Notes
to Financial Statements (Unaudited)
Note
1 - Nature of Operations, Basis of Presentation and Going Concern
A.
Nature of Operations
Zion
Oil & Gas, Inc., a Delaware corporation (“we,” “our,” “Zion” or the “Company”)
is an oil and gas exploration company with a history of 18 years of oil & gas exploration in Israel. As of March 31, 2018,
the Company has no revenues from its oil and gas operations.
Exploration
Rights/Exploration Activities
The Company currently holds one active
petroleum exploration license onshore Israel, the Megiddo-Jezreel License, comprising approximately 99,000 acres. The Megiddo
Jezreel #1 (“MJ #1”) site was completed in early March 2017, after which the drilling rig and associated equipment
were mobilized to the site. Performance and endurance tests were completed, and the MJ #1 exploratory well was spud on June 5,
2017, ahead of the June 30, 2017 deadline under the then-existing license terms. The MJ #1 well has been drilled to a total depth
(“TD”) of 5,060 meters (approximately 16,600 feet). Thereafter, the Company obtained three open-hole wireline log suites
(including a formation image log) and the well was successfully cased and cemented in preparation for upcoming testing of multiple
zones of interest, including zone(s) where free-flowing hydrocarbons were collected after circulating mud in the borehole. After
our review of the open-hole logs, we have finalized the testing program. The Ministry of Energy approved the well testing protocol
on April 29, 2018. We have begun our testing program, and it may take several weeks to complete.
Depending
on the final outcome and results of the active MJ #1 well and having adequate cash resources, multiple wells could be drilled
from this pad site as several subsurface geologic targets are reachable using directional well trajectories.
Megiddo-Jezreel
Petroleum License (“MJL”)
The
MJL was awarded on December 3, 2013 for a three-year primary term through December 2, 2016, with the possibility of additional
one-year extensions up to an aggregate maximum of seven years. The MJL is onshore, south and west of the Sea of Galilee, and the
Company continues its exploration focus here as it appears to possess the key geologic ingredients of an active petroleum system
with significant exploration potential. In November of 2016, the State of Israel’s Petroleum Commissioner officially approved
the Company’s drilling date and license extension request.
On
October 30, 2017, the Company sought a multi-year extension to its existing license. After receiving feedback from Israel’s
Petroleum Commissioner, the Company submitted a revised extension request on November 9, 2017. On November 20, 2017, Israel’s
Petroleum Commissioner officially approved the Company’s multi-year extension request on its Megiddo-Jezreel License No.
401, extending its validity to December 2, 2019. The Company now remains subject to the following updated key license terms:
Number
|
|
Activity
Description
|
|
Execution
by:
|
1
|
|
Submit final report
on the results of drilling
|
|
31
May 2018
|
2
|
|
Submit program
for continuation of work under license
|
|
30 June 2018
|
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
1 - Nature of Operations, Basis of Presentation and Going Concern
(cont’d)
As
previously disclosed, the Company required authorization from the Israel Land Authority (the “ILA”), the formal lessor
of the land to Kibbutz Sde Eliyahu, on whose property the drilling pad is currently situated, to access and utilize the drill
site (“surface use agreement”). The Company received this authorization on July 4, 2016. This was preceded by the
Company’s May 15, 2016 signed agreement with the kibbutz. On January 11, 2017, an agreement was signed by the Company and
the ILA by which the surface usage permission agreement was extended through December 3, 2017. On December 31, 2017, an agreement
was signed by the Company and the ILA by which the surface usage permission agreement was extended through December 3, 2019.
Zion’s
Former Jordan Valley, Joseph, and Asher-Menashe Licenses
On
March 29, 2015, the Energy Ministry formally approved the Company’s application to merge the southernmost portion of the
Jordan Valley License into the Megiddo-Jezreel License. The Company has plugged all of its exploratory wells (in the former Joseph
and Asher-Menashe Licenses) but acknowledges its obligation to complete the abandonment of these well sites in accordance with
guidance from the Environmental Ministry and local officials.
B.
Basis of Presentation
The
accompanying unaudited interim financial statements of Zion Oil & Gas, Inc. have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for interim financial information and with
Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete
financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals necessary for
a fair statement of financial position, results of operations and cash flows, have been included. The information included in
this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and the accompanying notes included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The year-end balance sheet data presented
for comparative purposes was derived from audited financial statements, but does not include all disclosures required by GAAP.
The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the operating results for
the year ending December 31, 2018 or for any other subsequent interim period.
C.
Going Concern
The
Company incurs cash outflows from operations, and all exploration activities and overhead expenses to date have been financed by
way of equity or debt financing. The recoverability of the costs incurred to date is uncertain and dependent upon achieving significant
commercial production.
The
Company’s ability to continue as a going concern is dependent upon obtaining the necessary financing to undertake further
exploration and development activities and ultimately generating profitable operations from its oil and natural gas interests
in the future. The Company’s current operations are dependent upon the adequacy of its current assets to meet its current
expenditure requirements and the accuracy of management’s estimates of those requirements. Should those estimates be materially
incorrect, the Company’s ability to continue as a going concern may be impaired. The financial statements have been prepared
on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business.
During the three months ended March 31, 2018, the Company incurred a net loss of approximately $6.2 million and had an accumulated
deficit of approximately $167 million. These factors raise substantial doubt about the Company’s ability to continue as
a going concern.
To
carry out planned operations, the Company must raise additional funds through additional equity and/or debt issuances or through
profitable operations. There can be no assurance that this capital or positive operational income will be available to the Company,
and if it is not, the Company may be forced to curtail or cease exploration and development activities. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
2 - Summary of Significant Accounting Policies
A.
Net Loss per Share Data
Basic
and diluted net loss per share of common stock, par value $0.01 per share (“Common Stock”), is presented in conformity
with ASC 260-10 “Earnings Per Share.” Diluted net loss per share is the same as basic net loss per share, as the inclusion
of 9,651,569 and 9,698,413 Common Stock equivalents in the three-month period ended March 31, 2018 and 2017 respectively, would
be anti-dilutive.
B.
Use of Estimates
The
preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions about future events. These estimates and the underlying
assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported
amounts of revenues and expenses. Such estimates include the valuation of unproved oil and gas properties, deferred tax assets,
asset retirement obligations and legal contingencies. These estimates and assumptions are based on management’s best estimates
and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors,
including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts
such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency,
and energy markets have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and
their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in
those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in
future periods.
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
2 - Summary of Significant Accounting Policies
(cont’d)
C.
Oil and Gas Properties and Impairment
The
Company follows the full-cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition,
exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized.
All
capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on
the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major development projects
are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results
of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from continuing operations
before income taxes, and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
The
Company’s oil and gas property represents an investment in unproved properties. These costs are excluded from the amortized
cost pool until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed
at least quarterly to determine if impairment has occurred. The amount of any impairment is charged to expense since a reserve
base has not yet been established. Impairment requiring a charge to expense may be indicated through evaluation of drilling results,
relinquishing drilling rights or other information.
During
the three months ended March 31, 2018, and 2017, the Company did not record a non-cash impairment charge of its unproved oil and
gas properties (see Note 4).
Currently,
the Company has no economically recoverable reserves and no amortization base. The Company’s unproved oil and gas properties
consist of capitalized exploration costs of $25,934,000 and $21,695,000 as of March 31, 2018, and December 31, 2017, respectively.
D.
Fair Value Measurements
The
Company follows Accounting Standards Codification (ASC) 820, “Fair Value Measurements and Disclosures,” as amended
by Financial Accounting Standards Board (FASB) Financial Staff Position (FSP) No. 157 and related guidance. Those provisions relate
to the Company’s financial assets and liabilities carried at fair value and the fair value disclosures related to financial
assets and liabilities. ASC 820 defines fair value, expands related disclosure requirements, and specifies a hierarchy of valuation
techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability.
There
are three levels of inputs to fair value measurements - Level 1, meaning the use of quoted prices for identical instruments in
active markets; Level 2, meaning the use of quoted prices for similar instruments in active markets or quoted prices for identical
or similar instruments in markets that are not active or are directly or indirectly observable; and Level 3, meaning the use of
unobservable inputs.
The
Company uses Level 1 inputs for its fair value measurements whenever there is an active market, with actual quotes, market prices,
and observable inputs on the measurement date. The Company uses Level 2 inputs for fair value measurements whenever there are
quoted prices for similar securities in an active market or quoted prices for identical securities in an inactive market. The
Company uses Level 3 inputs in the Binomial Model used for the valuation of the derivative liability.
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
2 - Summary of Significant Accounting Policies
(cont’d)
E.
Derivative Liabilities
In
accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing Liabilities
from Equity, the embedded derivatives associated with the Convertible Bonds are accounted for as a liability during the term
of the related Convertible Bonds (see Note 6).
F.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU
216-02, Leases (Topic 842) (“ASU 2016-02”) in order to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous
GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use
asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for
fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective
approach and early adoption is permitted. Zion will adopt ASU 2016-02 in the first quarter of 2019. Presently, Zion has operating
leases for office space in Dallas, Texas and in Caesarea, Israel plus various leases for motor vehicles, among others. Those leases,
and new leases entered in the future, will be accounted for under ASU 2016-02 in 2019 by establishing a right-of-use asset and
a corresponding lease liability.
In November 2016, the FASB issued ASU
2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”) to address the diversity that exists in the classification
and presentation of restricted cash on the Statement of Cash Flows. The Company has adopted ASU 2016-18 and any applicable changes
in the classification and presentation of restricted cash have been reflected in its Statement of Cash Flows.
Note
3 - Stockholders’ Equity
A.
2011 Equity Incentive Stock Option Plan
During the three months ended March 31,
2018, the Company granted the following options from the 2011 Equity Incentive Plan for employees, directors and consultants, to
purchase as non-cash compensation (the exercise of penny stock options are taxable on the date of exercise):
|
i.
|
Options to purchase
330,000 shares of Common Stock to 23 senior officers, staff members and consultants at an exercise price of $.01 per share.
The options have vesting schedules of 165,000 shares on June 30, 2018 and 165,000 shares on December 31, 2018. The options
are exercisable through January 1, 2028. The fair value of the options at the date of grant amounted to approximately $759,000.
|
|
|
|
|
ii.
|
Options to purchase
110,000 shares of Common Stock to five senior officers at an exercise price of $0.01 per share. The options vested upon grant
and are exercisable through January 4, 2028. The fair value of the options at the date of grant amounted to approximately
$250,000.
|
|
|
|
|
iii.
|
Options to purchase 55,000 shares of Common Stock to three consultants an exercise price of $0.01 per share. The options vested upon grant. However, the exercisability of these options is according to the following
schedule: (a) 27,500 options are exercisable on June 30, 2018 and (b) the remaining 27,500 options are exercisable on June 30,
2019. The fair value
of the options at the date of grant amounted to $222,000.
|
B.
2011 Non-Employee Directors Stock Option Plan
During
the three months ended March 31, 2018, the Company granted the following qualified (market value) options from the 2011 Non-Employee
Directors Stock Option Plan for directors to purchase as non-cash compensation:
|
i.
|
Options to purchase 400,000 shares of Common Stock to eight board members at an exercise price of $2.31 per share. The options vested upon grant and are exercisable through January 1, 2024. The fair value of the options at the date of grant amounted to approximately $428,000.
|
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
3 - Stockholders’ Equity
(cont’d)
C.
Stock Options
The
stock option transactions since January 1, 2018 are shown in the table below:
|
|
Number of
shares
|
|
|
Weighted Average
exercise price
|
|
|
|
|
|
|
US$
|
|
Outstanding, December 31, 2017
|
|
|
4,339,443
|
|
|
|
1.37
|
|
|
|
|
|
|
|
|
|
|
Changes during 2018 to:
|
|
|
|
|
|
|
|
|
Granted to employees, officers, directors and others *
|
|
|
895,000
|
|
|
|
1.04
|
|
Expired/Cancelled/Forfeited
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(4,500
|
)
|
|
|
0.01
|
|
Outstanding, March 31, 2018
|
|
|
5,229,943
|
|
|
|
1.31
|
|
Exercisable, March 31, 2018
|
|
|
4,824,943
|
|
|
|
1.42
|
|
*
The receipt of a stock option grant by the grantee recipient is a non-taxable event according to the Internal Revenue
Service. The grantee who later chooses to exercise penny stock options must recognize the market value in income in the year
of exercise.
The
following table summarizes information about stock options outstanding as of March 31, 2018:
Shares underlying outstanding options (non-vested)
|
|
|
Shares underlying outstanding options (fully vested)
|
|
Range of
exercise
price
|
|
|
Number outstanding
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Weighted
Average
Exercise
price
|
|
|
Range of exercise
price
|
|
|
Number
Outstanding
|
|
|
Weighted average remaining contractual life (years)
|
|
|
Weighted
Average
Exercise
price
|
|
US$
|
|
|
|
|
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
US$
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
15,000
|
|
|
|
5.62
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
15,000
|
|
|
|
6.00
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
5,000
|
|
|
|
6.20
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
15,000
|
|
|
|
7.35
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
10,000
|
|
|
|
7.50
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
25,000
|
|
|
|
7.75
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
355,000
|
|
|
|
8.18
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
575,000
|
|
|
|
8.75
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
10,000
|
|
|
|
8.76
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
80,000
|
|
|
|
9.04
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
10,000
|
|
|
|
9.42
|
|
|
|
0.01
|
|
|
0.01
|
|
|
|
20,000
|
|
|
|
9.50
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
20,000
|
|
|
|
9.50
|
|
|
|
0.01
|
|
|
0.01
|
|
|
|
295,000
|
|
|
|
9.75
|
|
|
|
0.01
|
|
|
|
0.01
|
|
|
|
*35,000
|
|
|
|
9.75
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
**55,000
|
|
|
|
9.91
|
|
|
|
0
.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01
|
|
|
|
110,000
|
|
|
|
9.76
|
|
|
|
0.01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.33
|
|
|
|
25,000
|
|
|
|
5.08
|
|
|
|
1.38
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.38
|
|
|
|
108,000
|
|
|
|
2.76
|
|
|
|
1.38
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.38
|
|
|
|
123,057
|
|
|
|
6.76
|
|
|
|
1.38
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.55
|
|
|
|
400,000
|
|
|
|
4.18
|
|
|
|
1.38
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.67
|
|
|
|
390,000
|
|
|
|
2.50
|
|
|
|
1.67
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.67
|
|
|
|
458,886
|
|
|
|
6.51
|
|
|
|
1.67
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.70
|
|
|
|
120,000
|
|
|
|
0.73
|
|
|
|
1.70
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.70
|
|
|
|
298,500
|
|
|
|
4.73
|
|
|
|
1.70
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.73
|
|
|
|
25,000
|
|
|
|
0.78
|
|
|
|
1.73
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.75
|
|
|
|
400,000
|
|
|
|
5.27
|
|
|
|
1.70
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.86
|
|
|
|
25,000
|
|
|
|
0.68
|
|
|
|
1.86
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.87
|
|
|
|
25,000
|
|
|
|
3.84
|
|
|
|
1.87
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.95
|
|
|
|
25,000
|
|
|
|
2.00
|
|
|
|
1.95
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.96
|
|
|
|
25,000
|
|
|
|
1.43
|
|
|
|
1.96
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.03
|
|
|
|
25,000
|
|
|
|
3.08
|
|
|
|
2.03
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.28
|
|
|
|
25,000
|
|
|
|
1.27
|
|
|
|
2.28
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.31
|
|
|
|
400,000
|
|
|
|
5.76
|
|
|
|
2.31
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.61
|
|
|
|
681,500
|
|
|
|
3.68
|
|
|
|
2.61
|
|
|
0.01
|
|
|
|
315,000
|
|
|
|
|
|
|
|
0.01
|
|
|
|
0.01-2.61
|
|
|
|
4,914,943
|
|
|
|
|
|
|
|
1.40
|
|
*17,500 options are exercisable on June 30, 2018 and 17,500 are
exercisable on December 31, 2018.
**27,500 options are exercisable on June 30, 2018 and 27,500 are exercisable on June 30, 2019.
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
3 - Stockholders’ Equity
(cont’d)
Granted
to employees
The
following table sets forth information about the weighted-average fair value of options granted to employees and directors during
the year, using the Black Scholes option-pricing model and the weighted-average assumptions used for such grants:
|
|
For
the three months ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Weighted-average fair value of underlying stock at grant date
|
|
$
|
2.31
|
|
|
$
|
1.37
|
|
Dividend yields
|
|
|
—
|
|
|
|
—
|
|
Expected volatility
|
|
|
68%-70
|
%
|
|
|
60
|
%
|
Risk-free interest rates
|
|
|
2.01%-2.25
|
%
|
|
|
1.86%-1.93
|
%
|
Expected lives (in years)
|
|
|
3.50-5.50
|
|
|
|
5.00
|
|
Weighted-average grant date fair value
|
|
$
|
1.69
|
|
|
$
|
1.36
|
|
Granted
to non-employees
The
following table sets forth information about the weighted-average fair value of options granted to non-employees during the year,
using the Black Scholes option-pricing model and the weighted-average assumptions used for such grants:
|
|
For
the three months
ended
March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Weighted-average fair value of underlying stock at grant date
|
|
$
|
3.37
|
|
|
$
|
1.36
|
|
Dividend yields
|
|
|
—
|
|
|
|
—
|
|
Expected volatility
|
|
|
73%-76
|
%
|
|
|
68
|
%
|
Risk-free interest rates
|
|
|
2.46%-2.81
|
%
|
|
|
2.36%-2.45
|
%
|
Expected lives (in years)
|
|
|
10.00
|
|
|
|
10.00
|
|
Weighted-average grant date fair value
|
|
$
|
3.36
|
|
|
$
|
1.36
|
|
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
3 - Stockholders’ Equity
(cont’d)
The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with
the expected life of the options.
The
expected life represents the weighted average period of time that options granted are expected to be outstanding. The expected
life of the options granted to employees and directors is calculated based on the Simplified Method as allowed under Staff Accounting
Bulletin No. 110 (“SAB 110”), giving consideration to the contractual term of the options and their
vesting schedules, as the Company does not have sufficient historical exercise data at this time. The expected life of the option
granted to non-employees equals their contractual term. In the case of an extension of the option life, the calculation was made
on the basis of the extended life.
D.
Compensation Cost for Warrant and Option Issuances
The
following table sets forth information about the compensation cost of warrant and option issuances recognized for employees and
directors:
For
the three months ended March 31,
|
|
2018
|
|
|
2017
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
943
|
|
|
|
2,015
|
|
The
following table sets forth information about the compensation cost of warrant and option issuances recognized for non-employees:
For
the three months ended March 31,
|
|
2018
|
|
|
2017
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
302
|
|
|
|
210
|
|
The following table sets forth information
about the compensation cost of option issuances recognized for employees and non-employees and capitalized to Unproved Oil &
Gas properties:
For
the three months ended March 31,
|
|
2018
|
|
|
2017
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
297
|
|
|
|
191
|
|
As of March 31, 2018, there was approximately
$465,000 of unrecognized compensation cost, related to non-vested stock options granted under the Company’s various stock
option plans. The cost is expected to be recognized during the years 2018 and 2019.
E.
Dividend Reinvestment and Stock Purchase Plan (“DSPP”)
On
March 27, 2014, the Company launched its Dividend Reinvestment and Stock Purchase Plan (the “DSPP”) pursuant to which
stockholders and interested investors can purchase shares of the Company’s Common Stock as well as units of the Company’s
securities. The terms of the DSPP are described in the Prospectus Supplement originally filed on March 31, 2014 (the “Original
Prospectus Supplement”) with the Securities and Exchange Commission (“SEC”) under the Company’s effective
registration Statement on Form S-3, as thereafter amended.
On
January 13, 2015, the Company amended the Original Prospectus Supplement (“Amendment No. 3”) to provide for a unit
option (the “Unit Option”) under the DSPP comprised of one share of Common Stock and three Common Stock purchase warrants
with each unit priced at $4.00. Each warrant afforded the participant the opportunity to purchase the Company’s Common Stock
at a warrant exercise price of $1.00. Each of the three warrants series has different expiration dates that have been extended.
The
warrants became exercisable on May 2, 2016 and, in the case of ZNWAB continued to be exercisable through May 2, 2017 (1
year) and, in the case of ZNWAC continued to be exercisable through May 2, 2018 for ZNWAC (2 years) and May 2, 2019 for ZNWAD
(3 years), respectively, at a per share exercise price of $1.00.
As
of May 2, 2017, any outstanding ZNWAB warrants expired.
As of May 2, 2018, any outstanding ZNWAC
warrants expired.
On
November 1, 2016, the Company launched a unit offering (the “Unit Program”) under the Company’s DSPP pursuant
to which participants could purchase units comprised of seven shares of Common Stock and seven Common Stock purchase warrants,
at a per unit purchase price of $10.
The
warrant has the symbol “ZNWAE.”
The
ZNWAE warrants became exercisable on May 1, 2017 and continue to be exercisable through May 1, 2020 at a per share exercise price
of $1.00. The warrant terms provide that if the Company’s Common Stock trades above $5.00 per share at the closing price
for 15 consecutive trading days at any time prior to the expiration date of the warrant, the Company has the sole discretion to
accelerate the termination the warrant upon providing 60 days advanced notice to the warrant holders.
On February 23, 2017, the Company filed
a Form S-3 with the SEC (Registration No. 333-216191) as a replacement for the Form S-3 (Registration No. 333-193336), along with
the base Prospectus and Supplemental Prospectus. The Form S-3, as amended, and the new base Prospectus became effective on March
10, 2017, along with the Prospectus Supplement that was filed and became effective on March 10, 2017. The Prospectus Supplement
under Registration No. 333-216191 describes the terms of the DSPP and replaces the prior Prospectus Supplement, as amended, under
the prior Registration No. 333-193336.
On
May 22, 2017, the Company launched a new unit offering (the “New Unit Program”). The New Unit Program consisted of
a new combination of common stock and warrants, a new time period in which to purchase under the program, and a new unit price,
but otherwise the same unit program features, conditions and terms in the Prospectus Supplement applied. The New Unit Program
terminated on July 12, 2017. This New Unit Program enabled participants to purchase Units of the Company’s securities where
each Unit (priced at $250.00 each) was comprised of (i) the number of shares of Common Stock determined by dividing $250.00 (the
price of one Unit) by the average of the high and low sale prices of the Company’s Common Stock as reported on the NASDAQ
on the unit purchase date and (ii) Common Stock purchase warrants to purchase an additional 25 shares of Common Stock at a warrant
exercise price of $1.00 per share.
The
warrant has the symbol “ZNWAF.”
All
ZNWAF warrants became exercisable on August 14, 2017 and continue to be exercisable through August 14, 2020 at a per share exercise
price of $1.00. The warrant terms provide that if the Company’s Common Stock trades above $5.00 per share as the closing
price for 15 consecutive trading days at any time prior to the expiration date of the warrant, the Company has the sole discretion
to accelerate the termination date of the warrant upon providing 60 days advanced notice to the warrant holders.
On
October 16, 2017, the Company initiated another Unit Option Program which terminated on December 6, 2017. This Unit Option Program
enabled participants to purchase Units of the Company’s securities where each Unit (priced at $250.00 each) was comprised
of (i) a certain number of shares of Common Stock determined by dividing $250.00 (the price of one Unit) by the average of the
high and low sale prices of the Company’s Common Stock as reported on the NASDAQ on the unit purchase date and (ii) Common
Stock purchase warrants to purchase an additional 15 shares of Common Stock at a warrant exercise price of $1.00 per share.
The warrant has the symbol “ZNWAG.”
The warrants became exercisable on January
8, 2018 and continue to be exercisable through January 8, 2021 at a per share exercise price of $1.00. The warrant terms provide
that if the Company’s Common Stock trades above $5.00 per share as the closing price for 15 consecutive trading days at any
time prior to the expiration date of the warrant, the Company has the sole discretion to accelerate the termination date of the
warrant upon providing 60 days advanced notice to the warrant holders.
On February 1, 2018, the Company’s
latest Unit Option began and terminated on February 28, 2018. The Unit Option consisted of Units of our securities where each Unit
(priced at $250.00 each) was comprised of (i) 50 shares of Common Stock and (ii) Common Stock purchase warrants to purchase an
additional 50 shares of Common Stock. The investor’s Plan account was credited with the number of shares of the Company’s
Common Stock acquired under the Units purchased. Each warrant affords the investor the opportunity to purchase one share of Company
Common Stock at a warrant exercise price of $5.00.
The warrant has the symbol “ZNWAH.”
The warrants became exercisable on April
2, 2018 and continue to be exercisable through April 2, 2019 at a per share exercise price of $5.00.
For the three months ended March 31, 2018,
approximately $3,835,000 was raised under the DSPP program.
The warrants represented by the ticker
ZNWAA are tradable on the NASDAQ market. However, all of the other warrants characterized above, in the table below, and throughout
this Form 10-Q, are not tradeable and are used internally for classification and accounting purposes only.
The warrant transactions since January
1, 2018 are shown in the table below:
|
|
ZNWAA
|
|
|
ZNWAC
|
|
|
ZNWAD
|
|
|
ZNWAE
|
|
|
ZNWAF
|
|
|
ZNWAG
|
|
|
ZNWAH
|
|
|
Total
|
|
Outstanding warrants, December 31, 2017
|
|
|
1,524,617
|
|
|
|
275,152
|
|
|
|
294,334
|
|
|
|
3,028,119
|
|
|
|
460,231
|
|
|
|
414,300
|
|
|
|
-
|
|
|
|
5,996,753
|
|
Exercise Price
|
|
$
|
2.00
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
|
$
|
5.00
|
|
|
|
|
|
Warrant Termination Date
|
|
|
1/31/2020
|
|
|
|
5/2/2018
|
|
|
|
5/2/2019
|
|
|
|
5/2/2020
|
|
|
|
8/14/2020
|
|
|
|
1/8/2021
|
|
|
|
4/2/2019
|
|
|
|
|
|
Change during 2018 to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,493
|
|
|
|
50
|
|
|
|
30
|
|
|
|
373,650
|
|
|
|
384,223
|
|
Exercised
|
|
|
(12,825
|
)
|
|
|
(76,015
|
)
|
|
|
(6,194
|
)
|
|
|
(408,346
|
)
|
|
|
(51,585
|
)
|
|
|
(159,385
|
)
|
|
|
-
|
|
|
|
(714,350
|
)
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding warrants, March 31, 2018
|
|
|
1,511,792
|
|
|
|
199,137
|
|
|
|
288,140
|
|
|
|
2,630,266
|
|
|
|
408,696
|
|
|
|
254,945
|
|
|
|
373,650
|
|
|
|
5,666,626
|
|
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
3 - Stockholders’ Equity
(cont’d)
E.
Warrant Descriptions
The
price and the expiration dates for the series of warrants to investors are as follows:
|
|
Period of Grant
|
|
|
US$
|
|
|
Expiration Date
|
|
|
|
|
|
|
|
|
|
ZNWAA Warrants
|
|
|
March 2013 – December 2014
|
|
|
|
2.00
|
|
|
January 31, 2020
|
ZNWAC Warrants
|
|
|
January 2015 – March 2016
|
|
|
|
1.00
|
|
|
May 02, 2018
|
ZNWAD Warrants
|
|
|
January 2015 – March 2016
|
|
|
|
1.00
|
|
|
May 02, 2019
|
ZNWAE Warrants
|
|
|
November 2016 – March 2017
|
|
|
|
1.00
|
|
|
May 01, 2020
|
ZNWAF Warrants
|
|
|
May 2017 – July 2017
|
|
|
|
1.00
|
|
|
August 14, 2020
|
ZNWAG Warrants
|
|
|
October 2017 – December 2017
|
|
|
|
1.00
|
|
|
January 08, 2021
|
ZNWAH Warrants
|
|
|
February 2018
|
|
|
|
5.00
|
|
|
April 2, 2019
|
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
4 - Unproved Oil and Gas Properties, Full Cost Method
Unproved
oil and gas properties, under the full cost method, are comprised as follows:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
US$ thousands
|
|
|
US$ thousands
|
|
Excluded from amortization base:
|
|
|
|
|
|
|
Drilling costs, and other operational related costs
|
|
|
18,465
|
|
|
|
14,999
|
|
Capitalized salary costs
|
|
|
2,371
|
|
|
|
2,034
|
|
Capitalized interest costs
|
|
|
432
|
|
|
|
346
|
|
Legal costs, license fees and other preparation costs
|
|
|
4,365
|
|
|
|
4,087
|
|
Other costs
|
|
|
301
|
|
|
|
229
|
|
|
|
|
*25,934
|
|
|
|
21,695
|
|
*The unproved oil and gas properties balance
at March 31, 2018 contains approximately $1,998,000 in unpaid amounts.
Changes
in Unproved oil and gas properties during the three months ended March 31, 2018 and 2017 are as follows:
|
|
March 31,
2018
|
|
|
March 31,
2017
|
|
|
|
US$ thousands
|
|
|
US$ thousands
|
|
Excluded from amortization base:
|
|
|
|
|
|
|
Drilling costs, and other operational related costs
|
|
|
3,466
|
|
|
|
1,707
|
|
Capitalized salary costs
|
|
|
337
|
|
|
|
245
|
|
Capitalized interest costs
|
|
|
86
|
|
|
|
-
|
|
Legal costs, license fees and other preparation costs
|
|
|
278
|
|
|
|
103
|
|
Other costs
|
|
|
72
|
|
|
|
-
|
|
|
|
|
*4,239
|
|
|
|
*2,055
|
|
* Inclusive of non-cash amounts of approximately
$2,381,000 and $997,000 during the three months ended March 31, 2018, and 2017, respectively.
Note
5 - Senior Convertible Bonds
Rights
Offering -10% Senior Convertible Notes due May 2, 2021
On
October 21, 2015, the Company filed with the SEC a prospectus supplement for a rights offering. Under the rights offering, the
Company distributed at no cost, 360,000 non-transferable subscription rights to subscribe for, on a per right basis, two 10% Convertible
Senior Bonds par $100 due May 2, 2021 (the “Notes”), to persons who owned shares of the Company’s Common Stock
on October 15, 2015, the record date for the offering. Each whole subscription right entitled the participant to purchase two
convertible bonds at a purchase price of $100 per bond. Effective October 21, 2015, the Company executed a Supplemental Indenture,
as issuer, with the American Stock Transfer & Trust Company, LLC, a New York limited liability trust company (“AST”),
as trustee for the Notes (the “Indenture”).
On
March 31, 2016, the rights offering terminated.
On
May 2, 2016, the Company issued approximately $3,470,000 aggregate principal amount of Notes in connection with the rights
offering. The Company received net proceeds of approximately $3,334,000, from the sale of the Notes, after deducting fees and
expenses of $136,000 incurred in connection with the offering. These costs have been discounted as deferred offering costs.
The
Notes contain a convertible option that gives rise to a derivative liability, which is accounted for separately from the Notes
(see below and Note 6). Accordingly, the Notes were initially recognized at fair value of approximately $1,844,000, which represents
the principal amount of $3,470,000 from which a debt discount of approximately $1,626,000 (which is equal to the fair value of
the convertible option) was deducted.
During
the three months ended March 31, 2018, the Company recorded approximately $6,000 in amortization expense related to the
deferred financing costs, and approximately $80,000 in debt discount amortization. The Notes are governed by the terms of the
Indenture. The Notes are senior unsecured obligations of the Company and bear interest at a rate of 10% per year, payable
annually in arrears on May 2 of each year, commencing May 2, 2017. The Notes will mature on May 2, 2021, unless earlier
redeemed by the Company or converted by the holder.
Interest
and principal may be paid, at the Company’s option, in cash or in shares of the Company’s Common Stock. The number
of shares for the payment of interest in shares of Common Stock, in lieu of the cash amount, will be based on the average of the
closing prices of the Company’s Common Stock as reported by Bloomberg L.P. for the 30 trading days preceding the record
date for the payment of interest; such record date has been designated and will always be the 10
th
business day prior
to the interest payment date on May 2 of each year. The number of shares for the payment of principal, in lieu of the cash amount,
shall be based upon the average of the closing price of the Company’s Common Stock as reported by Bloomberg L.P. for the
30 trading days preceding the principal repayment date; such record date has been designated as the trading day immediately prior
to the 30-day period preceding the maturity date of May 2, 2021. Fractional shares will not be issued and the final number of
shares will be rounded up to the next whole share.
On
May 2, 2017, the Company paid its annual 10% interest to its bondholders of record on April 18, 2017. The interest was paid-in-kind
(“PIK”) in the form of Common Stock. An average of the Company stock price of $1.20 was determined based on the 30
trading days prior to the record date of April 18, 2017. This figure was used to divide into 10% of the par value of the bonds
held by the holders. The Company issued 289,213 shares to the accounts of its bondholders.
At
any time prior to the close of business on the business day immediately preceding April 2, 2021, holders may convert their notes
into Common Stock at the conversion rate of 44 shares per $100 bond (which is equivalent to a conversion rate of approximately
$2.27 per share). The conversion rate is subject to adjustment from time to time upon the occurrence of certain events, including,
but not limited to, the issuance of stock dividends and payment of cash dividends.
Beginning
May 3, 2018, the Company is entitled to redeem for cash the outstanding Notes at an amount equal to the principal and accrued
and unpaid interest, plus a 10% premium. No “sinking fund” is provided for the Notes due May 2021, which means that
the Company is not required to periodically redeem or retire the Notes due May 2021.
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
5 - Senior Convertible Bonds
(cont’d)
Through
the three months ended March 31, 2018 approximately 730 convertible bonds of $100 each, have been converted under this offering
at a conversion rate of approximately $2.27 per share. As a result, the Company issued approximately 32,000 shares of its Common
Stock during the same period.
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
|
|
|
|
|
|
10% Senior Convertible Bonds, net of debt discount on derivative liability of $1,626,000 on the day of issuance
|
|
$
|
1,844
|
|
|
$
|
1,844
|
|
Debt discount amortization, net
|
|
$
|
439
|
|
|
$
|
359
|
|
Bonds converted to shares
|
|
$
|
(184
|
)
|
|
$
|
(111
|
)
|
Offering cost, net
|
|
$
|
(84
|
)
|
|
$
|
(90
|
)
|
10% senior Convertible bonds – Long Term Liability
|
|
$
|
2,015
|
|
|
$
|
2,002
|
|
The
Company recognized $86,000 in capitalized interest for the three months ended March 31, 2018.
Note
6 - Derivative Liability
The
Notes issued by the Company and discussed in Note 5 contain a convertible option that gives rise to a derivative liability.
The
debt instrument the Company issued includes a make-whole provision, which provides that in the event of conversion by the investor
under certain circumstances, the issuer is required to deliver to the holder additional consideration beyond the settlement of
the conversion obligation.
Because
time value make-whole provisions are not clearly and closely related to the debt host and would meet the definition of a derivative
if considered freestanding, they should be evaluated under the indexation guidance to determine whether they would be afforded
the scope exception pursuant to ASC 815-10-15-74(a). This evaluation is generally performed in conjunction with the analysis of
the embedded conversion feature.
The
Company has measured its derivative liability at fair value and recognized the derivative value as a current liability and recorded
the derivative value on its balance sheet. The fair value of the shares to be issued upon conversion of the Notes was recorded
as a derivative liability, with the change in the fair value recorded as a gain or loss in the accompanying statement of operations.
The
valuation of the Notes was done by using the Binomial Model, a well-accepted option-pricing model, and based on the Notes’
terms and other parameters the Company identified as relevant for the valuation of the Notes’ Fair Value.
The
Binomial Model used the forecast of the Company share price during the Note’s contractual term.
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
6 - Derivative Liability
(cont’d)
As
of March 31, 2018, the Company’s liabilities that are measured at fair value are as follows:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 3
|
|
|
Total
|
|
|
|
US$ thousands
|
|
|
US$ thousands
|
|
|
US$ thousands
|
|
|
US$
thousands
|
|
Fair value of derivative liability
|
|
|
5,400
|
|
|
|
5,400
|
|
|
|
1,866
|
|
|
|
1,866
|
|
Change
in value of derivative liability during 2018 are as follows:
|
|
US$
thousands
|
|
|
|
|
|
Derivative liability fair value at December 31, 2017
|
|
|
1,866
|
|
Loss on derivative liability
|
|
|
3,534
|
|
Derivative liability fair value at March 31, 2018
|
|
|
5,400
|
|
The
following table presents the assumptions that were used for the model as of March 31, 2018:
|
|
March 31,
2018
|
|
|
December 31,
2017
|
|
Convertible Option Fair Value of approximately
|
|
$
|
5,400,000
|
|
|
$
|
1,866,000
|
|
Annual Risk-free Rate
|
|
|
2.36
|
%
|
|
|
2.03
|
%
|
Volatility
|
|
|
79.03
|
%
|
|
|
68.04
|
%
|
Expected Term (years)
|
|
|
3.09
|
|
|
|
3.34
|
|
Convertible Notes Face Value
|
|
$
|
3,285,900
|
|
|
$
|
3,358,900
|
|
Expected annual yield on Regular Notes
|
|
|
28.77
|
%
|
|
|
28.77
|
%
|
Price of the Underlying Stock
|
|
$
|
4.76
|
|
|
$
|
2.16
|
|
During
the three months ended March 31, 2018, the Company recorded a loss of approximately $3,534,000 (net) within the Statements
of Operations line item, (loss) gain on derivative liability. A slight change in an unobservable input like volatility could
have a significant impact on the fair value measurement of the derivative liability.
Note
7 - Commitments and Contingencies
A.
Litigation
From
time to time, the Company may be subject to routine litigation, claims, or disputes in the ordinary course of business. The Company
defends itself vigorously in all such matters. In the opinion of management, no pending or known threatened claims, actions or
proceedings against the Company are expected to have a material adverse effect on its financial position, results of operations
or cash flows. However, the Company cannot predict with certainty the outcome or effect of any such litigation or investigatory
matters or any other pending litigation or claims. There can be no assurance as to the ultimate outcome of any such lawsuits and
investigations.
Zion
Oil & Gas, Inc.
Notes
to Financial Statements
Note
7 - Commitments and Contingencies
(cont’d)
B.
Environmental and Onshore Licensing Regulatory Matters
The
Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental
cleanup of well sites or other environmental restoration procedures and other obligations as they relate to the drilling of oil
and gas wells or the operation thereof. Various guidelines have been published in Israel by the State of Israel’s Petroleum
Commissioner and Energy and Environmental Ministries as it pertains to oil and gas activities. Mention of these older guidelines
was included in previous Zion Oil & Gas filings.
The
Company acknowledges that these new regulations are likely increase both the time and the expenditures associated with obtaining
new exploration rights and drilling new wells.
C.
Bank Guarantees
As
of March 31, 2018, the Company provided Israeli-required bank guarantees to various governmental bodies (approximately $1,356,000)
and others (approximately $84,000) with respect to its drilling operation in an aggregate amount of approximately $1,440,000.
The (cash) funds backing these guarantees and additional amounts added to support currency fluctuations as required by the bank
are held in restricted interest-bearing accounts and are reported on the Company’s balance sheets as fixed short-term bank
deposits – restricted, and fixed long-term bank deposits – restricted.
Note
8 - Subsequent Events
|
(i)
|
On April 2, 2018 the Company announced an offering (“2018 Subscription Rights Offering”) through American Stock Transfer& Trust Company, LLC (the “Subscription Agent”), at no cost to the shareholders, of non-transferable Subscription Rights to purchase Rights (each “Right” and collectively, the “Rights”) of its securities to persons who owned shares of our Common Stock on April 13, 2018 (“the Record Date”). Pursuant to the 2018 Subscription Rights Offering, each holder of shares of common stock on the Record Date received non-transferable rights to subscribe for Rights, with each Right comprised of one share of our Common Stock, par value $0.01 per share (the "Common Stock") and one Common Stock Purchase Warrant to purchase an additional one share of Common Stock. Each Right may be purchased at a per Right subscription price of $5.00. Each Warrant affords the investor the opportunity to purchase one share of our Common Stock at a warrant exercise price of $3.00. The warrants will become exercisable on June 29, 2018 and will continue to be exercisable for one year thereafter.
|
Each
shareholder received .10 (one tenth) of a subscription right (i.e. one subscription right for each 10 shares owned) for each share
of the Company’s Common Stock owned on the Record Date. The 2018 Subscription Rights Offering terminates on May 31, 2018.
In association with this 2018 Subscription Rights Offering, the Company incurred approximately $79,000 in agency and setup costs
prior to March 31, 2018. These costs are properly classified on our balance sheet.
|
(ii)
|
On
April 6, 2018, options to purchase 14,000 shares of Common Stock were granted to seven
staff members at an exercise price of $0.01 per share. The options vested upon grant
and are exercisable through April 5, 2028. The fair value of the options at the date
of grant amounted to approximately $62,000.
|
|
(iii)
|
Approximately $1,000,000 was raised through the Company’s DSPP program from April 1 through 26, 2018.
|
|
(iv)
|
On May 2, 2018, the Company paid its annual 10% interest to its bondholders of record on April 18, 2018. The interest was paid-in-kind (“PIK”) in the form of Common Stock. An average Zion stock price of $4.679 was determined based on the 30 trading days prior to the record date of April 18, 2018. This figure was used to divide into 10% of the par value of the bonds held by the holders. The company issued 70,780 shares to the accounts of its bondholders.
|