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Existing subscribers to the AMI are entitled to the additional fifty (50) warrants, if they purchase at least one (1) Unit during the |
Unit program. Plan participants, who enroll in the AMI at a minimum of $100 per month, will receive one hundred (100) ZNWAY warrants. |
Plan participants, who enroll in the AMI at a minimum of $250 per month, will receive two hundred and fifty (250) ZNWAY warrants. Plan |
participants, who enroll in the AMI at a minimum of $500 per month, will receive five hundred (500) ZNWAY warrants. The AMI program requires |
90 days of participation to receive the ZNWAY warrants. Existing AMI participants are entitled to participate in this monthly program |
by increasing their monthly amount above the minimum $50.00 per month. The ZNWAV warrants became exercisable on March |
31, 2023 and continue to be exercisable through June 28, 2023 at a per share exercise price of $0.05. The ZNWAW warrants became exercisable |
on April 14, 2023 and continue to be exercisable through July 13, 2023 at a per share exercise price of $0.05. The ZNWAX warrants became |
exercisable on May 2, 2023 and continue to be exercisable through July 31, 2023 at a per share exercise price of $0.05. The ZNWAY warrants |
will become exercisable on June 12, 2023 and will continue to be exercisable through September 10, 2023 at a per share exercise price |
of $0.05. For the three months ended March 31, 2023, and |
2022, approximately $ 792,000 and $ 11,427,000 were raised under the DSPP program, respectively. The company raised approximately $761,000 from |
the period April 1, 2023 through May 9, 2023, 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-Q, are not tradeable and are used internally for classification and accounting purposes only. 25 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) E. Warrant Table The warrants balances at December 31, 2022 and |
transactions since January 1, 2023 are shown in the table be Warrants Exercise Price Warrant Termination Date Outstanding Balance, 12/31/2022 Warrants Issued Warrants Exercised Warrants Expired Outstanding Balance, 03/31/2023 ZNWAA $ 2.00 01/31/2024 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 01/08/2024 240,068 - - - 240,068 ZNWAH $ 5.00 04/19/2023 372,400 - - - 372,400 ZNWAI $ 3.00 06/29/2023 640,710 - - 640,710 ZNWAJ $ 1.00 10/29/2023 545,900 - - - 545,900 ZNWAK $ 0.01 02/25/2023 424,225 - ( 9,050 ) ( 415,175 ) - ZNWAL $ 2.00 08/26/2023 517,875 - - - 517,875 ZNWAM $ 0.05 07/15/2023 4,376,000 - - - 4,376,000 ZNWAN $ 1.00 05/16/2023 267,760 - ( 50 ) - 267,710 ZNWAO $ 0.25 06/12/2023 174,660 - - - 174,660 ZNWAQ $ 0.05 07/06/2023 23,428,348 - - - 23,428,348 ZNWAV $ 0.05 06/28/2023 - 286,500 - - 286,500 Outstanding warrants 35,234,137 286,500 ( 9,100 ) ( 415,175 ) 35,096,362 26 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) F. 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,G March 2013 – December 2014 2.00 January 31, 2024 ZNWAD Warrants H January 2015 – March 2016 1.00 May 02, 2023 ZNWAE Warrants H 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,G October 2017 – December 2017 1.00 January 08, 2024 ZNWAH Warrants H 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 H December 2018 – January 2019 0.01 February 25, 2023 ZNWAL Warrants C July 2019 – August 2019 2.00 August 26, 2023 ZNWAM Warrants D,I January 2021 – March 2021 0.05 July 15, 2023 ZNWAN Warrants May – June 2021 1.00 May 16, 2023 ZNWAO Warrants June 2021 0.25 June 12, 2023 ZNWAQ Warrants E,I June 2021 0.05 July 6, 2023 ZNWAS Warrants F August 2021 – March 2022 0.25 December 31, 2025 ZNWAT Warrants F August – September 2022 0.25 December 31, 2025 ZNWAU Warrants F October – November 2022 0.25 December 31, 2025 ZNWAV Warrants J March 2023 0.05 June 28, 2023 ZNWAW Warrants J March – April 2023 0.05 July 13, 2023 ZNWAX Warrants J April 2023 0.05 July 31, 2023 ZNWAY Warrants K March – April 2023 0.05 Sept 10, 2023 * Zion’s ZNWAB Warrants expired on May 2, 2017, the ZNWAC Warrants expired on May 2, 2018, the ZNWAD Warrants expired on May 2, 2023, the ZNWAE Warrants expired on May 1, 2023, the ZNWAH Warrants expired on April 19, 2023, and the ZNWAK Warrants expired on February 25, 2023. A On December 4, 2018, the Company extended the expiration date of the Warrants by one ( 1 ) year. B On May 29, 2019, the Company extended the expiration date of the Warrants by one ( 1 ) year. C On September 15, 2020, the Company extended the expiration date of the Warrants by two ( 2 ) years. D On March 21, 2022, the Company extended the expiration date of the Warrants by one ( 1 ) year. E These warrants were issued on May 5, 2022, and on May 17, 2022, the Company extended the expiration date of the Warrants by one ( 1 ) year. F These warrants will be issued and become exercisable beginning on November 15, 2025 and expire on December 31, 2025. G On December 14, 2022, the Company extended the expiration date of the Warrants by one ( 1 ) year. H These warrants are now expired as of the report date. I The warrant exercise price was lowered to $ 0.05 on December 28, 2022. J On March 13, 2023, The Company announced a new Unit Offering, inclusive of three tranches of warrants (ZNWAV, ZNWAW and ZNWAX). K The ZNWAY warrants are associated with Automatic Monthly |
Investments (“AMI”) connected with participation in the unit offering announced on March 13, 2023 27 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, 2023 December 31, 2022 US$ thousands US$ thousands Excluded from amortization base: Drilling costs, and other operational related costs 2,414 2,362 Capitalized salary costs 2,368 2,342 Capitalized interest costs 1,418 1,418 Legal and seismic costs, license fees and other preparation costs 9,818 9,728 Other costs 39 39 16,057 15,889 Impairment of unproved oil and gas properties comprised as follows: For the three months ended March 31, 2023 2022 US$ thousands US$ thousands Excluded from amortization base: Drilling costs, and other operational related costs 11 - Capitalized salary costs - - Capitalized interest costs - - Legal and seismic costs, license fees and other preparation costs 34 - 45 - Changes in Unproved oil and gas properties during |
the three months ended March 31, 2023 and 2022 are as follows: March 31, 2023 March 31, 2022 US$ thousands US$ thousands Excluded from amortization base: Drilling costs, and other operational related costs 63 628 Capitalized salary costs 26 52 Capitalized interest costs - - Legal and seismic costs, license fees and other preparation costs 124 469 Other costs - - Impairment of unproved oil and gas properties ( 45 ) - * 168 * 1,149 * Inclusive |
of non-cash amounts of approximately $ 1,515,000 , and $ 1,137,000 during the three months ended March 31, 2023, and 2022, respectively Please refer to Footnote 1 – Nature of Operations |
and Going Concern for more information about Zion’s exploration activities. 28 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 5 - Right of use lease assets and lease |
obligations The Company is a lessee in several non-cancellable |
operating leases for transportation and office space. The table below presents the operating lease assets |
and liabilities recognized on the balance sheets as of March 31, 2023 and December 31, 2022: March 31, 2023 December 31, 2022 US$ thousands US$ thousands Operating lease assets $ 135 $ 202 Operating lease liabiliti Current operating lease liabilities $ 125 $ 196 Non-current operating lease liabilities $ 12 $ 12 Total operating lease liabilities $ 137 $ 208 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, 2023 March 31, 2023 Weighted average remaining lease term (years) 0.75 Weighted average discount rate 4.9 % 29 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 5 - Right of use lease 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, 2023: US$ thousands 2023 128 2024 11 2025 - 2026 - Thereafter - Total undiscounted future minimum lease payments 139 L portion representing imputed interest ( 2 ) Total undiscounted future minimum lease payments 137 Operating lease costs were $ 69,000 and $ 68,000 for the three months ended March 31, 2023, and 2022, respectively. Operating lease costs are included within general and administrative |
expenses on the statements of operations. Cash paid for amounts included in the measurement |
of operating lease liabilities was $ 70,000 and $ 72,000 for the three months ended March 31, 2023, and 2022, 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, 2023, and 2022, respectively. 30 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. On April 5, 2023, the Company received from the Fort |
Worth Regional Office of the SEC written notice to the Company concluding the investigation as to the Company and that the SEC does “not |
intend to recommend an enforcement action by the Commission against Zion. ” 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. 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 significantly impacted the economic conditions in the United States and Israel, as federal, state and local governments reacted |
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. However, as of the date of this report, most of our employees are working at our physical offices, but have the ability |
to work from home as needed. 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, 2023, and December 31, 2022, the |
Company accrued $ nil and $ nil for license regulatory matters. E. Bank Guarantees As of March 31, 2023, the Company provided Israeli-required |
bank guarantees to various governmental bodies (approximately $ 1,042,000 ) and others (approximately $ 76,000 ) with respect to its drilling |
operation in an aggregate amount of approximately $ 1,118,000 . 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. 31 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, 2023 through March 31, 2023, the USD has fluctuated by approximately 2.7 % against the |
NIS (the USD strengthened relative to the NIS). Also, during the period January 1, 2022 through December 31, 2022, the USD fluctuated |
by approximately 13.2 % against the NIS (the USD strengthened 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, 2023, we had cash, cash equivalents and short-term bank deposits of approximately $ 2,159,000 . The weighted average annual interest |
rate related to our cash and cash equivalents for the three months ended March 31, 2023, exclusive of funds at US banks that earn no interest, |
was approximately 2.61 %. 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 $761,000 was collected through the Company’s DSPP program during |
the period April 1 through May 9, 2023. 32 ITEM |
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD |
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