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rig-related activity during the quarter ended June 30, 2023 : I-35 Drilling Rig & Associated Equipmen As of June 30, 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 ( 317 ) - ( 63 ) ( 380 ) Asset Disposals for Self-Consumption - ( 11 ) - ( 11 ) June 30, 2023 4,908 608 374 5,890 During the six months ended June 30, 2023 and 2022, the Company had |
depreciation expense of $ 380,000 and $ 371,000 , respectively. The asset disposal due to self-consumption was not material during the periods. 13 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 800,000,000 shares to 1,200,000,000 shares, effective June 7, 2023. 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 six months ended June 30, 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 . iii. Options |
to purchase 25,000 shares of Common Stock to one board member, at an exercise price of $ 0.07 per share. The options vested upon grant |
and are exercisable through June 8, 2033. The fair value of the options at the date of grant amounted to approximately $ 1,500 . 14 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) During |
the six months ended June 30, 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 to 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. x. Options to purchase 25,000 shares of Common Stock to one board member, at an exercise price of $ 0.11 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 $ 2,000 . xi. Options to purchase 3,210,000 shares of Common Stock to five senior officers, two consultants and ten staff members at an exercise price of $ 0.15 per share. The options vested 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 $ 394,000 , and will be recognized during the years 2022 and 2023. xii. Options to purchase 1,090,000 shares of Common Stock to one senior officer, one board member and five staff members 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 $ 149,000 . xiii. Options to purchase 3,200,000 shares of Common Stock to eight board members at an exercise price of $ 0.15 per share. The options vested 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 $ 393,000 . 15 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 225,000 0.06 Expired/Cancelled/Forfeited ( 25,000 ) 1.33 Exercised ( 150,000 ) 0.07 Outstanding, June 30, 2023 26,441,250 0.30 Exercisable, June 30, 2023 21,286,250 0.32 16 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 June 30, 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$ 0.18 5,155,000 9.24 0.18 0.01 10,000 0.37 0.01 — — — — 0.01 5,000 0.95 0.01 — — — — 0.01 20,000 2.93 0.01 — — — — 0.01 130,000 3.51 0.01 — — — — 0.01 50,000 3.52 0.01 — — — — 0.01 60,000 3.80 0.01 — — — — 0.01 200,000 3.89 0.01 — — — — 0.01 40,000 4.26 0.01 — — — — 0.01 70,000 4.51 0.01 — — — — 0.01 25,000 4.52 0.01 — — — — 0.01 30,000 4.67 0.01 — — — — 0.01 4,000 4.77 0.01 — — — — 0.01 25,000 5.53 0.01 — — — — 0.01 35,000 6.22 0.01 — — — — 0.01 150,000 6.39 0.01 — — — — 0.01 35,000 6.52 0.01 — — — — 0.01 75,000 7.52 0.01 — — — — 0.01 200,000 7.90 0.01 — — — — 0.01 300,000 8.05 0.01 — — — — 0.01 10,000 8.18 0.01 — — — — 0.01 500,000 8.52 0.01 — — — — 0.01 55,000 8.56 0.01 — — — — 0.01 960,000 8.80 0.01 — — — — 0.01 75,000 9.13 0.01 — — — — 0.01 10,000 9.18 0.01 — — — — 0.01 795,000 9.24 0.01 — — — — 0.01 25,000 9.52 0.01 — — — — 0.06 50,000 9.52 0.06 — — — — 0.07 25,000 9.95 0.07 — — — — 0.14 240,000 8.56 0.14 — — — — 0.15 3,200,000 8.52 0.15 — — — — 0.15 6,410,000 8.80 0.15 — — — — 0.16 340,000 2.45 0.16 — — — — 0.16 75,000 6.45 0.16 — — — — 0.18 25,000 2.43 0.18 — — — — 0.24 25,000 9.10 0.24 — — — — 0.24 118,000 9.13 0.24 — — — — 0.25 50,000 8.18 0.25 — — — — 0.25 363,000 8.18 0.25 — — — — 0.28 25,000 2.18 0.28 — — — — 0.28 25,000 6.18 0.28 — — — — 0.29 25,000 3.96 0.29 — — — — 0.39 1,435,000 8.03 0.39 — — — — 0.59 1,400,000 3.89 0.59 — — — — 0.59 1,600,000 7.90 0.59 — — — — 0.92 350,000 3.52 0.92 — — — — 0.92 550,000 7.52 0.92 — — — — 1.38 105,307 1.51 1.38 — — — — 1.67 405,943 1.26 1.67 — — — — 1.75 250,000 0.02 1.75 — — — — 1.78 25,000 1.18 1.78 — — — — 2.31 250,000 0.51 2.31 — — — — 4.15 25,000 1.01 4.15 0.18 5,155,000 0.18 0.01 - 4.15 21,286,250 0.32 17 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 six months ended June 30, 2023 2022 Weighted-average fair value of underlying stock at grant date $ 0.06 $ 0.14 Dividend yields — — Expected volatility 136 %- 137 % 127 %- 135 % Risk-free interest rates 3.87 %- 3.85 % 1.37 %- 2.79 % 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 six months ended June 30, 2023 2022 Weighted-average fair value of underlying stock at grant date — $ 0.14 Dividend yields — — Expected volatility — % 103 % - 104 % Risk-free interest rates — % 1.78 % - 2.83 % Expected lives (in years) — 10 Weighted-average grant date fair value — $ 0.13 There were no warrants or options granted to non-employees |
for the six months ended June 30, 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. 18 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 June 30, 2023 2022 US$ thousands US$ thousands 242 417 The following table sets forth information about |
the compensation cost of warrant and option issuances recognized for non-employe For the six months ended June 30, 2023 2022 US$ thousands US$ thousands 656 631 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 June 30, 2023 2022 US$ thousands US$ thousands — 3 For the six months ended June 30, 2023 2022 US$ thousands US$ thousands 2 4 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 June 30, 2023 2022 US$ thousands US$ thousands — 10 For the six months ended June 30, 2023 2022 US$ thousands US$ thousands — 17 As of June 30, 2023, there was $ 194,000 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. 19 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. As of May 2, 2023, any outstanding ZNWAD warrants |
expired. 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. 20 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. As of May 1, 2023, any outstanding ZNWAE warrants |
expired. 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 |
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