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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, 2023 2022 US$ thousands US$ thousands (Unaudited) (Unaudited) Cash flows from operating activities Net loss ( 6,216 ) ( 7,137 ) Adjustments required to reconcile net loss to net cash used in operating activiti Depreciation 601 593 Cost of options issued to employees, directors and others as non-cash compensation 923 1,137 Post impairment of unproved oil and gas properties 129 - Change in assets and liabilities, n Other deposits 483 73 Prepaid expenses and other 367 196 Governmental receivables 257 631 Lease obligation – current ( 256 ) ( 112 ) Lease obligation – non current 41 ( 122 ) Right of use lease assets 208 194 Other receivables ( 13 ) 95 Severance payable, net ( 2 ) 24 Accounts payable ( 300 ) ( 350 ) Accrued liabilities ( 131 ) 59 Net cash used in operating activities ( 3,909 ) ( 4,719 ) Cash flows from investing activities Acquisition of property and equipment - ( 17 ) Acquisition of drilling rig and related equipment - ( 373 ) Investment in unproved oil and gas properties ( 2,045 ) ( 12,943 ) Net cash used in investing activities ( 2,045 ) ( 13,333 ) Cash flows from financing activities Proceeds from exercise of stock options 12 3 Costs paid related to the issuance of new shares ( 610 ) - Proceeds from issuance of stock and exercise of warrants 4,968 16,470 Net cash provided by financing activities 4,370 16,473 Net (decrease)/increase in cash, cash equivalents and restricted cash ( 1,584 ) ( 1,579 ) Cash, cash equivalents and restricted cash – beginning of period 3,114 5,952 Cash, cash equivalents and restricted cash – end of period 1,530 4,373 Supplemental schedule of cash flow information Non-cash investing and financing activiti Unpaid investments in oil & gas properties 677 2,723 Cost of options issued to employees attributed to oil and gas properties - 17 New lease accounted for as a right of use lease asset 252 136 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: September 30, 2023 September 30, 2022 US$ thousands US$ thousands Cash and cash equivalents 510 3,079 Restricted cash included in fixed short-term bank deposits 1,020 1,294 1,530 4,373 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 September 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 Valleys License 434 (“NMVL 434”) 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. On |
September 14, 2023, the Israel Ministry of Energy approved a new Megiddo Valleys License 434 (“NMVL 434”), allowing for oil |
and gas exploration on approximately 75,000 acres or 302 square kilometers. This Exploration License 434 will be valid for three years |
until September 13, 2026 with four 1-year extensions for a total of seven years until September 13, 2030. This NMVL 434 effectively supersedes |
our previous NML 428. 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. Zion is deploying new technologies, focusing on new stimulation methods |
for MJ-01, and aiming to potentially unlock hydrocarbon flows in several identified key zones. Zion has already procured service contractors |
and ancillary items required for efficient operations. Zion must receive approval of its work plan from the Ministry of Energy prior to |
commencing its re-completion activities. Zion’s planned activities are currently suspended as a result of the Israel-Hamas war (See |
Subsequent Events for further insight). 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 nine months ended September 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. While the Company is still actively engaging service |
providers in planning activities for the re-completion of the MJ-01 well, our activities are temporarily suspended due to the Israel-Hamas |
war. War was declared by Israel on Hamas following the October 7, 2023 invasion by Hamas in southern Israel. It is not known how long |
this war will last and, therefore, we cannot predict with certainty when our exploration activities will resume. 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 nine months ended September 30, 2023, the Company |
incurred a net loss of approximately $ 6.2 million and had an accumulated deficit of approximately $ 285 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 53,556,910 and 56,438,572 and 53,985,877 and 41,395,169 Common Stock equivalents in the three and nine-month period ended September 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. The Company adjusts such estimates |
and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity, foreign currency, regional hostilities |
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 and operating environment will be reflected in the consolidated financial statements in future |
periods. See comments in our Subsequent Events for the |
impact of the Israel-Hamas war on our business and future operations. 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 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 loss from continuing operations before income taxes, and the |