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that earn no interest, was approximately 2.61%. The primary objective of our |
investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve |
this objective, we invest our excess cash in short-term bank deposits and money market funds that may invest in high quality debt instruments. ITEM |
4. CONTROLS AND PROCEDURES We maintain disclosure controls |
and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities |
Exchange Act of 1934, is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. |
As of March 31, 2023, our chief executive officer and our chief financial officer conducted an evaluation of the effectiveness of our |
disclosure controls and procedures. Based on this evaluation, our chief executive officer and our chief financial officer concluded that |
our disclosure controls and procedures were effective as of March 31, 2023. Changes in Internal Control over Financial |
Reporting There were no changes in internal |
controls over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably |
likely to materially affect, our internal controls over financial reporting. 41 PART II—OTHER INFORMATION ITEM |
1. LEGAL PROCEEDINGS Securities and Exchange |
Commission (“SEC”) Investigation As previously disclosed by |
the Company, on June 21, 2018, the Fort Worth Regional Office of the SEC informed Zion that it was conducting a formal, non-public investigation |
and asked that we provide certain information and documents in connection with its investigation. On April 5, 2023, the Company |
received from the Fort Worth Regional Office of the SEC written notice to the Company concluding the investigation as to the Company and |
that the SEC does “not intend to recommend an enforcement action by the Commission against Zion.” 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. ITEM |
1A. RISK FACTORS During |
the quarter ended March 31, 2023, there were no material changes to the risk factors previously reported in our Annual Report on Form |
10-K for the year ended December 31, 2022. ITEM |
2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS None. ITEM |
3. DEFAULTS UPON SENIOR SECURITIES None. ITEM |
4. MINE SAFETY DISCLOSURES None. ITEM |
5. OTHER INFORMATION : None. ITEM |
6. EXHIBITS 42 Exhibit Index : 31.1 Certification |
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 under the Exchange Act 31.2 Certification of the Principal |
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 under the Exchange Act 32.1 Certification of Chief |
Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only) 32.2 Certification of Chief |
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished only) 101.INS 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) 43 SIGNATURES Pursuant to the requirements |
of the Securities Exchange Act of 1934, the registrant 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 Michael B. 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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, 2022 ; 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 Ac 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 ☒ As of August 8, 2022, Zion Oil & Gas, Inc. had outstanding 475,236,141 shares of common stock, par value $0.01 per share. INDEX PAGE Page PART I — FINANCIAL INFORMATION Item 1 – Financial Statements – Unaudited Consolidated Condensed Balance Sheets – June 30, 2022 and December 31, 2021 1 Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2022 and 2021 2 Consolidated Condensed Statement of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021 3 Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2022 and 2021 5 Notes to Consolidated Condensed Financial Statements 7 Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 3 – Quantitative and Qualitative Disclosures About Market Risk 44 Item 4 – Controls and Procedures 45 PART II — OTHER INFORMATION Item 1 – Legal Proceedings 46 Item 1A – Risk Factors 46 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 46 Item 3 – Defaults upon Senior Securities 46 Item 4 – Mine Safety Disclosures 46 Item 5 – Other Information 46 Item 6 – Exhibits 47 Exhibit Index 47 SIGNATURES 48 i Zion Oil & Gas, Inc. Consolidated Condensed Balance Sheets as of June 30, 2022 December 31, 2021 US$ thousands US$ thousands (Unaudited) Current assets Cash and cash equivalents 5,755 4,683 Fixed short-term bank and escrow deposits – restricted 1,319 1,269 Prepaid expenses and other 437 689 Other deposits 549 617 Governmental receivables 864 900 Other receivables 158 483 Total current assets 9,082 8,641 Unproved oil and gas properties, full cost method (see Note 4) 53,250 46,950 Property and equipment at cost Drilling rig and related equipment, net of accumulated depreciation of $ 1,075 and $ 704 (see note 2I) 6,638 6,834 Property and equipment, net of accumulated depreciation of $ 626 and $ 604 132 138 6,770 6,972 Right of Use Lease Assets (see Note 5) 335 327 Other assets Assets held for severance benefits 454 541 Total other assets 454 541 Total assets 69,891 63,431 Liabilities and Stockholders’ Equity Current liabilities Accounts payable 1,658 2,783 Lease obligation – current (see Note 5) 261 203 Asset retirement obligation 571 571 Accrued liabilities 588 1,781 Total current liabilities 3,078 5,338 Long-term liabilities Lease obligation – non-current (see Note 5) 83 169 Provision for severance pay 488 548 Total long-term liabilities 571 717 Total liabilities 3,649 6,055 Commitments and contingencies (see Note 6) Stockholders’ equity Common stock, par value $ .01 ; Authoriz 800,000,000 shares at June 30, 2022: Issued and outstandin 473,777,378 and 364,322,883 shares at June 30, 2022 and December 31, 2021, respectively 4,738 3,643 Additional paid-in capital 289,792 277,258 Accumulated deficit ( 228,288 ) ( 223,525 ) Total stockholders’ equity 66,242 57,376 Total liabilities and stockholders’ equity 69,891 63,431 The accompanying notes are an integral part of the unaudited interim |
consolidated condensed financial statements. 1 Zion Oil & Gas, Inc. C onsolidated Condensed Statements of Operations |
(Unaudited) For the three months ended For the six months ended June 30, June 30, 2022 2021 2022 2021 US$ thousands US$ thousands US$ thousands US$ thousands (Unaudited) (Unaudited) (Unaudited) (Unaudited) General and administrative 1,550 2,952 2,985 4,923 Impairment of unproved oil and gas properties - - - - Other 946 1,064 1,657 1,856 Loss from operations ( 2,496 ) ( 4,016 ) ( 4,642 ) ( 6,779 ) Other income (expense), net Gain on derivative liability - 5 - 431 Foreign exchange gain (loss) ( 81 ) 13 ( 90 ) ( 50 ) Financial expenses, net ( 20 ) ( 58 ) ( 31 ) ( 218 ) Loss, before income taxes ( 2,597 ) ( 4,056 ) ( 4,763 ) ( 6,616 ) Income taxes - - - - Net loss ( 2,597 ) ( 4,056 ) ( 4,763 ) ( 6,616 ) Net (loss), gain per share of common stock Basic and diluted (in US$) ( 0.01 ) ( 0.02 ) ( 0.01 ) ( 0.03 ) Weighted-average shares outstanding Basic and diluted (in thousands) 471,946 248,672 439,039 244,032 The accompanying notes are an integral part of the unaudited interim |
consolidated condensed financial statements. 2 Zion Oil & Gas, Inc. Consolidated Condensed Statement of Changes |
in Stockholders’ Equity (Unaudited) For the three and six months ended June 30, |
2022 Common Stock Additional paid-in Accumulated Shares Amounts Capital deficit Total thousands US$ thousands US$ thousands US$ thousands US$ thousands Balances as of December 31, 2021 364,324 3,643 277,258 ( 223,525 ) 57,376 Funds received from sale of DSPP units and shares and exercise of warrants 109,349 1,094 11,899 — 12,993 Funds received from option exercises 105 1 — — 1 Value of options granted to employees, directors and others as non-cash compensation — — 635 — 635 Net loss — — — ( 4,763 ) ( 4,763 ) Balances as of June 30, 2022 473,778 4,738 289,792 ( 228,288 ) 66,242 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, 2022 466,593 4,666 287,878 ( 225,691 ) 66,853 Funds received from sale of DSPP units and shares and exercise of warrants 7,130 72 1,494 — 1,566 Funds received from option exercises 55 * — — * Value of options granted to employees, directors and others as non-cash compensation — — 420 — 420 Net loss — — — ( 2,597 ) ( 2,597 ) Balances as of June 30, 2022 473,778 4,738 289,792 ( 228,288 ) 66,242 * Less than one thousand. 3 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 Shares thousands US$ thousands US$ thousands US$ thousands 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 * 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, 2022 2021 US$ thousands US$ thousands Cash flows from operating activities Net loss ( 4,763 ) ( 6,616 ) Adjustments required to reconcile net loss to net cash used in operating activiti Depreciation 392 368 Cost of options issued to employees, directors and others as non-cash compensation 618 2,589 Amortization of debt discount related to convertible bonds - 190 Change in derivative liability - ( 431 ) Change in assets and liabilities, n Other deposits 68 8 Prepaid expenses and other 252 1,366 Governmental receivables 36 501 Lease obligation – current 58 ( 63 ) Lease obligation – non current ( 86 ) ( 74 ) Right of use lease assets ( 8 ) 115 Other receivables 325 9 Severance payable, net 27 ( 45 ) Accounts payable ( 357 ) ( 91 ) Accrued liabilities 14 ( 792 ) Net cash used in operating activities ( 3,424 ) ( 2,966 ) Cash flows from investing activities Acquisition of property and equipment ( 15 ) ( 43 ) Acquisition of drilling rig and related equipment ( 346 ) ( 98 ) Investment in unproved oil and gas properties ( 8,087 ) ( 14,903 ) Net cash used in investing activities ( 8,448 ) ( 15,044 ) Cash flows from financing activities Costs paid related to the issuance of new shares - ( 115 ) Proceeds from exercise of stock options 1 1 Proceeds from issuance of stock and exercise of warrants 12,993 13,788 Net cash provided by financing activities 12,994 13,674 Net increase in cash, cash equivalents and restricted cash 1,122 ( 4,336 ) Cash, cash equivalents and restricted cash – beginning of period 5,952 14,662 Cash, cash equivalents and restricted cash – end of period 7,074 10,326 Supplemental schedule of cash flow information Non-cash investing and financing activiti Cost of options capitalized to oil & gas properties 17 - Convertible Bond interest paid in shares - 321 Convertible Bond principal paid in shares - 3,214 Unpaid investments in oil & gas properties 1,691 2,798 10% Senior Convertible Bonds converted to shares - 9 Capitalized convertible bond interest attributed to oil and gas properties - 104 New lease accounted for as a right of use lease asset 136 128 * 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, 2022 December 31, 2021 June 30, 2021 December 31, 2021 US$ thousands US$ thousands US$ thousands US$ thousands Cash and cash equivalents 5,755 4,683 9,047 11,708 Restricted cash included in fixed short-term bank deposits 1,319 1,269 1,279 2,954 7,074 5,952 10,326 14,662 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 22 years of oil & gas exploration in Israel. As of June 30, 2022, 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. |
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 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 based on our studies as it appears to possess the key geologic ingredients of an active petroleum system with significant exploration |
potential. The NML 428 (covering the same area as MJL 401) 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. On November 29, 2021, the Ministry of Energy approved our request for extension to August 1, 2022. On July |
25, 2022, Zion submitted a request to the Ministry of Energy for a six-month extension to February 1, 2023. On July 31, 2022, the Ministry |
of Energy approved our request for extension to February 1, 2023. This license effectively replaced the Megiddo-Jezreel License |
401 as it has the same area and coordinates. Zion spudded its MJ-02 exploratory well on January |
6, 2021. On November 23, 2021, Zion announced via a press release that it completed drilling the MJ-02 well to a total depth of 5,531 |
meters (~18,141 feet) with a 6 inch open hole at that depth. A full set of detailed and comprehensive tests |
including neutron-density, sonic, gamma, and resistivity logs were acquired in December 2021, as a result of which we identified an encouraging |
zone of interest. Extensive well testing operations are continuing for the MJ-02 well. 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) 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 of the information and notes required by GAAP for complete financial statements. In the opinion of management, |
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