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(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, 2023, Zion Oil & Gas, Inc. had outstanding 579,095,530 shares of common stock, par value $0.01 per share. INDEX PAGE Page PART I — FINANCIAL INFORMATION Item 1 – Financial Statements – Unaudited Consolidated Condensed Balance Sheets – June 30, 2023 and December 31, 2022 1 Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2023 and 2022 2 Consolidated Condensed Statement of Changes in Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 3 Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2023 and 2022 5 Notes to Consolidated Condensed Financial Statements 7 Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 3 – Quantitative and Qualitative Disclosures About Market Risk 42 Item 4 – Controls and Procedures 42 PART II — OTHER INFORMATION Item 1 – Legal Proceedings 43 Item 1A – Risk Factors 43 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 43 Item 3 – Defaults upon Senior Securities 43 Item 4 – Mine Safety Disclosures 43 Item 5 – Other Information 43 Item 6 – Exhibits 44 Exhibit Index 44 SIGNATURES 45 i Zion Oil & Gas, Inc. Consolidated Condensed Balance Sheets as of June 30, 2023 December 31, 2022 US$ thousands US$ thousands Current assets (Unaudited) Cash and cash equivalents 518 1,735 Fixed short term bank and escrow deposits – restricted 1,040 1,379 Prepaid expenses and other current assets 394 600 Other deposits - 483 Governmental receivables 16 267 Other receivables 158 143 Total current assets 2,126 4,607 Unproved oil and gas properties, full cost method (see Note 4) 16,191 15,889 Property and equipment at cost Drilling rig and related equipment, net of accumulated depreciation of $ 1,835 and $ 1,455 (see note 2I) 5,890 6,281 Property and equipment, net of accumulated depreciation of $ 668 and $ 647 91 112 5,981 6,393 Right of Use Lease Assets (see Note 5) 79 202 Other assets Assets held for severance benefits 438 424 Total other assets 438 424 Total assets 24,815 27,515 Liabilities and Stockholders’ Equity Current liabilities Accounts payable 1,121 2,147 Lease obligation – current (see Note 5) 67 196 Asset retirement obligation 571 571 Accrued liabilities 729 1,032 Total current liabilities 2,488 3,946 Long-term liabilities Lease obligation – non-current (see Note 5) 12 12 Provision for severance pay 465 457 Total long-term liabilities 477 469 Total liabilities 2,965 4,415 Commitments and contingencies (see Note 6) Stockholders’ equity Common stock, par value $ .01 ; Authoriz 1,200,000,000 shares at June 30, 2023: Issued and outstandin 560,449,580 and 524,231,493 shares at June 30, 2023 and December 31, 2022, respectively 5,604 5,242 Additional paid-in capital 299,321 296,460 Accumulated deficit ( 283,075 ) ( 278,602 ) Total stockholders’ equity 21,850 23,100 Total liabilities and stockholders’ equity 24,815 27,515 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, 2023 2022 2023 2022 US$ thousands US$ thousands US$ thousands US$ thousands (Unaudited) (Unaudited) (Unaudited) (Unaudited) General and administrative 1,271 1,550 2,774 2,985 Post impairment of unproved oil and gas properties 48 - 93 - Other 1,016 946 1,599 1,657 Loss from operations ( 2,335 ) ( 2,496 ) ( 4,466 ) ( 4,642 ) Other income (expense), net Foreign exchange loss ( 2 ) ( 81 ) ( 4 ) ( 90 ) Financial income (expenses), net 3 ( 20 ) ( 3 ) ( 31 ) Loss, before income taxes ( 2,334 ) ( 2,597 ) ( 4,473 ) ( 4,763 ) Income taxes - - - - Net loss ( 2,334 ) ( 2,597 ) ( 4,473 ) ( 4,763 ) Net loss per share of common stock Basic and diluted (in US$) ( 0.004 ) ( 0.01 ) ( 0.008 ) ( 0.01 ) Weighted-average shares outstanding Basic and diluted (in thousands) 542,812 471,946 536,950 439,039 The accompanying notes are an integral part of |
the unaudited interim consolidated condensed financial statements. 2 Zion Oil & Gas, Inc. Consolidated Condensed Statement of Changes |
in Stockholders’ Equity (Unaudited) For the three and six months ended June 30, |
2023 Common Stock Additional paid-in Accumulated Shares Amounts Capital deficit Total thousands US$ thousands US$ thousands US$ thousands US$ thousands Balances as of December 31, 2022 524,231 5,242 296,460 ( 278,602 ) 23,100 Funds received from sale of DSPP units and shares and exercise of warrants 36,068 360 2,366 — 2,726 Funds received from option exercises 150 2 10 — 12 Costs associated with the issuance of shares — — ( 173 ) — ( 173 ) Value of options granted to employees, directors and others as non-cash compensation — — 658 — 658 Net loss — — — ( 4,473 ) ( 4,473 ) Balances as of June 30, 2023 560,449 5,604 299,321 ( 283,075 ) 21,850 * Less |
than one thousand. 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, 2023 533,713 5,337 297,582 ( 280,741 ) 22,178 Funds received from sale of DSPP units and shares and exercise of warrants 26,711 266 1,668 — 1,934 Funds received from option exercises 25 1 3 — 4 Costs associated with the issuance of shares — — ( 173 ) — ( 173 ) Value of options granted to employees, directors and others as non-cash compensation — — 241 — 241 Net loss — — — ( 2,334 ) ( 2,334 ) Balances as of June 30, 2023 560,449 5,604 299,321 ( 283,075 ) 21,850 3 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. 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, 2023 2022 US$ thousands US$ thousands (Unaudited) (Unaudited) Cash flows from operating activities Net loss ( 4,473 ) ( 4,763 ) Adjustments required to reconcile net loss to net cash used in operating activiti Depreciation 401 392 Cost of options issued to employees, directors and others as non-cash compensation 658 618 Post impairment of unproved oil and gas properties 93 - Change in assets and liabilities, n Other deposits 483 68 Prepaid expenses and other 206 252 Governmental receivables 251 36 Lease obligation – current ( 129 ) 58 Lease obligation – non current - ( 86 ) Right of use lease assets 123 ( 8 ) Other receivables ( 15 ) 325 Severance payable, net ( 6 ) 27 Accounts payable ( 168 ) ( 357 ) Accrued liabilities 184 14 Net cash used in operating activities ( 2,392 ) ( 3,424 ) Cash flows from investing activities Acquisition of property and equipment - ( 15 ) Acquisition of drilling rig and related equipment - ( 346 ) Investment in unproved oil and gas properties ( 1,729 ) ( 8,087 ) Net cash used in investing activities ( 1,729 ) ( 8,448 ) Cash flows from financing activities Proceeds from exercise of stock options 12 1 Costs paid related to the issuance of new shares ( 173 ) - Proceeds from issuance of stock and exercise of warrants 2,726 12,993 Net cash provided by financing activities 2,565 12,994 Net (decrease)/increase in cash, cash equivalents and restricted cash ( 1,556 ) 1,122 Cash, cash equivalents and restricted cash – beginning of period 3,114 5,952 Cash, cash equivalents and restricted cash – end of period 1,558 7,074 Supplemental schedule of cash flow information Non-cash investing and financing activiti Unpaid investments in oil & gas properties 806 1,691 Cost of options issued to employees attributed to oil and gas properties - 17 New lease accounted for as a right of use lease asset - 136 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, 2023 December 31, 2022 June 30, 2022 December 31, 2021 US$ thousands US$ thousands US$ thousands US$ thousands Cash and cash equivalents 518 1,735 5,755 4,683 Restricted cash included in fixed short-term bank deposits 1,040 1,379 1,319 1,269 1,558 3,114 7,074 5,952 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 23 years of oil & gas exploration in Israel. As of June 30, 2023, 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, |
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 New |
Megiddo License 428 (“NML 428 ”) The New Megiddo License 428 (“NML 428”) |
was initially awarded on December 3, 2020 for a six-month term and was extended several times before expiring on February 1, 2023. Zion |
Oil & Gas, Inc. filed an amended application with the Israel Ministry of Energy for a new exploratory license on January 24, 2023 |
covering the same area as its License No. 428, which expired on February 1, 2023. However, its original application to replace License |
No. 428 was filed on May 11, 2022, and a revised application was filed on August 29, 2022. Prior to the filing of our last Quarterly Report, |
we received initial administrative approval from various departments within the Israel Ministry of Energy which puts us in an excellent |
position to obtain final approval of our license. 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. We have finalized the technical and operational preparations for our |
re-entry of the MJ-01 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, |
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, 2022. 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, 2023 are not necessarily |
indicative of the operating results for the year ending December 31, 2023 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, 2023, the Company incurred a net |
loss of approximately $ 4.5 million and had an accumulated deficit of approximately $ 283 million. These factors raise substantial doubt |
about the Company’s ability to continue as a going concern for one year from the date the financials were issued. 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. 8 Zion Oil & Gas, Inc. Consolidated Condensed Notes to Financial Statements |
(Unaudited) Note 2 - Summary of Significant Accounting |
Policies A. |
Net Loss per Share Data Basic and diluted net loss 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 56,933,841 and 56,876,638 and 37,061,435 and 34,216,856 Common Stock equivalents in the three and six-month period ended June 30, 2023 and 2022 respectively, would be anti-dilutive. B. |
Use of Estimates The preparation of the accompanying consolidated |
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 expenses. Such estimates include the valuation |
of unproved oil and gas properties, deferred tax assets, asset retirement obligations, borrowing rate of interest consideration for leases |
accounting 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 |
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