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internal control over financial reporting for our company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) |
promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and |
principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable |
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance |
with GAAP and includes those policies and procedures tha (i) pertain to the maintenance of records that, in reasonable detail, accurately |
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions |
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and |
that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of the |
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition |
of our company’s assets that could have a material effect on the financial statements. Our management, with the participation |
of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting |
as of December 31, 2022. In making this evaluation, our management used the criteria set forth in the Internal Control — Integrated |
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, |
management concluded that our internal control over financial reporting was effective as of December 31, 2022, based on those criteria. Changes in Internal Control Over Financial |
Reporting There were no changes in internal |
controls over financial reporting that occurred during the fourth quarter of 2022 that have materially affected, or are reasonably likely |
to materially affect, our internal controls over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS |
THAT PREVENT INSPECTIONS None. 47 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS |
AND CORPORATE GOVERNANCE The information required by |
this item will incorporate by reference such information as set forth in our definitive Proxy Statement (the “2023 Proxy Statement”) |
for our 2023 annual meeting of stockholders. The 2023 Proxy Statement will be filed with the SEC not later than 120 days subsequent to |
December 31, 2022. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will incorporate by reference |
to the 2023 Proxy Statement for the 2023 annual meeting of stockholders, which will be filed with the SEC not later than 120 days subsequent |
to December 31, 2022. ITEM 12. SECURITY OWNERSHIP OF CERTAIN |
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item will incorporate by reference |
to the 2023 Proxy Statement for the 2023 annual meeting of stockholders, which will be filed with the SEC not later than 120 days subsequent |
to December 31, 2022. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED |
TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required by this item will incorporate by reference |
to the 2023 Proxy Statement for the 2023 annual meeting of stockholders, which will be filed with the SEC not later than 120 days subsequent |
to December 31, 2022. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND |
SERVICES The information required by this item will incorporate by reference |
to the 2023 Proxy Statement for the 2023 annual meeting of stockholders, which will be filed with the SEC not later than 120 days subsequent |
to December 31, 2022. 48 PART IV ITEM |
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) (1) Consolidated Financial |
Statements: Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets at December 31, 2022 and 2021 F-4 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022 and 2021 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-7 Notes to Consolidated Financial Statements F-9 49 Number Description 3.1 Certificate of Amendment to Amended and Restated Certificate of Incorporation of Zion Oil & Gas, Inc. (incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q, for the quarter ended June 30, 2011, filed with the SEC on August 9, 2011, Exhibit 3.1 , and to the Company’s Form 8-K, filed with the SEC on June 11, 2015, Exhibit 3(i).1 .) 3.2 Amended and Restated Bylaws of Zion Oil & Gas, Inc. (incorporated by reference to the Company’s Form 8-K filed with the SEC on February 16, 2022) 4.1 Registration Statement on Form S-3 (File No. 333-261452) as amended, (incorporated by reference as filed with the SEC on December 1, 2021 and amended on December 15, 2021) 4.2 Prospectus Supplement dated December 15, 2021, (incorporated by reference as filed with the SEC on December 16, 2021) 4.3 Original Indenture (incorporated by reference to the Company’s Form S-3 filed with the SEC on December 1, 2021 and amended on December 15, 2021 to the Registrant’s Prospectus, Registration No. 333-261452, Exhibit 4.2 filed with the SEC on December 1, 2021) 4.4 Desc ription |
of Registered Securities (incorporated by reference to the Company’s Form 10-K filed with the SEC on March 17, 2022) 10.1 Executive Employment and Retention Agreements (Management Agreements) (i) Employment Agreement dated November 13, 2013 and made effective January 1, 2014 between Zion Oil & Gas, Inc. and John Brown (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-K as filed with the SEC on March 14, 2017) (ii) Employment Agreement dated as of August 15, 2016 between Zion Oil & Gas, Inc. and Michael Croswell Jr (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K as filed with the SEC on September 16, 2016) (iii) Employment Agreement dated as of May 1, 2019 and made effective May 1, 2019 between Zion Oil & Gas, Inc. and Robert Dunn (incorporated by reference to Exhibit 10.4 (i) to the Company’s Form 10-Q filed on August 10, 2020) (iv) First Amendment to Employment Agreement dated June 11, 2020 and made effective June 11, 2020 between Zion Oil & Gas, Inc. and Robert Dunn (incorporated by reference to Exhibit 10.4 (ii) to the Company’s Form 10-Q filed on August 10, 2020) (v) Employment Agreement dated July 1, 2019 and made effective July 1, 2019 between Zion Oil & Gas, Inc. and William H. Avery (incorporated by reference to Exhibit 10.1) to the Company’s Form 8-K filed on July 1, 2019) 10.2 2011 Equity Incentive Plan (filed as Annex B to the Company’s Definitive Proxy Statement on Schedule 14 A filed with the SEC on May 9, 2011) and as amended (incorporated by reference to the Company’s Form S-8 filed with the SEC on June 11, 2015) 50 Number Description 10.3 2011 Non-Employee Directors Stock Option Plan (filed as Annex C to the Company’s Definitive Proxy Statement on Schedule 14 A filed with the SEC on May 9, 2011) and as amended (incorporated by reference to the Company’s Form S-8 filed with the SEC on June 11, 2015) 10.4 2021 Omnibus Incentive Plan (incorporated by reference to the Company’s Form S-8 filed with the SEC on June 14, 2021) 10.5 Office Lease Agreement between Zion Oil & Gas, Inc., as tenant, and Hartman Income REIT Property Holdings, LLC, lease commencement date December 1, 2015 and lease expiration date April 30, 2021 (incorporated by reference to the Company’s Form 10-Q filed with the SEC on November 10, 2015) 10.6 Megiddo-Jezreel License 401, as amended, (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on December 10, 2013) 10.7 Extension Letter to Megiddo-Jezreel License 401, as extended to December 2, 2020 (incorporated by reference to the Company’s Form 10-K filed with the SEC on March 27, 2020) 10.8 New Megiddo License 428, dated December 3, 2020 (incorporated by reference to the Company’s Form 10-K filed with the SEC on March 17, 2022) 10.9 Extension of New Megiddo License 428 to February 1, 2023 (i ncorporated by reference to our Form 10-Q filed with the SEC on August 10, 2022 ) 14.1 Code of Ethics (incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K as filed with the SEC on December 10, 2007) 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2* Certification of Chief Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * filed herewith ITEM 16. FORM 10-K SUMMARY We |
may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary |
information. 51 SIGNATURES Pursuant to the requirements |
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by |
the undersigned, thereunto duly authorized. ZION OIL & GAS, INC. (Registrant) By: /s/ Robert W.A. Dunn By: /s/ Michael B. Croswell Jr. Robert W.A. Dunn Chief Executive Officer (Principal Executive Officer) Michael B. Croswell Jr. Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 27, 2023 Date: March 27, 2023 Pursuant to the requirements |
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in |
the capacities and on the dates indicat Signature Title Date /s/ Robert W.A. Dunn Chief Executive Officer and Director, March 27, 2023 Robert W.A. Dunn (Principal Executive Officer) /s/ Michael B. Croswell Jr. Chief Financial Officer March 27, 2023 Michael B. Croswell Jr. (Principal Financial and Principal Accounting Officer) /s/ William H. Avery President, General Counsel and Director March 27, 2023 William H. Avery /s/ Martin M. van Brauman EVP, Corporate Secretary, Treasurer and |
Director March 27, 2023 Martin M. van Brauman /s/ John M. Brown Chairman of the Board of Directors March 27, 2023 John M. Brown /s/ Paul Oroian Director March 27, 2023 Paul Oroian /s/ John Seery Director March 27, 2023 John Seery /s/ Kent Siegel Director March 27, 2023 Kent Siegel /s/ Gene Scammahorn Director March 27, 2023 Gene Scammahorn /s/ Virginia Prodan Director March 27, 2023 Virginia Prodan /s/ Frank Starr Director March 27, 2023 Frank Starr /s/ Dr. Amotz Agnon Director March 27, 2023 Dr. Amotz Agnon /s/ Jeffrey Moskowitz Director March 27, 2023 Jeffrey Moskowitz /s/ Brad Dacus Director March 27, 2023 Brad Dacus /s/ Javier Mazon Director March 27, 2023 Javier Mazon /s/Sarah Caygill Director March 27, 2023 Sarah Caygill 52 Zion Oil & Gas, Inc. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets at December 31, 2022 and 2021 F-4 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022 and 2021 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-7 Notes to Consolidated Financial Statements F-9 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING |
FIRM To the Board of Directors and Shareholders of Zion Oil & Gas, Inc. and subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated |
balance sheets of Zion Oil & Gas, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, and the related statements |
of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related |
notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present |
fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations |
and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally |
accepted in the United States of America. Going Concern Matter The accompanying consolidated financial statements |
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, |
the Company has suffered recurring losses from operations and had an accumulated deficit that raises substantial doubt about its ability |
to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial |
statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the |
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial |
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United |
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and |
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the |
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated |
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we |
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding |
of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s |
internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess |
the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures |
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the |
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by |
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide |
a reasonable basis for our opinion. F- 2 Critical Audit Matters Critical audit matters are matters arising from |
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and |
tha (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved our especially challenging, |
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, |
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit |
matters or on the accounts or disclosures to which they relate. Assessment of Oil and Gas Properties- Refer |
to Notes 1A, 2D and 4 of the consolidated financial statements. Critical Audit Matter Description Unproved oil and gas property cost consist of |
all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs |
that are capitalized. As of December 31, 2022 the total unproved oil and gas property was $15.90 Million. The amount of unproved oil and |
gas properties was after recording an impairment loss of $45,615,000 for the period ended December 2022, the company after analyzing of |
the results from third party experts determined that the well will not currently produce hydrocarbons in commercial quantities. The logs |
strongly indicate the presence of hydrocarbons, but the company determined that the zone does not have sufficient permeability to be productive. |
Accordingly, a temporary plug in was set to the wellbore to preserve its integrity and the opportunity to make future use of it, should |
circumstances and technological innovations warrant that. Also, On February 1, 2023, the NML 428 License expired, but the Company applied |
for a replacement license prior to such expiration and as of date the license was not granted, however the Company believes it has met |
all of the preliminary license requirements, although no assurances can be made, the Company anticipates its license application will |
be favorably considered by the Ministry and other necessary regulatory agencies We have identified the determination of impairment |
on unproved oil and gas asset as a critical audit matter as (i) there was a high degree of auditor judgment and subjectivity involved |
in performing procedures and evaluating audit evidence related to the evaluation of whether impairment needs to be charged on the unproved |
Oil and Gas Properties due to the significant amount of judgment by management when developing the estimates, (ii) significant audit effort |
was necessary to evaluate management’s anticipated and significant assumptions, including the progress of drilling activity and |
the corresponding fund raising by the company. How the Critical Audit Matter was address in |
the Audit Addressing the matter involved performing procedures and evaluating |
audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures including evaluation |
of the test report obtained for deciding on further drilling activity, evaluating managements estimates of impairment analysis by testing |
the funding raised during the period and the evaluation of the board minutes on the progress of the drilling plan, testing the capitalization |
of Oil and Gas properties during the year. Evaluating management’s assumptions related to the basis of further drilling involved |
evaluating whether the assumptions were reasonable considering (i) the current progress of drilling activity, (ii) the subsequent fund |
raising activity, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ RBSM LLP We have served as the Company’s auditor since 2018. PCAOB ID 587 New York, NY March 24, 2023 F- 3 Zion Oil & Gas, Inc. Consolidated Balance Sheets as of December 31, 2022 December 31, 2021 US$ thousands US$ thousands Current assets Cash and cash equivalents 1,735 4,683 Fixed short term bank and escrow deposits – restricted 1,379 1,269 Prepaid expenses and other 600 689 Other deposits 483 617 Governmental receivables 267 900 Other receivables 143 483 Total current assets 4,607 8,641 Unproved oil and gas properties, full cost method (see Note 4) 15,889 46,950 Property and equipment at cost Drilling rig and related equipment, net of accumulated depreciation of $ 1,455 and $ 704 (see note 2M) 6,281 6,834 Property and equipment, net of accumulated depreciation of $ 647 and $ 604 112 138 6,393 6,972 Right of Use Lease Assets (see Note 8) 202 327 Other assets Assets held for severance benefits 424 541 Total other assets 424 541 Total assets 27,515 63,431 Liabilities and Stockholders’ Equity Current liabilities Accounts payable 2,147 2,783 Lease obligation – current (see Note 8) 196 203 Asset retirement obligation 571 571 Accrued liabilities 1,032 1,781 Total current liabilities 3,946 5,338 Long-term liabilities Lease obligation – non-current (see Note 8) 12 169 Provision for severance pay 457 548 Total long-term liabilities 469 717 Total liabilities 4,415 6,055 Commitments and contingencies (see Note 9) Stockholders’ equity Common stock, par value $ .01 ; Authoriz 800,000,000 shares at December 31, 2022: Issued and outstandin 524,231,493 and 364,322,883 shares at December 31, 2022 and 2021, respectively 5,242 3,643 Additional paid-in capital 296,460 277,258 Accumulated deficit ( 278,602 ) ( 223,525 ) Total stockholders’ equity 23,100 57,376 Total liabilities and stockholders’ equity 27,515 63,431 The accompanying notes are an integral part of |
the consolidated financial statements. F- 4 Zion Oil & Gas, Inc. Consolidated Statements of Operations For the year ended December 2022 For the year ended December 2021 US$ thousands US$ thousands General and administrative 6,243 7,594 Impairment of unproved oil and gas properties 45,615 - Other 3,092 3,287 Loss from operations ( 54,950 ) ( 10,881 ) Other income (expense), net Gain on derivative liability - 431 Foreign exchange (loss) ( 93 ) ( 31 ) Financial (expenses), net ( 34 ) ( 240 ) Loss before income taxes ( 55,077 ) ( 10,721 ) Income taxes - - Net loss ( 55,077 ) ( 10,721 ) Net loss per share of common stock - basic and diluted (in US$) ( 0.12 ) ( 0.04 ) Weighted-average shares outstanding–basic and diluted (in thousands) 468,639 277,457 The accompanying notes are an integral part of |
the consolidated financial statements. F- 5 Zion Oil & Gas, Inc. Consolidated Statements of Changes in Stockholders’ |
Equity For the years ended December 31, 2022 and 2021 Common Stock Additional paid-in Accumulated Shares Amounts Capital deficit Total thousands US$ 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 120,676 1,207 25,012 - 26,219 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 425 4 17 - 21 Value of options granted to employees, directors and others as non-cash compensation - - 3,319 - 3,319 Net loss - - - ( 10,721 ) ( 10,721 ) Balances as of December 31, 2021 364,324 3,643 277,258 ( 223,525 ) 57,376 Funds received from sale of DSPP units and shares and exercise of warrants 159,532 1,595 17,534 - 19,129 Funds received from option exercises 375 4 - - 4 Value of options granted to employees, directors and others as non-cash compensation - - 1,668 - 1,668 Net loss - - - ( 55,077 ) ( 55,077 ) Balances as of December 31, 2022 524,231 5,242 296,460 ( 278,602 ) 23,100 The accompanying notes are an integral part of |
the consolidated financial statements. F- 6 Zion Oil & Gas, Inc. Consolidated Statements of Cash Flows For the year ended December 31, 2022 2021 US$ thousands US$ thousands Cash flows from operating activities Net loss ( 55,077 ) ( 10,721 ) Adjustments required to reconcile net loss to net cash used in operating activiti Depreciation 794 743 Cost of options issued to employees, directors and others as non-cash compensation 1,651 3,319 Amortization of debt discount related to convertible bonds - 190 Change in derivative liability - ( 431 ) Impairment of unproved oil and gas properties 45,615 - Change in assets and liabilities, n Other deposits 134 ( 20 ) Prepaid expenses and other 89 1,211 Governmental receivables 633 1,140 Other receivables 340 ( 288 ) Lease obligation - current ( 143 ) ( 116 ) Lease obligation – non current ( 157 ) ( 138 ) Right of Use Lease Asset 261 239 Severance pay, net 26 ( 52 ) Accounts payable 70 64 Accrued liabilities 60 ( 953 ) Net cash used in operating activities ( 5,704 ) ( 5,813 ) Cash flows from investing activities Acquisition of property and equipment ( 17 ) ( 46 ) Acquisition of drilling rig and related equipment ( 400 ) ( 182 ) Investment in unproved oil and gas properties ( 15,850 ) ( 28,794 ) Net cash used in investing activities ( 16,267 ) ( 29,022 ) Cash flows from financing activities Proceeds from exercise of stock options 4 21 Costs paid related to the issuance of new shares - ( 115 ) Proceeds from issuance of stock and exercise of warrants 19,129 26,219 Net cash provided by financing activities 19,133 26,125 Net decrease in cash, cash equivalents and restricted cash ( 2,838 ) ( 8,710 ) Cash, cash equivalents and restricted cash – beginning of period 5,952 14,662 Cash, cash equivalents and restricted cash – end of period 3,114 5,952 Non-cash investing and financing activiti Convertible bond principal paid in shares - 3,214 Unpaid investments in oil and gas properties 2,151 3,666 Cost of options capitalized to oil & gas properties 17 - Convertible bond interest paid in shares - 321 Capitalized convertible bond interest attributed to oil and gas properties - 104 10% senior convertible bonds converted to shares - 9 Addition of right of use lease assets and lease obligations 136 128 The accompanying notes are an integral part of |
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