize in markets that are not adequately addressed by traditional sources of supply and finance, with an emphasis on providing solutions for small and medium sized enterprises. We operate in multiple geographies and participate in industries including manufacturing, natural resources and medical equipment and services.

Our merchant banking segment includes our marketing activities, captive supply assets, financial services, proprietary investing activities, hydrocarbon interests and iron ore interest. Under our business model, such activities are generally interlinked. For example, we may market products sourced from captive supply assets, which include interests acquired through our proprietary investing or we would provide financial services to the end customers of our marketing activities. Our marketing activities, including the sale of products from our captive supply assets, represented the majority of our revenues in 2017.

We make proprietary investments as part of our overall merchant banking activities and we seek to realize gains on such investments over time. We seek to participate in many industries, emphasizing those business opportunities where the perceived intrinsic value is not properly recognized, often as a result of financial or other distress affecting them. These investments can take many forms and can include acquiring entire businesses or portions thereof, investing in equity or investing in existing indebtedness (secured and unsecured) of businesses or in new equity or debt issues. These activities are generally not passive. The structure of each of these opportunities is tailored to each individual transaction.

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We consider opportunities where:

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our existing participation in marketing and production provides expert insight;

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we can obtain a satisfactory return of future capital investment; and

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there are synergistic benefits with our existing business.

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Our philosophy is to utilize our financial strength to realize the commercial potential of assets in markets where we have a comprehensive understanding of the drivers of value.

In the first quarter of 2016, we completed the acquisition of the Bank, which is licensed in Europe. Through ownership of an “in-house” bank, we will be able to supplement our core business with regulated banking services. The Bank does not engage in general retail or commercial banking, but provides specialty banking services, focused on merchant banking, to our customers, suppliers and group members. These products include: bank guarantees, letters of credit, factoring, other financing transactions, advisory services and merchant banking products and services.

In 2016, we commenced our plan to focus on our core merchant banking activities and have exited various products and geographies, including disposing of a Latin America-focused commodities trading business, our interest in a ferrosilicon production facility, our interest in quartz quarries, our interest in an iron ore property in the United States, the significant portion of our hydrocarbon properties and our steel and ferroalloys trading businesses in Europe and the United States.

As part of our merchant banking business, we historically acquired and sold commodity products, sourcing products from various suppliers globally or selling products sourced through our captive supply assets. In connection with such transactions, we also provided finance, transport, warehousing and delivery for customers. In 2017, the customers for these activities included steel mills, foundries, refractory customers and users of finished steel and aluminum goods. In 2017, these activities mainly included the following products: steel, ferroalloys, minerals, chemicals and metals (such as zinc and aluminum).

We hold various production assets, including: (a) a zinc alloy processing facility, located in Slovakia, whose customers include steel companies and other related industry suppliers in Europe; (b) a natural gas power plant located in Alberta, Canada and a hydro-electric power plant located in Africa; (c) a non-ferrous rolling mill in Germany whose customers include companies in automotive, engineering and other industries; and (d) natural gas production and processing in Alberta, Canada.

We also derive revenues from a mining sub-lease of the lands upon which the Wabush iron ore mine is situated in Newfoundland and Labrador, Canada. The sub-lease commenced in 1956 and expires in 2055. Revenues from this interest, excluding the collection of the underpayment of royalties in prior years, represented approximately 1% of the Company’s revenues in 2017.

In late 2014, the mine operator announced the closure of the mine and, in 2015, commenced proceedings under the Companies’ Creditors Arrangement Act , referred to as the “CCAA”. A new operator took over the mine in the third quarter of 2017 after acquiring the underlying assets through the CCAA process. In the third quarter of 2017, we entered into a settlement agreement with the new operator in respect of an underpayment of royalties under the lease by the past operator, whereby we received $5.6 million in settlement of such claims. Pursuant to such agreement, we also amended and restated the sub-lease underlying our interest. As a result, our royalty interest is now a 7.0% net revenues royalty interest on iron ore produced from the mine and 4.2% net revenues royalty interest on iron ore produced from tailings and other disposed materials. The new operator has not re-commenced mining operations. Under the terms of the sub-lease, we are entitled to minimum royalty payments of  $3.25 million per year. With respect to minimum payments, before tax, amounting to approximately $5.7 million for prior periods, the CCAA Court ruled in the first quarter of 2018 that such amount was not payable to us and, as a result, we recognized an impairment of  $1.4 million on such receivable in 2017. We are in the process of appealing such ruling. However, there can be no assurance that such appeal will be successful.

Our main business office is located in Dublin, Ireland, through a subsidiary. We also maintain offices in Malta, China, Canada, Germany and Uganda. In addition, we establish relationships with marketing agents located worldwide. Our marketing and other business activities in this segment are supported by a network of agents and relationships.

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All Other

Our All Other segment encompasses our corporate and other investments and business interests, primarily relating to business activities in medical equipment, instruments, supplies and services.

Competitive Conditions

Both segments of our business are intensely competitive and we expect them to remain so.

We operate in a highly competitive environment in most of our markets and we face competition in our merchant banking activities, principally from international banks, the majority of which are European, North American or Latin American regulated banks, in our finance and fee-generating activities. Such competition may have the effect of reducing spreads on our financing activities.

Our merchant banking business is small compared to our competitors in the sector. Many of our competitors have far greater financial resources, a broader range of products and sources of supply, larger customer bases, greater name recognition and marketing resources, a larger number of senior professionals to serve their clients’ needs, greater global reach and more established relationships with clients than we do. These competitors may be better able to respond to changes in business conditions, compete for skilled professionals, finance acquisitions, fund internal growth and compete for market share generally.

We believe that our experience and operating structure permit us to respond more rapidly to our clients’ needs than many of our larger competitors. These traits are important to small and mid-sized business enterprises, many of which do not have large internal corporate finance departments to handle their capital requirements. We develop a partnership approach to assist our clients. This often permits us to develop multiple revenue sources from the same client. For example, we may commit our own capital to make a proprietary investment in its business or capital structure.

Regulation

Our operations are international in nature and are subject to the laws and regulations of a number of international jurisdictions, as well as oversight by regulatory agencies and bodies in those jurisdictions. In particular, the banking industry is subject to extensive regulation and oversight. The operations of our Bank are subject to the regulations and directives issued by the European Union, as well as any additional Maltese legislation. The Bank is subject to direct supervision by the Malta Financial Services Authority and indirect supervision by the European Central Bank. The regulations which most significantly affect our Bank, or which could most significantly affect it in the future, relate to capital requirements, liquidity and the funding and development of a banking union in the European Union. As a Maltese credit institution, the Bank is subject to the Capital Requirements Directive Framework, referred to as the “CRD IV Framework”, through which the European Union began implementing the Basel III Capital reforms from January 1, 2014, with certain requirements in the process of being phased in by January 1, 2019. The CRD IV Framework, among other things, requires regulatory reporting of  “large exposures”, which are generally exposures to a client or group of connected clients in excess of 10% of the Bank’s eligible capital base and such large exposures cannot be greater than 25% of the Bank’s eligible capital base, after taking into account credit risk mitigation.

Our gas and oil operations are subject to various Canadian governmental regulations including those imposed by the Alberta Energy Regulator and Alberta Utilities Commission. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds and pooling of properties and taxation. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with such operations are also subject to regulation under federal, provincial and local laws and regulations. We are subject to decommissioning obligations in connection with our ownership interests in hydrocarbon assets, including well sites, gathering systems and processing facilities. The total decommissioning obligation is estimated based on our net ownership interest in wells and facilities, estimated costs to reclaim and abandon same and the estimated timing of the costs to be incurred in future years. We have estimated the net present value of total decommissioning obligations to be $13.7 million as at December 31, 2017.

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Notes:

(1)

Our proportional voting interests are identical to our proportional beneficial interests, except for: (a) a non-wholly owned subsidiary in Africa from which we derive a 100% beneficial interest resulting from our shareholder loan; and (b) MFC (A) Ltd. and MFC (B) Ltd., in each of which we hold a 99.68% proportional beneficial interest.

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(2)

In 2017, Merchants Financial Corp. and Sino Medical Technology Co. Ltd. granted rights to employee incentive corporations to acquire up to 10% of their share capital on a diluted basis at a price to be no less or more than the then existing net tangible asset value. The rights expire in 2027 and, as at December 31, 2017 such rights had been exercised in respect of 0.04% and 0.46% of the ownership, respectively.

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Please see Note 31 to our audited consolidated financial statements for the year ended December 31, 2017 for further information.

D. Property, Plants and Equipment

Our executive office is located at 2-4 Merrion Row, Dublin, Ireland, c/o MFC Financial Ltd.

We believe that our existing facilities are adequate for our needs through the end of the year ending December 31, 2018. Should we require additional space at that time or prior thereto, we believe that such space can be secured on commercially reasonable terms.

We also hold an interest under a mining sub-lease related to an iron ore mine located in Newfoundland and Labrador, Canada, which commenced in 1956 and expires in 2055. Please see “ B. Business Overview ” for further information.

As at December 31, 2017, we had hydrocarbon interests located in west central Alberta, Canada comprised of approximately 61 producing and 96 non-producing natural gas wells and approximately 3 producing and 18 non-producing oil wells and an average 76.2% working interest in approximately 86,500 gross acres of land. We also own a 16.5 megawatt natural gas power plant in Alberta, Canada, which is currently idled and a 9.9 megawatt hydroelectric power plant in Uganda.

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The following charts illustrate our revenues by geographic distribution in the fiscal years ended December 31, 2017 and 2016:

The following is a breakdown of our revenues by product and service for each of the years ended December 31, 2017 and 2016:

Our metals, plastics, wood products, steel products, minerals, chemicals and alloys revenues decreased from 2016 as a result of our decision to exit certain product lines and geographies. In 2017, our royalties revenues increased primarily as a result of the recognition of  $5.6 million for the underpayment of resource property royalties as a result of our settlement with the current operator of such interest. Our natural gas revenues decreased primarily due to the pricing environment and the shut-in of certain wells during the year.

Based upon the average exchange rates for 2017, the Canadian dollar strengthened by approximately 0.1% in value against the Euro compared to the average exchange rates for 2016.

Revenues for 2017 decreased to $274.0 million from $1,131.7 million in 2016, primarily as a result of our decision to exit certain product lines and geographies.

Revenues for our merchant banking business for 2017 decreased to $256.4 million from $1,095.9 million in 2016, primarily as a result of our decision to exit certain product lines.

Revenues for our all other segment were $17.6 million in 2017, compared to $35.8 million in 2016. The decrease was primarily as a result of the expiry of our eye care lease due to the substantially higher associated costs and capital expenditures required.

Costs of sales and services decreased to $263.6 million during 2017 from $1,061.1 million in 2016, primarily as a result of our decision to exit certain product lines and geographies.

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The following is a breakdown of our costs of sales and services for each of the years indicated:

In 2017, we recognized credit losses on loans and receivables (net of recoveries) of  $23.9 million, which included $8.6 million relating to receivables due from a hydrocarbon subsidiary that was deconsolidated in 2015, compared to $17.0 million in 2016.

We recognized a loss on the disposition of subsidiaries of  $10.2 million in 2017, which consisted of the difference between the book value of such assets and the consideration received, compared to a gain of $2.6 million in 2016 on the disposition of subsidiaries.

Selling, general and administrative expenses decreased to $45.5 million in 2017 from $79.2 million in 2016 primarily as a result of the sale of non-core subsidiaries, the closure of certain offices and structural cost reductions.

In 2017, finance costs decreased to $8.4 million from $24.1 million in 2016, primarily as a result of a decrease in bank indebtedness.

In late 2015, one of our customers in the wood products market experienced financial difficulties and, in February 2016, filed for insolvency. As a result, we recognized allowances for credit losses in connection with such customer and its affiliates in 2015 and 2016. Please see our comparison of 2016 to 2015 financial results below for further information regarding such prior years. In 2017, our management continued to monitor and assess the collectability of the receivables. As a result of such review, we reversed and credited an allowance of  $1.5 million to profit or loss in the third quarter of 2017. In the fourth quarter of 2017, we disposed of certain subsidiaries which had trade receivables from the former customer group. As a result, we have trade receivables due from this former customer group of  $21.4 million as at December 31, 2017.

In 2017, we recognized a net non-cash reversal of  $8.9 million in connection with prior impairments on our remaining hydrocarbon properties. In 2016, we recognized a net non-cash reversal of  $8.6 million in connection with prior impairments on our remaining hydrocarbon properties.

In 2017, we recognized a net foreign currency transaction loss of  $1.0 million, compared to a net foreign currency transaction gain of  $7.5 million in 2016, in our consolidated statement of operations. The foreign currency transaction gain and loss primarily represent exchange differences arising on the settlement of monetary items or on translating monetary items into our functional currencies at rates different from those at which they were translated on initial recognition during the period or in previous financial statements and the gains and losses on our foreign currency derivatives and includes $11.3 million reclassified from accumulated other comprehensive income within equity to profit or loss, which stemmed from the disposition of an immaterial subsidiary during the year.

We recognized an income tax expense (other than resource revenue taxes) of  $6.9 million in 2017, compared to an income tax expense of  $6.0 million in 2016. Our income tax paid in cash, excluding resource revenue taxes, during 2017 was $1.7 million, compared to $2.8 million in 2016. We also recognized resource revenue taxes of  $1.8 million in 2017, compared to $1.0 million in 2016.

Overall, we recognized an income tax expense of  $8.7 million (income tax expense of  $6.9 million and resource revenue taxes of  $1.8 million) in 2017, compared to an income tax expense of  $7.0 million (income tax expense of  $6.0 million and resource revenue taxes of  $1.0 million) in 2016.

In 2017, our net loss attributable to shareholders was $47.9 million, or $3.81 per share on a basic and diluted basis, compared to $25.4 million, or $2.01 per share on a basic and diluted basis, in 2016.

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For 2017, our Operating EBITDA loss was $32.2 million, compared to Operating EBITDA of $10.8 million for 2016.

The following is a reconciliation of our net loss to Operating EBITDA for each of the years indicated.

In 2016, 25% of our revenues were from Germany, 37% were from Europe, 25% were from the Americas and 13% were from Asia and other regions.

The following charts illustrate our revenues by geographic distribution in the fiscal years ended December 31, 2016 and 2015:

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The following is a breakdown of our revenues by product and service for each of the years ended December 31, 2016 and 2015:

Based upon the average exchange rates for 2016, the Canadian dollar weakened by approximately 3% in value against the Euro compared to the average exchange rates for 2015.

Revenues for 2016 decreased to $1,131.7 million from $1,629.1 million in 2015, primarily as a result of our decision to exit certain product lines and geographies, marginally offset by the positive impact of the weaker Canadian dollar against the Euro in 2016. As a substantial portion of our revenues are generated in Euros, the weakening of the Canadian dollar against the Euro positively impacted our revenues in 2016 when such Euro-denominated revenues were translated to Canadian dollars.

Revenues for our merchant banking business for 2016 decreased to $1,095.9 million from $1,593.9 million in the same period of 2015, primarily as a result of our decision to exit certain product lines, marginally offset by the positive impact of the weaker Canadian dollar against the Euro in 2016.

Revenues for our all other segment were $35.8 million in 2016, compared to $35.2 million in 2015.

Costs of sales and services decreased to $1,061.1 million during 2016 from $1,573.9 million in 2015, primarily as a result of our decision to exit certain product lines and geographies, marginally offset by the impact of the weaker Canadian dollar against the Euro in 2016.

The following is a breakdown of our costs of sales and services for each of the years indicated:

In 2016, we recognized credit losses on loans and receivables of  $17.0 million, primarily relating to receivables due from a former hydrocarbon subsidiary that was deconsolidated in 2015, compared to $54.5 million in 2015.

We recognized a gain on the disposition of subsidiaries of  $2.6 million in 2016, primarily in connection with the disposition of our former ferrosilicon subsidiary and related entities.

Selling, general and administrative expenses decreased to $79.2 million in 2016 from $86.6 million in 2015.

In 2016, finance costs increased to $24.1 million from $22.3 million in 2015, primarily as a result of expanded factoring activities.

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In the fourth quarter of 2015, one of our customers in the wood products market experienced financial difficulties and, in February 2016, filed for insolvency, which was an adjusting subsequent event in the prior year under IAS 10, Events after the Reporting Period , referred to as “IAS 10”. As a result, we had to determine an allowance for credit losses against our trade receivables due from this customer and its affiliates, referred to as the “former customer group” as at December 31, 2015. As at December 31, 2015, we had gross trade receivables of  $103.3 million due from this former customer group as well as other contracts with such former customer group. Our management conducted an extensive assessment of impairment losses on these trade receivables. This assessment involved a number of judgments and a high level of estimation uncertainty. The factors considered in these estimates include our legal rights and obligations under all related contracts and collateral, which include inventories, mortgages, insurance of collateral and other credit enhancement instruments. We recognized an allowance for credit losses of $10.7 million in connection with this customer and its affiliates as at December 31, 2015.

In addition, we guaranteed certain prepayment loans made by third-party banks to this former customer group to finance off-take contracts for which we were the off-taker. These guarantees were previously classified as contingent liabilities prior to December 31, 2015 and, as a result, we had recorded a provision of  $40.7 million for the expected payments under the guarantees. We paid such amount in the year ended December 31, 2016. During the year ended December 31, 2016, we received proceeds of  $39.1 million from risk mitigation assets related to these provisions, of which $35.1 million was credited to profit or loss through a recovery of credit losses and the remainder was credited to trade receivables.

As at December 31, 2016, our management reviewed the underlying contracts, legal documents, credit enhancement instruments and collateral to assess the recoverability of the receivables from this former customer group. This assessment required management to make certain assumptions regarding possible future outcomes and carries a degree of estimation uncertainty. While our management believes that these receivables are collectable, a wide range of possible outcomes was considered in its analysis, which resulted in a probability-weighted valuation below the gross carrying amount. Therefore, we recognized a cumulative allowance for credit losses of $43.9 million due in connection with this former customer group as at December 31, 2016, including an additional provision of  $33.3 million which was recognized during the second quarter of 2016. The resulting carrying amount is most sensitive to the assumptions regarding the likelihood of recovering amounts based on the various sources of collateral. The timing of the resolution of the uncertainty related to the recoverability of these receivables is dependent on the legal processes being followed to recovering these amounts. After the recognition of such impairment losses, we had net trade receivables of  $100.0 million due from this former customer group as at December 31, 2016.

In 2016, we recognized a net foreign currency transaction gain of  $7.5 million, compared to a net foreign currency transaction loss of  $0.9 million in 2015, in our consolidated statement of operations. The foreign currency transaction gain and loss primarily represent exchange differences arising on the settlement of monetary items or on translating monetary items into our functional currencies at rates different from those at which they were translated on initial recognition during the period or in previous financial statements and the gains and losses on our foreign currency derivatives.

In 2016, we recognized a net non-cash reversal of  $8.6 million in connection with prior impairments on our remaining hydrocarbon properties. In 2015, we recognized non-cash impairment losses of  $235.9 million on our resource properties before the recognition of a deferred tax recovery of  $46.5 million.

We recognized an income tax expense (other than resource revenue taxes) of  $6.0 million in 2016, compared to an income tax recovery of  $46.5 million in 2015. Our income tax paid in cash, excluding resource revenue taxes, during 2016 was $2.8 million, compared to $5.0 million in 2015. We also recognized resource revenue taxes of  $1.0 million in 2016, compared to $0.3 million in 2015.

Overall, we recognized an income tax expense of  $7.0 million (income tax expense of  $6.0 million and resource revenue taxes of  $1.0 million) in 2016, compared to an income tax recovery of  $46.2 million (income tax recovery of  $46.5 million and resource revenue taxes of  $0.3 million) in 2015. The recovery in 2015 related to impairment losses recognized in 2015.

In 2016, our net loss attributable to shareholders was $25.4 million, or $2.01 per share on a basic and diluted basis, compared to $487.6 million, or $38.61 per share on a basic and diluted basis, in 2015, which included a loss from discontinued operations of  $241.4 million, or $19.11 per share on a basic and diluted basis, in 2015.

For 2016, our Operating EBITDA from continuing operations increased to $10.8 million from a loss of $26.1 million for 2015.

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The following is a reconciliation of our net loss from continuing operations to Operating EBITDA from continuing operations for each of the years indicated.

Notes:

(1)

Includes net income attributable to non-controlling interests.

​

(2)

Includes losses of  $51.4 million related to a customer that filed for insolvency in February 2016 and $9.9 million on long-term off-take agreements entered into by a subsidiary acquired in 2014, which have since been terminated.

​

Please see “ Non-IFRS Financial Measures ” for additional information.

Liquidity and Capital Resources

General

Liquidity is of importance to our business as insufficient liquidity often results in underperformance.

Our objectives when managing capital are:

•

to safeguard our ability to continue as a going concern so that we can continue to provide returns for shareholders and benefits for other stakeholders;

​

•

to provide an adequate return to our shareholders by pricing products and services commensurately with the level of risk; and

​

•

to maintain a flexible capital structure that optimizes the cost of capital at acceptable risk.

​

We set the amount of capital in proportion to risk. We manage our capital structure and make adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust this capital structure, we may issue new shares or sell assets to reduce debt.

Consistent with others in our industry, we monitor capital on the basis of our net debt-to-equity ratio and long-term debt-to-equity ratio. The net debt-to-equity ratio is calculated as net debt divided by shareholders’ equity. Net debt is calculated as total debt less cash and cash equivalents. The long-term debt-to-equity ratio is calculated as long-term debt divided by shareholders’ equity. The computations are based on continuing operations.

The following table sets forth the calculation of our net debt-to-equity ratio as at the dates indicated:

There were no amounts in accumulated other comprehensive income relating to cash flow hedges, nor were there any subordinated debt instruments as at December 31, 2017, 2016 and 2015. Our net debt-to-equity ratio as at December 31, 2017 and 2016 was not applicable as we had a net cash and cash equivalents balance and, as at December 31, 2015 was 0.17.

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The following table sets forth the calculation of our long-term debt-to-equity ratio as at the dates indicated:

During 2017, our strategy, which remained unchanged from 2016 and 2015, was to maintain our net debt-to-equity ratio and long-term debt-to-equity ratio at manageable levels.

Cash Flows

Due to the number of businesses we engage in, our cash flows are not necessarily reflective of net earnings and net assets for any reporting period. As a result, instead of using a traditional cash flow analysis solely based on cash flow statements, our management believes it is more useful and meaningful to analyze our cash flows by overall liquidity and credit availability. Please see the discussion on our financial position, short-term bank loans, facilities and long-term debt below.

Our business can be cyclical and our cash flows can vary accordingly. Our principal operating cash expenditures are for our working capital, proprietary investments and general and administrative expenses.

Working capital levels fluctuate throughout the year and are affected by the level of our merchant banking operations, the markets and prices for commodities, the timing of collection of receivables and the payment of payables and expenses. Changes in the volume of transactions can affect the level of receivables and influence overall working capital levels. We currently have a sufficient level of cash on hand and expected cash flows from operations to meet our working capital and other requirements as well as unexpected cash demands.

The following table presents a summary of cash flows for our continuing operations for each of the periods indicated:

Cash Flows from Continuing Operating Activities

Operating activities used cash of  $3.2 million in 2017, compared to providing cash of  $99.9 million in 2016. In 2017, a decrease in short-term bank borrowings used cash of  $34.5 million, compared to an increase in short-term bank borrowings providing cash of  $34.7 million in 2016. A decrease in receivables provided cash of  $30.2 million in 2017, compared to an increase in receivables using cash of  $16.9 million in 2016. A decrease in inventories provided cash of  $19.6 million in 2017, compared to $184.9 million in 2016. A decrease in account payables and accrued expenses used cash of  $26.5 million in 2017, compared to $124.5 million in 2016. A decrease in assets held for sale provided cash of  $12.6 million in 2017 compared to $nil in 2016. The decrease in assets held for sale resulted from the disposition of our non-core Latin American commodities subsidiary. A decrease in deposits, prepaid and other provided cash of  $8.4 million in 2017, compared to $24.7 million in 2016.

Operating activities provided cash of  $99.9 million in 2016, compared to using cash of  $95.0 million in 2015. In 2016, an increase in short-term bank borrowings provided cash of  $34.7 million, compared to a decrease in short-term bank borrowings using cash of  $137.6 million in 2015. An increase in receivables (including derivative assets) used cash of  $16.9 million in 2016, compared to a decrease in receivables providing cash of  $57.6 million in 2015, primarily as a result of collections of trade receivables. A decrease in account payables and accrued expenses (including derivative liabilities) used cash of  $124.5 million in

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2016, compared to $18.6 million in 2015. A decrease in inventories provided cash of  $184.9 million in 2016, compared to $15.7 million in 2015. A decrease in deposits, pre-paid and other, provided cash of $24.7 million in 2016, compared to an increase in deposits, pre-paid and other using cash of $8.6 million in 2015.

Cash Flows from Continuing Investing Activities

Investing activities used cash of  $3.5 million in 2017, compared to providing cash of  $35.5 million in 2016. In 2017, the disposition of subsidiaries used cash of  $8.4 million, compared to providing cash of $48.8 million in 2016. In 2017, sales of property, plant and equipment, net of purchases provided cash of $4.8 million, compared to using cash of  $0.2 million in 2016.

Investing activities provided cash of  $35.5 million in 2016, compared to using cash of  $8.6 million in 2015. Our acquisition of the Bank used cash of  $23.9 million (net of cash acquired) and the disposition of subsidiaries provided cash of  $48.8 million (net of cash and cash equivalents disposed of). Purchases of property, plant and equipment, net of proceeds from dispositions, used cash of  $0.2 million in 2016, compared to $8.0 million in 2015.

Cash Flows from Continuing Financing Activities

Net cash used by financing activities was $42.7 million in 2017, compared to $167.3 million in 2016. A net decrease in debt used cash of  $42.3 million in 2017, compared to $165.6 million in 2016.

Net cash used by financing activities was $167.3 million in 2016, compared to $68.7 million in 2015. A net decrease in debt used cash of  $165.6 million in 2016, compared to $63.0 million in 2015. In 2015, dividends paid to our shareholders used cash of  $4.4 million in connection with the fourth instalment of our 2014 dividend, which was paid in the first quarter of 2015.

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We maintain an adequate level of liquidity, with a portion of our assets held in cash and cash equivalents and securities. The liquid nature of these assets provides us with flexibility in managing and financing our business and the ability to realize upon investment or business opportunities as they arise. We also use this liquidity in client-related services by acting as a financial intermediary for third parties (e.g., by acquiring a position or assets and reselling such position or assets) and for our own proprietary trading and investing activities.

As at December 31, 2017, cash and cash equivalents decreased to $74.9 million from $120.7 million as at December 31, 2016.

Trade receivables and other receivables were $34.3 million and $21.7 million, respectively, as at December 31, 2017, compared to $136.0 million and $35.3 million, respectively, as at December 31, 2016. The reduction in trade receivables included a decrease of  $78.6 million of trade receivables due from our former insolvent customer, primarily as a result of the disposition of subsidiaries and other dispositions in 2017. The decrease in other receivables was primarily as a result of the write-off of receivables.

Inventories decreased to $9.8 million as at December 31, 2017, from $32.0 million as at December 31, 2016, primarily as a result of the decision to reduce inventories and exit certain product lines and geographies, partially offset by our acquisition of a metals processing company in the fourth quarter of 2017. $1.5 million of our inventories were contracted at fixed prices or hedged as at December 31, 2017.

Our assets held for sale, consisting of assets related to our former Latin American-focused commodities trading business, decreased to $nil as at December 31, 2017 from $45.7 million as at December 31, 2016. As at December 31, 2017, we had liabilities relating to assets held for sale of  $nil, compared to liabilities relating to assets held for sale of  $29.9 million, comprised of debt of  $20.1 million and other liabilities of $9.8 million, as at December 31, 2016. The decrease was the result of the completion of our sale of a former subsidiary in the first quarter of 2017.

Tax receivables, consisting primarily of refundable value-added taxes, were $0.7 million as at December 31, 2017 and $11.7 million as at December 31, 2016. The decrease was primarily the result of the disposition of subsidiaries.

We had short-term securities of  $5.1 million as at December 31, 2017, compared to $5.0 million as at December 31, 2016. The increase was primarily as a result of government-issued securities held by our Bank at the date of acquisition.

Deposits, prepaid and other assets were $2.4 million as at December 31, 2017, compared to $12.2 million as at December 31, 2016. The decrease was primarily a result of recoveries relating to prepayments for inventories from risk mitigation securities.

We had short-term financial assets relating to hedging derivatives of  $0.2 million as at December 31, 2017, compared to $1.2 million as at December 31, 2016. We had current liabilities relating to hedging derivatives of  $0.3 million as at December 31, 2017, compared to $5.5 million as at December 31, 2016. We had long-term liabilities relating to hedging derivatives of  $nil as at December 31, 2017, compared to $0.9 million as at December 31, 2016.

Account payables and accrued expenses were $44.8 million as at December 31, 2017, compared to $45.1 million as at December 31, 2016. The decrease was primarily due to the disposition of subsidiaries.

We had deferred income tax liabilities of  $10.3 million as at December 31, 2017, compared to $7.4 million as at the end of 2016. The increase was primarily the result of the additional reversal of impairments in 2017.

Our short-term bank borrowings decreased to $2.1 million as at December 31, 2017, from $95.4 million as at December 31, 2016, primarily as a result of the repayment of borrowings in the first half of 2017 and the disposition of subsidiaries.

Total long-term debt decreased to $43.7 million as at December 31, 2017, from $116.8 million as at December 31, 2016, primarily as a result of debt repayments and the disposition of subsidiaries. As at December 31, 2017, $43.7 million of long-term debt was classified from long-term liabilities to current liabilities. Such long-term debt was due to a bank from two subsidiaries and consisted of two loans for the refinancing of long-term assets. The lender provided notice of acceleration of such indebtedness in 2018. We are in the process of negotiating an extension or other resolution with the lender. However, given the nature of such negotiations, there can be no assurance that an extension will be obtained on favourable terms or at all.

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As at December 31, 2017, we had decommissioning obligations of  $13.7 million relating to our hydrocarbon properties.

Short-Term Bank Loans and Facilities

As part of our operations, we establish, utilize and maintain various kinds of credit lines and facilities with banks, brokers and insurers. Most of these facilities are short-term. These facilities are used in our day-to-day structured solutions and merchant banking business. The amounts drawn under such facilities fluctuate with the kind and level of transactions being undertaken.

As at December 31, 2017, we had credit facilities from banks aggregating $29.0 million, comprised of: (i) non-recourse factoring lines for receivables financing of  $19.6 million; (ii) a refinancing line at our Bank of  $7.5 million; and (iii) a commodities hedging facility of  $1.9 million, which allows us to hedge industrial metals and products for our production subsidiaries. All of these facilities are renewable on a yearly basis or usable until further notice.

In 2017, we reduced and eliminated certain customer- and subsidiary-specific credit facilities with which we no longer commercially transact as well as certain foreign exchange credit facilities which were underutilized. We continue to evaluate the benefits of certain facilities that may not have strategic long-term relevance to our business and priorities going forward and may modify or eliminate additional facilities in the future. We do not anticipate that this will have a material impact on our corporate vision or our liquidity.

Long-Term Debt

Other than lines of credit drawn and as may be outstanding for trade financing and structured solutions activities, as at December 31, 2017, the maturities of our long-term debt from our continuing operations were as follows:

We expect our maturing debt to be satisfied primarily through the settlement of underlying supply chain transactions, trade financing transactions, including structured solutions transactions, cash on hand and cash flows from operations. Much of our maturing debt may either subsequently be made re-available to us by the applicable financial institution or we may replace such facilities with new facilities depending upon particular capital requirements.

In 2018, we received notice from the lender that the long-term debt at our subsidiaries had been called accelerated and called due, and therefore all long-term debt was classified to current liabilities as at December 31, 2017. We are in the process of negotiating an extension or other resolutions with the lender on these subsidiaries’ debts.

Please refer to Note 16 to our audited consolidated financial statements for the year ended December 31, 2017 for further information regarding interest rates, maturities and other terms and conditions for our bank debts.

Future Liquidity

We expect that there will be acquisitions of businesses or commitments to projects in the future. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flows from operations, cash on hand, borrowings against our assets, sales of proprietary investments or the issuance of securities.

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Foreign Currency

Our consolidated financial results are subject to foreign currency exchange rate fluctuations.

Our presentation currency is the Canadian dollar. We translate subsidiaries’ assets and liabilities into Canadian dollars at the rate of exchange on the balance sheet date. Revenues and expenses are translated at exchange rates approximating those at the date of the transactions or, for practical reasons, the average exchange rates for the applicable periods, when they approximate the exchange rate as at the dates of the transactions. As a substantial amount of revenues is generated in Euros, the financial position for any given period, when reported in Canadian dollars, can be significantly affected by the exchange rates for these currencies prevailing during that period. In addition, we also have exposure to the Chinese yuan and the United States dollar.

In 2017, we reported a net $4.3 million currency translation adjustment loss under other comprehensive loss within equity. This compared to a net loss of  $14.6 million in 2016. This currency translation adjustment did not affect our profit and loss statement. The loss in 2017 was primarily a result of the weakening of the Canadian dollar against the Euro and the United States dollar from 2016.

Contractual Obligations

The following table sets out our contractual obligations and commitments from continuing operations as at December 31, 2017 in connection with our long-term liabilities.

Notes:

(1)

Undiscounted.

​

(2)

This table does not include non-financial instrument liabilities, guarantees and liabilities relating to assets held for sale.

​

Risk Management

Risk is an inherent part of our business and operating activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our activities is critical to our financial soundness and profitability. We seek to identify, assess, monitor and manage the following principal risks involved in our business activities: market, credit, liquidity, operational, legal and compliance, new business, reputational and other. Risk management is a multi-faceted process that requires communication, judgment and knowledge of financial products and markets. Our management takes an active role in the risk management process and requires specific administrative and business functions to assist in the identification, assessment and control of various risks. Our risk management policies, procedures and methodologies are fluid in nature and are subject to ongoing review and modification.

Inflation

We do not believe that inflation has had a material impact on our revenues or income over the past two fiscal years. However, increases in inflation could result in increases in our expenses, which may not be readily recoverable in the price of goods or services provided to our clients. To the extent that inflation results in rising interest rates and has other adverse effects on capital markets, it could adversely affect our financial position and profitability.

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Notes:

(1)

Attributable to our shareholders.

​

(2)

Includes a net non-cash reversal of  $8.6 million in connection with prior impairments on our hydrocarbon properties, credit losses (net of recoveries) of  $16.0 million and a gain of  $2.6 million on the disposition of subsidiaries.

​

Application of Critical Accounting Policies

The preparation of financial statements in conformity with IFRS requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. We have identified certain accounting policies that are the most important to the portrayal of our current financial condition and results of operations. Please refer to Note 2 to our audited consolidated financial statements included in this annual report on Form 20-F for a discussion of the significant accounting policies.

The following accounting policies are the most important to our ongoing financial condition and results of operations from continuing operations:

Allowance for Credit Losses

We apply credit risk assessment and valuation methods to our trade and other receivables. Credit losses arise primarily from receivables but may also relate to other credit instruments issued by or on our behalf, such as guarantees and letters of credit. An allowance for credit losses is increased by provisions which are charged to income and reduced by write-offs net of any recoveries.

Provisions are established on an individual receivable basis as well as on gross customer exposures. A country risk provision may be made based on exposures in less developed countries and on our management’s overall assessment of the underlying economic conditions in those countries.

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Our allowance for credit losses is maintained at an amount considered adequate to absorb estimated credit-related losses. Such allowance reflects our management’s best estimate of the losses in our receivables and judgments about economic conditions. The assessment of allowance for credit losses is a complex process, which involves a significant degree of judgment and a high level of estimation uncertainty. The input factors include our legal rights and obligations under all the contracts and the expected future cash flows from the receivables and their collateral, which include inventories, mortgages and other credit enhancement instruments. The major source of estimation uncertainty relates to the likelihood of the various scenarios under which different amounts are expected to be recovered through the security in place on the receivables. The expected future cash flows are projected under different scenarios and weighted by probability, which involves the exercise of significant judgment. Estimates and judgments could change in the near-term and could result in a significant change to a recognized allowance.

In addition, we also provide credit losses for our credit exposures arising from guarantees we issued. The loss assessment process, as well as the exercise of judgment and estimation uncertainty, is similar to the preceding paragraph.

Classification of Assets Held for Sale

We apply judgment to determine whether an asset (disposal group) is available for immediate sale in its present condition and its sale is highly probable and therefore should be classified as held for sale at the balance sheet date. In order to assess whether it is highly probable that the sale can be completed within one year or the extension period in certain circumstances, our management reviews the business and economic factors, both macro and micro, which include the industry trends and capital markets. It is also open to all forms of sales, including exchanges of non-current assets for other non-current assets when the exchange will have commercial substance in accordance with IAS 16, Property, Plant and Equipment .

Non-Cash Impairment of Non-Financial Assets

We assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, we estimate the recoverable amount of the asset. In assessing whether there is any indication that an asset may be impaired, we consider, as a minimum, the following indications:

External sources of information

(a)

during the period, the asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use;

​

(b)

significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated;

​

(c)

market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially;

​

(d)

the carrying amount of the net assets of the entity is more than its market capitalization;

​

Internal sources of information

(e)

evidence is available of obsolescence or physical damage of an asset;

​

(f)

significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date and reassessing the useful life of an asset as finite rather than indefinite; and

​

(g)

evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.

​

Income Taxes

Management believes that it has adequately provided for income taxes based on all of the information that is currently available. The calculation of income taxes in many cases, however, requires significant judgment in interpreting tax rules and regulations, which are constantly changing.

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Our tax filings are also subject to audits, which could materially change the amount of current and deferred income tax assets and liabilities. Any change would be recorded as a charge or a credit to income tax expense. Any cash payment or receipt would be included in cash from operating activities.

We currently have deferred income tax assets, which are comprised primarily of tax loss carry-forwards and deductible temporary differences, both of which will reduce taxable income in the future. The amounts recorded for deferred income tax assets are based upon various judgments, assumptions and estimates. We assess the realization of these deferred income tax assets on a periodic basis to determine to what extent it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized. We determine whether it is probable that all or a portion of the deferred income tax assets will be realized, based on currently available information, including, but not limited to, the following:

•

the history of the tax loss carry-forwards and their expiry dates;

​

•

future reversals of temporary differences;

​

•

our projected earnings; and

​

•

tax planning opportunities.

​

On the reporting date, we also reassess unrecognized deferred income tax assets. We recognize a previously unrecognized deferred income tax asset to the extent that it has become probable that future taxable profit will allow the deferred income tax asset to be recovered.

We provide for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods and such provisions are based on our management’s assessment of exposures. We do not recognize the full deferred income tax liability on taxable temporary differences associated with investments in subsidiaries, joint ventures and associates where we are able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. We may change our investment decision in the normal course of our business, thus resulting in additional tax liability.

New Standards and Interpretations Adopted and Not Yet Adopted

IFRS 9, Financial Instruments , referred to as “IFRS 9” , issued in July 2014 is the IASB’s replacement of IAS 39, Financial Instruments: Recognition and Measurement , referred to as “IAS 39”. IFRS 9 includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after January 1, 2018. Management completed its assessment of the impacts of IFRS 9 on our consolidated financial statements and does not expect that IFRS 9 will have significant impacts on our consolidated financial statements except for additional disclosures. Accumulated other comprehensive income of  $0.5 million on available-for-sale equity securities will be reclassified to opening deficit upon the initial adoption of IFRS 9. In accordance with the transition rules of IFRS 9, we will not restate our consolidated financial statements for prior periods but will recognize the difference between the previous carrying amount and the revised carrying amount on initial application of IFRS9 in opening deficit as at January 1, 2018.

IFRS 15, Revenue from Contracts with Customers , referred to as “IFRS 15”, specifies how and when an entity will recognize revenue as well as requiring such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. IFRS 15 is effective for annual reporting periods beginning on or after January 1, 2018. Management completed its assessment of the impacts of IFRS 15 on our consolidated financial statements and does not expect that IFRS 15 will have significant impacts on our consolidated financial statements except for additional disclosures.

IFRS 16, Leases , referred to as “IFRS 16”, issued in January 2016, introduces a single on-balance sheet model of accounting for leases by lessees that eliminates the distinction between operating and finance leases. Lessor accounting remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, Leases , and related interpretations and is effective for annual reporting periods beginning on or after January 1, 2019, with earlier application permitted if IFRS 15 has also been applied. Management will adopt IFRS 16 in 2019 and is currently assessing the impacts of IFRS 16 on our consolidated financial statements.

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Trend Information

For a discussion of trends relating to revenues derived from our royalty interest, please see “ Item 4: Information on the Company – B. Business Overview – Business Segments – Merchant Banking ”.

Off-Balance Sheet Arrangements

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

In the normal course of our merchant banking activities, we issue guarantees to our trade and financing partners in order to secure financing facilities. Upon the use or drawdown of the underlying financing facilities, the financing facilities are recorded as liabilities on the consolidated statement of financial position such as short-term bank borrowings or debt. Accordingly, the issued guarantees relating to such financing facilities that are used or drawn are not considered contingent liabilities or off-balance sheet transactions. As at December 31, 2017, we had no unrecorded contingent liabilities relating to outstanding guarantees issued to our trade and financing partners in the normal course of our merchant banking activities.

Safe Harbor

The safe harbor provided in Section 27A of the Securities Act of 1933 , as amended, and Section 21E of the Securities Exchange Act of 1934 , as amended, applies to forward-looking information provided under “Off-Balance Sheet Arrangements ” and “ Liquidity and Capital Resources – Contractual Obligations ”.

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Michael J. Smith – Managing Director, President and Chief Executive Officer

Mr. Smith is the Managing Director, President and Chief Executive Officer of the Company and has held such positions since June 2017. Mr. Smith was a director of Old MFC since 1986 and was appointed Chairman in March 2016. He was also Old MFC’s Chairman from 2003 to March 2014, Chief Financial Officer from 2010 to March 2014 and President and Chief Executive Officer between 1996 and 2000 and 2010 and May 2014. Mr. Smith has experience in corporate finance and restructuring.

Samuel Morrow – Deputy Chief Executive Officer and Chief Financial Officer

Mr. Morrow has been our Deputy Chief Executive Officer and Chief Financial Officer since June 2017. Prior to the completion of the Arrangement, Mr. Morrow was appointed Deputy Chief Executive Officer in May 2014 and was appointed Chief Financial Officer of Old MFC in June 2014. Mr. Morrow is a Chartered Financial Analyst and was most recently a Vice President of MFC in Vienna, Austria. Before joining MFC, Mr. Morrow was Vice President of Tanaka Capital Management and Treasurer, Chief Financial Officer and Chief Operating Officer of the Tanaka Growth Fund. Mr. Morrow is a graduate of St. Lawrence University.

Gerardo Cortina – Director and Former President and Chief Executive Officer

Mr. Cortina was the Chief Executive Officer, President, and a Director of Old MFC from 2014 to 2017. He is currently the President of Possehl Mexico S.A. de C.V., referred to as “Possehl”, and was the managing director of Possehl from 1986 until June 2014.

Dr. Shuming Zhao – Director

Dr. Zhao is the Senior Distinguished Professor and Honorary Dean of the School of Business, Nanjing University, the People’s Republic of China. He serves as President of the International Association of Chinese Management Research (IACMR, Third Term), Vice President of Chinese Society of Management Modernization, President for Jiangsu Provincial Association of Human Resource Management, and Vice President of Jiangsu Provincial Association of Business Management and Entrepreneurs. Since 1994, Dr. Zhao has acted as management consultant for several Chinese and international firms. Dr. Zhao is also a director of Daqo New Energy Corp. (China) and JSTI Group (China) Ltd. Dr. Zhao has successfully organized and held nine international symposia on multinational business management. Since 1997, Dr. Zhao has been a visiting professor at the Marshall School of Business, University of Southern California, USA, the College of Business, University of Missouri-St. Louis, USA and Drucker Graduate School of Management, Claremont Graduate University, USA. Dr. Zhao has lectured in countries including the United States, Canada, Japan, Singapore, South Korea, the United Kingdom, Germany, the Netherlands, Portugal and Australia. He was a director of Old MFC from 2004 to 2013 and 2014 to 2017.

Indrajit Chatterjee – Director

Mr. Chatterjee is a retired businessman and formerly was responsible for marketing with the Transportation Systems Division of General Electric for India. Mr. Chatterjee is experienced in dealing with Indian governmental issues. He was previously a director of Old MFC from 2005 to 2017.

Silke S. Stenger – Director

Ms. Stenger is an independent business consultant and business leadership coach. She was a former director of Old MFC when it was KHD Humboldt Wedag International Ltd. and has been a director of KHD Humboldt Wedag International AG. Ms. Stenger was the Chief Financial Officer of Management One Human Capital Consultants Limited. She is a certified controller (German Chamber of Commerce IHK) and IFRS accountant, specializing in corporate governance and Sarbanes-Oxley Act of 2002 compliance. Furthermore, she is a business coach by training. Ms. Stenger was a director of Old MFC from 2013 to 2017.

Friedrich Hondl – Director

Mr. Hondl has over 30 years of management experience in the European banking industry and has held several management positions with international banks, including Erste Group Bank, UniCredit and Deutsche Bank, where he was responsible for the international relationship business. From 2013 to 2015, he was the head of Erste Group Bank AG’s Large Corporate International Division and from 2009 to 2012 he was the head of International Corporate Relationship Management of UniCredit Bank Austria AG. He

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also served as chairman of the supervisory board of Intermarket Bank AG from 2014 to 2015 and from 2010 to 2012 was a member of the supervisory board of Oesterreichische Kontrollbank AG (OeKB). OeKB acts as Austria’s Export Credit Agency (ECA) on behalf of the Austrian government and specifically the Federal Ministry of Finance. It is a public and a private export insurer and financial institution. Within this group is the Austrian development bank. As an ECA, OeKB supports corporations financially in their export businesses and protects the business activities of Austrian companies abroad by means of export guarantees, investment guarantees and loan guarantees. Mr. Hondl has also served as a board member of a private foundation since 2007. He was a director of Old MFC from 2015 to 2017.

Jochen Dümler – Director

Mr. Dümler was the President and Chief Executive Officer of Euler Hermes North America from 2010 to 2015. From 2002 to 2010, Mr. Dümler was a member of the Board of Management of Euler Hermes Kreditversicherung AG and, from 1995 to 2002, he was a member of the Board of Management of PRISMA Kreditversicherung AG. Mr. Dümler is a member of the German-American Chamber of Commerce (New York City), a member of the German Executive Roundtable (Washington, D.C.) and a board member of the German-American Partnership Program. He was a director of Old MFC from 2016 to 2017.

Family Relationships

There are no family relationships among any of our directors and executive officers.

B. Compensation

During the fiscal year ended December 31, 2017, we paid an aggregate of approximately $1.8 million in cash compensation to our directors and officers, excluding directors’ fees. No other funds were set aside or accrued by our company during the fiscal year ended December 31, 2017 to provide pension, retirement or similar benefits for our directors or officers pursuant to any existing plan provided or contributed to by us.

Executive Officers

The following table provides a summary of compensation paid by us during the fiscal year ended December 31, 2017 to executive officers: