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(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 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 $.25. 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. 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 September 30, 2022, 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 $.25. The warrant shall have the company notation of “ZNWAT.” 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 $.25. 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 |
nine months ended September 30, 2022, one participant in the “Request for Waiver” aspect of the DSPP contributed approximately |
77% of the cash raised through the DSPP. 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 November 30, 2022, 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 $.25. The warrant shall have the company notation of “ZNWAU.” 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 $.25. For the three and nine months ended September |
30, 2022, approximately $ 3,477,000 , and $ 16,470,000 were raised under the DSPP program, respectively. For the three and nine months ended September |
30, 2021, approximately $ 4,369,000 , and $ 18,157,000 were raised under the DSPP program, respectively. The |
company raised approximately $ 2,235,000 from |
the period October 1, 2022 through November 9, 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-Q, are not tradeable and are used internally for classification and accounting purposes only. F. 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.” 27 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) 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. G. Warrant Table The warrants balances at December 31, 2021 and |
transactions since January 1, 2022 are shown in the table be Warrants Exercise Price Warrant Termination Date Outstanding Balance, 12/31/2021 Warrants Issued Warrants Exercised Warrants Expired Outstanding Balance, 09/30/2022 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 640,710 - - 640,710 ZNWAJ $ 1.00 10/29/2023 545,900 - - - 545,900 ZNWAK $ 0.01 02/25/2023 431,675 - ( 6,900 ) - 424,775 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 267,660 100 - - 267,760 ZNWAO $ 0.25 06/12/2023 174,970 - ( 310 ) - 174,660 ZNWAQ $ 0.25 07/06/2023 - 23,428,348 - - 23,428,348 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 23,428,448 ( 1,467,026 ) - 35,234,687 During the second quarter of 2022, all warrants |
represented by ZNWAP and ZNWAR were exercised resulting in a net cash inflow of $ 364,979 . 28 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 3 - Stockholders’ Equity (cont’d) H. 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 ZNWAQ Warrants E June 2021 0.25 July 6, 2023 ZNWAS Warrants F August 2021 – March 2022 0.25 December 31, 2023 ZNWAT Warrants F August – September 2022 0.25 December 31, 2023 ZNWAU Warrants F October – November 2022 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 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 exercisable beginning on November 15, 2023 and expire on December 31, 2023. These warrants will be issued in November 2023. 29 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: September 30, 2022 December 31, 2021 US$ thousands US$ thousands Excluded from amortization base: Drilling costs, and other operational related costs 42,741 32,075 Capitalized salary costs 2,309 2,158 Capitalized interest costs 1,418 1,418 Legal and seismic costs, license fees and other preparation costs 12,662 11,260 Other costs 39 39 59,169 46,950 Changes in Unproved oil and gas properties during |
the three and nine months ended September 30, 2022 and 2021 are as follows: For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 US$ thousands US$ thousands US$ thousands US$ thousands Excluded from amortization base: Drilling costs, and other operational related costs 5,350 6,727 10,666 21,319 Capitalized salary costs 30 38 151 155 Capitalized interest costs - - - 104 Legal costs, license fees and other preparation costs 586 573 1,402 2,335 Other costs - - - - *5,966 *7,338 *12,219 *23,913 * Inclusive of non-cash amounts of approximately $ 1,032,000 , and $ 316,000 during the three months ended September 30, 2022, and 2021, respectively * Inclusive of non-cash amounts of approximately $ 2,740,000 , and $ 3,218,000 during the nine months ended September 30, 2022, and 2021, respectively Please refer to Footnote 1 – Nature of Operations |
and Going Concern for more information about Zion’s exploration activities. 30 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, primarily for transportation and office spaces. The table below presents the operating lease assets |
and liabilities recognized on the balance sheets as of September 30, 2022 and December 31, 2021: September 30, 2022 December 31, 2021 US$ thousands US$ thousands Operating lease assets $ 269 $ 327 Operating lease liabiliti Current operating lease liabilities $ 227 $ 203 Non-current operating lease liabilities $ 47 $ 169 Total operating lease liabilities $ 274 $ 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 September 30, 2022 September 30, 2022 Weighted average remaining lease term (years) 1.08 Weighted average discount rate 3.9 % 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 September 30, 2022: US$ thousands 2022 70 2023 199 2024 12 2025 - 2026 - Thereafter - Total undiscounted future minimum lease payments 281 L portion representing imputed interest ( 7 ) Total undiscounted future minimum lease payments 274 31 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 5 - Right of use lease assets and lease obligations (cont’d) Operating lease costs were $ 69,000 and $ 206,000 for the three and nine months ended September 30, 2022, respectively. Operating lease costs were $ 68,000 and $ 196,000 for the three and |
nine months ended September 30, 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 $ 71,000 and $ 214,000 for the three and nine months ended September 30, 2022, respectively. |
Cash paid for amounts included in the measurement of operating lease liabilities were $ 72,000 and $ 215,000 for the three and nine months |
ended September 30, 2021. These amounts are 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 $ 136,000 the three and nine months ended September 30, 2022, respectively. Right-of-use |
assets obtained in exchange for new operating lease liabilities were $ nil and $ 128,000 for the three and nine months |
ended September 30, 2021, respectively. 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. 32 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 6 - Commitments and Contingencies (cont’d) 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 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, |