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portfolio are not leveraged, and are, due to their very short-term nature, subject to minimal interest rate risk. We currently do not |
hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that a change in market interest |
rates would have a significant negative impact on the value of our investment portfolio except for reduced income in a low interest rate |
environment. At June 30, 2023 we had cash, cash equivalents and short-term and long-term bank deposits, including restricted Israeli deposits, |
of approximately $1,558,000. The weighted average annual interest rate related to our cash and cash equivalents for the three and six |
months ended June 30, 2023, exclusive of funds at US banks that earn no interest, was approximately 4.18% and 3.21%, respectively. 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 June 30, 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 June 30, 2023. Changes |
in Internal Control over Financial Reporting There |
were no changes in internal controls over financial reporting that occurred during the quarter ended June 30, 2023 that have materially |
affected, or are reasonably likely to materially affect, our internal controls over financial reporting. 42 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, which we did. 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 June 30, 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. 43 ITEM |
6. EXHIBITS 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 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) 44 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. Croswell Jr. Chief |
Executive Officer Chief |
Financial Officer (Principal |
Executive Officer) (Principal |
Financial and Accounting Officer) Date: August |
10, 2023 Date: August |
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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 September 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 November |
8, 2022, Zion Oil & Gas, Inc. had outstanding 514,582,460 shares of common stock, par value $0.01 per share. INDEX PAGE Page PART I — FINANCIAL INFORMATION Item 1 – Financial Statements – Unaudited Consolidated Condensed Balance Sheets – September 30, 2022 and December 31, 2021 1 Consolidated Condensed Statements of Operations for the three and nine months ended September 30, 2022 and 2021 2 Consolidated Condensed Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 3 Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 5 Notes to Consolidated Condensed Financial Statements 7 Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 3 – Quantitative and Qualitative Disclosures About Market Risk 47 Item 4 – Controls and Procedures 47 PART II — OTHER INFORMATION Item 1 – Legal Proceedings 48 Item 1A – Risk Factors 48 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 48 Item 3 – Defaults upon Senior Securities 48 Item 4 – Mine Safety Disclosures 48 Item 5 – Other Information 48 Item 6 – Exhibits 49 Exhibit Index 49 SIGNATURES 50 i Zion Oil & Gas, Inc. Consolidated Condensed Balance Sheets as of September 30, 2022 December 31, 2021 US$ thousands US$ thousands (Unaudited) Current assets Cash and cash equivalents 3,079 4,683 Fixed short-term bank and escrow deposits – restricted 1,294 1,269 Prepaid expenses and other 493 689 Other deposits 544 617 Governmental receivables 269 900 Other receivables 388 483 Total current assets 6,067 8,641 Unproved oil and gas properties, full cost method (see Note 4) 59,169 46,950 Property and equipment at cost Drilling rig and related equipment, net of accumulated depreciation of $ 1,265 and $ 704 (see note 2I) 6,444 6,834 Property and equipment, net of accumulated depreciation of $ 636 and $ 604 123 138 6,567 6,972 Right of Use Lease Assets (see Note 5) 269 327 Other assets Assets held for severance benefits 410 541 Total other assets 410 541 Total assets 72,482 63,431 Liabilities and Stockholders’ Equity Current liabilities Accounts payable 1,786 2,783 Lease obligation – current (see Note 5) 227 203 Asset retirement obligation 571 571 Accrued liabilities 1,544 1,781 Total current liabilities 4,128 5,338 Long-term liabilities Lease obligation – non-current (see Note 5) 47 169 Provision for severance pay 441 548 Total long-term liabilities 488 717 Total liabilities 4,616 6,055 Commitments and contingencies (see Note 6) Stockholders’ equity Common stock, par value $ .01 ; Authoriz 800,000,000 shares at September 30, 2022: Issued and outstandin 497,099,924 and 364,322,883 shares at September 30, 2022 and December 31, 2021, respectively 4,971 3,643 Additional paid-in capital 293,557 277,258 Accumulated deficit ( 230,662 ) ( 223,525 ) Total stockholders’ equity 67,866 57,376 Total liabilities and stockholders’ equity 72,482 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 nine months ended September 30, September 30, 2022 2021 2022 2021 US$ thousands US$ thousands US$ thousands US$ thousands (Unaudited) (Unaudited) (Unaudited) (Unaudited) General and administrative 1,636 1,601 4,621 6,524 Impairment of unproved oil and gas properties - - - - Other 719 697 2,376 2,553 Loss from operations ( 2,355 ) ( 2,298 ) ( 6,997 ) ( 9,077 ) Other income (expense), net Gain on derivative liability - - - 431 Foreign exchange gain (loss) ( 2 ) 7 ( 92 ) ( 43 ) Financial expenses gain (loss), net ( 17 ) ( 12 ) ( 48 ) ( 230 ) Loss, before income taxes ( 2,374 ) ( 2,303 ) ( 7,137 ) ( 8,919 ) Income taxes - - - - Net loss ( 2,374 ) ( 2,303 ) ( 7,137 ) ( 8,919 ) Net (loss), gain per share of common stock Basic and diluted (in US$) ( 0.01 ) ( 0.01 ) ( 0.02 ) ( 0.03 ) Weighted-average shares outstanding Basic and diluted (in thousands) 484,678 286,390 454,890 258,442 The accompanying notes are an integral part of the unaudited interim |
consolidated condensed financial statements. 2 Zion Oil & Gas, Inc. Consolidated Condensed Statement of Changes |
in Stockholders’ Equity (Unaudited) For the three and nine months ended September |
30, 2022 Common Stock Additional paid-in Accumulated Shares Amounts Capital deficit Total thousands US$ 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 132,451 1,325 15,145 — 16,470 Funds received from option exercises 325 3 — — 3 Value of options granted to employees, directors and others as non-cash compensation — — 1,154 — 1,154 Net loss — — — ( 7,137 ) ( 7,137 ) Balances as of September 30, 2022 497,100 4,971 293,557 ( 230,662 ) 67,866 Common Stock Additional paid-in Accumulated Shares Amounts Capital deficit Total thousands US$ thousands US$ thousands US$ thousands US$ thousands Balances as of June 30, 2022 473,778 4,738 289,792 ( 228,288 ) 66,242 Funds received from sale of DSPP units and shares and exercise of warrants 23,102 231 3,246 — 3,477 Funds received from option exercises 220 2 — — 2 Value of options granted to employees, directors and others as non-cash compensation — — 519 — 519 Net loss — — — ( 2,374 ) ( 2,374 ) Balances as of September 30, 2022 497,100 4,971 293,557 ( 230,662 ) 67,866 * Less |
than one thousand. 3 Zion Oil & Gas, Inc. Consolidated Condensed Statement of Changes |
in Stockholders’ Equity (Unaudited) For the three and nine months ended September |
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 60,665 607 17,550 — 18,157 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 372 4 11 — 15 Value of options granted to employees, directors and others as non-cash compensation — — 3,319 — 3,319 Net loss — — — ( 8,919 ) ( 8,919 ) Balances as of September 30, 2021 304,260 3,043 269,790 ( 221,723 ) 51,110 Common Stock Additional paid-in Accumulated Shares Amounts Capital deficit Total thousands US$ thousands US$ thousands US$ thousands US$ thousands Balances as of June 30, 2021 283,273 2,833 264,887 ( 219,420 ) 48,300 Funds received from sale of DSPP units and shares and exercise of warrants 20,732 207 4,162 — 4,369 Funds received from option exercises 255 3 11 — 14 Value of options granted to employees, directors and others as non-cash compensation — — 730 — 730 Net loss — — — ( 2,303 ) ( 2,303 ) Balances as of September 30, 2021 304,260 3,043 269,790 ( 221,723 ) 51,110 * 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 nine months ended September 30, 2022 2021 US$ thousands US$ thousands Cash flows from operating activities Net loss ( 7,137 ) ( 8,919 ) Adjustments required to reconcile net loss to net cash used in operating activiti Depreciation 593 556 Cost of options issued to employees, directors and others as non-cash compensation 1,137 3,319 Amortization of debt discount related to convertible bonds - 190 Change in derivative liability - ( 431 ) Change in assets and liabilities, n Other deposits 73 2 Prepaid expenses and other 196 1,427 Governmental receivables 631 270 Lease obligation – current ( 112 ) ( 91 ) Lease obligation – non current ( 122 ) ( 107 ) Right of use lease assets 194 176 Other receivables 95 ( 184 ) Severance payable, net 24 ( 45 ) Accounts payable ( 350 ) ( 291 ) Accrued liabilities 59 ( 760 ) Net cash used in operating activities ( 4,719 ) ( 4,888 ) Cash flows from investing activities Acquisition of property and equipment ( 17 ) ( 46 ) Acquisition of drilling rig and related equipment ( 373 ) ( 115 ) Investment in unproved oil and gas properties ( 12,943 ) ( 21,837 ) Net cash used in investing activities ( 13,333 ) ( 21,998 ) Cash flows from financing activities Costs paid related to the issuance of new shares - ( 115 ) Proceeds from exercise of stock options 3 15 Proceeds from issuance of stock and exercise of warrants 16,470 18,157 Net cash provided by financing activities 16,473 18,057 Net decrease in cash, cash equivalents and restricted cash ( 1,579 ) ( 8,829 ) Cash, cash equivalents and restricted cash – beginning of period 5,952 14,662 Cash, cash equivalents and restricted cash – end of period 4,373 5,833 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 2,723 3,114 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 5 Zion Oil & Gas, Inc. Consolidated Condensed Statements of Cash Flows |
(Unaudited) Cash, cash equivalents and restricted cash, |
are comprised as follows: September 30, 2022 December 31, 2021 September 30, 2021 December 31, 2020 US$ thousands US$ thousands US$ thousands US$ thousands Cash and cash equivalents 3,079 4,683 4,564 11,708 Restricted cash included in fixed short-term bank deposits 1,294 1,269 1,269 2,954 4,373 5,952 5,833 14,662 The accompanying notes are an integral part of the unaudited interim |
consolidated condensed financial statements. 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 September 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 |