UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the Quarterly Period ended September 30, 2021; or
☐ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the transition period from ________ to ________
ZION OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
20-0065053 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S.
Employer
Identification No.) |
12655
N Central Expressway, Suite 1000, Dallas, TX |
|
75243 |
(Address
of principal executive offices) |
|
Zip
Code |
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
N/A |
|
N/A |
|
N/A |
(214) 221-4610
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☐ |
Smaller
reporting company |
☒ |
|
|
Emerging
growth company |
☐ |
If an emerging growth company, 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. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
|
|
|
|
|
As of
November 8, 2021, Zion Oil & Gas, Inc. had outstanding
340,521,048 shares of common stock, par value $0.01 per
share.
INDEX
PAGE
Zion Oil & Gas, Inc.
Consolidated Condensed Balance Sheets as of
|
|
September 30,
2021 |
|
|
December 31,
2020 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
|
(Unaudited) |
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
|
4,564 |
|
|
|
11,708 |
|
Fixed short term bank and escrow deposits – restricted |
|
|
1,269 |
|
|
|
2,954 |
|
Prepaid expenses and other |
|
|
473 |
|
|
|
1,900 |
|
Other deposits |
|
|
595 |
|
|
|
597 |
|
Governmental receivables |
|
|
1,770 |
|
|
|
2,040 |
|
Other receivables |
|
|
379 |
|
|
|
195 |
|
Total current assets |
|
|
9,050 |
|
|
|
19,394 |
|
|
|
|
|
|
|
|
|
|
Unproved oil and gas properties, full cost method (see Note 4) |
|
|
39,439 |
|
|
|
15,526 |
|
|
|
|
|
|
|
|
|
|
Property and equipment at cost |
|
|
|
|
|
|
|
|
Drilling rig and related equipment, net of accumulated depreciation
of $525 and nil
(see note 2J) |
|
|
6,948 |
|
|
|
7,568 |
|
Property and equipment, net of accumulated depreciation of $595 and
$564 |
|
|
146 |
|
|
|
131 |
|
|
|
|
7,094 |
|
|
|
7,699 |
|
|
|
|
|
|
|
|
|
|
Right of Use Lease Assets (see Note 7) |
|
|
390 |
|
|
|
438 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Assets held for severance benefits |
|
|
503 |
|
|
|
446 |
|
Total other assets |
|
|
503 |
|
|
|
446 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
56,476 |
|
|
|
43,503 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
2,212 |
|
|
|
1,369 |
|
Lease obligation – current (see Note 7) |
|
|
228 |
|
|
|
191 |
|
Asset retirement obligation |
|
|
571 |
|
|
|
571 |
|
Derivative liability (see Note 6) |
|
|
-
|
|
|
|
431 |
|
10% Senior convertible bonds, net of unamortized deferred financing
cost of nil and
$9 and unamortized debt discount of nil and $205 at September
30, 2021 and December 31, 2020, respectively (see Note 5) |
|
|
-
|
|
|
|
3,033 |
|
Accrued liabilities |
|
|
1,638 |
|
|
|
1,987 |
|
Total current liabilities |
|
|
4,649 |
|
|
|
7,582 |
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
Lease obligation – non-current (see Note 7) |
|
|
200 |
|
|
|
307 |
|
Provision for severance pay |
|
|
517 |
|
|
|
505 |
|
Total long-term liabilities |
|
|
717 |
|
|
|
812 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
5,366 |
|
|
|
8,394 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Common stock, par value $.01; Authorized: 800,000,000 shares at
September 30, 2021: Issued and outstanding: 304,260,077 and
237,381,555 shares at September 30, 2021 and December 31, 2020,
respectively |
|
|
3,043 |
|
|
|
2,374 |
|
Additional paid-in capital |
|
|
269,790 |
|
|
|
245,539 |
|
Accumulated deficit |
|
|
(221,723 |
) |
|
|
(212,804 |
) |
Total stockholders’ equity |
|
|
51,110 |
|
|
|
35,109 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
|
56,476 |
|
|
|
43,503 |
|
The accompanying notes are an integral part of the unaudited
interim consolidated condensed financial statements.
Zion Oil & Gas, Inc.
Consolidated Condensed Statements of Operations
(Unaudited)
|
|
For the three months ended |
|
|
For the nine months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
General and administrative |
|
|
1,601 |
|
|
|
1,139 |
|
|
|
6,524 |
|
|
|
3,227 |
|
Other |
|
|
697 |
|
|
|
563 |
|
|
|
2,553 |
|
|
|
1,608 |
|
Loss from operations |
|
|
(2,298 |
) |
|
|
(1,702 |
) |
|
|
(9,077 |
) |
|
|
(4,835 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivative liability |
|
|
-
|
|
|
|
49 |
|
|
|
431 |
|
|
|
(2 |
) |
Foreign exchange gain (loss) |
|
|
7 |
|
|
|
(4 |
) |
|
|
(43 |
) |
|
|
(7 |
) |
Financial expenses, net |
|
|
(12 |
) |
|
|
(139 |
) |
|
|
(230 |
) |
|
|
(484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss, before income taxes |
|
|
(2,303 |
) |
|
|
(1,796 |
) |
|
|
(8,919 |
) |
|
|
(5,328 |
) |
Income taxes |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(2,303 |
) |
|
|
(1,796 |
) |
|
|
(8,919 |
) |
|
|
(5,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss), gain per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (in US$) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (in thousands) |
|
|
286,390 |
|
|
|
202,877 |
|
|
|
258,442 |
|
|
|
171,296 |
|
The accompanying notes are an integral part of the unaudited
interim consolidated condensed financial statements.
Zion Oil & Gas, Inc.
Consolidated Condensed Statement of Changes in Stockholders’
Equity (Unaudited)
For the three and nine months ended September 30, 2021
|
|
Common Stock |
|
|
Additional
paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amounts |
|
|
Capital |
|
|
deficit |
|
|
Total |
|
|
|
thousands |
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
Balances
as of December 31, 2020 |
|
|
237,382 |
|
|
|
2,374 |
|
|
|
245,539 |
|
|
|
(212,804 |
) |
|
|
35,109 |
|
Funds received from sale of DSPP units and shares and exercise of
warrants |
|
|
60,665 |
|
|
|
607 |
|
|
|
17,550 |
|
|
|
—
|
|
|
|
18,157 |
|
Costs associated with the issuance of shares |
|
|
— |
|
|
|
—
|
|
|
|
(115 |
) |
|
|
—
|
|
|
|
(115 |
) |
Value of
bonds converted to shares |
|
|
15 |
|
|
|
*
|
|
|
|
9 |
|
|
|
—
|
|
|
|
9 |
|
Bond interest paid in shares |
|
|
530 |
|
|
|
5 |
|
|
|
316 |
|
|
|
—
|
|
|
|
321 |
|
Bond principal paid in shares |
|
|
5,296 |
|
|
|
53 |
|
|
|
3,161 |
|
|
|
—
|
|
|
|
3,214 |
|
Funds received from option exercises |
|
|
372 |
|
|
|
4 |
|
|
|
11 |
|
|
|
—
|
|
|
|
15 |
|
Value of options granted to employees, directors and others as
non-cash compensation |
|
|
— |
|
|
|
—
|
|
|
|
3,319 |
|
|
|
—
|
|
|
|
3,319 |
|
Net loss |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,919 |
) |
|
|
(8,919 |
) |
Balances as of September 30, 2021 |
|
|
304,260 |
|
|
|
3,043 |
|
|
|
269,790 |
|
|
|
(221,723 |
) |
|
|
51,110 |
|
|
|
Common Stock |
|
|
Additional
paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amounts |
|
|
Capital |
|
|
deficit |
|
|
Total |
|
|
|
thousands |
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
Balances
as of June 30, 2021 |
|
|
283,273 |
|
|
|
2,833 |
|
|
|
264,887 |
|
|
|
(219,420 |
) |
|
|
48,300 |
|
Funds received from sale of DSPP units and shares and exercise of
warrants |
|
|
20,732 |
|
|
|
207 |
|
|
|
4,162 |
|
|
|
—
|
|
|
|
4,369 |
|
Funds received from option exercises |
|
|
255 |
|
|
|
3 |
|
|
|
11 |
|
|
|
—
|
|
|
|
14 |
|
Value of options granted to employees, directors and others as
non-cash compensation |
|
|
— |
|
|
|
—
|
|
|
|
730 |
|
|
|
—
|
|
|
|
730 |
|
Net loss |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,303 |
) |
|
|
(2,303 |
) |
Balances as of September 30, 2021 |
|
|
304,260 |
|
|
|
3,043 |
|
|
|
269,790 |
|
|
|
(221,723 |
) |
|
|
51,110 |
|
The accompanying notes are an integral part of the unaudited
interim consolidated condensed financial statements.
Zion Oil & Gas, Inc.
Consolidated Condensed Statement of Changes in Stockholders’
Equity (Unaudited)
For the
three and nine months ended September 30, 2020
|
|
Common Stock |
|
|
Additional
paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amounts |
|
|
Capital |
|
|
deficit |
|
|
Total |
|
|
|
thousands |
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands |
|
Balances as of December 31, 2019 |
|
|
123,973 |
|
|
|
1,240 |
|
|
|
217,892 |
|
|
|
(205,808 |
) |
|
|
13,324 |
|
Funds received from sale of DSPP units and shares and exercise of
warrants |
|
|
105,354 |
|
|
|
1,053 |
|
|
|
24,464 |
|
|
|
—
|
|
|
|
25,517 |
|
Value of bonds
converted to shares |
|
|
1 |
|
|
|
*
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Bond interest paid in shares |
|
|
1,782 |
|
|
|
18 |
|
|
|
307 |
|
|
|
— |
|
|
|
325 |
|
Funds received from option exercises |
|
|
653 |
|
|
|
7 |
|
|
|
—
|
|
|
|
—
|
|
|
|
7 |
|
Value of options granted to employees, directors and others as
non-cash compensation |
|
|
— |
|
|
|
—
|
|
|
|
59 |
|
|
|
—
|
|
|
|
59 |
|
Net loss |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,328 |
) |
|
|
(5,328 |
) |
Balances as of September 30, 2020 |
|
|
231,763 |
|
|
|
2,318 |
|
|
|
242,722 |
|
|
|
(211,136 |
) |
|
|
33,904 |
|
|
|
Common Stock |
|
|
Additional
paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amounts |
|
|
Capital |
|
|
deficit |
|
|
Total |
|
|
|
thousands |
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
Balances
as of June 30, 2020 |
|
|
179,909 |
|
|
|
1,799 |
|
|
|
230,220 |
|
|
|
(209,340 |
) |
|
|
22,679 |
|
Funds received from sale of DSPP units and shares and exercise of
warrants |
|
|
51,589 |
|
|
|
516 |
|
|
|
12,499 |
|
|
|
—
|
|
|
|
13,015 |
|
Funds received from option exercises |
|
|
265 |
|
|
|
3 |
|
|
|
—
|
|
|
|
—
|
|
|
|
3 |
|
Value of options granted to employees, directors and others as
non-cash compensation |
|
|
— |
|
|
|
—
|
|
|
|
3 |
|
|
|
—
|
|
|
|
3 |
|
Net loss |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,796 |
) |
|
|
(1,796 |
) |
Balances as of September 30, 2020 |
|
|
231,763 |
|
|
|
2,318 |
|
|
|
242,722 |
|
|
|
(211,136 |
) |
|
|
33,904 |
|
* |
Less
than one thousand. |
The accompanying notes are an integral part of the unaudited
interim consolidated condensed financial statements.
Zion Oil & Gas, Inc.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
|
|
For the nine months ended
September 30, |
|
|
|
2021 |
|
|
2020 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
Cash flows from operating activities |
|
|
|
|
|
|
Net loss |
|
|
(8,919 |
) |
|
|
(5,328 |
) |
Adjustments required to reconcile net loss to net cash used in
operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
556 |
|
|
|
36 |
|
Cost of options issued to employees, directors and others as
non-cash compensation |
|
|
3,319 |
|
|
|
59 |
|
Amortization of debt discount related to convertible bonds |
|
|
190 |
|
|
|
332 |
|
Non-cash interest expense |
|
|
-
|
|
|
|
101 |
|
Change in derivative liability |
|
|
(431 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Change in assets and liabilities, net: |
|
|
|
|
|
|
|
|
Other deposits |
|
|
2 |
|
|
|
(361 |
) |
Prepaid expenses and other |
|
|
1,427 |
|
|
|
(106 |
) |
Governmental receivables |
|
|
270 |
|
|
|
25 |
|
Lease obligation – current |
|
|
(91 |
) |
|
|
(32 |
) |
Lease obligation – noncurrent |
|
|
(107 |
) |
|
|
(143 |
) |
Right of use lease assets |
|
|
176 |
|
|
|
158 |
|
Other receivables |
|
|
(184 |
) |
|
|
191 |
|
Severance payable, net |
|
|
(45 |
) |
|
|
28 |
|
Accounts payable |
|
|
(291 |
) |
|
|
31 |
|
Asset retirement obligation |
|
|
-
|
|
|
|
(14 |
) |
Accrued liabilities |
|
|
(760 |
) |
|
|
(125 |
) |
Net cash used in operating activities |
|
|
(4,888 |
) |
|
|
(5,146 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
(46 |
) |
|
|
(9 |
) |
Acquisition of drilling rig and related equipment |
|
|
(115 |
) |
|
|
(4,636 |
) |
Investment in unproved oil and gas properties |
|
|
(21,837 |
) |
|
|
(880 |
) |
Net cash used in investing activities |
|
|
(21,998 |
) |
|
|
(5,525 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Payments related to capital lease |
|
|
-
|
|
|
|
(9 |
) |
Costs paid related to the issuance of new shares |
|
|
(115 |
) |
|
|
-
|
|
Proceeds from exercise of stock options |
|
|
15 |
|
|
|
7 |
|
Proceeds from issuance of stock and exercise of warrants |
|
|
18,157 |
|
|
|
25,517 |
|
Net cash provided by financing activities |
|
|
18,057 |
|
|
|
25,515 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents and restricted cash |
|
|
(8,829 |
) |
|
|
14,844 |
|
Cash, cash equivalents and restricted cash – beginning of
period |
|
|
14,662 |
|
|
|
5,935 |
|
Cash, cash equivalents and restricted cash – end of
period |
|
|
5,833 |
|
|
|
20,779 |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
|
-
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Convertible Bond interest paid in shares |
|
|
321 |
|
|
|
325 |
|
Convertible Bond principal paid in shares |
|
|
3,214 |
|
|
|
-
|
|
Unpaid investments in oil & gas properties |
|
|
3,114 |
|
|
|
183 |
|
10% Senior Convertible Bonds converted to shares |
|
|
9 |
|
|
|
*
|
|
Capitalized convertible bond interest attributed to oil and gas
properties |
|
|
104 |
|
|
|
110 |
|
New lease accounted for as a right of use lease asset |
|
|
128 |
|
|
|
- |
|
The accompanying notes are an integral part of the unaudited
interim consolidated condensed financial statements.
Cash, cash equivalents and restricted cash, are comprised as
follows:
|
|
September 30,
2021 |
|
|
December 31,
2020 |
|
|
September 30,
2020 |
|
|
December 31,
2019 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
Cash and cash equivalents |
|
|
4,564 |
|
|
|
11,708 |
|
|
|
18,621 |
|
|
|
4,845 |
|
Restricted cash included in fixed short-term bank deposits |
|
|
1,269 |
|
|
|
2,954 |
|
|
|
2,158 |
|
|
|
1,090 |
|
|
|
|
5,833 |
|
|
|
14,662 |
|
|
|
20,779 |
|
|
|
5,935 |
|
Zion Oil & Gas, Inc.
Consolidated Condensed 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 21 years of oil & gas exploration in Israel. As of
September 30, 2021, the Company has no revenues from its oil and
gas operations.
Zion maintains its corporate headquarters in Dallas, Texas. The
Company also has branch offices in Caesarea, Israel and Geneva,
Switzerland. The purpose of the Israel branch is to support the
Company’s operations in Israel, and the purpose of the Switzerland
branch is to operate a foreign treasury center for the Company.
On January 24, 2020, Zion incorporated a wholly owned subsidiary,
Zion Drilling, Inc., a Delaware corporation, for the purpose of
owning a drilling rig, related equipment and spare parts in the
future, and on January 31, 2020, Zion incorporated another wholly
owned subsidiary, Zion Drilling Services, Inc., a Delaware
corporation, to act as the contractor providing such drilling
services. When Zion is not using the rig for its own exploration
activities, Zion Drilling Services may contract with other
operators in Israel to provide drilling services at market rates
then in effect.
Zion has the trademark “ZION DRILLING” filed with the United States
Patent and Trademark Office. Zion has the trademark filed with the
World Intellectual Property Organization in Geneva, Switzerland,
pursuant to the Madrid Agreement and Protocol. In addition, Zion
has the trademark filed with the Israeli Trademark Office in
Israel.
Exploration
Rights/Exploration Activities
The Company currently holds one active petroleum exploration
license onshore Israel, the New Megiddo License 428 (“NML 428”),
comprising approximately 99,000 acres. The NML 428 was awarded
on December 3, 2020 for a six-month term with the possibility of an
additional six-month extension. On April 29, 2021, Zion submitted a
request to the Ministry of Energy for a six-month extension to
December 2, 2021. On May 30, 2021, the Ministry of Energy approved
our request for extension to December 2, 2021. The ML 428 lies
onshore, south and west of the Sea of Galilee and we continue our
exploration focus here as it appears to possess the key geologic
ingredients of an active petroleum system with significant
exploration potential.
The Megiddo Jezreel #1 (“MJ #1”) exploratory well was spud on June
5, 2017 and drilled to a total depth (“TD”) of 5,060 meters
(approximately 16,600 feet). Thereafter, the Company successfully
cased and cemented the well while awaiting the approval of the
testing protocol. The Ministry of Energy approved the well testing
protocol on April 29, 2018.
During the fourth quarter of 2018, the Company testing protocol was
concluded at the MJ #1 well. The test results confirmed that the MJ
#1 well did not contain hydrocarbons in commercial quantities in
the zones tested. As a result, in the year ended December 31, 2018,
the Company recorded a non-cash impairment charge to its unproved
oil and gas properties of $30,906,000. During the nine months ended
September 30, 2021, and 2020, respectively, the Company did not
record any post-impairment charges.
The MJ#1 well provided Zion with information Zion believes is
important for potential future exploration efforts within its
license area. As with many frontier wildcat wells, the MJ#1 also
left several questions unanswered.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 1 - Nature of Operations, Basis of Presentation and Going
Concern (cont’d)
While not meant to be an exhaustive list, a summary of what Zion
believes to be key information learned in the MJ#1 well is as
follows:
|
1. |
The
MJ#1 encountered much higher subsurface temperatures at a depth
shallower than expected before drilling the well. In our opinion,
this is significant because reaching a minimum temperature
threshold is necessary for the generation of hydrocarbons from an
organic-rich source rock. |
|
2. |
The
known organic rich (potentially hydrocarbon bearing) Senonian age
source rocks that are typically present in this part of Israel were
not encountered as expected. Zion expected these source rocks to be
encountered at approximately 1,000 meters in the MJ#1
well. |
|
3. |
MJ#1
had natural fractures, permeability (the ability of fluid to move
through the rock) and porosity (pore space in rock) that allowed
the sustained flow of formation fluid in the shallower Jurassic and
lower Cretaceous age formations between approximately 1,200 and
1,800 meters. While no hydrocarbons were encountered, Zion believes
this fact is nonetheless significant because it provides important
information about possible reservoir pressures and the ability of
fluids to move within the formation and to the surface. |
|
4. |
MJ#1
encountered oil in the Triassic Mohilla formation which Zion
believes may indicate the presence of an active deep petroleum
system is in Zion’s license area. There did not appear to be any
natural permeability or porosity in the Triassic Mohilla formation
to allow formation fluid to reach the surface naturally during
testing, and thus the MJ#1 was not producible or
commercial |
|
5. |
The
depths and thickness of the formations we encountered varied
greatly from pre-drill estimates. This required the MJ#1 to be
drilled to a much greater depth than previously expected. Zion has
tied these revised formation depths to seismic data which will
allow for more accurate interpretation and mapping in the
future. |
A summary of what Zion believes to be some key questions left to be
answered are:
|
1. |
Is
the missing shallow Senonian age source rock a result of regional
erosion, or is it missing because of a fault that cut the well-bore
and could be reasonably expected to be encountered in the vicinity
of the MJ#1 drill site? Zion believes this is an important question
to answer because if the Senonian source rocks do exist in this
area, the high temperatures encountered are sufficient to mature
these source rocks and generate oil. |
|
2. |
Do
the unusually high shallow subsurface temperatures extend
regionally beyond the MJ#1 well, which could allow for the
generation of hydrocarbons in the Senonian age source rock within
our license area? |
|
3. |
As a
consequence of seismic remapping, where does the MJ#1 well lie
relative to the potential traps at the Jurassic and Triassic levels
and was the well location too low on the structures and deeper than
the potential hydrocarbons within those traps? |
As a result of these unanswered questions and with the information
gained drilling the MJ#1 well, Zion believed it was prudent and
consistent with good industry practice to try and answer some of
these questions with a focused 3-D seismic imaging shoot of
approximately 72 square kilometers surrounding the MJ#1 well. Zion
has completed all of the acquisition, processing and interpretation
of the 3-D data and has incorporated its expanded knowledge base
into the drilling of our current MJ-02 exploratory well (see
further details below).
Zion’s geology team is continuing to work on a larger
interpretation of 3D areas, along with potential exploration
locations located in the western portion of the NML 428 area.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 1 - Nature of Operations, Basis of Presentation and Going
Concern (cont’d)
Megiddo-Jezreel Petroleum License, No. 401 (“MJL 401”) and New
Megiddo License 428 (“NML 428”)
The Megiddo-Jezreel License 401 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 a maximum of
seven years. The Megiddo-Jezreel License 401 lies onshore, south
and west of the Sea of Galilee, and we continue our exploration
focus here as it appears to possess the key geologic ingredients of
an active petroleum system with significant exploration
potential.
The NML 428 was awarded on December 3, 2020 for a six-month term
with the possibility of an additional six-month extension. This
license effectively replaced the Megiddo-Jezreel License 401 as it
has the same area and coordinates.
The MJ-02 drilling plan was approved by the Ministry of Energy on
July 29, 2020. On January 6, 2021, Zion officially spudded its
MJ-02 exploratory well. Zion plans to reach a total depth of
approximately 5,600 meters (~18,368 feet). Zion recently announced
the successful casing and cementing operations in a key section of
the well. The company continues making solid progress in the
drilling of the MJ-02 well as it moves closer to geological
targets.
B.
Basis of Presentation
The accompanying unaudited interim consolidated condensed 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 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, 2020. 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 and nine months ended September 30,
2021 are not necessarily indicative of the operating results for
the year ending December 31, 2021 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 of
hydrocarbons.
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 consolidated 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 nine months ended September 30, 2021, the Company
incurred a net loss of approximately $8.9 million and had an
accumulated deficit of approximately $221.7 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 consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 2 - Summary of Significant Accounting Policies
A. Net
Gain (Loss) per Share Data
Basic and diluted net (loss) gain 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
21,810,891 and 17,471,772 and 10,219,066 and 10,404,146 Common
Stock equivalents in the three- and nine-month period ended
September 30, 2021 and 2020 respectively, would be
anti-dilutive.
B. Use
of Estimates
The preparation of the accompanying consolidated condensed
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 consolidated financial statements in future
periods.
The full extent to which the COVID-19 pandemic may directly or
indirectly impact our business, results of operations and financial
condition, will depend on future developments that are uncertain,
including as a result of new information that may emerge concerning
COVID-19 and the actions taken to contain it or treat COVID-19, as
well as the economic impact on local, regional, national and
international markets. We have made estimates of the impact of
COVID-19 within our consolidated financial statements, and although
there is currently no major impact, there may be changes to those
estimates in future periods. Actual results may differ from these
estimates.
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 proved 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 and nine months ended September 30, 2021, and
2020, respectively, the Company did not record any post-impairment
charges.
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 $39,439,000 and
$15,526,000 as of September 30, 2021 and December 31, 2020,
respectively.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
2 - Summary of Significant Accounting Policies
(cont’d)
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.
The
Company uses a three-tier fair value hierarchy to classify and
disclose all assets and liabilities measured at fair value on a
recurring basis, as well as assets and liabilities measured at fair
value on a non-recurring basis, in periods subsequent to their
initial measurement. The hierarchy requires the Company to use
observable inputs when available, and to minimize the use of
unobservable inputs, when determining fair value. The three tiers
are defined as follows:
|
● |
Level
1—Observable inputs that reflect quoted market prices (unadjusted)
for identical assets or liabilities in active markets; |
|
● |
Level
2—Observable inputs other than quoted prices in active markets that
are observable either directly or indirectly in the marketplace for
identical or similar assets and liabilities; and |
|
● |
Level
3—Unobservable inputs that are supported by little or no market
data, which require the Company to develop its own
assumptions. |
The
Company’s financial instruments, including cash and cash
equivalents, accounts payable and accrued liabilities, are carried
at historical cost. At September 30, 2021, and December 31, 2020,
the carrying amounts of these instruments approximated their fair
values because of the short-term nature of these instruments.
Derivative instruments are carried at fair value, generally
estimated using the Binomial Model.
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 5).
F.
Stock-Based Compensation
ASC
718, “Compensation – Stock Compensation,” prescribes accounting and
reporting standards for all share-based payment transactions in
which employee services are acquired. Transactions include
incurring liabilities, or issuing or offering to issue shares,
options, and other equity instruments such as employee stock
ownership plans and stock appreciation rights. Share-based payments
to employees, including grants of employee stock options, are
recognized as compensation expense in the consolidated financial
statements based on their fair values. That expense is recognized
over the period during which an employee is required to provide
services in exchange for the award, known as the requisite service
period (usually the vesting period).
The Company
accounts for stock-based compensation issued to non-employees and
consultants in accordance with the provisions of ASC 505-50,
“Equity – Based Payments to Non-Employees.” Measurement of
share-based payment transactions with non-employees is based on the
fair value of whichever is more reliably measurable: (a) the goods
or services received; or (b) the equity instruments issued. The
fair value of the share-based payment transaction is determined at
the earlier of performance commitment date or performance
completion date.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
2 - Summary of Significant Accounting Policies
(cont’d)
G.
Warrants
In
connection with the Dividend Reinvestment and Stock Purchase Plan
(“DSPP”) financing arrangements, the Company has issued warrants to
purchase shares of its common stock. The outstanding warrants are
stand-alone instruments that are not puttable or mandatorily
redeemable by the holder and are classified as equity awards. The
Company measures the fair value of the awards using the
Black-Scholes option pricing model as of the measurement date.
Warrants issued in conjunction with the issuance of common stock
are initially recorded and accounted as a part of the DSPP
investment as additional paid-in capital of the common stock
issued. All other warrants are recorded at fair value and expensed
over the requisite service period or at the date of issuance, if
there is not a service period. Warrants granted in connection with
ongoing arrangements are more fully described in Note 3,
Stockholders’ Equity.
H.
Related parties
Parties
are considered to be related to the Company if the parties,
directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with the
Company. Related parties also include principal owners of the
Company, its management, members of the immediate families of
principal owners of the Company and its management and other
parties with which the Company may deal if one party controls or
can significantly influence the management or operating policies of
the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. All
transactions with related parties are recorded at fair value of the
goods or services exchanged.
Zion
did not have any related party transactions for the periods covered
in this report, with the exception of recurring monthly consulting
fees paid to certain management personnel.
I.
Recently Adopted Accounting
Pronouncements
In
March 2020, the FASB issued ASU 2020-03, “Codification Improvements
to Financial Instruments”: The amendments in this update are to
clarify, correct errors in, or make minor improvements to a variety
of ASC topics. The changes in ASU 2020-03 are not expected to have
a significant effect on current accounting practices. The ASU
improves various financial instrument topics in the Codification to
increase stakeholder awareness of the amendments and to expedite
the improvement process by making the Codification easier to
understand and easier to apply by eliminating inconsistencies and
providing clarifications. The ASU is effective for smaller
reporting companies for fiscal years beginning after December 15,
2022 with early application permitted. The Company is currently
evaluating the impact the adoption of this guidance may have on its
consolidated financial statements.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
2 - Summary of Significant Accounting Policies
(cont’d)
In
August 2020, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40),
Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity. The ASU simplifies accounting for convertible
instruments by removing major separation models required under
current GAAP. Consequently, more convertible debt instruments will
be reported as a single liability instrument with no separate
accounting for embedded conversion features. The ASU removes
certain settlement conditions that are required for equity
contracts to qualify for the derivative scope exception, which will
permit more equity contracts to qualify for it. The ASU simplifies
the diluted net income per share calculation in certain areas. The
ASU is effective for annual and interim periods beginning after
December 31, 2021, and early adoption is permitted for fiscal years
beginning after December 15, 2020, and interim periods within those
fiscal years. The Company is currently evaluating the impact that
this new guidance will have on its unaudited consolidated condensed
financial statements.
The
Company does not discuss recent pronouncements that are not
anticipated to have an impact on or are unrelated to its financial
condition, results of operations, cash flows or
disclosures.
J.
Depreciation and Accounting for Drilling Rig and
Inventory
On
March 12, 2020, Zion entered into a Purchase and Sale Agreement
with Central European Drilling kft (“CED”), a Hungarian
corporation, to purchase an onshore oil and gas drilling rig,
drilling pipe, related equipment and spare parts for a purchase
price of $5.6 million in cash, subject to acceptance testing and
potential downward adjustment. We remitted to the Seller $250,000
on February 6, 2020 as earnest money towards the purchase price.
The Closing anticipated by the Agreement took place on March 12,
2020 by the Seller’s execution and delivery of a Bill of Sale to
us. On March 13, 2020, the Seller retained the earnest money
deposit, and the Company remitted $4,350,000 to the seller towards
the purchase price and $1,000,000 (the “Holdback Amount”) was
deposited in escrow with American Stock Transfer and Trust Company
LLC, as escrow agent, through November 30, 2020, or as extended by
mutual agreement of the parties, pending a determination, if any,
by us of any operating deficiency in the drilling rig. On January
6, 2021, Zion completed its acceptance testing of the I-35 drilling
rig and the Holdback Amount was remitted to Central European
Drilling on January 8, 2021.
Since
the rig was purchased and closed during March 2020, this purchase
was recorded on Zion’s books as a long-term fixed asset as a
component of Property and Equipment. The full purchase price of the
drilling rig was $5.6 million, inclusive of approximately $540,000
allocated in spare parts and $48,000 allocated in additional
separate assets. The value of the spare parts and separate assets
are captured in separate ledger accounts, but reported as one line
item with the drilling rig on the balance sheet.
In
accordance with GAAP accounting rules, per the matching principle,
monthly depreciation begins the month following when the asset is
“placed in service.” The rig was placed in service in December 2020
with January 2021 representing the first month of depreciation.
Zion determined that the life of the I-35 drilling rig (the rig
Zion purchased), is 10 years. Zion has been depreciating the rig on
a straight-line basis since it was placed in service.
The
$540,000 in spare parts was the original cost to CED. These items
were received and counted by Zion upon receipt. All records and
files are maintained by Zion. Zion plans to obtain a physical count
of the equipment items at the end of each quarter, or as close to
such date as practical, in accordance with our normal
procedures.
Zion
uses the First In First Out (“FIFO”) method of accounting for the
inventory spare parts, meaning that the earliest items purchased
will be the first item charged to the well in which the inventory
spare parts gets consumed.
It is
also noteworthy that various components and systems on the rig will
be subject to certifications by the manufacturer to ensure that the
rig is maintained at optimal levels. Per standard practice in
upstream oil and gas, each certification performed on our drilling
rig increases the useful life of the rig by five years. The costs
of each certification will be added to the drilling rig account and
our straight-line amortization will be adjusted
accordingly.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
2 - Summary of Significant Accounting Policies
(cont’d)
See
the table below for a reconciliation of the rig-related activity
during the nine months ended September 30, 2021:
I-35
Drilling Rig & Associated Equipment:
|
|
I-35 Drilling
Rig |
|
|
Rig Spare
Parts |
|
|
Other Drilling
Assets |
|
|
Total |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
December 31, 2020 |
|
|
6,494 |
|
|
|
698 |
|
|
|
376 |
|
|
|
7,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Additions |
|
|
-
|
|
|
|
89 |
|
|
|
26 |
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Depreciation |
|
|
(475 |
) |
|
|
-
|
|
|
|
(50) |
|
|
|
(525 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Disposals for Self-Consumption |
|
|
-
|
|
|
|
(210 |
) |
|
|
-
|
|
|
|
(210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
|
6,019 |
|
|
|
577 |
|
|
|
352 |
|
|
|
6,948 |
|
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note 3 -
Stockholders’ Equity
The
Company’s shareholders approved the amendment of the Company’s
Amended and Restated Certificate of Incorporation to increase the
number of shares of common stock, par value $0.01, that the Company
is authorized to issue from 400,000,000 shares to 800,000,000
shares, effective June 9, 2021.
A. 2011
Equity Incentive Stock Option Plan
During the
nine months ended September 30, 2021, the Company granted the
following options from the 2011 Equity Incentive Plan for
employees, directors and consultants, to purchase shares of common
stock as non-cash compensation:
|
i. |
Options
to purchase 600,000 shares of Common Stock to six senior officers
and three staff members at an exercise price of $0.915 per share.
The options vested upon grant and are exercisable through January
4, 2031. The fair value of the options at the date of grant
amounted to approximately $456,000. |
|
ii. |
Options
to purchase 75,000 shares of Common Stock were granted to one
senior officer at an exercise price of $0.01 per share. The options
vested upon grant and are exercisable through January 6, 2031. The
fair value of the options at the date of grant amounted to
approximately $68,000. These options were granted per the
provisions under the Israeli Appendix to the Plan. |
|
|
|
|
iii. |
Options
to purchase 1,800,000 shares of Common Stock to six senior officers
and three staff members at an exercise price of $0.59 per share.
The options vested upon grant and are exercisable through May 21,
2031. The fair value of the options at the date of grant amounted
to approximately $885,000. |
|
|
|
|
iv. |
Options
to purchase 200,000 shares of Common Stock were granted to one
senior officer at an exercise price of $0.01 per share. The options
vested upon grant and are exercisable through May 21, 2031. The
fair value of the options at the date of grant amounted to
approximately $117,000. These options were granted per the
provisions under the Israeli Appendix to the Plan. |
During
the nine months ended September 30, 2020, the Company granted the
following options from the 2011 Equity Incentive Plan for
employees, directors and consultants, to purchase shares of common
stock as non-cash compensation:
|
i. |
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 6, 2030. The fair value
of the options at the date of grant amounted to approximately
$57,000.
|
|
ii. |
Options
to purchase 10,000 shares of Common Stock to one staff member at an
exercise price of $0.01 per share. The options vested upon grant
and are exercisable through September 1, 2030. The fair value of
the options at the date of grant amounted to approximately
$2,000. |
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
B.
2011 Non-Employee Directors Stock Option Plan
During
the nine months ended September 30, 2021, the Company granted the
following qualified (market value) and non-qualified options from
the 2011 Non-Employee Directors Stock Option Plan for directors to
purchase shares of common stock as non-cash
compensation:
|
i. |
Options
to purchase 350,000 shares of Common Stock to seven board members
at an exercise price of $0.915 per share. The options vested upon
grant and are exercisable through January 4, 2027. The fair value
of the options at the date of grant amounted to approximately
$252,000. |
|
|
|
|
ii. |
Options
to purchase 50,000 shares of Common Stock were granted to one board
member at an exercise price of $0.01 per share. The options vested
upon grant and are exercisable through January 4, 2027. The fair
value of the options at the date of grant amounted to approximately
$45,000. These options were granted per the provisions under the
Israeli Appendix to the Plan. |
|
iii. |
Options
to purchase 1,400,000 shares of Common Stock to six board members
and one consultant at an exercise price of $0.59 per share. The
options vested upon grant and are exercisable through May 21, 2027.
The fair value of the options at the date of grant amounted to
approximately $643,000. |
|
iv. |
Options
to purchase 200,000 shares of Common Stock were granted to one
board member at an exercise price of $0.01 per share. The options
vested upon grant and are exercisable through May 21, 2027. The
fair value of the options at the date of grant amounted to
approximately $116,000. These options were granted per the
provisions under the Israeli Appendix to the Plan. |
During
the nine months ended September 30, 2020, the Company did not grant
any qualified (market value) options from the 2011 Non-Employee
Directors Stock Option Plan to its directors.
C.
2021 Incentive Stock Option Plan
Effective
June 9, 2021, the Company’s shareholders authorized the adoption of
the Zion Oil & Gas, Inc. 2021 Omnibus Incentive Stock Option
Plan (“Omnibus Plan”) for employees, directors and consultants,
initially reserving for issuance thereunder 38,000,000 shares
of common stock.
The
Omnibus Plan provides for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted
stock, bonus stock, awards in lieu of cash obligations, other
stock-based awards and performance units. The plan also permits
cash payments under certain conditions.
The
compensation committee of the Board of Directors (comprised of
independent directors) is responsible for determining the type of
award, when and to whom awards are granted, the number of shares
and the terms of the awards and exercise prices. The options are
exercisable for a period not to exceed ten years from the date of
grant.
During
the nine months ended September 30, 2021, the Company granted the
following options from the 2021 Equity Omnibus Plan for employees,
directors and consultants, to purchase shares of common stock as
non-cash compensation:
|
i. |
Options to
purchase 25,000 shares of Common Stock to one board member at an
exercise price of $0.29 per share. The options vested upon grant
and are exercisable through June 15, 2031. The fair value of the
options at the date of grant amounted to approximately
$6,000. |
|
|
|
|
ii. |
Options to
purchase 1,425,000 shares of Common Stock to eleven board members
and four senior officers at an exercise price of $0.39 per share.
The options vested upon grant and are exercisable through July 09,
2031. The fair value of the options at the date of grant amounted
to approximately $468,000. |
|
iii. |
Options to
purchase 100,000 shares of Common Stock to seven staff members and
one consultant at an exercise price of $0.39 per share. The options
vested upon grant and are exercisable through July 13, 2031. The
fair value of the options at the date of grant amounted to
approximately $33,000. |
|
|
|
|
iv. |
Options to
purchase 375,000 shares of Common Stock two board member and six
staff members at an exercise price of $0.01 per share. The options
vested upon grant and are exercisable through July 17, 2031. The
fair value of the options at the date of grant amounted to
approximately $140,000. |
|
|
|
|
v. |
Options to
purchase 10,000 shares of Common Stock to one staff member at an
exercise price of $0.01 per share. The options vested upon grant
and are exercisable through September 1, 2031. The fair value of
the options at the date of grant amounted to approximately
$2,000. |
|
|
|
|
vi. |
Options to
purchase 413,000 shares of Common Stock to one board member, three
senior officers and two employees at an exercise price of $0.25 per
share. The options vested upon grant and are exercisable through
September 1, 2031. The fair value of the options at the date of
grant amounted to approximately $87,000. |
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
C.
Stock Options
The
stock option transactions since January 1, 2021 are shown in the
table below:
|
|
Number of
shares |
|
|
Weighted Average
exercise
price |
|
|
|
|
|
|
US$ |
|
Outstanding, December 31, 2020 |
|
|
3,797,750 |
|
|
|
1.14 |
|
|
|
|
|
|
|
|
|
|
Changes during 2021 to: |
|
|
|
|
|
|
|
|
Granted to employees, officers, directors and others |
|
|
7,023,000 |
|
|
|
0.49 |
|
Expired/Cancelled/Forfeited |
|
|
(183,000 |
) |
|
|
1.52 |
|
Exercised |
|
|
(372,000 |
) |
|
|
0.04 |
|
Outstanding,
September 30, 2021 |
|
|
10,265,750 |
|
|
|
0.73 |
|
|
|
|
|
|
|
|
|
|
Exercisable,
September 30, 2021 |
|
|
10,265,750 |
|
|
|
0.73 |
|
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
The
following table summarizes information about stock options
outstanding as of September 30, 2021:
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 |
|
|
|
10,000 |
|
|
|
2.12 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
5,000 |
|
|
|
2.70 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
20,000 |
|
|
|
4.67 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
130,000 |
|
|
|
5.25 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
50,000 |
|
|
|
5.26 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
60,000 |
|
|
|
5.54 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
200,000 |
|
|
|
5.63 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
40,000 |
|
|
|
6.00 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
87,500 |
|
|
|
6.25 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
25,000 |
|
|
|
6.26 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
30,000 |
|
|
|
6.41 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
4,000 |
|
|
|
6.51 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
25,000 |
|
|
|
7.26 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
105,000 |
|
|
|
7.96 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
220,000 |
|
|
|
8.13 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
35,000 |
|
|
|
8.26 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
75,000 |
|
|
|
9.26 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
200,000 |
|
|
|
9.63 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
355,000 |
|
|
|
9.79 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
10,000 |
|
|
|
9.92 |
|
|
|
0.01 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.16 |
|
|
|
340,000 |
|
|
|
4.19 |
|
|
|
0.16 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.16 |
|
|
|
75,000 |
|
|
|
8.19 |
|
|
|
0.16 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.18 |
|
|
|
25,000 |
|
|
|
4.17 |
|
|
|
0.18 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.25 |
|
|
|
50,000 |
|
|
|
9.92 |
|
|
|
0.25 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.25 |
|
|
|
363,000 |
|
|
|
9.92 |
|
|
|
0.25 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.28 |
|
|
|
25,000 |
|
|
|
3.92 |
|
|
|
0.28 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.28 |
|
|
|
25,000 |
|
|
|
7.92 |
|
|
|
0.28 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.29 |
|
|
|
25,000 |
|
|
|
5.70 |
|
|
|
0.29 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.39 |
|
|
|
1,515,000 |
|
|
|
9.77 |
|
|
|
0.39 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.39 |
|
|
|
10,000 |
|
|
|
9.95 |
|
|
|
0.39 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.59 |
|
|
|
1,400,000 |
|
|
|
5.63 |
|
|
|
0.59 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.59 |
|
|
|
1,800,000 |
|
|
|
9.63 |
|
|
|
0.59 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.92 |
|
|
|
350,000 |
|
|
|
5.26 |
|
|
|
0.92 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.92 |
|
|
|
600,000 |
|
|
|
9.26 |
|
|
|
0.92 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.33 |
|
|
|
25,000 |
|
|
|
1.57 |
|
|
|
1.33 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.38 |
|
|
|
105,307 |
|
|
|
3.26 |
|
|
|
1.38 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.55 |
|
|
|
200,000 |
|
|
|
0.68 |
|
|
|
1.55 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.67 |
|
|
|
405,943 |
|
|
|
3.01 |
|
|
|
1.67 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.70 |
|
|
|
218,500 |
|
|
|
1.22 |
|
|
|
1.70 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.75 |
|
|
|
250,000 |
|
|
|
1.76 |
|
|
|
1.75 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.78 |
|
|
|
25,000 |
|
|
|
2.93 |
|
|
|
1.78 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.31 |
|
|
|
250,000 |
|
|
|
2.25 |
|
|
|
2.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.61 |
|
|
|
471,500 |
|
|
|
0.18 |
|
|
|
2.61 |
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.15 |
|
|
|
25,000 |
|
|
|
2.76 |
|
|
|
4.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01-4.15 |
|
|
|
10,265,750 |
|
|
|
|
|
|
|
0.73 |
|
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
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 nine months ended
September 30, |
|
|
|
2021 |
|
|
2020 |
|
Weighted-average fair value of underlying stock at grant date |
|
$ |
0.55 |
|
|
$ |
0.50 |
|
Dividend yields |
|
|
— |
|
|
|
— |
|
Expected volatility |
|
|
121%-143 |
% |
|
|
90%-103 |
% |
Risk-free interest rates |
|
|
0.16%-0.85 |
% |
|
|
0.26%-1.61 |
% |
Expected lives (in years) |
|
|
3.00-5.00 |
|
|
|
5.00 |
|
Weighted-average grant date fair value |
|
$ |
0.47 |
|
|
$ |
0.49 |
|
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 nine months ended
September 30, |
|
|
|
2021 |
|
|
2020 |
|
Weighted-average fair value of underlying stock at grant date |
|
$ |
0.58 |
|
|
$ |
—
|
|
Dividend yields |
|
|
— |
|
|
|
—
|
|
Expected volatility |
|
|
100%-113 |
% |
|
|
—
|
|
Risk-free interest rates |
|
|
1.07%-1.42 |
% |
|
|
—
|
|
Expected lives (in years) |
|
|
6.00-10.00 |
|
|
|
—
|
|
Weighted-average grant date fair value |
|
$ |
0.49 |
|
|
$ |
—
|
|
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.
Zion Oil
& Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
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 September 30, |
|
2021 |
|
|
2020 |
|
US$ thousands |
|
|
US$ thousands |
|
|
727 |
|
|
|
3 |
|
For
the nine months ended September 30, |
|
2021 |
|
|
2020 |
|
US$
thousands |
|
|
US$
thousands |
|
|
3,217 |
|
|
|
59 |
|
The
following table sets forth information about the compensation cost
of warrant and option issuances recognized for
non-employees:
For
the three months ended September 30, |
|
2021 |
|
|
2020 |
|
US$
thousands |
|
|
US$
thousands |
|
|
3 |
|
|
|
—
|
|
For
the nine months ended September 30, |
|
2021 |
|
|
2020 |
|
US$
thousands |
|
|
US$
thousands |
|
|
102 |
|
|
|
—
|
|
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 September 30, |
|
2021 |
|
|
2020 |
|
US$
thousands |
|
|
US$
thousands |
|
|
—
|
|
|
|
—
|
|
For
the nine months ended September 30, |
|
2021 |
|
|
2020 |
|
US$
thousands |
|
|
US$
thousands |
|
|
—
|
|
|
|
—
|
|
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
E. Dividend Reinvestment and Stock Purchase Plan
(“DSPP”)
On March 13, 2014 Zion filed a registration statement on Form S-3
that is part of a replacement registration statement that was filed
with the SEC using a “shelf” registration process. The registration
statement was declared effective by the SEC on March 31, 2014. 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), for which the three-year period
ended March 31, 2017, 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 March 27, 2014, we launched our Dividend Reinvestment and Stock
Purchase Plan (the “DSPP” or the “Plan”) 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
directly from the Company. 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.
The ZNWAB warrants first became exercisable on May 2, 2016 and, in
the case of ZNWAC on May 2, 2017 and in the case of ZNWAD on May 2,
2018, 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 May 29, 2019, the Company extended the termination date of the
ZNWAD Warrant by one (1) year from the expiration date of May 2,
2020 to May 2, 2021. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to
this extension.
On September 15, 2020, the Company extended the termination date of
the ZNWAD Warrant by two (2) years from the expiration date of May
2, 2021 to May 2, 2023. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to
this extension.
On November 1, 2016, the Company launched a unit offering 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
is referred to as “ZNWAE.”
The ZNWAE warrants became exercisable on May 1, 2017 and continued
to be exercisable through May 1, 2020 at a per share exercise price
of $1.00.
On May 29, 2019, the Company extended the termination date of the
ZNWAE Warrant by one (1) year from the expiration date of May 1,
2020 to May 1, 2021. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to
this extension.
On September 15, 2020, the Company extended the termination date of
the ZNWAE Warrant by two (2) years from the expiration date of May
1, 2021 to May 1, 2023. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to
this extension.
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 may, in its sole discretion, accelerate the
termination of the warrant upon providing 60 days advance notice to
the warrant holders.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
On May 22, 2017, the Company launched a new unit offering. This
unit offering 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 unit
program terminated on July 12, 2017. This 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 is referred to as “ZNWAF.”
All ZNWAF warrants became exercisable on August 14, 2017 and
continued to be exercisable through August 14, 2020 at a per share
exercise price of $1.00.
On May 29, 2019, the Company extended the termination date of the
ZNWAF Warrant by one (1) year from the expiration date of August
14, 2020 to August 14, 2021. Zion considers this warrant as
permanent equity per ASC 815-40-35-2. As such, there is no value
assigned to this extension.
On September 15, 2020, the Company extended the termination date of
the ZNWAF Warrant by two (2) years from the expiration date of
August 14, 2021 to August 14, 2023. Zion considers this warrant as
permanent equity per ASC 815-40-35-2. As such, there is no value
assigned to this extension.
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 advance
notice to the warrant holders.
An Amendment No. 2 to the Prospectus Supplement (as described
below) was filed on October 12, 2017.
Under Amendment No. 2, the Company initiated another unit offering
which terminated on December 6, 2017. This unit offering 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 is referred to as
“ZNWAG.”
The warrants became exercisable on January 8, 2018 and continue to
be exercisable through January 8, 2023 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 advance notice to the warrant holders.
On February 1, 2018, the Company launched another unit offering
which terminated on February 28, 2018. The unit offering 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 is referred to as “ZNWAH.”
The warrants became exercisable on April 2, 2018 and continued to
be exercisable through April 2, 2020 at a per share exercise price
of $5.00, after the Company, on December 4, 2018, extended the
termination date of the Warrant by one (1) year from the expiration
date of April 2, 2019 to April 2, 2020.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
On May 29, 2019, the Company extended the termination date of the
ZNWAH Warrant by one (1) year from the expiration date of April 2,
2020 to April 2, 2021. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to
this extension.
On September 15, 2020, the Company extended the termination date of
the ZNWAH Warrant by two (2) years from the expiration date of
April 2, 2021 to April 2, 2023. Zion considers this warrant as
permanent equity per ASC 815-40-35-2. As such, there is no value
assigned to this extension.
On August 21, 2018, the Company initiated another unit offering,
and it terminated on September 26, 2018. The offering consisted of
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
publicly traded common stock as reported on the NASDAQ on the Unit
Purchase Date and (ii) Common Stock purchase warrants to purchase
an additional twenty-five (25) 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 $1.00. The
warrant is referred to as “ZNWAJ.”
The warrants became exercisable on October 29, 2018 and continued
to be exercisable through October 29, 2020 at a per share exercise
price of $1.00, after the Company, on December 4, 2018, extended
the termination date of the Warrant by one (1) year from the
expiration date of October 29, 2019 to October 29, 2020.
On May 29, 2019, the Company extended the termination date of the
ZNWAJ Warrant by one (1) year from the expiration date of October
29, 2020 to October 29, 2021. Zion considers this warrant as
permanent equity per ASC 815-40-35-2. As such, there is no value
assigned to this extension.
On September 15, 2020, the Company extended the termination date of
the ZNWAJ Warrant by two (2) years from the expiration date of
October 29, 2021 to October 29, 2023. Zion considers this warrant
as permanent equity per ASC 815-40-35-2. As such, there is no value
assigned to this extension.
On December 10, 2018, the Company initiated another unit offering,
and it terminated on January 23, 2019. The offering consisted of
Units of the Company’s securities where each Unit (priced at
$250.00 each) is comprised of (i) two hundred and fifty (250)
shares of Common Stock and (ii) Common Stock purchase warrants to
purchase an additional two hundred and fifty (250) shares of Common
Stock at a per share exercise price of $0.01. The investor’s Plan
account was credited with the number of shares of the Company’s
Common Stock and Warrants that are acquired under the Units
purchased. Each warrant affords the participant the opportunity to
purchase one share of our Common Stock at a warrant exercise price
of $0.01. The warrant is referred to as “ZNWAK.”
The warrants became exercisable on February 25, 2019 and continued
to be exercisable through February 25, 2020 at a per share exercise
price of $0.01.
On May 29, 2019, the Company extended the termination date of the
ZNWAK Warrant by one (1) year from the expiration date of February
25, 2020 to February 25, 2021. Zion considers this warrant as
permanent equity per ASC 815-40-35-2. As such, there is no value
assigned to this extension.
On September 15, 2020, the Company extended the termination date of
the ZNWAK Warrant by two (2) years from the expiration date of
February 25, 2021 to February 25, 2023. Zion considers this warrant
as permanent equity per ASC 815-40-35-2. As such, there is no value
assigned to this extension.
On April 24, 2019, the Company initiated another unit offering and
it terminated on June 26, 2019, after the Company, on June 5, 2019,
extended the termination date of the unit offering.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
The unit offering consisted of Units of the Company’s securities
where each Unit (priced at $250.00 each) was comprised of (i) two
hundred and fifty (250) shares of Common Stock and (ii) Common
Stock purchase warrants to purchase an additional fifty (50) shares
of Common Stock at a per share exercise price of $2.00. The
investor’s Plan account was credited with the number of shares of
the Company’s Common Stock and Warrants acquired under the Units
purchased. For Plan participants who enrolled into the Unit Program
with the purchase of at least one Unit and also enrolled in the
separate Automatic Monthly Investments (“AMI”) program at a minimum
of $50.00 per month or more, received an additional twenty-five
(25) warrants at an exercise price of $2.00 during this unit
offering. The twenty-five (25) additional warrants were for
enrolling into the AMI program. Existing subscribers to the AMI
were entitled to the additional twenty-five (25) warrants once, if
they purchased at least one (1) unit during the Unit program. Each
warrant affords the participant the opportunity to purchase one
share of our Common Stock at a warrant exercise price of $2.00. The
warrant is referred to as “ZNWAL.”
The warrants became exercisable on August 26, 2019 and continue to
be exercisable through August 26, 2021 at a per share exercise
price of $2.00.
On September 15, 2020, the Company extended the termination date of
the ZNWAL Warrant by two (2) years from the expiration date of
August 26, 2021 to August 26, 2023. Zion considers this warrant as
permanent equity per ASC 815-40-35-2. As such, there is no value
assigned to this extension.
Under our Plan, the Company under a Request For Waiver Program
executed Waiver Term Sheets of a unit program consisting of Units
(shares of stock and warrants) to a participant. The participant’s
Plan account was credited with the number of shares of the
Company’s Common Stock and Warrants that were acquired. Each
warrant affords the participant the opportunity to purchase one
share of our Common Stock at a warrant exercise price of $1.00. The
warrant has the company notation of “ZNWAM.” The warrants will not
be registered for trading on the OTCQX or any other stock market or
trading market. The warrants became exercisable on January 15, 2021
and continue to be exercisable through July 15, 2022 at a per share
exercise price of $1.00.
On February 1, 2021, the Company initiated a unit offering and it
terminated on March 17, 2021.
The unit offering consisted of Units of the Company’s securities
where each Unit (priced at $250.00 each) was comprised of (i) the
number of Common Stock shares represented by the high-low average
on the purchase date and (ii) Common Stock purchase warrants to
purchase an additional twenty-five (25) shares of Common Stock at a
per share exercise price of $1.00. The investor’s Plan account was
credited with the number of shares of the Company’s Common Stock
and Warrants acquired under the Units purchased. For Plan
participants who enrolled into the unit offering with the purchase
of at least one Unit or who enrolled in the separate Automatic
Monthly Investments (“AMI”) program at a minimum of $50.00 per
month or more, received an additional ten (10) warrants at an
exercise price of $1.00 during this Unit Option Program. The ten
(10) additional warrants were for enrolling into the AMI program.
Existing subscribers to the AMI were also entitled to the
additional ten (10) warrants once, provided that they purchased at
least one (1) unit during the Unit program. Each warrant affords
the participant the opportunity to purchase one share of our Common
Stock at a warrant exercise price of $1.00. The warrant is referred
to as “ZNWAN.”
On April 12, 2021, the Company initiated a unit offering and it
terminated on May 12, 2021.
The unit offering consisted of Units of the Company’s securities
where each Unit (priced at $250.00 each) was comprised of (i) the
number of Common Stock shares represented by the high-low average
on the purchase date and (ii) Common Stock purchase warrants to
purchase an additional fifty (50) shares of Common Stock at a per
share exercise price of $.25. The investor’s Plan account was
credited with the number of shares of the Company’s Common Stock
and Warrants acquired under the Units purchased. For Plan
participants who enrolled into the unit offering with the purchase
of at least one Unit or who enrolled in the separate Automatic
Monthly Investments (“AMI”) program at a minimum of $50.00 per
month or more, received an additional fifty (50) warrants at an
exercise price of $.25 during this Unit Option Program. The fifty
(50) additional warrants were for enrolling into the AMI program.
Existing subscribers to the AMI were also entitled to the
additional fifty (50) warrants once, provided that they purchased
at least one (1) unit during the Unit program. Each warrant affords
the participant the opportunity to purchase one share of our Common
Stock at a warrant exercise price of $.25. The warrant is referred
to as “ZNWAO.”
Under our Plan, the Company under a Request For Waiver Program
executed a Waiver Term Sheet for a unit program consisting of a
Unit (shares of stock and warrants) to a participant. After
conclusion of the program on May 28, 2021, the participant’s Plan
account was credited with the number of shares of the Company’s
Common Stock and Warrants that were acquired. Each warrant affords
the participant the opportunity to purchase one share of our Common
Stock at a warrant exercise price of $.25. The warrant has the
company notation of “ZNWAP.” The warrants will not be registered
for trading on the OTCQX or any other stock market or trading
market. The warrants were issued and became exercisable on June 2,
2021 and continue to be exercisable through June 2, 2022 at a per
share exercise price of $.25.
Under our Plan, the Company under a Request For Waiver Program
executed a Waiver Term Sheet for a unit program consisting of Zion
securities to a participant. After conclusion of the program on
June 17, 2021, the participant’s Plan account was credited with the
number of shares of the Company’s Common Stock that were
acquired.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
Under our Plan, the Company under a Request For Waiver Program
executed a Waiver Term Sheet of a unit program consisting of a Unit
(shares of stock and warrants) to a participant. After conclusion
of the program on June 18, 2021, the participant’s Plan account was
credited with the number of shares of the Company’s Common Stock
and Warrants that were acquired. Each warrant affords the
participant the opportunity to purchase one share of our Common
Stock at a warrant exercise price of $.25. The warrant shall have
the company notation of “ZNWAQ.” The warrants will not be
registered for trading on the OTCQX or any other stock market or
trading market. The warrants will be issued on April 4, 2022 and be
exercisable through July 6, 2022 at a per share exercise price of
$.25.
Under our Plan, the Company under a Request For Waiver Program
executed a Waiver Term Sheet of a unit program consisting of a Unit
(shares of stock and warrants) to a participant. After conclusion
of the program on June 18, 2021, the participant’s Plan account was
credited with the number of shares of the Company’s Common Stock
and Warrants that were acquired. Each warrant affords the
participant the opportunity to purchase one share of our Common
Stock at a warrant exercise price of $.25. The warrant shall have
the company notation of “ZNWAR.” The warrants will not be
registered for trading on the OTCQX or any other stock market or
trading market. The warrants were issued and became exercisable on
June 22, 2021 and continue to be exercisable through June 22, 2022
at a per share exercise price of $.25. Additionally, Zion incurred
$115,000 in equity issuance costs to an outside party related to
this waiver program.
Under our Plan, the Company under a Request For Waiver Program
executed a Waiver Term Sheet to a participant. After conclusion of
the program on September 15, 2021, the participant’s Plan account
was credited with the number of shares of the Company’s Common
Stock that were acquired.
Under our Plan, the Company under a Request For Waiver Program
executed a Waiver Term Sheet of a unit program consisting of a Unit
(shares of stock and warrants) to a participant. After conclusion
of the program on November 15, 2021, the participant’s Plan account
will be credited with the number of shares of the Company’s Common
Stock and Warrants that will be acquired. Each warrant affords the
participant the opportunity to purchase one share of our Common
Stock at a warrant exercise price of $1.00. The warrant shall have
the company notation of “ZNWAS.” The warrants will not be
registered for trading on the OTCQX or any other stock market or
trading market. The warrants will be exercisable on November 15,
2023 and continue to be exercisable through December 31, 2023 at a
per share exercise price of $1.00.
On December 9, 2019 Zion filed an Amendment No. 1 to the
Registration Statement on Form S-1 (File No. 333-235299) solely for
the purpose of re-filing a revised Exhibit 5.1 to the Registration
Statement. This Amendment No. 1 does not modify any provision of
the prospectus that forms a part of the Registration Statement and
accordingly, such prospectus has not been included herein.
For the
three and nine months ended September 30, 2021, approximately
$4,369,000, and $18,157,000 were raised under the DSPP
program, respectively.
For the
three and nine months ended September 30, 2020, approximately
$13,015,000, and $25,517,000 were raised under the DSPP
program, respectively.
The company raised approximately $4,378,000 from the period October
1, 2021 through November 10, 2021, under the DSPP program.
The warrants represented by the company notation ZNWAA are
tradeable on the OTCQX market under the symbol ZNOGW. However, all
of the other warrants described above, in the table below, and
throughout this Form 10-Q, are not tradeable and are used
internally for classification and accounting purposes only.
F. Subscription Rights Offering
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 (each
“Right” and collectively, the “Rights”) to purchase 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 Subscription Rights, with each
Right comprised of one share of the Company 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 could be exercised or subscribed at a per
Right subscription price of $5.00. Each Warrant affords the
investor the opportunity to purchase one share of the Company
Common Stock at a warrant exercise price of $3.00. The warrant
is referred to as “ZNWAI.”
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
The warrants became exercisable on June 29, 2018 and continued to
be exercisable through June 29, 2020 at a per share exercise price
of $3.00, after the Company, on December 4, 2018, extended the
termination date of the Warrant by one (1) year from the expiration
date of June 29, 2019 to June 29, 2020.
On May 29, 2019, the Company extended the termination date of the
ZNWAI Warrant by one (1) year from the expiration date of June 29,
2020 to June 29, 2021.
On September 15, 2020, the Company extended the termination date of
the ZNWAI Warrant by two (2) years from the expiration date of June
29, 2021 to June 29, 2023. Zion considers this warrant as permanent
equity per ASC 815-40-35-2. As such, there is no value assigned to
this extension.
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 terminated on May 31, 2018.
The Company raised net proceeds of approximately $3,038,000, from
the subscription of Rights, after deducting fees and expenses of
$243,000 incurred in connection with the rights offering.
G.
Warrant Table
The warrants balances at December 31, 2020 and transactions since
January 1, 2021 are shown in the table below:
Warrants |
|
Exercise
Price |
|
|
Warrant
Termination Date |
|
Outstanding Balance, 12/31/2020 |
|
|
Warrants
Issued |
|
|
Warrants Exercised |
|
|
Warrants Expired |
|
|
Outstanding Balance, 09/30/2021 |
|
ZNWAA |
|
$ |
2.00 |
|
|
01/31/2023 |
|
|
1,498,804 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,498,804 |
|
ZNWAD |
|
$ |
1.00 |
|
|
05/02/2023 |
|
|
243,853 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
243,853 |
|
ZNWAE |
|
$ |
1.00 |
|
|
05/01/2023 |
|
|
2,144,099 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,144,099 |
|
ZNWAF |
|
$ |
1.00 |
|
|
08/14/2023 |
|
|
359,435 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
359,435 |
|
ZNWAG |
|
$ |
1.00 |
|
|
01/08/2023 |
|
|
240,068 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
240,068 |
|
ZNWAH |
|
$ |
5.00 |
|
|
04/19/2023 |
|
|
372,400 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
372,400 |
|
ZNWAI |
|
$ |
3.00 |
|
|
06/29/2023 |
|
|
640,730 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
640,730 |
|
ZNWAJ |
|
$ |
1.00 |
|
|
10/29/2023 |
|
|
545,900 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
545,900 |
|
ZNWAK |
|
$ |
0.01 |
|
|
02/25/2023 |
|
|
437,875 |
|
|
|
-
|
|
|
|
(6,220 |
) |
|
|
-
|
|
|
|
431,655 |
|
ZNWAL |
|
$ |
2.00 |
|
|
08/26/2023 |
|
|
517,875 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
517,875 |
|
ZNWAM |
|
$ |
1.00 |
|
|
07/15/2022 |
|
|
-
|
|
|
|
4,376,000 |
|
|
|
-
|
|
|
|
-
|
|
|
|
4,376,000 |
|
ZNWAN |
|
$ |
1.00 |
|
|
07/15/2022 |
|
|
-
|
|
|
|
267,785 |
|
|
|
(100 |
) |
|
|
-
|
|
|
|
267,685 |
|
ZNWAO |
|
$ |
0.25 |
|
|
06/12/2023 |
|
|
-
|
|
|
|
190,480 |
|
|
|
(15,200 |
) |
|
|
-
|
|
|
|
175,280 |
|
ZNWAP |
|
$ |
0.25 |
|
|
06/02/2022 |
|
|
-
|
|
|
|
1,639,916 |
|
|
|
(1,200,000 |
) |
|
|
-
|
|
|
|
439,916 |
|
ZNWAR |
|
$ |
0.25 |
|
|
06/23/2022 |
|
|
-
|
|
|
|
1,020,000 |
|
|
|
-
|
|
|
|
-
|
|
|
|
1,020,000 |
|
Outstanding warrants |
|
|
|
|
|
|
|
|
7,001,039 |
|
|
|
7,494,181 |
|
|
|
(1,221,520 |
) |
|
|
-
|
|
|
|
13,273,700 |
|
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 3 - Stockholders’ Equity (cont’d)
H.
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 |
|
B,C |
|
March 2013 – December 2014 |
|
|
2.00 |
|
|
January 31, 2023 |
ZNWAD Warrants |
|
A,B,C |
|
January 2015 – March 2016 |
|
|
1.00 |
|
|
May 02, 2023 |
ZNWAE Warrants |
|
B,C |
|
November 2016 – March 2017 |
|
|
1.00 |
|
|
May 01, 2023 |
ZNWAF Warrants |
|
A,B,C |
|
May
2017 – July 2017 |
|
|
1.00 |
|
|
August 14, 2023 |
ZNWAG Warrants |
|
C |
|
October 2017 – December 2017 |
|
|
1.00 |
|
|
January 08, 2023 |
ZNWAH Warrants |
|
A,B,C |
|
February 2018 |
|
|
5.00 |
|
|
April 2, 2023 |
ZNWAI Warrants |
|
A,B,C |
|
April 2018 – May 2018 |
|
|
3.00 |
|
|
June 29, 2023 |
ZNWAJ Warrants |
|
B,C |
|
August 2018 – September 2018 |
|
|
1.00 |
|
|
October 29, 2023 |
ZNWAK Warrants |
|
B,C |
|
December 2018 – January 2019 |
|
|
0.01 |
|
|
February 25, 2023 |
ZNWAL Warrants |
|
C |
|
July 2019 – August 2019 |
|
|
2.00 |
|
|
August 26, 2023 |
ZNWAM Warrants |
|
|
|
January 2021 – March 2021 |
|
|
1.00 |
|
|
July 15, 2022 |
ZNWAN Warrants |
|
|
|
May - June 2021 |
|
|
1.00 |
|
|
July 15, 2022 |
ZNWAO Warrants |
|
|
|
June 2021 |
|
|
0.25 |
|
|
June 12, 2023 |
ZNWAP Warrants |
|
|
|
June 2021 |
|
|
0.25 |
|
|
June 02, 2022 |
ZNWAQ Warrants |
|
|
|
June 2021 |
|
|
0.25 |
|
|
July 6, 2022 |
ZNWAR Warrants |
|
|
|
June 2021 |
|
|
0.25 |
|
|
June 22, 2022 |
* |
Zion’s
ZNWAB Warrants expired on May 2, 2017, and the ZNWAC Warrants
expired on May 2, 2018 |
A |
On
December 4, 2018, the Company extended the termination date of the
Warrants by one (1) year. |
B |
On
May 29, 2019, the Company extended the termination date of the
Warrants by one (1) year. |
C |
On
September 15, 2020, the Company extended the termination date of
the Warrants by two (2) years. |
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 4 - Unproved Oil and Gas Properties, Full Cost
Method
Unproved oil and gas properties, under the full cost method, are
comprised as follows:
|
|
September 30,
2021 |
|
|
December 31,
2020 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
Excluded from amortization base: |
|
|
|
|
|
|
|
|
Drilling costs, and other
operational related costs |
|
|
25,551 |
|
|
|
4,232 |
|
Capitalized salary costs |
|
|
2,122 |
|
|
|
1,967 |
|
Capitalized interest costs |
|
|
1,418 |
|
|
|
1,314 |
|
Legal and seismic costs, license fees
and other preparation costs |
|
|
10,309 |
|
|
|
7,974 |
|
Other
costs |
|
|
39 |
|
|
|
39 |
|
|
|
|
39,439 |
|
|
|
15,526 |
|
Changes in Unproved oil and gas properties during the three and
nine months ended September 30, 2021 and 2020 are as follows:
|
|
For the three months ended
September 30, |
|
|
For the nine months ended
September 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
Excluded from amortization base: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling costs, and other
operational related costs |
|
|
6,727 |
|
|
|
79 |
|
|
|
21,319 |
|
|
|
163 |
|
Capitalized salary costs |
|
|
38 |
|
|
|
56 |
|
|
|
155 |
|
|
|
153 |
|
Capitalized interest costs |
|
|
- |
|
|
|
51 |
|
|
|
104 |
|
|
|
110 |
|
Legal costs, license fees and other
preparation costs |
|
|
573 |
|
|
|
318 |
|
|
|
2,335 |
|
|
|
716 |
|
Other
costs |
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
15 |
|
|
|
|
*7,338 |
|
|
|
*508 |
|
|
|
*23,913 |
|
|
|
*1,157 |
|
* |
Inclusive
of non-cash amounts of approximately $316,000, and $154,000 during
the three months ended September 30, 2021, and 2020,
respectively |
* |
Inclusive
of non-cash amounts of approximately $3,218,000, and $293,000
during the nine months ended September 30, 2021, and 2020,
respectively |
Please refer to Footnote 1 – Nature of Operations and Going Concern
for more information about Zion’s exploration activities.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 5 - Senior Convertible Bonds
Rights Offering -10% Senior
Convertible Notes due May 2, 2021 and paid on May 3,
2021
On October 21, 2015, the Company filed with the SEC a prospectus
supplement for a rights offering. Under this rights offering, we
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
shareholders 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 convertible bonds or Notes in
connection with the rights offering. The Company received net
proceeds of approximately $3,334,000, from the issuance 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 contained a convertible option that gave rise to a
derivative liability, which was accounted for separately from the
Notes (see below). 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 and nine months ended September 30, 2021, the
Company recorded approximately $nil and $9,000,
respectively, in amortization expense related to the deferred
financing costs, approximately $nil and $205,000,
respectively, in debt discount amortization net, and approximately
$nil and
$24,000, respectively, related to financing gains associated with
Notes converted to shares.
During the
three and nine months ended September 30, 2020, the Company
recorded approximately $7,000 and $20,000, respectively, in
amortization expense related to the deferred financing costs,
approximately $97,000 and $314,000, respectively, in debt discount
amortization net, and approximately $0 and $3,000, respectively,
related to financing gains associated with Notes converted to
shares.
The Notes were governed by the terms of the Indenture. The Notes
were senior unsecured obligations of the Company and had an
interest rate of 10% per year, payable annually in arrears on May 2
of each year, commencing May 2, 2017. The Notes matured on May 2,
2021, and the annual interest and principal were paid on May 3,
2021 (see below).
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 10th 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 were not issued, and the final number of shares were rounded
up to the next whole share.
On April 2, 2021, the ability of bondholders to convert the bonds
ended so the 30-day average share price could be computed. On May
2, 2021, Zion’s bonds expired. Zion chose to pay the principal in
kind with our stock. On May 2, 2021, a total of 32,139 $100 face
value bonds were outstanding. The 30-day moving average price used
to settle the bonds was $.606. Zion settled the principal on the
bonds by issuing approximately 5,300,000 shares of our common
stock. The annual 10% coupon payment was paid in shares using the
same 30-day average price. Zion issued approximately 530,000 shares
for the remaining bond holders’ interest payment.
On May 3, 2021, the Company paid its annual 10% interest to
its bondholders of record on April 20, 2021. The interest was
paid-in-kind (“PIK”) in the form of Common Stock. An average of the
Company stock price of $.606 was determined based on the 30 trading
days prior to the record date of April 20, 2021. This figure was
used to divide into 10% of the par value of the bonds held by the
holders. The Company issued approximately 530,000 shares to the
accounts of its bondholders. Additionally, on May 3, 2021, the
Company issued approximately 5,300,000 shares to the accounts of
its bondholders in payment of the principal amount of the
convertible bonds. As of the date of this report, the Company fully
paid its annual interest over the course of five years, as well as
the principal amount of the bonds, and its obligation is
completed.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 5 - Senior Convertible Bonds (cont’d)
Through the three and nine months ended September 30, 2021,
nil and 332
convertible bonds of $100 each, respectively, have been converted
at a conversion rate of approximately $2.27 per share. As a result,
the Company issued approximately nil and 14,600 shares of
its Common Stock during the same period, respectively, and recorded
approximately $1,000 and $24,000 in financial income during the
same period.
Through
the three and nine months ended September 30, 2020, 0 and 28
convertible bonds of $100 each, respectively, have been converted
at a conversion rate of approximately $2.27 per share. As a result,
the Company issued approximately 0 and 1,232 shares of its Common
Stock during the same period, respectively, and recorded
approximately $nil and $3,000 in
financial income during the same period.
|
|
September 30,
2021 |
|
|
December 31,
2020 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
10% Senior Convertible
Bonds, on the day of issuance |
|
$ |
-
|
|
|
$ |
3,470 |
|
Unamortized Debt discount, net |
|
$ |
-
|
|
|
$ |
(205 |
) |
Bonds converted to shares |
|
$ |
-
|
|
|
$ |
(223 |
) |
Offering cost,
net |
|
$ |
-
|
|
|
$ |
(9 |
) |
10% senior
Convertible bond - Liability |
|
$ |
-
|
|
|
$ |
3,033 |
|
Capitalized interest
for the three and nine months ended September 30, 2021 was
$nil and
$104,000 compared to $51,000 and $110,000 for the three and nine
months ended September 30, 2020.
Interest expenses for the three and nine months ended September 30,
2021 were $nil
and $nil
compared to $31,000 and $132,000 for the three and nine months
ended September 30, 2020.
Note 6 - Derivative Liability
The Notes issued by the Company and discussed in Note 5 contained a
convertible option that gives rise to a derivative liability.
The debt instrument the Company issued included a make-whole
provision, which provides that in the event of conversion by the
investor under certain circumstances, the issuer is required to
deliver to the holder additional consideration beyond the
settlement of the conversion obligation.
Because time value make-whole provisions are not clearly and
closely related to the debt host and would meet the definition of a
derivative if considered freestanding, they are evaluated under the
indexation guidance to determine whether they would be afforded the
scope exception pursuant to ASC 815-10-15-74(a). This evaluation is
generally performed in conjunction with the analysis of the
embedded conversion feature.
Company has measured its derivative liability at fair value and
recognized the derivative value as a current liability and recorded
the derivative value on its balance sheet. Changes in the fair
value are recorded as a gain or loss in the accompanying statement
of operations.
The valuation of the Notes was done by using the Binomial Model, a
well-accepted option-pricing model, and based on the Notes’ terms
and other parameters the Company identified as relevant for the
valuation of the Notes’ Fair Value.
The Binomial Model used the forecast of the Company share price
during the Note’s contractual term.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 6 - Derivative Liability (cont’d)
As of September 30, 2021 and December 31, 2020, the Company’s
liabilities that are measured at fair value are as follows:
|
|
September 30,
2021 |
|
|
December 31,
2020 |
|
|
|
Level 3 |
|
|
Total |
|
|
Level 3 |
|
|
Total |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
Fair value of derivative liability |
|
|
-
|
|
|
|
-
|
|
|
|
431 |
|
|
|
431 |
|
Change in value of the derivative liability during 2021 is as
follows:
|
|
US$
thousands |
|
Derivative
liability fair value at December 31, 2020 |
|
|
431 |
|
Gain
on derivative liability |
|
|
(431 |
) |
Derivative
liability fair value at September 30, 2021 |
|
|
-
|
|
The following table presents the assumptions that were used for the
model as of September 30, 2021:
|
|
September 30,
2021 |
|
|
December 31,
2020 |
|
Convertible Option Fair Value of approximately |
|
$ |
-
|
|
|
$ |
431,000 |
|
Annual
Risk-free Rate |
|
|
-
|
|
|
|
.09 |
% |
Volatility |
|
|
-
|
|
|
|
163.57 |
% |
Expected Term (years) |
|
|
-
|
|
|
|
.33 |
|
Convertible Notes Face Value |
|
$ |
-
|
|
|
$ |
3,246,700 |
|
Expected annual yield on Regular Notes |
|
|
-
|
|
|
|
28.77 |
% |
Price of the
Underlying Stock |
|
$ |
-
|
|
|
$ |
0.90 |
|
During the
three and nine months ended September 30, 2021, the Company
recorded unrealized gains of approximately $nil and $431,000, net,
respectively, within the Statements of Operations on derivative
liability.
During the three and nine months ended September 30, 2020, the
Company recorded unrealized gains (losses) of approximately
$49,000, net, and ($2,000), net, respectively, within the
Statements of Operations on derivative liability.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 7 - Right of use lease assets and lease obligations
The Company is a lessee in several non-cancellable operating
leases, primarily for transportation and office spaces.
The table
below presents the operating lease assets and liabilities
recognized on the balance sheets as of September 30, 2021 and
December 31, 2020:
|
|
September 30,
2021 |
|
|
December 31,
2020 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
Operating lease assets |
|
$ |
390 |
|
|
$ |
438 |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities: |
|
|
|
|
|
|
|
|
Current operating lease liabilities |
|
$ |
228 |
|
|
$ |
191 |
|
Non-current operating lease liabilities |
|
$ |
200 |
|
|
$ |
307 |
|
Total operating lease liabilities |
|
$ |
428 |
|
|
$ |
498 |
|
The depreciable lives of operating lease assets and leasehold
improvements are limited by the expected lease term.
The Company’s leases generally do not provide an implicit rate, and
therefore the Company uses its incremental borrowing rate as the
discount rate when measuring operating lease liabilities. The
incremental borrowing rate represents an estimate of the interest
rate the Company would incur at lease commencement to borrow an
amount equal to the lease payments on a collateralized basis over
the term of a lease within a particular currency environment. The
Company used incremental borrowing rates as of January 1, 2019 for
operating leases that commenced prior to that date.
The Company’s weighted average remaining lease term and weighted
average discount rate for operating leases as of September 30, 2021
are:
|
|
September 30,
2021 |
|
Weighted
average remaining lease term (years) |
|
|
2.0 |
|
Weighted
average discount rate |
|
|
5.9 |
% |
The table
below reconciles the undiscounted future minimum lease payments
(displayed by year and in the aggregate) under non-cancellable
operating leases with terms of more than one year to the total
operating lease liabilities recognized on the condensed
consolidated balance sheets as of September 30, 2021:
|
|
US$
thousands |
|
October
1, 2021 through December 31, 2021 |
|
|
72 |
|
2022 |
|
|
211 |
|
2023 |
|
|
156 |
|
2024 |
|
|
13 |
|
Thereafter |
|
|
-
|
|
Total
undiscounted future minimum lease payments |
|
|
452 |
|
Less:
portion representing imputed interest |
|
|
(24 |
) |
Total
undiscounted future minimum lease payments |
|
|
428 |
|
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 7
- Right of use lease assets and lease obligations
(cont’d)
Operating lease costs were $68,000 and $196,000 for the three
and nine months ended September 30, 2021, respectively. Operating
lease costs were $61,000 and $183,000 for the three and nine months
ended September 30, 2020, respectively. Operating lease costs are
included within general and administrative expenses on the
statements of income.
Cash paid for amounts included in the measurement of operating
lease liabilities was $72,000 and $215,000 for the three
and nine months ended September 30, 2021, respectively. Cash paid
for amounts included in the measurement of operating lease
liabilities were $69,000 and $203,000 for the three and nine months
ended September 30, 2020. These amounts are included in operating
activities in the statements of cash flows.
Right-of-use assets obtained in exchange for new operating lease
liabilities were $nil and $128,000 for
the three and nine months ended September 30, 2021, respectively.
Right-of-use assets obtained in exchange for new operating lease
liabilities were $nil and $nil for the three and
nine months ended September 30, 2020, respectively.
Note 8
- Commitments and Contingencies
A. Securities and Exchange Commission (“SEC”)
Investigation
As previously disclosed by the Company, on June 21, 2018, the Fort
Worth Regional Office of the SEC informed Zion that it was
conducting a formal, non-public investigation and asked that we
provide certain information and documents in connection with its
investigation. Since that date, we have fully cooperated with the
SEC on an on-going basis in connection with its investigation.
Investigations of this nature are inherently uncertain and their
results cannot be predicted with certainty. Regardless of the
outcome, an SEC investigation could have an adverse impact on us
because of legal costs, diversion of management resources, and
other factors. The investigation could also result in reputational
harm to Zion and may have a material adverse effect on Zion’s
current and future business and exploratory activities and its
ability to raise capital to continue our oil and gas exploratory
activities.
B. Litigation
On October 29, 2018, Zion received a shareholder request to inspect
books and records pursuant to Section 220 of the Delaware
General Corporation Law for the purpose of investigating potential
corporate mismanagement and alleged breaches of fiduciary duty in
connection with public statements made by the Company from March
12, 2018 to May 30, 2018. The Company responded to this
request.
On August 9, 2019, Zion received two (2) additional shareholder
requests from the same law firm to inspect books and records
pursuant to section 220 of the Delaware General Corporation Law for
the purpose of investigating potential corporate mismanagement and
alleged breaches of fiduciary duty in connection with public
statements made by the Company from February 1, 2018 to present.
Following discussion with counsel to the shareholder, the Company’s
counsel produced materials responsive to the shareholders’ request
in January 2020.
On February 12, 2020, by letter to Zion’s Board of Directors, one
of the shareholders making the August 9, 2019 request demanded that
the Board investigate, address, remedy, and commence proceedings
against certain of the Company’s current and former officers and
directors for alleged breaches of fiduciary duties, violations of
section 10(b) and 20(a) of the Exchange Act, waste of corporate
assets, unjust enrichment, and violations of all other applicable
laws. The shareholder alleges wrongdoing in connection with public
statements made by the Company from February 1, 2018 regarding the
Company’s oil and gas exploration activities, the Company’s
accounting and disclosure of expenses, and the Board’s oversight of
operations. The Board hired independent counsel to investigate the
claims made against certain of the Company’s current and former
officers and directors. That investigation concluded and based on
the findings and recommendations of independent counsel, the Board
decided not to pursue claims against any current or former officer
or director. On July 14, 2020, Zion received a request from the
same shareholder making the February 12, 2020 demand to inspect
books and records pursuant to Section 220 of the Delaware General
Corporation Law for the purpose of evaluating the Board’s decision
to reject the litigation demand. The Company responded to this
request in August 2020. The Company has not received any further
communication from the shareholder following the August 2020
response.
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. However,
we cannot predict the outcome or effect of any of the potential
litigation, claims or disputes.
The Company is not subject to any litigation at the present
time.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 8 - Commitments and Contingencies (cont’d)
C.
Recent Market Conditions – Coronavirus
Pandemic
During March 2020, a global pandemic was declared by the World
Health Organization related to the rapidly growing outbreak of a
novel strain of coronavirus (“COVID-19”). The pandemic has
significantly impacted the economic conditions in the United States
and Israel, as federal, state and local governments react to the
public health crisis, creating significant uncertainties in the
United States, Israel and world economies. In the interest of
public health and safety, jurisdictions (international, national,
state and local) where we have operations, restricted travel and
required workforces to work from home. As of the date of this
report, many of our employees are working from home. However, while
there are various uncertainties to navigate, the Company’s business
activities are continuing. The situation is rapidly changing and
additional impacts to the business may arise that we are not aware
of currently. We cannot predict whether, when or the manner in
which the conditions surrounding COVID-19 will change including the
timing of lifting any restrictions or work from home
arrangements.
The full extent of COVID-19’s impact on our operations and
financial performance depends on future developments that are
uncertain and unpredictable, including the duration and spread of
the pandemic, its impact on capital and financial markets and any
new information that may emerge concerning the severity of the
virus, its spread to other regions as well as the actions taken to
contain it, among others.
D.
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 clean-up 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 filings.
On April 8, 2019 the Energy Ministry issued new procedural
guidelines regarding a uniform reporting manner by which the rights
holder in a license must submit a quarterly report regarding a
summary of license history, the nature, scope, location and results
of the exploration work, specification of the amounts expended for
the exploration work, and the results and interpretation of the
exploration work and basic data on which these results and
interpretation are based.
On July 18, 2019, the Energy Ministry issued a guidance document
entitled “Instructions for Submitting Guarantees with respect to
Oil Rights granted pursuant to the Petroleum Law” which states that
onshore license applicants are required to deposit a base bank
guarantee of $500,000. Furthermore, prior to drilling, an onshore
license holder is required to deposit an additional bank guarantee
in the amount as determined by the Petroleum Commissioner in
accordance with the characteristics of the drilling and the
drilling plan but no less than $250,000. The guarantee, as
determined by the Commissioner, shall be deposited with the
Commissioner Office for each well separately drilled. The Petroleum
Commissioner has discretion to raise or lower those amounts or may
also forfeit a Company’s existing guarantee and/or cancel a
petroleum right under certain circumstances.
In addition, new and extended insurance policy guidelines were
added. The Petroleum Commissioner may also view non-compliance with
the new insurance provisions as breaching the work plan and the
rights granted and act accordingly.
The Company believes that these new regulations will result in an
increase in the expenditures associated with obtaining new
exploration rights and drilling new wells. The Company expects that
an additional financial burden could occur as a result of requiring
cash reserves that could otherwise be used for operational
purposes. In addition, these new regulations are likely to continue
to increase the time needed to obtain all of the necessary
authorizations and approvals to drill and production test
exploration wells.
As of September 30, 2021, and December 31, 2020, the Company
accrued $0 for license regulatory matters.
Zion Oil & Gas, Inc.
Consolidated Condensed Notes to Financial Statements
(Unaudited)
Note 8 - Commitments and Contingencies (cont’d)
E. Bank Guarantees
As of September 30, 2021, the Company provided Israeli-required
bank guarantees to various governmental bodies (approximately
$1,179,000) and others (approximately $90,000) with respect to its
drilling operation in an aggregate amount of approximately
$1,269,000. The (cash) funds backing these guarantees are held in
restricted interest-bearing accounts and are reported on the
Company’s balance sheets as fixed short-term bank deposits –
restricted.
F.
Risks
Market risk is a broad term for the risk of economic loss due to
adverse changes in the fair value of a financial instrument. These
changes may be the result of various factors, including interest
rates, foreign exchange rates, commodity prices and/or equity
prices. In the normal course of doing business, we are exposed to
the risks associated with foreign currency exchange rates and
changes in interest rates.
Foreign Currency Exchange Rate Risks. A portion of our
expenses, primarily labor expenses and certain supplier contracts,
are denominated in New Israeli Shekels (“NIS”). As a result, we
have significant exposure to the risk of fluctuating exchange rates
with the U.S. Dollar (“USD”), our primary reporting currency.
During the period January 1, 2021 through September 30, 2021, the
USD has fluctuated by approximately 0.4% against the NIS (the USD
strengthened relative to the NIS). By contrast, during the period
January 1, 2020 through December 31, 2020, the USD fluctuated by
approximately 7.0% against the NIS (the USD weakened relative to
the NIS). Continued strengthening of the US dollar against the NIS
will result in lower operating costs from NIS denominated expenses.
To date, we have not hedged any of our currency exchange rate
risks, but we may do so in the future.
Interest Rate Risk. Our exposure to market risk relates to
our cash and investments. We maintain an investment portfolio of
short-term bank deposits and money market funds. The securities in
our investment portfolio are not leveraged, and are, due to their
very short-term nature, subject to minimal interest rate risk. We
currently do not hedge interest rate exposure. Because of the
short-term maturities of our investments, we do not believe that a
change in market interest rates would have a significant negative
impact on the value of our investment portfolio except for reduced
income in a low interest rate environment. At September 30, 2021,
we had cash, cash equivalents and short-term bank deposits of
approximately $5,833,000. The weighted average annual interest rate
related to our cash and cash equivalents for the three and nine
months ended September 30, 2021, exclusive of funds at US banks
that earn no interest, was approximately .09% and .11%,
respectively.
The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, we invest
our excess cash in short-term bank deposits and money market funds
that may invest in high quality debt instruments.
Note 9 - Subsequent Events
|
(i) |
Approximately
$4,378,000 was collected through the Company’s DSPP program during
the period October 1, through November 10, 2021. |
ITEM
2. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR
UNAUDITED INTERIM FINANCIAL STATEMENTS AND THE RELATED NOTES TO
THOSE STATEMENTS INCLUDED IN THIS FORM 10-Q. SOME OF OUR DISCUSSION
IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR
INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE DISCUSSION OF RISK
FACTORS IN THE “DESCRIPTION OF BUSINESS” SECTION OF OUR ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2020, FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION.
Forward-Looking Statements
Certain statements made in this discussion are “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements may materially differ from
actual results.
Forward-looking statements can be identified by terminology such as
“may”, “should”, “expects”, “intends”, “anticipates”, “believes”,
“estimates”, “predicts”, or “continue” or the negative of these
terms or other comparable terminology and include, without
limitation, statements regarding:
|
● |
The
going concern qualification in our consolidated financial
statements; |
|
● |
our
liquidity and our ability to raise capital to finance our overall
exploration and development activities within our license
area; |
|
● |
our
ability to continue meeting the requisite continued listing
requirements by OTCQX; |
|
● |
the
outcome of the current SEC investigation against us; |
|
● |
business
interruptions from the COVID-19 pandemic; |
|
● |
our
ability to obtain new license areas to continue our petroleum
exploration program; |
|
● |
interruptions,
increased consolidated financial costs and other adverse impacts of
the coronavirus pandemic on the drilling and testing of our MJ#2
well and our capital raising efforts; |
|
● |
our
ability to explore for and develop natural gas and oil resources
successfully and economically within our license area; |
|
● |
our
ability to maintain the exploration license rights to continue our
petroleum exploration program; |
|
● |
the
availability of equipment, such as seismic equipment, drilling
rigs, and production equipment as well as access to qualified
personnel; |
|
● |
the
impact of governmental regulations, permitting and other legal
requirements in Israel relating to onshore exploratory
drilling; |
|
● |
our
estimates of the time frame within which future exploratory
activities will be undertaken; |
|
● |
changes
in our exploration plans and related budgets; |
|
● |
the
quality of existing and future license areas with regard to, among
other things, the existence of reserves in economic
quantities; |
|
● |
anticipated
trends in our business; |
|
● |
our
future results of operations; |
|
● |
our
capital expenditure program; |
|
● |
future
market conditions in the oil and gas industry; |
|
● |
the
demand for oil and natural gas, both locally in Israel and
globally; and |
|
● |
The
impact of fluctuating oil and gas prices on our exploration
efforts |
Overview
Zion Oil and Gas, Inc., a Delaware corporation, is an oil and gas
exploration company with a history of 21 years of oil and gas
exploration in Israel. We were incorporated in Florida on April 6,
2000 and reincorporated in Delaware on July 9, 2003.
We completed our initial public offering in January 2007. Our
common stock, par value $0.01 per share (the “Common Stock”)
currently trades on the OTCQX Market under the symbol “ZNOG” and
our Common Stock warrant under the symbol “ZNOGW.”
The Company currently holds one active petroleum exploration
license onshore Israel, the New Megiddo License 428 (“NML 428”),
comprising approximately 99,000 acres. The NML 428 was awarded
on December 3, 2020 for a six-month term with the possibility of an
additional six-month extension. On April 29, 2021, Zion submitted a
request to the Ministry of Energy for a six-month extension to
December 2, 2021. On May 30, 2021, the Ministry of Energy approved
our request for extension to December 2, 2021. The ML 428 lies
onshore, south and west of the Sea of Galilee, and we continue our
exploration focus here as it appears to possess the key geologic
ingredients of an active petroleum system with significant
exploration potential.
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
and 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. The Ministry of Energy
approved the well testing protocol on April 29, 2018.
During the fourth quarter of 2018, the Company testing protocol was
concluded at the MJ #1 well. The test results confirmed that the MJ
#1 well did not contain hydrocarbons in commercial quantities in
the zones tested. As a result, in the year ended December 31, 2018,
the Company recorded a non-cash impairment charge to its unproved
oil and gas properties of $30,906,000. During the three and nine
months ended September 30, 2021, and 2020, respectively, the
Company did not record any post-impairment charges.
While the well was not commercially viable, Zion learned a great
deal from the drilling and testing of this well. We believe that
the drilling and testing of this well carried out the testing
objectives which would support further evaluation and potential
further exploration efforts within our License area. Zion believed
it was prudent and consistent with good industry practice to try
and answer some of these questions with a focused 3-D seismic
imaging shoot of approximately 72 square kilometers surrounding the
MJ#1 well. Zion completed all of the acquisition, processing and
interpretation of the 3-D data and incorporated its expanded
knowledge base into the drilling of our current MJ-02 exploratory
well.
On March 12, 2020, Zion entered into a Purchase and Sale Agreement
with Central European Drilling kft, a Hungarian corporation, to
purchase an onshore oil and gas drilling rig, drilling pipe,
related equipment and spare parts for a purchase price of $5.6
million in cash, subject to acceptance testing and potential
downward adjustment. We remitted to the Seller $250,000 on February
6, 2020 as earnest money towards the Purchase Price. The Closing
anticipated by the Agreement took place on March 12, 2020 by the
Seller’s execution and delivery of a Bill of Sale to us. On March
13, 2020, the Seller retained the earnest money deposit, and the
Company remitted $4,350,000 to the seller towards the purchase
price, and $1,000,000 (the “Holdback Amount”) was deposited in
escrow with American Stock Transfer and Trust Company LLC. On
January 6, 2021, Zion completed its acceptance testing of the I-35
drilling rig and the Holdback Amount was remitted to Central
European Drilling.
The MJ-02 drilling plan was approved by the Ministry of Energy on
July 29, 2020. On January 6, 2021, Zion officially spudded its
MJ-02 exploratory well. Zion plans to reach a total depth of
approximately 5,600 meters (~18,368 feet). Zion recently announced
the successful casing and cementing operations in a key section of
the well. The company continues making solid progress in the
drilling of the MJ-02 well as it moves closer to geological
targets.
At present, we have no revenues or operating income. Our ability to
generate future revenues and operating cash flow will depend on the
successful exploration and exploitation of our current and any
future petroleum rights or the acquisition of oil and/or gas
producing properties, and the volume and timing of such production.
In addition, even if we are successful in producing oil and gas in
commercial quantities, our results will depend upon commodity
prices for oil and gas, as well as operating expenses including
taxes and royalties.
Our executive offices are located at 12655 North Central
Expressway, Suite 1000, Dallas, Texas 75243, and our telephone
number is (214) 221-4610. Our branch office’s address in Israel is
9 Halamish Street, North Industrial Park, Caesarea 3088900, and the
telephone number is +972-4-623-8500. Our website address is:
www.zionoil.com.
Current Exploration and Operation Efforts
Megiddo-Jezreel
Petroleum License
The Company currently holds one active petroleum exploration
license onshore Israel, the New Megiddo License 428 (“NML 428”),
comprising approximately 99,000 acres. The NML 428 was awarded
on December 3, 2020 for a six-month term with the possibility of an
additional six-month extension. On April 29, 2021, Zion submitted a
request to the Ministry of Energy for a six-month extension to
December 2, 2021. On May 30, 2021, the Ministry of Energy approved
our request for extension to December 2, 2021.
The NML 428 lies onshore, south and west of the Sea of Galilee and
we continue our exploration focus here as it appears to possess the
key geologic ingredients of an active petroleum system with
significant exploration potential.
The previous Megiddo Jezreel #1 (“MJ #1”) exploratory well was
spudded on June 5, 2017 and drilled to a total depth (“TD”) of
5,060 meters (approximately 16,600 feet). Thereafter, the Company
successfully cased and cemented the well while awaiting the
approval of the testing protocol. The Ministry of Energy approved
the well testing protocol on April 29, 2018.
During the fourth quarter of 2018, the Company testing protocol was
concluded at the MJ #1 well. The test results confirmed that the MJ
#1 well did not contain hydrocarbons in commercial quantities in
the zones tested. As a result, in the year ended December 31, 2018,
the Company recorded a non-cash impairment charge to its unproved
oil and gas properties of $30,906,000. During the three and nine
months ended September 30, 2021, and 2020, respectively, the
Company did not record any post-impairment charges.
The MJ#1 well provided Zion with information Zion believes is
important for potential future exploration efforts within its
license area. As with many frontier wildcat wells, the MJ#1 also
left several questions unanswered.
While not meant to be an exhaustive list, a summary of what Zion
believes to be key information learned in the MJ#1 well is as
follows
|
1. |
The
MJ#1 encountered much higher subsurface temperatures at a depth
shallower than expected before drilling the well. In our opinion,
this is significant because reaching a minimum temperature
threshold is necessary for the generation of hydrocarbons from an
organic-rich source rock. |
|
2. |
The
known organic rich (potentially hydrocarbon bearing) Senonian age
source rocks that are typically present in this part of Israel were
not encountered as expected. Zion expected these source rocks to be
encountered at approximately 1,000 meters in the MJ#1
well. |
|
3. |
MJ#1
had natural fractures, permeability (the ability of fluid to move
through the rock) and porosity (pore space in rock) that allowed
the sustained flow of formation fluid in the shallower Jurassic and
lower Cretaceous age formations between approximately 1,200 and
1,800 meters. While no hydrocarbons were encountered, Zion believes
this fact is nonetheless significant because it provides important
information about possible reservoir pressures and the ability of
fluids to move within the formation and to the surface. |
|
4. |
MJ#1
encountered oil in the Triassic Mohilla formation which Zion
believes may indicate the presence of an active deep petroleum
system is in Zion’s license area. There was no natural permeability
or porosity in the Triassic Mohilla formation to allow formation
fluid to reach the surface naturally during testing, and thus the
MJ#1 was not producible or commercial. |
|
5. |
The
depths and thickness of the formations we encountered varied
greatly from pre-drill estimates. This required the MJ#1 to be
drilled to a much greater depth than previously expected. Zion has
tied these revised formation depths to seismic data which will
allow for more accurate interpretation and mapping in the
future. |
A summary of what Zion believes to be some key questions left to be
answered are:
|
1. |
Is
the missing shallow Senonian age source rock a result of regional
erosion, or is it missing because of a fault that cut the well-bore
and could be reasonably expected to be encountered in the vicinity
of the MJ#1 drill site? Zion believes this is an important question
to answer because if the Senonian source rocks do exist in this
area, the high temperatures encountered are sufficient to mature
these source rocks and generate oil. |
|
2. |
Do
the unusually high shallow subsurface temperatures extend
regionally beyond the MJ#1 well, which could allow for the
generation of hydrocarbons in the Senonian age source rock within
our license area? |
|
3. |
As a
consequence of seismic remapping, where does the MJ#1 well lie
relative to the potential traps at the Jurassic and Triassic
levels, and was the well location too low on the structures and
deeper than the potential hydrocarbons within those
traps? |
As a result of these unanswered questions and with the information
gained drilling the MJ#1 well, Zion believed it was prudent and
consistent with good industry practice to try and answer some of
these questions with a focused 3-D seismic imaging shoot of
approximately 72 square kilometers surrounding the MJ#1 well. Zion
has completed all of the acquisition, processing and interpretation
of the 3-D data and incorporated its expanded knowledge base into
the drilling of our current MJ-02 exploratory well (see further
details below).
The Geology team is continuing to work on a larger interpretation
of 3D areas, along with potential exploration locations located in
the western portion of the NML 428 area.
I-35 Drilling Rig & Associated Equipment
|
|
Nine-month
period ended September 30, 2021 |
|
|
|
I-35
Drilling
Rig |
|
|
Rig
Spare
Parts |
|
|
Other
Drilling
Assets |
|
|
Total |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
December
31, 2020 |
|
|
6,494 |
|
|
|
698 |
|
|
|
376 |
|
|
|
7,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Additions |
|
|
- |
|
|
|
89 |
|
|
|
26 |
|
|
|
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Depreciation |
|
|
(475) |
) |
|
|
- |
|
|
|
(50) |
|
|
|
(525 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
Disposals for Self-Consumption |
|
|
- |
|
|
|
(210 |
) |
|
|
- |
|
|
|
(210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2021 |
|
|
6,019 |
|
|
|
577 |
|
|
|
352 |
|
|
|
6,948 |
|
On January 6, 2021, Zion completed its acceptance testing of the
I-35 drilling rig, and the Holdback Amount was remitted to Central
European Drilling on January 8, 2021. Also on January 6, 2021, Zion
officially spudded its MJ-02 exploratory well. Zion plans to reach
a total depth of approximately 5,600 meters (~18,368 feet). Zion
recently announced the successful casing and cementing operations
in a key section of the well. The company continues making solid
progress in the drilling of the MJ-02 well as it moves closer to
geological targets.
Zion’s ability to fully undertake all of these aforementioned
activities is subject to its raising the needed capital from its
continuing offerings, of which no assurance can be provided.
Map 1. Zion’s New Megiddo License 428 as of September 30,
2021.
Zion’s Former Joseph License
Zion has plugged all of its exploratory wells on its former Joseph
License area, and the reserve pits have been evacuated, but
acknowledges its obligation to complete the abandonment of these
well sites in accordance with guidance from the Energy Ministry,
Environmental Ministry and local officials.
Onshore Licensing, Oil and Gas Exploration and Environmental
Guidelines
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, the Energy Ministry, and the Environmental
Ministry in recent years as it pertains to oil and gas activities.
Mention of these guidelines was included in previous Zion Oil &
Gas filings.
We acknowledge that these new regulations are likely to increase
the expenditures associated with obtaining new exploration rights
and drilling new wells. The Company expects that additional
financial burdens could occur as a result of the Ministry requiring
cash reserves that could otherwise be used for operational
purposes.
Capital Resources Highlights
We need to raise significant funds to finance the continued
exploration efforts and maintain orderly operations. To date, we
have funded our operations through the issuance of our securities
and convertible debt. We will need to continue to raise funds
through the issuance of equity and/or debt securities (or
securities convertible into or exchangeable for equity securities).
No assurance can be provided that we will be successful in raising
the needed capital on terms favorable to us (or at all).
The Dividend Reinvestment and Stock Purchase Plan
On March 13, 2014 Zion filed a registration statement on Form S-3
that is part of a replacement registration statement that was filed
with the SEC using a “shelf” registration process. The registration
statement was declared effective by the SEC on March 31, 2014. 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), for which the three-year period
ended March 31, 2017, 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 March 27, 2014, we launched our Dividend Reinvestment and Stock
Purchase Plan (the “DSPP” or the “Plan”) 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
directly from the Company. 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.
Please see Footnote 3E (“Dividend Reinvestment and Stock Purchase
Plan (“DSPP”)), which is a part of this Form 10-Q filing, for
details about specific unit programs, dates, and filings during the
years 2016 through 2021.
For the
three and nine months ended September 30, 2021, approximately
$4,369,000 and $18,157,000 were raised under the DSPP
program.
For the
three and nine months ended September 30, 2020, approximately
$13,015,000, and $25,517,000 were raised under the DSPP
program.
The warrants balances at December 31, 2020 and transactions since
January 1, 2021 are shown in the table below:
Warrants |
|
Exercise
Price |
|
|
Warrant
Termination Date |
|
Outstanding Balance, 12/31/2020 |
|
|
Warrants
Issued |
|
|
Warrants Exercised |
|
|
Warrants Expired |
|
|
Outstanding Balance, 09/30/2021 |
|
ZNWAA |
|
$ |
2.00 |
|
|
01/31/2023 |
|
|
1,498,804 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,498,804 |
|
ZNWAD |
|
$ |
1.00 |
|
|
05/02/2023 |
|
|
243,853 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
243,853 |
|
ZNWAE |
|
$ |
1.00 |
|
|
05/02/2023 |
|
|
2,144,099 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,144,099 |
|
ZNWAF |
|
$ |
1.00 |
|
|
08/14/2023 |
|
|
359,435 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
359,435 |
|
ZNWAG |
|
$ |
1.00 |
|
|
01/08/2023 |
|
|
240,068 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
240,068 |
|
ZNWAH |
|
$ |
5.00 |
|
|
04/19/2023 |
|
|
372,400 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
372,400 |
|
ZNWAI |
|
$ |
3.00 |
|
|
06/29/2023 |
|
|
640,730 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
640,730 |
|
ZNWAJ |
|
$ |
1.00 |
|
|
10/29/2023 |
|
|
545,900 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
545,900 |
|
ZNWAK |
|
$ |
0.01 |
|
|
02/25/2023 |
|
|
437,875 |
|
|
|
- |
|
|
|
(6,220 |
) |
|
|
- |
|
|
|
431,655 |
|
ZNWAL |
|
$ |
2.00 |
|
|
08/26/2023 |
|
|
517,875 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
517,875 |
|
ZNWAM |
|
$ |
1.00 |
|
|
07/15/2022 |
|
|
- |
|
|
|
4,376,000 |
|
|
|
- |
|
|
|
- |
|
|
|
4,376,000 |
|
ZNWAN |
|
$ |
1.00 |
|
|
07/15/2022 |
|
|
- |
|
|
|
267,785 |
|
|
|
(100 |
) |
|
|
- |
|
|
|
267,685 |
|
ZNWAO |
|
$ |
0.25 |
|
|
06/12/2023 |
|
|
- |
|
|
|
190,480 |
|
|
|
(15,200 |
) |
|
|
- |
|
|
|
175,280 |
|
ZNWAP |
|
$ |
0.25 |
|
|
06/02/2022 |
|
|
- |
|
|
|
1,639,916 |
|
|
|
(1,200,000 |
) |
|
|
- |
|
|
|
439,916 |
|
ZNWAR |
|
$ |
0.25 |
|
|
06/23/2022 |
|
|
- |
|
|
|
1,020,000 |
|
|
|
- |
|
|
|
- |
|
|
|
1,020,000 |
|
Outstanding warrants |
|
|
|
|
|
|
|
|
7,001,039 |
|
|
|
7,494,181 |
|
|
|
(1,221,520 |
) |
|
|
- |
|
|
|
13,273,700 |
|
According to the warrant table, the Company could potentially raise
up to approximately $16,408,000 if all outstanding warrants
were exercised by its holders.
10% Senior Convertible Notes due May 2, 2021 and paid on
May 3, 2021
Please see Footnote 5 (“Senior Convertible Bonds”), which is a part
of this Form 10-Q filing, for a description and details about the
Bonds.
2018 Subscription Rights Offering
Please see Footnote 3F (“Subscription Rights Offering”), which is a
part of this Form 10-Q filing, for a description of and details
about the Subscription Rights Offering.
Principal
Components of our Cost Structure
Our operating and other expenses primarily consist of the
following:
|
● |
Impairment
of Unproved Oil and Gas Properties: Impairment expense is
recognized if a determination is made that a well will not be
commercially productive. The amounts include amounts paid for the
drilling operations as well as geological and geophysical costs and
various amounts that were paid to Israeli regulatory
authorities. |
|
● |
General
and Administrative Expenses: Overhead, including payroll and
benefits for our corporate staff, costs of managing our exploratory
operations, audit and other professional fees, and legal compliance
is included in general and administrative expenses. General and
administrative expenses also include non-cash stock-based
compensation expense, investor relations related expenses, lease
and insurance and related expenses. |
|
● |
Depreciation,
Depletion, Amortization and Accretion: The systematic expensing of
the capital costs incurred to explore for natural gas and oil
represents a principal component of our cost structure. As a full
cost company, we capitalize all costs associated with our
exploration, and apportion these costs to each unit of production,
if any, through depreciation, depletion and amortization expense.
As we have yet to have production, the costs of abandoned wells are
written off immediately versus being included in this amortization
pool. |
Going
Concern Basis
Since we have limited capital resources, no revenue to date and a
loss from operations, our consolidated 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. The appropriateness of using the going
concern basis is dependent upon our ability to obtain additional
financing or equity capital and, ultimately, to achieve profitable
operations. Therefore, there is substantial doubt about our ability
to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
The
Impact of COVID-19
During March 2020, a global pandemic was declared by the World
Health Organization related to the rapidly growing outbreak of a
novel strain of coronavirus (“COVID-19”). The pandemic has
significantly impacted the economic conditions in the United States
and Israel, as federal, state and local governments react to the
public health crisis, creating significant uncertainties in the
United States, Israel and world economies. In the interest of
public health and safety, jurisdictions (international, national,
state and local) where we have operations, restricted travel and
required workforces to work from home. As of the date of this
report, many of our employees are working from home, at least on a
part-time basis. However, while there are various uncertainties to
navigate, the Company’s business activities are continuing. The
situation is rapidly changing and additional impacts to the
business may arise that we are not aware of currently. We cannot
predict whether, when or the manner in which the conditions
surrounding COVID-19 will change including the timing of lifting
any restrictions or work from home arrangements.
The full extent of COVID-19’s impact on our operations and
financial performance depends on future developments that are
uncertain and unpredictable, including the duration and spread of
the pandemic, its impact on capital and financial markets and any
new information that may emerge concerning the severity of the
virus, its spread to other regions as well as the actions taken to
contain it, among others.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and
results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these consolidated financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and
expense during the reporting period.
We have identified the accounting principles which we believe are
most critical to the reported financial status by considering
accounting policies that involve the most complex of subjective
decisions or assessment.
Impairment of Oil
and Gas Properties
We follow 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 income from continuing
operations before income taxes, and the adjusted carrying amount of
the unproved properties is amortized on the unit-of-production
method.
Our oil and gas properties represent 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. A further impairment requiring a charge to
expense may be indicated through evaluation of drilling results,
relinquishing drilling rights or other information.
Abandonment of properties is accounted for as adjustments to
capitalized costs. The net capitalized costs are subject to a
“ceiling test” which limits such costs to the aggregate of the
estimated present value of future net revenue from proved reserves
discounted at ten percent based on current economic and operating
conditions, plus the lower of cost or fair market value of unproved
properties. The recoverability of amounts capitalized for oil and
gas properties is dependent upon the identification of economically
recoverable reserves, together with obtaining the necessary
financing to exploit such reserves and the achievement of
profitable operations.
During the fourth quarter of 2018, the Company testing protocol was
concluded at the MJ #1 well. The test results confirmed that the MJ
#1 well did not contain hydrocarbons in commercial quantities in
the zones tested. As a result, in the year ended December 31, 2020,
the Company recorded a non-cash impairment charge to its unproved
oil and gas properties of $30,906,000. During the three and nine
months ended September 30, 2021, and 2020, the Company did not
record any post-impairment charges.
Following the impairment charge noted above, the total net book
value of our unproved oil and gas properties under the full cost
method is $39,439,000 at September 30, 2021.
Asset Retirement Obligation
We record a liability for asset retirement obligation at fair value
in the period in which it is incurred and a corresponding increase
in the carrying amount of the related long-lived assets.
Fair Value Considerations
We follow 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 from the sale of 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. We use Level 1 inputs for fair value
measurements whenever there is an active market, with actual
quotes, market prices, and observable inputs on the measurement
date. We use 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. We
use observable market data whenever available. We use Level 3
inputs in the Binomial Model used for the valuation of the
derivative liability.
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 liabilities during the term
of the related Convertible Bonds.
RESULTS
OF OPERATIONS
|
|
For the three months ended
September 30, |
|
|
For the nine months ended
September 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
(US $ in thousands) |
|
|
(US $ in thousands) |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
1,601 |
|
|
|
1,139 |
|
|
|
6,524 |
|
|
|
3,227 |
|
Other |
|
|
697 |
|
|
|
563 |
|
|
|
2,553 |
|
|
|
1,608 |
|
Subtotal Operating costs and expenses |
|
|
2,298 |
|
|
|
1,702 |
|
|
|
9,077 |
|
|
|
4,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (Gain) on derivative liability |
|
|
- |
|
|
|
(49 |
) |
|
|
(431 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net |
|
|
5 |
|
|
|
143 |
|
|
|
273 |
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
2,303 |
|
|
|
1,796 |
|
|
|
8,919 |
|
|
|
5,328 |
|
Revenue. We currently have no revenue generating
operations.
Operating costs and expenses. Operating costs and expenses
for the three and nine months ended September 30, 2021 were
$2,298,000 and $9,077,000, respectively, compared to $1,702,000 and
$4,835,000 for the three and nine months ended September 30, 2020.
The increase in operating costs and expenses during each of the
three and nine months ended September 30, 2021 compared to the
corresponding period in 2020 is primarily attributable to increase
in general and administrative expenses driven by the non-cash
expenses associated with stock option grants, and by an increase in
other expenses.
General and administrative expenses. General and
administrative expenses for the three and nine months ended
September 30, 2021 were $1,601,000 and $6,524,000, respectively,
compared to $1,139,000 and $3,227,000 for the three and nine months
ended September 30, 2020. The increase in general and
administrative expenses during each of the three and nine months
ended September 30, 2021 compared to the corresponding periods in
2020 is primarily attributable to non-cash expenses associated with
stock option grants during 2021 compared to the corresponding
periods in 2020.
Other expense. Other expenses during the three and nine
months ended September 30, 2021 were $697,000 and $2,553,000,
respectively, compared to $563,000 and $1,608,000 for the three and
nine months ended September 30, 2020. Other general and
administrative expenses are comprised of non-compensation and
non-professional expenses incurred. The increase in other general
and administrative expenses during each of the three and nine
months ended September 30, 2021 compared to the corresponding
periods in 2020 is primarily attributable to increased expenses
associated with investor relations activities and depreciation
expenses related to the rig asset.
Loss (Gain) on derivative liability. Loss, (Gain) on
derivative liability during the three and nine months ended
September 30, 2021 were $nil and ($431,000), compared to ($49,000)
and $2,000 for the three and nine months ended September 30, 2020.
An embedded derivative is contained within the valuation of Zion’s
$100 convertible bond offering which closed in March 2016. The
(gain) loss on derivative liability during the three and nine
months ended September 30, 2021 compared to the (gain) loss, on
derivative liability during the three and nine months ended
September 30, 2020 is primarily due to the change in the share
price of our common stock that occurred during the three and nine
months ended September 30, 2021.
Other expense, net. Other expense, net for the three and
nine months ended September 30, 2021 were $5,000 and $273,000,
compared to $143,000 and $491,000 for the three and nine months
ended September 30, 2020. The decrease in other expense, net during
each of the three and nine months ended September 30, 2021 compared
to the corresponding period in 2020 is primarily attributable
financial expenses related to the Company’s convertible bonds and
to exchange rate differences associated with the fluctuating
exchange rates of the New Israeli Shekels (“NIS”) with the U.S.
Dollar (“USD”).
Net Loss. Net loss for the three and nine months ended
September 30, 2021 was $2,303,000 and $8,919,000 compared to
$1,796,000 and $5,328,000 for the three and nine months ended
September 30, 2020. The increase in net loss for 2021 is primarily
attributable to General and administrative expenses and other
expenses in the three and nine months ended September 30, 2021
compared to the three and nine months ended September 30, 2020.
Liquidity and
Capital Resources
Liquidity is a measure of a company’s ability to meet potential
cash requirements. As discussed above, we have historically met our
capital requirements through the issuance of common stock as well
as proceeds from the exercise of warrants and options to purchase
common shares.
Our ability to continue as a going concern is dependent upon
obtaining the necessary financing to complete further exploration
and development activities and generate profitable operations from
our oil and natural gas interests in the future. Our current
operations are dependent upon the adequacy of our current assets to
meet our current expenditure requirements and the accuracy of
management’s estimates of those requirements. Should those
estimates be materially incorrect, our ability to continue as a
going concern will be impaired. Our financial statements for
the three and nine months ended September 30, 2021 have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and
commitments in the normal course of business. We have incurred
a history of operating losses and negative cash flows from
operations. Therefore, there is substantial doubt about our
ability to continue as a going concern.
At September 30, 2021, we had approximately $4,564,000 in cash and
cash equivalents compared to $11,708,000 at December 31, 2020,
which does not include any restricted funds. Our working capital
(current assets minus current liabilities) was $4,401,000 at
September 30, 2021 and $11,812,000 at December 31, 2020.
As of September 30, 2021, we provided bank guarantees to various
governmental bodies (approximately $1,179,000) and others
(approximately $90,000) in respect of our drilling operation in the
aggregate amount of approximately $1,269,000. The (cash) funds
backing these guarantees are held in restricted interest-bearing
accounts and are reported on the Company’s balance sheets as fixed
short-term bank deposits restricted.
During the nine months ended September 30, 2021, cash used in
operating activities totaled $4,888,000. Cash provided by
financing activities during the nine months ended September 30,
2021 was $18,057,000 and is primarily attributable to proceeds
received from the Dividend Reinvestment and Stock Purchase Plan
(the “DSPP” or “Plan”). Net cash used in investing activities such
as unproved oil and gas properties, equipment and spare parts was
$21,998,000 for the nine months ended September 30, 2021.
During the nine months ended September 30, 2020, cash used in
operating activities totaled $5,146,000. Cash provided by financing
activities during the nine months ended September 30, 2020 was
$25,515,000 and is primarily attributable to proceeds received from
the Dividend Reinvestment and Stock Purchase Plan (the “DSPP” or
the “Plan”). Net cash used in investing activities was $5,525,000
for the nine months ended September 30, 2020. This was primarily
the result of the purchase of the drilling rig, equipment and
inventory.
Accounting standards require management to evaluate our ability to
continue as a going concern for a period of one year subsequent to
the date of the filing of this Form 10-Q. We expect to incur
additional significant expenditures to further our exploration and
development programs. While we raised approximately
$4,378,000 during the period October 1, 2021 through November
10, 2021, we will need to raise additional funds in order to
continue our exploration and development activities in our license
area. Additionally, we estimate that, when we are not actively
drilling a well, our expenditures are approximately
$600,000 per month excluding exploratory operational
activities. However, when we are actively drilling a well, we
estimate an additional minimum expenditure of approximately
$2,500,000 per month. The above estimates are subject to change.
Subject to the qualifications specified below, management believes
that our existing cash balance, coupled with anticipated proceeds
under the DSPP, will be sufficient to finance our plan of
operations through February 2022.
The recent outbreak of the coronavirus has to date significantly
disrupted business operations and resulted in significantly
increased unemployment in the general economy. The extent to which
the coronavirus impacts our operations, specifically our capital
raising efforts, as well as our ability to continue our exploratory
efforts, will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the
duration of the outbreak, new information which may emerge
concerning the severity of the coronavirus and the actions to
contain the coronavirus or treat its impact, among others.
No assurance can be provided that we will be able to raise the
needed operating capital.
Even if we raise the needed funds, there are factors that can
nevertheless adversely impact our ability to fund our operating
needs, including (without limitation), unexpected or unforeseen
cost overruns in planned non-drilling exploratory work in existing
license areas, the costs associated with extended delays in
undertaking the required exploratory work, and plugging and
abandonment activities which is typical of what we have experienced
in the past.
The financial information contained in these consolidated financial
statements has been prepared on a basis that assumes that we will
continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities and commitments in the
normal course of business. This financial information and these
consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We do not currently use any off-balance sheet arrangements to
enhance our liquidity or capital resource position, or for any
other purpose.
Recently Issued Accounting Pronouncements
The Company does not believe that the adoption of any recently
issued accounting pronouncements in 2021 had a significant impact
on our financial position, results of operations, or cash flow.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market risk is a broad term for the risk of economic loss due to
adverse changes in the fair value of a financial instrument. These
changes may be the result of various factors, including interest
rates, foreign exchange rates, commodity prices and/or equity
prices. In the normal course of doing business, we are exposed to
the risks associated with foreign currency exchange rates and
changes in interest rates.
Foreign Currency Exchange Rate Risks. A portion of our
expenses, primarily labor expenses and certain supplier contracts,
are denominated in New Israeli Shekels (“NIS”). As a result, we
have significant exposure to the risk of fluctuating exchange rates
with the U.S. Dollar (“USD”), our primary reporting currency.
During the period January 1, 2021 through September 30, 2021, the
USD has fluctuated by approximately 0.4% against the NIS (the USD
strengthened relative to the NIS). By contrast, during the period
January 1, 2020 through December 31, 2020, the USD fluctuated by
approximately 7.0% against the NIS (the USD weakened relative to
the NIS). Continued strengthening of the US dollar against the NIS
will result in lower operating costs from NIS denominated expenses.
To date, we have not hedged any of our currency exchange rate
risks, but we may do so in the future.
Interest Rate Risk. Our exposure to market risk relates to
our cash and investments. We maintain an investment portfolio of
short-term bank deposits and money market funds. The securities in
our investment portfolio are not leveraged, and are, due to their
very short-term nature, subject to minimal interest rate risk. We
currently do not hedge interest rate exposure. Because of the
short-term maturities of our investments, we do not believe that a
change in market interest rates would have a significant negative
impact on the value of our investment portfolio except for reduced
income in a low interest rate environment. At September 30, 2021 we
had cash, cash equivalents and short-term and long-term bank
deposits of approximately $5,833,000. The weighted average annual
interest rate related to our cash and cash equivalents for the
three and nine months ended September 30, 2021, exclusive of funds
at US banks that earn no interest, was approximately .09% and .11%,
respectively.
The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, we invest
our excess cash in short-term bank deposits and money market funds
that may invest in high quality debt instruments.
ITEM
4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure
that information required to be disclosed in the reports that we
file or submit under the Securities Exchange Act of 1934, is
recorded, processed, summarized and reported within the time period
specified in the SEC’s rules and forms. As of September 30, 2021,
our chief executive officer and our chief financial officer
conducted an evaluation of the effectiveness of our disclosure
controls and procedures. Based on this evaluation, our chief
executive officer and our chief financial officer concluded that
our disclosure controls and procedures were effective as of
September 30, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in internal controls over financial reporting
that occurred during the quarter ended September 30, 2021 that have
materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
PART II—OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Securities and Exchange Commission (“SEC”) Investigation
As previously disclosed by the Company, on June 21, 2018, the Fort
Worth Regional Office of the SEC informed Zion that it was
conducting a formal, non-public investigation and asked that we
provide certain information and documents in connection with its
investigation. Since that date, we have fully cooperated with the
SEC on an on-going basis in connection with its investigation.
Investigations of this nature are inherently uncertain and their
results cannot be predicted with certainty. Regardless of the
outcome, an SEC investigation could have an adverse impact on us
because of legal costs, diversion of management resources, and
other factors. The investigation could also result in reputational
harm to Zion and may have a material adverse effect on Zion’s
current and future business and exploratory activities and its
ability to raise capital to continue our oil and gas exploratory
activities.
Litigation
On October 29, 2018, Zion received a shareholder request to inspect
books and records pursuant to Section 220 of the Delaware
General Corporation Law for the purpose of investigating potential
corporate mismanagement and alleged breaches of fiduciary duty in
connection with public statements made by the Company from March
12, 2018 to May 30, 2018. The Company responded to this
request.
On August 9, 2019, Zion received two (2) additional shareholder
requests from the same law firm to inspect books and records
pursuant to section 220 of the Delaware General Corporation Law for
the purpose of investigating potential corporate mismanagement and
alleged breaches of fiduciary duty in connection with public
statements made by the Company from February 1, 2018 to present.
Following discussion with counsel to the shareholder, the Company’s
counsel produced materials responsive to the shareholders’ request
in January 2020.
On February 12, 2020, by letter to Zion’s Board of Directors, one
of the shareholders making the August 9, 2019 request demanded that
the Board investigate, address, remedy, and commence proceedings
against certain of the Company’s current and former officers and
directors for alleged breaches of fiduciary duties, violations of
section 10(b) and 20(a) of the Exchange Act, waste of corporate
assets, unjust enrichment, and violations of all other applicable
laws. The shareholder alleges wrongdoing in connection with public
statements made by the Company from February 1, 2018 regarding the
Company’s oil and gas exploration activities, the Company’s
accounting and disclosure of expenses, and the Board’s oversight of
operations. The Board hired independent counsel to investigate the
claims made against certain of the Company’s current and former
officers and directors. That investigation concluded and based on
the findings and recommendations of independent counsel, the Board
decided not to pursue claims against any current or former officer
or director. On July 14, 2020, Zion received a request from the
same shareholder making the February 12, 2020 demand to inspect
books and records pursuant to Section 220 of the Delaware General
Corporation Law for the purpose of evaluating the Board’s decision
to reject the litigation demand. The Company responded to this
request in August 2020. The Company has not received any further
communication from the shareholder following the August 2020
response.
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. However,
we cannot predict the outcome or effect of any of the potential
litigation, claims or disputes.
The Company is not subject to any litigation at the present
time.
ITEM
1A. RISK FACTORS
During the quarter ended September 30, 2021, there were no material
changes to the risk factors previously reported in our Annual
Report on Form 10-K for the year ended December 31, 2020.
ITEM
2. UNREGISTERED SALES OF SECURITIES AND USE OF
PROCEEDS
None.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
None.
ITEM
5. OTHER INFORMATION:
None.
ITEM
6. EXHIBITS
Exhibit Index:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ZION
OIL & GAS, INC. |
|
|
(Registrant) |
|
|
|
|
|
By: |
/s/
Robert W.A. Dunn |
|
By: |
/s/
Michael B. Croswell Jr. |
|
Robert
W. A. Dunn |
|
|
Michael
B. Croswell Jr. |
|
Chief
Executive Officer |
|
|
Chief
Financial Officer |
|
(Principal
Executive Officer) |
|
|
(Principal
Financial and Accounting Officer) |
|
|
|
|
|
Date: |
November
10, 2021 |
|
Date: |
November
10, 2021 |
52
On September 15, 2020, the Company
extended the termination date of the Warrants by two (2) years.
Zion’s ZNWAB Warrants expired on May 2, 2017, and the ZNWAC
Warrants expired on May 2, 2018
On May 29, 2019, the Company extended the termination date of the
Warrants by one (1) year.
On December 4, 2018, the Company extended the termination date of
the Warrants by one (1) year.
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