0001213900-21-041696.txt : 20210811 0001213900-21-041696.hdr.sgml : 20210811 20210811170115 ACCESSION NUMBER: 0001213900-21-041696 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 67 CONFORMED PERIOD OF REPORT: 20210630 FILED AS OF DATE: 20210811 DATE AS OF CHANGE: 20210811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZION OIL & GAS INC CENTRAL INDEX KEY: 0001131312 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 200065053 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33228 FILM NUMBER: 211164366 BUSINESS ADDRESS: STREET 1: 12655 NORTH CENTRAL EXPRESSWAY STREET 2: SUITE 1000 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2142214610 MAIL ADDRESS: STREET 1: 12655 NORTH CENTRAL EXPRESSWAY STREET 2: SUITE 1000 CITY: DALLAS STATE: TX ZIP: 75243 10-Q 1 f10q0621_zionoil.htm QUARTERLY REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

MARK ONE

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the Quarterly Period ended June 30, 2021; or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

for the transition period from ________ to ________

 

ZION OIL & GAS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-0065053
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
12655 N Central Expressway, Suite 1000, Dallas, TX   75243
(Address of principal executive offices)   Zip Code

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

(214) 221-4610

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
         

 

As of August 10, 2021, Zion Oil & Gas, Inc. had outstanding 284,387,479 shares of common stock, par value $0.01 per share.

 

 

 

 

 

 

INDEX PAGE

 

    Page
PART I — FINANCIAL INFORMATION
     
Item 1 – Financial Statements – Unaudited  
     
Consolidated Condensed Balance Sheets – June 30, 2021 and December 31, 2020   1
     
Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2021 and 2020   2
     
Consolidated Condensed Statement of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020   3
     
Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2021 and 2020   5
     
Notes to Consolidated Condensed Financial Statements   7
     
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations   36
     
Item 3 – Quantitative and Qualitative Disclosures About Market Risk   47
     
Item 4 – Controls and Procedures   48
     
PART II — OTHER INFORMATION
     
Item 1 – Legal Proceedings   49
     
Item 1A – Risk Factors   49
     
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds   49
     
Item 3 – Defaults upon Senior Securities   50
     
Item 4 – Mine Safety Disclosures   50
     
Item 5 – Other Information   50
     
Item 6 – Exhibits   51
     
Exhibit Index   51
     
SIGNATURES   52

 

i

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Balance Sheets as of

 

   June 30,
2021
   December 31,
2020
 
   US$
thousands
   US$
thousands
 
   (Unaudited)      
Current assets          
Cash and cash equivalents   9,047    11,708 
Fixed short term bank and escrow deposits – restricted   1,279    2,954 
Prepaid expenses and other   534    1,900 
Other deposits   589    597 
Governmental receivables   1,539    2,040 
Other receivables   186    195 
Total current assets   13,174    19,394 
           
Unproved oil and gas properties, full cost method (see Note 4)   32,101    15,526 
           
Property and equipment at cost          
Drilling rig and related equipment, net of accumulated depreciation of $347 and nil (see note 2J)   7,197    7,568 
Property and equipment, net of accumulated depreciation of $585 and $564   153    131 
    7,350    7,699 
           
Right of Use Lease Assets (see Note 7)   451    438 
           
Other assets          
Assets held for severance benefits   484    446 
Total other assets   484    446 
           
Total assets   53,560    43,503 
           
Liabilities and Stockholders’ Equity          
           
Current liabilities          
Accounts payable   1,962    1,369 
Lease obligation – current (see Note 7)   256    191 
Asset retirement obligation   571    571 
Derivative liability (see Note 6)   -    431 
10% Senior convertible bonds, net of unamortized deferred financing cost of nil and $9 and unamortized debt discount of nil and $205 at June 30, 2021 and December 31, 2020, respectively (see Note 5)   -    3,033 
Accrued liabilities   1,740    1,987 
Total current liabilities   4,529    7,582 
           
Long-term liabilities          
Lease obligation – non-current (see Note 7)   233    307 
Provision for severance pay   498    505 
Total long-term liabilities   731    812 
           
Total liabilities   5,260    8,394 
           
Commitments and contingencies (see Note 8)   
 
    
 
 
           
Stockholders’ equity          
Common stock, par value $.01; Authorized: 800,000,000 shares at June 30, 2021: Issued and outstanding: 283,273,444 and 237,381,555 shares at June 30, 2021 and December 31, 2020, respectively   2,833    2,374 
Additional paid-in capital   264,887    245,539 
Accumulated deficit   (219,420)   (212,804)
Total stockholders’ equity   48,300    35,109 
           
Total liabilities and stockholders’ equity   53,560    43,503 

 

The accompanying notes are an integral part of the unaudited interim consolidated condensed financial statements.

 

1

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Statements of Operations (Unaudited)

 

   For the three months ended   For the six months ended 
   June 30,   June 30, 
   2021   2020   2021   2020 
   US$
thousands
   US$
thousands
   US$
thousands
   US$
thousands
 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
General and administrative   2,952    1,113    4,923    2,088 
Impairment of unproved oil and gas properties   
-
    
-
    
-
    
-
 
Other   1,064    577    1,856    1,045 
Loss from operations   (4,016)   (1,690)   (6,779)   (3,133)
                     
Other income (expense), net                    
Gain (loss) on derivative liability   5    (67)   431    (51)
Foreign exchange gain (loss)   13    (14)   (50)   (3)
Financial expenses, net   (58)   (153)   (218)   (345)
                     
Loss, before income taxes   (4,056)   (1,924)   (6,616)   (3,532)
Income taxes   
-
    
-
    
-
    
-
 
                     
Net loss   (4,056)   (1,924)   (6,616)   (3,532)
                     
Net (loss), gain per share of common stock                    
Basic and diluted (in US$)   (0.02)   (0.01)   (0.03)   (0.02)
                     
Weighted-average shares outstanding                    
Basic and diluted (in thousands)   248,672    172,361    244,032    155,587 

 

The accompanying notes are an integral part of the unaudited interim consolidated condensed financial statements.

 

2

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Statement of Changes in Stockholders’ Equity (Unaudited)

 

For the three and six months ended June 30, 2021

 

   Common Stock   Additional
paid-in
   Accumulated     
   Shares   Amounts   Capital   deficit   Total 
   thousands  

US$

thousands

  

US$

thousands

  

US$

thousands

  

US$

thousands

 
Balances as of December 31, 2020   237,382    2,374    245,539    (212,804)   35,109 
Funds received from sale of DSPP units and shares and exercise of warrants    39,933    400    13,388    
    13,788 
Costs associated with the issuance of shares   
    
    (115)   
    (115)
Value of bonds converted to shares   15    
*
    9    
    9 
Bond interest paid in shares   530    5    316    
    321 
Bond principal paid in shares   5,296    53    3,161    
    3,214 
Funds received from option exercises   117    1    
    
    1 
Value of options granted to employees, directors and others as non-cash compensation       
    2,589    
    2,589 
Net loss               (6,616)   (6,616)
Balances as of June 30, 2021   283,273    2,833    264,887    (219,420)   48,300 

  

   Common Stock   Additional
paid-in
   Accumulated     
   Shares   Amounts   Capital   deficit   Total 
   thousands  

US$

thousands

  

US$

thousands

  

US$

thousands

  

US$

thousands

 
Balances as of March 31, 2021   241,351    2,414    249,170    (215,364)   36,220 
Funds received from sale of DSPP units and shares and exercise of warrants   36,085    361    10,578    
    10,939 
Costs associated with the issuance of shares           (115)       (115)
Value of bonds converted to shares   11    
*
    9    
    9 
Bond interest paid in shares   530    5    316        321 
Bond principal paid in shares   5,296    53    3,161        3,214 
Funds received from option exercises       
    
    
    
 
Value of options granted to employees, directors and others as non-cash compensation           1,768        1,768 
Net loss               (4,056)   (4,056)
Balances as of June 30, 2021   283,273    2,833    264,887    (219,420)   48,300 

 

3

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Statement of Changes in Stockholders’ Equity (Unaudited)

 

For the three and six months ended June 30, 2020

 

   Common Stock   Additional
paid-in
   Accumulated    
   Shares     Amounts   Capital   deficit   Total 
   thousands  

US$

thousands

  

US$

thousands

  

US$

thousands

  

US$
thousands

 
Balances as of December 31, 2019   123,973    1,240    217,892    (205,808)   13,324 
Funds received from sale of DSPP units and shares and exercise of warrants   53,765    537    11,965        12,502 
Value of bonds converted to shares   1    
*
             
Bond interest paid in shares   1,782    18    307        325 
Funds received from option exercises   388    4    
    
    4 
Value of options granted to employees, directors and others as non-cash compensation           56        56 
Net loss               (3,532)   (3,532)
Balances as of June 30, 2020   179,909    1,799    230,220    (209,340)   22,679 

  

   Common Stock   Additional
paid-in
   Accumulated     
   Shares   Amounts   Capital   deficit   Total 
   thousands  

US$

thousands

  

US$

thousands

  

US$

thousands 

  

US$

thousands

 
Balances as of March 31, 2020   164,691    1,647    226,654    (207,416)   20,885 
Funds received from sale of DSPP units and shares and exercise of warrants   13,437    134    3,259        3,393 
Value of bonds converted to shares   (1)   
*
    
*
    
    
*
 
Bond interest paid in shares   1,782    18    307        325 
Funds received from option exercises       
    
    
    
 
Value of options granted to employees, directors and others as non-cash compensation       
    
    
    
 
Net loss               (1,924)   (1,924)
Balances as of June 30, 2020   179,909    1,799    230,220    (209,340)   22,679 

 

 

* Less than one thousand.

 

The accompanying notes are an integral part of the unaudited interim consolidated condensed financial statements.

 

4

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Statements of Cash Flows (Unaudited)

 

   For the six months ended
June 30,
 
   2021   2020 
   US$
thousands
   US$
thousands
 
Cash flows from operating activities          
Net loss   (6,616)   (3,532)
Adjustments required to reconcile net loss to net cash used in operating activities:          
Depreciation   368    26 
Cost of options issued to employees, directors and others as non-cash compensation   2,589    56 
Amortization of debt discount related to convertible bonds   190    228 
Non-cash interest expense   
-
    101 
Change in derivative liability   (431)   51 
           
Change in assets and liabilities, net:          
Other deposits   8    197 
Prepaid expenses and other   1,366    81 
Governmental receivables   501    16 
Lease obligation – current   (63)   (3)
Lease obligation – noncurrent   (74)   (115)
Right of use lease assets   115   104 
Other receivables   9    50 
Severance payable, net   (45)   16 
Accounts payable   (91)   (8)
Asset retirement obligation   
-
    (14)
Accrued liabilities   (792)   (210)
Net cash used in operating activities   (2,966)   (2,956)
           
Cash flows from investing activities          
Acquisition of property and equipment   (43)   (4)
Acquisition of drilling rig and related equipment   (98)   (4,609)
Investment in unproved oil and gas properties   (14,903)   (526)
Net cash used in investing activities   (15,044)   (5,139)
           
Cash flows from financing activities          
Payments related to capital lease   
-
    (6)
Costs paid related to the issuance of new shares   (115)   
-
 
Proceeds from exercise of stock options   1    4 
Proceeds from issuance of stock and exercise of warrants   13,788    12,502 
Net cash provided by financing activities   13,674    12,500 
           
Net increase in cash, cash equivalents and restricted cash   (4,336)   4,405 
Cash, cash equivalents and restricted cash – beginning of period   14,662    5,935 
Cash, cash equivalents and restricted cash – end of period   10,326    10,340 
           
Supplemental schedule of cash flow information          
Cash paid for interest   
-
    1 
           
Non-cash investing and financing activities:          
Convertible Bond interest paid in shares   321    325 
Convertible Bond principal paid in shares   3,214    
-
 
Unpaid investments in oil & gas properties   2,798    68 
10% Senior Convertible Bonds converted to shares   9    
-
 
Capitalized convertible bond interest attributed to oil and gas properties   104    59 
New lease accounted for as a right of use lease asset   128    - 

 

 

* Less than one thousand

 

The accompanying notes are an integral part of the unaudited interim consolidated condensed financial statements.

 

5

 

 

Cash, cash equivalents and restricted cash, are comprised as follows:

 

   June 30,
2021
   December 31,
2020
   June 30,
2020
   December 31,
2019
 
   US$
thousands
   US$
thousands
   US$
thousands
   US$
thousands
 
Cash and cash equivalents   9,047    11,708    8,288    4,845 
Restricted cash included in fixed short-term bank deposits   1,279    2,954    2,052    1,090 
    10,326    14,662    10,340    5,935 

 

6

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 1 - Nature of Operations, Basis of Presentation and Going Concern

 

A. Nature of Operations

 

Zion Oil & Gas, Inc., a Delaware corporation (“we,” “our,” “Zion” or the “Company”) is an oil and gas exploration company with a history of 21 years of oil & gas exploration in Israel. As of June 30, 2021, the Company has no revenues from its oil and gas operations.

 

Zion maintains its corporate headquarters in Dallas, Texas. The Company also has branch offices in Caesarea, Israel and Geneva, Switzerland. The purpose of the Israel branch is to support the Company’s operations in Israel, and the purpose of the Switzerland branch is to operate a foreign treasury center for the Company.

 

On January 24, 2020, Zion incorporated a wholly owned subsidiary, Zion Drilling, Inc., a Delaware corporation, for the purpose of owning a drilling rig, related equipment and spare parts in the future, and on January 31, 2020, Zion incorporated another wholly owned subsidiary, Zion Drilling Services, Inc., a Delaware corporation, to act as the contractor providing such drilling services. When Zion is not using the rig for its own exploration activities, Zion Drilling Services may contract with other operators in Israel to provide drilling services at market rates then in effect.

  

Zion has the trademark “ZION DRILLING” filed with the United States Patent and Trademark Office. Zion has the trademark filed with the World Intellectual Property Organization in Geneva, Switzerland, pursuant to the Madrid Agreement and Protocol. In addition, Zion has the trademark filed with the Israeli Trademark Office in Israel.

 

Exploration Rights/Exploration Activities

 

The Company currently holds one active petroleum exploration license onshore Israel, the New Megiddo License 428 (“NML 428”), comprising approximately 99,000 acres. The NML 428 was awarded on December 3, 2020 for a six-month term with the possibility of an additional 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. The ML 428 lies onshore, south and west of the Sea of Galilee and we continue our exploration focus here as it appears to possess the key geologic ingredients of an active petroleum system with significant exploration potential.

 

The Megiddo Jezreel #1 (“MJ #1”) exploratory well was spud on June 5, 2017 and drilled to a total depth (“TD”) of 5,060 meters (approximately 16,600 feet). Thereafter, the Company successfully cased and cemented the well while awaiting the approval of the testing protocol. The Ministry of Energy approved the well testing protocol on April 29, 2018.

 

During the fourth quarter of 2018, the Company testing protocol was concluded at the MJ #1 well. The test results confirmed that the MJ #1 well did not contain hydrocarbons in commercial quantities in the zones tested. As a result, in the year ended December 31, 2018, the Company recorded a non-cash impairment charge to its unproved oil and gas properties of $30,906,000. During the six months ended June 30, 2021, and 2020, respectively, the Company did not record any post-impairment charges.

 

The MJ#1 well provided Zion with information Zion believes is important for potential future exploration efforts within its license area. As with many frontier wildcat wells, the MJ#1 also left several questions unanswered.

 

7

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 1 - Nature of Operations, Basis of Presentation and Going Concern (cont’d)

 

While not meant to be an exhaustive list, a summary of what Zion believes to be key information learned in the MJ#1 well is as follows:

 

  1. The MJ#1 encountered much higher subsurface temperatures at a depth shallower than expected before drilling the well. In our opinion, this is significant because reaching a minimum temperature threshold is necessary for the generation of hydrocarbons from an organic-rich source rock. 

 

  2. The known organic rich (potentially hydrocarbon bearing) Senonian age source rocks that are typically present in this part of Israel were not encountered as expected. Zion expected these source rocks to be encountered at approximately 1,000 meters in the MJ#1 well.

 

  3. MJ#1 had natural fractures, permeability (the ability of fluid to move through the rock) and porosity (pore space in rock) that allowed the sustained flow of formation fluid in the shallower Jurassic and lower Cretaceous age formations between approximately 1,200 and 1,800 meters. While no hydrocarbons were encountered, Zion believes this fact is nonetheless significant because it provides important information about possible reservoir pressures and the ability of fluids to move within the formation and to the surface.

 

  4. MJ#1 encountered oil in the Triassic Mohilla formation which Zion believes may indicate the presence of an active deep petroleum system is in Zion’s license area. There did not appear to be any natural permeability or porosity in the Triassic Mohilla formation to allow formation fluid to reach the surface naturally during testing, and thus the MJ#1 was not producible or commercial

 

  5. The depths and thickness of the formations we encountered varied greatly from pre-drill estimates. This required the MJ#1 to be drilled to a much greater depth than previously expected. Zion has tied these revised formation depths to seismic data which will allow for more accurate interpretation and mapping in the future.

 

A summary of what Zion believes to be some key questions left to be answered are:

 

  1. Is the missing shallow Senonian age source rock a result of regional erosion, or is it missing because of a fault that cut the well-bore and could be reasonably expected to be encountered in the vicinity of the MJ#1 drill site? Zion believes this is an important question to answer because if the Senonian source rocks do exist in this area, the high temperatures encountered are sufficient to mature these source rocks and generate oil.

 

  2. Do the unusually high shallow subsurface temperatures extend regionally beyond the MJ#1 well, which could allow for the generation of hydrocarbons in the Senonian age source rock within our license area?

 

  3. As a consequence of seismic remapping, where does the MJ#1 well lie relative to the potential traps at the Jurassic and Triassic levels and was the well location too low on the structures and deeper than the potential hydrocarbons within those traps?

 

As a result of these unanswered questions and with the information gained drilling the MJ#1 well, Zion believed it was prudent and consistent with good industry practice to try and answer some of these questions with a focused 3-D seismic imaging shoot of approximately 72 square kilometers surrounding the MJ#1 well. Zion has completed all of the acquisition, processing and interpretation of the 3-D data and has incorporated its expanded knowledge base into the drilling of our current MJ-02 exploratory well (see further details below).

 

Zion’s geology team is continuing to work on a larger interpretation of 3D areas, along with potential exploration locations located in the western portion of the NML 428 area.

 

8

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 1 - Nature of Operations, Basis of Presentation and Going Concern (cont’d)

 

Megiddo-Jezreel Petroleum License, No. 401 (“MJL 401”) and New Megiddo License 428 (“NML 428”)

 

The Megiddo-Jezreel License 401 was awarded on December 3, 2013 for a three-year primary term through December 2, 2016 with the possibility of additional one-year extensions up to a maximum of seven years. The Megiddo-Jezreel License 401 lies onshore, south and west of the Sea of Galilee, and we continue our exploration focus here as it appears to possess the key geologic ingredients of an active petroleum system with significant exploration potential.

 

The NML 428 was awarded on December 3, 2020 for a six-month term with the possibility of an additional six-month extension. 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 officially spudded its MJ-02 exploratory well. Zion plans to reach a total depth of approximately 5,800 meters (~19,024 feet). Although our operational team encountered difficulties to maintain stability with a shale formation in recent drilling, we have moved forward with adjusted drilling parameters to enable us to maintain shale integrity as we move toward our zones of interest.

 

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 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, 2020. 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 and six months ended June 30, 2021 are not necessarily indicative of the operating results for the year ending December 31, 2021 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 six months ended June 30, 2021, the Company incurred a net loss of approximately $6.6 million and had an accumulated deficit of approximately $219.4 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.

 

9

 

 

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) gain 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 16,426,527 and 15,248,643 and 10,589,366 and 10,529,736 Common Stock equivalents in the three- and six-month period ended June 30, 2021 and 2020 respectively, would be anti-dilutive.

 

B. Use of Estimates 

 

The preparation of the accompanying consolidated condensed 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 revenues and expenses. Such estimates include the valuation of unproved oil and gas properties, deferred tax assets, asset retirement obligations 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.

 

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 and six months ended June 30, 2021, and 2020, 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 $32,101,000 and $15,526,000 as of June 30, 2021 and December 31, 2020, respectively.

 

10

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 2 - Summary of Significant Accounting Policies (cont’d)

 

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 June 30, 2021, and December 31, 2020, 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. 

 

E. Derivative Liabilities 

 

In accordance with ASC 815-40-25 and ASC 815-10-15 Derivatives and Hedging and ASC 480-10-25 Liabilities-Distinguishing Liabilities from Equity, the embedded derivatives associated with the Convertible Bonds are accounted for as a liability during the term of the related Convertible Bonds (see Note 5).

 

F. Stock-Based Compensation 

 

ASC 718, “Compensation – Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the consolidated financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity – Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

 

11

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 2 - Summary of Significant Accounting Policies (cont’d)

 

G. Warrants

 

In connection with the Dividend Reinvestment and Stock Purchase Plan (“DSPP”) financing arrangements, the Company has issued warrants to purchase shares of its common stock. The outstanding warrants are stand-alone instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued in conjunction with the issuance of common stock are initially recorded and accounted as a part of the DSPP investment as additional paid-in capital of the common stock issued. All other warrants are recorded at fair value and expensed over the requisite service period or at the date of issuance, if there is not a service period. Warrants granted in connection with ongoing arrangements are more fully described in Note 3, Stockholders’ Equity.

 

H. Related parties 

 

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. All transactions with related parties are recorded at fair value of the goods or services exchanged. Zion did not have any related party transactions for the periods covered in this report, with the exception of recurring monthly consulting fees paid to certain management personnel.

 

I. Recently Adopted Accounting Pronouncements 

 

In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments”: The amendments in this update are to clarify, correct errors in, or make minor improvements to a variety of ASC topics. The changes in ASU 2020-03 are not expected to have a significant effect on current accounting practices. The ASU improves various financial instrument topics in the Codification to increase stakeholder awareness of the amendments and to expedite the improvement process by making the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The ASU is effective for smaller reporting companies for fiscal years beginning after December 15, 2022 with early application permitted. The Company is currently evaluating the impact the adoption of this guidance may have on its consolidated financial statements.

 

12

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 2 - Summary of Significant Accounting Policies (cont’d)

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas. The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance will have on its unaudited consolidated condensed financial statements.

 

The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

J. Depreciation and Accounting for Drilling Rig and Inventory 

 

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. We remitted to the Seller $250,000 on February 6, 2020 as earnest money towards the purchase price. The Closing anticipated by the Agreement took place on March 12, 2020 by the Seller’s execution and delivery of a Bill of Sale to us. On March 13, 2020, the Seller retained the earnest money deposit, and the Company remitted $4,350,000 to the seller towards the purchase price and $1,000,000 (the “Holdback Amount”) was deposited in escrow with American Stock Transfer and Trust Company LLC, as escrow agent, through November 30, 2020, or as extended by mutual agreement of the parties, pending a determination, if any, by us of any operating deficiency in the drilling rig. 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.

 

Since the rig was purchased and closed during March 2020, this purchase was recorded on Zion’s books as a long-term fixed asset as a component of Property and Equipment. 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.

 

The $540,000 in spare parts was the original cost to CED. These items were received and counted by Zion upon receipt. All records and files are maintained by Zion. Zion plans to obtain a physical count of the equipment items at the end of each quarter, or as close to such date as practical, in accordance with our normal procedures.

 

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 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.

 

13

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 2 - Summary of Significant Accounting Policies (cont’d)

 

See the table below for a reconciliation of the rig-related activity during the six months ended June 30, 2021:

 

I-35 Drilling Rig & Associated Equipment:

 

   Six-month period ended June 30, 2021 
   I-35 Drilling
Rig
   Rig Spare
Parts
   Other Drilling
Assets
   Total 
   US$
thousands
   US$
thousands
   US$
thousands
   US$
thousands
 
December 31, 2020   6,494    698    376    7,568 
                     
Asset Additions   
-
    72    26    98 
                     
Asset Depreciation   (347)   
-
    
-
    (347)
                     
Asset Disposals for Self-Consumption   
-
    (122)   
-
    (122)
                     
June 30, 2021   6,147    648    402    7,197 

 

14

 

 

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. 2011 Equity Incentive Stock Option Plan

 

During the six months ended June 30, 2021, the Company granted the following options from the 2011 Equity Incentive Plan for employees, directors and consultants, to purchase shares of common stock as non-cash compensation:

 

  i. Options to purchase 600,000 shares of Common Stock to six senior officers and three staff members at an exercise price of $0.915 per share. The options vested upon grant and are exercisable through January 4, 2031. The fair value of the options at the date of grant amounted to approximately $456,000.

 

  ii.

Options to purchase 75,000 shares of Common Stock were granted to one senior officer at an exercise price of $0.01 per share. The options vested upon grant and are exercisable through January 6, 2031. The fair value of the options at the date of grant amounted to approximately $68,000. These options were granted per the provisions under the Israeli Appendix to the Plan.

 

   
  iii.

Options to purchase 1,800,000 shares of Common Stock to six senior officers and three staff members at an exercise price of $0.59 per share. The options vested upon grant and are exercisable through May 21, 2031. The fair value of the options at the date of grant amounted to approximately $885,000.

     
  iv.

Options to purchase 200,000 shares of Common Stock were granted to one senior officer at an exercise price of $0.01 per share. The options vested upon grant and are exercisable through May 21, 2031. The fair value of the options at the date of grant amounted to approximately $117,000. These options were granted per the provisions under the Israeli Appendix to the Plan.

 

During the six months ended June 30, 2020, the Company granted the following options from the 2011 Equity Incentive Plan for employees, directors and consultants, to purchase shares of common stock as non-cash compensation:

 

  i. Options to purchase 110,000 shares of Common Stock to five senior officers at an exercise price of $0.01 per share. The options vested upon grant and are exercisable through January 6, 2030. The fair value of the options at the date of grant amounted to approximately $57,000.

 

15

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 3 - Stockholders’ Equity (cont’d)

 

B. 2011 Non-Employee Directors Stock Option Plan

 

During the six months ended June 30, 2021, the Company grant the following qualified (market value) and non-qualified options from the 2011 Non-Employee Directors Stock Option Plan for directors to purchase shares of common stock as non-cash compensation:

 

  i.

Options to purchase 350,000 shares of Common Stock to seven board members at an exercise price of $0.915 per share. The options vested upon grant and are exercisable through January 4, 2027. The fair value of the options at the date of grant amounted to approximately $252,000.

     
  ii.

Options to purchase 50,000 shares of Common Stock were granted to one board member at an exercise price of $0.01 per share. The options vested upon grant and are exercisable through January 4, 2027. The fair value of the options at the date of grant amounted to approximately $45,000. These options were granted per the provisions under the Israeli Appendix to the Plan.

 

  iii.

Options to purchase 1,400,000 shares of Common Stock to six board members and one consultant at an exercise price of $0.59 per share. The options vested upon grant and are exercisable through May 21, 2027. The fair value of the options at the date of grant amounted to approximately $643,000.

     
  iv.

Options to purchase 200,000 shares of Common Stock were granted to one board member at an exercise price of $0.01 per share. The options vested upon grant and are exercisable through May 21, 2027. The fair value of the options at the date of grant amounted to approximately $116,000. These options were granted per the provisions under the Israeli Appendix to the Plan.

 

During the six months ended June 30, 2020, the Company did not grant any qualified (market value) options from the 2011 Non-Employee Directors Stock Option Plan to its directors.

 

C. 2021 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, 2021, 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 compensation:

 

  i. Options to purchase 25,000 shares of Common Stock to one board member at an exercise price of $0.29 per share. The options vested upon grant and are exercisable through June 15, 2031. The fair value of the options at the date of grant amounted to approximately $6,000.

 

16

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 3 - Stockholders’ Equity (cont’d)

 

C. Stock Options

 

The stock option transactions since January 1, 2021 are shown in the table below:

 

   Number of
shares
   Weighted Average
exercise
price
 
       US$ 
Outstanding, December 31, 2020   3,797,750    1.14 
           
Changes during 2021 to:          
Granted to employees, officers, directors and others   4,700,000    0.59 
Expired/Cancelled/Forfeited   (183,000)   1.52 
Exercised   (117,000)   0.01 
Outstanding, June 30, 2021   8,197,750    0.83 
           
Exercisable, June 30, 2021   8,197,750    0.83 

 

17

 

 

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, 2021:

 

 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$ 
 
    
    
    
    0.01    10,000    2.37    0.01 
 
    
    
    
    0.01    5,000    2.95    0.01 
 
    
    
    
    0.01    20,000    4.92    0.01 
 
    
    
    
    0.01    130,000    5.50    0.01 
 
    
    
    
    0.01    50,000    5.51    0.01 
 
    
    
    
    0.01    60,000    5.79    0.01 
 
    
    
    
    0.01    200,000    5.88    0.01 
 
    
    
    
    0.01    40,000    6.25    0.01 
 
    
    
    
    0.01    87,500    6.50    0.01 
 
    
    
    
    0.01    25,000    6.51    0.01 
 
    
    
    
    0.01    30,000    6.66    0.01 
 
    
    
    
    0.01    4,000    6.76    0.01 
 
    
    
    
    0.01    25,000    7.52    0.01 
 
    
    
    
    0.01    50.000    7.83    0.01 
 
    
    
    
    0.01    105,000    8.21    0.01 
 
    
    
    
    0.01    305,000    8.38    0.01 
 
    
    
    
    0.01    60,000    8.51    0.01 
 
    
    
    
    0.01    75,000    9.51    0.01 
 
    
    
    
    0.01    200,000    9.89    0.01 
 
    
    
    
    0.16    340,000    4.44    0.16 
 
    
    
    
    0.16    150,000    8.44    0.16 
 
    
    
    
    0.18    25,000    4.42    0.18 
 
    
    
    
    0.28    25,000    4.17    0.28 
 
    
    
    
    0.28    25,000    8.17    0.28 
 
    
    
    
    0.29    25,000    5.95    0.29 
 
    
    
    
    0.59    1,400,000    5.88    0.59 
 
    
    
    
    0.59    1,800,000    9.89    0.59 
 
    
    
    
    0.92    350,000    5.51    0.92 
 
    
    
    
    0.92    600,000    9.51    0.92 
 
    
    
    
    1.33    25,000    1.83    1.33 
 
    
    
    
    1.38    105,307    3.51    1.38 
 
    
    
    
    1.55    200,000    0.93    1.55 
 
    
    
    
    1.67    405,943    3.26    1.67 
 
    
    
    
    1.70    218,500    1.47    1.70 
 
    
    
    
    1.75    250,000    2.02    1.75 
 
    
    
    
    1.78    25,000    3.18    1.78 
 
    
    
    
    2.31    250,000    2.51    2.31 
                     2.61    471,500    0.43    2.61 
 
    
    
    
    4.15    25,000    3.01    4.15 
                     0.01-4.15    8,197,750         0.83 

 

18

 

 

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,
 
   2021    2020 
Weighted-average fair value of underlying stock at grant date  $0.67    $0.52 
Dividend yields        
 
Expected volatility   120%-143 %   103%
Risk-free interest rates   0.16%-0.84 %   1.61%
Expected lives (in years)   3.00-5.00     5.00 
Weighted-average grant date fair value  $0.55    $0.51 

 

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,
 
   2021   2020 
Weighted-average fair value of underlying stock at grant date  $0.59   $
 
Dividend yields   
    
 
Expected volatility   113%   
 
Risk-free interest rates   1.07%   
 
Expected lives (in years)   6.00    
 
Weighted-average grant date fair value  $0.50   $
 

 

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.

 

19

 

 

Zion Oil & Gas, Inc.

 

Consolidated Condensed Notes to Financial Statements (Unaudited)

 

Note 3 - Stockholders’ Equity (cont’d)

 

D. 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 directors:

 

For the three months ended June 30,