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the new base Prospectus became effective on March 10, 2017, along with the Prospectus Supplement that was filed and became effective on |
March 10, 2017. The Prospectus Supplement under Registration No. 333-216191 describes the terms of the DSPP and replaces the prior Prospectus |
Supplement, as amended, under the prior Registration No. 333-193336. On March 27, 2014, we launched |
our Dividend Reinvestment and Stock Purchase Plan (the “DSPP”) pursuant to which stockholders and interested investors can |
purchase shares of the Company’s Common Stock as well as units of the Company’s securities directly from the Company. The |
terms of the DSPP are described in the Prospectus Supplement originally filed on March 31, 2014 (the “Original Prospectus Supplement”) |
with the Securities and Exchange Commission (“SEC”) under the Company’s effective registration Statement on Form S-3, |
as thereafter amended. 38 Please see Footnote 3E (“Dividend |
Reinvestment and Stock Purchase Plan (“DSPP”)), which is a part of this Form 10-Q filing, for details about specific unit |
programs, dates, and filings during the years 2016 through 2022. For the three and six months |
ended June 30, 2022, approximately $1,566,000 and $12,993,000, respectively, were raised under the DSPP program. For the three and six months |
ended June 30, 2021, approximately $10,939,000 and $13,788,000, respectively, were raised under the DSPP program. The warrants balances at December |
31, 2021 and transactions since January 1, 2022 are shown in the table be Warrants Exercise Price Warrant Termination Date Outstanding Balance, 12/31/2021 Warrants Issued Warrants Exercised Warrants Expired Outstanding Balance, 06/30/2022 ZNWAA $ 2.00 01/31/2023 1,498,804 - - - 1,498,804 ZNWAD $ 1.00 05/02/2023 243,853 - - - 243,853 ZNWAE $ 1.00 05/01/2023 2,144,099 - - - 2,144,099 ZNWAF $ 1.00 08/14/2023 359,435 - - - 359,435 ZNWAG $ 1.00 01/08/2023 240,068 - - - 240,068 ZNWAH $ 5.00 04/19/2023 372,400 - - - 372,400 ZNWAI $ 3.00 06/29/2023 640,710 - - 640,710 ZNWAJ $ 1.00 10/29/2023 545,900 - - - 545,900 ZNWAK $ 0.01 02/25/2023 431,675 - (6,650 ) - 425,025 ZNWAL $ 2.00 08/26/2023 517,875 - - - 517,875 ZNWAM $ 1.00 07/15/2023 4,376,000 - - - 4,376,000 ZNWAN $ 1.00 05/16/2023 267,660 100 - - 267,760 ZNWAO $ 0.25 06/12/2023 174,970 - (310 ) - 174,660 ZNWAQ $ 0.25 07/06/2023 - 23,428,348 - - 23,428,348 ZNWAP $ 0.25 06/02/2023 439,916 - (439,916 ) - - ZNWAR $ 0.25 06/23/2023 1,020,000 - (1,020,000 ) - - Outstanding warrants 13,273,365 23,428,448 (1,466,776 ) - 35,234,937 During the second quarter |
of 2022, all warrants represented by ZNWAP and ZNWAR were exercised resulting in a net cash inflow of $364,979. According to the warrant table, |
the Company could potentially raise up to approximately $21,900,000 if all outstanding warrants were exercised by its holders. 39 Principal Components of our Cost Structure Our operating and other expenses |
primarily consist of the followin ● Impairment of Unproved Oil and Gas Properti Impairment expense is recognized if a determination is made that a well will not be commercially productive. The amounts include amounts paid in respect of the drilling operations as well as geological and geophysical costs and various amounts that were paid to Israeli regulatory authorities. ● General and Administrative Expens Overhead, including payroll and benefits for our corporate staff, costs of managing our exploratory operations, audit and other professional fees, and legal compliance is included in general and administrative expenses. General and administrative expenses also include non-cash stock-based compensation expense, investor relations related expenses, lease and insurance and related expenses. ● Depreciation, Depletion, Amortization and Accreti The systematic expensing of the capital costs incurred to explore for natural gas and oil represents a principal component of our cost structure. As a full cost company, we capitalize all costs associated with our exploration, and apportion these costs to each unit of production, if any, through depreciation, depletion and amortization expense. As we have yet to have production, the costs of abandoned wells are written off immediately versus being included in this amortization pool. Going Concern Basis Since we have limited capital |
resources, no revenue to date and a loss from operations, our 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. The appropriateness |
of using the going concern basis is dependent upon our ability to obtain additional financing or equity capital and, ultimately, to achieve |
profitable operations. Therefore, there is substantial doubt about our ability to continue as a going concern. The consolidated financial |
statements do not include any adjustments that might result from the outcome of this uncertainty. The Impact of COVID-19 During March 2020, a global |
pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). |
The pandemic has significantly impacted the economic conditions in the United States and Israel, as federal, state and local governments |
react to the public health crisis, creating significant uncertainties in the United States, Israel and world economies. In the interest |
of public health and safety, jurisdictions (international, national, state and local) where we have operations, restricted travel and |
required workforces to work from home. As of the date of this report, many of our employees are working from home. However, while there |
are various uncertainties to navigate, the Company’s business activities are continuing. The situation is rapidly changing and additional |
impacts to the business may arise that we are not aware of currently. We cannot predict whether, when or the manner in which the conditions |
surrounding COVID-19 will change including the timing of lifting any restrictions or work from home arrangements. The full extent of COVID-19’s |
impact on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the |
duration and spread of the pandemic, its impact on capital and financial markets and any new information that may emerge concerning the |
severity of the virus, its spread to other regions as well as the actions taken to contain it, among others. The main area in which Zion |
has experienced COVID-19’s impact has been in supply chain and/or logistics. We work with several suppliers worldwide for the procurement |
of oil and gas parts, inventory items and related labor for our ongoing operations for the MJ-02 well. Production delays, factory shutdowns |
and heavy demand by oil and gas operators worldwide for spare parts has created some challenges in obtaining these items in a timely fashion. Critical Accounting Policies Management’s discussion |
and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared |
in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial |
statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure |
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expense |
during the reporting period. We have identified the accounting |
principles which we believe are most critical to the reported financial status by considering accounting policies that involve the most |
complex of subjective decisions or assessment. Impairment of Oil and Gas Properties We follow 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. 40 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 income from continuing operations before income taxes, and the adjusted carrying |
amount of the unproved properties is amortized on the unit-of-production method. Our oil and gas properties |
represent 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. A further impairment requiring |
a charge to expense may be indicated through evaluation of drilling results, relinquishing drilling rights or other information. Abandonment of properties |
is accounted for as adjustments to capitalized costs. The net capitalized costs are subject to a “ceiling test” which limits |
such costs to the aggregate of the estimated present value of future net revenues from proved reserves discounted at ten percent based |
on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties. The recoverability of |
amounts capitalized for oil and gas properties is dependent upon the identification of economically recoverable reserves, together with |
obtaining the necessary financing to exploit such reserves and the achievement of profitable operations. During the three and six months |
ended June 30, 2022, and 2021, respectively, the Company did not record any post-impairment charges. The total net book value of |
our unproved oil and gas properties under the full cost method is $53,250,000 and $46,950,000 at June 30, 2022 and at December 31, 2021, |
respectively. Asset Retirement Obligation We record a liability for |
asset retirement obligation at fair value in the period in which it is incurred and a corresponding increase in the carrying amount of |
the related long-lived assets. Fair Value Considerations We follow 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 from the sale of 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. There are three levels of |
inputs to fair value measurements - Level 1, meaning the use of quoted prices for identical instruments in active markets; Level 2, meaning |
the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that |
are not active or are directly or indirectly observable; and Level 3, meaning the use of unobservable inputs. We use Level 1 inputs for |
fair value measurements whenever there is an active market, with actual quotes, market prices, and observable inputs on the measurement |
date. We use Level 2 inputs for fair value measurements whenever there are quoted prices for similar securities in an active market or |
quoted prices for identical securities in an inactive market. We use observable market data whenever available. We use Level 3 inputs |
in the Binomial Model used for the valuation of the derivative liability. 41 RESULTS OF OPERATIONS For the three months ended June 30, For the six months ended June 30, 2022 2021 2022 2021 (US $ in thousands) (US $ in thousands) Operating costs and expens General and administrative expenses 1,550 2,952 2,985 4,923 Other 946 1,064 1,657 1,856 Subtotal Operating costs and expenses 2,496 4,016 4,642 6,779 (Gain) on derivative liability - (5 ) - (431 ) Other expense, net 101 45 121 268 Net loss 2,597 4,056 4,763 6,616 Revenue. We currently |
have no revenue generating operations. Operating costs and expenses. Operating costs and expenses for the three and six months ended June 30, 2022 were $2,496,000 and $4,642,000, respectively, compared |
to $4,016,000 and $6,779,000, respectively, for the three and six months ended June 30, 2021. The decrease in operating costs and expenses |
during the three and six months ended June 30, 2022 compared to the corresponding period in 2021 is primarily attributable to a reduction |
in non-cash stock compensation expense stemming from the grant of stock options. See the “General and administrative expenses” |
section below. General and administrative |
expenses. General and administrative expenses for the three and six months ended June 30, 2022 were $1,550,000 and $2,985,000, respectively, |
compared to $2,952,000 and $4,923,000, respectively, for the three and six months ended June 30, 2021. A major component of general and |
administrative expenses is non-cash stock compensation expense in the form of stock options granted to employees, management and directors. |
As stated in this filing, Zion does not have revenue generating operations. Historically, we have compensated our staff in part by granting |
stock options in lieu of cash bonuses. Zion granted the following number of options during the quarters ended March 31, 2021, June 30, |
2021, March 31, 2022 and June 30, 2022: 1,075,000, 3,625,000, 4,100,000 and 7,525,000, respectively. Said another way, Zion granted a |
total of 4,700,000 options during the first six months of 2021 compared to 11,625,000 for the six months of 2022. A higher number of |
options were granted in 2022 in part due to the low Zion stock price and the desire for grantees to have increasing ownership in Zion, |
especially management and directors. Other expense. Other |
expenses during the three and six months ended June 30, 2022 were $946,000 and $1,657,000, respectively, compared to $1,064,000 and $1,856,000, |
respectively, for the three and six months ended June 30, 2021. The expenses in this category are comprised of non-compensation and non-professional |
expenses incurred. The decrease in expenses for both the three and six months of 2022, when compared to the corresponding periods in 2021, |
relate to lower annual meeting expenses and Facebook spending with a partial offset by an increase in insurance costs, primarily D&O |
insurance premiums. Annual meeting expenses were significantly higher in 2021 due primarily to proxy solicitation costs to secure votes |
for two important proposals. (Gain) on derivative liability . |
(Gain) on derivative liability during the three and six months ended June 30, 2022 were nil and nil, respectively, compared to ($5,000) |
and ($431,000), respectively, for the three and six months ended June 30, 2021. In May 2021, Zion paid the annual interest and the maturity |
of its convertible bond in Zion shares (in kind). At the present time, Zion does not expect to issue another convertible bond. Other expense, net. Other |
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