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recognized assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising |
from revenue contracts with customers, at fair value on the acquisition date. The ASU results in the acquirer recording acquired contract |
assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC 606. The ASU is |
effective for fiscal years beginning after December 15, 2022, with early adoption permitted. Zion adopted ASU 2021-08 in the first quarter |
of 2023. The adoption of this ASU did not have a material impact on our consolidated financial statements; the impact in future periods |
will be dependent upon the contract assets acquired and contract liabilities assumed in any future business combinations. In September 2022, the FASB issued ASU No. 2022-04 , |
Liabilities – Supplier Finance Programs (Subtopic 405-50) . The ASU requires companies to disclose information about supplier |
finance programs, including key terms of the program, outstanding confirmed amounts as of the end of the period, a roll forward of such |
amounts during each annual period, and a description of where the amounts are presented. The new standard does not affect the recognition, |
measurement, or financial statement presentation of supplier finance obligations. The ASU is effective for fiscal years beginning after |
December 15, 2022, including interim periods, except for roll forward information, which is effective for fiscal years beginning after |
December 15, 2023. The adoption of this ASU did not have any impact on its consolidated financial statements. Other Recent Accounting Pronouncements The Company does not believe that the adoption |
of any recently issued accounting pronouncements in 2023 had a significant impact on our consolidated financial position, results of operations, |
or cash flow. 11 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. 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. 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. 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, 2023: I-35 Drilling Rig & Associated Equipmen Three-month period ended March 31, 2023 I-35 Drilling Rig Rig Spare Parts Other Drilling Assets Total US$ thousands US$ thousands US$ thousands US$ thousands December 31, 2022 5,225 619 437 6,281 Asset Additions - - - - Asset Depreciation ( 159 ) - ( 32 ) ( 191 ) Asset Disposals for Self-Consumption - ( 10 ) - ( 10 ) March 31, 2023 5,066 609 405 6,080 12 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. 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. 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, 2023, |
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 compensati i. Options to purchase 175,000 shares of Common Stock to five senior officers and one staff member at an exercise price of $ 0.0615 per share. The options vested upon grant and are exercisable through January 4, 2033 . The fair value of the options at the date of grant amounted to approximately $ 9,000 . 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, 2033. 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 $ 1,500 . 13 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) 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 compensati 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. 14 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) B. Stock Options The stock option transactions since January 1, |
2023 are shown in the table be Number of shares Weighted Average exercise price US$ Outstanding, December 31, 2022 26,391,250 0.30 Changes during 2023 t Granted to employees, officers, directors and others 200,000 0.06 Expired/Cancelled/Forfeited - - Exercised ( 125,000 ) 0.06 Outstanding, March 31, 2023 26,466,250 0.30 Exercisable, March 31, 2023 14,901,250 0.40 15 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, 2023: 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$ 0.15 6,410,000 9.05 0.15 0.01 10,000 0.62 0.01 0.18 5,155,000 9.49 0.18 0.01 5,000 1.20 0.01 — — — — 0.01 20,000 3.17 0.01 — — — — 0.01 130,000 3.75 0.01 — — — — 0.01 50,000 3.76 0.01 — — — — 0.01 60,000 4.04 0.01 — — — — 0.01 200,000 4.13 0.01 — — — — 0.01 40,000 4.50 0.01 — — — — 0.01 70,000 4.75 0.01 — — — — 0.01 25,000 4.76 0.01 — — — — 0.01 30,000 4.91 0.01 — — — — 0.01 4,000 5.01 0.01 — — — — 0.01 25,000 5.77 0.01 — — — — 0.01 35,000 6.46 0.01 — — — — 0.01 150,000 6.63 0.01 — — — — 0.01 35,000 6.76 0.01 — — — — 0.01 75,000 7.76 0.01 — — — — 0.01 200,000 8.14 0.01 — — — — 0.01 300,000 8.29 0.01 — — — — 0.01 10,000 8.42 0.01 — — — — 0.01 500,000 8.76 0.01 — — — — 0.01 55,000 8.80 0.01 — — — — 0.01 960,000 9.04 0.01 — — — — 0.01 75,000 9.37 0.01 — — — — 0.01 10,000 9.42 0.01 — — — — 0.01 795,000 9.48 0.01 — — — — 0.01 25,000 9.76 0.01 — — — — 0.06 50,000 9.76 0.06 — — — — 0.14 240,000 8.80 0.14 — — — — 0.15 25,000 8.76 0.15 — — — — 0.15 3,200,000 9.00 0.15 — — — — 0.16 340,000 2.69 0.16 — — — — 0.16 75,000 6.69 0.16 — — — — 0.18 25,000 2.67 0.18 — — — — 0.24 25,000 9.34 0.24 — — — — 0.24 118,000 9.37 0.24 — — — — 0.25 50,000 8.42 0.25 — — — — 0.25 363,000 8.42 0.25 — — — — 0.28 25,000 2.42 0.28 — — — — 0.28 25,000 6.42 0.28 — — — — 0.29 25,000 4.20 0.29 — — — — 0.39 1,435,000 8.27 0.39 — — — — 0.59 1,400,000 4.13 0.59 — — — — 0.59 1,600,000 8.14 0.59 — — — — 0.92 350,000 3.76 0.92 — — — — 0.92 550,000 7.76 0.92 — — — — 1.33 25,000 0.07 1.33 — — — — 1.38 105,307 1.76 1.38 — — — — 1.67 405,943 1.51 1.67 — — — — 1.75 250,000 0.27 1.75 — — — — 1.78 25,000 1.43 1.78 — — — — 2.31 250,000 0.76 2.31 — — — — 4.15 25,000 1.26 4.15 0.15 - 0.18 11,565,000 0.16 0.01 - 4.15 14,901,250 0.40 16 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, 2023 2022 Weighted-average fair value of underlying stock at grant date $ 0.06 $ 0.15 Dividend yields — — Expected volatility 137 % 127 %- 133 % Risk-free interest rates 3.85 % 1.37 %- 1.55 % Expected lives (in years) 5.00 5.00 - 5.50 Weighted-average grant date fair value $ 0.06 $ 0.13 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, 2023 2022 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 There were no warrants or options granted to non-employees |
for the 3 months ended March 31, 2023. 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. 17 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) C. 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 directo For the three months ended March 31, 2023 2022 US$ thousands US$ thousands 415 214 The following table sets forth information about |
the compensation cost of warrant and option issuances recognized for non-employe For the three months ended March 31, 2023 2022 US$ thousands US$ thousands 2 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 properti For the three months ended March 31, 2023 2022 US$ thousands US$ thousands — 7 As of March 31, 2023, there was $ 434,000 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 2023. 18 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) D. Dividend Reinvestment |
and Stock Purchase Plan (“DSPP ”) On March 13, 2014 Zion filed a registration statement |
on Form S-3 that was 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. On January 13, 2015, the Company amended the Original |
Prospectus Supplement (“Amendment No. 3”) to provide for a unit option (the “Unit Option”) under the DSPP comprised |
of one share of Common Stock and three Common Stock purchase warrants with each unit priced at $ 4.00 . Each warrant afforded the participant |
the opportunity to purchase the Company’s Common Stock at a warrant exercise price of $ 1.00 . Each of the three warrants series had |
different expiration dates that had been extended. 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 |
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