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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. 6 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 7 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. 8 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. 9 Zion |
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