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 March 31, 2022; 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 |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification
No.) |
|
|
|
12655
N Central Expressway, Suite 1000, Dallas, TX |
|
75243 |
(Address
of principal executive offices) |
|
Zip
Code |
(214)
221-4610
(Registrant’s
telephone number, including area 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 |
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 ☒
As of May 6, 2022, Zion Oil & Gas, Inc. had outstanding
469,022,602 shares of common stock, par value $0.01 per
share.
INDEX
PAGE
Zion
Oil & Gas, Inc.
Consolidated
Condensed Balance Sheets as of
|
|
March 31,
2022 |
|
|
December 31,
2021 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
|
(Unaudited) |
|
|
|
|
|
Current
assets |
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
8,221 |
|
|
|
4,683 |
|
Fixed
short term bank and escrow deposits – restricted |
|
|
1,269 |
|
|
|
1,269 |
|
Prepaid
expenses and other |
|
|
1,264 |
|
|
|
689 |
|
Other
deposits |
|
|
605 |
|
|
|
617 |
|
Governmental
receivables |
|
|
338 |
|
|
|
900 |
|
Other
receivables |
|
|
2,376 |
|
|
|
483 |
|
Total
current assets |
|
|
14,073 |
|
|
|
8,641 |
|
|
|
|
|
|
|
|
|
|
Unproved
oil and gas properties, full cost method (see Note 4) |
|
|
48,099 |
|
|
|
46,950 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment at cost |
|
|
|
|
|
|
|
|
Drilling
rig and related equipment, net of accumulated depreciation of $887
and $704 (see note 2I) |
|
|
6,759 |
|
|
|
6,834 |
|
Property
and equipment, net of accumulated depreciation of $615 and
$604 |
|
|
139 |
|
|
|
138 |
|
|
|
|
6,898 |
|
|
|
6,972 |
|
|
|
|
|
|
|
|
|
|
Right of
Use Lease Assets (see Note 5) |
|
|
263 |
|
|
|
327 |
|
|
|
|
|
|
|
|
|
|
Other
assets |
|
|
|
|
|
|
|
|
Assets
held for severance benefits |
|
|
553 |
|
|
|
541 |
|
Total
other assets |
|
|
553 |
|
|
|
541 |
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
69,886 |
|
|
|
63,431 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities |
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
1,167 |
|
|
|
2,783 |
|
Lease
obligation – current (see Note 5) |
|
|
169 |
|
|
|
203 |
|
Asset
retirement obligation |
|
|
571 |
|
|
|
571 |
|
Accrued
liabilities |
|
|
437 |
|
|
|
1,781 |
|
Total
current liabilities |
|
|
2,344 |
|
|
|
5,338 |
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities |
|
|
|
|
|
|
|
|
Lease
obligation – non-current (see Note 5) |
|
|
129 |
|
|
|
169 |
|
Provision
for severance pay |
|
|
560 |
|
|
|
548 |
|
Total
long-term liabilities |
|
|
689 |
|
|
|
717 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
3,033 |
|
|
|
6,055 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies (see Note 6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity |
|
|
|
|
|
|
|
|
Common stock, par
value $.01; Authorized: 800,000,000 shares at March 31, 2022:
Issued and outstanding: 466,593,391 and 364,322,883 shares at March
31, 2022 and December 31, 2021, respectively |
|
|
4,666 |
|
|
|
3,643 |
|
Additional
paid-in capital |
|
|
287,878 |
|
|
|
277,258 |
|
Accumulated
deficit |
|
|
(225,691 |
) |
|
|
(223,525 |
) |
Total
stockholders’ equity |
|
|
66,853 |
|
|
|
57,376 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity |
|
|
69,886 |
|
|
|
63,431 |
|
The
accompanying notes are an integral part of the unaudited interim
consolidated condensed financial statements.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Statements of Operations (Unaudited)
|
|
For
the
three months ended |
|
|
|
March
31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
General
and administrative |
|
|
1,435 |
|
|
|
1,971 |
|
Other |
|
|
711 |
|
|
|
792 |
|
Loss from
operations |
|
|
(2,146 |
) |
|
|
(2,763 |
) |
|
|
|
|
|
|
|
|
|
Other
expense, net |
|
|
|
|
|
|
|
|
Gain on
derivative liability |
|
|
-
|
|
|
|
426 |
|
Foreign
exchange (loss) |
|
|
(9 |
) |
|
|
(63 |
) |
Financial
(expenses), net |
|
|
(11 |
) |
|
|
(160 |
) |
|
|
|
|
|
|
|
|
|
Loss,
before income taxes |
|
|
(2,166 |
) |
|
|
(2,560 |
) |
Income
taxes |
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
(2,166 |
) |
|
|
(2,560 |
) |
|
|
|
|
|
|
|
|
|
Net loss,
per share of common stock |
|
|
|
|
|
|
|
|
Basic and
diluted (in US$) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding |
|
|
|
|
|
|
|
|
Basic and
diluted (in thousands) |
|
|
404,817 |
|
|
|
238,941 |
|
The
accompanying notes are an integral part of the unaudited interim
consolidated condensed financial statements.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Statement of Changes in Stockholders’ Equity
(Unaudited)
For
the three months ended March 31, 2022
|
|
Common
Stock |
|
|
Additional
paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amounts |
|
|
Capital |
|
|
deficit |
|
|
Total |
|
|
|
thousands |
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
|
US$
thousands
|
|
Balances
as of December 31, 2021 |
|
|
364,324 |
|
|
|
3,643 |
|
|
|
277,258 |
|
|
|
(223,525 |
) |
|
|
57,376 |
|
Funds
received from sale of DSPP units and shares and exercise of
warrants |
|
|
102,219 |
|
|
|
1,022 |
|
|
|
10,405 |
|
|
|
—
|
|
|
|
11,427 |
|
Funds
received from option exercises |
|
|
50 |
|
|
|
1 |
|
|
|
—
|
|
|
|
—
|
|
|
|
1 |
|
Value of
options granted to employees, directors and others as non-cash
compensation |
|
|
— |
|
|
|
—
|
|
|
|
215 |
|
|
|
—
|
|
|
|
215 |
|
Net
loss |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,166 |
) |
|
|
(2,166 |
) |
Balances
as of March 31, 2022 |
|
|
466,593 |
|
|
|
4,666 |
|
|
|
287,878 |
|
|
|
(225,691 |
) |
|
|
66,853 |
|
For
the three months ended March 31, 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 |
|
|
3,848 |
|
|
|
39 |
|
|
|
2,810 |
|
|
|
—
|
|
|
|
2,849 |
|
Value of
bonds converted to shares |
|
|
4 |
|
|
|
*
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Funds
received from option exercises |
|
|
117 |
|
|
|
1 |
|
|
|
— |
|
|
|
—
|
|
|
|
1 |
|
Value of
options granted to employees, directors and others as non-cash
compensation |
|
|
— |
|
|
|
—
|
|
|
|
821 |
|
|
|
—
|
|
|
|
821 |
|
Net
loss |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,560 |
) |
|
|
(2,560 |
) |
Balances
as of March 31, 2021 |
|
|
241,351 |
|
|
|
2,414 |
|
|
|
249,170 |
|
|
|
(215,364 |
) |
|
|
36,220 |
|
|
* |
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
three months ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Cash flows from operating
activities |
|
|
|
|
|
|
Net loss |
|
|
(2,166 |
) |
|
|
(2,560 |
) |
Adjustments required to reconcile net loss to net cash used in
operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
195 |
|
|
|
179 |
|
Cost of options issued to employees, directors and others as
non-cash compensation |
|
|
208 |
|
|
|
821 |
|
Amortization of debt discount related to convertible bonds |
|
|
-
|
|
|
|
141 |
|
Change in derivative liability |
|
|
-
|
|
|
|
(426 |
) |
Change in assets and liabilities, net: |
|
|
|
|
|
|
|
|
Other deposits |
|
|
12 |
|
|
|
21 |
|
Prepaid expenses and other |
|
|
(575 |
) |
|
|
530 |
|
Governmental receivables |
|
|
562 |
|
|
|
355 |
|
Lease obligation – current |
|
|
(34 |
) |
|
|
(35 |
) |
Lease obligation – non current |
|
|
(40 |
) |
|
|
(45 |
) |
Right of use lease assets |
|
|
64 |
|
|
|
56 |
|
Other receivables |
|
|
107 |
|
|
|
105 |
|
Severance payable, net |
|
|
-
|
|
|
|
(45 |
) |
Accounts payable |
|
|
(331 |
) |
|
|
(150 |
) |
Accrued liabilities |
|
|
(93 |
) |
|
|
(1,088 |
) |
Net cash used in operating activities |
|
|
(2,091 |
) |
|
|
(2,141 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
(12 |
) |
|
|
(20 |
) |
Acquisition of drilling rig and related equipment |
|
|
(122 |
) |
|
|
(76 |
) |
Investment in unproved oil and gas properties |
|
|
(3,665 |
) |
|
|
(7,028 |
) |
Net cash used in investing activities |
|
|
(3,799 |
) |
|
|
(7,124 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
1 |
|
|
|
1 |
|
Proceeds from issuance of stock and exercise of warrants |
|
|
9,427 |
|
|
|
2,849 |
|
Net cash provided by financing activities |
|
|
9,428 |
|
|
|
2,850 |
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash, cash equivalents and restricted
cash |
|
|
3,538 |
|
|
|
(6,415 |
) |
Cash, cash equivalents and restricted cash – beginning of
period |
|
|
5,952 |
|
|
|
14,662 |
|
Cash, cash equivalents and restricted cash – end of
period |
|
|
9,490 |
|
|
|
8,247 |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Non-cash equity receivables |
|
|
2,000 |
|
|
|
- |
|
Unpaid investments in oil & gas properties |
|
|
1,130 |
|
|
|
2,363 |
|
Capitalized convertible bond interest attributed to oil and gas
properties |
|
|
-
|
|
|
|
79 |
|
Cost of options issued to employees attributed to oil and gas
properties |
|
|
7 |
|
|
|
-
|
|
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:
|
|
March 31,
2022 |
|
|
December 31,
2021 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
Cash and
cash equivalents |
|
|
8,221 |
|
|
|
4,683 |
|
Restricted
cash included in fixed long-term bank deposits |
|
|
1,269 |
|
|
|
1,269 |
|
|
|
|
9,490 |
|
|
|
5,952 |
|
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 22 years of oil & gas exploration in Israel. As of March 31,
2022, 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, 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
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 based on our studies as it appears to possess the key
geologic ingredients of an active petroleum system with significant
exploration potential.
The
NML 428 (covering the same area as MJ-01) 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. On November 29, 2021, the
Ministry of Energy approved our request for extension to August 1,
2022, 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 spudded its MJ-02 exploratory
well. On November 23, 2021, Zion announced via a press release that
it completed drilling the MJ-02 well to a total depth of 5,531
meters (~18,141 feet) with a 6 inch open hole at that
depth.
A
full set of detailed and comprehensive tests including
neutron-density, sonic, gamma, and resistivity logs were acquired
in December 2021, as a result of which we identified an encouraging
zone of interest. All of the well testing equipment and personnel
are secured for the MJ-02 well. We have re-entered our MJ-02
wellbore and are progressing to production testing. This work is
expected to take several weeks.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
1 - Nature of Operations, Basis of Presentation and Going
Concern (cont’d)
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 of the information and notes required by GAAP for
complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals necessary
for a fair statement of financial position, results of operations
and cash flows, have been included. The information included in
this Quarterly Report on Form 10-Q should be read in conjunction
with the financial statements and the accompanying notes included
in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021. The year-end balance sheet data presented for
comparative purposes was derived from audited financial statements,
but does not include all disclosures required by GAAP. The results
of operations for the three months ended March 31, 2022 are not
necessarily indicative of the operating results for the year ending
December 31, 2022 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 three months ended March 31, 2022, the Company incurred
a net loss of approximately $2.2 million and had an accumulated
deficit of approximately $225.7 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 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 23,144,603 and
10,969,456 Common Stock equivalents in 2022, and 2021 respectively,
would be anti-dilutive.
B.
Use of Estimates
The
preparation of the accompanying consolidated 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 expenses. Such estimates include the valuation of
unproved oil and gas properties, deferred tax assets, asset
retirement obligations, borrowing rate of interest consideration
for leases accounting 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.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
2 - Summary of Significant Accounting Policies
(cont’d)
The
Company’s oil and gas property represents an investment in unproved
properties. These costs are excluded from the amortized cost pool
until proved reserves are found or until it is determined that the
costs are impaired. All costs excluded are reviewed at least
quarterly to determine if impairment has occurred. The amount of
any impairment is charged to expense since a reserve base has not
yet been established. Impairment requiring a charge to expense may
be indicated through evaluation of drilling results, relinquishing
drilling rights or other information.
During
the three months ended March 31, 2022, and 2021, 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 $48,099,000 and
$46,950,000 as of March 31, 2022 and December 31, 2021,
respectively.
D.
Fair Value Measurements
The
Company follows Accounting Standards Codification (ASC) 820, “Fair
Value Measurements and Disclosures,” as amended by Financial
Accounting Standards Board (FASB) Financial Staff Position (FSP)
No. 157 and related guidance. Those provisions relate to the
Company’s financial assets and liabilities carried at fair value
and the fair value disclosures related to financial assets and
liabilities. ASC 820 defines fair value, expands related disclosure
requirements, and specifies a hierarchy of valuation techniques
based on the nature of the inputs used to develop the fair value
measures. Fair value is defined as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date,
assuming the transaction occurs in the principal or most
advantageous market for that asset or liability.
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 March 31, 2022, and December 31, 2021, 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.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
2 - Summary of Significant Accounting Policies
(cont’d)
E.
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.
F.
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.
G.
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.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
2 - Summary of Significant Accounting Policies
(cont’d)
H.
Recently Adopted Accounting Pronouncements
ASU
2016-02 – Leases (Topic 842)
In
February 2016, the Financial Accounting Standards Board (“FASB”)
issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) in order to
increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet
for those leases classified as operating leases under previous
GAAP. ASU 2016-02 requires that a lessee should recognize a
liability to make lease payments (the lease liability) and a
right-of-use asset representing its right to use the underlying
asset for the lease term on the balance sheet. ASU 2016-02 is
effective for fiscal years beginning after December 15, 2018
(including interim periods within those periods) using a modified
retrospective approach and early adoption is permitted. Zion
adopted ASU 2016-02 in the first quarter of 2019. Presently, Zion
has operating leases for office space in Dallas, Texas and in
Caesarea, Israel plus various leases for motor vehicles. These
leases have been accounted for under ASU 2016-02 in 2020, 2021 and
2022 by establishing a right-of-use asset and a corresponding
current lease liability and non-current lease liability. Zion is
not subject to any loan covenants and therefore, the increase in
assets and liabilities does not have a material impact on its
business.
ASU
2020-03, “Codification Improvements to Financial
Instruments”
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.
In
August 2020, the 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 does not believe
that this ASU will have any impact on its consolidated financial
statements.
The Company does not believe that the adoption of any of the
recently issued accounting pronouncements had a significant impact
on our consolidated financial position, results of operations, or
cash flow, except for ASC Update No. 2016-02—Leases, which requires
organizations to recognize lease assets and lease liabilities on
the balance sheet for leases classified as operating leases under
previous GAAP. See Note 5 for more complete details on balances at
March 31, 2022 and December 31, 2021.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
2 - Summary of Significant Accounting Policies
(cont’d)
I.
Depreciation and Accounting for Drilling Rig and Related
Equipment
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 will depreciate the rig on a
straight-line basis.
The
$540,000 in spare parts was the original cost to CED. These items
were received and counted by Zion upon receipt. All records and
files are maintained by Zion. Zion plans to obtain a physical count
of the equipment items at the end of each quarter, or as close to
such date as practical, in accordance with our normal
procedures.
Zion
uses the First In First Out (“FIFO”) method of accounting for the
inventory spare parts, meaning that the earliest items purchased
will be the first item charged to the well in which the inventory
of spare parts gets consumed.
It is
also noteworthy that various components and systems on the rig will
be subject to certifications by the manufacturer to ensure that the
rig is maintained at optimal levels. Per standard practice in
upstream oil and gas, each certification performed on our drilling
rig increases the useful life of the rig by five years. The costs
of each certification will be added to the drilling rig account,
and our straight-line amortization will be adjusted
accordingly.
See
the table below for a reconciliation of the rig-related activity
during the quarter ended March 31, 2022:
I-35
Drilling Rig & Associated Equipment:
|
|
Three-month period
ended March 31, 2022 |
|
|
|
I-35
Drilling Rig |
|
|
Rig
Spare Parts |
|
|
Other
Drilling Assets |
|
|
Total |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
December
31, 2021 |
|
|
5,859 |
|
|
|
643 |
|
|
|
332 |
|
|
|
6,834 |
|
Asset
Additions |
|
|
-
|
|
|
|
5 |
|
|
|
117 |
|
|
|
122 |
|
Asset
Depreciation |
|
|
(159 |
) |
|
|
-
|
|
|
|
(25 |
) |
|
|
(184 |
) |
Asset
Disposals for Self-Consumption |
|
|
-
|
|
|
|
(13 |
) |
|
|
-
|
|
|
|
(13 |
) |
March 31,
2022 |
|
|
5,700 |
|
|
|
635 |
|
|
|
424 |
|
|
|
6,759 |
|
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 three months ended March 31, 2022, the Company did not grant
any options from the 2011 Equity Incentive Plan for employees,
directors and consultants.
During
the three months ended March 31, 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. |
B.
2011 Non-Employee Directors Stock Option Plan
During
the three months ended March 31, 2022, the Company did not grant
any qualified (market value) options from the 2011 Non-Employee
Directors Stock Option Plan to its directors.
During
the three months ended March 31, 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. |
C.
2021 Omnibus 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.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
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 three months ended March 31, 2022, 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 175,000 shares of Common Stock to six senior officers
and one staff member at an exercise price of $0.1529 per share. The
options vested upon grant and are exercisable through January 4,
2032. The fair value of the options at the date of grant amounted
to approximately $22,000. |
|
ii. |
Options
to purchase 25,000 shares of Common Stock to one senior officer at
an exercise price of $0.01 per share. The options vested upon grant
and are exercisable through January 4, 2032. These options were
granted per the provisions of the Israeli Appendix to the Plan. The
fair value of the options at the date of grant amounted to
approximately $4,000. |
|
iii. |
Options
to purchase 300,000 shares of Common Stock to one senior officer
and one staff member at an exercise price of $0.01 per share. The
options vested upon grant and are exercisable through January 5,
2032. These options were granted per the provisions of the Israeli
Appendix to the Plan. The fair value of the options at the date of
grant amounted to approximately $39,000. |
|
iv. |
Options
to purchase 200,000 shares of Common Stock one board member at an
exercise price of $0.01 per share. The options vested upon grant
and are exercisable through January 5, 2032. These options were
granted per the provisions under the Israeli Appendix to the Plan.
The fair value of the options at the date of grant amounted to
approximately $29,000. |
|
v. |
Options
to purchase 1,600,000 shares of Common Stock to five senior
officers and four staff members at an exercise price of $0.1529 per
share. The options vest on January 5, 2023 (one year from the date
of grant) and are exercisable through January 5, 2032. The fair
value of the options at the date of grant amounted to approximately
$209,000, and will be recognized during the years 2022 and
2023. |
|
vi. |
Options
to purchase 1,400,000 shares of Common Stock to seven board
members, at an exercise price of $0.1529 per share. The options
vest on January 5, 2023 (one year from the date of grant) and are
exercisable through January 5, 2032. The fair value of the options
at the date of grant amounted to approximately $182,000, and will
be recognized during the years 2022 and 2023.
|
|
|
|
|
vii. |
Options
to purchase 160,000 shares of Common Stock to four staff members,
at an exercise price of $0.01 per share. The options vested upon
grant and are exercisable through January 17, 2032. These options
were granted per the provisions under the Israeli Appendix to the
Plan. The fair value of the options at the date of grant amounted
to approximately $23,000.
|
|
|
|
|
viii. |
Options
to purchase 200,000 shares of Common Stock to six staff members at
an exercise price of $0.14 per share. The options vest on January
17, 2023 (one year from the date of grant) and are exercisable
through January 17, 2032. The fair value of the options at the date
of grant amounted to approximately $26,000, and will be recognized
during the years 2022 and 2023.
|
|
|
|
|
ix. |
Options
to purchase 40,000 shares of Common Stock to two consultants at an
exercise price of $0.14 per share. The options vest on January 17,
2023 (one year from the date of grant) and are exercisable through
January 17, 2032. The fair value of the options at the date of
grant amounted to approximately $5,000, and will be recognized
during the years 2022 and 2023.
|
During
the three months ended March 31, 2021, the Company did not grant
any options from the 2021 Equity Omnibus Plan for employees,
directors and consultants (as the Plan was not in existence during
that period).
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
D.
Stock Options
The
stock option transactions since January 1, 2022 are shown in the
table below:
|
|
Number
of
shares |
|
|
Weighted
Average
exercise
price |
|
|
|
|
|
|
US$ |
|
Outstanding, December
31, 2021 |
|
|
9,741,750 |
|
|
|
0.64 |
|
|
|
|
|
|
|
|
|
|
Changes
during 2022 to: |
|
|
|
|
|
|
|
|
Granted to
employees, officers, directors and others |
|
|
4,100,000 |
|
|
|
0.13 |
|
Expired/Cancelled/Forfeited |
|
|
-
|
|
|
|
-
|
|
Exercised |
|
|
(50,000 |
) |
|
|
0.01 |
|
Outstanding, March 31,
2022 |
|
|
13,791,750 |
|
|
|
0.49 |
|
Exercisable, March 31,
2022 |
|
|
10,551,750 |
|
|
|
0.60 |
|
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 March 31, 2022:
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$ |
|
|
0.14 |
|
|
|
240,000 |
|
|
|
9.81 |
|
|
|
0.14 |
|
|
|
0.01 |
|
|
|
10,000 |
|
|
|
1.62 |
|
|
|
0.01 |
|
|
0.15 |
|
|
|
3,000,000 |
|
|
|
9.77 |
|
|
|
0.15 |
|
|
|
0.01 |
|
|
|
5,000 |
|
|
|
2.20 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
20,000 |
|
|
|
4.17 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
130,000 |
|
|
|
4.75 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
50,000 |
|
|
|
4.76 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
60,000 |
|
|
|
5.04 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
200,000 |
|
|
|
5.13 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
40,000 |
|
|
|
5.50 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
85,000 |
|
|
|
5.75 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
25,000 |
|
|
|
5.76 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
30,000 |
|
|
|
5.91 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
4,000 |
|
|
|
6.01 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
25,000 |
|
|
|
6.77 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
85,000 |
|
|
|
7.46 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
205,000 |
|
|
|
7.63 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
35,000 |
|
|
|
7.76 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
75,000 |
|
|
|
8.76 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
200,000 |
|
|
|
9.14 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
355,000 |
|
|
|
9.29 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
10,000 |
|
|
|
9.42 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
500,000 |
|
|
|
9.76 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.01 |
|
|
|
110,000 |
|
|
|
9.80 |
|
|
|
0.01 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.15 |
|
|
|
200,000 |
|
|
|
9.76 |
|
|
|
0.15 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.16 |
|
|
|
340,000 |
|
|
|
7.69 |
|
|
|
0.16 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.16 |
|
|
|
75,000 |
|
|
|
3.69 |
|
|
|
0.16 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.18 |
|
|
|
25,000 |
|
|
|
3.67 |
|
|
|
0.18 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.25 |
|
|
|
50,000 |
|
|
|
9.42 |
|
|
|
0.25 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.25 |
|
|
|
363,000 |
|
|
|
9.42 |
|
|
|
0.25 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.28 |
|
|
|
25,000 |
|
|
|
3.42 |
|
|
|
0.28 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.28 |
|
|
|
25,000 |
|
|
|
7.42 |
|
|
|
0.28 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.29 |
|
|
|
25,000 |
|
|
|
5.20 |
|
|
|
0.29 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.39 |
|
|
|
1,510,000 |
|
|
|
9.27 |
|
|
|
0.39 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.59 |
|
|
|
1,400,000 |
|
|
|
5.13 |
|
|
|
0.59 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.59 |
|
|
|
1,800,000 |
|
|
|
9.14 |
|
|
|
0.59 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.92 |
|
|
|
350,000 |
|
|
|
4.76 |
|
|
|
0.92 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.92 |
|
|
|
600,000 |
|
|
|
8.76 |
|
|
|
0.92 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.33 |
|
|
|
25,000 |
|
|
|
1.07 |
|
|
|
1.33 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.38 |
|
|
|
105,307 |
|
|
|
2.76 |
|
|
|
1.38 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.55 |
|
|
|
200,000 |
|
|
|
0.18 |
|
|
|
1.55 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.67 |
|
|
|
405,943 |
|
|
|
2.51 |
|
|
|
1.67 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.70 |
|
|
|
218,500 |
|
|
|
0.72 |
|
|
|
1.70 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.75 |
|
|
|
250,000 |
|
|
|
1.27 |
|
|
|
1.75 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.78 |
|
|
|
25,000 |
|
|
|
2.43 |
|
|
|
1.78 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.31 |
|
|
|
250,000 |
|
|
|
1.76 |
|
|
|
2.31 |
|
|
— |
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.15 |
|
|
|
25,000 |
|
|
|
2.26 |
|
|
|
4.15 |
|
|
0.14-0.15 |
|
|
|
3,240,000 |
|
|
|
|
|
|
|
0.15 |
|
|
|
0.01-4.15 |
|
|
|
10,551,750 |
|
|
|
|
|
|
|
0.60 |
|
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
three months ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Weighted-average fair
value of underlying stock at grant date |
|
$ |
0.15 |
|
|
$ |
0.92 |
|
Dividend
yields |
|
|
— |
|
|
|
— |
|
Expected
volatility |
|
|
127%-133 |
% |
|
|
121%-143 |
% |
Risk-free
interest rates |
|
|
1.37%-1.55 |
% |
|
|
0.16%-0.38 |
% |
Expected
lives (in years) |
|
|
5.00-5.50 |
|
|
|
3.00-5.00 |
|
Weighted-average grant
date fair value |
|
$ |
0.13 |
|
|
$ |
0.77 |
|
Granted
to non-employees
The
following table sets forth information about the weighted-average
fair value of options granted to non-employees during the year,
using the Black Scholes option-pricing model and the
weighted-average assumptions used for such grants:
|
|
For
the
three months ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Weighted-average fair
value of underlying stock at grant date |
|
$ |
0.15 |
|
|
$ |
— |
|
Dividend
yields |
|
|
— |
|
|
|
— |
|
Expected
volatility |
|
|
103 |
% |
|
|
— |
|
Risk-free
interest rates |
|
|
1.78 |
% |
|
|
— |
|
Expected
lives (in years) |
|
|
10 |
|
|
|
— |
|
Weighted-average grant
date fair value |
|
$ |
0.14 |
|
|
$ |
— |
|
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)
E.
Compensation Cost for Warrant and Option Issuances
The
following table sets forth information about the compensation cost
of warrant and option issuances recognized for employees and
directors:
For the
three months ended March 31, |
|
2022 |
|
|
2021 |
|
US$
thousands |
|
|
US$
thousands |
|
|
214 |
|
|
|
821 |
|
The
following table sets forth information about the compensation cost
of warrant and option issuances recognized for
non-employees:
For the
three months ended March 31, |
|
2022 |
|
|
2021 |
|
US$
thousands |
|
|
US$
thousands |
|
|
1 |
|
|
|
—
|
|
The
following table sets forth information about the compensation cost
of option issuances recognized for employees and non-employees and
capitalized to Unproved Oil & Gas properties:
For the
three months ended March 31, |
|
2022 |
|
|
2021 |
|
US$
thousands |
|
|
US$
thousands |
|
|
7 |
|
|
|
—
|
|
As of
March 31, 2022, there was $325,000 of unrecognized compensation
cost, related to non-vested stock options granted under the
Company’s various stock option plans. That cost is expected to be
recognized during the remaining periods of 2022 and
2023.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
F.
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”) 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.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
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 advanced notice
to the warrant holders.
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
offering 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 advanced
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 advanced
notice to the warrant holders.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
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 19, 2018 and continued to be
exercisable through April 19, 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 19, 2019 to April 19, 2020.
On
May 29, 2019, the Company extended the termination date of the
ZNWAH Warrant by one (1) year from the expiration date of April 19,
2020 to April 19, 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 19, 2021 to April 19, 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.”
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
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.
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 Option
Program. 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 continued 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 option program consisting of a Unit
(shares of stock and warrants) of its securities and subsequently
an option program consisting of shares of stock 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 shall have 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
March 21, 2022, the Company extended the termination date of the
ZNWAM Warrant by one (1) year from the expiration date of July 15,
2022 to July 15, 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
February 1, 2021, the Company initiated a unit offering and it
terminated on March 17, 2021.
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) 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 Program 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.”
The warrants became exercisable on May 16, 2021 and continue to be
exercisable through May 16, 2023 at a per share exercise price of
$1.00.
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.”
The warrants became exercisable on June 12, 2021 and continue to be
exercisable through June 12, 2023 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 units of shares
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.
On
March 21, 2022, the Company extended the termination date of the
ZNWAP Warrant by one (1) year from the expiration date of June 2,
2022 to June 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.
Under
our Plan, the Company under a Request For Waiver Program executed a
Waiver Term Sheet for a 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.
Under our Plan, the Company under a Request For Waiver Program
executed a Waiver Term Sheet of a unit program consisting of units
of 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 were issued on May 5, 2022 and are
exercisable through July 6, 2022 at a per share exercise price of
$.25.
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 units of 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.
On
March 21, 2022, the Company extended the termination date of the
ZNWAR Warrant by one (1) year from the expiration date of June 22,
2022 to June 22, 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 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 ofunits of 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.
During 2021, two participants who participated in the “Request for
Waiver” aspect of the DSPP contributed approximately 67% of the
cash raised through the DSPP. During the three months ended March
31, 2022, one participant in the “Request for Waiver” aspect of the
DSPP contributed approximately 85% of the cash raised through the
DSPP.
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.
On
December 10, 2021 Zion filed an Amendment No. 1 to the Registration
Statement on Form S-3 (File No. 333-235299) for the purpose of
converting the existing Form S-1 to the Registration Statement on
Form S-3. 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 months ended March 31, 2022, and 2021, approximately
$11,427,000, and $2,849,000 were raised under the DSPP program,
respectively.
The company raised approximately $2,585,000 from the period
April 1, 2022 through May 6, 2022, 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 characterized above, in the table below, and throughout
this Form 10-K, are not tradeable and are used internally for
classification and accounting purposes only.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
G.
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.”
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.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
H.
Warrant Table
The
warrants balances at December 31, 2021 and transactions since
January 1, 2022 are shown in the table below:
Warrants |
|
Exercise
Price |
|
|
Warrant
Termination Date |
|
Outstanding Balance,
12/31/2021 |
|
|
Warrants
Issued |
|
|
Warrants
Exercised |
|
|
Warrants
Expired |
|
|
Outstanding Balance,
03/31/2022 |
|
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 |
|
|
431,655 |
|
|
|
-
|
|
|
|
(1,750 |
) |
|
|
- |
|
|
|
429,905 |
|
ZNWAL |
|
$ |
2.00 |
|
|
08/26/2023 |
|
|
517,875 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
517,875 |
|
ZNWAM |
|
$ |
1.00 |
|
|
07/15/2023 |
|
|
4,376,000 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,376,000 |
|
ZNWAN |
|
$ |
1.00 |
|
|
05/16/2023 |
|
|
267,660 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
267,660 |
|
ZNWAO |
|
$ |
0.25 |
|
|
06/12/2023 |
|
|
174,970 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174,970 |
|
ZNWAP |
|
$ |
0.25 |
|
|
06/02/2023
|
|
|
439,916 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
439,916 |
|
ZNWAR |
|
$ |
0.25 |
|
|
06/23/2023 |
|
|
1,020,000 |
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,020,000 |
|
Outstanding warrants |
|
|
|
|
|
|
|
|
13,273,365 |
|
|
|
- |
|
|
|
(1,750 |
) |
|
|
- |
|
|
|
13,271,615 |
|
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
3 - Stockholders’ Equity (cont’d)
I.
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
19, 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 |
|
D |
|
January
2021 – March 2021 |
|
|
|
1.00 |
|
|
July
15, 2023 |
|
ZNWAN
Warrants |
|
|
|
May –
June 2021 |
|
|
|
1.00 |
|
|
May
16, 2023 |
|
ZNWAO
Warrants |
|
|
|
June
2021 |
|
|
|
0.25 |
|
|
June
12, 2023 |
|
ZNWAP
Warrants |
|
D |
|
June
2021 |
|
|
|
0.25 |
|
|
June
03, 2023 |
|
ZNWAQ
Warrants |
|
E |
|
June
2021 |
|
|
|
0.25 |
|
|
July
6, 2022 |
|
ZNWAR
Warrants |
|
D |
|
June
2021 |
|
|
|
0.25 |
|
|
June
23, 2023 |
|
ZNWAS Warrants |
|
F |
|
August 2021 – March 2022 |
|
|
|
1.00 |
|
|
December 31, 2023 |
|
* |
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. |
D |
On
March 21, 2022, the Company extended the termination date of the
Warrants by one (1) year. |
E |
These
warrants were issued on May 5, 2022. |
F |
These warrants will be exercisable
beginning on November 15, 2023 and terminate on December 31, 2023.
These warrants will be issued in November 2023. |
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:
|
|
March 31,
2022 |
|
|
December 31,
2021 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
Excluded
from amortization base: |
|
|
|
|
|
|
|
|
Drilling
costs, and other operational related costs |
|
|
32,703 |
|
|
|
32,075 |
|
Capitalized salary
costs |
|
|
2,210 |
|
|
|
2,158 |
|
Capitalized interest
costs |
|
|
1,418 |
|
|
|
1,418 |
|
Legal and
seismic costs, license fees and other preparation costs |
|
|
11,729 |
|
|
|
11,260 |
|
Other
costs |
|
|
39 |
|
|
|
39 |
|
|
|
|
48,099 |
|
|
|
46,950 |
|
Changes
in Unproved oil and gas properties during the three months ended
March 31, 2022 and 2021 are as follows:
|
|
March 31,
2022 |
|
|
March 31,
2021 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
Excluded
from amortization base: |
|
|
|
|
|
|
|
|
Drilling
costs, and other operational related costs |
|
|
628 |
|
|
|
7,002 |
|
Capitalized salary
costs |
|
|
52 |
|
|
|
61 |
|
Capitalized interest
costs |
|
|
-
|
|
|
|
79 |
|
Legal and
seismic costs, license fees and other preparation costs |
|
|
469 |
|
|
|
1,034 |
|
Other
costs |
|
|
-
|
|
|
|
-
|
|
|
|
|
*1,149 |
|
|
|
*8,176 |
|
|
* |
Inclusive
of non-cash amounts of approximately $1,137,000, and $2,442,000
during the three months ended March 31, 2022, and 2021,
respectively |
Please
refer to Footnote 1 – Nature of Operations and Going Concern for
more information about Zion’s exploration activities.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
5 - Right of use leases assets and lease obligations
The
Company is a lessee in several non-cancellable operating leases,
primarily for transportation and office space.
The
table below presents the operating lease assets and liabilities
recognized on the balance sheets as of March 31, 2022 and December
31, 2021:
|
|
March 31,
2022 |
|
|
December 31,
2021 |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
Operating
lease assets |
|
$ |
263 |
|
|
$ |
327 |
|
|
|
|
|
|
|
|
|
|
Operating
lease liabilities: |
|
|
|
|
|
|
|
|
Current
operating lease liabilities |
|
$ |
169 |
|
|
$ |
203 |
|
Non-current operating
lease liabilities |
|
$ |
129 |
|
|
$ |
169 |
|
Total
operating lease liabilities |
|
$ |
298 |
|
|
$ |
372 |
|
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 March 31, 2022
are:
|
|
March 31,
2022 |
|
Weighted
average remaining lease term (years) |
|
|
1.75 |
|
Weighted
average discount rate |
|
|
5.9 |
% |
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
5 - Right of use leases assets and leases obligations
(cont’d)
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 balance sheets as of March 31, 2022:
|
|
US$
thousands |
|
2022 |
|
|
142 |
|
2023 |
|
|
158 |
|
2024 |
|
|
13 |
|
2025 |
|
|
-
|
|
2026 |
|
|
-
|
|
Thereafter |
|
|
-
|
|
Total
undiscounted future minimum lease payments |
|
|
313 |
|
Less:
portion representing imputed interest |
|
|
(15 |
) |
Total
undiscounted future minimum lease payments |
|
|
298 |
|
Operating
lease costs were $68,000 and $63,000 for the three months
ended March 31, 2022, and 2021, 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 $71,000 for the three months
ended March 31, 2022, and 2021, respectively, and this amount is
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 $nil for
the three months ended March 31, 2022, and 2021,
respectively.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
6 - 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
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.
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.
The
Company believes that these 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 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
March 31, 2022, and December 31, 2021, the Company accrued
$nil and
$nil for
license regulatory matters.
E.
Bank Guarantees
As of
March 31, 2022, the Company provided Israeli-required bank
guarantees to various governmental bodies (approximately
$1,186,000) and others (approximately $82,000) with respect to its
drilling operation in an aggregate amount of approximately
$1,268,000. The (cash) funds backing these guarantees are held in
restricted interest-bearing accounts in Israel and are reported on
the Company’s balance sheets as fixed short-term bank deposits –
restricted.
Zion
Oil & Gas, Inc.
Consolidated
Condensed Notes to Financial Statements (Unaudited)
Note
6 - Commitments and Contingencies (cont’d)
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, 2022 through March 31, 2022, the USD has
fluctuated by approximately 2.1% against the NIS (the USD
strengthened relative to the NIS). By contrast, during the period
January 1, 2021 through December 31, 2021, the USD fluctuated by
approximately 3.3% 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 March 31, 2022, we had cash, cash
equivalents and short-term bank deposits of approximately
$9,490,000. The weighted average annual interest rate related to
our cash and cash equivalents for the three months ended March 31,
2022, exclusive of funds at US banks that earn no interest, was
approximately 0.52%.
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
7 - Subsequent Events
|
(i) |
Approximately $2,585,000 was collected through
the Company’s DSPP program during the period April 1 through May 6,
2022. |
|
(ii) |
On April 1, 2022, the Company
granted options under the 2021 Omnibus Incentive Plan to one board
member, to purchase 25,000 shares of Common Stock at an exercise
price of $0.1128 per share. The options vested upon grant and are
exercisable through April 1, 2032. The fair value of the options at
the date of grant amounted to approximately $2,410. |
|
(iii) |
On April 15, 2022, the Company
granted options under the 2021 Omnibus Incentive Plan to five
senior officers and ten staff members to purchase 3,160,000 shares
of Common Stock at an exercise price of $0.1451 per share. The
options vest on April 15, 2023 (in one year) and are exercisable
through April 15, 2032. The fair value of the options at the date
of grant amounted to approximately $387,660, and will be recognized
during the years 2022 and 2023. |
|
(iv) |
On April 15. 2022, the Company
granted options under the 2021 Omnibus Incentive Plan to five staff
members, to purchase 290,000 shares of Common Stock at an exercise
price of $0.01 per share. The options vested upon grant and are
exercisable through April 15, 2032. These options were granted per
the provisions of the Israeli Appendix to the Plan. The fair value
of the options at the date of grant amounted to approximately
$39,594. |
|
(v) |
On April 15, 2022, the Company
granted options under the 2021 Omnibus Incentive Plan to one senior
officer member to purchase 400,000 shares of Common Stock at an
exercise price of $0.01 per share. The options vested upon grant
and are exercisable through April 15, 2032. These options were
granted per the provisions of the Israeli Appendix to the Plan. The
fair value of the options at the date of grant amounted to
approximately $54.612. |
|
(vi) |
On April 15. 2022, the Company
granted options under the 2021 Omnibus Incentive Plan to one board
member, to purchase 400,000 shares of Common Stock at an exercise
price of $0.01 per share. The options vested upon grant and are
exercisable through April 15, 2032. These options were granted per
the provisions of the Israeli Appendix to the Plan. The fair value
of the options at the date of grant amounted to approximately
$54,612. |
|
(vii) |
On April 15, 2022, the Company
granted options under the 2021 Omnibus Incentive Plan to eight
board members to purchase 3,200,000 shares of Common Stock at an
exercise price of $.1451 per share. The options vest on April 15,
2023 (in one year) and are exercisable through April 15, 2023. The
fair value of the options at the date of grant amounted to
approximately $392,567. |
|
(viii) |
On April 15, 2022, the Company
granted options under the 2021 Omnibus Incentive Plan to two
consultants to purchase 50,000 shares of Common Stock at an
exercise price of $.1451 per share. The options vest on April 15,
2023 (in one year) and are exercisable through April 15, 2023. The
fair value of the options at the date of grant amounted to
approximately $6,377. |
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, 2021, 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 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 22 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. On November 29,
2021, the Ministry of Energy approved our request for extension to
August 1, 2022. The ML 428 lies onshore, south and west of the Sea
of Galilee, and we continue our exploration focus here based on our
studies 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 months
ended March 31, 2022 and 2021, 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
examine further 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. On November 23, 2021, Zion announced via a press
release that it completed drilling the MJ-02 well to a total depth
of 5,531 meters (~18,141 feet) with a 6-inch open hole at that
depth.
A
full set of detailed and comprehensive tests including
neutron-density, sonic, gamma, and resistivity logs were acquired
in December 2021, as a result of which we identified an encouraging
zone of interest. All of the well testing equipment and personnel
are secured for the MJ-02 well. We have re-entered our MJ-02
wellbore and are progressing to production testing. This work is
expected to take several weeks.
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 – See Map 1. Under Israeli law,
Zion has an exclusive right to oil and gas exploration in our
license area in that no other company may drill there. In the event
we drill an oil or gas discovery in our license area, current
Israeli law entitles us to convert the relevant portions of our
license to a 30-year production lease, extendable to 50 years,
subject to compliance with a field development work program and
production.
The New Megiddo License 428 was awarded on December 3, 2020 for a
six-month term with the possibility of an additional six-month
extension. On May 30, 2021, the Ministry of Energy approved our
request for extension to December 2, 2021. On November 29, 2021,
the Ministry of Energy approved our request for extension to August
1, 2022. The New Megiddo License 428 area is the same area as the
Megiddo-Jezreel License 401 area and lies onshore, south and west
of the Sea of Galilee and we continue our exploration focus here
based on our studies as it appears to possess the key geologic
ingredients of an active petroleum system with significant
exploration potential.
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. On November 23, 2021, Zion announced via a press release that
it completed drilling the MJ-02 well to a total depth of 5,531
meters (~18,141 feet) with a 6-inch open hole at that
depth.
A
full set of detailed and comprehensive tests including
neutron-density, sonic, gamma, and resistivity logs were acquired
in December 2021, as a result of which we identified an encouraging
zone of interest. All of the well testing equipment and personnel
are secured for the MJ-02 well. We have re-entered our MJ-02
wellbore and are progressing to production testing. This work is
expected to take several weeks.
I-35
Drilling Rig & Associated Equipment
|
|
Three-month period
ended March 31, 2022 |
|
|
|
I-35
Drilling Rig |
|
|
Rig
Spare Parts |
|
|
Other
Drilling Assets |
|
|
Total |
|
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
|
US$
thousands |
|
December
31, 2021 |
|
|
5,859 |
|
|
|
643 |
|
|
|
332 |
|
|
|
6,834 |
|
Asset
Additions |
|
|
- |
|
|
|
5 |
|
|
|
117 |
|
|
|
122 |
|
Asset
Depreciation |
|
|
(159 |
) |
|
|
- |
|
|
|
(25 |
) |
|
|
(184 |
) |
Asset
Disposals for Self-Consumption |
|
|
- |
|
|
|
(13 |
) |
|
|
- |
|
|
|
(13 |
) |
March 31,
2022 |
|
|
5,700 |
|
|
|
635 |
|
|
|
424 |
|
|
|
6,759 |
|
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 March 31,
2022.
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”) 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 3F (“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 2022.
For
the three months ended March 31, 2022, and 2021, approximately
$11,427,000, and $2,849,000 were raised under the DSPP program,
respectively.
The
warrants balances at December 31, 2021 and transactions since
January 1, 2022 are shown in the table below:
Warrants |
|
Exercise
Price |
|
|
Warrant
Termination Date |
|
Outstanding Balance,
12/31/2021 |
|
|
Warrants
Issued |
|
|
Warrants
Exercised |
|
|
Warrants
Expired |
|
|
Outstanding Balance,
03/31/2022 |
|
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 |
|